FEDERAL COURT OF AUSTRALIA

Hogan (liquidator) v McCorkell, in the matter of McCorkell & Associates Pty Ltd (in liq) [2023] FCA 863

ORDERS

THE COURT ORDERS THAT:

Short Service Orders

1.    The originating process (Process) filed on 27 July 2023 be returnable instanter.

2.    The time for service of the Process be abridged to 6pm on 28 July 2023.

3.    Subject to further order of the Court, the Process be returnable before the Commercial and Corporations Duty Judge at 10:15am on 2 August 2023.

Approval of the Funding Documents

4.    Subject to Order 5 below, pursuant to ss 37AF(1)(b), 37AG(1)(a) and 37AJ of the Federal Court of Australia Act 1976 (Cth), on the ground that it is necessary to prevent prejudice to the proper administration of justice, the following documents (Documents) be marked “Confidential” on the Court file and not be published, disclosed or accessed by any person, expect pursuant to an order of the Court, until the conclusion of the liquidation of the second plaintiff (Company):

(a)    pages 5 to 11 (both inclusive) of the Confidential Affidavit of Michael Andrew Hogan sworn 26 July 2023 (Confidential Affidavit); and

(b)    Exhibit MH-2 referred to in the Confidential Affidavit (Confidential Exhibit).

5.    Order 4 above does not prevent the plaintiffs, the plaintiffs’ legal representatives or the first plaintiff’s (Liquidator) servants, agents or employees, from disclosing, publishing or accessing the Documents and the information contained therein.

6.    Pursuant to ss 477(2B) and 506(1A) of the Corporations Act 2001 (Cth) (Corporations Act), leave be granted nunc pro tunc to the Liquidator to enter into the following documents on behalf of the Company:

(a)    the litigation funding agreement, a copy of which appears at pages 1 to 51 of the Confidential Exhibit; and

(b)    the deed of indemnity, a copy of which appears at pages 52 to 63 of the Confidential Exhibit.

Orders for Public Examinations

7.    Pursuant to ss 596A and 596D(1) of the Corporations Act, summons be issued in substantially the same form as the draft summonses appearing at pages 11 to 14 of Exhibit MH-1 to the affidavit sworn by the Liquidator on 26 July 2023 (Exhibit), for the following individuals to appear before the Court for examination by the Liquidator regarding the examinable affairs of the Company:

(a)    Scott Keith McCorkell; and

(b)    Liam Bailey.

8.    Pursuant to ss 596B and 596D(1) of the Corporations Act, summons be issued in substantially the same form as appearing at pages 1 to 10 and 15 to 16 of the Exhibit to the following individuals to appear before the Court for examination by the Liquidator regarding the examinable affairs of the Company:

(a)    Georgina McCorkell;

(b)    Karen Powell;

(c)    Aaron Robinson;

(d)    Andrew Whittingham;

(e)    Andrew Fraser; and

(f)    Kyle Macmillan.

9.    Pursuant to s 597(13) of the Corporations Act, that the questions to be put to each of the persons specified in Orders 7 and 8 above (Examinees), and the answers given by them, be recorded in writing, and that the Examinees sign a copy of that written record following the conclusion of their examination.

10.    Pursuant to r 11.6 of the Federal Court (Corporations) Rules 2000 (Cth), that each of the Examinees file with the Court their signed transcript prepared in accordance with Order 9 above.

11.    Pursuant to ss 596D(2) and/or 597(9) of the Corporations Act and/or r 30.34 of the Federal Court Rules 2011 (Cth), production be issued in substantially the same form as the draft orders for production appearing at pages 17 to 117 of the Exhibit to the following persons:

(a)    each of the Examinees;

(b)    Groves & Partners Pty Ltd;

(c)    BDJ Partners;

(d)    Macmillan Law Group Pty Ltd ACN 646 483 338 t/as Macmillan Lawyers and Advisors;

(e)    O’Brien Palmer Insolvency & Business Advisory;

(f)    Westpac Banking Corporation Limited ABN 33 007 457 141;

(g)    National Australia Bank Ltd ABN 12 004 044 937;

(h)    Australia and New Zealand Banking Group Ltd ABN 11 005 357 522;

(i)    Commonwealth Bank of Australia ABN 48 123 123 124;

(j)    American Express Australia Limited ABN 92 108 952 085; and

(k)    American Express International, Inc ABN 15 000 618 208.

Injunctive Orders

12.    Pursuant to s 1323(3) of the Corporations Act, the first defendant, Scott Keith McCorkell, by himself, his servants, agents and/or employees, be restrained, until 5pm on 2 August 2023, from:

(a)    selling, transferring, charging, mortgaging or otherwise dealing with, disposing of and/or diminishing in value his interest in the real property known as 57 Bay Street, Mosman NSW 2088 (being Folio Identifier 5/17543) (Property); and/or

(b)    causing, permitting and/or otherwise allowing his interest in the Property to be sold, transferred, charged, mortgaged or otherwise dealt with, disposed of and/or diminished in value.

