In the matter of Liverpool Hotels Pty Ltd (in liq) [2010] NSWSC 72 (16 February 2010)

Last Updated: 18 February 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
In the matter of Liverpool Hotels Pty Ltd (in liq) [2010] NSWSC 72


JURISDICTION:
Equity

FILE NUMBER(S):
2009/00289339

HEARING DATE(S):
24 November 2009

JUDGMENT DATE:
16 February 2010

PARTIES:
John Palasty (Applicant)
Anthony Milton Sims (as liquidator of Liverpool Hotels Pty Ltd) (Plaintiff and Respondent)

JUDGMENT OF:
Austin J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
N Allan (Applicant)
N Cotman SC with R Parsons (Plaintiff and Respondent)


SOLICITORS:
Ziman & Ziman (Applicant)
Barends Black Lawyers (Plaintiff and Respondent)



CATCHWORDS:
CORPORATIONS
winding up
application for reinstatement of defunct company by liquidator for purpose of investigating and taking recovery proceedings
failure to notify former director of reinstatement application
whether Court should set aside reinstatement order
whether Court should reverse the reinstatement under s 1322
whether liquidator is acting for improper purpose
whether proposed recovery proceedings statute-barred
whether abuse of process
whether liquidator's solicitor should be disqualified from acting

LEGISLATION CITED:
Corporations Act 2001 (Cth), ss 564, 601AH, 1322
Limitation Act 1969 (NSW), ss 11, 14, 47, 48
Supreme Court (Corporations) Rules, 1999, rule 11.5
Uniform Civil Procedure Rules, rules 36.15, 49.19


CASES CITED:
Barnes v Addy (1874) LR 9 Ch App 244
BP Australia Ltd v Brown [2003] NSWCA 216; (2003) 58 NSWLR 322
Cameron v Cole [1944] HCA 5; (1944) 68 CLR 571
Evans v Wainter Pty Ltd (2005) 145 FCR 176, [2005] FCAFC 114
Hall v Poolman [2009] NSWCA 64
Meteyard v Love [2005] NSWCA 444; (2005) 65 NSWLR 36
Miltonbrook Pty Ltd v Westbury Holdings Kiama Pty Ltd (2008) 71 NSWLR 262; [2008] NSWCA 38
Newham v Australian Securities and Investments Commission (2000) 35 ACSR 147, [2000] ACTSC 77
Sims (as liquidator of Liverpool Hotels Pty Ltd) [2009] NSWSC 885
Taylor v Taylor [1979] HCA 38; (1979) 143 CLR 1
Tomko v Palasty (No 2) (2007) 71 NSWR 61; [2007] NSWCA 369
Westpac Banking Corporation v Totterdell (1998) 29 ACSR 448
White Constructions (ACT) Pty Ltd (in liq) v White (2004) 49 ACSR 220; [2004 NSWSC 71

TEXTS CITED:


DECISION:
Order that the interlocutory process filed on 20 August 2009 (other than para 2 thereof) be dismissed and that the applicant pay the respondent's costs as agreed or assessed



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST


AUSTIN J

TUESDAY 16 FEBRUARY 2010

2009/00289339 IN THE MATTER OF LIVERPOOL HOTELS PTY LTD (IN LIQ)

JUDGMENT

1 HIS HONOUR: By an originating process filed on 22 June 2009, Mr Sims, as liquidator of Liverpool Hotels Pty Ltd ("the Company"), sought the issue of summonses, for examination under s 596A the Corporations Act 2001 (Cth), of John Palasty ("Mr Palasty"), Justin Palasty (Mr Palasty's son), Judith Palasty (Mr Palasty's wife), Vincent Aboud (an accountant involved in the Company's affairs), Joseph Pizzolato, Joseph Said and Ilona Horvat (Mr Palasty's mother). Examination summonses were issued by the Registrar on that day.

2 Mr Palasty's interlocutory process, filed on 20 August 2009, seeks substantive relief including the following:

access to the liquidator's affidavit in support of the application for examination summonses (prayer 2);

an order disqualifying John Tomko ("Mr Tomko") and his firm of solicitors from representing the liquidator (prayer 3);

an order under s 1321 of the Corporations Act reversing the liquidator's decision to apply for the issue of examination summonses (prayer 4);

an order under 11.5 of the Supreme Court (Corporations Act) Rules discharging the examination summonses (prayer 5);

pursuant to UCPR 36.15 or a rule-based review of a decision of a Registrar, an order setting aside orders made by a Registrar of this Court for the reinstatement of the Company in proceedings No 2125 of 2009 (prayer 6);

an order declaring the appointment of the liquidator to be invalid (prayer 7);

under s 536 of the Corporations Act, an order for an inquiry into the conduct of the liquidator (prayer 9);

under s 477(6) of the Corporations Act an order suspending the exercise by the liquidator of his powers in connection with the administration of the Company (prayer 10);

in the alternative to the orders sought in paras 4, 5, 6 and 7, directions under s 596F of the Corporations Act limiting the content of the examinations and requiring that they be held in private (para 14).

3 In consequence of an order made by Bergin CJ in Eq on 26 August 2009, Mr Palasty has obtained access to the liquidator's affidavit, made on 1 June 2009 in support of the application for examination summonses, and so the relief sought in para 2 of the interlocutory process is no longer necessary: see Sims (as liquidator of Liverpool Hotels Pty Ltd) [2009] NSWSC 885, at [3]. The remainder of the interlocutory process is now before the Court.

4 At the interlocutory hearing the following issues emerged:

whether the Registrar's order for reinstatement of the Company was invalid and to be set aside because Mr Palasty was not notified of the application for reinstatement and therefore had no opportunity to appear and make submissions on the question;

whether the proceedings for reinstatement of the Company and the issue of examination summonses are an abuse of process or the liquidator's conduct is otherwise objectionable for reasons having to do with the lack of any useful purpose in pursuing investigations, or an improper purpose on the part of the liquidator, and/or the involvement of Mr Tomko; and

whether, if the examinations are to go ahead, the Court should order that they be held in private.

1. The Company and its business

5 The Company was incorporated in February 2002. Initially its directors were Justin Palasty and Mr Tomko, but Mr Tomko ceased to be a director 9 April 2002 and Justin Palasty ceased to be a director on 6 March 2003. On the latter date Mr Palasty became sole director.

6 The Company conducted business in leased premises in Liverpool. The business comprised a hotel known as the Commercial Hotel, with a liquor licence and poker machines, along with a kitchen for meal orders and a bottle shop. Substantial renovations were made to the hotel during the Company's occupation.

7 Mr Palasty gave evidence that when he went to the hotel on about 18 March 2003, he discovered that the landlord had barred entry. According to Mr Palasty's evidence, an option in favour of the Company to purchase the business and the freehold had expired because finance could not be raised to complete the purchase. Mr Palasty said that because of the lockout, he was deprived of access to the Company's records as well as a substantial amount of cash.

