FEDERAL COURT OF AUSTRALIA

Land Enviro Corp Pty Ltd (In Liq) v Hickie [2015] FCA 766

THE COURT ORDERS THAT:

1.    Sam Zdrilic file and serve the affidavit sworn by him on 30 January 2015 and relied upon by him thereafter.

2.    The appeal from the judgment of Jacobson J delivered on 17 December 2014 (Hickie v Land Enviro Corp Pty Limited, in the matter of Land and Enviro Corp Pty Limited [2014] FCA 1386) and from the orders of his Honour made on the same day purportedly commenced by the filing of a Notice of Appeal on 21 January 2015 be dismissed as incompetent.

3.    The application by Sam Zdrilic for an order pursuant to s 471A(1A)(d) of the Corporations Act 2001 (Cth) that the Court grant approval to him or, alternatively, to him and to his wife, Amy Zdrilic, to institute an appeal from the said judgment and orders in the name of Land Enviro Corp Pty Ltd (ACN 082 375 666) (In Liquidation) be dismissed.

4.    The application by the said Sam Zdrilic for an order that the said orders made by Jacobson J on 17 December 2014 be stayed until the determination of the appeal purportedly instituted on 21 January 2015 be refused.

5.    The said Sam Zdrilic pay the respondents’ costs of and incidental to the purported appeal, the said applications made by him and the Interlocutory Application filed by the respondents on 13 February 2015.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    Sam Zdrilic file and serve the affidavit sworn by him on 30 January 2015 and relied upon by him thereafter.

2.    The appeal from the judgment of Jacobson J delivered on 17 December 2014 (Hickie v Land Enviro Corp Pty Limited, in the matter of Land and Enviro Corp Pty Limited [2014] FCA 1386) and from the orders of his Honour made on the same day purportedly commenced by the filing of a Notice of Appeal on 21 January 2015 be dismissed as incompetent.

3.    The application by Sam Zdrilic for an order pursuant to s 471A(1A)(d) of the Corporations Act 2001 (Cth) that the Court grant approval to him or, alternatively, to him and to his wife, Amy Zdrilic, to institute an appeal from the said judgment and orders in the name of Amy Holdings Pty Limited (ACN 101 902 167) (In Liquidation) be dismissed.

4.    The application by the said Sam Zdrilic for an order that the said orders made by Jacobson J on 17 December 2014 be stayed until the determination of the appeal purportedly instituted on 21 January 2015 be refused.

5.    The said Sam Zdrilic pay the respondents’ costs of and incidental to the purported appeal, the said applications made by him and the Interlocutory Application filed by the respondents on 13 February 2015.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    On 17 December 2014, a judge of this Court delivered Reasons for Judgment in the matter of Hickie v Land Enviro Corp Pty Ltd (ACN 082 375 666) (LEC) (NSD 918 of 2014) and in the matter of Hickie v Amy Holdings Pty Limited (ACN 101 902 167) (Amy) (NSD 919 of 2014). There was one set of Reasons for Judgment covering both matters (Hickie v Land Enviro Corp Pty Limited; In the matter of Land Enviro Corp Pty Limited [2014] FCA 1386). On the same day (17 December 2014), in order to give effect to his Reasons, his Honour ordered that LEC be wound up in insolvency, that Amy be wound up in insolvency, that Robert Whitton be appointed as official liquidator of each of LEC and of Amy and that the plaintiffs’ costs in each matter be payable out of the assets of LEC and Amy (as the case may be) in accordance with s 556 of the Corporations Act 2001 (Cth) (the Act).

2    On 21 January 2015, Mr Sam Zdrilic, who is a director of both LEC and Amy, filed a Notice of Appeal (NSD 49 of 2015) whereby, at the behest of Mr Zdrilic, LEC purported to appeal from the orders made by the primary judge on 17 December 2014 in respect of LEC. On the same day (21 January 2015), Mr Zdrilic filed a Notice of Appeal (NSD 50 of 2015) whereby, at the behest of Mr Zdrilic, Amy purported to appeal from the orders made by the primary judge on 17 December 2014 in respect of Amy. There is a question as to whether the appeals purportedly instituted by Mr Zdrilic in the names of LEC and Amy are competent.

3    The two Notices of Appeal filed on 21 January 2015 are in identical terms. In each case, the named corporate appellant seeks orders that the appeal be allowed, that the judgment of the Court below be set aside and that the winding up orders made on 17 December 2014 be dismissed. In the Notices of Appeal, the appellants also claim orders that the winding up orders be stayed until 30 days after the Full Federal Court’s decision in relation to the appeal in each case.

4    On the same day that the Notices of Appeal were filed, Mr Zdrilic filed an Interlocutory Application in each matter by which each named appellant sought a stay in the terms of the stay sought in the Notice of Appeal itself.

5    Mr Zdrilic’s stay Applications were returned before me on 29 January 2015. On that occasion, the respondents submitted that both appeals were not competent. Senior Counsel who appeared for the respondents on that occasion submitted that, by reason of the operation of s 471A(1) and s 471A(1A) of the Act, Mr Zdrilic had no power to cause either LEC or Amy to file a Notice of Appeal from the primary judge’s decisions made on 17 December 2014 unless he had obtained, prior to filing those documents, the liquidator’s written approval to institute those appeals or the approval of the Court to do so. The respondents had notified Mr Zdrilic of their intention to raise this point prior to the listing before me but had only done so two days before that listing.

6    At the hearing before me on 29 January 2015, I explained to Mr Zdrilic that, if the respondents’ contention was correct, each of the stay applications brought by LEC and Amy must be dismissed and each appeal should also be dismissed.

7    I told the parties on 29 January 2015 that I intended to entertain and determine the respondents’ application for orders that both appeals be dismissed notwithstanding that the respondents had not, as at that date, filed a formal application seeking that relief. I took the view that Mr Zdrilic had been given sufficient notice of the point prior to the listing on 29 January 2015. I also informed the parties that I would determine the question of whether there should be a temporary stay in light of my decision in relation to the competency of the appeals. Obviously, if the appeals were to be dismissed, the stay applications would also be dismissed. I then reserved my decision.

