Federal Court of Australia

Deputy Commissioner of Taxation v ACN 607 537 548 Pty Ltd, in the matter of ACN 607 537 548 Pty Ltd (in liq) [2023] FCA 933

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to section 90-15(1) of the Insolvency Practice Schedule at Schedule 2 to the Corporations Act 2001 (Cth) (IPS), Rahul Goyal and Jennifer Anne Nettleton be appointed as additional liquidators of the First Defendant (Special Purpose Liquidators).

2.    Pursuant to section 90–15(1) of the IPS, the Special Purpose Liquidators be empowered to carry out the functions specified in Annexure A to these orders.

3.    The Special Purpose Liquidators are entitled to exercise, solely for the purpose of their functions referred to in Order 2 above, all the powers conferred on a liquidator by section 477 and Part 5.9 of the Corporations Act 2001 (Cth).

4.    The Special Purpose Liquidators shall, in accordance with the requirements of the Corporations Act, report to creditors of the First Defendant initially on the terms of their appointment and subsequently during the course of their appointment.

5.    The Second Defendant (as liquidator of the First Defendant) shall use his reasonable endeavours to provide assistance to the Special Purpose Liquidators including by providing documents or information previously prepared or obtained by him in investigating the First Defendant, subject to payment by the Special Purpose Liquidators of the Second Defendant’s reasonable costs incurred in complying with these orders.

THE COURT DECLARES THAT:

6.    Pursuant to section 90–15(1) of the IPS, the Special Purpose Liquidators would be justified in executing, on their own behalf as special purpose liquidators and on behalf of the First Defendant, a funding and indemnity deed in substantially the same form as the document exhibited to the affidavit entitled ‘Confidential Affidavit of Yi Deng’ sworn 27 July 2023 at annexure “YD-2” (Funding and Indemnity Agreement).

THE COURT ORDERS THAT:

7.    Leave be granted pursuant to section 477(2B) of the Corporations Act for the Special Purpose Liquidators to enter into the Funding and Indemnity Agreement on behalf of the First Defendant.

8.    Pursuant to section 37AF of the Federal Court of Australia Act 1976 (Cth), on the ground that the order is necessary to prevent prejudice to the proper administration of justice, Exhibits YD-2 and YD-3 to the affidavit titled ‘Confidential Affidavit of Yi Deng’ sworn 27 July 2023 are to be kept confidential and are not be provided or disclosed to any person until further order of the Court.

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

Annexure A

1.    Conduct investigations into the restructure of ACN 607 537 548 Pty Ltd (in Liquidation) (ABCRA1), including but not limited to:

(together, the Restructure Matters).

2.    Conduct investigations into loans made or purportedly made to ABCRA1, and/or transfers of money or payments made by ABCRA1, by or to any related or third party in connection with the Restructure Matters.

3.    Conduct investigations into the solvency of ABCRA1 prior to it being placed into liquidation and any potential claims for insolvent trading.

4.    Conduct investigations into whether ABCRA1 entered into any voidable transactions pursuant to Division 2 of Part 5.7B of the Act, section 37A of the Conveyancing Act 1919 (NSW), at common law or in equity, in connection with the Restructure Matters, including the matters described in paragraph 2 above.

5.    Conduct investigations into any breaches of duty owed to ABCRA1, whether under the Act, at common law or in equity, by:

in respect of the Restructure Matters.

6.    Conduct investigations into the potential rights of recovery as against the persons mentioned at paragraphs 5(a) to (c) and/or third parties in respect of the matters identified at paragraphs 1 to 5 above.

7.    Prepare, make an application for and conduct with the assistance of instructing solicitors and counsel such examinations under sections 596A and 596B of the Act as are necessary or desirable for the purposes of the investigations referred to herein.

8.    Give consideration to the claims available to ABCRA1 or its liquidators arising from the investigations and examinations referred to in this Annexure, and from examination of the books and records of ABCRA1.

9.    Commence and prosecute any legal proceedings in the name of ABCRA1 or as liquidator of ABCRA1 arising from the investigations and examinations referred to herein, and from the examination of the books and records of ABCRA1.

10.    Take possession of such books and records of ABCRA1 as the special purpose liquidators deem necessary for the purpose of investigations and examinations referred to herein.

11.    Take steps, including the commencement of legal proceedings, to ensure preservation and protection of assets of ABCRA1, whether or not in the possession of ACBRA1.

12.    Undertake such other or further matters in relation to the liquidation and affairs of ABCRA1 as the Court considers appropriate and so orders.

