Federal Court of Australia

Ford, in the matter of Careers Australia Group Ltd (in liquidation) [2021] FCA 613

ORDERS

THE COURT ORDERS THAT:

1.    The Applicant’s interlocutory process filed 25 May 2021 be dismissed.

2.    The Respondents’ costs of the application be payable forthwith and that the requirements of r 40.13 of the Federal Court Rules 2011 (Cth) be dispensed with.

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

SCHEDULE 1

LIST OF COMPANIES NAMED IN ORIGINATING PROCESS

Careers Australia Group Ltd (in liquidation) (ACN 122 171 840)

Australian College of Applied Education Pty Ltd (in liquidation) (ACN 009 369 797)

Australian School of Management Pty Ltd (in liquidation) (ACN 138 545 605)

Careers Australia College of Healthcare Pty Ltd (in liquidation) (ACN 007 963 340)

Careers Australia Education Institute Pty Ltd (in liquidation) (ACN 120 675 505)

Careers Australia Institute of English Pty Ltd (in liquidation) (ACN 010 994 582)

Careers Australia Institute of Training Pty Ltd (in liquidation) (ACN 122 082 204)

Cumulonimbus Investments Pty Ltd (in liquidation) (ACN 169 444 213)

Global Learning Support Group Pty Ltd (in liquidation) (ACN 169 155 480)

Stratocumulus Pty Ltd (in liquidation) (ACN 611 961 196)

Today Corp Pty Ltd (in liquidation) (ACN 101 631 485)

Workstar Pty Ltd (in liquidation) (ACN 122 082 204)

REASONS FOR JUDGMENT

CHEESEMAN J:

1    On 25 May 2021, the Applicant, Patrick McKendry, applied by urgent interlocutory process seeking an extension of time to set aside an examination summons served on him on 10 February 2021 (Summons).

2    The examination summons was issued under s 596A of the Corporations Act 2001 (Cth) (Corporations Act) on the application of the Plaintiffs / Respondents, Martin Francis Ford and David Laurence McEvoy in their capacity as joint and several liquidators of Careers Australia Group Ltd (in liquidation) (CAG) and various other companies in the same group of companies. Alternative relief was also sought under s 596C of the Corporations Act but was abandoned during the hearing of the application.

3    The liquidators opposed the application.

4    At the hearing of the application before me on 3 June 2021, I made orders dismissing the application to extend time under rule 11.5 of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules). These are my reasons for so doing.

Background

5    Mr McKendry is a director of CAG and in the relevant period was the Managing Director. It was common ground that Mr McKendry, as Managing Director, was a seminal player in the affairs of the group over many years and was well positioned to assist in the liquidators’ investigation of the examinable affairs of CAG and the group.

6    In the substantive proceedings, which were commenced on 24 December 2020, orders were made on 2 February 2021 granting the liquidators leave to file and serve summonses for the examination of 13 named individuals, including Mr McKendry, in respect of the examinable affairs of CAG and other companies in the group (the Examination Proceedings).

7    Some examinations have already taken place. Mr McKendry’s examination is due to be conducted on 8 and 9 June 2021. Thus the urgency of the present application.

8    In separate proceedings, which were commenced on 8 April 2020 before the Examination Proceedings, the liquidators, CAG and three other companies in the group claim under s 588FF of the Corporations Act to recover an unfair preference payment from the Deputy Commissioner (the ATO Proceedings). The ATO Proceedings are in the Victorian Registry of the Court and are docketed to O’Bryan J. The liquidators have different solicitors and counsel in the Examination Proceedings and the ATO Proceedings.

9    About two months after the liquidators sought an examination summons against Mr McKendry, the Deputy Commissioner filed an application in the ATO Proceedings, essentially by way of cross-claim against Mr McKendry, relying on the Deputy Commissioner’s right of statutory indemnity against a director pursuant to s 588FGA of the Corporations Act.

