Re Mischel & Co Pty Ltd (in liquidation) [2014] VSC 140 (7 April 2014)


IN THE SUPREME COURT OF VICTORIA		Not Restricted

GREGORY ANDREWS (in his capacity as liquidator of ACN 079 528 699 (in liquidation) (formerly MISCHEL & CO PTY LTD))	Plaintiff

v

MISCHEL & CO ADVISORY SERVICES PTY LTD (ACN 141 349 699) HENRY MISCHEL	First defendant Second defendant

JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	19 March 2014
DATE OF JUDGMENT:	7 April 2014
CASE MAY BE CITED AS:	Re Mischel & Co Pty Ltd (in liquidation)
MEDIUM NEUTRAL CITATION:	[2014] VSC 140

PRACTICE AND PROCEDURE – Application to inspect electronic copies of books and records seized under search order – Exercise of discretion – Relevance of purpose for which inspection sought - Protection of confidentiality – Supreme Court (General Civil Procedure) Rules 2005 rr 37.01 and 37B.02.

CORPORATIONS – Application by liquidator under s 483(1) of the Corporations Act 2001 (Cth) that director deliver up books and records of company in liquidation - Books and records in electronic form kept at premises formerly occupied by the company seized and copied under a search order - Books and records belonged to various companies and individuals – Application by liquidator under r 37.01 to inspect all books and records seized – Application refused – Principles relevant to an application under s 483(1) discussed.

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr R E T Wodak	MSL Lawyers

For the Firstnamed Defendant	Ms C F Gobbo	Kenna Teasdale Lawyers

For the Secondnamed Defendant	No appearance

Advance Innovative Solutions Pty Ltd (in liquidation) v X-Dem Group (Aust) Pty Ltd [2012] NSWSC 1112.

Pace v Antlers Pty Ltd; Blackjack Executive Car Services Pty Ltd v Koulax [2002] VSC 380.

Re United English and Scottish Assurance Company; Ex parte Hawkins (1868) 3 Ch App 787.

1 The plaintiff in this application is the liquidator of ACN 079 528 699 Pty Ltd (formerly Mischel & Co Pty Ltd) (Mischel & Co). On 25 October 2011, the liquidator issued proceedings against Mischel & Co Advisory Services Pty Ltd (Mischel Advisory) and Henry Mischel seeking orders under s 483 of the Corporations Act 2001 (the Act) for the defendants to deliver up certain books and records of Mischel & Co in their possession. The liquidator claimed Mischel & Co was prima facie entitled to those books and records.

2 Mr Mischel is an undischarged bankrupt and was formerly a director of Mischel & Co. Before Mischel & Co went into liquidation, it sold its advisory business to Mischel Advisory, a company controlled by Mr Mischel’s son (Mr Bradley Mischel). Mischel Advisory thereafter continued to carry on the business at 27 Ballantyne Street, South Melbourne (the premises), where Mischel & Co had previously carried on the business. Mischel Advisory ceased carrying on business in March 2012 and is now dormant.

3 On 25 October 2011, the liquidator became aware that some work was to be done on the computers used at the premises. The liquidator was concerned that books and records of Mischel & Co kept in an electronic form might be at risk. The liquidator thereupon, as a matter of urgency, issued the proceedings herein and sought a search order [1] under O 37B of the Supreme Court (General Civil Procedure) Rules 2005 (the Rules) directed to the defendants.

4 On 25 October 2011, Ferguson J made the search order sought by the liquidator. Under the search order, the search party has taken possession and made copies of books and records in an electronic form that were kept on computers and other electronic devices at the premises.

5 Subsequently, Ferguson J made orders for the copying of the books and records kept in an electronic form that were seized at the premises and established a procedure for the defendants to object to the production to the liquidator for inspection of any electronic book or record seized. That procedure has been followed, with the defendants objecting to the production of a large quantity of electronic books and records. The liquidator now applies for an order entitling him to inspect the electronic books and records which the defendants have objected to being produced to the liquidator for inspection.

6 On the hearing before me, Mischel Advisory objected to the production of any of the disputed computer records to the liquidator on the grounds that the application does not constitute a proper basis for obtaining inspection.

7 The objection of Mischel Advisory raises the issue of whether in this proceeding the Court in its discretion should order inspection of the seized electronic books and records. The objection also raises the issue of whether in exercising that discretion the Court should have regard to the ambit and purpose of sub-s 483(1) and the purpose for which inspection is sought.

9 On 25 October 2011, by originating process, the liquidator sought an order under s 483 of the Act that the defendants preserve and deliver up to the liquidator:

(1) original and copies of correspondence addressed to Mischel & Co from other parties and from Mischel & Co to other parties;

(2) original and copies of agreements and contracts entered into by Mischel & Co;

(3) copies of invoices and statements for all goods supplied and/or services rendered by Mischel & Co;

(4) bank statements for all cheque accounts conducted in the name of Mischel & Co, together with cheque books, cheque butts and any deposit books recording deposits made; and

(5) in paragraphs 5 to 13 of the originating process, other books and records of Mischel & Co.

10 In his affidavit, Mr Andrews, the liquidator, relevantly deposes as follows. On 5 October 2011, he was appointed the liquidator of Mischel & Co. On 6 October 2011, he forwarded a notice to Mr Mischel, the sole director of the company, to deliver up the books and records of the company. Mr Mischel did not respond to the notice. On 21 October 2011, the liquidator sent a further letter to Mr Mischel and demanded that he deliver up the books and records by 28 October 2011.

11 Mr Andrews refers to the affidavit of Raymond McGregor Maloney sworn 25 October 2011 and deposes that, for the reasons set out therein, he was concerned that the computers containing the business records of Mischel & Co may cease to contain the business records of the company, and he sought to take urgent steps to obtain the books and records of Mischel & Co before anything could occur to them.

