FEDERAL COURT OF AUSTRALIA
Ligon 158 Pty Limited (in liq) v Shield Holdings Australia Pty Limited (de-registered) [2024] FCA 144
ORDERS
DATE OF ORDER: | 6 MArch 2024 |
THE COURT ORDERS THAT:
1. Within 14 days, the plaintiffs and the interested parties are to provide proposed short minutes of orders to give effect to these reasons by email to the Associate to Cheeseman J. Any areas of disagreement are to be marked on the draft provided identifying the competing positions.
2. The plaintiffs and the interested parties are to confer in relation to the award of costs and submit agreed short minutes in respect of costs or failing agreement proposing a timetable for the manner in which any application for costs is to be brought forward for determination.
3. Subject to Order 4, the reasons for judgment be suppressed and not disclosed to any person other than the plaintiffs, the interested persons and their respective legal representatives for a period of seven days.
4. The plaintiffs and the interested parties be granted leave to make any application to keep any part of the reasons suppressed and/or confidential, such leave to be exercised within seven days.
5. If an application is brought in accordance with Order 4, Order 3 be extended until the application is finalised.
6. Costs be reserved.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
CHEESEMAN J:
INTRODUCTION
1 This is an application by five plaintiffs, four companies, each in liquidation, and their liquidator. Together they seek to have the first defendant, Shield Holdings Australia Pty Limited (Deregistered) reinstated by the second defendant, the Australian Securities and Investments Commission (ASIC) pursuant to s 601AH(2) of the Corporations Act 2001 (Cth). They also seek certain ancillary orders thereafter, including an order pursuant to s 461(1)(k) of the Act, to have Shield wound up upon its reinstatement and the fifth plaintiff appointed as liquidator. Each of the corporate plaintiffs was formerly an entity in what may be broadly described as the Binetter family’s corporate group (Binetter group), as was Shield.
2 At the time of Shield’s deregistration, Mr Andrew Binetter was the sole director and his brother, Mr Michael Binetter, was the sole shareholder. To distinguish between Andrew Binetter and Michael Binetter I will refer to each of them by their first names. Their mother, Margaret Binetter is also referred to in the evidence. I will also refer to her by her first name.
3 Shield was deregistered on 1 November 2020 as a result of administrative action taken by ASIC pursuant to s 601AB of the Act following the default of its sole director, Andrew. Shield was not wound up under an external administrator and thus nothing in the nature of the usual corporate death rites were performed.
4 The fifth plaintiff is Mr John Sheahan, who brings this application in his capacity as the liquidator of the corporate plaintiffs: Ligon 158 Pty Limited (in liquidation); Erma Nominees Pty Limited (in liquidation); Erbin Finances Pty Limited (in liquidation) and Rawbin Finances Pty Limited (in liquidation). Mr Sheahan is also the liquidator of other entities within the Binetter group.
5 Prior to the corporate plaintiffs entering into liquidation, Andrew was a director of each of the companies. In the case of Ligon 158 and Erma, Margaret and Samantha Kelliher (Andrew’s wife) were also directors. In the case of Erbin and Rawbin, Andrew was the sole director and sole secretary.
6 Andrew is a shareholder of Ligon 158 and the sole shareholder of Erbin and Rawbin.
7 Michael was the sole shareholder (and a former sole director and sole secretary) of Shield. He is also a shareholder of Ligon 158.
8 The dates on which the corporate plaintiffs went into liquidation are as follows: Ligon 158 (12 November 2018); Erma (12 November 2018); Erbin (9 October 2018) and Rawbin (9 October 2018). Until June 2021, Mr Sheahan acted with Mr Ian Lock as liquidators on a joint and several basis. Since Mr Lock’s retirement in June 2021, Mr Sheahan has continued as sole liquidator of the various Binetter companies. If this application succeeds, the plaintiffs seek to have Mr Sheahan appointed as liquidator of Shield upon its reinstatement.
9 It is convenient by way of introduction to describe the complex background in a relatively general way.
10 The plaintiffs contend that each of the corporate plaintiffs was involved to varying degrees in a tax evasion scheme conducted by members of the Binetter family, and that their respective director(s) acted in breach of duty in causing them to become involved in the alleged scheme. As a consequence the corporate plaintiffs contend that they have arguable claims for accessorial liability against entities that relevantly received funds from or participated in the alleged scheme. I will refer to the corporate plaintiffs’ claims of this nature as the scheme-based claims.
11 Erbin and Rawbin contend that they suffered loss which ultimately manifested in the form of revised assessments issued by the Commissioner of Taxation in June 2020 which included an increase in the company’s assessable income plus interest and penalty. Erbin and Rawbin contend that Andrew, as sole director breached his duty to each of them by causing them to participate in certain transactions with an Israeli bank and thereby caused loss to each company, which ultimately manifest in the relevant revised assessments. Mr Sheahan deposes to his belief that Erbin and Rawbin were involved in the alleged scheme by acting as finance companies in borrowing money from an Israeli bank and claiming the interest on those loans as a deduction in their tax returns in circumstances where the loans were matched by deposits made by Binetter companies with the Israeli bank (or a related bank). In the nomenclature used in the evidence, Erbin and Rawbin, together with Gerobin Finances Pty Limited and Marbin Finances Pty Ltd are referred to as the New Finance Companies. Erbin and Rawbin further contend that they each have a claim for relief against companies that received funds derived from the impugned transactions or otherwise knowingly participated in the underlying breach of director’s duty.
12 Ligon 158 and Erma are alleged to have been involved in furtherance of the scheme as a result of their respective directors’ breaches of duty and thus similarly have claims against other companies based on their involvement in the alleged scheme.
13 The alleged scheme in this proceeding is substantially similar to another tax evasion scheme that was alleged in earlier proceedings involving Binetter related entities and family members. In the earlier scheme, entities within the Binetter group incurred significant tax liabilities following the issue of revised assessments when the Commissioner became aware of the scheme. The impact of the substantial revised assessments caused four Binetter companies, which acted as finance companies in transactions with Israeli banks that were at the heart of the scheme, to become insolvent. Detailed findings as to the nature of the wrongdoing were made by Gleeson J (when her Honour was a Judge of this Court) following a trial in proceeding SAD5 of 2015. Her Honour’s findings in relation to the nature of the scheme were relevantly upheld on appeal by the Full Court: BCI Finances Pty Limited (in liq) v Binetter (No 4) [2016] FCA 1351; 348 ALR 227 (liability); BCI Finances Pty Limited (in liq) v Binetter (No 5) [2017] FCA 1524 (damages and costs); BCI Finances Pty Limited (in liq) v Binetter [2018] FCAFC 189; 362 ALR 597 (Allsop CJ, Moshinsky and Colvin JJ) (Binetter Full Court).
14 In addition to the potential scheme-based claims, Mr Sheahan’s evidence is that Ligon 158 and Erma are creditors of Shield pursuant to a running loan account revealed in the companies’ books and records.
15 Mr Sheahan’s investigations are continuing but on the information presently available to him he believes that Shield received funds in connection with the alleged scheme. Mr Sheahan deposes to his belief that Shield may also have been relevantly involved in the alleged scheme as a result of Andrew’s breach of duty as its sole director and accordingly it may also have scheme-based claims or tracing claims available to it against some members of the Binetter family and Binetter related entities.
16 The plaintiffs seek orders for the reinstatement of Shield as a necessary anterior step to the winding up of Shield. The plaintiffs contend that winding up is appropriate on the just and equitable ground because there is no party otherwise to take control of Shield if it is reinstated. Andrew who was the sole director at the time Shield was deregistered does not seek to continue as director if Shield is reinstated on the register. The plaintiffs contend that Mr Sheahan is uniquely placed to be appointed as liquidator. The plaintiffs submit that the reinstatement and thereafter winding up of Shield are necessary to enable investigation and potentially pursuit of claims available to Shield to effect recoveries for the benefit of the plaintiffs’ creditors. The principal external creditor of Erbin and Rawbin is the Commissioner.
17 By way of ancillary relief, the plaintiffs seek, pursuant to s 601AH(3) of the Act, an order that the running of the limitation period in respect of any action by the plaintiffs against Shield be suspended for the period commencing with the date on which the originating process was filed and ending on the date that Shield is reinstated on the register. The application was for a period case managed by and set down for hearing before a Registrar of the Court but following objection by Andrew was referred to be heard by a Judge.
18 ASIC was notified of the application. ASIC neither consented nor opposed the application save in relation to any costs order sought against it. ASIC did not appear on the application. The plaintiffs did not make an application direct to ASIC under s 601AH(1) of the Act for the reinstatement of Shield. The making of such an application is not required as an anterior step to bringing an application under s 601AH(2).
19 Pursuant to leave, Andrew and Michael appeared as interested persons to oppose the application. Although each was separately represented and made separate submissions, their positions were substantially aligned with Michael adopting the submissions advanced on behalf of Andrew. In these circumstances, I have not found it necessary to distinguish between their respective submissions, and instead have in the main referred generally to the interested parties’ submissions without distinguishing as to which of them advanced the particular argument.
20 The interested parties oppose the primary relief sought, namely that Shield should be reinstated, on the basis that the plaintiffs do not satisfy the cumulative requirements of s 601AH(2) of the Act — namely, that the corporate plaintiffs are persons aggrieved and that the reinstatement would be just.
21 A central issue which informed the stance taken by the interested parties was whether the settlement of the earlier disputes precluded the foreshadowed proceedings being brought by Shield, if it is reinstated to the register. The interested parties contend that the claims which Mr Sheahan identifies have been released and discharged and are also the subject of a covenant not to sue. They contend that to reinstate Shield to the register for the purpose advanced by the plaintiffs would be inutile and would be contrary to the public interest in promoting the resolution of disputes.
22 The interested parties concede that if Shield is reinstated, then Shield should be wound up. However, in the event that a winding up order is made, Andrew and Michael oppose the appointment of Mr Sheahan as the liquidator of Shield, on the basis that Mr Sheahan, if so appointed, would be in a position of significant conflict.
APPLICABLE PRINCIPLES
Reinstatement of a deregistered company by the Court
23 Sections 601AH(2) and (3) of the Act relevantly provide:
Reinstatement by Court
(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.
(3) If:
(a) ASIC reinstates the registration of a company under subsection (1) or (1A); or
(b) the Court makes an order under subsection (2);
the Court may:
(c) validate anything done during the period:
(i) beginning when the company was deregistered; and
(ii) ending when the company’s registration was reinstated; and
(d) make any other order it considers appropriate.
24 If a company is reinstated, s 601AH(5) of the Act provides that the company is taken to have continued in existence as if it had not been deregistered. A person who was a director immediately before deregistration is reinstated as such; any company property vested in the Commonwealth or ASIC revests in the company; any security, interest or claim attached to company property remains.
25 The applicable principles are well-established. There was in substance very little dispute between the plaintiffs and the interested persons as to the applicable principles. The parties diverged on whether s 601AH(2) imposed a two stage process comprised of the standing requirement (person aggrieved by the deregistration) followed by the court reaching a state of satisfaction as to it being just to reinstate or a three stage process with the final stage being the exercise of the broad discretion if enlivened by the court being satisfied in relation to s 601AH(2)(a) and (b) of the Act. In my view the latter construction is to be preferred based as a matter of construction, and is consistent with the authorities. The plaintiffs who contended for the first construction accepted in the context of the present application that nothing particularly turned on the difference between them and the interested parties on the construction of s 601AH(2) of the Act.
26 The power under s 601AH is discretionary. It is enlivened by the two conditions in s 601AH(2)(a) and (b) being met. Relevantly, the plaintiffs must demonstrate that they, or at least one of them, are “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). The Court may then decide to exercise its discretion to make an order for reinstatement. The plaintiffs bear the onus of establishing that the power in s 601AH(2) should be exercised: In the matter of ERB International Pty Ltd (deregistered) [2014] NSWSC 200; 283 FLR 223 at [10] (Brereton J).
27 The authorities in relation to the reinstatement of a deregistered company by the court were comprehensively reviewed by Gleeson J (when her Honour was on this Court) in Yeo v Australian Securities and Investments Commission [2017] FCA 1480 at [11] to [25] and also by Bell P (as his Honour then was) in The Owners of Strata Plan No 91349 v ASIC [2020] NSWSC 685; 147 ACSR 456 at [59] to [79]. On the basis of their Honours’ respective comprehensive reviews of the relevant authorities, I set out the following key principles, supplemented by some of the authorities to which the parties referred.
28 First, the expression “a person aggrieved by the deregistration” under s 601AH(2) is not defined under the Act but should not be narrowly construed: Yeo at [14] to [20] and the cases there cited; The Owners of Strata Plan No 91349 at [61] to [62]. Where an applicant claims standing, it will generally not be appropriate for the Court to entertain in a detailed way argument as to the merits or otherwise of the claim, and the Court only need be satisfied that the claim is not hopeless or bound to fail…”: The Owners of Strata Plan No 91349 at [65]. However, 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; 80 ACSR 670 in turn citing Austin J (at [24] to [26]) in Australian Competition and Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316; 174 ALR 688 (ACCC v ASIC). A creditor may be a “person aggrieved” but the creditor must “demonstrate a real economic interest in the company being reinstated”: National Australia Bank Limited v Australian Securities and Investments Commission, in the matter of Mackies Industries Australasia Pty Limited (receivers and managers appointed) (deregistered) [2022] FCA 147 at [19] (Farrell J) citing Wyse & Young International Pty Limited t/as Wyse & Young Accounting v Corrado [2015] NSWSC 1863 at [43] (White J), see also Blazi Pty Limited v Gateway Development (St Marys) Pty Limited [2009] NSWSC 800 at [23] (Tamberlin AJ) requiring the interest to be “real and direct”.