13.    Subject to Order 14 below, pursuant to s 1323(3) of the Corporations Act, the second defendant, McCorkell Group Pty Ltd ACN 664 059 821 (McCorkell Group), by itself, its director(s), servants, agents and/or employees, be restrained, until 5pm on 2 August 2023, from:

(a)    selling, transferring, charging, encumbering or otherwise dealing with, disposing of and/or diminishing the value of its business, assets and undertakings (collectively, McCorkell Assets); and/or

(b)    causing, permitting and/or otherwise allowing the McCorkell Assets to be sold, transferred, charged, encumbered or otherwise dealt with, disposed of and/or diminished in value.

14.    Order 13 above does not prevent McCorkell Group, by itself, its directors, servants, agents and/or employees, from:

(a)    dealing with or disposing of any of the McCorkell Assets in the ordinary and proper course of the business of McCorkell Group;

(b)    paying or otherwise incurring a liability for ordinary business expenses bona fide and properly incurred in respect of the business of McCorkell Group;

(c)    in relation to matters not falling within (a) or (b) above, dealing with or disposing of any of the McCorkell Assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so, McCorkell Group give the plaintiffs at least one working days written notice of the particulars of the obligation; or

(d)    paying or otherwise incurring a liability for costs reasonably incurred in this proceeding.

Other Orders

15.    The plaintiffs’ costs:

(a)    in respect of Orders 1 to 11 above, be costs in the liquidation of the Company; and

(b)    in respect of Orders 12 to 14 above, be reserved.

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

REASONS FOR JUDGMENT

LEE J:

A    INTRODUCTION

1    This is an ex parte application which has come on an urgent basis in my capacity as Commercial and Corporations Duty Judge. The first plaintiff (Mr Hogan) is the liquidator of the second plaintiff, McCorkell & Associates Pty Ltd (in liq) (Company). Mr Hogan seeks, among other things:

(1)    approval to enter into a funding deed and an indemnity agreement pursuant to s 477(2B) of the Corporations Act 2001 (Cth) (Corporations Act);

(2)    orders for the issue of examination summons and production under Div 1, Pt 5.9 of the Corporations Act; and

(3)    interim asset preservation orders pursuant to s 1323(3) of the Corporations Act.

2    The proceeding was commenced by way of an originating process dated 27 July 2023 (originating process) and is supported by two affidavits sworn on the same date, namely an affidavit sworn by Mr Hogan (Hogan Affidavit) and a “Confidential” affidavit sworn by Mr Hogan (Confidential Affidavit).

3    I address the relief sought by the plaintiffs later in these reasons, but first, it is necessary to sketch some background and the circumstances giving rise to the application before the Court today.

4    I organise the balance of these reasons under the following headings:

B    BACKGROUND TO THE PROCEEDING

C    MATTERS TO BE INVESTIGATED

D    THE APPROVAL OF THE FUNDING DEED

E    THE ISSUE OF SUMMONS

F    THE APPLICATION FOR INTERIM ASSET PRESERVATION ORDERS

G    CONCLUSION AND ORDERS

B    BACKGROUND TO THE PROCEEDING

5    The Court has been provided with comprehensive and helpful submissions by Mr Stack of counsel, who appeared for the plaintiffs. What follows is largely drawn from those submissions and matters outlined in the Hogan Affidavit.

6    The Company was incorporated in August 1992. Its current director is the first defendant (Mr McCorkell), who was appointed in the same month. Its shareholders are Mr McCorkell and his wife, Georgina McCorkell (Mrs McCorkell), who was a director from 27 August 1992 to 20 June 2012.

7    The Company had, for many years, carried on a business (Business) of providing integrated advertising and marketing services. It conducted the Business from various locations globally with the assistance of a number of employees. The primary focus of the Business was on the provision of its services to a small number of large corporations.

8    By about November 2022, the Company had experienced a significant downturn in revenue. In the 2018 financial year, the Company’s revenue was $14.3 million, but by the end of the 2021 financial year, its annual revenue had fallen to $10.4 million.

9    On 23 November 2022, Mr McCorkell met with a registered liquidator, Mr Bailey (who eventually became the liquidator the Company); his accountant, Mr Fraser; and Mr Whittingham of Groves & Partners (a firm which provides various services including valuation services and restructuring advice) to discuss the Business and “the options available to the Company” (First Bailey Meeting).

10    Later, on 23 November 2022, Mr McCorkell registered a security interest on the Personal Property Securities Register (PPSR) noting an “all present and after-acquired property” interest in the assets of the Company. That interest appears to refer to a loan agreement (Loan Agreement) between the Company and Mr McCorkell, which bears the date 28 October 2022 and which refers to a loan of $500,000, with interest payable on a monthly basis at a rate of 12 per cent, reduceable to five per cent for prompt payment (McCorkell Loan).