8    On 2 February 2015, without the prior leave of the Court and without any notice to me or to the respondents, Mr Zdrilic attempted to file in the Registry in each appeal an Interlocutory Application and a supporting affidavit sworn on 30 January 2015. By those actions, he attempted to bring before the Court evidence in support of his assertion that, before he filed the Notice of Appeal in proceeding NSD 49 of 2015 and also before he filed the Notice of Appeal in proceeding NSD 50 of 2015 but on the same day as he filed those Notices of Appeal (21 January 2015), he had tried to file an Application for Leave to Appeal from the orders made by the primary judge on 17 December 2014 but Registry staff had refused to accept those documents for filing. Mr Zdrilic wanted to argue that, by his proposed Applications for Leave to Appeal (Form 117), he had endeavoured to make application to the Court for approval pursuant to s 471A(1A)(d) of the Act to commence appeals against the primary judge’s orders. He argued that he had made an appropriate application even though he had not used the correct process or followed the correct procedure.

9    The exchanges which took place at the hearing before me on 29 January 2015 had proceeded upon the basis that Mr Zdrilic had not sought or obtained the approval of the Court pursuant to s 471A(1A)(d) of the Act to commence the two appeals in question and that this defect rendered each appeal incompetent. However, Mr Zdrilic did mention more than once during that hearing that he had endeavoured to file “a Form 117” but that he had not been permitted to do so. In that context, he mentioned that he had prepared and endeavoured to file an Application for Leave to Appeal but had been informed that, because the decisions of the primary judge were not interlocutory, there was no need for him to seek leave to appeal. Unfortunately, what Mr Zdrilic did not say on 29 January 2015 was that he had included within his proposed Application for Leave to Appeal mention of s 471A(1A)(d) of the Act. It is a fair inference (and one which I draw) that Mr Zdrilic equated the concept of “Leave to Appeal” when used in respect of an interlocutory judgment with “approval” under s 471A(1A) of the Act which may be granted to the directors of a corporation in liquidation to perform particular functions or to take specific steps as directors (here, approval to lodge Notices of Appeal).

10    The evidence which Mr Zdrilic sought to file on 2 February 2015 established that both of the Applications for Leave to Appeal which he had endeavoured to file at the same time as his other documents on 21 January 2015 had included the following:

The Applicant applies by its directors, Sam Zdrilic and Amy Zdrilic, for approval to appeal from the judgment of Jacobson J given on 17 December 2014 at Sydney.

Leave to appeal is required by s 471A(1A)(d).

Grounds of Application

1.    The applicant wishes to appeal the judgment of Jacobson J dated 17 December 2014 on the basis that his Honour erred in making orders for the appointment of a liquidator.

2.    The grounds for the appeal are shown in the Draft Notice of Appeal.

11    On 9 February 2015, I made orders in Chambers in both matters in the following terms:

THE COURT ORDERS THAT:

1.    By 12 February 2015, the respondents file and serve on Sam Zdrilic and upon the liquidators of [the appellants]:

(a)    An Interlocutory Process in which they set out with precision the orders which they seek by way of summary dismissal or strike out of the appeal filed herein at the instigation of Mr Zdrilic together with all affidavits in support of that Interlocutory Process (if any); and

(b)    A Written Submission of no more than three (3) pages in length in which they set out their submissions as to why the whole of the present appeal should be summarily terminated.

2.    By 16 February 2015, Sam Zdrilic file and serve:

(a)    All affidavits upon which he intends to rely in answer to the respondents’ claim that the whole of the proceeding should be summarily terminated; and

(b)    A Written Submission of no more than five (5) pages in length in which he addresses the respondents’ claim that the whole of the present appeal should be summarily terminated and in which he sets out such submissions as he cares to make as to why the Court should permit him to file and rely upon the Interlocutory Application dated 2 February 2015 and affidavit sworn by him on 30 January 2015 which were delivered to the Registry on 2 February 2015.

3.    All parties have liberty to apply on twenty-four (24) hours’ notice.

4.    The respondents’ application for orders summarily terminating the whole of the present appeal, the Court’s consideration of whether Mr Zdrilic’s said Interlocutory Application should be permitted to be filed and relied upon and the further hearing of Mr Zdrilic’s application for an order that the judgment below be stayed be listed at 10.30 am on 17 February 2015 before Foster J.

12    By an Interlocutory Application filed in each of the appeal proceedings on 13 February 2015, the respondent parties applied for the following orders:

1.    An order dismissing the appellant’s application for approval to commence and continue these appeal proceedings made pursuant to section 471A(1A) of the Corporations Act.

2.    An order refusing leave to the appellant to appeal against the decision of the trial judge, Jacobson J.

3.    An order dismissing, or alternatively, striking out the appeal, pursuant to Federal Court Rule 26.01.

4.    An order dismissing the appellant’s interlocutory application.

5.    An order that the appellant pay the respondents’ costs.

13    The proceedings were again listed before me on 17 February 2015 in order to:

(a)    Determine whether Mr Zdrilic should be permitted to file and rely upon the Interlocutory Application which he had attempted to file in the Registry on 2 February 2015; and

(b)    Provide a further opportunity to all parties to present evidence and submissions on the question of whether the appeals in NSD 49 of 2015 and NSD 50 of 2015 should be summarily dismissed or struck out.

14    Mr Zdrilic is effectively a litigant in person although clearly not an ill-informed or uneducated one. However, it seems that, at the very least, he may have misunderstood the communications made to him by Registry officers on 21 January 2015 concerning his endeavours to file his proposed Applications for Leave to Appeal. Mr Zdrilic appears to have turned his mind to the requirements of s 471A(1A)(d) of the Act and to have endeavoured to seek the appropriate approval from the Court by filing his proposed Applications for Leave to Appeal. This was clearly not the appropriate procedure. The most appropriate way of seeking the Court’s approval would have been to file an Interlocutory Process in the proceedings below or to commence fresh proceedings. In the circumstances, notwithstanding Mr Zdrilic’s failure to seek the requisite approval in the appropriate way, I think that I should approach the matters with which I am now dealing upon the basis that Mr Zdrilic made an honest attempt to make an application for an order granting to him the requisite approval pursuant to s 471A(1A)(d) of the Act but was prevented from doing so as a result of failing to adopt the correct procedure. The respondents do not object to my approaching the matter in this way.

