Federal Court of Australia

Hogan (Liquidator) v Australian Securities and Investments Commission, in the matter of NetiveEdu Pty Ltd (Deregistered) [2021] FCA 730

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to section 601AH(2) of the Corporations Act 2001 (Cth) (the Corporations Act), the Defendant reinstate the registration of NetiveEdu Pty Ltd ACN 610 391 690 (the Company).

2.    All notification and advertising requirements in relation to an application for the winding-up of the Company be dispensed with.

3.    Upon reinstatement of its registration, the Company be wound up pursuant to section 461(k) of the Corporations Act.

4.    Upon reinstatement of its registration, Michael Andrew Hogan and Christian Peter Sprowles of Hogan Sprowles, registered liquidators, be appointed joint and several liquidators of the Company pursuant to section 472 of the Corporations Act.

5.    Upon reinstatement of its registration, the registered office of the Company be c/-Hogan Sprowles, Level 9, 60 Pitt Street, Sydney NSW 2000.

6.    The costs of this application be costs in the winding-up of the Company.

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

REASONS FOR JUDGMENT

CHEESEMAN J:

Introduction

1    The Plaintiffs, as the liquidators of Cornerstone Investment Aust Pty Ltd (in liquidation) (Cornerstone), apply for orders reinstating the registration, and once reinstated, the winding up, of NetiveEdu Pty Ltd (NetiveEdu). The Plaintiffs also seek to be appointed as the joint and several liquidators of NetiveEdu.

2    Cornerstone appears to have a claim against NetiveEdu for at least $2,750,000 and there appears to be a prospect of recovering at least some of that amount in the interests of Cornerstone’s creditors. The principal creditor of Cornerstone is the Commonwealth of Australia. The Commonwealth is owed a substantial judgment debt.

3    In proceedings commenced by the Australian Competition and Consumer Commission (the ACCC) and the Commonwealth, Cornerstone was found liable for abusing a Commonwealth government program (VET FEE-HELP) which supported students in respect of vocational and education training fees (the ACCC Proceedings). Under VET FEE-HELP, the Commonwealth paid Cornerstone, as a registered training provider (RTO), for individual student’s course fees and the student incurred a debt to the Commonwealth in an amount that was approximately 120% of that paid to Cornerstone by the Commonwealth in respect of the student. Cornerstone was found liable to the Commonwealth in September 2018: Australian Competition and Consumer Commission v Cornerstone Investment Aust Pty Ltd (in liq) (No 4) [2018] FCA 1408. Cornerstone was relevantly ordered to pay to the Commonwealth compensation in the total sum of $56,326,063.82: Australian Competition and Consumer Commission v Cornerstone Investment Aust Pty Ltd (in liq) (No 5) [2019] FCA 1544.

4    NetiveEdu was registered on 27 January 2016. It was voluntarily deregistered pursuant to s 601AA of the Corporations Act 2001 (Cth). The date of deregistration is 24 April 2018, but the relevant corporate search shows an effective date of 22 November 2017. At the time of the application for deregistration, the sole director and shareholder of NetiveEdu, Gregory Hickman, certified to the Australian Securities and Investment Commission (ASIC) that NetiveEdu had no outstanding liabilities, and assets worth less than $1,000: Corporations Act, s 602AA(2)(c) and (e).

5    ASIC is on notice of these proceedings and has been served with the substantive evidence relied on by the Plaintiffs. ASIC did not appear at the hearing, having confirmed that it does not wish to be heard and does not oppose the relief sought by the Plaintiffs. Mr Hickman has not responded to the Plaintiffs’ communications. The evidence filed by the Plaintiffs demonstrates that the application has likely been brought to his attention.

6    The Plaintiffs rely on the evidence of Michael Hogan, one of the joint and several liquidators and a plaintiff in the proceedings, and Thomas Karle, one of the Plaintiffs’ solicitors. Mr Hogan is a registered liquidator with over 15 years’ experience.

Background

7    Cornerstone was incorporated on 22 April 1998. Cornerstone operated as an RTO under the business name “Empower”. Jin Heung Yang was a director and the sole secretary of Cornerstone. From 20 March 2008, Mr Yang was the sole director of Cornerstone. From 30 June 2010, Mr Yang was the beneficial owner of the whole of the issued share capital in Cornerstone. Mr Yang’s whereabouts is unknown. He has not assisted the liquidators in any material way with the investigation into the business and affairs of Cornerstone.

