Bassoak Pty Ltd (recs and mgrs apptd) v Rellgrove Pty Ltd

In Bassoak Pty Ltd (recs and mgrs apptd) v Rellgrove Pty Ltd, the Supreme Court considered the circumstances where the Court would issue a warrant in relation to the books or the property of the company.

Background

Mr Vouris was appointed provisional liquidator of Rellgrove Pty Limited on 5 December 2005 and, subsequently, liquidator on 12 December 2005.

According to ASIC's records, Mr Anstee was the sole director.  Mr Anstee had been declared bankrupt on 28 July 2005.  Pursuant to s 206B(3) of the Corporations Act, Mr Anstee was disqualified from managing corporations.

Despite requests by the liquidator, Mr Anstee had failed to submit a report as to affairs.  The liquidator had notified ASIC of the failure to provide that document.

Mr Anstee had provided the liquidator with statements that were not supported by the investigations of the liquidator.

Rellgrove was the registered proprietor of a property known as 'Hopewood'.  The mortgagee had exercised its power of sale over Hopewood and that property had been sold prior to auction by private sale to a company associated with relatives of Mr Anstee.

Investigations by the liquidator had also revealed that antique furniture worth more than $200,000.00 had been purchased by Rellgrove and that some, if not all, of the items were located at Hopewood.

Declarations and Penalties

The liquidator sought declarations of contravention of s.530A and s.530B for failure to deliver up books and property of the company.

Austin J, considered that, given the comprehensive statutory provision in relation to the penal consequences of contravention, it was not clear that the Court had inherent jurisdiction over officers of a company in liquidation or to which a provisional liquidator had been appointed, to impose a discretionary penalty in civil proceedings.

Importantly, his Honour thought that, because a declaration of contravention was a serious step, he expected a claim for declarations of contravention to be pleaded rather than as part of an interlocutory process.

Conditions for the issue of a warrant under s 530C

Under s.530C(1), where a company is being wound up the court may issue a warrant on the application of a liquidator if it is satisfied either that:

1.             the person has concealed or removed property of the company with the result that the taking of the property into the custody or control of the liquidator will be prevented or delayed; or

2.             a person has concealed, destroyed or removed books of the company or is about to do so.

Austin J, determined that the wording of subs (1)(i) requires the Court to be satisfied that concealment or removal of the property of the company has already occurred if it intends to issue a warrant.

His Honour found on the evidence that the furniture of the company was not being concealed or that anyone else had already concealed or removed that property of the company.  Accordingly, a warrant for the property would not be issued.

Issuing a warrant for the books of Rellgrove was considered to be different, because subs(1)(ii) only requires the Court to be satisfied that the person is about to conceal or remove the books.

His Honour, found the following evidence relevant to issuing a warrant for the books of the company.

1.             The director was an undischarged bankrupt and, as such, disqualified from managing corporations;

2.             The director had not submitted a report as to affairs as required by the liquidator;

3.             The director had said that all records are in storage and that he would deliver them to the liquidator but he has not done so;

4.             The director had made an incorrect statement that a document recording a change in directorship had been sent to a solicitor;

5.             The director had not produced documentation for the alleged trust of the company's land or for the claim that the company ceased trading in 2002, and the latter claim seems contrary to other evidence;

6.             The director had not replied to correspondence from the liquidator.

The court's discretion to issue a warrant after the conditions have been satisfied

After the conditions for the exercise of the Court's power to issue a warrant have been established, the Court then has a discretion whether to issue the warrant.

His Honour adopted the observations in Cvitanovic v Kenna & Brown Pty Ltd (1995) 18 ACSR 387 at 389, that the warrant procedure is available only where it is necessary to take an extreme step in order to administer the company.

It was determined on the relevant evidence that this was an extreme case such as to justify issuing a warrant for the books of the company.

His Honour in issuing the warrant adopted various conditions conveniently summarised in the Cvitanovic case.

Conclusion

Due to the serious nature of a declaration of contravention of s.530A and s.530B, the Court will only entertain such orders if it is commenced by pleadings in order to permit the offending company officer to plead their defence.

It is impractical to seek a warrant to search for and seize a company's property because the opportunity to seize the property has passed.  This is because the Court will only issue the warrant if the property has already been concealed or has already been removed out of the reach of the liquidator.

A warrant to search for and seize the books of a company is of more utility because it is prospective.  The evidence need only show that the books are about to be concealed, destroyed or removed.

 

Mark Groben, Solicitor,

Gadens Lawyers, Sydney.