15    For reasons which I shall explain below, I have come to the view that s 471A(1A)(d) requires that, if the approval of the Court to the performance or exercise of a function or power as an officer of a company in liquidation is to be sought by such an officer, that approval must be sought and obtained before the performance or exercise of the relevant function or power is undertaken. In the present case, the relevant step taken by Mr Zdrilic was the filing of the two Notices of Appeal. Although he endeavoured to file an Application whereby he sought the requisite approval pursuant to s 471A(1A)(d) on 21 January 2015, at the same time as he in fact filed the two Notices of Appeal, he had not obtained that approval prior to filing those Notices of Appeal. The consequence of that failure is that the appeals purportedly commenced by the filing of each of those Notices of Appeal are incompetent and must be dismissed. In due course, I propose to make orders summarily dismissing both appeals.

16    Where does that leave Mr Zdrilic?

17    At the resumed hearing before me on 17 February 2015, I suggested to the parties that further consideration of the matter might proceed upon the basis that Mr Zdrilic should be regarded as making an oral application for relief pursuant to s 471A(1A)(d) of the Act on 17 February 2015 (or had done so on 29 January 2015 or on 2 February 2015). An alternative view is that he had made a written application for such relief on 21 January 2015 which had not yet been determined by the Court.

18    In order to address the merits of the present dispute, I propose to take Mr Zdrilic as having made an application for s 471A(1A)(d) approval on 21 January 2015. The Court has not yet determined that application. I propose to determine that application by these Reasons for Judgment. Further, should I accede to Mr Zdrilic’s application and make an order pursuant to s 471A(1A)(d) of the Act, I would have no hesitation in extending the time within which he might file the necessary Notices of Appeal thereby accommodating the difficulty presented by the circumstance that, as matters presently stand, the time for filing those Notices of Appeal expired some months ago.

19    There may also be a question as to whether a corporation in liquidation can ever “appeal” from a winding up order made against it. It may be thought that the only avenue for redress available to such a corporation and its officers is to bring an application to stay or terminate the winding up pursuant to s 482 of the Act. The right of a corporation to appeal from an order winding up that corporation is sufficiently arguable for me to assume its existence for the purpose of determining the present applications. I will also assume that, if such a right exists, it can only be exercised after the Court has given its approval under s 471A(1A)(d) of the Act.

20    For all of the above reasons, the matter of substance which remains for the attention of the Court is whether the Court should make an order granting approval to Mr Zdrilic to commence appeal proceedings in the name of each of LEC and Amy whereby he seeks to overturn the primary judge’s orders made on 17 December 2014.

21    After the hearing before me had concluded on 17 February 2015, Mr Zdrilic undertook several manoeuvres designed to avoid the negative consequences of an order sequestrating his estate. Apparently, on 20 August 2014, the respondents in the present proceedings had filed a Creditors’ Petition against Mr Zdrilic and also against his wife. In a judgment delivered on 27 May 2015, a judge of the Federal Circuit Court of Australia declined to set aside that Creditors’ Petition and referred the Petition to a Registrar of that Court for hearing. On the same day, a Registrar of that Court made a sequestration order against the estate of Mr Zdrilic and also made a sequestration order against the estate of Mrs Zdrilic.

22    The prospect that he might become bankrupt caused Mr Zdrilic to undertake the manoeuvres to which I have referred at [21] above. As a result of his undertaking those manoeuvres, the respondents relisted the present proceedings. The matters came before me on 12 June 2015 at which time the respondents read an affidavit from their solicitor and made submissions as to why I should not even entertain Mr Zdrilic’s applications in the present proceedings. I will deal with the consequences of Mr Zdrilic’s bankruptcy and the steps which he took when that bankruptcy was in prospect later in these Reasons.

The Judgment of the Primary Judge

23    At [1]–[10] of his Reasons for Judgment, the learned primary judge set out, by way of introduction, the essential facts underpinning the proceedings below. At those paragraphs, his Honour said:

1.    These applications for the winding up of Land Enviro Corp Pty Limited and Amy Holdings Pty Limited (the LEC Companies) are brought after a lengthy history of proceedings in the Supreme Court of New South Wales. The LEC Companies and their principals, Mr and Mrs Zdrilic, were the plaintiffs in the Supreme Court. The present plaintiffs, Mr David Hickie and Vocifa Pty Limited (the Hickie interests) were two of the seven defendants in the proceedings which were determined by Stevenson J in 2012.

2    The LEC Companies were unsuccessful at the trial before Stevenson J. His Honour dismissed the proceedings against all of the defendants and made costs orders, including costs orders in favour of the Hickie interests. The costs orders were assessed and judgments in favour of the Hickie interests for $358,588.89 were entered in the Supreme Court on 14 March 2013.

3    The winding up orders which the Hickie interests now seek are founded upon the failure of the LEC Companies to comply with a statutory demand for the payment of the amount which is the subject of the costs orders.

4    The costs orders are not the subject of a stay, although enforcement was stayed for a period of time in 2013 pending an application to the Court of Appeal. However, the effect of orders made by the Court of Appeal in March 2014 is that the orders made by Stevenson J in favour of the Hickie interests, including the costs order, remain in force and are not subject to appeal.

5    An application for special leave to appeal against the Court of Appeal’s decision in favour of the Hickie interests was dismissed by the High Court in August 2014.

6    On 27 August 2014 Brereton J dismissed an application by the LEC Companies to set aside the statutory demands served upon them by the Hickie interests.

7    The statutory demands have not been met and the LEC Companies are therefore presumed to be insolvent by virtue of s 459C(2) of the Corporations Act 2001 (Cth) (the Act). Indeed, the LEC Companies admit that they cannot pay the judgment debt and are in a state of actual insolvency.