8 There is some evidence in the form of correspondence between Mr Tomko and the liquidator indicating that after the vendor had re-entered and taken possession of the hotel premises, it re-sold the hotel business for a sale price approximately $1 million in excess of the original contract price with the Company. The same evidence indicates that the vendor did not account to the Company for the Company's property left inside the hotel at the time when it took possession, including a substantial amount of cash and alcohol. These facts, on their face, suggest that the Company had a cause of action against the vendor, but it does not appear to have been pursued. According to Mr Granger, the liquidator's manager, this was because Mr Tomko's information required confirmation and the only source of confirmation was through Mr Palasty and possibly Mr Aboud, from whom he could obtain no helpful communication notwithstanding many efforts. That seems to me to be plausible.

2. Winding up proceedings

9 Mr Tomko is a litigation solicitor. He acted for Mr Palasty in 2000/2001 in some litigation concerning bank guarantees. He became entitled to fees for his legal services. The two men also came to be associated in various business activities, including hotel businesses, and Mr Tomko provided some money for business purposes. According to ASIC's records, Mr Tomko made an application for the winding up of the company in March 2003. That application did not lead to a winding up order, but the Company was ordered to be wound up on the application of Australian Liquor Marketers Pty Ltd on 25 November 2003, by order of the Supreme Court of South Australia, and Mr Sims was appointed liquidator.

10 In his first affidavit, Mr Palasty said that Australian Liquor Marketers and two other creditors were subsequently paid. In his later affidavit, he said the debt owed by the Company to Australian Liquor Marketers was assigned to Mr Pizzolato, who was employed as the office manager of Mr Aboud. That is supported by some solicitor correspondence that is in evidence.

3. The Company's external administration and deregistration

11 Evidence of the course of that liquidation was given by Mr Sims in his affidavit supporting reinstatement of the company, made on 24 March 2009. Mr Sims deposed to difficulties he encountered in procuring access to company records and in obtaining a Report as to Affairs ("RATA") from Mr Palasty. He was told by an employee of Mr Aboud that the Company's financial records were held at the Commercial Hotel. He sent a "director's package" including a blank form of RATA to Mr Palasty on two occasions but did not receive the completed form, although he received a letter dated 13 February 2004 from Mr Aboud, from which (he said) he gained no assistance. On 20 April 2004 he issued a demand under s 530B of the Corporations Act to Mr Aboud, and a letter to Mr Palasty, which he followed up on 11 May 2004, but he received no answer to any of that correspondence.

12 On 20 May 2004 he received a record of transaction history from St George Bank in relation to a bank account of the Company, from which he noted a significant number of large withdrawals from the account, many of which were in round figures and were simply listed as "Transfer to Account" followed by account numbers which were not familiar to Mr Sims. On 17 June 2004 he wrote to St George Bank requesting further information and documents. St George Bank responded requiring a substantial payment before undertaking a search to locate the requested documents. Mr Sims gave evidence that, as he was not in funds, he was unable to comply with that request and therefore was unable to pursue these inquiries.

13 Mr Palasty responded to this evidence by saying, vaguely and without supporting documents, that "transfers were made to suppliers and other people the Company dealt with". A dismissive statement of that kind does not take away the need for a prudent liquidator to make proper investigations, if funds permit.

14 On 18 June 2004 the liquidator lodged a notice with ASIC pursuant to s 533 of the Corporations Act, reporting that he considered there had been contraventions of the obligation to keep financial records under s 286, the obligation to report as to the company's affairs under s 475, the obligation of officers to help the liquidator under s 530A, and the requirement to provide the liquidator with the company's books under s 530B, but he did not recommend further investigation. He reported that the estimated total realisable assets were less than $1 while the estimated total liabilities were in the range of $1-$250,000, with costs of liquidation in the range $1-$50,000. The Commission responded on 22 June 2004, advising that no further action would be taken in relation to the Company.

15 The evidence as to the identity of the Company's creditors is very sketchy, no doubt in large part because of Mr Palasty's failure to co-operate with the liquidator. Mr Palasty claims that there is only one alleged creditor of the Company, namely Mr Tomko. However, other evidence indicates that there are probably several creditors at least. Mr Pizzolato would seem to be a creditor by assignment of the Australian Liquor Marketers debt. According to evidence given on behalf of the liquidator, other creditors or possible creditors include the New South Wales Office of State Revenue, and the Australian Taxation Office in respect of unpaid superannuation and in respect of GST and PAYG and/or income tax.

16 Mr Tomko appears to have a reasonably strong claim to be a substantial creditor, in light of the District Court proceedings considered in section 4 below. The Company was not a party to those proceedings but nevertheless, Judge Gibb found on the evidence that debts claimed by Mr Tomko against Mr Palasty were not Mr Palasty's debts but rather debts of the Company. Apparently inconsistently with Mr Palasty's evidence, his counsel contended at the hearing before me that Mr Tomko's claim has been statute-barred and is therefore "extinguished". This is not a proposition that the evidence enables me to determine. It is not clear whether the liquidator has received a proof of debt from Mr Tomko and if so, where he has accepted it. The Court has before it Judge Gibb's judgment but not the primary materials relating to Mr Tomko's loans. Proper consideration of the matter would need to address the question whether, in the context of the District Court proceedings or subsequent settlement negotiations between Mr Tomko and Mr Palasty, there might have been an acknowledgement of the debt on behalf of the Company, within the limitation period. My conclusion is that while there appears to be an issue concerning limitation with respect to the Company's alleged debt to Mr Tomko, there is no sufficient evidentiary basis for concluding on this application that the debt is statute-barred.

17 During the course of his administration, the liquidator presented accounts and statements to ASIC under s 539(1) in respect of the liquidation, showing costs owing to him of, eventually, $6,730 and no receipts. Mr Palasty contended that Mr Pizzolato, who had taken an assignment of the debt owed to Australian Liquor Marketers, was a creditor, and he adduced evidence of some correspondence between Mr Pizzolato's solicitor and the liquidator in August/November 2005, in which the solicitor notified the liquidator of the assignment.

18 Mr Sims gave evidence that in February 2006, in the absence of any responses from Mr Palasty and anyone else, and lacking any funds, he lodged with ASIC an application for dissolution by deregistration under s 601AB(2)(c), together with Form 524 final accounts of the Company under s 539(1). In the final accounts, the liquidator reported a single and identified creditor with the debt of $3,184, no receipts and no dividends. ASIC gave notice of its intention to deregister the company on 28 February 2006 and the company was deregistered under s 601AB on 7 May 2006.