29 Secondly, the provisions that provide 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: Yeo at [23] citing ERB International at [5] in turn citing ACCC v ASIC at [27] to [28]. These considerations are not limitations on the Court’s power. On such an application, the Court is concerned with the justice of reinstating the company rather than the justice of proceedings which it proposed that the reinstated company might institute or resume: ERB International at [10]. As to prejudice, Brereton J said in ERB International at [13]:
“It will be a very rare case that merely reinstating a company will be prejudicial to a potential defendant. That potential defendant still has available all the remedies of summary dismissal and stay in the substantive proceedings, if they are instituted. All he or she is deprived of is the opportunity to prevent the proceedings even being instituted — an issue on which a defendant usually has no say. In my view, a court should not, on a reinstatement application, conclude that reinstatement would be unjust on account of considerations analogous to abuse of process or want of prosecution unless affirmatively satisfied that a fair trial could not be had, or that the proposed proceedings were doomed to fail.” …
See also Endless Solar Corporation v Australian Securities and Investments Commission, in the matter of Speedpanel Australia Ltd (No 2) [2023] FCA 1290 at [37] where O’Bryan J observed that while it is appropriate for the Court to consider whether the proposed proceedings have utility and can be expected to produce something of value, the Court must be “cautious about pre-judging the likely success of the proceedings, particularly on the basis of principles such as abuse of process and the application of limitation periods, other than in the clearest cases.”
30 Thirdly, 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.
31 Finally, 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; 68 ACSR 242 at [23] (Barrett J).
32 The strength or merits of a foreshadowed claim is first relevant to whether the plaintiff is a person aggrieved but it is also a matter which may properly be taken into account in reaching the requisite satisfaction that reinstatement is “just”: Blazai at [22] to [24], [28]. In Blazai although the plaintiff established that it was a “person aggrieved” (at [24]) the foreshadowed claim was assessed as being “contingent and speculative” (at [28]) which together with delay and the likely attendant prejudice resulted in the Court concluding that it was not just to reinstate the company.
33 In the context of the present application, the interested persons emphasised the following additional matters which may indicate that a reinstatement is not just:
(1) where the basis of the application is a foreshadowed claim, whether the claim has “significant difficulties”: Graham Lewis Herbert v Nozala Pty Ltd & 1 Or [2006] NSWSC 1437 at [40] (White J);
(2) whether it “appears” that there is a defence to the foreshadowed claim: Herbert at [47] (where there was an apparent estoppel defence);
(3) whether there has been delay in bringing proceedings for reinstatement: Herbert at [48]; Blazai at [28]; and
(4) whether the passage of time might have affected, adversely, the potential for a fair trial (eg because of loss of memory, destruction of documents in the ordinary course): Herbert at [50]; Blazai at [28].
34 In Endless O’Bryan J considered matters such as the delay by the person aggrieved in pursuing their suit against the company, the proportionate costs of the proposed proceedings and the overall value of the proceedings where the person aggrieved only had a minor shareholding in the company the subject of the reinstatement application as factors relevant to the question of whether reinstatement would be “just”.
35 The authorities to which I have been taken illustrate the breadth of the factors that may be relevant to the court’s assessment of whether to order reinstatement would be just.
Winding up
36 Section 461(1)(k) of the 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: the Act, s 462(2)(b).
37 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; 282 ALR 607 at [38] to [40] (Heydon J). The orders made by Gleeson J in Yeo is an example of such orders being made.
38 Where winding up is sought immediately upon reinstatement a prospective creditor who has established a prima facie case will have standing to seek a winding up on just and equitable ground: Legrande Enterprises Pty Limited v Australian Securities and Investments Commission [2009] FCA 718 at [32] (Besanko J). The formalities as to notifications of the winding up and steps required by the Act or the Federal Court (Corporations) Rules 2000 (Cth) are either not required or may be dispensed with pursuant to s 467(3)(b) of the Act. Shareholders are generally not prejudiced because they may seek termination of the winding up under s 482 of the Act if they consider that the company should not be wound up upon reinstatement: Shaw v Goodsmith at [14].
EVIDENCE
39 The plaintiffs rely on affidavits of Mr Sheahan, Cheryl Anne Weston and Mark Geoffrey Doble. Although objection was taken on the basis of s 91 of the Evidence Act 1995 (Cth), to certain judgments of the Court (including the reasons for judgment) in Binetter related proceedings which were exhibited to Mr Sheahan’s affidavit, it was accepted that those judgments could be used by the plaintiffs in aid of illustrating the alleged scheme against the historical backdrop of the previous proceedings to demonstrate an arguable case. The objection was maintained in relation to relying on findings concerning Andrew’s conduct in the earlier proceedings as a relevant fact in this proceeding which in the plaintiffs’ submission counts against control of Shield passing back to any member of the Binetter family if it is reinstated to the register. That issue fell away entirely because the interested parties accepted that if Shield was reinstated, a liquidator should be appointed (but not Mr Sheahan).
40 Andrew relies on two affidavits of his solicitor, Christopher Ardagna, both sworn 11 April 2023, one of which is expressed as confidential and includes a confidential exhibit thereto. Orders are in place that require that if any person applies for leave to inspect either the original, unredacted written submissions of Andrew and Michael, or leave to inspect the confidential affidavit and exhibit of Mr Ardagna, that application is not to be determined earlier than seven days prior to Andrew and Michael each being notified of such application.
41 In his non-confidential affidavit, Mr Ardagna deposed to the course of settlement negotiations which preceded the execution of a deed of settlement and release on or around 5 October 2024 and exhibited related materials. The plaintiffs objected to paragraphs 15 to 25 of the non-confidential affidavit and pages 1 to 19 of exhibit CA-1 thereto. Paragraphs 15 to 25 of the non-confidential affidavit and pages 1 to 19 of CA-1 was objected to on the basis that it is impermissible as parole evidence. Paragraph 18 was additionally objected to on the basis that it concerned Mr Ardagna’s subjective understanding of the effect of the deed of settlement and release and that it was not relevant. Counsel for Andrew did not press paragraph 18 of the non-confidential affidavit. A foreshadowed objection based on s 131 of the Evidence Act was not pressed, with the plaintiffs, correctly, accepting that the evidence fell within the carveout in s 131(2)(f) of the Evidence Act because the effect of the settlement itself is in issue. Even if that were not conceded, the interested persons also relied on s 131(2)(i) in which the carveout would operate where, as here, the making of the communication or document affects a right of a person. Counsel for Andrew otherwise pressed paragraphs 15 to 25 of the non-confidential affidavit of Mr Ardagna and pages 1 to 19 of CA-1 for purposes other than the construction of the deed of settlement and release. I admitted this evidence on this basis, accepting that the evidence is relevant on the issue of whether a claim for breach of duty in entering into the deed of release was arguable.
42 Michael did not lead any evidence.
BACKGROUND
Corporate history of Shield
43 Mr Sheahan deposes that Shield was incorporated on 12 June 1997 in New South Wales and to the best of his knowledge based on his investigations of many Binetter entities that Shield only ever acted in its capacity as trustee of the Shield Holdings Trust. At all times between its incorporation and deregistration, the sole shareholder of Shield was Michael. Michael was the sole director and sole secretary between Shield’s incorporation and 2 April 2008. Andrew was the sole director and secretary of Shield from 2 April 2008 until its deregistration by ASIC on 1 November 2020. It appears that as Andrew took up residence in the United States in 2015 or 2016, this left Shield without a director resident in Australia from 2015 or 2016 until its deregistration. Shield had been deregistered for just over two years before the plaintiffs filed their application for reinstatement. Prior to this application, no application was made by the plaintiffs to ASIC under s 601AH(1) of the Act to reinstate Shield. The plaintiffs noted that neither Andrew or Michael led any evidence that either of them had intended that Shield be deregistered or even that they were aware of its deregistration. The plaintiffs submit that as a result there is no evidence that Andrew or Michael would be relevantly prejudiced by Shield’s reinstatement, noting that the potential for Shield to sue or be sued is not a relevant form of prejudice.
Issue as to utility of reinstating Shield
44 A central issue on this application is as to the utility of reinstating Shield and appointing a liquidator to it for the purpose of enabling the liquidator to investigate and, if so advised, pursue claims potentially available to Shield with a view to effecting recoveries for the benefit of creditors of Shield, including the corporate plaintiffs. That issue falls to be assessed in the context of a settlement of previous proceedings involving members of the Binetter family, Binetter corporations to whom Mr Sheahan had been appointed as liquidator and others. The settlements involved the giving of releases.
45 Key to the opposition of the interested persons is the contention that potential future claims that would be available to the corporate plaintiffs and/or Shield, if Shield is reinstated, which Mr Sheahan proposes to investigate, have in fact been released on terms that bar future proceedings, or that such proceedings are otherwise statute-barred. The plaintiffs contest the interested persons’ contention that any potential proceedings are so barred.
46 As mentioned, the interested parties rely on the history of previous litigation relating to the Binetter family and Binetter related entities to establish an arguable case to justify the reinstatement of Shield. For this reason, it is necessary to say something about the previous proceedings and the resolution of those proceedings.
47 There are three other streams of litigation in this Court, each of which has resolved, which are relevant in the present context. Each was started by Binetter entities after they entered liquidation under the control of Mr Sheahan and Mr Lock as joint and several liquidators.
Appointment of liquidators to BCI, Binqld, EGL and Ligon 268
48 On 23 April 2014, Mr Sheahan and Mr Lock were appointed as the joint and several liquidators of BCI Finances Pty Limited (in liquidation). On 2 March 2015, Mr Sheahan and Mr Lock were appointed as liquidators of Binqld Finances Pty Limited (in liquidation), E.G.L. Development (Canberra) Pty Limited (in liquidation) (EGL) and Ligon 268 Pty Limited (in liquidation) as a result of winding up petitions filed by the Australian Taxation Office for taxation debts (including penalties and interest charges) amounting to approximately $100 million in aggregate. These four entities are relevantly alleged to have operated as finance or treasury companies in the Binetter group. In the evidence before me they are described as the Finance Companies. That description is used in contrast to the description New Finance Companies which is described above at paragraph 11 and below.
49 On 22 October 2014, in the course of an examination of Andrew pursuant to s 596A of the Act, Andrew gave evidence that Michael had travelled to New York, in the United States of America, in about March 2014 and had not returned to Australia by the time of Andrew’s examination. Mr Sheahan’s evidence is that later, in about 2015 or 2016, Andrew also took up residence in the United States.
Overview of Previous Proceedings
50 The first proceeding was instituted in January 2015 by BCI, with EGL, Ligon 268 and Binqld being added as applicants on their entry into liquidation. The proceeding related to the liability of the directors of certain Binetter companies for their conduct in involving those companies in a scheme for the dishonest evasion of taxation, which resulted in the assessment of taxation imposed on the Finance Companies (the SAD5 Proceeding). Notices of assessment, amended assessment and penalty assessment were issued to the plaintiffs in the SAD5 Proceeding between December 2009 and July 2010. Except for Ligon 158 and Erma, the present plaintiffs were not parties to the SAD5 Proceeding. Ligon 158 and Erma were respondents. Neither Ligon 158 nor Erma were in liquidation at the time of the SAD5 Proceeding and were thus under Binetter control at that point in time. Although not parties to the SAD5 Proceeding, Mr Sheahan and Mr Lock were the joint and several liquidators of each of the applicant companies in the proceeding.
51 The second proceeding comprised a separate proceeding instituted in 2015 by the same applicants as in the SAD5 Proceeding (that is, the Finance Companies) against a number of other Binetter family entities and two Israeli banks, Bank Hapoalim and Israel Discount Bank (IDB) (together the Israeli Banks). The present plaintiffs were not parties to that proceeding. The proceeding related to claims for knowing assistance and/or involvement in the directors’ alleged breach of their fiduciary duties and/or statutory duties (the NSD1600 Proceeding). The claim against Bank Hapoalim settled relatively early and the claim against the Binetter entities settled in October 2018 but the claim against IDB did not resolve until 2021. That part of the NSD1600 Proceeding that was brought against Binetter entities was resolved as part of the 2018 settlements.
52 The third proceeding comprised a further proceeding against IDB commenced in 2020 by Mr Sheahan and Mr Lock in their capacity as liquidators of the applicant companies, namely Gerobin, Marbin, Erbin and Rawbin, against IDB for alleged knowing assistance and involvement in the directors’ breach of their fiduciary duties (NSD711 Proceeding). Together the applicant companies in the NSD711 proceeding are described in the evidence as the New Finance Companies. I will adopt the same usage. It is immediately apparent that two of the New Finance Companies, namely Erbin and Rawbin, are plaintiffs in the present proceeding and Mr Sheahan, who is now the sole liquidator of Erbin and Rawbin is also a plaintiff in that capacity in this proceeding. The NSD711 Proceeding was commenced following receipt by Gerobin, Marbin, Erbin and Rawbin of amended taxation assessments dated June 2020 for the tax years 2010, 2011 and 2014 for income tax, penalties and interest in the aggregate amount of approximately $50 million.
53 Having provided that overview, I will now describe each of the three proceedings in a little more detail.
SAD5 Proceeding
54 In the SAD5 Proceeding, the claims for relief totalled over $120 million, and were quantified principally by reference to the tax liabilities arising from a number of revised notices of assessment.
55 The applicants in the SAD5 Proceeding were the Finance Companies, each of whom was in liquidation and had historically been associated with the families of Erwin and Emil Binetter, both deceased, whose legal personal representatives were joined to the SAD5 Proceeding.