8    Ordinarily it would follow that the Hickie interests should be entitled to a winding up order, virtually as of right: IOC Australia Ltd v Mobile Oil Aust Ltd (1975) 11 ALR 417 at 427; see also Deputy Commissioner of Taxation v Huon Foam Pty Ltd [2000] TASSC 99 at [8].

9    However Mr Zdrilic who appeared with leave on behalf of the LEC Companies opposed the making of winding up orders. He contended that the insolvency of the LEC Companies was caused by the actions of some or all of the defendants in the proceedings before Stevenson J. He submitted that if the winding up orders were not made, the LEC Companies would be prevented from prosecuting their appeals against the remaining defendants in the proceedings that were heard by Stevenson J. He also submitted that if the LEC Companies are successful in the appeal they will no longer be insolvent and will be in a position to meet the costs orders in favour of the Hickie interests.

10    Although Mr Zdrilic opposed the making of the winding up orders on other grounds to which I will refer later, the gravamen of this application was that I should exercise the power conferred by s 467 of the Act to adjourn the hearing of the winding up order pending the determination of the appeal in the Court of Appeal.

24    In order to address the question of whether the Court should adjourn the hearing of the winding up applications, his Honour gave an account of the history of the litigation involving LEC, Amy, the present respondents and others. That litigation was primarily conducted in the Supreme Court of New South Wales although, at one stage, an Application for Special Leave to Appeal was made to the High Court. That Application was unsuccessful.

25    At [57]–[66] of his Reasons, the primary judge dealt with the applications made by LEC and Amy to set aside the creditors’ statutory demands which had been served upon them. Those applications were heard and determined by Brereton J on 27 August 2014. As noted by the primary judge at [65], Brereton J concluded that none of the grounds upon which LEC and Amy challenged those creditors’ statutory demands could be sustained. His Honour ordered that the application to set aside those demands be dismissed. Those orders had the consequence of raising the statutory presumption of insolvency against both LEC and Amy.

26    At [67] ff, his Honour considered the Court’s discretionary power to refuse to make a winding up order and then moved to consider whether, in the circumstances of the proceedings below, he should exercise that power. At [78]–[95], his Honour said:

78    The substance of Mr Zdrilic’s submissions is that the Hickie interests caused the insolvency of the LEC Companies and that there are good prospects that as a result of the appeal against the other defendants the LEC Companies will be able to pay the costs order.

79    There are a number of reasons why I cannot accept the submission that it is appropriate to exercise the discretion in this case.

80    First, there is no basis for the submission that the Hickie interests caused the LEC Companies’ insolvency or their inability to pay the judgment debt.

81    That proposition rests upon an unsupportable assertion that Mr Renshall made the impugned representations as agent for the Hickie interests. Stevenson J rejected the agency contention. His Honour’s finding has been affirmed by the Court of Appeal and the High Court.

82    The observations made by Hodgson J in Fire & All Risks at 685 about the activities of Mr Adler have no application in the present case.

83    Second, this is not a case in which an appeal is brought by a judgment debtor against the judgment creditor. Any possibility of such an appeal has been foreclosed by the refusal of special leave.

84    Thus, any possibility of the LEC Companies generating funds to pay out the judgment debt (or meet the debts of other creditors) is entirely dependent upon the outcome of further litigation against other persons.

85    Third, even if the LEC Plaintiffs succeed in an appeal to the Court of Appeal against the orders of Stevenson J that will not produce a monetary judgment. At best, it would result in an order setting aside the dismissal of the 2001 Proceedings. The question of the value of the loss of the opportunity to conduct the 2001 Proceedings would have to be determined in further litigation.

86    Moreover, the value of any such litigation, if it were to eventuate, is uncertain and there is no admissible evidence on the question of damages.

87    Fourth, it follows from what I have said that any adjournment of the winding up application would be of uncertain duration. The most that can be said is that it would take some years before a claim for damages could be heard and determined.

88    Cases such as Fire & All Risks, in which an adjournment was granted demonstrate that the discretion to order an adjournment should only be exercised so as to permit a short adjournment. This is consistent with the policy of the statutory scheme embodied in Part 5.4 of Div 4 of the Act that winding up applications should be determined expeditiously. In that regard, s 459R(1) provides that an application for a company to be wound up in insolvency is to be determined within six months after it is made.

89    Plainly, this is not a case in which a short adjournment may enable the LEC Companies to pay the judgment debt.

90    Fifth, the observations of Basten JA and Leeming JA in the first Court of Appeal Decision do not demonstrate that the LEC Plaintiffs have strong prospects of success.

91    As Basten JA pointed out at [19], all that the court was required to do in an application for an extension of time was to review the arguability of the appeal. Neither Basten JA nor Leeming JA considered the prospects of success of the appeal. In so far as they made any comments about prospects, both of their Honours’ remarks included considerable reservations about the prospects of success.

92    Sixth, the appeal will not be short. Leeming JA considered that it may conclude in two or three days but a lengthier estimate was made by Allsop P. The nature of the appeal with heavy emphasis upon factual findings demonstrates the likelihood of a long appeal, and the need for the Court to reserve its judgment.

93    Seventh, it is not certain when the appeal will be heard. The admitted insolvency of all of the LEC Plaintiffs suggests that the respondents to the appeal will seek an order for security for costs. That is likely to delay the hearing of the appeal.

94    Eighth, in summary, there are no special circumstances in this case which provide a ground for an adjournment, let alone an adjournment of the length which would be required for there to be any utility to the LEC Companies.

95    The judgment debt is an unsatisfied costs order which was made and entered after a long and expensive trial. The claims made by the LEC Companies were dismissed and all avenues of appeal have been exhausted. It is apparently true that the LEC Companies are not trading but they are continuing to pursue litigation and are thereby incurring further liabilities. An adjournment of the winding up application would merely exacerbate that position.

27    At [96] ff, his Honour considered a further submission made by Mr Zdrilic that the winding up applications were an abuse of process. His Honour rejected that submission.

The Court’s Power under s 471A(1A)(d) of the Act

28    Section 471A of the Act is in the following terms:

471A    Powers of other officers suspended during winding up

(1)    While a company is being wound up in insolvency or by the Court, a person cannot perform or exercise, and must not purport to perform or exercise, a function or power as an officer of the company.