12 Mr Maloney swore an affidavit dated 25 October 2011. Relevantly, he deposed as follows. He was the sole director of Mr Gloss Pty Ltd. On 25 October 2011, at approximately 1.30pm at Mr Gloss Pty Ltd’s Hallam premises, he met with Andrew Patchell of LAN Consulting, who maintained the computers at Mr Gloss Pty Ltd. Mr Maloney was aware that Mr Patchell and his father, Tony Patchell, through LAN Consulting, had for several years also maintained the computers of Mr Mischel and Mischel & Co. Mr Patchell said to Mr Maloney words to the effect that his staff were going to attend at the business premises of Mischel & Co that day or the next day to replace Mr Mischel’s laptop and to replace some hard drives at the premises. Mr Maloney understood his reference to the business premises of Mischel & Co to be a reference to the premises at 27 Ballantyne Street, South Melbourne.

13 For reasons not explained, the liquidator became aware of the conversation between Mr Maloney and Mr Patchell. As a consequence, on 25 October 2011, the liquidator issued the originating process seeking orders under s 483(1) and also issued an interlocutory process applying for the following relief:

(1) access to any computers located at 27 Ballantyne Street, South Melbourne occupied by Mischel & Co and/or Henry Mischel and/or Mischel Advisory for the purposes of enabling Mr Andrew McLeish, independent computer expert, to obtain a forensic image of the books and records of Mischel & Co contained on those computers; and

(2) an order that the defendants not remove from the premises or delete [any] data from any computers, computer hard drives or other memory devices until further order.

14 On 25 October 2011, the liquidator appeared ex parte before Ferguson J and obtained a search order under r 37B.02 in accordance with Form 37BA to the Rules. As mentioned above, the matter was pressed before Ferguson J as one of great urgency. The order provided for the appointment of an independent computer expert, who was Mr McLeish, and the appointment of an independent solicitor, who was Mr Paul Hesse of Riordans Lawyers. Under the order, the search party was permitted to enter the premises and the independent solicitor was permitted to remove from the premises into the independent solicitor’s custody all computers, hard drives and memory devices located at the premises.

15 Under r 37B.03, the Court may make a search order if the Court is satisfied that, amongst other things, an applicant seeking the order has a strong prima facie case on an accrued cause of action.

16 Under sub-s 483(1) of the Act, the Court may require a person who is a contributory, trustee, receiver, banker, agent, officer or employee of the company to pay, deliver, convey, surrender or transfer to the liquidator or provisional liquidator, as soon as practicable or within a specified period, any money, property of the company or books in the person’s hands to which the company is prima facie entitled.

17 At the hearing before Ferguson J, counsel for the liquidator referred to concerns the liquidator had. The first concern was that the computer records of Mischel & Co might be destroyed or removed unless that was prevented. Secondly, that the computers contained information of Mischel Advisory, the purchaser of the advisory business, and that the sale of the business was liable to be unwound, with the effect that the information, even if nominally belonging to Mischel Advisory, was in truth the records of Mischel & Co. The third concern was that the computers may in fact be assets of Mischel & Co and not of Mischel Advisory.

18 On 28 October 2011, after the search and seizure had been carried out, the matter came on again before Ferguson J on the return date of the interlocutory process.[2] On this occasion, Mischel Advisory was represented by Mr Kelly, solicitor. Mr Mischel appeared in person. Ferguson J made orders setting up a procedure for the seized books and records in electronic form to be copied, for a copy to be provided to each of the defendants, and for the defendants to inform Mr Hesse and Mr McLeish of each objection they took to the provision of an electronic record to the liquidator. The objecting party was required to identify:

19 I have read the transcript of the hearing on 28 October 2011. It is clear from the transcript that the parties contemplated that if inspection of a particular computer record was objected to by the defendants or either of them, the liquidator would not be able to inspect the documents unless the objection was resolved by the Court in his favour.

20 Thereafter, the matter came on before Ferguson J for orders and directions. On 15 August 2013, Ferguson J made orders by consent that:

(1) the date by which the liquidator was to bring an application seeking an order that he be entitled to inspect the documents in the hands of the independent solicitor be extended to 30 September 2013;

(2) the date by which the defendant was to bring any application to vary or discharge:

21 On 10 October 2013, Ferguson J again made an order by consent, this time extending the date for making the application for inspection to 30 October 2013 and the date for varying or discharging the search orders to 30 October 2013.

22 On 15 November 2013, Ferguson J ordered that all devices and indexed images held in the possession of Mr Hesse pursuant to orders made in these proceedings on 25 October 2011 and 28 October 2011 (the devices) be delivered to the Prothonotary by 4.00pm on 22 November 2013. The order also provided that the devices be preserved by the Prothonotary until further order and that the Prothonotary not permit any person other than a judge or associate judge of this Court to inspect the devices until further order.

23 Time was extended until 20 December 2013 for any application by the liquidator to inspect the devices and for the defendants to file and serve any application to vary or set aside the orders made on 25 October 2011 and 28 October 2011. Provision was made for the exchange of affidavits.

24 On 20 December 2013, the liquidator, by summons, applied for the following orders:

(1) The devices, indexed images and documents delivered by the independent solicitor, Paul Hesse of Riordan Lawyers, to the Prothonotary on or about 22 November 2013 under the Court order made by Ferguson J on 15 November 2013 (the seized documents), being a copy of the documents and the documents downloaded from the computer records which were obtained by the independent solicitor under the search order made 25 October 2013, be provided by the Prothonotary to the liquidator so that the liquidator may inspect them; and

(2) the seized documents delivered to the liquidator pursuant to paragraph (1) be preserved by the liquidator until further order.