19 It seems to me that there were grounds for Mr Sims to believe, as he reported to ASIC under s 533, that there had been contraventions of the Corporations Act by the Company and its director both during the Company's external administration and before the winding up began. Of great concern was Mr Palasty's failure to give the liquidator access to the Company's records, his failure to complete a RATA, and the lack of explanation for the substantial withdrawals from the Company's St George bank account. I infer from the evidence that these matters were not pursued by the liquidator because of the absence of funds in the Company and the absence of any identified major creditor who might be interested in providing funding for litigation. The result was that the possible contraventions, suspected on reasonable grounds, were not investigated at all.

20 Counsel for Mr Palasty sought to derive some significance from the fact that in his report to ASIC, the liquidator recommended no further action. But in my view that is adequately explained by evidence given on the liquidator's behalf that no further action was recommended because there was no tangible evidence available to the liquidator (see the affidavit of Geoffrey Granger made on 2 October 2009, para 57).

4. The District Court proceedings and the settlement between Mr Tomko and Mr Palasty

21 As mentioned above, Mr Tomko provided funds in respect of business ventures of Mr Palasty and/or his companies. This led to proceedings in the District Court, No 2398 of 2005, in which judgment was delivered by her Honour Judge Gibb DCJ on 15 December 2006. In those proceedings Mr Tomko sued Mr Palasty for recovery of two loans he claimed to have made to Mr Palasty: first, a loan of about $267,000 made by instalments from April to August 2004, and secondly, a loan of $360,000 made in August 2002. He sought recovery of the principal amount and interest in each case, and he also claimed damages for misleading and deceptive conduct.

22 Gibb DCJ found (judgment, pages 22-23, 49) that the loans were not made to Mr Palasty personally, but instead they were made to the Company. Consequently Mr Tomko's claims for recovery of the principal and interest on the loans failed. However, her Honour found that Mr Palasty had engaged in misleading and deceptive conduct with respect to circumstances surrounding the second loan (judgment, page 49). She quantified damages at $480,852 (judgment, page 52).

23 There was something of an avalanche of litigation between Mr Tomko and Mr Palasty, in addition to the District Court proceedings, eventually settled globally by a deed of settlement dated 8 April 2007. The terms of the deed of settlement are confidential and I do not need to breach that confidence in this judgment. The litigation included appeals and cross-appeals with respect to the District Court judgment (described in the deed as "The Tomko Appeal", "The First Palasty Appeal", "The Second Palasty Appeal", and "The Third Palasty Appeal"), the initiation of bankruptcy proceedings by Mr Tomko against Mr Palasty, and Mr Tomko's proceedings in this Court against Mr Palasty and others for freezing orders. All these matters, and associated costs, were resolved by the deed of settlement, which included releases of claims. But the deed of settlement was an instrument only between Mr Tomko and Mr Palasty, and did not purport, on its face, to release any claim Mr Tomko might have had against the Company (which, of course, had been dissolved).

5. Mr Tomko approaches the liquidator

24 In his affidavit made on 24 March 2009, Mr Sims deposed that he did not hear anything more about the Company until October 2008, when a manager in his employ, Mr Granger, was approached by "a creditor of the Company" who said that:

he had been involved in legal proceedings in the District Court against Mr Palasty;

in those proceedings information had come to light concerning the records and documents of the Company;

Mr Palasty had testified in those proceedings that he retained books and records of the Company in the garage of his home; and

as a result of the decision of the District Court in those proceedings, he had been held to be a creditor of the Company.

Plainly the District Court proceedings were the proceedings before Judge Gibb, and the "creditor of the Company" was Mr Tomko.

25 As I have said, Judge Gibb held that Mr Tomko's claim for recovery of the loans failed because the money had not been lent to Mr Palasty, the defendant in those proceedings, but to the Company. In that sense Mr Tomko was "held to be a creditor of the Company".

6. Mr Sims' beliefs about possible contraventions

26 Mr Tomko provided Mr Sims with transcripts of the District Court proceedings plus copies of documents tendered in evidence in those proceedings. Mr Sims testified that on the basis of his consideration of those documents and the information received from the creditor, he formed the beliefs that

(a) documents disclosing and relating to the affairs of the Company were available and most likely in the control of Mr Palasty;

(b) it was likely that funds of the Company had been used in the acquisition and/or development of land at St Marys by another company under the effective control of Mr Palasty; and

(c) the use of the Company's funds as stated above was likely to found claims against Mr Palasty for breaches of his duties as a director of the Company and against the associated company which took the benefit of the funds of the Company.

27 Mr Sims developed paragraphs (b) and (c) above in his affidavit of 1 June 2009, made to support the issue of examination summonses. In addition to the transcript and documents supplied by Mr Tomko, Mr Sims referred in that affidavit to evidence given by Mr Aboud, when he was examined in proceedings in the Local Court, Parramatta, on 11 August 2006, brought by Mass Australia Pty Ltd against Billabong Hotel (St Marys) Pty Ltd ("Billabong").

28 First, Mr Sims explained that in light of the evidence he had seen, he had concluded that Mr Palasty is a person who has been accustomed to control or influence dealings and management of the Company even when he was not a director, and also that Mr Palasty appeared to exert significant influence over:

Judith and Justin Palasty, Mrs Horvat and Mr Aboud; and

Billabong and other related entities, including Nortbale Pty Ltd ("Nortbale"), Cherrymoon Pty Ltd ("Cherrymoon") and Gateway Development (St Marys) Pty Ltd ("Gateway").

Having reviewed the tendered transcripts of evidence of Mr Palasty in the District Court and Mr Aboud in the Local Court, and taking into account the observations of Judge Gibb in the District Court as to Mr Palasty's position as a de facto director (page 29), I have concluded that there are reasonable grounds for Mr Sims to have formed his view about Mr Palasty's controlling position in the Company and his position of influence over the people and companies I have mentioned.

29 Next, Mr Sims gave an account of transactions which, he believed, had led Billabong, Cherrymoon, Gateway and Nortbale to receive financial benefits at the expense of the Company. The following is a brief summary of the matters that are of concern to Mr Sims, according to his evidence:

(1) Nortbale

Judith Palasty was the sole director and shareholder of Nortbale until October 2008, when Mr Palasty was appointed sole director;

Nortbale is the registered owner of the family home of Mr and Mrs Palisty at Dural;

Nortbale received a loan from Billabong of $201,145.43, undocumented, unsecured, on which interest was not required to be paid, and according to Mr Aboud, "not repayable at call";

the loan was used by Nortbale to meet its mortgage commitments in relation to the Dural property to a "lender";

(2) Cherrymoon

Cherrymoon was incorporated after the Company went into liquidation;

the directorship of this company has passed between Mrs Horvat, Mr Aboud and Mr Palasty, although Mr Palasty has been sole director since June 2008;

according to Mr Aboud's evidence in the Local Court proceedings, at that time the shareholders of Cherrymoon included Mrs Horvat, Mr Said, a Mr Simpson and Mr Pizzolato;

according to Mr Aboud, Cherrymoon received an undocumented loan from Billabong;

there is also some evidence of payments made by company called Jetglobe Travel Pty Ltd (of which Mr Said is a director) at the behest of Mr Palasty on behalf of the Company, arranged by Mr Said and Mr Pizzolato;