(1A)    Subsection (1) does not apply to the extent that the performance or exercise, or purported performance or exercise, is:

(a)    as a liquidator appointed for the purposes of the winding up; or

(b)    as an administrator appointed for the purposes of an administration of the company beginning after the winding up order was made; or

(c)    with the liquidator’s written approval; or

(d)    with the approval of the Court.

Note:    A defendant bears an evidential burden in relation to the matters in subsection (1A), see subsection 13.3(3) of the Criminal Code.

(2)    While a provisional liquidator of a company is acting, a person cannot perform or exercise, and must not purport to perform or exercise, a function or power as an officer of the company.

(2A)    Subsection (2) does not apply to the extent that the performance or exercise, or purported performance or exercise, is:

(a)    as a provisional liquidator of the company; or

(b)    as an administrator appointed for the purposes of an administration of the company beginning after the provisional liquidator was appointed; or

(c)    with the provisional liquidator’s written approval; or

(d)    with the approval of the Court.

Note:    A defendant bears an evidential burden in relation to the matters in subsection (2A), see subsection 13.3(3) of the Criminal Code.

(2B)    An offence based on subsection (1) or (2) is an offence of strict liability.

Note:    For strict liability, see section 6.1 of the Criminal Code.

(3)    This section does not remove an officer of a company from office.

(4)    For the purposes of this section, a person is not an officer of a company merely because he or she is a receiver and manager, appointed under a power contained in an instrument, of property of the company.

29    At one stage during argument, Mr Zdrilic suggested that he could rely upon s 471A(1)(c) as the basis upon which he had been authorised to commence the two appeals which he purported to commence on 21 January 2015. He said that he had an email from the liquidator of both companies which constituted the necessary written approval. The email relied upon by Mr Zdrilic was tendered in evidence before me as Exhibit A. It is an email signed by Mr Ritchie, a manager within the liquidator’s office. By that email, the liquidator did not approve the commencement of the two appeals instituted by Mr Zdrilic. The email was entirely non-committal in relation to that subject matter.

30    Senior Counsel who appeared for the respondents on 17 February 2015 conceded that the Court’s approval under s 471A(1A)(d) of the Act to the performance or exercise of a function or power can in fact be given even after the officer has purported to perform or exercise that function or power. In support of his submission whereby that concession was made, Senior Counsel cited HVAC Construction (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd (2002) 44 ACSR 169 (HVAC) and Deputy Commissioner of Taxation v Soiland Pty Ltd (In Liq) [2010] FCA 168 (Soiland). In my view, the conclusion made by the respondents was not correctly made.

31    In HVAC, the director/applicant filed in the same Motion an application for an approval under s 471A(1A)(d) as well as his claim for a temporary stay of a winding up order made a few days earlier. In other words, in HVAC, the director/applicant sought s 471A(1A)(d) approval in the same breath as seeking a stay of the winding up order. At 177–179 [28]–[36], French J reviewed the relevant authorities concerning appeals against the making of winding up orders. At 179 [36], his Honour said:

The decision in Object Design appears, with respect, to have been overtaken by later cases including the two decisions of the Queensland Court of Appeal, the decisions of single judges of the Supreme Courts of New South Wales, Victoria and Western Australia and the observations made by Hayne and Callinan JJ in the two cases mentioned in the original jurisdiction of the High Court. In my opinion, it is clear that where a company has been the subject of a winding-up order a director of the company seeking to appeal against it requires the approval of the liquidator or of the court under s 471A to do so. In so holding, I do not exclude the possibility that the directors of a company may themselves have standing to appeal against a winding-up order in their own names although the observations of Callinan J in Dooney v Henry seem inimical to that proposition.

32    At 180–181 [37]–[42], his Honour discussed the relationship between s 471A of the Act and s 35A(5) of the Federal Court of Australia Act 1976 (Cth). At 181 [42], his Honour said that, in HVAC, he had proceeded upon the basis that approval of the Court is just as necessary for a director of a company to apply for review of a registrar’s order winding up the company as it is to an appeal against a judge’s order to that effect.

33    At 181–182 [43]–[45], his Honour said:

43    An appeal against a winding-up order brought on behalf of a company by one of its directors may, if unsuccessful, expose the company to a costs order which will prejudice the position of creditors: Rodgers v CJS Panels Pty Ltd, above. In Lane Cove Council v Geebung Polo Club Pty Ltd (Green as liq) (No 2) (2002) 41 ACSR 15 at 18, Barrett J regarded the protection of the resources of the company as “an indispensable requirement in any exercise of the court's discretion under s 471A(1A)(d)”. However proof of solvency of the company was not the only way of doing this:

Another possibility is for the court to sanction, as a condition of the grant of s 471A(1A)(d) approval, arrangements to ensure that the relevant costs are to be borne by the applicant for approval … on the basis that there will be no recourse to the assets of the company for reimbursement unless and until the winding up comes to an end.

Plainly the protection of the assets of the company is a relevant factor which the court is required to take into account. The weight to be given to that consideration and the mechanisms for minimising the risk to creditors will vary according to the circumstances of each case. It would be a mistake to encrust the court's discretion with one-size-fits-all rules for the conditions that must attach to any approval given by the court. In this case the application is made without prior approval but seeks such approval, albeit expressed in terms of leave, in the motion. That procedure provides no practical difficulty in my opinion as court approval may be given nunc pro tunc after the lodging of an application: Brolrik Pty Ltd v Sambah Holdings Pty Ltd at FCR 97–8; ACSR 367–8 per Barrett J.

44    In considering whether approval should be given to a director to apply for review of a registrar’s winding-up order, the court may have regard to the same factors as those to which it would have regard in relation to an appeal. However, a relevant factor in favour of the grant of leave in such a case is that the director seeks to invoke not the appellate jurisdiction of the court but its original jurisdiction, that being a jurisdiction conferred pursuant to the constitutional imperative discussed by Finn J in Official Trustee in Bankruptcy v Nedlands Pty Ltd.