56 The respondents in the SAD5 Proceeding were:
(1) Gary Binetter, as legal personal representative of the late Emil Binetter (Gary’s father);
(2) Margaret Binetter, as legal personal representative of the late Erwin Binetter (her husband);
(3) Margaret Binetter, in her own right;
(4) Andrew Binetter, son of Erwin;
(5) Gary Binetter, in his own right;
(6) Michael Binetter, son of Erwin;
(7) Milgerd Nominees Pty Limited (incorporated on 4 November 1971, with Emil (from 4 November 1971 until 22 November 2012) and his spouse, Gerda (from 4 November 1971 until 19 February 2003), and from 18 January 1993, his son, Gary, as directors);
(8) Erma (incorporated on 4 November 1971 with Erwin (from 4 November 1971until his death) and Margaret (from 4 November 1971), and from 17 April 1996, Andrew, as directors. In the SAD5 Proceeding, Michael was alleged to be a shadow director);
(9) Ligon 159 Pty Limited (incorporated on 26 February 1988 by Erwin and Emil with Emil (9 May 1988 until 22 November 2012), Gerda and Gary (both from 9 May 1988) becoming directors); and
(10) Ligon 158 (incorporated on 26 February 1988 by Erwin and Emil with Andrew (from 9 May 1988), Erwin (from 6 July 1991 until death) and Margaret (from 6 July 1991) becoming directors). Michael was alleged to be a shadow director of Ligon 158 for an unspecified period.
57 The broader proceedings comprise first instance decisions on liability, relief and costs, appeals instituted by multiple parties, a partial settlement of part of the appeal and an appellate judgment of the Full Court on the extant part of the appeal proceeding.
58 The reasons of the Full Court include an overview of the background and the features of the arrangements alleged and found to have constituted the relevant scheme. In the present context, it is sufficient to describe at a high level the allegations made in the SAD5 Proceeding which provide necessary context for the arguments advanced in this application in relation to the effect of the settlement on the utility, or lack thereof, of reinstatement.
59 Each of the SAD5 applicant companies were alleged to have acted as finance companies within the Binetter group. Their alleged role as finance companies is described at [12] to [15] of Binetter Full Court:
12 …. The precise detail varied over time and for different entities. But there was a broad similarity of events and circumstance that makes such a summary useful. A finance company of the family group (such as EGL or BCI) received funds from an Israeli bank. This is said, by the Binetter interests, to be a commercial loan. The loan was secured by a deposit of cash in equivalent amount held by the Israeli bank. This cash deposit was constituted by moneys upon which no tax had been paid and which had been removed from Australia by members of the family. (We leave aside any augmentation over time by funds paid to the Israeli banks by this scheme.) Guarantees were given to the banks by members of the family and some of the family companies. The money that was brought on-shore, by loan it was said, was on-lent to other companies in the group for use as working capital in the family’s businesses. The on-borrowers paid interest to the finance company, which made payments to the bank which it characterised as deductible interest payments to the bank.
13 For some years the Commissioner of Taxation (the Commissioner) accepted this structure that formed the basis of the tax returns of BCI and EGL: that there were borrowings from the relevant Israeli banks, on-loans to the relevant group companies, and so BCI and EGL were entitled to deduct interest payments to the Israeli banks against interest income from the on-borrowing companies. At no time was there any disclosure of the deposits of cash that secured the advances from the banks. The loans were always presented as loans secured only by personal or company guarantees.
14 After revelation of the family name in the records of one Philip Egglishaw that led to the well-known tax investigation called “Operation Wickenby” the Commissioner began a detailed tax audit of the family companies. The Australian Taxation Office (ATO) eventually issued amended assessments to the four companies that acted as finance companies (BCI, EGL, Ligon 268 and Binqld) based on fraudulent evasion of tax. These amended assessments did not recognise the deductibility of interest to the Israeli banks, nor the existence of loans from these banks, treating the inflow of money from Israel via the banks as income.
15 After some resistance to the amended assessments the four companies went into liquidation, being unable to pay the amended assessments. The Commissioner funded the liquidators of the companies to bring actions in the names of the companies alleging that the directors of the companies (BCI, EGL, Ligon 268 and Binqld) breached their fiduciary duty to the respective company by causing them to participate in the transactions of “loan” and thereby causing loss to the company being the relevant assessment. The claim also sought relief against the companies receiving the on-lent funds on the basis of their knowing participation in a fraudulent breach of director’s duty.
60 The SAD5 applicants sought compensation for the loss occasioned to them by the imposition of the tax debt, including penalties and interest charges. At first instance in the SAD5 Proceeding, Gleeson J found that the tax evasion scheme was carried out by certain members of the Binetter family (namely Erwin, Emil, Andrew and Michael, and companies in the Binetter group) — Milgerd, Erma, Ligon 158 and Ligon 159. The claims were based on allegations of: (1) breach of fiduciary, common law, equitable and/or statutory duties owed to the various applicants by various respondents who were directors of the applicants at various times; and (2) knowing participation by other respondents in the breaches of duty by the director respondents. The alleged breaches by the director respondents concerned the applicants’ dealings with two Israeli Banks: the Bank Hapoalim in the case of the BCI and the IDB in the case of the EGL, Ligon 268 and Binqld.
61 The SAD5 applicants did not include the corporate plaintiffs in the present application, although as mentioned above, Ligon 158 and Erma, then under control of their respective directors, were respondents. Mr Sheahan was one of the joint liquidators of each of the SAD5 applicants, but he was not a party in his own right. At the commencement of the SAD5 Proceeding and the NSD1600 Proceeding, the corporate plaintiffs in the present application were not in liquidation and remained under the ultimate control of members of the Binetter family.
62 The liability hearing before Gleeson J spanned nine days and resulted in all respondents, except Margaret, the widow of Erwin, and Gary Binetter, a cousin of Andrew and Michael, being found liable. There followed a further three days of hearing in relation to relief and costs: Binetter (No 5) and BCI Finances Pty Limited (in liq) v Binetter (No 6) [2018] FCA 500.
63 The decisions of Gleeson J, the subject of Binetter (No 4) and Binetter (No 5), were then appealed by a number of parties, from both sides of the record. The appeals were heard together in the Full Court over five days in August 2018. Before the Full Court delivered judgment, some parties to the appeal settled with each other, with the result that some of the appeals were discontinued in whole or in part.
64 The settlement agreements were reached in around October 2018 and were documented in three deeds. Two of those deeds are in evidence on the present application and are described below. The orders made by Gleeson J on 16 April 2018 survived the settlement with the result that the monetary judgments remained in place.
65 On 9 November 2018, the Full Court delivered judgment in relation to the two appeals that remained on foot: Binetter Full Court. The extant issues on the appeal are summarised at [39] of that judgment.
66 Before addressing the settlements in the SAD5 Proceeding, it is necessary to describe the NSD1600 Proceeding part of which also formed part of the settlement.
NSD1600 of 2015
67 As mentioned, the NSD1600 Proceeding was commenced in December 2015. The applicants were initially the same as in the SAD5 Proceeding. The present corporate plaintiffs were not applicants in the NSD1600 Proceeding. The proceeding was against a number of other Binetter family entities and the Israeli Banks for alleged knowing assistance and/or involvement in the directors’ breach of their fiduciary duties and/or statutory duties. A settlement with the Bank Hapoalim parties was reached soon after commencement, which resolved the only claim by BCI in the NSD1600 Proceeding and BCI thereafter discontinued the claims it had made in the proceeding. The NSD1600 Proceeding was continued by the other three applicants (Binqld, EGL and Ligon 268).
68 In October 2018, Mr Lock and Mr Sheahan reached a settlement with a number of the Binetter family respondents in relation to both the SAD5 Proceeding and the NSD1600 Proceeding. The settlement was effected by the execution of three separate deeds which are described below.
69 The NSD1600 Proceeding was continued by Binqld, EGL and Ligon 268 against IDB, until a settlement was reached in January 2021.
NSD711 of 2020
70 As mentioned, the NSD711 Proceeding was commenced in 2020 after the 2018 settlements following receipt by the New Finance Companies, including Erbin and Rawbin, of amended assessments for income tax, penalties and interest in the aggregate amount of approximately $50 million.
71 The total claimed by the applicants in the NSD1600 Proceeding and NSD711 Proceeding against IDB was approximately $200 million.
72 In January 2021, a settlement was reached whereby IDB agreed to pay $130 million to the applicants in the NSD1600 Proceeding and NSD711 Proceeding.
The 2018 Settlements
73 The effect of the documented settlements in connection with the earlier proceedings is in issue on this application. Michael contends that as a result of the settlements, the present plaintiffs are not “persons aggrieved” for the purpose of s 601AH(2)(a)(i) of the Act. Both Andrew and Michael contend that as a result of the settlements it would not be just under s 601AH(2)(b) of the Act to reinstate Shield. The substance of the arguments advanced on the two issues overlaps to a significant extent.
74 The 2018 settlements were effected through the following three deeds:
(1) a Deed of Release and Discharge executed on or around 5 October 2018 between various Binetter entities including Andrew, Michael, Margaret and other individuals (the Binetter Entities’ Deed);
(2) a Deed of Settlement, Release and Covenant Not to Sue dated 5 October 2018 executed by the liquidators, Andrew, Michael and Margaret, various Binetter related entities and Binetter group companies and a family superfund. (the Liquidators’ Deed); and
(3) a settlement deed executed by the Commissioner on 5 October 2018 and others (the Commissioner’s Deed).
75 Mr Sheahan did not exhibit the settlement deeds to his affidavit. Only the Binetter Entities’ Deed was annexed to Ms Weston’s affidavit. It did not form part of the evidence originally filed in support of the application. It fell to the interested persons to place the Liquidators’ Deed before the Court. The evidence in relation to the negotiations that led to the settlement and to the documentation comprising the Liquidators’ Deed was led from Mr Ardagna, Andrew’s solicitor. This evidence is relied on for a confined purpose, namely, to meet any allegation that the Binetter Entities’ Deed constituted some kind of subterfuge or outflanking manoeuvre by the Binetter parties and thereby is relevant to the strength of one of the asserted bases on which the plaintiffs may seek to set aside the Binetter Entities’ Deed. The issue of whether there is potential for the Binetter Entities’ Deed to be set aside (or severed) is relevant to the assessment of whether there is any utility in, and if it is just that, Shield be reinstated. It is not relied upon by for the interested parties as going to the construction of the deed.
76 The Liquidators’ Deed includes a clause which requires the deed to be kept confidential and the deed forms part of a confidential exhibit on this application: cl 23.
77 [Redacted]. The Commissioner was not a party to this application. The issue of disclosure of the information contained in the Commissioner’s Deed has previously been the subject of consideration by the Court in the NSD1600 Proceeding: Binqld Finances Pty Ltd (In Liq) v Israel Discount Bank Limited; In the Matter of Binqld Finances Pty Ltd (In Liq) [2019] FCA 1186 (Foster J). In that decision, the Commissioner succeeded in establishing that parts of the Commissioner’s Deed ought not to be disclosed on the basis that the information was protected information within the secrecy provisions of the Taxation Administration Act 1953 (Cth) (TAA), and the offence created by s 355-155. On this application, no party sought to place the Commissioner’s Deed into evidence and the Commissioner was not a party on the present application.
78 Before moving to address the two deeds in evidence on this application, it is convenient to address evidence given by Mr Ardagna in relation to the negotiations in 2018 that culminated in the settlement.
2018 Negotiations
79 Mr Ardagna deposes that in early 2018, Andrew and entities associated with him raised with the Commissioner and the liquidators the prospect of reaching a “global” settlement of all matters in dispute between them and his clients. He says that very early in the negotiations, on or about 16 March 2018, he had a telephone conversation with Mr Sheahan in which Mr Sheahan said words to the effect:
I think we can achieve a settlement of all matters in dispute and I would be willing to recommend a settlement to the Commissioner on certain terms. If there is to be a settlement, I am concerned that if we are to take control of the Binetters’ Australian assets, one of their entities might seek to enforce their loans and security over assets we control. There will need to be full cooperation from the Binetters so that does not happen.
80 Mr Ardagna deposes that the settlement negotiations also included discussions concerning the New Finance Companies. Mr Ardagna says that in early August 2018, Mr Sheahan said to him words to the effect:
We think that Gerobin, Erbin, Marbin and Rawbin have all been involved in arrangements similar to the one BCI has been involved in. If the Commissioner raises assessments on those companies, we think those companies are likely to have claims similar to BCI’s claim against the Israeli banks.
81 To be clear, as at early August 2018, the Commissioner had not raised new assessments against any of the New Finance Companies and those companies remained under the control of their directors, relevantly in respect of Ligon 158 and Erma: Margaret, Andrew and Samantha Kelliher and in respect of Erbin and Rawbin: Andrew as the sole director and sole secretary.
82 Mr Ardagna recounts another conversation with Mr Sheahan on or around the morning of 7 August 2018, during the hearing of the appeal brought from the decisions in the SAD5 Proceeding, in which he says that Mr Sheahan said words to the following effect:
We think that Gerobin, Erbin, Marbin and Gerobin [sic] must all go into liquidation, with Ian and I appointed liquidators. We will need Andrew to sign letters authorising the Israeli banks to release their records relating to these companies to us.
83 On 7 August 2018, Mr Ardagna sent a without prejudice letter to the liquidators, copied to various others including representatives of the Commissioner, regarding the proposed settlement, which referred to the discussion said to have occurred outside Court that day. That letter included the following in relation to inter alia the corporate plaintiffs on the present application, namely Ligon 158, Erma, Erbin and Rawbin:
Rawbin, Marbin, Erbin and Gerobin
Our clients propose that, following entry into the deed of settlement, these entities will be placed into voluntary creditors liquidation, with you and Ian Lock appointed liquidators.