8    On 8 December 2015, the ACCC Proceedings were commenced. The ACCC Proceedings did not include any claim against any individual officers or the director of Cornerstone.

9    Mr Hogan’s evidence, based on his review of the books and records of Cornerstone, is that in the six month period from July 2014 to December 2014:

(a)    4,333 students were enrolled in an educational course offered by Cornerstone;

(b)    of those 4,333 students:

(i)    a cumulative total of 671 unique students logged into Cornerstone's online learning platform;

(ii)    a cumulative total of 68 unique students logged into Cornerstone's online learning platform for more than one minute;

(iii)    a cumulative total of 88 unique students completed an assignment in relation to their respective educational course;

(iv)    a cumulative total of 3 unique students graduated from their respective educational course with Cornerstone; and

(c)    Cornerstone received revenue from the Commonwealth in the total sum of approximately $63,873,320 from its enrolment activities over the six month period.

10    Cornerstone’s conduct in this period is neatly summarised by Gleeson J in Cornerstone (No 5) at [4]:

… at least in the period June 2014 to mid-December 2014 … [Cornerstone] targeted many vulnerable consumers, deploying a system that generated very large enrolments in its vocational education and training (VET) courses and consequently very large revenues in the form of Commonwealth VET FEE-HELP payments. Over those six months, [Cornerstone] signed up more than 4,000 consumers, resulting in VET FEE-HELP payments by the Commonwealth to [Cornerstone] in excess of $55 million.

It is not necessary for present purposes to describe the conduct in any greater detail.

11    About a month after the ACCC Proceedings were commenced, by email dated 15 January 2016, Mr Yang, the sole director of Cornerstone, approved an arrangement whereby Cornerstone would pay $2.5 million (in four payments at specified stages of the project) to another entity for the creation of an online platform. The email is silent as to GST. The relevant email communications involved Mr Yang, Glen Dobbie and Steve Suprapto. The evidence does not reveal the relationship, if any, between Mr Dobbie, Mr Suprapto, Mr Yang and / or Cornerstone.

12    NetiveEdu was incorporated on 27 January 2016. One week after its incorporation, NetiveEdu issued an invoice dated 2 February 2016 to Cornerstone for $550,000 (incl GST), purportedly as the first progress payment (of a total contract sum of $2.75 million (incl GST)). The invoice was sent by email on 4 February 2016. The email appears to be from Greg Hickman, the director of NetiveEdu. It is sent to Mr Dobbie, who forwards it to Mr Yang, Mr Suprapto and Mylah Amboang, Cornerstone’s bookkeeper.

13    The email also encloses a “work order” which included under the heading “Scope of Work” details in respect of the development of an “online learning portal and an education management system” and the implementation of “a sales and marketing cloud” and “a services cloud”. The work order included a payment schedule for a total project cost of AUD $2,500,000 plus GST. The first payment was for 20% ($500,000 plus GST) and was due upon signing. The balance of the payments were as follows: 30% ($750,000 plus GST) within 30 days of commencement; 30% ($750,000 plus GST) within 90 days of commencement and 20% ($500,000 plus GST) at completion. The work order in evidence is not executed. The covering email from Mr Dobbie directs the Cornerstone bookkeeper to insert Mr Yang’s signature as “Authorised Representative for Cornerstone” and attaches Mr Yang’s email of 15 January 2016 as an approval.

14    Also attached to the email of 4 February 2016 is an undated, unexecuted copy of a Software Development and Consulting Agreement between Cornerstone and NetiveEdu. Clause 4.1 of the terms of the purported agreement required NetiveEdu to provide the required services conditional upon payment of the agreed fee. The “Delivery Date” was a defined term but a date was not specified. A commencement date was not specified and the term was not defined.

15    A day later, on or around 5 February 2016, Cornerstone paid NetiveEdu $550,000, the amount inclusive of GST of the first payment specified in the work order.

16    On 10 March 2016, NetiveEdu issued Cornerstone with a “revised work order” and a further tax invoice for $2.2 million (incl GST). The revised work order and invoice were sent by email from Mr Hickman to Mr Dobbie. The email states that the revised work order and invoice have been issued “as per your instructions from Cornerstone”. The revised work order included a payment schedule which stipulated a second, and final, payment of 80% ($2,000,000 plus GST) within 30 days of commencement. It was paid in full the next day, 11 March 2016.