45    In the present case, and having regard to the urgency of the interlocutory application, I thought it appropriate to grant approval under s 471A(1A)(d) limiting it to that which was necessary to allow Mr Kwok to apply for the stay order in the name of the company.

34    In HVAC, French J heard and determined an application for approval under s 471A(1A)(d) as part of a Motion made by the director/applicant in which that director/applicant sought that relief as well as a stay of the winding up order. However, although the s 471A(1A)(d) approval application was made at the same time as the stay application, his Honour determined the s 471A(1A)(d) application first. His Honour granted the approval (but only to a very limited extent) because of the urgency of the matter and so as to permit the director to proceed to have his stay application dealt with on the merits.

35    At 182–183 [48]–[49], French J listed some of the general considerations which might influence the Court’s decision as to whether a stay of a winding up order might be granted. His Honour said:

48    The grant of a stay under ss 35A(6) or 23 is a matter for the discretion of the court in the light of all the circumstances of the case. There is no rule confining the exercise of that discretion which requires special reasons to be shown for its exercise. In the statutory context of Pt 5.4 of the Corporations Act however, the power is to be exercised with caution so as not unduly to delay the liquidator or hinder his or her capacity to carry out the duties imposed by the statute. There is therefore a clear onus on the applicant to make out a positive case: Re Warbler Pty Ltd (1982) 6 ACLR 526 at 530; 1 ACLC 323 at 328.

49    In addition to the general considerations which enjoin caution in the making of such orders, there are specific considerations relevant to the present class of case including:

(a)    any detriment or risk of detriment to creditors or contributories flowing from a stay;

(b)    the merits of the proposed review;

(c)    the current trading position and solvency of the company;

(d)    the prejudice to the company if a stay is not granted;

(e)    the legislative policy against delay to the liquidation process.

36    These considerations apply with equal force at an earlier point in the process, that is to say, at the point when the Court is addressing the s 471A(1A)(d) application.

37    In Soiland, at [9]–[23], Barker J said:

9    It is accepted that upon the making of a winding up order it is no longer open to an officer of the company, such as Ms de Hollander in this case, to commence an appeal proceeding to set aside the winding up order without the approval of the liquidator or the Court, as once was possible under the common law: see Re Rock Bottom Fashion Market Pty Ltd (in liquidation) [2000] 2 Qd R 573; [1997] QCA 399; Vynotas Pty Ltd v Mystic Crystals Franchises (Aust) Pty Ltd [1999] QCA 473; Walker v Midlink Nominees Pty Ltd (2000) 22 WAR 318; [2000] WASC 112; Brolrick Pty Ltd v Sambah Holdings Pty Ltd (2001) 164 FLR 91; [2001] NSWSC 211; Rodgers v CJS Panels Pty Ltd [2001] VSC 470; HVAC Constructions (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd (2002) 44 ACSR 169; [2002] FCA 1638 (HVAC).

10    In HVAC, French J noted, at [36], that he did not exclude the possibility that the directors of the company may themselves have standing to appeal against a winding up order in their own names although the observations of Callinan J in Dooney v Henry (2000) 74 ALJR 1289; [2000] HCA 44, at ALJR 1295, seemed inimical to that proposition.

11    In HVAC, French J also considered that the requirement of the Court’s approval was not affected by the character of the proceedings as an application for review of the Registrar’s decision: see [37].

12    French J at [40], having referred to Harris v Caladine (1991) 172 CLR 84; [1991] HCA 9 and other authorities noted that the winding up order made by the District Registrar in the case before him was made pursuant to delegated jurisdiction conferred on the Court by the CA, which is a law of the Commonwealth made pursuant to referral by the States under s 51(xxxvii) of the Australian Constitution to overcome the difficulties identified in Re Wakim; ex parte McNally (1999) 198 CLR 511; [1999] HCA 27. His Honour then noted at [41]:

There may conceivably be a question whether s 471A could validly restrict the power of an officer of the company, in the name of the company, to seek review by a judge of a registrar’s order winding up the company. No such contention was advanced in this case and I am inclined to think that, given the power conferred on the Court by s 471A to approve the exercise by a director of such functions as are necessary to apply for review, the combined effect of s 35A [of the Federal Court Act 1976 (Cth)] and s 471A does not compromise the constitutionally required degree of judicial supervision and control of the registrar’s delegated jurisdiction. I accept, however, that that constitutional imperative may be a relevant consideration in determining whether approval should be granted.

13    Thus French J proceeded on the basis, as stated at [42], that approval of the Court is necessary for a director of a company to apply for review of a registrar’s order winding up the company as it is to an appeal against a judge’s order to that effect.

14    It has not been argued before me that the requirement stipulated by s 471A of the CA is invalid to the extent that it requires the Court’s approval to the commencement of a proceeding, in this case, at the instance of Ms de Hollander, to review the District Registrar’s order winding up the defendant company.

15    I proceed then on the same basis, as did French J in HVAC, that such approval is necessary but that the “constitutional imperative”, as French described the availability of a review proceeding, may be a relevant consideration in determining whether approval should be granted. Counsel for the plaintiff did not submit otherwise and indeed in his written submissions, at [16], expressly noted that it is a relevant factor as identified by French J.

THE FACTORS THE COURT SHOULD CONSIDER BEFORE GRANTING APPROVAL OF THE REVIEW APPLICATION

16    The strength of the case to be argued on review, the protection of the assets of the company and the ‘constitutional imperative’ of the right to review all need to be considered by the Court on an application for approval under s 471A(1A)(d) CA.

17    The protection of the assets of the company is generally considered to be a relevant factor which the Court will take into account in determining whether it should grant approval to a proceeding designed to set aside a winding up order. It is recognised that if that proceeding is unsuccessful, the company may be exposed to a costs order which will prejudice the position of creditors generally: see for example Rodgers v CJS Panels Pty Ltd; Lane Cove Council v Geebung Polo Club Pty Ltd (in liquidation) (No 2) (2002) 167 FLR 175; [2002] NSWSC 118 (Geebung Polo Club); HVAC at [43]. As French J noted in HVAC, at [43], the weight to be given to this consideration and the mechanisms for minimising the risk to creditors will vary according to the circumstances of each case.