25 The application was supported by an affidavit of Angela Kennedy of 15 January 2004. Ms Kennedy is employed by the liquidator and is assisting him in the liquidation of Mischel & Co. In her affidavit, Ms Kennedy deposes that she made the following observations concerning the 28 October 2011 orders.

26 The original devices, records and documents seized under the search order had been returned to the defendants and the documents held by the independent solicitor were copies or mirror images of those original devices, records and documents.

27 Pursuant to the orders of 28 October 2011, the defendants were required to inform the independent solicitor of ‘each objection they take to the provision of a document to the liquidator, identifying:

28 Pursuant to the orders of 28 October 2011, if no objection was taken by the defendants to a document, the independent solicitor was to release an image of that document and the document listing to the liquidator.

29 Pursuant to the orders of 28 October 2011, if any objection was taken by the defendants to a document, the independent solicitor was to provide to the liquidator a redacted image of that document (which contained the file path of that document and the document listing relevant to that document).

30 Ms Kennedy deposes that in December 2011, she was provided by Mr Mischel with a USB device and informed by him that the device contained all the documents and images which were required to be provided to the liquidator in accordance with paragraphs 5 and 6 of the 28 October 2011 orders.

31 Ms Kennedy deposes that upon examining the content of the USB device, she observed that:

(a) the number of copy seized documents contained in the computer records was in excess of 9,000;

(b) there were multiple lists of documents over which objection was taken by the defendants to production of those documents to the liquidator (objected documents);

(d) the only information contained on the USB device which referred to or identified objected documents was a ‘file path’ which was a single line of information which contained numbers identifying the location of that document in the computer records and a very brief description of the document of between one and five words;

(e) the information contained in the file path of each objected document is, in most cases, insufficient to properly identify the nature and content of objected documents; and

(f) on the USB device, there are emails and letters from Mr Mischel and from the solicitors for Mischel Advisory addressed to the independent solicitor which set out their objections in respect of the objected documents.

32 Ms Kennedy referred to an email from Mr Mischel to the independent solicitor dated 1 December 2011 in which he objected to certain information supplied on the data listings supplied on 30 November 2011 on the basis that they do not contain the books and records of Mischel & Co and/or that the information is not the property of Mischel & Co. Mr Mischel said that the listing of the objection was too large to send by email and, as a result, he was arranging delivery to the liquidator’s office of a memory stick containing the objections.

33 Ms Kennedy referred to other communications from Mr Mischel where Mr Mischel had asserted that the basis of his objection to the liquidator having inspection of books and records seized in the search was that the books and records were not the books and records of Mischel & Co.

34 Ms Kennedy says that no information was provided by the defendants as to the basis of the objection and, in particular, as to:

(b) why each of the objected documents was not part of the books and records of Mischel & Co;

(d) the basis on which it is said that a third party is entitled to the objected documents as opposed to Mischel & Co.

35 Ms Kennedy deposes that no proper description is provided of the objected documents. All that is provided for each objected document is the ‘file path’ which contains minimal information about the nature of the document.

36 Ms Kennedy deposes that, given the very limited description of each objected document, in most cases it is not possible for her to check or to confirm that each objected document is correctly objected to on the basis that it is not part of the books and records of Mischel & Co or not the property of Mischel & Co.

37 Ms Kennedy deposes that in her belief, it is evident upon examining the limited description in the file path of documents contained in the lists of objected documents, that many of the documents on the face of the description are most likely to be books and records of Mischel & Co or the property of the company. She deposes that this is evident from the brief description of the documents and from the lists of objected documents which relate to assets or liabilities of Mischel & Co or the activities of Mischel & Co.

38 Ms Kennedy deposes that the names on certain files which she identifies also appear in the 2010 general ledger of Mischel & Co. On this basis Ms Kennedy deposes that many of the objected documents appear to be relevant to the business conducted by Mischel & Co and would in the ordinary course constitute books and records of Mischel & Co.

39 Ms Kennedy provides other examples of objected electronic books and records which she says are likely to constitute books and records of Mischel & Co.

40 Ms Kennedy deposes that Mischel & Co entered into a loan agreement with Zigmo Australia Pty Ltd (Zigmo) and granted a debenture charge to Zigmo as security for a loan to Mischel & Co, each of which were later declared by this Court to be void ab initio. Ms Kennedy deposes that the books and records of Mischel & Co in her possession record a number of payments to Zigmo. Ms Kennedy gives other examples of documents that are likely to constitute books and records of Mischel & Co.

41 Ms Kennedy deposes that, on the basis of this evidence, she believes that it is most likely that among the objected documents are documents which are in fact part of the books and records of Mischel & Co and/or the property of Mischel & Co.

42 Ms Kennedy deposes that any documents obtained by the liquidator under the search order or to which the liquidator has access are covered by the liquidator’s implied undertaking to the Court. Ms Kennedy deposes that in view of the fact that there are, among the objected documents, documents which are most likely to be the property of Mischel & Co, it is appropriate that the Court make an order that all of the copy seized documents be provided to the liquidator for his inspection.

43 Ms Kennedy also deposes that the copy seized documents which the liquidator wishes to inspect are required to assist the liquidator to consider and decide what recovery actions may be commenced by him to recover assets which have been transferred from Mischel & Co or dissipated in breach of s 588 of the Act.

44 Ms Kennedy deposes that one such transaction which the liquidator is investigating is the sale of the management, consulting and accounting business of Mischel & Co to Mischel Advisory under a contract of sale dated 5 January 2010. Ms Kennedy deposes that the consideration stated in that contract of sale was the transfer from Mischel & Co to Mischel Advisory of particular debts which were allegedly loans of Mischel & Co, including a loan to Mischel & Co from Zigmo. This transaction is elaborated on by Mr Canzoneri, the solicitor for the liquidator, and discussed below.