11    On 24 November 2022, the second defendant (McCorkell Group) was incorporated with Mr McCorkell as its sole director and both himself and Mrs McCorkell as its shareholders. Objectively, the corporate structure for McCorkell Group is the same as it is for the Company.

12    On 2 December 2022, Ms Powell, described as the managing director of the Company, sent an email to Mr McCorkell referring to the existence of “2 potential buyers” for the Business.

13    On 9 December 2022, Mr Robinson of Groves & Partners issued a valuation (Valuation) of the Business, suggesting that its going concern value was approximately $1 million. That valuation was prepared by adopting the “summation method” which is “typically used for investment companies or other types of assets or entities for which value is primarily a factor of the value of their holdings”. Mr Robinson in applying this methodology added the value of the Company’s plant and equipment (being $19,665) to its aged debtors (being $986,826).

14    On 12 December 2022, Mr McCorkell had a telephone conference with Mr Fraser, Mr Bailey and Mr Whittingham (Second Bailey Meeting). Mr Bailey provided Mr McCorkell with the documents necessary for the liquidation of the Company.

15    On 14 December 2022, the Company entered into a written sale and purchase agreement (Business Sale Agreement) for the Business with McCorkell Group. That agreement recorded the assets of the Business as having a value of $2,237,430.16 and provided for a payment of that sum with a cash payment of $20,000 (which appears to have increased to $29,129.69 between the execution of the Business Sale Agreement and the appointment of Mr Bailey) and the transfer of the Company’s liabilities for:

(1)    certain of its employees’ entitlements, which totalled $1,657,430.16 and which included the sum of $1,012,204.40 said to be owed to Mr McCorkell and Mrs McCorkell (collectively, McCorkells); and

(2)    its liability for the McCorkell Loan, which was valued at $560,000.

16    On 15 December 2022, Mr Bailey was appointed as the liquidator of the Company pursuant to a voluntary liquidation under s 499 of the Corporations Act.

17    On 15 February 2023, Mr Bailey held a meeting of the Company’s creditors. At that meeting, the creditors resolved to replace Mr Bailey as liquidator of the Company with Mr Hogan.

18    As Mr Hogan presently understands the position, the total value of creditors’ claims is $3,062,180, which includes liabilities to various entities.

C    MATTERS TO BE INVESTIGATED

19    Based on the facts above, Mr Hogan seeks to investigate four matters relevant to the winding up of the Company.

20    In summary, he seeks to investigate:

(1)    whether the purchase price paid for the Business was commercial;

(2)    the circumstances surrounding the entry into the McCorkell Loan;

(3)    whether Mrs McCorkell was an employee of the Company; and

(4)    payments totalling $483,000 to persons and entities associated with the Company.

21    I will deal with each in turn.

C.1    Sale of the Business

22    The first matter concerns the sale of the Business, which occurred the day before the Company was wound up.

23    Mr Hogan submits that that transaction appears to have the hallmarks of a “phoenix” transaction. Immediately before the completion of the Business Sale Agreement, the Business was owned and operated by the Company, which had Mr McCorkell as its sole director and the McCorkells as its equal shareholders. Immediately after completion, the Business was owned and operated by the McCorkell Group, which had Mr McCorkell as its sole director and the McCorkells as its equal shareholders.

24    The Business Sale Agreement appears to be “supported” by the Valuation. However, it is said there are a number of matters which may impact upon the reliability of the Valuation, which are unnecessary to detail for the purposes of these reasons.

25    In these circumstances, Mr Hogan wishes to explore the circumstances surrounding the Business Sale Agreement and whether the purchase price paid for the Business was commercial.

C.2    The McCorkell Loan

26    The second matter arises from the security interest, which, as noted above, was registered late on 23 November 2023 in respect of the McCorkell Loan.

27    That registration appears to have occurred immediately after the First Bailey Meeting, where the options available to the Company were discussed. The assignment of the Company’s liability for the “secured” McCorkell Loan (albeit for $560,000) to McCorkell Group formed part of the consideration “paid” by McCorkell Group for the Business.

28    The security interest arises from the terms of the Loan Agreement, which provide (in recital B29) that $500,000 was held in escrow pending execution of the Loan Agreement on 28 October 2022. Mr Hogan gives evidence that the Company’s bank statements record that between 18 and 20 October 2022, $500,000 was paid by Mr McCorkell to the Company. It is said, however, that contrary to recital B, those monies were immediately used by the Company as working capital: Hogan Affidavit (at [24]).

29    Mr Hogan seeks to investigate: first, whether the Loan Agreement was, in fact, executed on 28 October 2022; secondly, whether the McCorkell Loan was a secured or unsecured liability of the Company; and thirdly, the value attributed to the McCorkell Loan under the Business Sale Agreement.

C.3    Mrs McCorkell’s Employment

30    The third matter arises from an annual salary paid by the Company to Mrs McCorkell and the assignment of the Company’s liability for her outstanding employee entitlements to McCorkell Group, which formed part of the consideration paid by McCorkell Group for the Business.