18    In an appropriate case, approval may be given nunc pro tunc after the lodging of an application to a named officer of the company, and conditions may be attached to the approval that require that officer to be responsible for the costs: see Brolrik Pty Ltd v Samba Holdings Pty Ltd at FLR 97 – 98; HVAC at [43].

19    In relation to the protection of the resources of the company and the minimising of the risk to creditors, Barrett J in Geebung Polo Club at [13], rejected a submission that two matters were necessarily relevant to the decision whether or not to give approval:

1.    the existence of a prima facie case; and

2.    that the costs of the application can be met from the assets of the company.

While his Honour accepted the first factor he said that the formulation of the second seemed to him to misconstrue the position. His Honour stated:

The fact that there may be in the hands of the liquidator sufficient funds to meet the costs of the application has nothing to do with the kinds of safeguard to which I have just referred. It is necessary to see either that the company is in reality solvent or that its assets will be protected from claims for costs unless and until it emerges that the winding up is not to continue. Neither of those things is shown here, even though Mr George has led evidence of ownership of substantial real property by Geebung. Even if a prima facie case on the merits is shown, Mr La Nauze has not satisfied what I regard as an indispensable prerequisite to the grant of approval under s 471A(1A)(d). His application must therefore be refused.

20    The question of the existence of a “prima facie case” is generally accepted. This is consistent with a factor that ordinarily needs to be demonstrated to satisfy a court that leave to appeal should be granted, where such leave is required, namely, the strength of the case to be argued: see for example Décor Corp Pty Ltd v Dart Industries Inc (1993) 33 FCR 397. The co-relationship between factors relevant in relation to an appeal and for approval to seek review of a registrar’s winding up order were also noted by French J in HVAC at [44]. As noted already, French J accepted that a relevant factor in favour of the grant of leave in a review of a winding order case “is that the director seeks to invoke not the appellate jurisdiction of the Court but its original jurisdiction”: see [44].

21    In relation to the strength of the case to be argued on review, in the context of s 471A(1A)(d), where the question of solvency is the ultimate critical consideration, one would not have thought, as a matter of principle, that it is necessary upon the application to the Court for its approval to seek review of the Deputy Registrar’s winding up order to establish at that point that the company is solvent. As Besanko J said in Lightburn Pty Ltd v Kama Power Products Pty Ltd [2003] SASC 43, at [27], albeit in relation to an application for approval to appeal, it would “be putting to high an onus on an applicant for approval under s 471A(1)(d) and involve a determination of the very issue which, in many cases will be the central issue on appeal”.

22    Besanko J went on, at [31] and [32] to comment on the merits of the case before him where no material was put forward to establish the solvency of the company or to rebut the statutory presumption of solvency. He noted on the material put before the Master an order winding up the company was “inevitable”. At [33], Besanko J stated:

To my mind, the failure to put any clear or intelligible evidence before the Master of the company's financial position means that any appeal against his decision must inevitably fail.

For those reasons, the Court refused approval to appeal.

23    To similar effect, in Gail Freeman and Co Pty Ltd v Deputy Commissioner of Taxation [2007] FCA 1381, Dowsett J in short reasons for judgment refusing an appeal under s 471A of the CA, suggested that leave would not be given unless the Court was satisfied that a “viable ground of appeal” had been made out.

38    In Binetter v Deputy Commissioner of Taxation (2011) 82 ATR 85 at 87–88 [7], Perram J said a director may pursue an appeal against a winding up order in the name of a company in liquidation if that director first (emphasis added) obtains leave under s 471A(1A)(d) of the Act.

39    Section 471A(2B) of the Act provides that an offence based on subs (1) or subs (2) of s 471A is an offence of strict liability.

40    Section 1311(1) is a general provision providing that (inter alia) a person who does an act or thing that that person is forbidden to do by or under a provision of the Act is guilty of an offence by virtue of s 1311(1). Section 1311(1A) provides that s 1311(1) applies only to offences which are listed in Sch 3 to the Act. Section 471A is specified as an offence in Sch 3 to the Act at Item 129 of that Schedule. These circumstances suggest that the approval contemplated by s 471A(1A)(d) must be in place before the forbidden act is done because it is unlikely that the legislature contemplated that approval could be given to criminal conduct even after that conduct had been engaged in.

41    In my view, none of the authorities to which I have made reference suggest that approval pursuant to s 471A(1A)(d) to the performance or exercise of the particular function or power in question can be given retrospectively. In HVAC, in particular, the application made by the director/applicant was for an order granting the necessary approval under s 471A(1A)(d) as well as for other relief in the name of the corporation in liquidation. These claims for relief were all made in the one Court process. Although it may be desirable that the s 471A(1A)(d) application be made separately from and in advance of any application for substantive relief, I do not consider that this must always be so. The need for the Court to act in HVAC was urgent and French J quite properly, in my judgment, entertained all of the director/applicant’s claims for relief at the one time although he dealt with the s 471A(1A)(d) first as, logically, he ought to have done. If the director/applicant in HVAC had failed to secure an order approving his conduct in bringing forward the remainder of his application in the name of the corporation in liquidation, the whole of that application would have been dismissed.

The Present Case

42    As I have already noted, Mr Zdrilic, perhaps through no fault of his own, did not bring before the Court prior to instituting the two appeals in NSD 49 of 2015 and NSD 50 of 2015 any application for an order pursuant to s 471A(1A)(d) of the Act approving the institution of those appeals by him in the name of those corporations. He did not have the approval of the Court to institute the two appeals before the Notices of Appeal were filed. For that reason, both appeals are incompetent and must be dismissed.

43    However, as I have noted, Mr Zdrilic now seeks the requisite approval pursuant to s 471A(1A)(d). If approval is granted, he will seek an extension of time within which LEC and Amy might appeal and, if such extension is granted, he will then reinstitute appeals from the orders made by the primary judge on 17 December 2014.

44    In support of the various applications made by him since 17 December 2014, Mr Zdrilic has relied upon a number of affidavits and lengthy Written Submissions. He has also addressed me orally on three separate occasions. In addition, he sought to file two large folders of documents. I did not permit him to file those folders.