Andrew Binetter will provide you with a letter of authority addressed to the Israel Discount Bank authorising the bank to provide you with the banking records for these companies.
Our expectation is that the Commissioner will covenant not to fund the liquidators in relation to any investigation of the directors of these companies and further, that in the event the liquidators do undertake such an investigation, the Commissioner may be required to take steps to have the liquidators removed.
…
Ligon 158 and Erma Nominees
Our clients propose that:
1. Ligon 158 and Erma Nominees will authorise the liquidators to:
a. sell the Corish Circle property and Ligon 158’s and Erma’s interests in the Revesby property on such terms as the liquidators consider appropriate, and
b. complete the sale of Erma’s interest in the Carrington Road property and business,
with all proceeds (less any running or selling costs relating to those properties and incurred from the date of the settlement deed) to be paid into an account nominated by the liquidators in satisfaction of all claims by the liquidators against Ligon 158 and Erma Nominees.
84 The letter also included the following proposal in relation to other entities described as listed in the draft settlement deed:
Other Entities Listed in the Draft Settlement Deeds
Our clients propose that:
1. The other entities listed in the draft settlement deed will not be placed in liquidation;
2. These entities will then be deregistered after all of the transactions and events contemplated under the settlement deeds have occurred, on the basis the Commissioner will not seek their reinstatement and will not fund the liquidators to investigate any claims that might result in a recommendation to seek reinstatement.
85 The draft settlement deed to which reference is made is not in evidence. The version in evidence appears to be a later draft. On the face of this letter the “Other Entities Listed in the Draft Settlement Deeds” would appear to be entities that are “other” than those mentioned earlier in the letter, that is, do not include the corporate plaintiffs. [Redacted]. The Commissioner’s Deed is not in evidence.
86 Mr Tobin Meagher of Clayton Utz, who was acting for the liquidators, responded by email on 7 August 2018, after discussions with Mr Ardagna. In his email, Mr Tobin said, subject to Mr Ardagna taking instructions:
1. Ligon 158 and Erma Nominees
Our clients require that these companies be placed into liquidation. This is the simplest and most efficient way for our clients to realise the real property and business assets of these companies. It avoids the complexities and risks for our clients associated with the 2 companies remaining under the control of your clients, but appointing our clients, effectively as agents, to sell the companies’ interests in particular assets. Placing the companies into liquidation would, of course, be on the basis that the Commissioner would provide a covenant not to fund any claims against the directors.
87 Mr Ardagna deposes to a telephone conversation he had on or about 8 August 2018, with Mr Meagher and Mr Joseph Johnson, also of Clayton Utz, and acting on behalf of the liquidators. He says that during that conversation, either Mr Meagher or Mr Johnson said words to the following effect:
As part of the settlement, it will be necessary for the companies that will go into liquidation to provide their assets and liabilities to us. In terms of liabilities, this can be limited to external liabilities only, on the basis that if there are Binetter-related entities not party to the settlement that have debts owed to/by parties that are parties to the settlement, those debts could be released.
88 The conversation recounted is silent in relation to the release of future or contingent claims between Binetter entities inter se. As recounted, the speaker is said to have referred expressly to “debts”.
89 On or about 12 September 2018, Mr Ardagna sent a draft deed of release to the liquidators’ solicitors. In that version of the draft deed, “Claim” is defined as follows:
Claims means actions, suits, causes of action, arbitration, debts (of any nature), dues, complaints, costs, claims, demands, expenses, investigations, obligations, proceedings, verdicts and judgments (including any existing unsatisfied costs orders) whether at law or in equity or under any statute and whether or not any one or more or all of the facts, matters or circumstances giving rise to those items are known to the parties at the date of this deed but excluding the Erma-Ligon 158 Loan, the Ligon 158-12 Years Loans; the Ligon 158-Rawbin Loan and the B&I-Gerobin Loan;
90 In that draft, an early version of cl 4 included:
4. Release and Discharge by the Debtors
Upon the execution of this deed, each of the Creditors release and discharge each of the Debtors:
(a) from repayment of the Loans and all actions, proceedings, claims, demands, costs and charges whatsoever which each of the Creditors now have or hereafter may have against each of the Debtors in respect of, or arising from the Loans; and
(b) from any other Claims on any account whatsoever any one or more of the Creditors may have against any one or more of the Debtors in any and all capacities.
91 Thereafter there ensued further correspondence and iterations of the draft deed between Clayton Utz on behalf of the liquidators and Mr Ardagna. Mr Ardagna exhibits a chain of email between the Liquidators’ solicitors and his firm on 5 October 2018, the day on or around which the Binetter Entities’ Deed was executed. At 8.48am Mr Johnson enclosed an amended version of the deed to an email and said:
…we are concerned that the inter-company debt deed may provide a release in relation to fiduciary duties and therefore impact on the claims that Erbin, Marbin, Rawbin and Gerobin may have against IDB.
We would be grateful if the words below could be inserted in the definition of “Claim”. We believe that your clients’ position is still protected by the covenant not to sue and protections in the ATO deed.
We appreciate that Chris is already out of the office, so we appreciate the amendment may need to be handwritten.
…
Claims means actions, suits, causes of action, arbitration, debts (of any nature), dues, complaints, costs, claims, demands, expenses, investigations, obligations, proceedings, verdicts and judgments (including any existing unsatisfied costs orders) whether at law or in equity or under any statute and whether or not any one or more or all of the facts, matters or circumstances giving rise to those items are known to the parties at the date of this deed but excluding the Erma-Ligon 158 Loan, the Ligon 158-12 Years Loans; the Ligon 158-Rawbin Loan and the B&I-Gerobin Loan, and excludes any claims or causes of action for breach of fiduciary duty or knowing assistance in a breach of fiduciary duty;
92 The version of the draft attached to Mr Johnson’s email is not in evidence. The “ATO deed” referred to in the email is not in evidence.
93 Later that day at 4.02pm, Mr Johnson attached a further draft of the deed to an email in which he flagged a further amendment to the definition of Claim to include claims under the Act as part of the carveout to Claims because “this has also been pleaded against IDB in NSD 1600”. The draft said to be attached to the email is not in evidence.
94 The changes proposed by the liquidators were incorporated into the final form of the Binetter Entities’ Deed, the terms of which are discussed below.
95 Following the partial settlement of the Full Court appeal, approval of the compromise of the relevant judgment debts [Redacted] pursuant to s 477(2A) of the Act was granted in Sheahan, in the matter of BCI Finances Pty Limited (in liq) [2018] FCA 1499 (White J).
96 As mentioned, the interested parties rely on the evidence in relation to the drafting of the Binetter Entities’ Deed to argue against the proposition advanced by the plaintiffs that the Binetter Entities’ Deed may be liable to be set aside in equity. This argument is addressed below.
97 I now turn to briefly describe the two deeds in evidence that were executed on or around 5 October 2018.
The Binetter Entities’ Deed
98 The Binetter Entities’ Deed was executed on or about 5 October 2018 by Andrew and various family members and entities associated with the Binetters, including each of the corporate plaintiffs, who were not under external administration and who continued under control of Binetter family members at that time. The Binetter Entities’ Deed was executed by the present corporate plaintiffs as follows:
(1) for Ligon 158 by Margaret and Andrew in their respective capacities as director and director and secretary;
(2) for Erma by Margaret and Andrew in their respective capacities as director, and director and secretary;
(3) for Erbin by Andrew as sole director and secretary; and
(4) for Rawbin by Andrew as sole director and secretary.
99 The recitals to the Binetter Entities’ Deed state that the “parties agree to enter into this deed to release the Debtors from the Loans and the Claims”: Recital D.
100 I will return to the terms of the Binetter Entities’ Deed as part of my consideration of the present application below.
The Liquidators’ Deed
101 On or about the same date that the Binetter Entities’ Deed was executed, the Liquidators’ Deed was executed. The parties to the Liquidators’ Deed relevantly include:
[Redacted].
102 [Redacted].
103 The Liquidators’ Deed includes lengthy recitals which recite amongst other things:
[Redacted].
104 [Redacted].
105 I will return to the terms of the Liquidators’ Deed below.
Recognition of the liquidations of the Finance Companies in United States
106 Another aspect of the 2018 settlement was that the 2017 application in the United States for the recognition of the liquidations of the Finance Companies was to be discontinued.
Events post 2018 Settlements
Appointment of Liquidators to the present plaintiffs amongst others
107 In respect of Ligon 158 and Erma, Mr Sheahan together with Mr Lock were appointed as voluntary administrators by resolution of the directors of those companies on 12 October 2018; as liquidators in creditors’ voluntary winding ups by the creditors of the companies on 12 November 2018 and as liquidators in court winding up on 5 February 2019.
108 In respect of the New Finance Companies, Mr Sheahan together with Mr Lock were appointed as liquidators in voluntary winding up by the members of the companies on 9 October 2018 and as liquidators in court windings up on 5 February 2019.
109 The appointment of Mr Sheahan and Mr Lock as voluntary administrators of Ligon 158 and Erma and as liquidators in a voluntary winding up of Erbin and Rawbin appears to have been effected [Redacted].
110 Following their appointment as liquidators to the New Finance Companies, including Erbin and Rawbin, in October 2018, Mr Sheahan commenced investigations into the affairs of those companies, including their dealings with IDB. Those investigations appear to have been facilitated by the letters of authority directed to IDB signed by Andrew (and perhaps Margaret) [Redacted]. The results of Mr Sheahan’s investigations, which are ongoing, are set out below.
Amended assessments and penalty assessments in June 2020 – Erbin and Rawbin
111 In about June 2019, the Commissioner commenced a review or an audit into the affairs of Erbin and Rawbin respectively. In June 2020, the Commissioner issued amended assessments and penalty assessments to Erbin and Rawbin which totalled respectively approximately $7.8 million and $16.9 million.
112 Prior to the Commissioner issuing the amended assessments neither Erbin nor Rawbin had any significant creditors that were not related entities.
113 The amended assessments were predicated inter alia on revising the assessable income of Erbin (for the financial years 2010, 2011 and 2014) and Rawbin (for the financial years 2010 to 2014) to include as income the amounts received by them from IDB. In issuing the revised assessments, the Commissioner was satisfied that Andrew’s actions in lodging the original tax returns for Erbin and Rawbin constituted tax evasion so as to enable the Commissioner to amend the relevant tax returns.
Commencement and resolution of NSD711 Proceeding
114 As mentioned above, the NSD711 Proceeding was commenced in 2020 and with the then extant part of the NSD1600 Proceeding settled in January 2021with IDB agreeing to pay $130 million to the applicants in the NSD1600 Proceeding (Binqld, EGL, Ligon 268) and NSD711 Proceeding (Gerobin, Erbin, Rawbin and Marbin).
Re-opening of recognition of the liquidations of the Binetter Finance Companies in United States
115 Following the resignation of Mr Lock in 2021, Mr Sheahan caused to be filed, in the original recognition action, an application for orders reopening the chapter 15 recognition proceedings, and thereby reinstating the recognition of the liquidations of the Finance Companies in the United States. Mr Sheahan also caused to be filed separate actions (later consolidated with the original recognition action) for chapter 15 recognition of the liquidations of the New Finance Companies, Ligon 158 and Erma.
116 Andrew opposed the motion for reopening the recognition proceedings in relation to the Finance Companies and also opposed with others the application for recognition of the liquidations of the New Finance Companies, Ligon 158 and Erma.
117 On 1 December 2021, the Bankruptcy Court made orders reopening the recognition proceedings in relation to the Finance Companies. On 18 January 2022, the Bankruptcy Court ordered the recognition of the liquidations of the New Finance Companies, Ligon 158 and Erma as foreign main proceedings in the United States.
118 Following the reopening and granting of recognition of the Binetter related liquidations in the United States in December 2021 to January 2022, Mr Sheahan caused a subpoena to be sent to each of a number of United States banks seeking information in relation to any accounts operated by or connected with the companies in liquidation. On 4 August 2022, HSBC Bank USA responded to that subpoena, providing details of a number of transactions entered into by members of the Binetter group (HSBC report). Relevantly, Mr Sheahan deposes to the fact that a comparison between the entries on Ligon 158’s ledger and the HSBC report reveals that payments made by Ligon 158 to JAAB Pasta USA LLC were recorded as loans by Ligon 158 to Shield, and that a payment by Rawbin to JAAB Pasta was recorded as a loan by Ligon 158 to Shield (while other payments by the same payer to the same payee were not). Mr Sheahan deposes to Andrew having or having had an interest in JAAB Pasta. Mr Sheahan has also identified a number of other payments from Shield to JAAB Pasta.
Continuing investigations into affairs of the Binetter group
119 Since his appointment as liquidator of the Ligon 158, Erma and the New Finance Companies Mr Sheahan’s investigations into the affairs of those companies, including their dealings with IDB, have continued, and are continuing. Mr Sheahan deposes in detail to the information that he has gathered in his investigations. Based on the material now available to him, which he acknowledges is not complete and has not been thoroughly analysed, including four potential tracing claims pending the outcome of this application, he has concluded that Shield is significant in the liquidations of the corporate plaintiffs.
CONSIDERATION
Reinstatement
120 Section 601AH is a broad provision and provides the court with a wide discretion. In deciding whether to reinstate a company a court will weigh up the circumstances in which the company was deregistered, what good could be made from reinstating it, whether anyone would be prejudiced by reinstatement and whether reinstatement is in the public interest. The starting point here is to understand the purpose which informs the plaintiffs’ application to reinstate Shield which in turn informs the corporate plaintiffs’ claims to be persons aggrieved by Shield’s deregistration and their contention that the Court should be satisfied that it is just that Shield’s registration be reinstated and that the Court should exercise its discretion accordingly.