10    On 11 March 2021, a case management hearing was held in the ATO Proceedings before O’Bryan J in which timetabling orders were made which put the ATO Proceedings on hold until the conclusion of Mr McKendry’s examination, save that the Deputy Commissioner was directed to file and serve a Statement of Claim in respect of the claim against Mr McKendry. No further steps were timetabled to occur before the next case management listing on 28 June 2021. The latter being scheduled to occur after Mr McKendry’s examination. Mr McKendry was represented by counsel at that case management hearing.

11    The liquidators’ counsel explained to O’Bryan J that the proposal to defer the time for Mr McKendry to file a defence to the Deputy Commissioner’s Cross-Claim was because the liquidators wanted to ensure the integrity of the proposed examinations. They sought to avoid Mr McKendry having access to the company records in advance of his examination but acknowledged that he would be given access to those documents for the purpose of the ATO Proceedings once his examination was completed. Orders were made by O’Bryan J to facilitate that course: McEvoy v Commissioner of Taxation, in the matter of Careers Australia Group Limited (in liq) [2021] FCA 216 at [14] - [15].

12    Following the case management hearing, in response to a further request for documents by Mr McKendry, the liquidators’ solicitors in the ATO Proceedings declined to consent to the Deputy Commissioner providing documents to Mr McKendry until after his examination had concluded. This was consistent with approach taken at the case management hearing.

13    On 25 May 2021, Mr McKendry filed the present application, which was listed for hearing before me as the Corporations Duty Judge in accordance with the parties’ mutual convenience. In the interim the liquidators’ legal representatives have been, and continue to be, engaged in conducting other examinations in these proceedings.

Central Issue

14    Mr McKendry’s application to set aside the Summons is made more than 3 months after the three day time period prescribed by r 11.5(2) of the Corporations Rules expired. It is necessary for Mr McKendry to obtain an extension of time before he can bring the substantive application seeking to set aside the Summons. The liquidators oppose the grant of an extension of time.

15    On the underlying application, there was no dispute between the parties as to the material facts or the applicable principles. Counsel for Mr McKendry submitted that the issue between the parties was the inference that the Court should draw as to the liquidators’ predominant purpose on the basis of the material before it.

16    Mr McKendry’s submission comprised two limbs. First, that it was open to the Court to infer that the predominant purpose of his examination was to obtain a forensic advantage in the ATO proceedings. During oral argument this submission was faintly enlarged to encompass forensic advantage in any future legal proceedings involving Mr McKendry. Secondly, that because Mr McKendry has been refused access to the records of CAG and the group pending his examination he was unable to lead any other evidence in support of his position, in those circumstances the Court should draw the inference for which he contended.

17    The liquidators submitted that their purpose in conducting the examinations, including that of Mr McKendry, was entirely orthodox and consistent with the statutory purpose.

Legislation and legal principles

18    Mr McKendry has been summonsed as an examinee under s 596A of the Corporations Act.

19    Section 596A of the Corporations Act requires a Court to issue a summons for examination where specified conditions are satisfied, including that the proposed examinee was a director of a corporation during a specified period.

20    It is not in dispute that the specified conditions in s 596A were engaged.

21    In Re New Tel Ltd (in liq); Evans v Wainter Pty Ltd (2005) 145 FCR 176; 221 ALR 331; 54 ACSR 284; [2005] FCAFC 114 at [245] Lander J (Ryan and Crennan JJ concurring) observed that the procedure under Pt 5.9 of the Act for examining a person about a corporation “is to aid persons who have the responsibility of the external administration of the company in carrying out their duties”. Such persons are only entitled to seek an order for an examination summons where the purpose of the examination is for the benefit of the corporation, its contributories and its creditors.

22    At [250], his Honour said:

Whilst I agree that the question of what is a proper purpose must be determined by reference to the legislation itself because it is the legislation which gives the power to issue a summons for an examination and the carrying out of an examination, the power cannot be used for a collateral or ulterior purpose. It must be used for a purpose expressly or implicitly authorised by the legislation itself.