45    Notwithstanding the volume of the material sought to be relied upon by Mr Zdrilic, he has been unable to bring forward any viable ground of appeal from the primary judge’s orders.

46    The primary judge quite rightly analysed the applications before him as applications for an adjournment of the two sets of proceedings with which he was dealing. Both LEC and Amy were presumed to be insolvent, they having failed to secure an order setting aside the creditors’ statutory demand served upon each of them. Further, notwithstanding the long history of litigation between LEC and Amy, on the one hand, and the present respondents, on the other hand, there was nothing in that history which justified an order adjourning the hearing of the winding up applications. Again, as his Honour noted, there was no point in adjourning the winding up applications because not only were the corporations presumed to be insolvent but they were also almost certainly in fact insolvent. By way of amplification of this particular point, I note that Mr Zdrilic informed me during argument that neither corporation was trading and that both had ceased trading some years ago. His Honour also regarded LEC’s and Amy’s prospects of recovering any funds from the remaining Supreme Court litigation as entirely speculative.

47    The essence of Mr Zdrilic’s submissions to me was that his Honour should have adjourned the winding up applications so that LEC and Amy could pursue their remaining claims against other parties in proceedings in the NSW Court of Appeal. His proposition was that, had his Honour allowed time to LEC and Amy, they would have been able to pursue those other parties for costs and thereby generate sufficient funds to pay out the present respondents. His Honour declined to adjourn the proceedings for that reason and thereafter proceeded to wind up both corporations. His Honour’s decision was a discretionary decision relating to a matter of practice and procedure (as to which see House v The King (1936) 55 CLR 499 at 504–505). In order to succeed in an appeal from a decision of that character, LEC and Amy would need to show some error in the exercise of his Honour’s undoubted discretion. The requisite error has to be that his Honour acted on a wrong principle or allowed extraneous or irrelevant matters to guide him or misunderstood the facts. Mr Zdrilic has been unable to demonstrate that his Honour committed any such error. In my judgment and in any event, his Honour’s decision was undoubtedly correct.

48    When proper regard is had to the considerations which generally influence the exercise of the Court’s discretion to grant approval under s 471A(1A)(d) of the Act, there is nothing in the circumstances of the present case which would cause the Court to exercise the relevant discretion favourably to Mr Zdrilic. The postulated appeal has no or very little prospects of success and the grant of the claimed approval would only add to the substantial costs burden imposed upon the respondents by Mr Zdrilic’s conduct to date.

49    For all of the above reasons, I would not be disposed to make an order granting approval to Mr Zdrilic (or to his wife, for that matter) to institute appeals against the decision of the learned primary judge.

50    Given that the existing appeals are to be dismissed as incompetent and that I am not minded to grant Mr Zdrilic approval to re-institute his proposed appeals, there is no conceivable basis for staying either winding up order. There will, therefore be no stay of either order.

The Events of Late May 2015

51    On 25 May 2015, Mr Zdrilic and his wife, Amy, appointed David Iannuzzi as receiver and manager of certain assets of LEC. They did so in their capacity as chargees in respect of a charge executed by LEC in favour of Mr and Mrs Zdrilic on 19 June 1998.

52    On 25 May 2015, Mr Iannuzzi, in his capacity as receiver and manager of the assets of LEC, assigned all of the “right, title and interest” in the causes of action maintained by LEC in the New South Wales Court of Appeal proceedings 156726 of 2012 and 254173 of 2007 to John Mateljan. This assignment was effected by Deed of Assignment executed on 25 May 2015. Mr Mateljan then authorised Mr Zdrilic to conduct those proceedings on his behalf by letter dated 25 May 2015.

53    It appears that the steps which I have described above were put in train by Mr Zdrilic in order to quarantine the New South Wales Court of Appeal proceedings from any consequences flowing from the bankruptcy of him and his wife. I must confess that I have considerable difficulty following the thinking which led to these manoeuvres being undertaken.

54    One consequence of the arrangements put in place by Mr Zdrilic in late May 2015 is that the quantum of any potential recovery by LEC from the Court of Appeal proceedings to which I have referred is now limited to $100,000.

55    The debt due from LEC and Amy to the respondents in the present proceedings exceeds $360,000. Thus, the effect of the transactions which Mr Zdrilic put in place in late May this year is to make crystal clear that the potential for recovery by LEC from the Court of Appeal proceedings to which I have referred is now limited to $100,000. Even if, contrary to the reasons which I have already given for refusing Mr Zdrilic’s application pursuant to s 471A(1A)(d) of the Act, there was some prospect that funds would be recovered from those proceedings, that prospect is now limited to $100,000.

56    The first respondent in these proceedings, David Hickie, has sworn an affidavit in which he gave an account of the litigation between him and the second respondent, on the one hand, and LEC and Amy, on the other hand, in the Supreme Court of New South Wales. In the same affidavit, the first respondent swore that, since becoming a defendant to the 2001 proceedings in the Supreme Court of New South Wales in December 2002, he has incurred costs in excess of $460,000.

57    The prospect that LEC and/or Amy would recover substantial costs in the outstanding proceedings in the Supreme Court of New South Wales and thus generate from that litigation sufficient funds to pay out the respondents in the present proceedings was, at its highest, utterly speculative when the proceedings below were heard and determined by the primary judge. That prospect is now not only speculative but limited to $100,000.

58    The steps which Mr Zrilic caused to be undertaken in late May 2015 have caused his position in the present proceedings to become worse not better.

Conclusions

59    The two appeals instituted in the name of LEC and Amy respectively will be dismissed because they are incompetent. Mr Zdrilic’s application for approval pursuant to s 471A(1A)(d) of the Act to institute fresh appeals against the judgment and orders of the primary judge given and made on 17 December 2014 will be dismissed. Notwithstanding Mr Zdrilic’s bankruptcy, there is no reason for the Court not to make an order for costs against him. In addition, I propose to order Mr Zdrilic to file and serve his affidavit sworn on 30 January 2015 so that the Court record is complete.

60    There will be orders accordingly.

Associate:

Dated:    27 July 2015