(3) Billabong

the directorship of this company has passed between Mrs Horvat, Mr Palasty, Justin Palasty and Mr Aboud, with Justin Palasty being director from January 2001 to September 2003 and Mr Palasty being director since June 2008;

Mr Palasty gave evidence in the District Court that in 2002, Gateway had a contract to purchase property at St Marys;

Gateway made an application for finance to Finance OK in September 2003 in which it was said that Gateway had spent $660,000 on the St Marys property (though Mr Palasty alleges that this letter was incorrectly written on Gateway letterhead and was in fact a letter written for Billabong);

according to Mr Sims, at some time in 2002 or 2003 Billabong became the registered owner of the St Marys property, in circumstances not presently known to him;

in the District Court Mr Palasty said that in the period between April 2002 and September 2003 he had spent $1.05 million on the St Marys property (expenditure which the liquidator attributes to Gateway and later Billabong) without any borrowing except from friends;

(4) Mr Palasty's borrowings and available security

Mr Palasty gave evidence in the District Court that as at March 2002 he had borrowed $700,000 to assist the Company in the acquisition and renovation of the Commercial Hotel, and that he had used his home in West Pennant Hills as security for that borrowing;

during 2002 and 2003 the borrowers on the West Pennant Hills property had difficulty making mortgage payments;

in 2002 and 2003 Mr Palasty had no other asset than the West Pennant Hills property to offer as security for a loan, though he claimed in the District Court that he borrowed money from "friends and that", notwithstanding lack of any security;

the liquidator has deduced that the only source of income available to Mr Palasty as at August 2002, other than the alleged borrowing from "friends and that", was money from the Commercial Hotel;

Mrs Horvat's principal asset was her home at St Marys (the liquidator believes that the St Marys properties referred to elsewhere in the summary do not include Mrs Horvat's home);

(5) Mr Palasty's statement of assets and liabilities

a statement of assets and liabilities signed by Mr Palasty and dated 9 September 2003 was tendered in evidence in the District Court proceedings;

the document indicated that Mr Palasty's only liability was the mortgage loan, then standing at $720,000, secured over the West Pennant Hills property;

the document stated that he had paid a deposit of $60,000 on a property in Dural and a deposit of $200,000 on property in St Marys, with development and building approval, and completed works valued at $700,000;

the document valued Mr Palasty's equity in the St Marys property at $2.5 million;

(6) The Arab Bank documents

documents were produced by the Arab Bank under subpoena in the District Court proceedings, including two undated assets and liabilities statements submitted to support loan applications on behalf of Billabong, one from Mrs Horvat and the other from "Mr Horvat" (ie Mr Palasty, according to the evidence of Mr Aboud);

Mrs Horvat's statement identified assets (principally properties at St Marys) valued at $8.13 million, and liabilities to Arab Bank and another financier totalling $3.225 million, leaving a net worth of $4.905 million;

Mr Palasty's statement identified total assets of $3.628 million and no liabilities, the assets including property at Dural valued at $2.5 million, $500,000 with "private banking" and $400,000 of jewellery and coins - if that statement was made as at about September 2003, as the liquidator believes, it is in marked contrast with Mr Palasty's financial statement of 9 September 2003, considered above;

(7) Company's financial statements

the Company's balance sheet as at January 2003 and its profit and loss statement from 1 July 2002 to 31 July 2003 were exhibited to the affidavit of Dominic Lambrinos, an employee of the Company, in the District Court proceedings;

the balance sheet shows a loan to Gateway of $61,786.79 (according Mr Palasty's evidence, this entry is a mistake, and the loan was in fact made by the Company to him to enable him to pay legal fees that he owed to Mr Tomko; but the liquidator is unsure and wishes to investigate this);

the profit and loss statement indicates payments made to members of Mr Palasty's family totalling $175,497.76 for salaries and otherwise, but according to information given to Mr Sims by Mr Tomko, none of the identified family members worked for the company in that period.

30 Mr Sims and his manager, Mr Granger, gave evidence that, on the basis of all of the above material, the liquidator has concluded that the sole source of money available to Gateway and Billabong in 2002 and early 2003 to acquire the St Marys property was from income of the Company. He wishes to investigate the various loans between the companies I have identified, in view of evidence suggesting that they may have been on uncommercial terms. He wishes to investigate the acquisition and development of the St Marys property, which he believes was initially undertaken through Gateway and subsequently acquired by Billabong, both companies in respect of which he believes Mr Palasty had influence. He wishes to explore the discrepancy between Mr Palasty's two financial statements and to investigate whether Mr Palasty may have obtained assets by utilising the funds of the Company.

31 Having reviewed the tendered transcripts and other evidence, my view is that, although the relationships between the identified companies, and their transactions, are complex and in some respects obscure, the evidence provides reasonable grounds for the liquidator's conclusions, and for the further inquiries he proposes. In reaching that conclusion I take into account, in addition to the transcripts and documents that are in evidence, the vague nature of much of Mr Palasty's evidence in the District Court and in his affidavits on the application, and the associated absence of explanation of the matters of concern to the liquidator, and his failure to assist the liquidator and to provide a RATA during the earlier liquidation.

32 Mr Sims said that in his view, Mr Palasty, Judith Palasty, Justin Palasty, Mr Aboud, Mr Pizzolato and Mr Said may have knowledge of at least some aspects of the Company's examinable affairs, and he set out the grounds for those beliefs in his affidavit of 1 June 2009. I have reviewed those grounds and the supporting evidence. I agree with Mr Sims' conclusion. Mr Sims did not mention Mrs Horvat in the list of examinees in his affidavit of 1 June 2009, but in view of the evidence I have set out, in my opinion the same conclusion applies to her.

7. The reinstatement of the Company and the application for issue of examination summonses

33 Having formed the beliefs that I have described, Mr Sims took steps to resuscitate the Company, with a view to examinations and possible proceedings. He made an application to this Court under s 601AH(2). The application was heard and determined by a Registrar. The Court's Registrars possess delegated powers, granted by the Chief Justice on 9 April 2009 under s 13 of the Civil Procedure Act 2005 (NSW), to make a reinstatement order under s 601AH(2), and to make a concurrent order for the winding up of the reinstated company under s 461(1)(k), and consequently to appoint a liquidator. The Court's orders for reinstatement of the Company, and for its winding up and the appointment of Mr Sims as liquidator, were made on 7 April 2009.

34 Mr Palasty was not given notice of the application for reinstatement, and did not appear at the hearing. ASIC was notified of the application and responded, evidently in standard terms, that it would not oppose the application if certain conditions were satisfied, including that the company would continue in liquidation after reinstatement, as in fact occurred.