31    Mr Hogan seeks to investigate whether Mrs McCorkell was or was not an employee of the Company: Hogan Affidavit (at [45(c)]).

C.4    Payments of $483,000

32    The fourth matter concerns various payments made by the Company to persons and entities that appear to be associated with the McCorkells, which collectively total approximately $483,000 (Payments).

33    Mr Hogan seeks to investigate whether there was a proper basis for the Payments.

D    THE APPROVAL OF THE FUNDING DEED

34    In order to investigate claims that may be available to Mr Hogan and the Company, Mr Hogan seeks the Court’s approval under s 477(2B) of the Corporations Act of a funding agreement (Funding Agreement) and a deed of indemnity (Deed) (together, Funding Documents) entered into on 12 July 2023 between Mr Hogan and the Commonwealth (acting through the Department of Employment and Workplace Relations) (Commonwealth).

35    Mr Hogan also seeks confidentiality orders pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth) (FCA Act) to preserve the confidentiality of the terms of the Funding Documents.

36    For reasons I set out below, I am satisfied that it is necessary to prevent prejudice to the proper administration of justice to make confidentiality orders in respect of the Funding Documents.

37    I will deal with the approval of the Funding Documents first.

D.1    Relevant Law

38    Section 477(2B) of the Corporations Act provides:

Powers of liquidator

…

(2B)     Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company's behalf (for example, but without limitation, a lease or an agreement under which a security interest arises or is created) if:

(a)     without limiting paragraph (b), the term of the agreement may end; or

(b)     obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance;

more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months.

39    The Court’s approval is necessary in this case because the Funding Documents will operate for more than three months.

40    The role of the Court in an application under s 477(2B) has been described as being directed towards a determination of whether the entry into the agreement is a licit exercise of the liquidator’s power and not an ill-advised or improper act. In Stewart, in the matter of Newtronics Pty Ltd [2007] FCA 1375, Gordon J described the Court’s approach (at [26(4)]):

simply to review the liquidator’s proposal, paying due regard to his or her commercial judgment and knowledge of all of the circumstances of the liquidation, satisfying itself there is no error of law or ground for suspecting bad faith or impropriety, and weighing up whether there is any good reason to intervene in terms of the “expeditious and beneficial administration” of the winding up …

41    In Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FCAFC 89; (2011) 85 ACSR 38, the Full Court (at 43 [24] per Emmett, Nicholas and Robertson JJ) identified the following matters as being relevant:

(a)    the prospects of success of the proposed litigation;

(b)    the interests of creditors other than the proposed defendant;

(c)    possible oppression;

(d)    the nature and complexity of the cause of action;

(e)    the extent to which the liquidator has canvassed other funding options;

(f)    the level of the funder’s premium;

(g)    consultations with creditors; and

(h)    the risks involved in the claim.

42    There is authority for the proposition that while a liquidator should ordinarily seek approval before entering into a long-term agreement, there is nothing precluding an order for approval nunc pro tunc in appropriate circumstances: see, for example, White, in the matter of Macro Realty Developments Pty Ltd and Macro Realty Pty Ltd (No 2) [2020] FCA 649; (2020) 144 ACSR 336; Deputy Commissioner of Taxation, in the matter of ACN 154 520 199 Pty Ltd (in liq) v ACN 154 520 199 Pty Ltd (in liq) (No 2) [2017] FCA 755; (2017) 13 BFRA 254.

43    In any event, this requirement is largely irrelevant because cl 12.2(b) of the Funding Agreement provides that the Commonwealth’s obligations are “suspended” until the Court has granted approval.

D.2    Consideration

44    I am satisfied that the Funding Documents should be approved pursuant to s 477(2B) of the Corporations Act. In doing so, I have taken into account all of the relevant circumstances outlined above, including matters outlined in the Confidential Affidavit, but I will draw out some factors which I consider to be of particular relevance.

45    First, the investigation is in the interests of creditors. Mr Hogan does not have (material) funds available which would allow him to carry out the investigations referred to above. Those investigations are directed towards identifying material causes of action that are available to the Company which, if successfully prosecuted, may result in a return to creditors. Obviously enough, without funding, there will be no investigation and no chance of any return.

46    Secondly, the Company presently has no assets. There is unlikely to be any prejudice or oppression suffered by the Company’s creditors consequent upon implementation of the terms of the Funding Documents.

47    Thirdly, while the terms of the Funding Agreement give the Commonwealth some priority to recover the FEG Advances and allows for “Base Rate” interest on the funds paid, it does not otherwise include any provision for the payment of any premium.

48    On the material before me, there is no reason to suspect that entry into the Funding Documents is ill-advised or the result of any bad faith or impropriety on the part of the liqudiator, and, accordingly, I am satisfied that it is appropriate to approve entry into the Funding Documents pursuant to s 477(2B).