23    At [252], in an oft-cited passage, his Honour summarised the purpose and scope of liquidators’ examinations, and the circumstances in which they may be set aside:

1.     The power given to the court to summon a person for examination is a coercive power.

2.     The purpose of the power is to be gleaned from the legislation.

3.     The following legitimate purposes emerge:

3.1 First, an examination is designed to serve the purpose of enabling an eligible applicant to gather information to assist the eligible applicant in the administration of the corporation.

3.2 Second, it assists the corporation’s administrators to identify the corporations assets, both tangible and intangible. It also allows the corporations liabilities to be identified.

3.3 Third, the purpose is to protect the interests of the corporation’s creditors.

3.4 Fourth, it serves the purpose of enabling evidence and information to be obtained to support the bringing of proceedings against examinable officers and other persons in connection with the examinable affairs of the corporation.

3.5 Fifth, it assists in the regulation of corporations by providing a public forum for the examination of examinable officers of corporations.

4.     If an eligible applicant applies for an order for the examination of a person for a purpose unconnected with the purposes authorised by the legislation that will be an abuse of process and the order, if obtained, will be set aside.

5.     The procedure may not be used to allow a party to obtain a forensic advantage and, if it is, any order obtained will be set aside.

6.     The procedure may not be used as a dress rehearsal for the cross-examination of a person in a pending or subsequent action. However, it is not improper to seek an order of the Court to summon a person for examination whilst litigation is pending against that person or entities connected with that person.

7.     The question whether in any particular case the applicant has used the procedure abusively will depend upon the applicant’s purpose in seeking the order and all of the surrounding circumstances. It will not be an abuse unless an offensive purpose is at least the predominant purpose.

8.     It will be an offensive purpose if the application cannot be characterised as being for the benefit of the corporation, its contributories or creditors.

9.     A creditor may, if first authorised by ASIC, apply to the Court for an order to summon for examination a person for the purpose of obtaining information in relation to a debt owed to the creditor if such an examination would be in the interests of the corporation or its creditors as a whole.

10.     A creditor may not use the procedure for the purpose of obtaining a forensic advantage which would not have been available to the creditor if the corporation had not gone into administration.

24    A liquidator’s purpose in conducting an examination is to be ascertained objectively, having regard to the circumstances of the case: Accord Pacific Holdings Pty Ltd v Accord Pacific Land Pty Ltd (in liq) [2011] NSWSC 707 (Accord Pacific) at [123] (Ward J) citing Re Excel Finance Corp Ltd (Receiver and Manager Appointed); Worthley v England (1994) 52 FCR 69 (Re Excel) at 89.

25    An examinee bears the onus of demonstrating that the liquidator’s predominant purpose of obtaining the examination summons is improper and the evidentiary onus has been described as a “heavy” one: Accord Pacific at [138] (Ward J).

26    Rule 11.5(2) of the Corporations Rules provides that the person served with an examination summons may apply to the Court for an order discharging the summons within three days after the person is served. The Court has power to extend the time for bringing such an application: Corporations Rules, r 1.10; Federal Court Rules 2000 (Cth) (Rules), r 1.39.

27    In considering whether an extension of time should be granted to move to set aside an examination summons, it is relevant to take into account the reasons for the delay, whether any prejudice will be suffered if the extension of time is granted and the merits of the application for which an extension of time is sought: Ri Ji Woo International Education Centre Pty Ltd [2019] NSWSC 93; (2019) 134 ACSR 448 at [28] (Black J); Trevor, in the matter of Bell Group NV (in liq) [2016] FCA 851; (2016) 116 ACSR 294 (Trevor) at [21] to [24] (Yates J).

Consideration

28    Having considered the issues of delay, prejudice and the merits of the underlying application I declined to extend the time within which Mr McKendry could bring his application to set aside the Summons for the following reasons.