35 Mr Sims applied as liquidator in the present proceedings, for the issue of examination summonses. The summonses were issued, again by a Registrar pursuant to delegated power, on 22 June 2009. Mr Sims said in his affidavits of 24 March 2009 and 1 June 2009 that he considered it necessary and appropriate to conduct public examinations of Mr Palasty, Mr Aboud and others associated with the Company who might have knowledge of its examinable affairs, in order to investigate and pursue these matters. Whereas before the Company's deregistration he had said in his s 539 statement that the Company's debts stood at $3,184, he said in his affidavit of 24 March that the value of the debts claimed by unsecured creditors was by that time known to him to exceed $500,000. I infer that this figure included Mr Tomko's claim against the Company as a result of the District Court judgment.

8. Analysis of the validity of the reinstatement order

36 In Miltonbrook Pty Ltd v Westbury Holdings Kiama Pty Ltd (2008) 71 NSWLR 262; [2008] NSWCA 38, a company entered into a commercial agreement under which an option to purchase property was granted to the company or its nominee. By the time the option was purportedly exercised, the company was deregistered. The nominee of the company successfully applied for an order for its reinstatement, without notifying the grantors of the option that the application had been made. The grantors made an application challenging the reinstatement order.

37 One of the issues before the Court of Appeal of New South Wales was whether it would be futile to consider the substance of their application, given that the reinstatement order was an order under s 601AH(2) directing ASIC to reinstate the registration of the company, and ASIC had done so, and so the Court's order was spent. The Court of Appeal held, reversing the decision of the judge at first instance, that if an order for reinstatement of a company is made without compliance with the requirements of procedural fairness, the order may be set aside under UCPR 36.15, and the Court's power under s 1322(4)(b) of the Corporations Act permits it to order that the reinstatement be reversed.

38 There was an issue in Miltonbrook as to whether the grantors had been denied procedural fairness, since their solicitor happened to be present in court on the day when the reinstatement order was made and might have sought to intervene. But the Court of Appeal held on the facts that they had not been given a reasonable opportunity to be heard (at [84], per Spigelman CJ). That being so, the reinstatement order was liable to be set aside. Spigelman CJ, with whom Tobias and Campbell JJA agreed, said (at [85]):

"It is axiomatic that when a statutory power like s 601AH(2) is conferred on a court, the legislature intends that procedural fairness will be accorded to all who may be affected by the order, unless there is a clear statement to the contrary. The denial of procedural fairness by a court is a 'fundamental irregularity' which would entitle a person aggrieved to set aside an order as a matter of unconditional right. (See Cameron v Cole [1944] HCA 5; (1944) 68 CLR 571, 591 per Rich J; Taylor v Taylor [1979] HCA 38; (1979) 143 CLR 1 at 16.)"

39 In Miltonbrook the grantors of the options that were purportedly exercised after the grantee company was deregistered were held to be adversely affected by the reinstatement order, a purpose of which was to permit the reinstated company to enforce the option contract against them. They were therefore entitled to be given a reasonable opportunity to be heard before the reinstatement order was made. In the present case, Mr Palasty has been adversely affected by the reinstatement order because the order was sought so as to permit examination summonses to be issued to him and others, with a view to possible recovery proceedings against him and others for breach of duty and accessory liability. In my view that is sufficient to give Mr Palasty an entitlement to be afforded a reasonable opportunity to be heard before the making of the order. That did not happen, and so there was a "fundamental irregularity" entitling him to set aside the order as a matter of "unconditional right".

40 In Cameron v Cole, Rich J said (at 589):

"It is a fundamental principle of natural justice, applicable to all courts whether superior or inferior, that a person against whom a claim or charge is made must given a reasonable opportunity of appearing and presenting his case. If this principle be not observed, the person affected is entitled, ex debito justiciae, to have any determination which affects him set aside; and a court which finds that it has been led to purport to determine a matter in which there has been a failure to observe the principle has inherent jurisdiction to set the determination aside ...".

His Honour took the view (at 590) that a decision of a superior court is valid unless and until it is set aside, even though the affected party has an unconditional right to do so. McTiernan J was of a similar opinion (68 CLR at 598-600). Latham CJ took the view that the court whose decision was under review, the Federal Court of Bankruptcy, was not a superior court and so its decision was a nullity. I need not consider that issue here, as the Supreme Court of New South Wales is undoubtedly a superior court, whether its orders are made by a Judge or a Registrar.

41 The judgments in Cameron v Cole were carefully reviewed by Gibbs J in Taylor v Taylor [1979] HCA 38; (1979) 143 CLR 1, at 8-9. His Honour held that the order under review in that case was not a nullity, but the court had inherent power to set the order aside (see also Mason J at 16). Taylor v Taylor has since been cited and followed frequently.

42 In my opinion:

Mr Palasty was not afforded procedural fairness when the Registrar ordered reinstatement of the Company, because he was denied the opportunity to be heard before the order was made;

the Registrar's order was an order of a superior court and therefore valid until set aside;

Mr Palasty has an "unconditional right" to have the order set aside;

the Court has the power to set aside the order under UCPR 36.15;

the Court has the power to make an order for rectification of the register of companies under s 1322(4)(b).

43 The setting aside of the Registrar's reinstatement order does not, ipso facto, affect the status of the Company as a reinstated company, as the Court of Appeal in Miltonbrook made clear (at [15]-[23] per Spigelman CJ). This is because the reinstatement order has been acted on and the company is now in existence again, by force of the Corporations Act and ASIC's actions pursuant to the order. However according to Miltonbrook, the Court has the power under s 1322(4)(b) to cause that reinstatement to be withdrawn.

44 In Miltonbrook, Spigelman CJ said (at [87]) that "the fundamental nature of the irregularity [denial of natural justice] flows through to the exercise of discretions under s 1322(4)(b) and rule 36.15", such that the Court must not be, nor appear to be, an instrument for procedural unfairness. That might be taken to suggest that the applicant's "unconditional right" to set aside a reinstatement order made in denial of procedural fairness leads to an equivalently unconditional right to cause the register of companies to be rectified by removing the reinstated company. However, s 1322(4)(b) confers on the Court the power to rectify the register in discretionary terms. In the exercise of that discretion, the Court is precluded by s 1322(6)(c) from making an order unless it is satisfied that no substantial injustice has been or is likely to be caused to any person.

45 The statutory mandate in s 1322(6) requires consideration of the substantial justice or injustice of the case in a broad sense, not confined to but including procedural fairness. The question whether substantial injustice will be caused to any person necessarily involves a balancing exercise, weighing up the consequences of making and not taking the order. In view of the statutory provisions, I do not regard the Chief Justice as laying down a rule to the effect that if a company is ordered to be reinstated in denial of procedural fairness, the affected person has an "unconditional right" not only to set the order aside but also to have the reinstatement reversed under s 1322(4)(b) - in other words, rule stipulating that if the applicant for a rectification order has been denied procedural fairness on the reinstatement application, there can never be substantial injustice of a kind that would prevent the rectification order being made having regard to s 1322(6)(c). Rather, the position appears to be that the decision to order rectification of the register is a discretionary decision giving rise to considerations of justice in a broad sense, one important and weighty consideration (but certainly not the only one or a necessarily determinative one) being the denial of procedural fairness at the time the reinstatement order was made.