45 Ms Kennedy deposes that it is her belief, having examined the books and records of Mischel & Co produced by Mr Mischel, that those alleged liabilities may not have been proper or genuine liabilities of Mischel & Co. Ms Kennedy deposes that subject to inspection of any documents relating to Zigmo among the copy seized documents, the liquidator may commence proceedings in relation to the assignment of the advisory business from Mischel & Co to Mischel Advisory.

46 As it is, previously, such proceedings challenging the sale of the business from Mischel & Co to Mischel Advisory were issued by the liquidator. Mischel Advisory objected that the proceedings were not issued by an originating process in accordance with the Rules, but rather they were issued by way of a writ and a statement of claim. By letter dated 13 August 2013, the liquidator’s solicitors indicated they intended to file a notice of discontinuance, which they subsequently did.

47 The defendants rely upon an affidavit sworn by Mr Mischel on 25 February 2014. Mr Mischel deposes that he is the second named defendant and he has been requested by his son, Bradley Mischel, the director of Mischel Advisory, to make the affidavit on behalf of Mischel Advisory.

48 Mr Mischel deposes as follows. On 30 July 1997, Mischel & Co was incorporated. Mr Mischel’s brother, Igo Mischel, was the initial director of Mischel & Co, which provided consulting services. Igo ceased as the director on 12 July 2004. Henry Mischel was appointed director of Mischel & Co on 1 February 2001. Mischel & Co changed its name to ACN 079 528 699 Pty Ltd on 4 October 2011 and went into liquidation on 5 October 2011.

49 Mischel & Co ceased to operate on 31 December 2009. On 5 January 2010, Mischel & Co sold its business to Mischel Advisory. Mr Mischel was a director of Mischel Advisory between 5 January 2010 and 24 October 2011. On 24 October 2011, Henry Mischel was made bankrupt. Mischel Advisory ceased to operate on 31 March 2012 and is now a dormant entity.

50 Mr Mischel deposes that at the time the search order was executed on 25 October 2011, the premises were occupied by Mischel Advisory, together with a number of other parties, namely Ballantyne Chambers Pty Ltd (in liquidation), which company owned the premises; and Mischel & Co (Professional Services) Pty Ltd (Professional Services), of which Mr Mischel was a director until 24 October 2011. Professional Services was a registered tax agent and an approved lodging party with the Australian Taxation Office. Professional Services was a company engaged by a number of entities to provide taxation advice, including the preparation and lodgement of taxation returns. Professional Services operated its business from the premises. Its computer records kept at the premises included the personal tax information, bank statements, profit and loss statements and tax file records of many taxpayers for whom it prepared tax returns. Professional Services did not use computers solely dedicated to it. Rather, it utilised the same computers that were used by Mischel Advisory.

51 Also occupying the premises was Active Factors Pty Ltd and The Lending Professionals Pty Ltd, which company acted as a finance brokerage and was run by Mr Mischel’s brother, Igo. Mr Mischel deposes that the computers used by Lending Professionals Pty Ltd were backed up onto the same computer servers that were used by Mischel Advisory. A further tenant was Boutique Property Management Pty Ltd, which was an owners corporation management business run by Asimie George. At the time the search order was executed, the premises were recorded as the registered office and/or principal place of business for approximately 160 to 200 companies.

52 Mr Mischel deposes that, as a result of the multi-use of the premises, he believes that

• there were hard copy documents located at the premises belonging to a number of companies other than Mischel & Co and/or Mischel Advisory;

• there were multiple computers being used at the premises by companies, tenants and persons other than Mischel & Co and/or Mischel Advisory;

• there were a large number of USB sticks at the premises which belonged to tenants and/or their clients and customers;

• a number of the computers and/or computer servers used by Mischel Advisory and others contained data and files belonging to tenants of the premises, including clients of those tenants; and

• there were a large number of personal files belonging to Mr Mischel, Bradley Mischel and Igo Mischel located on the computers used at the premises that contained personal information unrelated to the affairs of Mischel & Co.

53 Mr Mischel then details and exhibits the many objections he made to the liquidator inspecting the seized documents. Mr Mischel deposes that together with his solicitor Mr Kelly he worked through each of the hard drives and devices made available by the independent solicitor in order to determine which files were objected to and which were not. The process involved considering approximately 930,000 imaged documents and file paths in short periods of time and preparing objections.

54 Mr Mischel deposes that he was informed by his solicitor, Mr Kelly, that no step was taken by the liquidator to challenge the objections that Mr Mischel had made until the filing of the liquidator’s application on 20 December 2013.[3] Mr Mischel deposes that since 2 December 2011, being the date of the defendants’ last objection, the defendants have not received any requests from the liquidator for further information or clarification as to the objections taken.

55 Mr Mischel deposes that on 14 November 2011 he provided to the liquidator books and records of Mischel & Co (which he lists), including a completed statement of affairs and other company records.

56 Mr Mischel deposes that he has not received any requisition from the liquidator relating to the documents that he provided, nor any further requisitions for additional information relating to the affairs of Mischel & Co.

57 Mr Mischel deposes that Ms Kennedy has not identified any particular document or file path in respect of which the liquidator seeks further information or clarification. He deposes that he and his son, Bradley, remain ready, willing and able to provide such information and clarification in respect of any file path if requested to do so by the liquidator. Mr Mischel says that the objections make clear the basis of the defendants’ objections. Mr Mischel deposes in response to the contentions made by Ms Kennedy in her affidavit and disputes many of her contentions.