17    One week after the $2.2 million was paid, on 18 March 2016, Alistair McKeough, Cornerstone’s then solicitor, sent an email to Mr Suprapto and Mr Dobbie (but not to NetiveEdu’s director, Mr Hickman) stating:

“Given Cornerstone’s current difficulties, [Mr Yang] does not wish to pursue the Online Platform and would rather preserve Cornerstone’s capital to meet any obligations it faces from the ACCC proceedings and other refunds that may be required.

Accordingly, he proposes that a new entity be incorporated which will acquire the Online Platform from Cornerstone, for the same price paid by Cornerstone.

Given that Cornerstone has given certain undertakings not to dispose of assets, this transaction would be disclosed to the ACCC and [Mr Yang] would not be a shareholder in the entity.

Could you please let me know when it would be convenient to discuss the new vehicle please?”

18    On 8 April 2016, Cornerstone’s then solicitor sent a further email to Mr Dobbie and Mr Suprapto, copied to Mr Yang, seeking further information as to their “shareholding entities” and the name they wanted for the “NewCo” and confirmation that its directors would be “Glen and Steve”. The email enclosed a draft letter to the Australian Government Solicitor seeking confirmation that the ACCC and the Commonwealth would not consider a disposal of “the online asset” to breach Cornerstone’s undertaking to the Federal Court. Mr Dobbie replied on the same day, copying Mr Suprapto and Mr Yang, stating that his shareholding entity would be DF Finance Pty Ltd as trustee for the DF Trust and expressing the view that “given the circumstances my preference would be to enlist a nominee director and secretary service initially for NewCo if that is possible/available?” The email records as attachments pdf files with the titles “Work Order – Cornerstone Investments Aust Pty Ltd – signed” and “Cornerstone Investment Aust Pty – Terms Conditions – signed”. These document are not in evidence.

19    Despite Mr Hogan’s investigations, he has not identified any evidence that NetiveEdu ever supplied the online learning platform or any similar platform to Cornerstone, or that NetiveEdu undertook any substantive work on such a platform. Further, Mr Hogan’s evidence is that it does not appear that the agreement between Cornerstone and NetiveEdu was ever terminated, novated or otherwise assigned.

20    Based on Mr Hogan’s evidence, it appears that NetiveEdu dispersed the $2.75 million it received from Cornerstone to three other entities (or possibly three groups of related entities) by September 2016.

21    In June / July 2016, NetiveEdu transferred $200,000 to “Fortrust I Fortrust” or “Fortrust I Steve” comprised of $150,000 paid on 29 June 2016 and $50,000 paid on 1 July 2016. “Fortrust I” appears to be Fortrust International Pty Ltd, a company associated with Mr Suprapto, who was a director and secretary in 2016 and continues to be a shareholder. Mr Suprapto was the recipient of emails relating to the NetiveEdu / Cornerstone transaction and charges as well as the creation of a new entity to acquire the learning platform from Cornerstone.

22    In August / September 2016, NetiveEdu transferred $1,864,184.05 to “Indogro Institut” or “Indogro IT Cost”, comprised of $866,684 paid on 10 August 2016 and $997,500.05 paid on 9 September 2016. “Indogro Institut” appears to be Indogro Institute, an English language academic provider based in Jakarta, Indonesia.

23    On 1 July 2016, NetiveEdu transferred $635,568.22 to “Hillside”. The liquidators’ investigations at this stage have not shed light on the identity of Hillside. NetiveEdu’s bank records also show payments from Hillside entities to NetiveEdu.

24    Cornerstone was placed into liquidation on 26 April 2017 pursuant to s 499 of the Corporations Act, at which time the Plaintiffs, Mr Hogan and Mr Sprowles, were appointed as joint and several liquidators.

25    The ACCC Proceedings were heard over two days in August 2017, after leave to proceed against Cornerstone under s 500(2) of the Corporations Act was granted on 30 May 2017: Australian Competition and Consumer Commission v Cornerstone Investment Pty Ltd (In Liquidation) (No 3) [2017] FCA 749.