REASONS FOR JUDGMENT

GOODMAN J

A.    Introduction

1    The first defendant (Company) has been in liquidation since 15 November 2017, on which day the second defendant, Mr Adam Shepard of Farnsworth Shepard was appointed as the liquidator of the Company. The plaintiff (Commissioner) claims to be a creditor of the Company in an amount of approximately $28,000,000.

2    On 31 July 2023, on the application of the Commissioner, I made orders: (1) for the appointment of additional liquidators (special purpose liquidators) to the Company; (2) granting leave to the special purpose liquidators to enter into a Funding and Indemnity Agreement on behalf of the Company; and (3) protecting the confidentiality of the Agreement. These are my reasons for doing so.

B.    Appointment of special purpose liquidators to the Company

Principles

3    Section 90-15 of the Insolvency Practice Schedule (Corporations) (IPS) at Schedule 2 of the Corporations Act 2001 (Cth) confers upon the Court a broad discretion to make such orders as it thinks fit in relation to the external administration of a company, including the appointment of additional liquidators. As a person with a financial interest in the external administration of the Company, the Commissioner had standing to apply for an order for the appointment of additional liquidators: s 90-20(1)(a).

Background

4    The evidence before the Court on this application established the following.

5    On 29 November 2011, a company with Australian Company Number 154 520 199 and originally titled Palabc Holdings Pty Ltd was incorporated. Its directors on incorporation and during the period in which presently relevant events occurred were Mr Andrew Cochineas, Mr Philip Cochineas, Mr Francis Gregg and Ms Jane Simpson. Its business was, broadly described, the acquisition and refining of gold, silver and other valuable materials into fine metal. From 2 February 2012, that company was known as EBS & Associates Pty Ltd. From about March 2013, EBS’s principal place of business was 12 Meeks Road Marrickville in Sydney (Marrickville address).

6    In July 2014, the Commissioner commenced an audit into EBS’s goods and services tax (GST) affairs.

7    On 7 August 2015, the Company was incorporated. At that time, it was named ABC Refinery (Australia) Pty Ltd. The Company’s directors at the date of its incorporation were the same persons who were the directors of EBS, together with Mr Paul Cochineas (who was a director only on the day of incorporation). The shares in the Company were all owned by Pallion Group Pty Ltd (ACN 602 662 332), a company incorporated on 3 November 2014 whose directors were the same persons as the directors of EBS, together with Mr Philip Williams. The Company’s principal place of business was the Marrickville address.

8    On or about 1 September 2015, the Company entered into a transaction with EBS pursuant to which, amongst other things, it appeared to have obtained ownership of the business, goodwill and assets of EBS (September 2015 transaction). As noted above, at the time of the September 2015 transaction, EBS was under audit as to its GST affairs.

9    In November 2015, the Commissioner commenced an audit into the GST affairs of the Company.

10    In April 2016, the audit into EBS’s GST affairs concluded and was followed by the issue of notices of amended assessment to EBS in amounts totalling more than $122,000,000 and notices of assessment of penalties totalling more than $58,000,000. EBS objected to the notices of assessment and challenged the decisions disallowing those objections. The challenge reached the Full Court of this Court before it was remitted to the Administrative Appeals Tribunal where it presently rests: see ACN 154 520 199 Pty Ltd (in liq) and Commissioner of Taxation [2019] AATA 5981; and ACN 154 520 199 Pty Ltd (in liq) v Commissioner of Taxation [2020] FCAFC 190; (2020) 282 FCR 455 (Perram, Moshinsky and Thawley JJ). The hearing of the remitted matter occurred in May and June 2023. The evidence suggests that the challenge to the objection decisions has been funded by Pallion.

11    On 22 September 2016, shortly after the Commissioner disallowed EBS’s objections, EBS entered into a creditors’ voluntary liquidation and Mr Schon Condon of Condon Associates was appointed as liquidator of EBS.

12    On 6 April 2017, on the application of the Commissioner, Gleeson J (then a member of this Court) appointed Mr Rahul Goyal and Ms Jennifer Nettleton of KordaMentha as special purpose liquidators of EBS for purposes including the investigation of the September 2015 transaction: see 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) [2017] FCA 444 (Re ACN 154 520 199 Pty Ltd).

13    From about July 2017, the Commissioner issued notices of assessment to the Company.

14    On 27 July 2017, the Company lodged objections against some of the notices of assessment.

15    On 16 August 2017, a new company titled ABCRA Pty Ltd (ACN 621 121 079) was incorporated. Its directors were and remain Mr Andrew Cochineas, Mr Philip Cochineas, Mr Francis Gregg and Ms Jane Simpson (that is, all directors of the new company were directors of the Company). Its sole shareholder is Pallion. Its principal place of business from 17 August 2017 was also the Marrickville address.