58 During the hearing, a copy of an affidavit of Michael Canzoneri, the solicitor for the liquidator, was sought to be relied on. Despite the original not being filed, Mischel Advisory had no objection to it being relied on by the liquidator.

59 Mr Canzoneri refers to the sale by Mischel & Co of its business to Mischel Advisory on 5 January 2010. Mr Canzoneri deposes that the consideration for the sale was stated to be $774,356.25 and that Mischel Advisory was assuming two liabilities of Mischel & Co, being the loan described as ‘Margaret Noseda’ of $40,000 and the loan described as “Zigmo Australia Pty Ltd of $706,866.54.” That left a balance purchase price of $27,489.71.

60 Mr Canzoneri deposes that he is informed by the liquidator and believes that the liquidator has found no evidence of the Margaret Noseda loan in the books and records of Mischel & Co or of the receipt of the net purchase price of $27,489.71.

61 Mr Canzoneri deposes that the Zigmo loan was declared by order of Bell J to be null and void in proceeding number 1569 of 2011 between Mr Gloss Pty Ltd and Henry Mischel, Mischel & Co, Mischel Advisory and other parties. Mr Canzoneri deposes that he is instructed by the liquidator and believes that by virtue of these matters:

(a) the sale and transfer of the business by Mischel & Co to Mischel Advisory was a sham; and

(b) Mischel Advisory holds the business and its assets, including its books and records and documents, on a constructive trust for Mischel & Co.

62 Mr Canzoneri deposes that by reason of those matters, the liquidator is entitled to access:

(a) all documents relating to the purported transfer of the business conducted by Mischel & Co to Mischel Advisory; and

(b) all documents relating to the business conducted by Mischel Advisory and purportedly purchased from Mischel & Co.

63 Mr Canzoneri deposes that the writ issued by the liquidator was discontinued to overcome a procedural complaint made by Mischel Advisory. Mr Canzoneri deposes that the liquidator intends to commence that action by an originating process, pending and subject to the production of any relevant documents in this proceeding.

64 In summary, pursuant to r 37.01 of the Rules, the liquidator seeks to inspect the computer records that were obtained from the computers and memory devices seized from the premises pursuant to the search order made 25 October 2011. The search order was made in the context of s 483(1) proceedings. The defendants have objected to the liquidator inspecting certain of the documents and have agreed to the liquidator inspecting others.

65 The computer records were seized pursuant to an order made under r 37B.02, which relevantly provides:

66 As can be seen, the purpose of the order is stated to be for the purpose of securing or preserving evidence “which is, or may be, relevant to an issue in the proceeding or anticipated proceeding.”

67 Rule 37.01 provides that in any proceeding the Court may make an order for the inspection of any property whether or not in the possession of a party. That application must be made on notice to the other party: r 37.03(1). There is an inherent jurisdiction, however, to make an order for preservation and inspection without notice.[4] Counsel for the liquidator did not refer me to any other power pursuant to which the Court may order inspection of the seized books and records.

68 As mentioned, an order for inspection under r 37.01 may be obtained “in any proceeding, ” whereas, an order for seizure under O 37B may be made “in any proceeding or in anticipation of any proceeding.” In this case, a proceeding seeking orders under s 483 of the Act is on foot. Accordingly, the Court does have jurisdiction in this proceeding to make the orders for inspection sought by the liquidator, although the power to do so is discretionary.

69 In Hearne v Street [5] the High Court set out the nature of the obligations of a party who obtains material pursuant to the compulsory processes of the Court. Hayne, Heydon and Crennan JJ said:

70 Similarly, in my opinion, where books and records have been seized under a search order obtained in a proceeding the books and records cannot, without the leave of the court, be used for any purpose other than that for which the order was given unless it is received into evidence. Accordingly, when exercising my discretion under r 37.01 whether to order in the proceeding that the liquidator have inspection of the seized books and records, I should have regard to the purpose for which inspection is sought and the scope and purpose of the proceeding in which the search order was given. Accordingly, it is first necessary to consider the application under s 483 of the Act made by the liquidator in the originating process before turning to the purposes for inspection given by the liquidator.

71 Although the originating process refers to s 483 of the Act, the relevant provision appears to be sub-s 483(1). The other subsections relate to calls on contributories and are not relevant to any issue raised by the liquidator.

73 The scope and purpose of sub-s 483(1) and its predecessors has been the subject of several Australian decisions including: Home v Walsh; [15] Re Carstairs Building Advisory Services Pty Ltd;[16] Evans v Bristile Ltd;[17] Boyles Sweets (Australia) Pty ltd (in liquidation) v Platt;[18] Re Kenross Homes Pty Ltd (in liquidation);[19] Pace v Antlers Pty Ltd;[20] Blackjack Executive Car Services Pty Ltd v Koulax;[21] and Advance Innovative Solutions Pty Ltd (in liquidation) v X-Dem Group (Aust) Pty Ltd.[22] None of these were referred to in argument by counsel. Nevertheless, they do establish, in my opinion, that sub-s 483(1) may not be used by the liquidator to search for property (including books and records) that may belong to Mischel & Co, or to pursue claims that the advisory business is still beneficially owned by Mischel & Co or that the sale transaction should be set aside and the business vested in Mischel & Co.

74 Subsection 483(1) is intended to give the liquidator a summary procedure whereby he or she may obtain an order against the limited range of persons named in the subsection in relation to property to which the company is prima facie entitled.

75 Home v Walsh and Boyles Sweets held that sub-s 483(1) is not available where an adverse claim is made against the company by the person in whose hands the assets are found, for example, a claim that that person is entitled to the assets. In that situation, the question of entitlement to the assets must be prosecuted by the liquidator in the same way as any other person. So much was conceded by counsel for the liquidator before me. In fact the liquidator had already commenced such a separate proceeding against Mischel Advisory, although as discussed above, it has now been discontinued.