26    On 22 November 2017, Mr Hickman signed NetiveEdu’s application for voluntary deregistration in which he declared that all members of the company agreed to deregistration; the company was not carrying on business; the company’s assets were worth less than $1,000; the company had paid all fees and penalties payable under the Corporations Act; the company had no outstanding liabilities and that the company was not a party to any legal proceedings.

27    On 22 March 2018, David Ian Mansfield was appointed as Mr Yang’s trustee in bankruptcy after the Official Trustee accepted Mr Yang’s debtor’s petition pursuant to s 55 of the Bankruptcy Act 1966 (Cth).

28    As noted above, Cornerstone was found liable in the ACCC Proceedings on 19 September 2018: Cornerstone (No 4), and final orders for compensation were made on 20 September 2019: Cornerstone (No 5).

29    On 29 November 2018, Parliament passed the Higher Education Support Amendment (VET FEE-HELP Student Protection) Act 2018 (Cth) which empowered the Secretary of the relevant Commonwealth department to make a decision, on the Secretary’s own initiative, to re-credit a student’s VET FEE-HELP balance if the Secretary is satisfied that it is reasonably likely that the VET provider or its agent engaged in inappropriate conduct towards the consumer. Relevantly, the power to re-credit the VET FEE-HELP balances of Cornerstone students was exercised in respect of the vast majority of students in around May 2019. These students are no longer required to repay their VET FEE-HELP debts to the Commonwealth. The relevant Commonwealth department paid Cornerstone in the order of about $55 million in respect of the students who were relieved of their debt: Cornerstone (No 5) at [10] - [14].

Relevant legal principles

Voluntary deregistration

30    Section 601AA relevantly provides:

Who may apply for deregistration

(1)    An application to deregister a company may be lodged with ASIC by:

   …

(b)    a director or member of the company; or

   …

Circumstances in which application can be made

(2)    A person may apply only if:

(a)    all the members of the company agree to the deregistration; and

(b)    the company is not carrying on business; and

(c)    the company’s assets are worth less than $1,000; and

(d)    the company has paid all fees and penalties payable under this Act; and

(e)    the company has no outstanding liabilities; and

(f)    the company is not a party to any legal proceedings.

Reinstatement of a deregistered company by the Court

31    Section 601AH(2) of the Corporations Act relevantly provides:

(2)    The Court may make an order that ASIC reinstate the registration of a company if:

   (a)    an application for reinstatement is made to the Court by:

(i)    a person aggrieved by the deregistration; or

(ii)    a former liquidator of the company; and

(b)    the Court is satisfied that it is just that the company's registration be reinstated.

32    The power under s 601AH is discretionary and enlivened by the two conditions in s 601AH(2)(a) and (b) being met. The applicant must fall within s 601AH(2)(a)(i) or (ii). Relevantly in the present case, the Plaintiffs must demonstrate that they are a “person(s) aggrieved by the deregistration”: s 601AH(2)(a)(i). Additionally, the Court must be satisfied that it is just that the company’s registration be reinstated: s 601AH(2)(b).

33    The authorities in relation to the reinstatement of a deregistered company by the court were comprehensively reviewed by Gleeson J in Yeo v Australian Securities and Investments Commission [2017] FCA 1480 at [11] - [26]. The relevant principles may be summarised as follows:

Discretion

(1)    The Court’s exercise of discretion will be informed by an assessment of all of the relevant circumstances and each case will turn on its own facts : Yeo at [23] citing Re ERB International Pty Ltd (deregistered) [2014] NSWSC 200 at [5] (Brereton J).

(2)    If the court is satisfied as to the conditions in s 601AH(2)(a) and (b), then in the ordinary course an order for reinstatement will be made: Yeo at [25] and the cases cited therein.

A person aggrieved by the deregistration

(3)    The expression “a person aggrieved by the deregistration” should not be narrowly construed: Yeo at [14] - [20] and the cases there cited.

(4)    In order to assess whether the plaintiff is an aggrieved party it is not necessary to embark on a detailed and exhaustive analysis of the facts and law underpinning the claim. The threshold is low and the assessment need to be dealt with in a summary way: Yeo at [14] citing Re Brockweir Pty Ltd [2012] VSC 225 at [22] (Sifris J).