D.3    Confidentiality of Funding Documents

49    Mr Hogan also seeks an order pursuant to s 37AF of the FCA Act that the terms of the Funding Documents be suppressed.

50    The relevant law is not in dispute. As I noted in Porter v Dyer [2022] FCAFC 116; (2022) 402 ALR 659 (at 683 [135]–[136]), a suppression order must be necessary to prevent prejudice to the proper administration of justice, reflecting the statutory test under s 37AG(1)(a).

51    In Hogan v Australian Crime Commission [2010] HCA 21; (2010) 240 CLR 651 (at 663–664 [29]–[30] per French CJ, Gummow, Hayne, Heydon and Kiefel JJ), the High Court said that the word necessary is a strong word. This Court has emphasised the importance of taking into account the circumstance that a primary objective of the administration of justice is to safeguard the public interest in open justice: see Country Care Group Pty Ltd v Director of Public Prosecutions (Cth) (No 2) [2020] FCAFC 44; (2020) 275 FCR 377 (at 379 [8]–[9] per Allsop CJ, Wigney and Abraham JJ).

52    In the context of applications for approval under s 477(2B), however, it has been accepted that it is ordinarily appropriate to make suppression orders: see, for example, McGrath v Re HIH Ltd [2005] NSWSC 731 (at [10] per Barrett J); Pascoe (Liquidator), in the matter of Matrix Group Ltd (in liq) (Trustee) [2019] FCA 1844 (at [60] per Gleeson J); In the matter of Octaviar Administration Pty Ltd (In Liquidation) [2014] NSWSC 344 (at [14]–[21] per Black J).

53    The reason for this is obvious: if the information the subject of the Funding Documents and the orders for approval under s 477(2B) were made available to a potential defendant in the process of liquidation, which was being brought for the benefit of creditors, it would likely prejudice the public interest in the administration of justice because a potential defendant would have a forensic advantage in circumstances where an ordinary plaintiff (as opposed to a liquidator) would be entitled to keep that information confidential: see McGrath v Re HIH Ltd (at [10] per Barrett J).

54    I am satisfied that it is necessary to prevent prejudice to the proper administration of justice to make the confidentiality orders proposed pursuant to s 37AF of the FCA Act, which will operate until the conclusion of the liquidation of the Company.

55    I now turn to the issue of summons.

E    THE ISSUE OF SUMMONS

56    Mr Hogan seeks orders for the issue of examination summonses and orders for production under Div 1, Pt 5.9 of the Corporations Act.

57    This issue can be dealt with relatively swiftly.

58    First, in relation to the issue of the examination summonses against Mr McCorkell and Mr Bailey, the liquidator must satisfy the Court that they are or were officers of the Company. Once these matters are established, the Court must issue the summons: see Kimberley Diamonds Ltd v Arnautovic [2017] FCAFC 91; (2017) 252 FCR 244 (at 249 [20] per Foster, Wigney and Markovic JJ).

59    Mr Hogan is plainly an “eligible applicant” and, on the material before the Court, I am satisfied that it is appropriate to issue the summonses in respect of Mr McCorkell and Mr Bailey.

60    Secondly, with respect to the examination summonses sought under s 596B against Mrs McCorkell, Ms Powell, Mr Robinson, Mr Whittingham, Mr Fraser and Mr Macmillan, the liquidator must satisfy the Court that those examinees may be able to provide information bearing on the examinable affairs of the Company.

61    It has been observed that the test under s 596B does not impose a high threshold: see Jane v Secatore [2021] FCAFC 108 (at [14] per Davies, Charlesworth and Jackson JJ); Meteyard v Love [2005] NSWCA 444; (2005) 65 NSWLR 36 (at 39–40 [6] and 46–47 [39] per Basten JA, with whom Beazley and Santow JJA agreed); Bill Express Limited (In Liquidation) (ACN 090 059 564) [2010] VSC 101; (2010) 77 ACSR 556 (at 561–562 [10]–[13] per Davies J).

62    I am satisfied on the material before me that summonses should be issued in respect of Mrs McCorkell, Ms Powell, Mr Robinson, Mr Whittingham, Mr Fraser and Mr Macmillan, broadly for the reasons submitted by Mr Stack, which may be summarised as follows.

63    First, Mrs McCorkell is a 50 per cent shareholder of both the Company and McCorkell Group and was a former director, albeit 11 years ago. Further, Mrs McCorkell appears to have received payments from the Company as an employee and appears to be connected with the recipient of some of the Payments.

64    Secondly, Ms Powell appears to have held the position of “managing director” of the Company and was concerned with its day to day operations. Further, she appears to have been involved in identifying purchasers for the Business.

65    Thirdly, in relation to Mr Robinson and Mr Whittington, both are employees of Groves & Partners. The former prepared the Valuation and the latter attended the discussion meetings with Mr McCorkell and Mr Bailey on 23 November 2022 and 12 December 2022.