76 This construction of sub-s 483(1) may permit, however, that even where there is a genuine dispute as to ownership of the property the subject of the application, if the company in liquidation is “prima facie entitled” to the property the subject of the application, the Court may have the discretion to order it delivered up to the liquidator without resolving the issue of who is the owner of the property.

77 The subsection provides a summary procedure to avoid the expense of the company bringing actions against company officers and others, who obtain their authority from the company, in possession of the company’s property.[23]

78 In Home v Walsh, receivers and managers were appointed over the assets of High Crest Motors Pty Ltd (the company) by a debenture holder, Australian Guarantee Corporation Ltd. Subsequently the company went into liquidation. The liquidator sought an order under s 263(3) of the Companies Act 1961 (Cth) (the predecessor of s 483(1)) for the receivers to deliver up the assets of the company to the liquidator. At first instance, O’Bryan J ordered that the receivers deliver up the assets to the liquidator.

79 On appeal to the Full Court of the Supreme Court of Victoria, the receivers argued that since there was a dispute between the parties as to the entitlement of the company to possession of the assets in question, the Court had no jurisdiction under s 263(3). The receivers argued that the section only applied to the several individuals named therein (who were, in effect, “insiders” not “outsiders” as the appellants were), when they owed duties directly to the company, and that the section did not apply where the person proceeded against held the assets in question adversely to the company.

80 The liquidators argued that the section was designed to get into the hands of the liquidators all the assets of the company so that they could carry out their duty of winding up the affairs of the company as soon as possible. The liquidators contended that should the debenture holder or receivers have a claim against the company, such claims could be pursued against the assets of the company when they were in the liquidators’ hands. The liquidators submitted that notwithstanding the debenture and the claims of the receivers, the company was the legal owner of its assets and was accordingly prima facie entitled as a matter of right to possession of its own assets.

81 Anderson J (with whom Starke J agreed) upheld the arguments of the receivers and rejected those of the liquidators. Anderson J cited with approval Re Palace Restaurants [24] where Buckley LJ said in relation to the English equivalent of sub-s 483(1):[25]

83 Anderson J also opined that “the phrase “to which the company is prima facie entitled” relates to an entitlement to possession, and a liquidator’s right cannot be greater than the company’s right”.[28]

84 In Home v Walsh Harris J agreed that the appeal of the receivers should be allowed, delivering his own reasons. His Honour summarised the relevant cases, and concluded that under the relevant section (being the predecessor of sub-s 483(1)) “the persons against whom an order may be made are all persons who either derive their authority from the company or are accountable to it.”[29] His Honour said “[t]his view is adopted in Palmer’s Company Precedents[30] where it is stated that the section in the English Act gives ‘no jurisdiction as against outsiders'”[31]

85 Harris J said that the persons referred to in the subsection could be conveniently described as “insiders”, being the opposite of the word used by Palmer to describe those who were not within the subsection. His Honour also addressed the meaning of “to which the company is prima facie entitled”. His Honour said that those words mean:[32]

86 Harris J also addressed what he said was the only disputed matter which could be determined under the subsection. His Honour said:[34]

87 In Evans v Bristile,[35] C had negotiated with B to purchase a business owned by B. The eventual sale did not go through. In the meantime, C conducted the business owned by B and maintained accounting records for the business. B was placed into liquidation and the liquidator sought an order under sub-s 483(1) of the Corporations Law (the predecessor of sub-s 483(1) of the Act) for C to deliver up the accounting records relating to the business conducted by C but owned by B.

88 Wallwork J of the Supreme Court of Western Australia applied Home v Walsh. Wallwork J held that although the liquidator may have been able to satisfy the court that the property sought was property to which the company was prima facie entitled, it was clear that C was not a person to whom s 483(1) was directed and that C was an “outsider” in the sense described by Harris J in Home v Walsh.[36]

89 Home v Walsh was followed and applied in Boyles Sweets.[37] There the liquidator applied for an order under sub-s 483(1) of the Corporations Law that a director, a company Madam Pier controlled by the director, and relatives of the director deliver up to the liquidator certain businesses and certain records of the company allegedly in the director’s possession. The defendants claimed that the businesses were in the possession of Madam Pier under a management agreement between the company in liquidation and Madam Pier. The liquidator claimed that the agreement was a sham. Hayne J of this Court held that sub-s 483(1) could not be used where there was a genuine dispute between the parties as to whether or not Madam Pier was in rightful possession of the businesses.

90 Hayne J followed the decision in Home v Walsh and said in respect of the predecessor of sub-s 483(1) of the Act that “the weight of authority suggests that the summary procedure is not available where a claim is made by the person in whose hands the assets are found that is a claim adverse to the company.”[38] Hayne J said that he did not regard the judgment of Harris J in Home v Walsh as representing a significant departure from the judgment of Anderson J.[39] Hayne J also adopted the concept of “insider”, and cited Palmers Company Precedents as cited by Harris J in Home v Walsh.

92 According to Hayne J, the section neither required or permitted the kind of inquiry which would be needed for a final resolution of title to the property.

93 On the other hand, in Re Kenross [41] Ambrose J said - after citing the judgement of Harris J in Home v Walsh referred to above where Harris J discussed the issues that could be determined on an application under the subsection-:[42]

94 There is also authority for the contention that a constructive trustee may not be a trustee for the purposes of sub-s 483(1).[43] In Re United English[44] the liquidator sought to recover moneys obtained by a creditor under a garnishee order obtained between the presentation of the winding up petition and the order for winding up. The Court held that the money could not be ordered to be returned under the equivalent section to s 483(1).