16    On 1 September 2017: (1) the Company changed its name from ABC Refinery (Australia) Pty Ltd to ACN 607 537 548 Pty Ltd; (2) ABCRA Pty Ltd changed its name to ABC Refinery (Australia) Pty Ltd (ABCRA2); and (3) the Company and ABCRA2 entered into agreements pursuant to which it appears, amongst other things, that the Company transferred all of its business, goodwill and assets to ACBRA2 (September 2017 transaction). All of the directors of the Company ceased to hold that office, with the exception of Mr Andrew Cochineas.

17    On 27 October 2017, the Company lodged further objections against notices of assessment.

18    On or about 13 November 2017, Pallion transferred its shares in the Company to a company titled ACN 133 769 187 Pty Ltd. ACN 133 is a company of which Mr Andrew Cochineas has been at all material times the sole shareholder and director.

19    On 15 November 2017, as noted above, the liquidator was appointed to the Company. This appointment was made at the instigation of the Company’s sole shareholder, ACN 133.

20    On 28 November 2017, the liquidator provided his first report to creditors. Within that report, the liquidator included his Declaration of Independence, Relevant Relationships and Indemnities, by which he disclosed that: the appointment had been referred to him by Mr Andrew Robinson of Robinson Legal in his capacity as solicitor for the Company on 1 November 2017; he had had pre-appointment dealings with Mr Andrew Robinson, Mr Andrew Cochineas and/or Mr Philip Cochineas on 1, 2, 9, 10, 13, 14 and 15 November 2017; Mr Andrew Cochineas had advised the liquidator that he would provide an upfront payment of $20,000 as a contribution toward the cost of litigation and that further monies and/or indemnities were likely to be provided for further litigation in relation to the challenges to the objection decisions; and the liquidator did not consider that the referral to him by Mr Andrew Robinson placed him in a position of conflict of interest or duty.

21    On 29 November 2017, the solicitors for the liquidator wrote to the Australian Taxation Office (ATO) indicating that they were instructed to ask whether representatives of the ATO would meet with the liquidator to discuss the potential funding of an investigation into the September 2017 transaction and, as a first step, funding the cost of obtaining a valuation of the business and assets of the Company. Discussions and correspondence between the solicitors for the liquidator and the ATO ensued, during which the liquidator indicated that he lacked sufficient funds to obtain a valuation.

22    On 12 February 2018 (and later on 30 August 2018), the liquidator lodged further objections against the notices of assessment.

23    On 14 February 2018, the liquidator issued his second report to creditors. In that report, the liquidator indicated that: he had undertaken some preliminary investigations; the September 2017 transaction may be a voidable transaction; and the Company’s officers may have engaged in misconduct. The liquidator also stated that “related entities” had proposed that he enter into a funding agreement with Pallion to cover the cost of investigating the notices of assessment. The liquidator also raised the possibility of conducting examinations of the directors of the Company if creditors of the Company were prepared to provide funding for him to do so.

24    On 16 April 2018, the liquidator issued his third report to creditors. In that report, he stated that he had received a proposal from Pallion and Mr Andrew Cochineas to fund an investigation into the legitimacy of the notices of assessment and, if appropriate, to challenge those notices. The liquidator also noted that: Mr Andrew Cochineas had informed him that the Company had previously obtained advice that the notices of assessment were incorrect and ought be challenged; and the outcome of such a challenge would determine whether the Commissioner was a creditor of the Company.

25    On 24 April 2018, the solicitors for the liquidator wrote to the ATO: acknowledging the tension between the positions of the Commissioner and Pallion; noting that it was not unusual for there to be a tension between the position of different creditors; noting that the liquidator was conscious of the need to be, and to be seen to be, independent; and conveying the liquidator’s view that subject to the existence of appropriate funding it was in the interests of all creditors for both: (1) investigations into the September 2017 transaction to occur; and (2) the challenge to the notices of assessment to be determined. The letter also indicated that no other creditor had expressed an interest in funding the liquidator to conduct an investigation into the September 2017 transaction and that the liquidator remained willing to work with the Commissioner to conduct such an investigation.

26    On 1 May 2018, the ATO expressed to the solicitors for the liquidator the Commissioner’s concerns that the liquidator would be in a position of conflict if he were to be funded by Pallion in circumstances in which, the ATO asserted, Pallion had been involved in the September 2017 transaction.

27    On 16 May 2018, a resolution was put to a meeting of the Company’s creditors to approve the funding proposal that had been made to the liquidator. That resolution was passed on the casting vote of the liquidator after the Commissioner had voted against the proposal.

