Introduction
In the case Sutherland v Pascoe; in the matter of Matrix Group Limited (no. 2) [2012] FCA 1361, the Federal Court of Australia provided some helpful guidance for liquidators in relation to the required level of disclosure for affidavits in support of applications for the issue of examination summonses pursuant to Section 596B of the Corporations Act 2001 (Cth) (the Act).
The Court also confirmed certain matters about the characterisation of proceedings brought pursuant to s1324 of the Act, and the necessary distinction between the purpose of a litigation funder and a liquidator seeking to discharge his duties.
Background
The liquidation of Matrix Group Limited (Matrix) was ordered in February 2008.
A former employee and creditor of Matrix, Mr Oates, subsequently brought proceedings (the Oates proceedings) against former directors of Matrix in relation to very substantial payments that were allegedly due to Matrix but diverted to other offshore entities controlled by the former directors. Mr Oates alleged that if the payments had been made to Matrix, he would have been entitled to certain payments from Matrix. He also alleged that the directors' conduct amounted to breaches of the duties of care and diligence and good faith under ss 180 and 181 of the Act. As such, he sought to avail himself of s1324 of the Act, as a person whose interests had been affected by a breach of directors' duties, so as to facilitate the restoration to Matrix of the relevant payments, so that he, in turn, recover funds from Matrix.
Matrix was joined as a defendant to the Oates proceedings to facilitate the potential restoration of the relevant payments to Matrix, but it did not take an active role in the proceedings.
In September 2011, the Oates proceedings were settled by consent, the claims against the active defendants were dismissed and the claim against Matrix was discontinued. The liquidator of Matrix (the liquidator) did not take part in the settlement discussions and was not aware of the terms of settlement, other than to inform himself that the Oates proceedings were being resolved on a commercial basis.
Very shortly before the settlement of the Oates proceedings, Matrix, the liquidator and Mr Oates entered into a funding agreement in relation to the conduct of examinations pursuant to s596B of the Act. Matrix had no other source of funds to enable the liquidator to run examinations, notwithstanding his attempts to obtain such funding from ASIC and the ATO.
In March 2011, the liquidator made an application for examination summonses to be issued to certain persons, including the former directors of Matrix who were active defendants in the Oates proceedings. Certain of the proposed examinees then applied for orders discharging the examination summonses on the basis that the liquidator was acting without a proper purpose (the set-aside applications).
The lawyers for the proposed examinees also obtained an order granting them access to the usually confidential affidavit in support of the application for the issue of the examination summonses (the examinations affidavit), subject to a regime of confidentiality that did not allow disclosure to the proposed examinees.
The set-aside applications
In support of the set-aside applications, it was asserted that:
- the examinations affidavit failed to disclose certain material matters, including that some of the identified potential claims of Matrix and the liquidator would be the subject of a time bar (a matter that was conceded by the liquidator at the hearing of the set-aside applications)
- any examinations should be confined to matters disclosed in the examinations affidavit
- any claims by Matrix or the liquidator, as identified in the examinations affidavit, would be the subject of a res judicata or an Anshun estoppel as a result of the resolution of the Oates proceedings.
The decision
The set-aside applications were dismissed with costs. In reaching this decision, the Court reasoned as follows:
- Notwithstanding that the liquidator unintentionally failed to inform the Court in the examinations affidavit that certain of his or Matrix' identified potential claims would be the subject of a time bar, there was a public interest element to the proposed examinations, such as the potential identification of illegal conduct by directors, which warranted examinations. This public purpose did not need to be specifically disclosed to the Court in the examinations affidavit where the details of the relevant underlying transactions were disclosed.
- Further, subsequent to the set-aside applications being filed, the liquidator was able to identify and give evidence about further potential areas of examination that were not disclosed in the examinations affidavit. The fact that these further matters were not disclosed in the examinations was not considered sufficient to preclude an examination of those matters which, prima facie, appeared to the Court to form part of the examinable affairs of Matrix.
- No res judicata or Anshun estoppel could arise as a result of Matrix' limited involvement in the Oates proceedings. Mr Oates' reliance on s1324 of the Act in the Oates proceedings, in relation to alleged breaches of ss 180 and 181 of the Act, could not properly be characterised as a "derivative action" brought on behalf of Matrix. Rather, Mr Oates was using s1324 to facilitate his personal claims, in contrast to running a "derivative action" for Matrix under part 2F.1A of the Act.
- There was nothing improper about the funding arrangement. Mr Oates' private purposes as funder could not be confused with the purposes of the liquidator. The liquidator had no other source of funding available to run examinations and was entitled to obtain funding from Mr Oates.
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