95 The liquidator had contended that the creditor was a “trustee” within the meaning of the section and obtained an order for delivery up at first instance on that basis. On appeal, Page Wood LJ, with whom Selwyn LJ agreed, said that “I entertain no doubt that the Court had no jurisdiction to make the order appealed from .... The object of the enactment was to prevent the expense of the company bringing actions against the person named who are its own contributories and officers, and ought not to be extended to other persons.”[45] In the words of Harris J in Home v Wood, a constructive trustee is an “outsider” and therefore not captured by sub-s 483(1).[46]

96 Without the benefit of argument, in my view, the relevant principles applicable to s 483(1) appear to be as follows:

(3) The procedure is not available to a liquidator where a claim is made, by the person in whose hands the assets are found, that is adverse to the company.

Applying the relevant principles in exercising the discretion under r 37.01

97 The liquidator says that he wishes to inspect the seized books and records as he believes that the sale of the advisory business by Mischel & Co to Mischel Advisory was a sham and might be set aside, and that Mischel Advisory holds the business and its assets, including its books and records, on a constructive trust for Mischel & Co. The liquidator’s solicitor, Mr Canzoneri, says that separate proceedings may be initiated subject to inspection of the seized books and records. Ms Kennedy says that the liquidator wishes to inspect the seized books and records to consider and decide what recovery claims may be commenced by him to recover assets which have been transferred from Mischel & Co or dissipated in breach of s 488 of the Act. Further, there is a suggestion that the liquidator may seek to claim in this proceeding that the books and records of Mischel Advisory are in fact books and records of Mischel & Co for similar reasons.

98 I will deal with the proposed or possible separate proceedings first. In my opinion, to use the inspection of the seized documents for this purpose would be to use them for a purpose other than for which the search order was obtained. The search order was obtained for the purpose of pursuing the application under sub-s 483(1). In my opinion, there are other procedures available to the liquidator under the Rules if he wishes to pursue the claim that the sale of the business was a sham or the other possible proceedings referred to.

99 In the exercise of my discretion, I would not order inspection of the seized documents in this proceeding under r 37.01 to assist the liquidator in pursuing other proceedings or in deciding whether to pursue other proceedings.

100 I turn now to whether I would exercise my discretion under r 37.01 to order inspection of the sized documents for the purpose of the liquidator seeking to establish in this proceeding against Mischel Advisory that the sale of the business was a sham and seek an order for delivery up of property accordingly.

101 In my opinion, sub-s 483(1) cannot be used to resolve that issue in favour of the liquidator. In my view, the Court has no jurisdiction under sub-s483(1) to decide the issue as between the liquidator and Mischel Advisory. Mischel Advisory does not fall within any of the classes of persons to which an order under sub-s 483(1) may be directed. In my opinion, the subsection does not apply to Mischel & Co even if it is sought to characterised Mischel & Co as a constructive trustee. Mischel & Co is an ‘outsider.’

102 Even if, contrary to my view, the subsection does apply to Mischel & Advisory, Mischel Advisory has a claim adverse to the liquidator to the property of the advisory business. The authorities clearly establish that the Court has no jurisdiction under sub-s 483(1) to resolve the contest as to ownership of the advisory business between the liquidator and Mischel Advisory. Further, there is no evidence to support the contention that Mischel & Co is prima facie entitled to the advisory business. The liquidator does not contend that there is.

103 For these reasons, in the exercise of my discretion I would not order inspection of the seized documents in this proceeding under r 37.01 to assist the liquidator in seeking in this proceeding to obtain an order for delivery up of the advisory business currently in the possession of Mischel Advisory.

104 I turn to the liquidator’s claim under sub-s 483(1) against the second defendant Henry Mischel. For the reasons given in her affidavit Ms Kennedy believes that there are books and records amongst those seized under the search order which are in fact part of the books and records of the company and/or are the property of the company. Those contentions are disputed by Mr Mischel. He says he has delivered up all the books and records of the company.

105 In Boyles Sweets, the liquidator also sought delivery up of some minute books which allegedly were or might have been in the possession of a director of the company. The director had sworn that he did not have the books the subject of the application. The liquidator asked the Court to infer that the books should have existed and should be in the possession of the director. Hayne J was not prepared to make the order in view of the fact that the director swore he did not have the books.

106 On 24 October 2011, a sequestration order was made against the estate of Henry Mischel. Mr Mischel deposes that he ceased to be a director of Mischel & Co on that date. Mr Mischel deposes that he has delivered up to the liquidator all the books and records of Mischel & Co. The liquidator says that he believes that there are other records of Mischel & Co amongst the books and records seized. The liquidator sought to attack Mr Mischel’s credit. As the authorities establish, an application under s 483(1) is a summary procedure, and in summary procedures it is not possible to decide matters going to credit.

107 Sub-section 483(1) refers to a person who is a director. There was no submission that, because Mr Mischel had been declared bankrupt on 24 October 2011, s 483(1) did not apply to him.[47]

108 Irrespective of whether or not Mr Mischel is a director, in my opinion, the discretion under sub-s 483(1) is not appropriate to be used where the liquidator is unable to identify, with some degree of specificity, the particular ‘money, property of the company or books’ to which Mischel & Co is prima facie entitled. The procedure is a discretionary summary procedure. It is not suited to resolve disputed issues of fact. To enliven the jurisdiction to exercise the discretion, the liquidator must establish that a particular item of ‘money, property of the company or books’ is in ‘the person’s hands’ against whom the order is sought and that Mischel & Co is prima facie entitled to that ‘money, property of the company or books’. In my opinion, it is not sufficient for the liquidator to establish that the item may be ‘money, property of the company or books’ to which the company is prima facie entitled.