121 Based on Mr Sheahan’s evidence and the information gathered by him in his investigations, the plaintiffs submit that they each have potential claims against Shield which Mr Sheahan as liquidator of each of them seeks to investigate, and potentially litigate. For the purpose of facilitating the investigation, and the potential prosecution of those claims, it is necessary for Shield’s registration to be reinstated so that it resumes its previous identity as a legal entity. The plaintiffs recognise that the claims Mr Sheahan has identified fall to be assessed in the context of the Binetter Entities’ Deed.
122 In addition, Mr Sheahan deposes to his belief based on his investigations that Shield may have scheme-based claims available to it against Binetter related entities.
123 The potential claims available to the corporate plaintiffs identified by Mr Sheahan are as follows.
124 Ligon 158 and Erma appear to be creditors of Shield, on the basis of loan accounts maintained as running accounts in the companies’ books and records. Accordingly, subject to the effect of the Binetter Entities’ Deed, each of Ligon 158 and Erma have subsisting debt claims for unpaid loans against Shield. The plaintiffs rely on these claims to establish that Ligon 158 and Erma are persons aggrieved regardless of whether each or either of them have available to them scheme-based claims in addition to the debt claims.
125 Erbin and Rawbin in their function as New Finance Companies contend that they have scheme-based claims for accessorial liability available to them against Shield on the basis of Shield’s involvement in and/or receipt of funds derived from the alleged scheme. Again, the availability of those claims must be assessed in the context of the Binetter Entities’ Deed. The claims of Erbin and Rawbin, like the claims of the Finance Companies in the earlier proceedings, are founded inter alia on an allegation of breach of duty by their respective directors which is then the basis for the accessorial claim against Shield and potentially other entities.
126 Based on his investigations to date, Mr Sheahan believes that Shield may have subsequently on-lent funds received or borrowed by it to other Binetter entities, giving rise to tracing claims or other scheme-based claims. On this basis the plaintiffs contend that Shield may have claims against persons or entities in the United States, which if recovered would be assets in the liquidation of Shield which could be applied towards satisfaction of the claims that the present plaintiffs may pursue against Shield.
127 In addition to the claims that Ligon 158 and Erma may have as creditors of Shield , Mr Sheahan contends that they may also be party to various of the on-lending transactions “in lesser ways” regarding the movement of funds through Shield to the United States and in this way may have scheme-based claims available to them. Mr Sheahan’s investigations in relation to the potential for scheme-based claims being available to Ligon 158, and particularly Erma, are not complete. It is an aspect of the further investigation that he intends to undertake if Shield is reinstated to the register.
128 Mr Sheahan has deposed that if appointed as liquidator of Shield, he proposes to investigate whether Michael or Andrew purchased any assets in the United States using funds removed from or lent by or on behalf of Shield, and whether any recovery action might be taken by or on behalf of Shield to recover such funds from Andrew, Michael or any entities associated with them in the United States for the benefit of the creditors in the liquidations of the plaintiffs.
129 The interested parties submit that the claims arising from the alleged loans from Ligon 158 and Erma to Shield are claims which, on the face of the Binetter Entities’ Deed, are released and discharged and in addition are the subject of a covenant not to sue which if breached triggers a further release and discharge.
130 The interested parties make a similar but more nuanced submission in relation to the scheme-based claims Mr Sheahan has flagged in respect of Erbin and Rawbin and also potentially in relation to Ligon 158 and Erma.
131 On the basis of the Binetter Entities’ Deed, the interested parties submit that the present plaintiffs are not persons aggrieved under s 601AH(2)(a)(i) of the Act and it would not be just to reinstate Shield under s 601AH(2)(b) of the Act. The interested parties submit that the plaintiffs have released and discharged any rights they may have had against Shield. To the extent that is not so, the interested parties submit that the plaintiffs have given a covenant not to sue on any such rights and if they breach that covenant, a latent obligation to release and discharge those rights will be triggered.
132 The interested parties further submit inter alia that having regard to the 2018 settlements and the public interest in the settlement of disputes it would not be just to reinstate the registration of Shield for the purpose of investigating and litigating claims within the ambit of the settlements and further, that any attempt to do so would be of no utility because it would be met by the Binetter Entities’ Deed.
133 The plaintiffs’ retort to the interested parties’ submission as to the effect of the Binetter Entities’ Deed on the potential claims available against and to Shield is multi-pronged.
134 First, the plaintiffs contend that properly construed the Binetter Entities’ Deed does not have the effect of releasing the relevant claims. The plaintiffs contend that on the proper construction of the Binetter Entities’ Deed, the corporate plaintiffs have available to them “at least” the scheme-based claims against Shield.
135 The plaintiffs’ second response to the Binetter Entities’ Deed is to assert that the deed is liable to be “set aside in equity” because the directors of the plaintiff companies and Shield were in a position of conflict when purporting to compromise the respective companies’ claims against each other and against the directors themselves. The plaintiffs submit that at the “very least” for the purpose of this application the contention that the Binetter Entities’ Deed is liable to be set aside in equity has the requisite level of “arguability” to warrant the reinstatement of Shield.
136 The plaintiffs further submit that unless the Binetter Entities’ Deed is construed in the way in which they contend, then it involves “a brazen attempt by the members of the Binetter family to release themselves and their related entities from breaches of fiduciary duty, knowing assistance in a breach of fiduciary duty and claims for contraventions of the Act”. In the plaintiffs’ submission, the directors’ conduct cannot be ratified because it amounts to an improper expropriation of the property of the impacted companies as well as breach of statutory duties and a transaction to “defeat creditors where the company is not fully solvent.”
137 In support of this submission the plaintiffs point to the following:
(1) Shield is not named or a party in either the Binetter Entities’ Deed or the Liquidators’ Deed with the effect that any release in its favour was not given pursuant to mutual covenants;
(2) there is no apparent benefit to the corporate plaintiffs in granting the releases to Shield;
(3) Shield receives the benefit of the releases because it falls within the definition “Covenant Beneficiary” in the Binetter Entities’ Deed. That definition is directed to extending the benefit of the deed to companies solely by reference to whether the named Binetter family members are directors of the company; and
(4) Shield receives the benefit of the deed purely because it is a company of which Andrew was a director.
138 The plaintiffs submit that this suggests that the releases were granted for the benefit of the members of the Binetter family rather than for the benefit of the companies concerned, noting that the corporate plaintiffs and Shield were each under the control of members of the Binetter family at the time of the negotiation and entry into the Binetter Entities’ Deed. Further, that there is no evidence that directors of the companies gave consideration to whether the entry into Binetter Entities’ Deed was in the interest of the individual companies concerned. Further, that Andrew did not give any evidence as to whether he as director of the corporate plaintiffs and also of Shield gave any consideration to whether entry into the Binetter Entities’ Deed was in the interests of the individual corporate plaintiffs or Shield.
139 In response to the plaintiffs’ submission as to what was described as the brazenness of the conduct of the Binetter family in orchestrating to release themselves and their related entities from breaches of fiduciary duty, knowing assistance in a breach of fiduciary duty and claims for contraventions of the Act, the interested parties submit that the genesis of the impugned clause as executed was at the instigation of the liquidators and cannot be laid at the feet of the Binetters. The interested parties rely on the evidence in relation to the 2018 negotiations between the liquidators and the Binetter parties culminating in the documentation of the 2018 settlements, the relevant part of which is extracted above. The interested parties submit that the fact that the release was they say introduced at the liquidators’ request is relevant as to whether it is arguable that the deed could be set aside.
140 The plaintiffs respond by submitting that Andrew’s attempt to excuse his breach of his duties as a director by implicating the liquidators in the drafting of the Binetter Entities’ Deed should be rejected. Further, that the issue of whether claims of this nature are precluded by the Binetter Entities’ Deed is ultimately for determination at a later date. They submit that determination of that issue will depend on the nature of the claims, if any, that may ultimately be brought against and/or on behalf of Shield if it is reinstated, and will fall to be assessed by reference to the identity of the respondents named to such claims. Again, the plaintiffs emphasise that for the purposes of this application, it is apparent that the interested parties’ contention that the Binetter Entities’ Deed releases any and all potential claims as between the corporate plaintiffs and Shield can be met by arguments that have at least “some level of arguability” and as such meet the “very low threshold” required on a reinstatement application.
141 The interested parties make an additional argument which it is convenient to address as a preliminary point. They submit that the effect of the covenant not to sue in the Binetter Entities’ Deed is that the plaintiffs are not only precluded from bringing the future potential claims that Mr Sheahan has identified but are also prevented from bringing the present application. Assuming for the purpose of this preliminary point that the covenant not to sue is not liable to be set aside, I do not accept that it would operate to prevent the plaintiffs bringing the present application for the following related reasons.
142 That part of the present application that relates to reinstatement is not a “claim” by the corporate plaintiffs (Creditors) against Shield (Debtor). It is a claim for relief in the form of an order requiring ASIC to reinstate the registration of Shield. I am not satisfied that the covenant not to sue bites in respect of this part of the claim. As to whether it bites in relation to the balance of this application, turns on whether the deed is liable to be set aside if Shield is reinstated. The plaintiffs contend that in order to have the deed set aside they need to have Shield reinstated because it is a necessary party to any such application. I do not accept the interested parties’ submission that the covenant not to sue has the effect that the plaintiffs cannot bring an application to reinstate Shield as a precursor to an application to set the deed aside. The existence of and potential application of the deed should not be determinative of the application for reinstatement. To hold otherwise would allow the parties to the deed to oust the Court’s jurisdiction to determine whether the potential proceeding identified against the deregistered company is arguable for the purpose of establishing that the applicant for reinstatement is a person aggrieved and whether it is just to reinstate.
143 The plaintiffs make the additional submission that Shield currently does not have a separate legal personality and is unable to enforce the Binetter Entities’ Deed until it is reregistered relying on ACN 078 272 867 at [40] to [41] (Heydon J). While that may be correct, cl 6 of the Binetter Entities’ Deed provides that it operates as a deed poll in favour of Shield as a Covenant Beneficiary and as such may be enforced by any one of the Schedule Parties on Shield’s behalf. Each of Andrew and Michael are Schedule Parties. Accordingly, I do not see the plaintiffs’ argument as to Shield’s lack of legal personality as adding to the reasons why I do not accept the interested parties’ position that the covenant not to sue precludes the plaintiffs bringing the application to reinstate Shield.
144 Against that broad summary of the parties’ competing contentions on this issue, I now turn to the terms of the two relevant deeds. The critical clause upon which the interested parties’ arguments is based are contained in the Binetter Entities’ Deed but it is useful to begin with the Liquidators’ Deed which is relied upon as necessary context and as part of an interrelated suite of settlement arrangements.
The Liquidators’ Deed
145 [Redacted].
146 [Redacted].
147 [Redacted].
148 [Redacted].
149 [Redacted].
150 [Redacted].
151 [Redacted].
152 [Redacted].
153 [Redacted].
154 [Redacted].
155 [Redacted].
156 [Redacted].
157 [Redacted].
The Binetter Entities’ Deed
158 The critical provision in issue on this application is cl 4 of the Binetter Entities’ Deed. It is useful to first set out preceding parts of the deed to provide context.
159 The term “Debtors” is defined in cl 2.1 to include each of the parties named in the schedule (the Schedule Parties) as well as the “Covenant Beneficiaries”. Covenant Beneficiaries is defined to mean “any company (including any company acting in its capacity as a trustee of a trust) in which any one or more of Andrew, Margaret or Michael is or has been a director”. [Redacted]. Each of the present plaintiffs satisfies the definition “Covenant Beneficiary” under the Binetter Entities’ Deed and is thus captured by the definition “Debtors”.
160 Shield also falls within the definition of Covenant Beneficiary, Andrew having been a director, and thus is also one of the Debtors.
161 Loans is defined in cl 2.1 as follows:
Loans means any loan or advance of money (including interest) from any Creditor to any Debtor, but excluding the Erma-Ligon 158 Loan, the Ligon 158-12 Years Loan; the Ligon 158-Rawbin Loan; and the B&I-Gerobin Loan
The specified loans carved out from the definition of “Loans” did not feature in the arguments advanced on this application.
162 Creditors is expressly defined in cl 2.1 to include each of the corporate plaintiffs, amongst others.
163 Claims is broadly defined in cl 2.1 with an express carve out for “any claims or causes of action for breach of fiduciary duty or knowing assistance in a breach of fiduciary duty, or claims for a contravention of the Corporations Act 2001 (Cth)”:
Claims means actions, suits, causes of action, arbitration, debts (of any nature), dues, complaints, costs, claims, demands, expenses, investigations, obligations, proceedings, verdicts and judgments (including any existing unsatisfied costs orders) whether at law or in equity or under any statute and whether or not any one or more or all of the facts, matters or circumstances giving rise to those items are known to the parties at the date of this deed but excluding the Erma-Ligon 158 Loan, the Ligon 158-12 Years Loans; the Ligon 158-Rawbin Loan and the B&I-Gerobin Loan, and excluding any claims or causes of action for breach of fiduciary duty or knowing assistance in a breach of fiduciary duty, or claims for a contravention of the Corporations Act 2001 (Cth)
164 Again pausing, the potential scheme-based claims that Mr Sheahan has flagged against Shield would by their nature be captured by the carve out at the end of the definition and so not fall within the meaning of “Claims”.