Delay

29    In relation to the extent of, and explanation for, the delay in bringing the present application I have had regard to the following. Barrett J (as his Honour then was) observed in Re Bridgeport – Advisers & Asset Managers Pty Ltd [2005] NSWSC 757 at [11], that notwithstanding that the three day time limit may in appropriate circumstances be extended, the rule “obviously exhibits an expectation of prompt action”. Yates J in Trevor at [22] said that while the period fixed by r 11.5(2) is not to be ignored, the mere fact that provision is made for the time limit to be extended shows that the prescribed time might not always be appropriate or, if appropriate, should nevertheless be extended having regard to the particular circumstances of the case. His Honour noted that the length of the delay, in the given circumstances, is also plainly relevant.

30    The present application was filed on 25 May 2021 in respect of a summons that was served on 10 February 2021. The three day time limit provided by r 11.5(2) of the Corporations Rules expired on 15 February 2021. The extent of the delay in this case is significant. That is so, even if I accede to Mr McKendry’s submission that the delay should be assessed only by reference to the period after Mr McKendry was joined to the ATO Proceedings on 11 March 2021.

31    Mr McKendry’s central contention is that the liquidators are acting for an improper purpose in that the predominant purpose of the examination is to obtain a forensic advantage in the ATO proceedings. I address separately below the merit, or lack thereof, in that contention, but it is appropriate to first focus on the timing of Mr McKendry’s concern. Mr McKendry was joined to the ATO Proceedings in effect by a cross-claim on 22 February 2021. He was represented by counsel in a case management hearing on 11 March 2021 in which timetabling orders were made to accommodate concerns in relation to Mr McKendry’s filing of a defence being impacted by his impending examination. Following the 11 March case management hearing, Mr McKendry did not move expeditiously to apply to extend the time to seek to set aside the Summons.

32    Mr McKendry contends that in the period from 11 March 2021 he was seeking to obtain documents by other means and until that proved to be unfruitful on or about 16 March 2021 he considered that he had no proper basis to make the present application. The final weeks delay were contended to be attributable to his legal representatives being otherwise engaged. It is clear on the evidence that from mid-March 2021, Mr McKendry through his legal representatives has understood that the liquidators are not seeking to deny him access to records of the group to which he is entitled in order to mount his defence in the ATO Proceedings, rather the liquidators are merely seeking to defer that course until the conclusion of his examination. That was ventilated before O’Bryan J on 11 March 2021, reiterated in correspondence on 15 March 2021 and ameliorated in practical terms in the confines of the ATO Proceedings by the timetabling orders made on 11 March 2021.

33    The evidence before me confirmed that the liquidators are concerned to preserve the integrity of Mr McKendry’s examination and that once his examination is completed, the liquidators will no longer oppose Mr McKendry’s access to the documents for the purpose of Mr McKendry defending the Deputy Commissioner’s claim in the ATO Proceedings.

34    The paucity of the explanation for the delay is underscored by the fact that Mr McKendry’s principal complaint concerns access to documents prior to his examination. At no stage has Mr McKendry brought an application, whether under the Corporations Act or otherwise, for access to the documents of the companies of which he remains a director. Mr McKendry’s real complaint is that he is not being given access to the records of the group prior to his examination. That is reflected in the bringing of this application so shortly before his scheduled examination. Mr McKendry’s application was filed on 25 May 2021 and was heard on 3 June 2021. The examination is scheduled to take place in less than a week’s time. I must be satisfied that a proper and satisfactory explanation has been given by Mr McKendry for not moving earlier. I am not.

Merits of underlying application

35    There is a lack of merit in the underlying application for which the extension of time is sought. Having considered the whole of the material, I am satisfied that Mr McKendry has failed to establish that he has any real prospect of discharging his onus of proving that the liquidators’ predominant purpose, objectively ascertained, was improper.

36    Mr McKendry bore the onus of demonstrating that the liquidators’ predominant purpose in obtaining the Summons was improper. Mr McKendry contended that I should draw an inference of improper purpose related to the ATO Proceedings and any future legal proceedings because the liquidators had denied him access to the company records prior to his examination. The liquidators have explained their position on the basis that they are concerned to protect the integrity of Mr McKendry’s examination, after which he will have access to the documents for the purpose of the ATO Proceedings.