109 In my view, sub-s 483(1) does not provide jurisdiction for the Court to resolve the issue as to what is and what is not the property of the company in liquidation where hundreds of thousands of books and records have been seized, including documents of third party companies not related to Mischel & Co that happened to have their books and records stored at the searched premises.

110 For these reasons, in the exercise of my discretion I would not order inspection of the seized documents in this proceeding under r 37.01 to assist the liquidator in seeking in this proceeding under sub-s 483(1) to obtain an order against Mr Mischel for delivery up of the books of Mischel & Co.

111 If I am wrong and sub-s 483(1) may be used to enable the liquidator to obtain as against Mr Mischel the delivery up of books and records that the liquidator is unable to describe with some degree of specificity, the issue arises whether in my discretion, in any event, I would order inspection under r 37.01.

112 For the following reasons, in the proceeding against Mr Mischel, I would not exercise my discretion to order inspection of the seized books and records. In exercising my discretion under r 37.01, I have regard to several relevant matters that weigh against exercising my discretion in favour of making an order for inspection including:

• the inability of the liquidator to identify with any precision the particular book or record that might belong to Mischel & Co;

• that many of the seized books and records relate to the affairs of persons who are not parties to the proceedings;

• that it would not be possible to identify any documents that might belong to Mischel & Co without invading the confidentiality of other non-parties;

• that the liquidator’s primary concern relates to the purported sale of the business of Mischel & Co to Mischel Advisory which is a matter that does not fall within the jurisdiction imparted by sub-s 483(1);

• that the seizure order was obtained for the purpose of securing the preservation of evidence which is or may be relevant to an issue in the application by the liquidator under sub-s 483(1);

• that the evidence of Mr Mischel indicates that there is likely to be a dispute about the title to any books and records that the liquidator may seek to lay claim to; and

113 If there be an inherent jurisdiction [48] to order inspection of the seized books and records, I consider that the matters going to my discretion in the proceedings against either defendant would not be materially different to the exercise of my discretion under r 37.01.

114 The books and records seized under the search order have been returned to the defendants. Copies of the books and records have been retained. A procedure was established for the information in those books and records to be made available to the liquidator. Under that procedure the defendants have objected to the disclosure of certain books and records on the basis that they are not the property of Mischel & Co, the company in liquidation.

115 The books and records were seized under a search order that was made in the proceeding instituted by the liquidator under s 483 of the Act for the books and records of Mischel & Co to be delivered up by the defendants to the liquidator.

116 The liquidator has put forward several bases for inspection of the disputed seized books and records.

117 First, he says they may assist him in bringing or in deciding whether to bring proceedings against Mischel Advisory including claiming that the sale of the business from Mischel & Co to Mischel Advisory was a sham, and that the books and records of Mischel Advisory relating to the business are the property of Mischel & Co. For the reasons given above, in my discretion under r 37.01, I refuse to make an order for inspection of the seized books and records for that purpose.

118 Secondly, the liquidator also suggested that he might be able to resolve the issue of whether the sale of the business was a sham in the current proceeding against Mischel Advisory. For the reasons given above, in my opinion, that issue may not be resolved in the sub-s 483(1) application against Mischel Advisory. For the reasons given above, in my discretion, I refuse to make an order for inspection of the seized books and records for that purpose.

119 Thirdly, the liquidator also wishes to inspect the books and records seized as he believes some of the books and records in the possession of Mr Mischel are books and records of Mischel & Co. For the reasons given, in my opinion sub-s 483(1) may not be used as a means to ascertain what is the property of Mischel & Co. Subsection 483(1) may only be used to order ‘insiders’ of Mischel & Co to deliver up property to which Mischel & Co is prima facie entitled. For the reasons given above, in my discretion, I refuse to make an order for inspection of the seized books and records for that purpose.

120 Even if sub-s 483(1) may be used to obtain an order against Mr Mischel for the delivery up of books and records that the liquidator is not able to describe with some degree of particularity, in my discretion it is not appropriate under r 37.0, to make an order for the inspection by the liquidator of the books and records seized in the proceeding under s 483 for the reasons I have given earlier. For the reasons given above, in my discretion under r 37.01, I refuse to make an order for inspection of the seized books and records for that purpose.

121 I do not consider the Court’s inherent jurisdiction otherwise assists the liquidator.

122 Accordingly, in my opinion, it is not appropriate under r 37.01, or the Court’s inherent jurisdiction, to make an order for inspection by the liquidator of the books and records seized in the proceeding under s 483 for any of the purposes the liquidator proposes and in the exercise of my discretion I refuse to do so.

123 For these reasons, I dismiss the application of the liquidator for an order to inspect the seized books and records, with costs.

^[7] Riddick v Thames Board Mills Ltd [1977] QB 881; Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 at 32-33; [1995] HCA 19.

^[11] Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 at 33, 39, 46-47 and 48.

^[15] [1978] VicRp 65; [1978] VR 688 (Home v Walsh). See also commentary in Australian Corporation Law Principles & Practice.

^[17] (1992) 8 ACSR 344 (Evans v Bristile); where Home v Walsh was cited with approval.

^[23] Re United English and Scottish Assurance Company; Ex parte Hawkins (1868) 3 Ch App 787 (Re United English), 790.

^[43] Australian Corporation Law Principles & Practice commentary [5.4.0695].

^[46] On the other hand, in Evans v Bristile (1992) 8 ACSR 344, at 350 Wallwork J held that the company against whom an order under sub-s 483(1) was sought was an outsider. This, in part, His Honour said was because there was no finding of a trust over the property sought to be delivered up; there was no evidence of any express, constructive or resulting trust.