(5)    Whether an applicant under s 601AH(2) is a “person aggrieved by the deregistration” is considered by reference to legal rights and legal interests. The applicant must have a genuine grievance that the dissolution of the company affected his or her interests because, for example, a right of some value or potential value has gone out of existence: Yeo at [18] citing Barrett J (at [43]) in Arnold World Trading Pty Ltd v ACN 133 427 335 Pty Ltd [2010] NSWSC 1369; (2010) 80 ACSR 670 in turn citing Austin J (at [24] - [26]) in Australian Competition and Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316; (2000) 174 ALR 688 (ACCC v ASIC).

(6)    The nature of the applicant’s interest must be sufficient to distinguish them from an officious bystander or mere busybody and is a matter to be judged in context: Yeo at [15], [19] citing Partners in Enterprise Pty Ltd v Sampson [2002] NSWSC 383 at [8] (Barrett J) and Brereton v Australian Securities and Investment Commission [2007] FCA 651 at [2] (Finkelstein J) respectively.

Is reinstatement just

(7)    The provisions that the court “may” order reinstatement if satisfied that it is “just” to do so confers a broad discretionary judgment on the Court. Relevant considerations in the exercise of the discretion include the circumstances in which the company was deregistered, the purpose in seeking its reinstatement, whether any person is likely to be prejudiced by reinstatement, and the public interest generally. These considerations are not limitations on the Court’s power: Yeo at [23] citing ERB International at [5] in turn citing ACCC v ASIC at [27] - [28]:

[27] The wording of the section is very broad, and the cases confirm that it gives the court a wide discretion. The court takes into account the circumstances in which the company came to be dissolved; whether, if the order were made, good use could be made of it; and whether any person is likely to be prejudiced by the reinstatement: Re Kilkenny Engineering Pty Ltd (in liq) (1976) 1 ACLR 285; Drysdale v Australian Securities Commission (1992) 10 ACLC 1427; Re Steelmaster Pty Ltd (in liq) (1992) 6 ACSR 494.

[28] These matters are only factors to be weighed in the exercise of the court's discretion. They are not limits on the court's power. Here, the reinstatement is likely to lead to the company being joined in proceedings in which the ACCC will seek orders for pecuniary penalties against it. The company may therefore be prejudiced. The court may nevertheless conclude that it is just that the company's registration be reinstated, having regard (for example) to the strong public interest which is involved. It is appropriate for the court to take into account questions of public interest in exercising its discretion under s 601AH: Re Immunosearch Pty Ltd (1990) 2 ACSR 455.

(8)    A matter for consideration by the Court in the exercise of the discretion is the future stewardship of the company if and when it comes back into existence: Stone v ACN 000 337 940 Pty Ltd [2008] NSWSC 1058; (2008) 68 ACSR 242 at [23] (Barrett J).

Winding up

34    Section 461(1)(k) of the Corporations Act is a broad power available to the Court to order the winding up of a company where the Court is of the opinion that it is just and equitable to do so. A creditor (including a contingent or prospective creditor) of the company has standing to seek such an order: Corporations Act, s 462(2)(b).

35    Orders may be made for the immediate winding-up of a company following reinstatement: see, for example, ACN 078 272 867 Pty Ltd (in liq) v Deputy Commissioner of Taxation [2011] HCA 46; (2011) 282 ALR 607 at [38] - [40]. Such orders were made by Gleeson J in Yeo.

36    A question of funding may arise in some cases where a winding-up order is sought post reinstatement. However, funding will not usually be required where the company has not previously been in liquidation and where registered liquidators have consented to the appointment as the situation is no different to that which ordinarily arises in a winding up proceeding where consent is provided by a liquidator to perform his/her duties with respect to a presumed insolvent company: see for example, Re Lek Management Consulting Pty Ltd [2019] VSC 261 at [47] - [51].