46 In the present case, the Court has had the benefit of an interlocutory hearing in which the question whether the reinstatement of the Company, and the consequent issue of examination summonses with a view to investigation and the possible initiation of proceedings, have caused or are likely to cause substantial injustice to Mr Palasty and the other examinees. Although denial of procedural fairness has given Mr Palasty an "unconditional right" to set aside the reinstatement order, and the unfairness relating to the absence of any opportunity for him to be heard must be given considerable weight as regards rectification of the register of companies, in my view he does not have an "unconditional right" to have that register rectified. The Court's task is to weigh up all the issues of fairness that have been raised on the application.

47 Mr Palasty's interlocutory process does not expressly seek an order for rectification of the register under s 1322(4)(b). Assuming, however, that such relief is implied in the sixth prayer for relief, I would on balance not make an order for rectification of the register of companies in this case. I take into account the public policy underlying the rules about procedural fairness, affirmed robustly in Miltonbrook. I also take into account the Chief Justice's observations in BP Australia Ltd v Brown [2003] NSWCA 216; (2003) 58 NSWLR 322, 345 ([113]-[114]) that there is a public policy against "the disinterring of corporate corpses". And I have regard to Mr Palasty's evidence, including his evidence of his earlier connection with Mr Tomko and Mr Tomko's current role as solicitor for the liquidator.

48 In my view these considerations are outweighed, in the present case, by the strong public interest in having proper investigation undertaken where there are reasonable grounds for suspecting serious corporate misconduct: Hall v Poolman [2009] NSWCA 64, at [124]-[130]. I have decided that such reasonable grounds exist here, having regard to the observations made in the next section of these reasons for judgment. Once the basis for concern on the part of the liquidator is understood, and it is appreciated that Mr Palasty has had full opportunity to present his case on the hearing of the present application, there is no risk that the Court will be, or appear to be, an instrument for procedural unfairness.

49 A reinstatement order sought for the purpose of enabling an applicant to pursue a claim against a company should not be made unless it appears that the claim has reasonable prospects for success (Newham v Australian Securities and Investments Commission (2000) 35 ACSR 147, 152; [2000] ACTSC 77 at [47]). In the present case, however, the question to be considered is an anterior one, namely whether there are sufficient grounds to suspect breach of duty to justify further investigation by the liquidator. For the reasons given in the next section, my view is that this question should be answered in the affirmative.

50 In this case, the Court is in a position to reach, and has reached, a conclusion about the substantial justice or injustice of extinguishing this Company again and putting an end to the process of investigation that was initiated when it was reinstated. Having evaluated the evidence in that hearing, the Court has decided against making an order that would remove the Company from the register of companies.

51 Although Mr Palasty has an "unconditional right" to set aside the reinstatement order because of failure to comply with the rules of procedural fairness, this is a case where to make that order really would be futile, in the absence of a further order that the court is not prepared to make. It seems to me that the existence of the "unconditional right" to set aside a previous order, exercisable "ex debito justiciae", presupposes that there is something to be achieved by setting the previous order aside. That is not the position here. Consequently it seems to me that the application to set aside the reinstatement order under UCPR 36.15 should fail.

52 Mr Palasty also seeks, apparently in the alternative, to have the Registrar's decision to reinstate the company reviewed under UCPR 49.19. That rule empowers the Court, on the application of a party, to review an order of the Registrar and make such order as the Court thinks fit by way of confirmation, variation, discharge or otherwise. The nature of the review was explained by the Court of Appeal of New South Wales in Tomko v Palasty (No 2) (2007) 71 NSWR 61; [2007] NSWCA 369. Mr Palasty, as applicant, purported to adduce grounds for the Court to make an order discharging or setting aside the Registrar's order, by way of review under this rule or on another basis. For the reasons given above, and in the next section of these reasons for judgment, I am not persuaded that there is any good ground for varying or discharging the Registrar's reinstatement order, other than the ground of denial of natural justice. As to that ground, for the reasons just given, an order discharging or setting aside the Registrar's order, under either UCPR 49.19 or UCPR 36.15, would be futile and ought not to be made.

53 The result is, for the purpose of disposing of the balance of the application, that the Registrar's reinstatement order stands and has been exhausted by performance, the Company has been reinstated by ASIC pursuant to the order and in the exercise of its statutory powers, the Company has been validly in existence ever since that time, and after considering the application the Court will not intervene to deprive the Company of its status.

9. Analysis of the liquidator's grounds for seeking examinations

54 The extracts from the transcript in the District Court proceedings indicate that Mr Palasty was able to find records of the Company that he had not produced to Mr Sims during the initial liquidation, namely some cheque records of the Company. Therefore, in my view, the transcripts provide a basis for Mr Sims' belief that information concerning the affairs of the Company was available to and perhaps under the control of Mr Palasty, even during the external administration of Company in 2003-6. This is a matter that warrants further investigation.

55 Further, the available evidence indicates support for Mr Sims' belief that funds of the Company may have been used in the acquisition and/or development of land at St Marys by another company under the effective control of Mr Palasty (e.g. Gateway or Billabong). Mr Palasty did not become a director of the company until 6 March 2003, but I have already found that the evidence provides reasonable grounds for believing that he was accustomed to control or influence dealings and management of the Company even when he was not a director. Consequently there appears on the evidence to be an arguable case that he was a de facto director of the Company at all relevant times.

56 The evidence accordingly provides reasonable grounds for further inquiry as to whether Mr Palasty may have breached his statutory or fiduciary duties as a director, by improperly using his position to gain an advantage for another company and perhaps for himself, by placing himself in a position where his fiduciary duty to the Company was or might have been in conflict with his duty to another company, and perhaps also by failing to comply with his statutory and general law duties to act in good faith for the benefit of the Company, taking into account the interests of creditors in circumstances where the company may have been insolvent or near insolvency at the relevant times. The evidence also raises the question whether the company or companies receiving benefits at the expense of the Company might be liable as constructive trustees who knowingly assisted in a breach of fiduciary duty or received the product of a breach of fiduciary duty with notice of that breach.

57 In my view, a liquidator who is confronted by plausible evidence of equitable fraud of this kind, involving the transfer by a director of his company's property to another company controlled by him, with no evidence of shareholder consent and in circumstances of doubtful solvency, is duty bound to inquire into the matter if there are funds available for that purpose. The law regards this kind of breach of duty as serious wrongdoing, and as noted above, there is a substantial public interest in having such matters investigated and having wrongdoers brought to account: Hall v Poolman, at [124]-[130].

