Federal Court of Australia

Frisken v Holdsworth, in the matter of Realmark Services Pty Limited (in liq) [2022] FCA 1173

ORDERS

THE COURT ORDERS THAT:

1.    In the originating process filed on 12 August 2022 in this proceeding, the first and second applicants be renamed the first and second plaintiffs respectively.

2.    Pursuant to r 1.10 of the Federal Court (Corporations) Rules 2000 (Cth) and r 1.39 of the Federal Court Rules 2011 (Cth), the time in which the originating process and supporting affidavit filed 12 August 2022 is to be served on the defendant be extended to 27 February 2023.

3.    If the defendant is served with a summons for examination by the first plaintiff in proceeding VID 560 of 2022, the first plaintiff must also give written notice to the defendant of this proceeding and provide the first defendant with a copy of these orders and accompanying reasons of the Court.

4.    The proceeding be listed for further case management on a date to be fixed after 27 February 2023.

5.    Costs be reserved.

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

REASONS FOR JUDGMENT

O’BRYAN J:

Introduction

1    On 13 August 2019, the second applicant, Realmark Services Pty Limited (in Liquidation) (the Company), was wound up by resolution of its sole director and the defendant to this proceeding, Ms Samantha Holdsworth. The first applicant, Mr Daniel John Frisken (liquidator), was appointed as liquidator of the Company on 13 August 2019. I note that the liquidator and the Company are described in the originating process as the first and second applicants. By effect of my orders of today’s date, they are to be renamed as the first and second plaintiffs respectively. They will be referred to collectively as the plaintiffs for the remainder of these reasons.

2    The plaintiffs commenced this proceeding on 15 August 2022 by filing an originating process and supporting affidavit of Ms Dajana Malnersic sworn 12 August 2022. By reason of certain payments or loans that the plaintiffs allege were made by the Company to the defendant, the plaintiffs seek:

(a)    declarations that the payments made to the defendant were:

(i)    unreasonable director-related transactions pursuant to s 588FDA of the Corporations Act 2001 (Cth) (the Act);

(ii)    voidable transactions pursuant to s 588FE of the Act;

(b)    an order directing the defendant to pay to the first plaintiff or second plaintiff (or any combination of them) the sum of the voidable transactions found by the Court to be voidable transactions pursuant to s 588FF(1)(a) of the Act;

(c)    an order directing the defendant to transfer to the second plaintiff property of the second plaintiff that the second plaintiff has transferred pursuant to s 588FF(1)(b) of the Act; and

(d)    judgment for the first plaintiff or second plaintiff (or any combination of them) in the sum of $2,275,977.93.

3    The originating process and supporting affidavit have not yet been served on the defendant as required by r 2.7 of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules). Rule 2.7 requires an originating process to be served as soon as practicable and at least five days before the return date (as does r 8.06 of the Federal Court Rules 2011 (FCRs)).

4    By an interlocutory application filed 29 September 2022, the plaintiffs sought orders of the Court pursuant to r 1.10 of the Corporations Rules and r 1.39 of the FCRs extending the time for service of the originating process and supporting affidavit to 27 February 2023, to allow time for further investigations. An affidavit of Mr Dominic Dragicevic, sworn 29 September 2022, was filed in support of the application. The plaintiffs also filed an outline of written submissions in support of their application on 30 September 2022.

5    The interlocutory application was heard ex parte on 30 September 2022. At the hearing, I made the order sought by the plaintiffs extending the time by which the originating process and supporting affidavit are to be served on the defendant. I also made a further order that, if the defendant is served with a summons for examination by the first plaintiff in the related proceeding VID 560 of 2022, the first plaintiff must give written notice to the defendant of this proceeding and provide her with a copy of these orders and accompanying reasons of the Court.

6    The following are my reasons for making those orders.

Applicable principles

7    Rule 1.10 of the Corporations Rules provides as follows:

Unless the Corporations Act, the ASIC Act, or these Rules otherwise provide, the rules of this Court that provide for the extension or abridgment of a period of time fixed for the doing of any act or thing in relation to a proceeding apply to a proceeding to which these Rules apply.

8    Rule 1.39 of the FCRs provides that:

The Court may extend or shorten a time fixed by these Rules or by order of the Court:

(a)    before or after the time expires; and

(b)    whether or not an application for extension is made before the time expires.

9    In Weston v Publishing and Broadcasting Ltd [2007] NSWSC 1318 (Weston), in the context of an application for an extension of time for service also brought by a liquidator (the first of a number of such applications), Barrett J observed of the application of a similar rule in the New South Wales Supreme Court (r 1.12 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR)) (at [2]):

The decided cases make it clear that the court’s discretion in this respect is broad and that the court need see no more than “good reason” to make the extension sought: see, for example, Buzzle Operations Pty Ltd v Breirl [2007] NSWSC 922, FAI Insurances Ltd v Mainprize [2006] NSWSC 554, Kleinwort Benson Ltd v Barbrak Ltd [1987] AC 597, Rich v Packer & Ors; Rich v Long & Ors [2007] NSWSC 1290 and Zhang v Semin [2007] NSWSC 229.

Evidence and submissions in support of the application

10    In support of the application, the plaintiffs rely on the following matters that are set out in the Dragicevic affidavit:

(a)    Since Mr Frisken’s appointment as liquidator, the liquidation has been without funds (other than an upfront payment from the defendant in the sum of $22,000 on account of the liquidator’s fees and disbursements in acting as liquidator).