66    Fourthly, Mr Fraser was the accountant and financial adviser to the Company.

67    Finally, Mr Macmillan was a lawyer who acted for the Company and appears to have been responsible for the preparation of the Business Sale Agreement.

68    Accordingly, I am satisfied that it is appropriate to order the summonses and public examination in the terms sought by the plaintiffs.

F    THE APPLICATION FOR INTERIM ASSET PRESERVATION ORDERS

69    Finally, interim orders are sought under s 1323(3) of the Corporations Act for the preservation of assets.

F.1    Section 1323(3)

70    Section 1323(3) provides:

Power of Court to prohibit payment or transfer of money, financial products or other property

…

(3)    Where an application is made to the Court for an order under subsection (1), the Court may, if in the opinion of the Court it is desirable to do so, before considering the application, grant an interim order, being an order of the kind applied for that is expressed to have effect pending the determination of the application.

71    One of the primary purposes of s 1323(3) is to enable relief to be obtained where the application is made urgently or investigations are at a preliminary stage. In ASIC v Carey (No 3) [2006] FCA 433; (2006) 57 ACSR 307, French J noted (at 316–317 [25]):

… [O]rders can be made before liability is established and indeed before the evidence necessary to establish liability has been collected. … At the stage an order is sought the Court may not be in a position to identify with precision any particular liability owed by the person the subject of the proposed order. This consideration applies to final orders made under the section as well as to interim orders for which it expressly provides in s 1323(3).

72    When a Court is satisfied that interim relief under s 1323(3) is appropriate, s 1323(4) provides that the Court must not require the applicant to give an undertaking as to damages. This prohibition applies equally where the applicant is the aggrieved person: see ASIC v Sigalla [2009] NSWSC 1205; (2009) 74 ACSR 710 (at 714 [23] per Barrett J).

F.2    Section 1323(1)

73    For reasons I will mention shortly, it is not strictly necessary to consider whether an order should be made pursuant to s 1323(1), but I should say something about it.

74    Section 1323(1) provides:

Power of Court to prohibit payment or transfer of money, financial products or other property

(1)     Where:

(a)     an investigation is being carried out under the ASIC Act or this Act in relation to an act or omission by a person, being an act or omission that constitutes or may constitute a contravention of this Act; or

(b)     a prosecution has been begun against a person for a contravention of this Act; or

(c)     a civil proceeding has been begun against a person under this Act;

and the Court considers it necessary or desirable to do so for the purpose of protecting the interests of a person (in this section called an aggrieved person) to whom the person referred to in paragraph (a), (b) or (c), as the case may be, (in this section called the relevant person ), is liable, or may be or become liable, to pay money, whether in respect of a debt, by way of damages or compensation or otherwise, or to account for financial products or other property, the Court may, on application by ASIC or by an aggrieved person, make one or more of the following orders:

(d)     an order prohibiting a person who is indebted to the relevant person or to an associate of the relevant person from making a payment in total or partial discharge of the debt to, or to another person at the direction or request of, the person to whom the debt is owed;

(e)     an order prohibiting a person holding money, financial products or other property, on behalf of the relevant person, or on behalf of an associate of the relevant person, from paying all or any of the money, or transferring, or otherwise parting with possession of, the financial products or other property, to, or to another person at the direction or request of, the person on whose behalf the money, financial products or other property, is or are held;

(f)     an order prohibiting the taking or sending out of this jurisdiction, or out of Australia, by a person of money of the relevant person or of an associate of the relevant person;

(g)      an order prohibiting the taking, sending or transfer by a person of financial products or other property of the relevant person, or of an associate of the relevant person:

(i)     from a place in this jurisdiction to a place outside this jurisdiction (including the transfer of financial products from a register in this jurisdiction to a register outside this jurisdiction); or

(ii)     from a place in Australia to a place outside Australia (including the transfer of financial products from a register in Australia to a register outside Australia);

(h)     an order appointing:

(i)     if the relevant person is a natural person--a receiver or trustee, having such powers as the Court orders, of the property or of part of the property of that person; or

(ii)     if the relevant person is a body corporate--a receiver or receiver and manager, having such powers as the Court orders, of the property or of part of the property of that person;

(j)     if the relevant person is a natural person--an order requiring that person to deliver up to the Court his or her passport and such other documents as the Court thinks fit;

(k)     if the relevant person is a natural person--an order prohibiting that person from leaving this jurisdiction, or Australia, without the consent of the Court.

75    The reason s 1323(1) is relevant for present purposes is that the plaintiffs contend that an “investigation” is on foot within the meaning of s 1323(1)(a), which, assuming that is correct, enlivens the Court’s power to make orders under the subsection.

76    It has not been settled, however, whether an “investigation” within the meaning of s 1323(1)(a) includes an investigation conducted by a private liquidator. As I will explain, the plaintiffs contend that on its proper construction, s 1323(1)(a) is wide enough to encompass such an investigation. But whether that proposition is correct as a matter of law is, ultimately, beside the point: the plaintiffs today rely upon s 1323(3) which relevantly provides that the Court may make an interim order “if in the opinion of the Court it is desirable to do so, before considering the application” (emphasis added), being an order of the kind applied for that is expressed to have effect pending the determination of an application under s 1323(1).