58 There being a proper factual basis for the liquidator to pursue investigations, nothing in the evidence forms a sufficient basis for concluding that he is motivated by anything other than the desire to investigate with a view to recovery proceedings. In those circumstances Mr Palasty's claim that the liquidator is acting for an improper purpose is not made out. In Evans v Wainter Pty Ltd (2005) 145 FCR 176, [2005] FCAFC 114, it was held such a purpose would be improper if the application could not be characterised as being for the benefit of the corporation, its contributories and creditors. Here, in my view, the further investigations proposed by the liquidator could lead to successful recovery proceedings and hence a distribution to creditors and possibly even contributories.

59 Mr Palasty has vigorously disputed the inferences that the liquidator seeks to draw from the evidence. He asserts that the purchase of the St Marys property was made possible by a loan from Arab Bank and had nothing to do with the Company; but he has not adequately address the factual grounds which of the basis for the liquidator's concern. He denies that in 2002-3 the income of the Commercial Hotel was his only source of funds, but he has not given any plausible account of alternative sources. Mr Sims' manager, Mr Granger, gave evidence that he had not been able to ascertain any documentary evidence supporting the proposition that Mr Palasty borrowed from "friends". Further, Mr Granger referred to some transcript passages tending to support the inference which he and Mr Sims have drawn (affidavit of 2 October 2009, para 26). Mr Palasty's claim to have obtained loans from "friends and that" is implausible in the absence of further explanation. His assertions that various proposed examinees are unconnected with the company do not take proper account of the evidence summarised above.

60 Mr Palasty has denied that Mr Aboud was the external accountant of the Company, but he has not given any plausible explanation of Mr Aboud's role in the affairs of the Company and the other companies I have described. Nor has he addressed the material identified by Mr Grainger, a manager in Mr Sims' office, on the basis of which he formed the view that Mr Aboud was indeed the Company's external accountant, including correspondence relating to the external administration of the Company. For instance, in his letter of 11 May 2004 to Mr Aboud's company, Mr Sims said he understood that Mr Aboud was the Company's accountant and he asked for information of various kinds. Mr Aboud's reply to Mr Sims, dated 19 May 2004 did not disagree with the proposition that he was the Company's accountant.

61 The issue before the court is not whether Mr Palasty has engaged in conduct constituting a breach of duty, but whether there are reasonable grounds for the liquidator to believe that further inquiries are warranted. It may be that Mr Palasty will be able to provide the liquidator with information removing the basis for the liquidator's concerns. But the evidence adduced by him and on his behalf on the application falls a long way short of the kind of information that would achieve this outcome. Moreover, if successful, Mr Palasty's application would perpetuate his failure to co-operate with the liquidator to date, by preventing further investigation into the Company's affairs.

10. Limitation period

62 It was submitted on behalf of Mr Palasty that any breach of duty by him would be statute-barred. It is not appropriate to make a final determination of that question, but it is necessary to consider whether any such claim would obviously be statute-barred so as to render further investigation futile.

63 Under s 47(1)(c) of the Limitation Act 1969 (NSW), the limitation period in an action on a cause of action to recover trust property against a trustee or any other person, is 12 years running from the date on which the claimant first discovers or may with reasonable diligence discover the facts giving rise to the cause of action. Under s 47(1)(d) the limitation period in an action on a cause of action to recover money on account of wrongful distribution of trust property, against the person to whom the property is distributed or that person's successor, is the same period as in subsection (c). "Trust" is defined in s 11(1) to include constructive trusts, and "trustee" has a corresponding meeting. In view of those provisions, it seems to me at least plausibly arguable that if, on further investigation, what is suggested by the evidence before me does indeed establish breach of duty and accessory liability, proceedings by the liquidator will not be statute-barred if commenced within the limitation period established under s 47(1)(c) or (d).

64 I was referred to White Constructions (ACT) Pty Ltd (in liq) v White (2004) 49 ACSR 220; [2004] NSWSC 71. There is some general similarity between that case and the present case, although the causes of action were not quite the same as might be raised in the present circumstances. The trial judge (McDougall J) found that the plaintiff's case for breach of duties had not been proved. Nevertheless, he addressed the question whether, if he had found that the causes of action had been proven, he would have found the claims to be statute-barred. While noting that there were no detailed submissions about the operation of the Limitation Act, he said (at [549]) that if it had been necessary to do so, it was likely that he would have concluded that the claims for breach of statutory duty were statute-barred (referring to s 14(1)(d) of the Limitation Act 1969 (NSW)), and that the allegations of breach of fiduciary duty were barred either by the application of s 48 of the Limitation Act, or, more likely, by analogy thereto. His Honour expressly disclaimed any exploration of the application of s 48, by analogy, to the claims at general law (at [551]).

65 McDougall J mentioned that ASICs 14(1)(d) and 48 of the Limitation Act. Section 14(1)(d) sets a 6-year limitation period, running from the date on which the cause of action first accrues, where the cause of action is to recover money recoverable by virtue of an enactment. That provision may have no application to civil penalty proceedings for a compensation order for breach of the statutory duties off a director under the Corporations Act, where the limitation period is prescribed by a federal statute, namely s 1317K of Corporations Act. It does not in terms apply to a cause of action based on fiduciary duties under the general law. It is unnecessary to make any final decision as to the application of this provision, because the principal cause of action in which the liquidator is likely to be interested is an action for recovery of property in the hands of the entities who have received it.

66 Section 48 of the Limitation Act, dealing with a cause of action in respect of a breach of trust, yields to s 47, where the cause of action is as described in s 47(1). In the present case it is likely that if the liquidator brings proceedings, an important element will be the constructive trusteeship claim against the company or companies that have benefited, under Barnes v Addy (1874) LR 9 Ch App 244. As I have said, it appears at least arguable, and probably it is the case, that this claim is governed by s 47(1), having regard to the definition of "trust" in s 11(1). This line of reasoning was not addressed by McDougall J in White's case, and it was not necessary for him to address it.

11. Mr Tomko's position

67 Counsel for Mr Palasty made some submissions on the ground that it is unacceptable for Mr Tomko to act for the liquidator in view of his prior association with Mr Palasty and his interest as a creditor of the Company.

68 The evidence given on behalf of the liquidator is that Mr Tomko has acted for him on the applications for reinstatement and for the issue of examination summonses, and on the present application. Thus, Mr Tomko witnessed Mr Sims' affidavits of 24 March and 1 June 2009. Mr Granger gave evidence that it is only due to information and documents provided by Mr Tomko, and his providing legal services and making available counsel's services to the liquidator, that the liquidator has been able to pursue the current inquiries, including reinstatement of the company. He said the liquidator has met all court filing fees for the Company and the issue of examination summonses, and does not expect to be remunerated unless there is recovery of funds to the Company.