Consideration

Persons Aggrieved

37    On the basis of the Plaintiff’s evidence, I am satisfied that Cornerstone is relevantly a person aggrieved by the deregistration of NetiveEdu. On the evidence presently available, Cornerstone appears to have a strong bona fide claim against NetiveEdu arising out of the circumstances surrounding entry into the online learning platform agreement and the payments purportedly made under that agreement. The agreement was entered into, and the payments were made, in the face of the commencement of the ACCC Proceedings in which Cornerstone was ultimately found to have engaged in misleading or deceptive and unconscionable conduct and was ordered to pay compensation to the Commonwealth totalling $56,326,063.82. Cornerstone paid NetiveEdu $2.75 million for a product that appears never to have been developed or provided, and for services which appear never to have been performed. The agreement is suspicious on its face, more so when the revised payment schedule is taken into account and regard is had to the haste with which payments in substantial sums were made to NetiveEdu, a company that had only been incorporated in late January 2016 and which had a share capital of $1.00, unpaid.

38    The suspicious nature of the agreement and the payments is compounded by the correspondence involving Mr Yang, Mr Dobbie, Mr Suprapto and Mr McKeough in relation to transferring the “benefit” of the agreement or the “online asset” to entities associated with Mr Dobbie and Mr Suprapto and by the steps taken to voluntarily deregister NetiveEdu after payments were made to Indogro, Fortrust and Hillside. The correspondence about transferring the agreement or the online asset occurs shortly after Cornerstone paid NetiveEdu the full $2.75 million for the purported provision of products and services under the agreement. There is no evidence that the agreement was terminated, novated or otherwise assigned. There is no evidence as to the mooted approval of the disposal of the “online asset” being obtained from the Commonwealth or the ACCC, notwithstanding the concern that the disposal was potentially a breach of an undertaking given by Cornerstone to this Court in the ACCC Proceedings.

39    Cornerstone appears to have a strong prima facie claim against NetiveEdu for at least breach of contract and under Part 5.7B of the Corporations Act, including under s 588FF in respect of voidable transactions and under ss 180 - 183 of the Corporations Act for breach of director’s duties. The liquidators also wish to investigate potential actions for money had and received. There do not appear to be any limitation issues in respect of these claims.

Is reinstatement just and if so, is it just and equitable to wind up

40    Although NetiveEdu will not, on reinstatement, have funds to satisfy Cornerstone’s claims, the liquidators through their enquiries have identified individuals and potentially associated entities who appear to be the recipients of at least part of the $2.75 million paid to NetiveEdu by Cornerstone. The very substantial payments of $2,699,752.27 to Indogro, Fortrust and Hillside which appear to have been arranged by Mr Suprapto, Mr Dobbie, Mr Yang and Mr Hickman warrant further investigation.

41    Mr Hogan’s investigations thus far have not identified any basis for these transfers. I am satisfied that it is just and equitable to order NetiveEdu to be wound up under s 461(k) of the Corporations Act. This is necessary to facilitate a thorough investigation of the circumstances surrounding the receipt and disbursement of the Cornerstone payment of $2.75 million and to enable potential recovery actions to be instituted on behalf of NetiveEdu and its creditors. Mr Hickman, the sole director of NetiveEdu at the time of its deregistration, and for most of the period it was registered, is unable to be located and appears to be materially involved in the matters which require investigation. Upon NetiveEdu’s reinstatement it will have no directors. It is appropriate to appoint liquidators to NetiveEdu in these circumstances.

42    Cornerstone is a creditor for $2.75 million plus interest. If NetiveEdu can recover funds from third parties, there is a real prospect of additional returns being made available for the creditors of Cornerstone, including – predominantly – the Commonwealth. There is a real public interest in the relief sought being granted. There are no other known or potential creditors of NetiveEdu. The certification made by NetiveEdu’s director, Mr Hickman, at the time of the deregistration application was that the company had no creditors and was not conducting business.

43    I am satisfied that it is just to reinstate NetiveEdu on the basis that once reinstated it be wound up under s 461(k) of the Corporations Act.

Appointment of Liquidators

44    I now turn to consider the final aspect of the relief claimed by the Plaintiffs. That is, whether on the reinstatement and winding up of NetiveEdu, the liquidators of Cornerstone should be appointed as the liquidators of NetiveEdu. Senior Counsel for the Plaintiffs was not able to identify any case in which the liquidators of a creditor who had applied for the reinstatement of a debtor were appointed as the liquidators of the debtor in circumstances where the creditor and debtor are not related companies. Notwithstanding that Cornerstone and NetiveEdu are not related companies, the following principles drawn from cases dealing with the same liquidator being appointed to related companies are apposite:

(1)    The liquidator appointed is an officer of the Court, in the sense that he is under the control of the Court, and he will be aware that should the stage be reached that conflicts cannot fairly be resolved without the appointment of another liquidator he should approach the Court to be relieved of one of his offices: Re Nuhan Ltd (1980) 5 ACLR 69 at 76 (Needham J); Australian Executor Trustee Ltd v Provident Capital Ltd, in the matter of Provident Capital Ltd (receivers and managers appointed) (in liq) [2013] FCA 1461 at [11] – [12] (Rares J).