77    In Re 30 Denham Pty Ltd (in liq) [2023] FCA 134, Stewart J had cause to consider a similar application. His Honour noted that while there was at least a “reasonable argument” that an investigation conducted by a private liquidator is an “investigation” within the meaning of s 1323(1)(a), that point was unnecessary to decide because for the purposes of making interim orders under s 1323(3), the Court need only be satisfied that it is desirable to do so (at [29]). As Jackman J noted in Fourteen Consulting Services Pty Ltd (in liq) v A.O.B Holding Pty Ltd [2023] FCA 704 (at [14]):

It was accepted by Stewart J in Re 30 Denham Pty Ltd (in liq) [2023] FCA 134 at [27]-[30] that for the purpose of interlocutory orders pursuant to s 1323(3), there was a sufficiently reasonable argument that examinations pursuant to ss 596A and 596B by a liquidator constituted investigations under the Act, although Stewart J did not need to decide the point on a final basis. I note that there is no statutory definition of “investigation”. I am prepared to proceed on the same basis as Stewart J did in that case, namely that, without deciding the point, I regard it as being sufficiently arguable on an interlocutory basis that the examinations now being carried out under ss 596A and 596B constitute investigations under the Act. Accordingly, the Court has jurisdiction to make the orders sought pursuant to s 1323, and I make those orders in the absence of any opposition to them.

78    Although I accept there is some force in the construction of s 1323(1)(a) contended for by the plaintiffs (to which I will return shortly), it is appropriate to proceed on the basis that the Court has power to make interim orders under s 1323(3) where there is a prima facie argument that one or more of the circumstances in s 1323(1)(a) is satisfied.

F.3    The Liquidator’s Contentions

The power hurdle

79    The plaintiffs contend that on its proper construction, an investigation conducted by a private liquidator is an “investigation” within the meaning of s 1323(1)(a), for the following reasons.

80    First, the express terms of s 1323(1)(a) do not limit the “investigation” to one being carried out by ASIC. As Black J observed in Ramsey v Featherstone Resources Ltd [2013] NSWSC 1923 (at [15]), the only limitation is that the investigation be one carried out under the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) or the Corporations Act. If Parliament had intended to limit the investigation to one conducted by ASIC, it would have included words or a definition to that effect or, in the light of the width of Pt 3 of the ASIC Act, to exclude the reference to the Corporations Act.

81    Secondly, the relevant explanatory memoranda are not instructive. Further, earlier versions of s 1323, being, most notably, s 573 of the Companies Act 1981 (Cth) (Companies Act) and the States’ Companies Code (see, for example, Companies (New South Wales) Code 1981 (NSW) (Companies Code)), are materially different to s 1323 because s 573 of the Companies Act:

(1)    only afforded the right to seek orders to the regulator, whereas s 1323 of the Corporations Act affords the right to both ASIC and the aggrieved person; and

(2)    limited the investigation to one being carried out under the Companies Code (which included the Commission’s powers), whereas s 1323 of the Corporations Act expressly refers to an investigation under the ASIC Act and the Corporations Act.

82    Thirdly, as noted above, the Courts have observed that s 1323(1) has been framed in “wide” terms because its fundamental purpose is to protect the “aggrieved person” by preserving assets against which recovery may be sought in the event that liability to the aggrieved person is later established. It is said that it would be inconsistent with that fundamental purpose to read down s 1323(1) so as to limit investigations to ASIC investigations. To do so would reduce the protection available to the aggrieved person.

83    Fourthly, the roles performed by ASIC and external administrators are not dissimilar. Both have a statutory foundation, which require them to undertake investigations in order to fulfil their respective duties and functions. In order to fulfil those roles, both ASIC and liquidators require investigative powers because, unlike ordinary litigants, they are both “outsiders” who cannot identify and prosecute claims without such powers: see In the matter of Brentwood Village Limited [2015] NSWSC 1342 (at [8] per Brereton J).

84    Fifthly, the power afforded to a liquidator under Pt 5.9 has been described, on a number of occasions, as an investigative power: see, for example, Hamilton v Oades (1989) 166 CLR 486 (at 496–497 per Mason CJ, Deane, Dawson, Toohey and Gaudron JJ); Evans v Wainter Pty Ltd [2005] FCAFC 114; (2005) 145 FCR 176 (at 216–217 [252] per Lander J, with whom Ryan and Crennan JJ agreed); Palmer v Ayers [2017] HCA 5; (2017) 259 CLR 478 (at 490 [25], 491–492 [29]–[31] per Kiefel CJ, Keane, Nettle and Gordon JJ; 515 [98]–[99] per Gageler J).