37    The liquidators’ solicitor gave evidence on information and belief that the examinations were for the purpose of investigating the examinable affairs of the companies in the group, including possible recovery actions that may be taken against its directors and/or officers for the benefit of the group’s creditors and to develop a greater understanding of the financial performance and position of the companies in the group. This evidence of the liquidators’ subjective intent was confirmed by the objective facts. It was common ground that Mr McKendry as the Managing Director in the relevant period was well positioned to assist in the liquidators’ investigation of the examinable affairs of CAG and the group. Mr McKendry was one of a number of examinees. The suggestion that the liquidators were in effect targeting him for the purpose of gaining an impermissible advantage in the ATO Proceedings or any other future proceedings cannot be sustained. That is confirmed by the following additional matters.

38    The application to examine Mr McKendry was made before he was joined by the Deputy Commissioner to the ATO Proceedings: Equititrust Ltd (in liq) (Receivers and Managers Appointed) (2014) 13 ABC (NS) 191; [2014] FCA 692 (Equititrust) at [68(a)]. The ATO Proceedings are at an embryonic stage, which is suggestive of an absence of improper purpose: Equititrust at [68(b)-(c)]. Further, the liquidators did not commence the claim against Mr McKendry. He was joined by the Deputy Commissioner in a cross-claim in the ATO Proceedings.

39    I reject the submission that the Court should infer that the liquidators’ predominant purpose in seeking to examine Mr McKendry was to obtain a forensic advantage in the ATO proceedings or any other future proceedings. That an examination may result in a liquidator obtaining a forensic advantage does not supply evidence that a liquidator’s purpose in causing the issue of an examination summons is improper. To reason in that way conflates consequence with purpose. It is clear from the decided cases that:

(a)    the possibility that a forensic advantage will be gained does not mean that the making of an order will not advance a purpose intended to be secured by legislation: Hong Kong Bank of Australia Ltd v Murphy (1992) 28 NSWLR 512 at 519 cited with approval by this Court in Re Excel at 90-91; and

(b)    it is not improper for examinations to occur when separate proceedings are pending against an examinee or other persons. The mere fact that a substantive proceeding has been commenced does not preclude examination on legitimate topics including the strength of any claims, the existence and strength of any likely defences and whether a potential defendant has the ability to meet any judgment: Equititrust at [68(c)].

40    This is not a situation where the applicant has established that the predominant purpose of the examinations is to carry out a dress rehearsal for cross-examination or to destroy the credit of a potential witness: cf. Re Hugh J Roberts Pty Ltd (In Liq) [1970] 2 NSWR 582 at 585 (Street J); Equititrust at [59] - [63].

Prejudice

41    The timing of the present application relative to the other examinations that the liquidators are currently conducting and to Mr McKendry’s scheduled examination on 8 and 9 June 2021 is such that the liquidators’ resources have been diverted in having to deal with this application at the same time as conducting other examinations and as preparing for Mr McKendry’s examination. That scenario exposes one aspect of the rationale for the tight timeframe imposed by r 11.5(2) and reinforces the importance of an examinee acting expeditiously after being served with a summons for examination and should the need arise, making a prompt application for an extension of time in an appropriate case. I am satisfied that the delay in bringing the present application has occasioned some prejudice to the liquidators. Had I been satisfied that there was merit in the underlying application, I would have been concerned that the delay would have further negatively impacted the examinations schedule, including but not limited to, Mr McKendry’s examination.

Conclusion

42    Accordingly, I declined to extend the time within which Mr McKendry could bring his application to set aside the Summons.

43    During the hearing the liquidators sought an order that their costs of this application be payable forthwith and that the requirements for taxation of costs under r 40.13 of the Rules be dispensed with. Mr McKendry does not oppose such orders being made. In the circumstances, I am satisfied that such an award of costs is warranted.

Associate:

Dated:    7 June 2021