165 Clause 3 of the Binetter Entities’ Deed provides under the heading “Purpose” that the “parties have entered into this deed to facilitate and give effect to the settlement and compromise agreement as between the parties to the [Liquidators’ Deed] in order to resolve all outstanding disputes and issues between them.”
166 Clause 4 of the Binetter Entities’ Deed provides:
4 Release, Discharge and Covenants not to Sue by the Creditors
4.1 Upon the execution of this deed, each of the Creditors release and discharge each of the Debtors:
(a) from repayment of the Loans and all actions, proceedings, claims, demands, costs and charges whatsoever which each of the Creditors now have or hereafter may have against each of the Debtors in respect of, or arising from the Loans; and
(b) from any other Claims on any account whatsoever any one or more of the Creditors may have against any one or more of the Debtors in any and all capacities.
4.2 Upon the execution of this deed, each of the Creditors covenants not to sue each of the Debtors in respect of all claims which it now has or may hereafter have against each Debtor not covered by clause 4.1.
4.3 If clause 4.2 is breached then each of the Creditors releases and discharges each of the Debtors from all claims which it now has or may hereafter have against each Debtor not covered by clause 4.1.
4.4 This clause 4 binds any future administrators or liquidators of the Creditors.
167 Before moving to the competing arguments as to the proper construction of this clause, it bears emphasis that on its face, the clause uses the word “Claims” (initial capitalised) as a defined term in cl 4.1(b) but uses the word “claims” (lowercase) in its ordinary meaning in cll 4.1(a), 4.2 and 4.3. These differences in the use of the word are significant in the parties’ competing contentions as to the effect of the clause. On its face, if cl 4.1 had uniformly used “Claims”, the defined term, throughout then it would be relatively clear that the scheme-based claims identified by Mr Sheahan arising from the alleged scheme would be excluded from the release, discharge and covenant not to sue in cl 4 by operation of the second carve out in the definition of “Claims”.
168 [Redacted].
169 Clause 6 of the Binetter Entities’ Deed provides:
Deed Poll for Covenant Beneficiaries
To the extent necessary, this deed operates as a deed poll in favour of the Covenant Beneficiaries and may be enforced by any one of the Schedule Parties on their behalf.
170 For present purposes, it is relevant that Andrew and Michael are each named in the Schedule and are therefore “Schedule Parties” who may enforce the deed on behalf of Shield, as a Covenant Beneficiary.
The competing construction arguments
171 The interested parties submit that the claims which Mr Sheahan seeks to investigate, and thereafter potentially litigate, if Shield is reinstated, have been, or will be, released and discharged, and are the subject of a covenant not to sue pursuant to cl 4. The interested parties say that is so for the following reasons.
172 First, in respect of the debt claims for the unpaid loans Mr Sheahan has identified between Ligon 158 and Erma and Shield, those loans are captured by the definition of “Loans” and thus as “Creditors” Ligon 158 and Erma release and discharge Shield as a “Debtor” from the repayment of those Loans. Further, that Shield if reinstated, would be entitled to rely on the Binetter Entities’ Deed as a deed poll pursuant to cl 6. Although not the subject of submissions, it would also appear that Andrew and Michael may be able to enforce the Binetter Entities’ Deed on behalf of Shield to cl 6 of the Binetter Entities’ Deed.
173 Second, the claims identified by Mr Sheahan are claims of Creditors, as defined, against a Debtor, as defined, “in respect of, or arising from Loans” and are thus claims (lowercase) that have been released and discharged under cl 4.1(a). The interested parties point to the use of lowercase claims in the phrase “all … claims … whatsoever which each of the Creditors now have or hereafter may have against each of the Debtors in respect of, or arising from the Loans”. The interested parties submit that the claims identified by Mr Sheahan answer that description. The interested parties advance this submission both in relation to the potential debt claims of Ligon 158 and Erma as well as the potential scheme-based claims of all the corporate plaintiffs.
174 I interpolate to note that the debt claims identified in respect of Ligon 158 and Erma appear to readily answer the description of “claims, … in respect of, or arising from the Loans”. The position in relation to the potential scheme-based claims of all the plaintiffs is not so clear.
175 In my view, a purposive construction must be informed by cl 3 of the Binetter Entities’ Deed [Redacted], which reveal that a relevant purpose of the global settlement is to preserve the ability of the liquidators to continue the Finance Companies’ claims against the IDB and/or MDB and the potential for the liquidators to commence further action against these banks on behalf of other parties to the Liquidators’ Deed. This purpose is effectuated through the concluding exclusion in the definition of “Claims” and the qualification of the claims (lowercase) in cl 4.1(a) by the requirement that such claims are “in respect of, or arising from the Loans”. To read the reference to claims (lowercase) as qualified in cl 4.1(a) to extend to claims, such as the scheme-based claims, would not be consistent with the text and purpose of the clause when read in the context provided by the interlocking nature of the two deeds. For the purpose of this application, I am satisfied that it is at least arguable that the relevant scheme-based claims are not precluded because of cl 4.1(a) of the Binetter Entities’ Deed.
176 For completeness, I note that the plaintiffs submit that if cl 4.1(a) is construed to cover scheme-based claims that would render cl 4.1(b) which uses the defined term “Claim” largely redundant. I am not persuaded that is correct. Even if cl 4.1(a) covered all claims (in the broader sense) in respect of or arising from the Loans, there would still be work for cl 4.1(b) to do in respect of Claims which are not “in respect of or arising from the Loans”. In any event, I am satisfied that for the reasons I have given it is at least arguable that cl 4.1(a) does not apply to scheme-based claims.
177 The interested parties next submit in the alternative that even if the scheme-based claims are not released and discharged by cl 4.1(a) then by operation of cll 4.2 and 4.3 these claims are not able to be pursued against Shield (or others covered by the clause). For the purpose of their alternative argument, which is premised on cl 4.1(a) not applying to the scheme-based claims, the interested parties submit that the effect of cl 4.1(b) through the definition of “Claims” is to exclude from the operation of cl 4.1 the scheme-based claims and that this is consistent with the evident purpose of preserving the primary scheme-based claims so as not to curtail any extant actions for accessorial liability against the Israeli Banks (or others), and indeed any future action against IDB and MDB (or others). The interested parties say however that cl 4.1 is not the end of the analysis.
178 The interested parties submit that when the clause is read as a whole as a matter of purposive and textual analysis it is clear that the scheme-based claims are covered by cll 4.2 and 4.3. The interested parties’ analysis is as follows.
179 First, scheme-based claims are not covered by cl 4.1, and for this reason, cl 4.2 is directed to protecting Creditors who are not protected by cl 4.1 by giving them the benefit of a covenant not to sue in respect of “claims” (lowercase), a term that is more expansive in its reach than “Claims” in cl 4.1(b) and also more expansive than the qualified use of claims (lowercase) in cl 4.1(a) — “claims … in respect of, or arising from the Loans”.
180 Second, it is necessary that the covenant not to sue in cl 4.2 apply to “all claims” (lowercase) which the Creditors now have or may have hereafter against each Debtor not covered by cl 4.1 because that is fundamental to the objective purpose served by the deed. The use of “all claims” on its face extends to include the scheme-based claims which Mr Sheahan has identified. It is necessary that this be so if the clause is to operate effectively to afford the Debtors necessary protection given that scheme-based claims are otherwise preserved in order to facilitate the accessorial claims against IDB and MDB (or others) as part of the global settlement.
181 Finally, cl 4.3 then operates in tandem with cl 4.2 and in effect in terrorem. Clause 4.3 is triggered if cl 4.2 is breached. If the covenant not to sue given in cl 4.2 is breached, then under cl 4.3 a release and discharge of all claims (lowercase) not covered by cl 4.1 is given upon the occurrence of a breach of cl 4.2. The sanction for breach of the covenant not to sue in cl 4.2 is that the primary claims against the Binetters that found the accessorial claims against, for example, the Israeli Banks, will be released and discharged by operation of cl 4.3.
182 I pause to observe that the interested parties’ argument on the construction of cl 4 is strongly arguable.
183 The plaintiffs counter by submitting that the reference to “claims” in cll 4.2 and 4.3 must be read down to give effect to the purpose revealed by the final carve out in the definition of “Claims” with the result that the reference to “claims” in cll 4.2 and 4.3 must be read consistently with the exclusion of claims carved out by the definition of “Claims”. In my view, that submission depends on reading the final carveout of the definition of Claims in the Binetter Entities’ Deed without adequate regard to the whole of the deed in the context of the broader settlement of which it forms part.
184 The plaintiffs further submit that construing the clause in this way is necessary because it is highly unlikely that directors acting within the proper scope of their duties objectively intended to compromise claims such as the scheme-based claims. The plaintiffs submit that on the construction of the deed which they advance, the corporate plaintiffs would have available to them at least the scheme-based claims even if the deed stands. In the context of the global settlement, this constructional choice is weaker than that for which the interested parties contend, but the plaintiffs do not solely rely on the construction argument to demonstrate that they have an arguable case notwithstanding the Binetter Entities’ Deed. In addition, they contend that it is arguable that the deed may be set aside. I will address this issue separately below.
185 In my view the interested parties’ submission as to the construction of cl 4 based on the interaction and differing effect of subclauses 4.1, 4.2 and 4.3 is a construction that accords with the text and purpose of the clause read as a whole and in the context of the broader settlement of which it forms part. I am not persuaded by the plaintiffs’ submission that this alternate construction of cl 4 advanced by the interested parties is not “the style of construction that reasonable commercial bystanders would ascribe to the intention evident from the carve out from the Claims”. The plaintiffs’ argument as to the proper construction of cl 4 is weak by comparison. It does not address the obvious textual choice to use the defined term “Claims” in cl 4.1(b) and the broader term “claims” in cll 4.2 and 4.3. Similarly, the plaintiffs’ argument does not grapple with the different mechanisms effected by each of the subclauses, namely a release and discharge under cl 4.1 in respect of some but not all claims (see use of “claims” but qualified by reference to Loans in cl 4.1(a) and “Claims” in cl 4.1(b)); a Binetter inter se covenant not to sue in respect of all “claims” in cl 4.2; and a springing release and discharge of all claims in the event of breach of the cl 4.2 covenant not to sue in cl 4.3. I am not persuaded by the plaintiffs’ submission that cll 4.2 and 4.3 renders cl 4.1(b) inutile. Clauses 4.2 and 4.3 operate only where cl 4.1 does not itself apply. Those clauses do not render cl 4.1 superfluous, rather, they give cl 4.1 a full operation, and operate to fill potential gaps in the protection conferred by the clause read as a whole.
186 On the issue of construction, based on the available material on this application and being conscious that the Commissioner’s Deed is not in evidence, I regard the construction advanced by the plaintiffs as significantly weaker than that advanced by the interested parties. However, that is not the end of the issue.
Binetter Entities’ Deed — liable to be set aside or cll 4.2 and 4.3 liable to be severed
187 The plaintiffs’ second line of attack on the Binetter Entities’ Deed is to submit that it is arguable that the deed may be liable to be set aside in equity or pursuant to statutory relief or otherwise amendable to severance of cll 4.2 and 4.3 and that this is sufficient to discharge the plaintiffs’ onus of establishing that the claims identified by Mr Sheahan satisfy the low threshold of arguability which applies on the present application. Accordingly, the Court should be satisfied that the plaintiffs are aggrieved persons and that it is just to exercise its discretion to order that Shield be reinstated. The plaintiffs’ argument as to the basis on which the deed, or at least cl 4, could be circumvented was advanced at a high level of generality. As I followed the plaintiffs’ submission, it was to the following effect with it being sufficient for the purpose of this application, to illustrate the plaintiffs’ argument by reference to the position of Erbin, Rawbin, Shield and Andrew (as the sole director of each of these companies).
188 Andrew as the sole director of Erbin and Rawbin was in breach of his fiduciary duty as a director in causing Erbin and Rawbin to participate in the alleged scheme in the period before the deed was entered. Erbin and Rawbin were at least at risk of receiving revised assessments from the Commissioner as a result of their conduct in acting as finance companies as part of the alleged scheme. Shield by virtue simply of having Andrew as its director obtained the benefit of cl 4 of the Binetter Entities’ Deed by way of a deed poll — it gave no mutual release and was not party to the deed.
189 Andrew as the director of Erbin and Rawbin placed himself in a position of conflict when as a director of Erbin and Rawbin he caused them to execute the Binetter Entities’ Deed which had the effect of forestalling Erbin and Rawbin suing on scheme-based claims that Erbin and Rawbin had against him and against Shield. Accordingly, Andrew’s execution of and entry into the Binetters Entities’ Deed on behalf of Erbin and Rawbin was in breach of his duties as the sole director of these companies. The plaintiffs contend inter alia that because the Binetters Entities’ Deed was entered into in breach of fiduciary duty it is liable to be set aside in equity. The plaintiffs further argue that Andrew’s conduct in entering the deed cannot be ratified because it amounts to an improper expropriation of the property of the impacted companies and that in addition to the potential for the deed to be set aside in equity may be amenable to statutory relief if the deed amounts to a transaction to defeat creditors where the company is not fully solvent.
190 As to the potential for cll 4.2 and 4.3 to be severed, the plaintiffs submit that the structuring of cl 4 in three component parts should be construed as evidencing “a consciousness of guilt” on the part of the parties that cll 4.2 and 4.3 were directed to improperly releasing and discharging claims as amongst the companies which involved breaches of duty and for this reason were structured to facilitate future severance if that proved necessary. The plaintiffs submit that the purpose of segregating cll 4.2 and 4.3 was to preserve cl 4.1 in the event that cll 4.2 and 4.3 were found to be illegal or unenforceable and as such could be severed under cl 10. The plaintiffs submit that the covenant not to sue and the springing release and discharge provided by cll 4.2 and 4.3 are made for an improper purpose, that is to release claims as between the companies in breach of duty, and are expressed in severable form because the parties recognised that and chose to express these clauses in severable form. This limb of the plaintiffs’ argument is weak by comparison to the functional analysis put forward by the interested parties based on the purposive, textual and contextual construction discussed above.