85    Sixthly, as noted earlier, the statutory position of a liquidator is different to the position of an ordinary litigant. A liquidator does not act in “a private capacity” and, like ASIC, is not motivated by “self-interest”. A liquidator does not commence proceedings for personal gain; they commence proceedings for the benefit of the company and its creditors.

86    I accept that there is some force in these contentions, but for reasons I have already explained, it is not necessary to form any final view today about the breadth of s 1323(1)(a).

The “aggrieved person” hurdle

87    Once the Court is satisfied that it has power under s 1323(1), the focus of the section is on protecting the “aggrieved person”. As Palmer J noted in ASIC v Mauer-Swisse Securities Ltd [2002] NSWSC 684; (2002) 20 ACLC 1,530 (at 1,536 [36]–[37]):

… The words in s 1323(1) “protecting the interests” of an aggrieved person are as wide as they could be, and deliberately so. What “the interests” of aggrieved persons may be and how they ought to be protected are matters incapable of categorisation or of precise definition. Indeed, it would have been folly on the part of the legislature to attempt to define or limit what interests should be protected or how: to do so would have been to ignore the sad reality that the ingenuity of fraudsters is inexhaustible, their snares for the gullible pitiless and of infinite variety, and the eagerness of the foolish to be parted from their money irrepressible … Accordingly, in any particular case, where the Court determines that the interests of aggrieved persons are or may be prejudicially affected, it will be a matter for the Court, in the exercise of a discretionary judgment, to decide what sort of protection available within the parameters afforded by s 1323(1) should be given.

(Emphasis added).

88    It is contended that the Company (and, indirectly, its creditors) is the aggrieved person.

The evidentiary hurdle

89    The plaintiffs submit that because s 1323(1) is directed towards protecting the aggrieved person, there is no requirement for an applicant to demonstrate the usual indicia for asset preservation orders, such as a prima facie case or a risk of dissipation: see ASIC v Carey (No 3) (at 317 [26] per French J). With that said, as McDougall J said in ASIC v Krecichwost [2007] NSWSC 948; (2007) 64 ACSR 411 (at 420 [27]–[30]), the risk assessment must take into account not only the interests to be protected but also the threats to those interests and, consequently, the usual indicia for asset preservation orders are relevant to the Court’s risk assessment.

F.4    Consideration

90    The plaintiffs’ present application is framed as an interim application under s 1323(3) because it is made urgently and the liquidator has only just commenced his investigations of the matters summarised in Sections B and C above. It is submitted that the “less drastic remedy” of interim asset preservation orders under s 1323(3) is appropriate in all the circumstances.

91    On the basis of the material before me, I am satisfied that it is appropriate to make interim orders under s 1323(3) for the following reasons.

92    First, while Mr Hogan is not in a position to present evidence to establish a prima facie case, the material before the Court demonstrates that the Business (according to the terms of the Business Sale Agreement) had a value of $2.24 million and was sold the day before the Company’s liquidation in circumstances where the only cash payment received by the Company was $29,129.61. Absent explanation, the Company may have claims against Mr McCorkell and McCorkell Group in relation to the sale of the Business.

93    Secondly, it is said that the evidence would suggest that Mrs McCorkell might not have been an employee of the Company and may therefore have improperly received wages and other entitlements. If that is correct, the Company may have a claim available against Mr McCorkell and Mrs McCorkell to recover those payments and benefits.

94    Thirdly, and relatedly, it is contended that the evidence also suggests that the Payments may have been made by the Company for the benefit of the McCorkells or persons or entities associated with them, in circumstances where there was no proper basis for the Company to make the Payments. If that is correct, the Company may have a claim available against the McCorkells and the recipients to recover the Payments.

95    Fourthly, it is said that the Court should infer a risk of dissipation in circumstances where, among other things:

(1)    the primary purpose of the First Bailey Meeting, held on 23 November 2023, was to discuss the “options” available to the Company;

(2)    the sale of the Business and the preparation of the Valuation were canvassed at the First Bailey Meeting;

(3)    Mr McCorkell’s purported security interest against the Company was registered on the PPSR at 4:51pm on 23 November 2022, being the same day as the First Bailey Meeting;

(4)    McCorkell Group was incorporated on 24 November 2023, being the day after the First Bailey Meeting;

(5)    the corporate structure of the McCorkell Group is the same as the Company;

(6)    Mr Bailey provided Mr McCorkell with the documents necessary for the liquidation of the Company at the Second Bailey Meeting, held on 12 December 2022; and

(7)    the sale of the Business and the issue of the Valuation is consistent with the discussions at the First Bailey Meeting.

96    Accordingly, on the basis of the material before me, I am satisfied to make interim orders pursuant to s 1323(3) of the Corporations Act.

G    CONCLUSION AND ORDERS

97    I will make orders broadly in the terms sought by the plaintiffs. I am grateful for the comprehensive and helpful submissions of counsel today, which made it possible to deliver these reasons expeditiously.

Associate:

Dated:    28 July 2023