28    Thereafter, correspondence continued between the Commissioner and the liquidator, during which: the liquidator continued to claim that he had insufficient funds to investigate matters including the September 2017 transactions; the Commissioner maintained that the liquidator was in a position of conflict; and the Commissioner indicated his unwillingness to fund the liquidator.

29    In December 2018, the Commissioner foreshadowed an application for the appointment of special purpose liquidators to investigate the September 2017 transaction; and the solicitors for the liquidator indicated that the liquidator would not consent to or oppose such an application, but that the liquidator considered it to be premature in circumstances where the objections to the notices of assessment issued to EBS were yet to be determined and if those objections were determined favourably to EBS, then given the similarity of issues concerning the notices of assessment issued to EBS to the issues concerning the notices of assessment issued to the Company, the result may be that the Commissioner would not be a creditor of the Company. The Commissioner did not apply at that time for the appointment of special purpose liquidators.

30    On 5 April 2022, the Commissioner determined the objections that had been lodged on behalf of the Company. The objections were mostly disallowed.

31    On 2 June 2022, the liquidator caused the Company to appeal to this Court against the unfavourable objection decisions that the Commissioner had made. That appeal is yet to be heard.

32    On 24 April 2023, the solicitors for the liquidator wrote to the Commissioner. The purpose of the letter was described therein as being to “make a final indemnity request”. In that letter, the solicitors for the liquidator indicated that: the liquidator remained of the view that the September 2017 transaction and the conduct of the officers of the Company in relation to that transaction were matters warranting investigation; the liquidator was without funding to do so; the Commissioner had not sought the appointment of a special purpose liquidator despite having previously foreshadowed an intention to do so; and the liquidator held the view that there were limitation periods applicable to potential claims available to the Company that were due to expire during the balance of 2023, including some from as early as July 2023. The letter requested that the Commissioner provide an indemnity for an initial amount of $150,000 to enable the liquidator to obtain an independent valuation of the assets the subject of the September 2017 transaction, obtain counsel’s opinion and prepare a Statement of Claim against Mr Andrew Cochineas, the former directors and others.

33    On 7 June 2023, the solicitors for the Commissioner responded, indicating that the Commissioner did not intend at that stage to indemnify the liquidator.

34    Between 21 and 28 July 2023, the solicitors for the Commissioner and the solicitors for the liquidator corresponded in connection with the Commissioner’s proposal to bring the application that was later determined on 31 July 2023. In that correspondence, the Commissioner provided a draft version of the orders that the Commissioner would be seeking and the solicitors for the liquidator indicated that the liquidator neither consented to, nor opposed, the orders ultimately sought by the Commissioner.

35    At around the same time, the solicitors for the Commissioner corresponded with the Australian Securities and Investments Commission (ASIC) notifying it of the proposed application and the time and date of the scheduled hearing. ASIC did not seek to be heard at the hearing.

36    The Commissioner indicated to the Court that the Commissioner was not willing to fund the liquidator to undertake investigations of the September 2017 transaction because, the Commissioner contended: (1) the liquidator was effectively appointed by Mr Andrew Cochineas, a director of the Company, the sole director and shareholder of ACN 133 (the Company’s sole shareholder), and a director of Pallion and ABCRA2; (2) the liquidator was appointed on the referral of Mr Andrew Robinson, also a director of Pallion, and the solicitor for EBS and the Company who prepared the documents for the September 2015 transaction; (3) the liquidator had had pre-appointment contact on a number of occasions with Mr Andrew Cochineas and Mr Andrew Robinson; (4) the liquidator had lodged objections against the notices of assessment issued against the Company and commenced a proceeding on behalf of the Company challenging the disallowance of those objections; (5) the liquidator had received funding from Pallion with respect to the challenges to the objection decisions (and was presumably taking instructions from, liaising with or reporting to the directors of Pallion including Mr Andrew Cochineas); and (6) it was preferable (given the nature of the taxation arrangements and the conduct identified by the Commissioner) that the investigations into the September 2017 transaction be conducted by a liquidator who is and who is going to remain independent of the persons standing behind the Company and its related entities including Pallion.

Consideration

37    I ordered the appointment of the special purpose liquidators for the following reasons.

38    First, the September 2017 transaction warrants investigation. So much is clear from the liquidator’s repeated statements to that effect following his preliminary investigation (see [21], [23] and [25] above).

39    Secondly, it appears that such an investigation will not occur absent the appointment of special purpose liquidators funded by the Commissioner, in circumstances where: the liquidator does not have funding to pursue such an investigation; and the Commissioner is not prepared to provide funding to the liquidator because the Commissioner considers that the liquidator is, and would be, in a position of conflict.