(2)    The Court is generally content to leave with the liquidator concerned the responsibility to be vigilant for the future emergence of conflicts: Hays Personnel Services (Australia) Pty Ltd v ACN 094 797 618 Pty Ltd [2006] NSWSC 917; (2006) 58 ACSR 599 at 605 [21] (Barrett J).

(3)    In the event that a real as opposed to theoretical conflict manifests, the liquidator may approach the Court for orders.

(4)    Section 90-20(1) of the Insolvency Practice Schedule (Corporations) (IPS), being Schedule 2 to the Corporations Act, permits an application to the Court for orders under s 90-15(1) of the IPS. Such orders may include an order determining any question arising in the external administration: IPS, s 90-15(3)(a); Warner (liquidator), in the matter of Sakr Bros Pty Ltd (in liq) [2019] FCA 547 at [17] – [18] (Griffiths J).

(5)    In some cases, the appointment of a special purpose liquidator will be an appropriate means of addressing the conflict. In considering whether to appoint a special purpose liquidator, it will be relevant to consider if such an appointment would generate an unwarranted additional burden on creditors: Warner at [19].

(6)    An alternative approach is to seek Court approval for the liquidator to act in accordance with an independent report addressed to the issues the subject of the conflict: Sheahan, in the matter of B.C.I Finances Pty Limited (in liq) [2020] FCA 1411 at [27] (Charlesworth J).

45    The Plaintiffs submitted and I accept that in the present context it is appropriate to appoint the liquidators of Cornerstone as the liquidators of NetiveEdu for the following reasons.

46    Cornerstone is likely the only creditor of NetiveEdu. The liquidators of Cornerstone have already undertaken substantial investigations, including in relation to NetiveEdu and are well placed to be appointed liquidators of NetiveEdu. Their appointment, as opposed to another liquidator, is likely to result in efficiencies and cost savings based on their familiarity with Cornerstone’s operations as a result of their conduct of public examinations and the administration of production orders in the Cornerstone liquidation. They have consented to being appointed.

47    Based on his investigations to date, Mr Hogan is of the view that there does not appear to be any realistic dispute as to NetiveEdu’s indebtedness to Cornerstone in respect of $2.75 million. Further, Mr Hogan in his capacity as a liquidator and cognisant of his duties in that regard has indicated that he will approach the Court for further orders, including the appointment of a special purpose liquidator should that be appropriate. Further, that he will approach the Court if a dispute or conflict arises with respect to Cornerstone’s claim against NetiveEdu and or if an issue arises in relation to whether NetiveEdu should admit Cornerstone’s proof of debt or if other directions are required including as to the manner in which any dividend is to be paid. That a liquidator will approach the court should a conflict emerge “goes without saying and it is part of their obligation”: Hays at [20] citing Bergin J in Re HIH Insurance Ltd (NSWSC, 15 March 2001, unreported).

48    The Plaintiffs’ evidence is that at present Cornerstone has funds available to it in a sum exceeding $500,000. Further, if the liquidators are appointed, they are well placed to consider and procure funding, to the extent required, from Cornerstone and its creditors, primarily the Commonwealth, to cover their fees in discharging their duties as liquidators of NetiveEdu, including conducting further investigation into the circumstances described above.

49    Finally, and by way of conclusion, the serious fraud that gives rise to Cornerstone’s debt to the Commonwealth is such that there is a strong public interest in the reinstatement of NetiveEdu and the appointment of Cornerstone’s liquidators as its liquidators. It will facilitate at least some potential recovery, ultimately for the benefit of the Commonwealth, in circumstances where there do not appear to be alternate avenues of recovery available to the Commonwealth having regard to the fact that the VET student loans have been re-credited.

Conclusion

50    For these reasons, I make the orders sought by the Plaintiffs.

Associate:

Dated:    30 June 2021