191 Notwithstanding this last aspect of the plaintiffs’ argument as to being able to in some way avoid the effect of the Binetter Entities’ Deed, I am satisfied that taken as a whole and on the state of the evidence before me, the plaintiffs have met the requisite threshold of arguability on the issue of potentially setting aside the Binetter Entities’ Deed. In the result, I am satisfied that the plaintiffs have established that the scheme-based claims are arguable and for this reason at least Erbin and Rawbin are persons aggrieved on the basis of the potential scheme-based claims. The corollary is that I am not satisfied that the potential scheme-based claims identified by Mr Sheahan are inutile for the reasons which the interested parties have identified. I am satisfied that there is utility in reinstating Shield. I am not satisfied that the scheme-based claims that Mr Sheahan has identified for investigation and potentially litigation are doomed to fail.
192 For completeness I should add that I do not find that the interested parties’ submissions that the corporate plaintiffs have a claim against their directors and not against Shield as to the point. The corporate plaintiffs may well have claims against their directors for breaches of fiduciary duty if made out, however, claims against their directors would be not preclude an action to set aside the Binetter Entities’ Deed.
193 I now turn to consider whether the plaintiffs have satisfied the requirements of s 601AH(2) of the Act such that an order may be made requiring ASIC to reinstate Shield to the register, and to the extent required, whether such an order should be made.
Persons Aggrieved
194 Aside from the issues raised in relation to the effect of the Binetter Entities’ Deed, which I have accepted for the purpose of this application may arguably be set aside, Mr Sheahan’s evidence in relation to the scheme-based claims demonstrate that at least Erbin and Rawbin are persons aggrieved. I also accept that there is a lesser argument available to the plaintiffs that Ligon 158 may also be aggrieved by reason of the availability of scheme-based claims. The position in relation to Erma in relation to the scheme-based claims is considerably weaker on the present state of the evidence with Mr Sheahan not having undertaken an analysis in relation to Erma, similar to that he has done in respect of Ligon 158.
195 While Ligon 158 and Erma have arguable cases in relation to the debt claims they have against Shield if cl 4 of the Binetter Entities’ Deed is wholly set aside, it is possible, if the plaintiffs succeed in making good their contentions, that the clause may only be severed by cl 4.2 and 4.3 being struck out, in which case Ligon 158 and Erma are unlikely to be able to pursue the debt claims that Mr Sheahan has identified.
196 Taking all of this into account, and noting that while it is appropriate to consider whether the proposed proceedings have utility and can be expected to produce something of value, I must be cautious about pre-judging the likely success of the proceedings other than in the clearest of cases, I am satisfied that at least Erbin and Rawbin have established that they are persons aggrieved. I am satisfied that they are companies which may have scheme-based claims against Shield and that they cannot bring those claims while Shield is deregistered. In addition, I am satisfied that Mr Sheahan’s investigations suggest that Shield’s funds have been paid to other entities associated with the Binetter family and, as a consequence, if it is reinstated, Shield may have recovery proceedings available to it, the proceeds of which, if the claims succeed, may be available to apply towards satisfying the scheme-based claims of the corporate plaintiffs. If Shield is to pursue those claims it is necessary that it be reinstated.
Is reinstatement just?
197 The question posed by s 601AH(2)(b) — whether reinstatement is “just” — calls for a broad discretionary judgment: ERB International at [5]. “Relevant considerations include the circumstances in which the company was de-registered, the purpose in seeking its re-instatement, whether any person is likely to be prejudiced by reinstatement, and the public interest generally”: ERB International at [5].
198 Under the rubric of whether it would be just to reinstate Shield the parties addressed the following topics.
Circumstances of deregistration
199 Shield was deregistered by ASIC as a result of administrative default. The authorities demonstrate that there is a greater preparedness to order that a company be reinstated in circumstances where the company was the subject of an administrative deregistration and was not deregistered following the culmination of a winding up: The Bell Group Limited v Australian Securities and Investments Commission [2018] FCA 884; 358 ALR 624 at [76] (McKerracher J) citing with approval Donmastry Pty Ltd v Albarran [2004] NSWSC 632; 49 ACSR 745 at [5] (Barrett J). That is a matter which I regard as material in the present context noting the complexity of the arrangements affecting the Binetter group entities and the alleged schemes in which the Binetter group entities (including Shield) and their directors are alleged to have been involved. Relatedly, I accept the plaintiffs’ submission that the interested parties now seek to take advantage of Shield’s administrative deregistration by ASIC in circumstances where the deregistration occurred as a result of the default of Andrew as Shield’s sole director and further that there is no evidence from either of Andrew or Michael that they intended for, or were even aware that, Shield was to be, or had been, deregistered.
Delay
200 The next issue is whether delay on the part of the plaintiffs in pursuing the foreshadowed claims renders it unjust to order that Shield be reinstated.
201 The interested parties submit that the plaintiffs have not discharged their onus in establishing that reinstatement is just on the issue of delay. They submit that the potential for prejudice is manifest — the claims referred to by Mr Sheahan are between approximately five and 14 years old, and Shield has been deregistered for two and a half years. They submit that memories relevant to the allegations which may ultimately be made and as to potential defences will inevitably have faded. Further, that documents relevant to those issues are also reasonably likely, in the ordinary course, to have been destroyed or otherwise become unavailable.
202 The interested parties submit that Mr Sheahan has been liquidator of the corporate plaintiffs since approximately October 2018, but has not taken action in relation to the claims that he has identified. Whilst they accept that the magnitude of the delay in this case is not determinative of whether reinstatement is just, they submit that the delay exacerbates the prejudice that would be occasioned to the Binetters if Shield is reinstated. The interested parties contend that despite the liquidators knowing that funds flowing from the Israeli Banks were the source of payments made to Shield since at least 2019, Mr Sheahan has not sought to controvert the Binetter Entities’ Deed and has instead continued to reap the benefits afforded to him (and previously, Mr Lock) under that deed. They submit that the prejudice to the Binetters of being vexed by disputes which have been settled is acute and is additional to the usual prejudice that flows from delay including the fading of memories and destruction of documents in the ordinary course.
203 Andrew and Michael did not themselves give evidence to substantiate the prejudice for which they contend. Their claim to be prejudiced by reason of being vexed with proceedings that have settled only goes so far it proves to be the case that the releases and discharges given or promised as part of the settlement are arguably liable to be set aside.
204 The plaintiffs reply by noting that notwithstanding that the liquidators became involved in the administration of the present plaintiffs in late 2018, and become Court-appointed liquidators in February 2019, it was not until June 2020 with the issuance of the amended assessments that there was a material creditor that was unrelated to the Binetter family and its entities, and more significantly, it is not until mid-2022 when materials were produced in response to the American subpoenas that the significance of Shield (because of its ability to recover funds distributed in the United States) became apparent. The plaintiffs submit that mere delay is not disentitling and that what is important is instead relevant delay occasioning prejudice. They submit that there is not the kind of delay which would make the reinstatement of Shield unjust citing The Owners of Strata Plan No 91349 at [98], that is delay which is: analogous to abuse of process or want of prosecution [such] that a fair trial could not be had, or that the proposed proceedings were doomed to fail. I accept the plaintiffs’ submissions on this point.
205 The relevant context in which to assess whether the plaintiffs have discharged their onus on this application, including in relation to establishing that the corporate plaintiffs, or some of them, are persons aggrieved, and also whether delay weighs against the reinstatement of Shield, is that Mr Sheahan is a liquidator. He has been, and continues to be, actively engaged in investigating the affairs of the corporate plaintiffs and pursuing recoveries in the context of the work he has undertaken as liquidator of other entities in the wider Binetter group. As a liquidator, Mr Sheahan is an outsider, albeit an outsider with a statutory role that gives him certain means of access, but that does not change that he is tasked with investigating from the outside complex arrangements across a large number of companies. The plaintiffs submit, and I accept, that the contrast between Mr Sheahan qua the corporate plaintiffs and a party that is knowingly sleeping on their rights is stark. I am satisfied that the delay to which the interested parties point is explained by the circumstances. The evidence on this application satisfies me that the challenges that Mr Sheahan faced in gaining access to documentation to support his suspicion that the New Finance Companies were engaged in a scheme akin to that which had been litigated in the earlier proceedings and that there were arguable claims available against and/or through Shield explain the delay and provide the proper context in which to assess the prejudice of which the interested parties complain. While I accept that there has been some delay and that the delay is a relevant consideration in considering whether reinstatement is “just”, I do not accept that it weighs so heavily as to undermine the conclusion that it is just to reinstate Shield, nor am I satisfied that the delay in this case should cause the Court to refuse to exercise its discretion in favour of making the reinstatement order.
Public interest
206 The interested parties submit that to reinstate Shield for the purpose of pursuing the claims identified by Mr Sheahan cuts against the evident objective commercial purpose of the Binetter Entities’ Deed which was to resolve all outstanding disputes and issues between the parties — to bring disputation to an end, to bring about a repose. They submit, correctly, that there is a public interest in the settlement of disputes: Attwells v Jackson Lalic Lawyers Pty Ltd [2016] HCA 16; 259 CLR 1 at [52] (French CJ, Kiefel, Bell, Gageler and Keane JJ).
207 [Redacted].
208 [Redacted].
209 I do not accept the interested parties’ submissions on this issue for the following reasons.
210 I accept that the Liquidators’ Deed and the Binetter Entities’ Deed were intended to be part of a suite of documents to be executed together and to effect a global settlement. However, at the time of entering into the Liquidators’ Deed, Mr Sheahan was not the liquidator of the corporate plaintiffs. [Redacted]. He was not a party to the Binetter Entities’ Deed and therefore was not bound by it. It does not follow that merely by seeking to impugn the Binetter Entities’ Deed, Mr Sheahan would necessarily also seeking to impugn the Liquidators’ Deed. That is not a conclusion that can be reached in the abstract. It would depend on the way in which any future application is framed and by whom it is brought.
211 Whilst I accept that in the circumstances of the present application the public interest in the settlement of disputes is a relevant factor, I do not accept the interested parties’ contention that Mr Sheahan’s conduct at an earlier point in time in his capacity as liquidator of Binetter entities other than the present plaintiffs can cause it to be unjust to reinstate Shield because it was contemplated (and came to pass) that Mr Sheahan would become the liquidator of the corporate plaintiffs. Nor do I accept that the corporate plaintiffs’ entry into the settlement at a time when they were under the control of their former directors makes it unjust at a later point in time for Mr Sheahan as their liquidator to explore setting aside the relevant deed if they, or any of them, entered into it as a result of breach of duty by their respective directors. For the purpose of this application, I am not satisfied that Mr Sheahan’s actions as the liquidator of other Binetter entities at an earlier point in time fetter him in the discharge of his duties when he subsequently acts as liquidator qua the present plaintiffs, even if it be accepted that Mr Sheahan later assumed the role of liquidator of the corporate plaintiffs as a consequence of what had been agreed in the 2018 settlement.
212 Having regard to the statutory obligations imposed on Mr Sheahan, my conclusion in this regard is not altered, even if at the earlier time, Mr Sheahan informed Mr Ardagna that he thought that Erbin and Rawbin, with Gerobin and Marbin, had been involved in arrangements similar to the one BCI had been involved in and that if the Commissioner raised assessments on those companies, those companies were likely to have claims similar to BCI’s claim against the Israeli Banks. Suspicions held by Mr Sheahan prior to his appointment as liquidator of the corporate plaintiffs, which are subsequently confirmed by investigations undertaken as liquidator of those companies, including in respect of the role of Shield, and the receipt of amended assessments addressed to Erbin and Rawbin, are matters that are within Mr Sheahan’s remit as liquidator of the corporate plaintiffs to pursue. Having regard to the complex history of the liquidations of the various entities within the Binetter family's corporate group and the conduct of members of the Binetter family, the subject of the proceedings conducted to date, there is a manifest public interest in permitting reinstatement for the purpose of investigation of potential claims, particularly taking into account the public interest in investigation of the scheme-based claims that potentially involve tax evasion. I should note that, in taking into account the serious nature of the alleged misconduct on this issue of public interest, I have been careful to assess the issues raised in the earlier proceedings as allegations. Noting the objections taken by the interested parties, I need not be been drawn into relying on any findings made in the earlier proceedings as facts that ought be found in this application. The plaintiffs disavowed putting their submissions on this basis. The plaintiffs ultimately eschewed reliance on the facts found in the earlier proceedings as facts that need not be proved in this proceeding.
213 In conclusion on this issue, while I accept that it is appropriate to take into account the public interest in settlements in the exercise of the broad discretion as to whether to order that Shield be reinstated, having done so I am not satisfied that the reinstatement of Shield would not be just.