40    Thirdly, the outcome of the investigation to be undertaken by the special purpose liquidators may be claims which result in recoveries available to the general body of creditors of the Company. There is also no likely detriment to the creditors in circumstances where the special purpose liquidators will be funded by the Commissioner.

41    Fourthly, I was satisfied that there was an available perception that the liquidator, if funded to undertake the investigation, might be in a position of conflict in circumstances where: the liquidator had been funded by interests associated with Mr Andrew Cochineas to challenge the objection decisions; and part of the investigation will be, as the liquidator has identified, an investigation into the conduct of Mr Andrew Cochineas and interests associated with him. It was not necessary for the Court to form a view that the liquidator is, or will likely be, in a position of conflict. Rather, it was sufficient that an appearance of conflict exist sufficient to compromise confidence in the position of the liquidator, whether on the part of the Commissioner or on the part of the officers of the Company: see Re ACN 154 520 199 Pty Ltd at [120].

42    Fifthly, although there had been a significant passage of time since the Commissioner first proposed the appointment of special purpose liquidators with the liquidator in December 2018, that delay was of little moment in the exercise of the discretion in circumstances where it was not unreasonable for the Commissioner to delay the application for appointment of special purpose liquidators until the outcome of EBS’s challenges to the objection decisions concerning the notices of assessment issued to it was known and thus the Commissioner’s status as a creditor of the Company clarified. As the Commissioner acknowledged, he brought the application now – despite EBS’s challenges to the disallowance of its objections not having been determined – because of the looming expiry of limitation periods of potential actions that might be brought by the Company. The Commissioner, of course, runs the risk that the funding the Commissioner provides will be for nought if, by dint of the outcome of the Company’s challenge to the objection decisions on the notices of assessment issued to it, the Commissioner is not a creditor of the Company.

43    Finally, the proposed special purpose liquidators were the special purpose liquidators appointed to EBS (see [12] above). There was an obvious efficiency in appointing as special purpose liquidators persons who have already investigated the (arguably similar) September 2015 transaction. This efficiency is particularly advantageous given the proximity of the expiry of some of the limitation periods. The Commissioner did raise the possibility that these special purpose liquidators might be placed into a position of conflict if the creditors of EBS and the creditors of the Company were ultimately to each have claims over particular assets. However, as counsel for the Commissioner submitted, any such conflict can and should be resolved by prompt application to the Court: see Australian Executor Trustees Ltd v Provident Capital Ltd, in the matter of Provident Capital Ltd (receivers and managers appointed (in liq) [2013] FCA 1461 at [11] to [14] (Rares J).

C.    The funding and indemnity agreement

44    As noted above, the Commissioner sought orders authorising the entry by the special purpose liquidators into the Agreement. The Agreement contains obligations which may be discharged more than three months after entry into the Agreement. Thus, by dint of s 477(2B) of the Corporations Act, approval from (relevantly) the Court is required.

45    In Robinson, in the matter of Reed Constructions Australia Pty Ltd (in liq) [2017] FCA 594 at [38] to [39], Gleeson J set out a summary of principles relevant to an application under s 477(2B) of the Corporations Act, which has been followed on a number of occasions. I gratefully adopt that summary.

46    I approved the entry by the special purposes liquidators into the Agreement for the following reasons.

47    First, as noted above, there appear to be potential claims requiring investigation and there is plainly a need for funding. Secondly, entry into the Agreement is in the interests of the Company’s creditors as it will enable the special purpose liquidators to investigate and prosecute those claims, which may result in recoveries to the benefit of the creditors. Thirdly, there was no suggestion that entry into the Agreement would not be a proper exercise of the special purpose liquidators’ powers or otherwise ill-advised, or that it would prejudice the Company’s creditors in any way. Fourthly, I was satisfied that there was no reason not to make the order sought.

48    Finally, I made an order protecting the confidentiality of the Agreement so as to protect from disclosure information that is inherently confidential and, if disclosed, may be detrimental to the pursuit of claims by the special purpose liquidators. It is appropriate to aid the special purpose liquidators in the pursuit of such claims in the interests of all creditors of the Company: see Kogan, in the matter of Rogulj Enterprises Pty Ltd (in liq) [2021] FCA 856 at [28] to [31] (Cheeseman J); Tracy, in the matter of Linchpin Capital Group Limited (in liq) [2022] FCA 104 at [21] (Cheeseman J); Hird (liquidator), in the matter of Allmine Group Limited (in liq) (No 3) [2022] FCA 732 at [21] (Yates J).

Associate:

Dated:    9 August 2023