(b)    In or around September 2021, the liquidator instructed the solicitors Polczynski Robinson to review the material received by the liquidator during the course of his appointment as liquidator of the Company.

(c)    Between approximately September 2021 and August 2022, Polczynski Robinson reviewed the material provided by the liquidator, considered potential causes of action available to the liquidator, issued a letter of demand to the defendant and ultimately commenced this proceeding.

(d)    This proceeding was commenced to avoid any potential limitation of action issues for the causes of action which may be available to the plaintiffs against the defendant. The proceeding was commenced on the basis of information presently known to the plaintiffs. However, the liquidator wishes to undertake further investigations in relation to those matters.

(e)    The liquidator’s current state of knowledge indicates that the defendant, as former director of the Company, opened a personal account with ABC Bullion in 2019. From 21 January 2019 to 13 February 2019 the sum of $392,250.45 was transferred from one of the Company’s bank accounts to an account with ABC Bullion. The liquidator wishes to investigate those matters.

(f)    The liquidator has filed a separate application in the Federal Court (proceeding number VID560/2022) seeking public examination of the defendant and seeking documentary production from ABC Bullion (the Public Examination Proceeding).

(g)    The liquidator’s investigations would benefit from time to obtain documentary production from ABC Bullion before the defendant is made aware of the claim against her. That is because it will assist the liquidator to identify whether there are assets that could aid in any recovery, and would allow the liquidator time to seek undertakings from the defendant or else take steps to protect those assets.

(h)    Following those investigations, the liquidator may wish to refine its claim or seek to discontinue the proceeding.

11    The plaintiffs’ evidence also discloses that a draft summons for examination of the defendant has been filed in the Public Examination Proceeding. The plaintiffs stated that it is their intention to inform the defendant of this proceeding at the time that she is served with any Summons for Examination in the Public Examination Proceeding.

12    As to the potential prejudice to the defendant from the delay in service of the originating process in this proceeding, the plaintiffs noted (as was appropriate in circumstances where the application was brought ex parte) that the defendant is being deprived of an opportunity to commence preparation of a defence. Counterbalancing that possible prejudice, the plaintiffs submitted that, if time for service is extended, costs may be saved because the proceeding may ultimately be discontinued. If the proceeding does go forward, the defendant can seek additional time in which to prepare a defence or apply to the Court to set aside the order extending time if she can demonstrate that it was inappropriate to make the order.

Consideration

13    On the basis of the evidence provided by the applicant, I am satisfied that there is “good reason” (Weston at [2]) to grant the extension of time sought by the plaintiffs, namely that it will give the liquidator time to obtain documentary production from ABC Bullion before the defendant is made aware of the claim against her, and thereby assist the liquidator in identifying whether there are assets that could aid in any recovery. It will also allow the liquidator time to seek undertakings from the defendant or else take steps to protect those assets. I accept that the proceedings were filed at this time to avoid limitation issues, and following those investigations the liquidator may wish to refine its claim or seek to discontinue.

14    In considering whether to grant the extension sought, I have weighed these benefits to the liquidator’s investigations against any potential prejudice to the defendant. As the plaintiffs appropriately observed, the effect of the extension would be to deprive the defendant of an opportunity to commence preparation of a defence of a proceeding that is currently filed.

15    I am satisfied that no irremediable prejudice will be caused to the defendant by the making of these orders. This is principally on the basis that the defendant would be able to apply at a later date to set aside the extension of time order if the order did in fact cause prejudice to the defendant. In this regard I note the decision of the NSW Court of Appeal in Weston v Publishing and Broadcasting [2012] NSWCA 79; 88 ACSR 88, in which Sackville AJA observed at [195] (Campbell and Young JJA agreeing) that the primary judge in that case was correct to set aside the fifth and sixth extensions of time awarded to the plaintiff on the basis of an unacceptable delay in serving the pleading and the consequent prejudice caused to the respondents. In that case, the primary judge had discharged the fifth and sixth extensions pursuant to r 12.11(1)(e) of the UCPR, which gives the Court the ability to make an order “discharging any order extending the validity for service of the originating process”. The equivalent to r 12.11(1) of the UCPR is r 13.01 of the FCR, but there is no direct equivalent to r 12.11(1)(e). Nevertheless, I am satisfied that such an order could be made by the Court pursuant to r 39.05(a) of the FCRs, which relevantly provides that the Court may vary or set aside a judgment or order after it has been entered if it was made in the absence of a party. For these reasons, I am satisfied that the ability to set aside the order for an extension counteracts any potential for prejudice to the defendant.

16    In the course of the hearing I also raised with the plaintiffs whether it might be necessary to make an order that, if the defendant is summoned to attend a public examination, the liquidator inform the defendant of the existence of this proceeding and the order extending time. The plaintiffs accepted that, in fairness to the defendant, and on the basis that she may wish to take objection to questions being asked in examination, she should be informed that these proceedings have been commenced before taking part in any examination in the Public Examination Proceeding.

Conclusion

17    For the foregoing reasons, I made the following orders:

(a)    Pursuant to r 1.10 of the Federal Court (Corporations) Rules 2000 (Cth) and r 1.39 of the Federal Court Rules 2011 (Cth), the time in which the originating process and supporting affidavit filed 12 August 2022 is to be served on the defendant be extended to 27 February 2023.

(b)    If the defendant is served with a summons for examination by the first plaintiff in proceeding VID 560 of 2022, the first plaintiff must also give written notice to the defendant of this proceeding and provide the first defendant with a copy of these orders and accompanying reasons of the Court.

Associate:

Dated:    30 September 2022