Prejudice
214 I have already considered the issue of prejudice as part of my earlier consideration of other factors relevant to whether it would be just to order the reinstatement of Shield. I will not repeat what I have said earlier but it is important to acknowledge that in assessing prejudice for this purpose the Court’s focus is on prejudice occasioned by reinstatement per se. As Brereton J noted in Fiorentino v Australian Securities and Investment Commission [2014] NSWSC 200; 283 FLR 223 at [13] it will be a very rare case that merely reinstating a company will be prejudicial to a potential defendant because the potential defendant will still have available all the remedies of summary dismissal and stay in the substantive proceedings, if they are instituted. All the potential defendant is deprived of is the opportunity to prevent the proceeding even being instituted and that is an issue on which a defendant usually has no say. Similarly here, if Shield were to be reinstated, and proceedings are brought by the plaintiffs or any of them against Shield, the Binetter Entities’ Deed may be raised. The precise mechanics of how that might be agitated are difficult to predict in the abstract but there is at least the potential for that to be done on behalf of Shield by a Schedule Party, including Andrew and Michael pursuant to cl 6 of the Binetter Entities’ Deed.
Impact of limitation periods
215 The impact of limitation periods on the claims which the plaintiffs propose to bring against Shield is relevant to assessing the strength of those claims and is a pertinent factor in assessing whether it is just to reinstate Shield.
216 Whereas the interested parties submit there are likely to be significant difficulties in the claims by reason of limitations statutes whether applying directly or by analogue, the plaintiffs point out that in respect of the scheme-based claims, the approach taken by Gleeson J in Binetter (No 4) at [334] to [335] is enough for the purpose of the present application:
334 Equity applies the Corporations Act limitation periods by analogy unless it would be unconscionable to permit the respondents to rely upon the statute: cf. Gerace v Auzhair Supplies Pty Ltd [2014] NSWCA 181; (2014) 87 NSWLR 435.
335 I accept the liquidators’ submission that it would be unconscionable to permit the respondents to rely upon the s 1317K in this case, not least of which because the liquidators were only appointed to the companies in 2014 and 2015. Before the liquidators were appointed, the applicants were under the management of various of the respondents and therefore unable to prosecute the relevant claims. The fact that the respondent directors did not conceal any breach of fiduciary duty from the applicant companies does not assist the respondents.
217 I accept that it is arguable that in the circumstances alleged presently that a similar approach to that taken by Gleeson J may well prevail. I am also conscious that the Court should be cautious about pre-judging the likely success of proceedings particularly in respect of the application of limitation periods other than in the clearest cases: Endless at [37]. I am not satisfied that this is one of those rare cases in which such a conclusion could be reached in the context of an application such as this.
Suspension of the limitations period
218 The plaintiffs seek an order pursuant to s 601AH(3)(d) of the Act that the limitation period in respect of any action by the plaintiffs against Shield be suspended from the date this application was filed until the date of the reinstatement of Shield. I am satisfied that it is appropriate to make such an order for the limited period now sought by the plaintiffs.
219 It is established that, in the context of an application for reinstatement under s 601AH(2), the Court has power under s 601AH(3) to order that the period between the date of deregistration of the company and the date of its reinstatement not be counted for the purposes of the applicable limitation of actions legislation: Price, in the matter of Advanced Polymer Recycling Pty Ltd in Australian Securities and Investments Commission [2022] FCA 20 at [16] (Moshinky J) and the authorities cited therein. The relevant question to be posed in determining whether to exercise the power in s 601AH(3)(d) to suspend the running of a limitation period is whether the deregistration of the company practically precluded the plaintiff from instituting proceedings: Re Regional Planners Developments Co Pty Ltd [2015] NSWSC 1996; 110 ACSR 457 at [29] (Brereton J), followed by Moshinksy J in Advanced Polymer at [65]. Here I am persuaded that for a limited period commencing on the date on which the plaintiffs instituted the present proceeding the plaintiffs were practically precluded from instituting substantive proceedings against Shield as a result of Shield’s deregistration. The plaintiffs correctly recognised the lack of evidence to support their original application for a more extensive suspension, and ultimately confined themselves to the shorter period.
220 The difficulties that the liquidator faces as an external administrator or outsider in coming into a company that was deregistered as a result of administrative default also favour suspending the running of the limitation period for the limited period sought by the plaintiffs.
221 The interested parties contended that there should not be a suspension of the limitation period in the form proposed by the plaintiffs and that the plaintiffs should identify, with specificity, which limitation periods are sought to be extended citing by way of example: Pagnon v WorkCover Queensland [2000] QCA 421. This it was said could uncover further problems, for example if some of the claims are governed by the law of a foreign jurisdiction. I do not accept this submission for the following reasons.
222 First, the claims that the plaintiffs have identified in this application are claims the corporate plaintiffs may have against Shield. Both the corporate plaintiffs and Shield are corporations registered in Australia. I accept that the evidence supports the proposition that Shield may have a claim against foreign entities or persons. What is sought to be suspended however is not any limitations which Shield has against other parties but claims which the plaintiffs may have against Shield. The interested parties do not explain why a claim (for example a debt or scheme-based claim) by one Australian company against another Australian company would be governed by the law of a foreign jurisdiction. I am not persuaded that the plaintiffs in the present application should be required to particularise the claims in respect of which the suspension will operate.
223 Second, the form of the orders sought by the plaintiffs in this application follow the orders made in Regional Planners which involved an alleged debt claim by a creditor of the company sought to be reinstated. That case has some similarity with the debt claims that Mr Sheahan has identified. By contrast, Pagnon concerned an appeal to the Queensland Court of Appeal of an decision of the District Court which answered a question of law submitted by the parties as to whether s 11 of the Limitation of Actions Act 1974 (Qld) applied to the plaintiff’s claim (relating to workers compensation) instituted against the employer defendant which had been deregistered. The primary judge held that it did not. The order made was for the appeal to be dismissed. The relevant provision for consideration was s 186 of Workers’ Compensation Act 1990 (Qld). Having regard to the factual confines and circumstances of Pagnon, I do not accept the interested parties’ submission that Pagnon is of utility in crafting the appropriate order in this case.
Should Shield be wound up?
224 There is no issue between the parties that if Shield is reinstated it should be immediately wound up on the just and equitable ground. As mentioned, Andrew, was its sole director at the time of deregistration. He appears to have moved away permanently from Australia. He does not seek to act as a director if Shield is reinstated. Accordingly, I am satisfied that it is appropriate to make an order that upon ASIC reinstating Shield to the register, it is to be wound up pursuant to s 461(1)(k) of the Act. I am satisfied that a winding up is justified in the public interest.
Who should be appointed as the liquidator of Shield?
225 The plaintiffs submit that having regard to the complex nature of the alleged scheme, further investigation into the potential claims against Shield and recovery actions available to Shield will be required by Shield’s liquidator in the ordinary course. The plaintiffs contend that Mr Sheahan is uniquely placed to undertake those investigations given his knowledge of the group's affairs and his success in effecting recoveries for creditors to date. So far as that submission goes it is clearly correct based on the evidence led by the plaintiffs on this application.
226 Against this, the interested parties submit that to appoint Mr Sheahan as liquidator of Shield would place him in a position of intractable conflict between his duties as liquidator of the corporate plaintiffs and those he would assume if appointed as liquidator of Shield.
227 The interested parties illustrate the point as follows. As liquidator of the corporate plaintiffs, Mr Sheahan has a duty to act in their interests. As liquidator of Shield, Mr Sheahan would have a duty to act in its interests. Mr Sheahan’s duty as liquidator of Shield would include (at least) a duty genuinely to consider relying on the Binetter Entities’ Deed in the face of the foreshadowed attack by the corporate plaintiffs and, could as a matter of real likelihood, include a duty to rely on the Binetter Entities’ Deed in defence of any future claims brought by the corporate plaintiffs. However, the interested parties submit that the submissions advanced on this application demonstrate that Mr Sheahan has already formed the view that the Binetter Entities’ Deed “involve[d] a brazen attempt by members of the Binetter family to release … their related entities” from claims and “may be set aside in equity”. The interested parties say that if Mr Sheahan is appointed as the liquidator of Shield, Mr Sheahan’s duties to the corporate plaintiffs will incline him towards maintaining those pre-judged views, in circumstances where his duty to Shield will (or should) incline him towards asserting the Binetter Entities’ Deed against the corporate plaintiffs. Moreover, the interested parties say that it is likely that any claim by the corporate plaintiffs to set aside the Binetter Entities’ Deed will involve a close examination of the circumstances in which the Binetter Entities’ Deed came about which, in turn, is likely to involve an examination of Mr Sheahan’s role. As liquidator of the corporate plaintiffs, Mr Sheahan’s interest will be to minimise his role in the Binetter Entities’ Deed, so as to deflect equitable responsibility to others. However, as liquidator of Shield, Mr Sheahan’s interest may be to amplify his “independent” role in the Binetter Entities’ Deed, as to avoid an inference that there was unconscientious conduct by Shield or others.
228 The interested parties submit that a simpler illustration of the conflict is that Mr Sheahan could hardly deploy the releases in the Binetter Entities’ Deed on behalf of Shield in defence to the loan claims when he qua Ligon 158 and Erma is seeking repayment of those loans.
229 The interested parties further submit that Mr Sheahan has a real difficulty in acting as liquidator of Shield. The claims against Shield can only properly be pursued if the releases in the Binetter Entities’ Deed are successfully impugned. The interested parties maintain their position that for Mr Sheahan to take the steps he has foreshadowed to impugn the Binetter Entities’ Deed they submit that this would likely place Mr Sheahan in breach of the Liquidators’ Deed. They contend that it is entirely plausible that Mr Sheahan may face a cross-claim if he takes such steps.
230 The interested parties also point to the way in which this application has been conducted as further reasons why Mr Sheahan should not be appointed as liquidator of Shield. They first point out that Mr Sheahan’s submissions used inflammatory language in describing the motivations of the Binetter family in entering the Binetter Entities’ Deed. I do not agree. The language deployed was no doubt descriptive and involved a degree of advocacy in addressing a hypothetical intended to aid an inference of objective intention — I do not accept that it was inflammatory. The second point raised is more significant. The interested parties’ complain that Mr Sheahan did not initially place the Binetter Entities’ Deed before the Court when this application was made and originally informed the Court that he was “not aware of any conflict of interest of duty that would make it improper for [him] to act as liquidator of” Shield. The interested parties rely on this to submit that Mr Sheahan will not only be placed in a conflict but that he is unlikely to recognise the conflict in order to adequately mitigate it.
231 For these reasons, the interested parties contend that Mr Sheahan should not be appointed as liquidator of Shield.
232 In response to the interested parties’ submissions opposing his appointment as liquidator, Mr Sheahan though his senior counsel proffered a “similar” undertaking to that which was proffered by Mr Wooding in The Bell Group at [94], extracted below:
94 Next, I think it is obvious that Mr Woodings, who is the current liquidator of all the plaintiffs and numerous other companies within the Bell Group, should be the appropriate liquidator, having indicated that he is available and willing to take that appointment. This will clearly assist in the ease of administration and the minimisation of expense. To the extent that there is any risk of conflicts, Mr Woodings has given an undertaking that he will seek the Court’s directions before attempting to act in any position he identifies, with several decades of experience, as being conflicted.
In support of the appropriateness of an undertaking of this kind, senior counsel for the plaintiffs notes that Mr Sheahan has considerable experience as a liquidator and points to Sheahan, in the matter of B.C.I. Finances Pty Limited (in liq) [2020] FCA 1411 (Charlesworth J) as an example of where Mr Sheahan has in fact acted proactively and appropriately to seek judicial advice in respect of conflicts between Binetter group entities including by engaging what he described as an “informal special purpose liquidator” to give independent advice, such advice which was then placed before the Court.
233 Having regard to the nature and degree of the likely conflicts between Shield on the one hand and the corporate plaintiffs on the other hand, and without being drawn into commenting on the strength or otherwise of potential claims against Mr Sheahan qua BCI, EGL, Binqld and Ligon 268 for breach of the Liquidators’ Deed, I do not regard a broad undertaking along the lines offered to be an appropriate or effective mechanism to address the concerns that the interested parties have raised in relation to the appointment of Mr Sheahan as liquidator of Shield. Given the particular context of the conflict likely to arise as a result of the 2018 settlements and the Binetter Entities’ Deed in particular, I am not satisfied that it is appropriate to appoint Mr Sheahan on the basis of the undertaking offered by reference to The Bell Group. In these circumstances, I am satisfied that upon Shield being reinstated to the register, it should be immediately wound up under the administration of a liquidator other than Mr Sheahan.
234 It will be necessary to afford the plaintiffs time to identify an appropriate person, or persons, to act as liquidator(s) of Shield, who consent to being so appointed and who provide the usual assurance that they are not aware of any conflict of interest or duty that would make it improper for them to act as liquidator of Shield. I will hear from the plaintiffs as to the period they need to make the necessary enquiries with a view to submitting short minutes and the requisite evidence to achieve this outcome.
235 In conclusion, I am satisfied that ASIC should be ordered to reinstate Shield and that it be wound up upon being reinstated, but that this should not occur until an appropriate liquidator has been identified. I will accordingly list the matter for a case management hearing to timetable the steps necessary to effect the identification and appointment of a liquidator.
Costs and confidentiality
236 I will hear from the parties on costs.
237 I will also hear from the parties on the continuance of the existing suppression orders and whether any party seeks a similar order over any part of these reasons.
CONCLUSION
238 For all of the reasons given above, I am satisfied that the plaintiffs have established that they meet the requirements of s 601AH(2) of the Act. I exercise my discretion accordingly. The parties will be directed to prepare short minutes of order to give effect to these reasons.
I certify that the preceding two hundred and thirty-eight (238) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Cheeseman. |
Associate:
NSD 1023 of 2022 | |
RAWBIN FINANCES PTY LIMITED (IN LIQUIDATION) (ACN 140 576 549) | |
Fifth Plaintiff: | JOHN SHEAHAN IN HIS CAPACITY AS LIQUIDATOR OF THE FIRST TO FOURTH PLAINTIFFS |