69 Mr Tomko has had a long-standing connection with the Company and Mr Palasty. He has acted for Mr Palasty in legal proceedings. He has been a director of the Company and some of the other companies mentioned above. According to the evidence of Mr Palasty, Mr Tomko has also been a shareholder in the Company, but the liquidator's search of ASIC's records has not disclosed that this was so.

70 Mr Tomko was, as I have said, associated with Mr Palasty in some business ventures and provided funding, which led to the District Court proceedings. There is also evidence that an unspecified time finance proposal was prepared in connection with the proposed acquisition of a business called Bar Broadway, in which Mr Tomko was described as part of the senior management team, along with Mr Palasty and his son Justin and others.

71 Mr Palasty's evidence is that Mr Tomko obtained benefits from the Company, namely that the Company paid lease payments for Mr Tomko's car and paid his credit card bills and other personal expenses. Mr Palasty also claims that Mr Tomko's American Express account has been paid by Mr Said's company, Jetglobe. The evidence on these matters is too sketchy and uncertain for the Court to accept it.

72 I have reached the conclusion that the evidence concerning Mr Tomko does not establish any improper purpose on the part of the liquidator, nor any ground for disqualifying Mr Tomko from continuing to act. Apart from very general assertions, Mr Palasty has not pointed to any particular confidential and privileged information received by Mr Tomko in his capacity as Mr Palasty's solicitor. To the extent that Mr Tomko was a director or otherwise associated in Mr Palasty's business ventures he may be required give evidence about those matters, but there does not appear to be any reluctance on his part to do so. The evidence given on behalf of the liquidator is to the effect that Mr Tomko is co-operating with the liquidator's inquiries. Mr Granger has given evidence that he will seek to have Mr Tomko publicly examined if he considers that it would advance the investigation, but at present there does not seem to be a reason for doing so. The evidence indicates that Mr Tomko co-operated with the liquidator during the initial external administration.

73 It seems to me that in assessing whether Mr Tomko should be disqualified from acting for the liquidator, the court should take into account some special aspects of the external administration process. Given the nature of the investigation process and the contemplated recovery proceedings, I am not persuaded that there is a real practical possibility of conflict between Mr Tomko's personal interest and his duty to his client, Mr Sims, except on one matter noted below.

74 First, Mr Sims is an experienced liquidator, required by law to exercise professional judgment and to act independently. The evidence indicates that he has made his own assessment of the desirability of proceeding with the investigation. In my view his assessment of the information he obtains from the examination process is not likely to be affected by influence on the part of Mr Tomko.

75 Second, success in recovery proceedings is in the interests of the whole body of creditors, and possibly even contributories if the amount recovered exceeds the claims of creditors who have been admitted to prove. To the extent that Mr Tomko is a creditor, he also has an interest in the success of recovery proceedings.

76 Third, in assessing the practical risk that Mr Tomko will be in a position to prefer personal interest to duty, it has to be borne in mind that according to the liquidator's evidence, the investigations and possible proceedings that he proposes could not be pursued without Mr Tomko's assistance. As a matter of public policy, an individual creditor's assistance to a liquidator so as to permit investigations and recovery proceedings is to be encouraged; hence the court is empowered under s 564 of the Corporations Act to make orders adjusting priority in distributions in favour of a creditor who has indemnified a liquidator for litigation costs. It seems to me that the strong public policy, recognised in Hall v Poolman, to have suspected corporate wrongdoing properly investigated is a matter to be borne in mind in assessing whether a solicitor in Mr Tomko's position should be permitted to act for a liquidator in the position of Mr Sims.

77 The one matter upon which I have concern relates to the alleged debt of the company to Mr Tomko, which Mr Palasty claims to be statute-barred. In my view it is necessary for the liquidator to take advice independently from Mr Tomko in the event that Mr Tomko seeks to prove for that debt. But there is nothing to suggest that there is any obstacle to the liquidator taking that independent advice.

78 Counsel for Mr Palasty submitted that failure to disclose the role of Mr Tomko as solicitor for the liquidator vitiated the reinstatement order and the order for the issue of examination summonses. Since, in my view, there is no impropriety involved in Mr Tomko acting, I reject that submission.

12. Examinations in private

79 The examination of examinable persons under Part 5.9 takes place, prima facie, in public, subject to the Court's power to make other orders under s 596F. In my view Mr Palasty has not adduced evidence that would justify departing from the usual approach in this case.

80 As far as I can see, the only evidence before the Court that bears on the application to keep the examination process confidential, is a paragraph of Mr Palasty's first affidavit, in which he expressed concern that a person called Mario Loiero, who (he said) sat through the District Court litigation and is a director of a company now suing Mr Palasty in the Supreme Court, might take some advantage from any public examination process. The nature of the Supreme Court proceedings is not explained, the basis of Mr Palasty's concern is not elaborated, and he does not advance any grounds that would warrant the Court depriving Mr Loiero of the opportunity, directly consequent upon the fact that the examination process is public, to hear the information provided by the examinee and take such advantage of it as may be lawful.

13. Conclusions

81 The substantive prayers for relief in the interlocutory process that remain to be addressed, given that prayer 2 (seeking release of the liquidator's affidavit) has already been dealt with, are prayers 3-7, 9, 10 and 14.

82 As to prayer 3, Mr Palasty has not established grounds for the Court to disqualify Mr Tomko from acting for the liquidator, for the reasons given in section 12 above.

83 As to prayer 4, the person appealing under s 1321 must prove that the liquidator's decision was wrong: Westpac Banking Corporation v Totterdell (1998) 29 ACSR 448. For the reasons given in sections 9 and 10 above, Mr Palasty has not proved that the liquidator's decision to apply for the issue of examination summonses was wrong, in respect of any examinee. On the contrary, I find that there were reasonable grounds for his decision.

84 Prayer 5 seeks to discharge the examination summonses under r11.5 of the Supreme Court (Corporations) Rules. An application under that rule is by way of rehearing of the initial application: Meteyard v Love [2005] NSWCA 444; (2005) 65 NSWLR 36. The ground in this case appears to be that the liquidator is said to be acting for an improper purpose in reinstating the company and then having examination summonses issued. That submission is rejected for the reasons given in section 9 above.

85 Prayers 6 and 7, seeking to set aside the reinstatement order, are rejected for the reasons given in section 8 above.

86 Prayer 9 seeks an order for an inquiry into the liquidator's conduct. But in view of my findings on the application, there is no foundation for such an inquiry. Presumably prayer 10 is related to prayer 9 and is rejected for the same reason.

87 Paragraph 14 is rejected for the reasons given in section 12 above.

88 In summary, Mr Palasty has failed to establish his claim to any of the relief in the interlocutory process, other than para 2. Consequently the Court will order that the remainder of the interlocutory process (other than prayer 2) be dismissed with costs.

**********

LAST UPDATED:
18 February 2010