In the decision of Bailey, in the matter of Australian Recruiting Group Pty Ltd (in liq) v Young  FCA 1473, the Federal Court of Australia made orders for the issuing of search warrants on the ex parte application of the company’s liquidator pursuant to section 530C of the Corporations Act 2001 (Cth) (Act).
ERA Legal acted for the liquidator in the matter.
Background to the application
On 3 October 2018, the liquidator was appointed liquidator of Australian Recruiting Group Pty Ltd (in liquidation) (Company) and a number of related companies which the liquidator claims conducted a business of providing recruitment services prior to his appointment (ARG Group). The liquidator was subsequently appointed to a further company in the ARG Group on 17 June 2019.
Between October 2018 and May 2019, the liquidator caused for several request to be issued to the Company’s director, Mr Young, and its former chief financial officer, Mr Campbell, pursuant to sections 530A and 530B of the Act requiring them to deliver up to the liquidator all of the Company’s books and records. Some books and records were provided to the liquidator in response to these requests, following which the liquidator was informed by Mr Campbell that all of the Company’s books and records had been provided.
On 15 October 2019, the liquidator commenced public examination proceedings and caused for summonses for examination to be issued to, among others, Mr Young and Mr Campbell. Those summonses also required Mr Young and Mr Campbell to produce books and records of the Company to the Court. Mr Campbell subsequently gave evidence that the whole of the Company’s books and records had not been provided, but rather what had occurred was certain documents were “cherry picked” and provided to the liquidator.
Subsequently, further requests for the balance of the Company’s books and records were issued to Mr Young, which went unanswered.
In the course of further examinations, Mr Campbell gave evidence that the remaining books and records of the Company would be in the possession of Mr Young and not in the possession of ARG Workforce Pty Ltd (ARG Workforce), one of the companies in a new group the liquidator alleges the business of the ARG Group was transferred to.
A further notice pursuant to section 530B of the Act was issued to Mr Young. In response to that notice, the liquidator received approximately 5,252 emails each attaching a single page document. Each of those emails was sent from the email address “firstname.lastname@example.org”. The liquidator’s review of those records indicated they were limited to invoices rendered to the Company or the ARG Group.
In subsequent email correspondence, the legal representatives for Mr Young and Mr Campbell advised that “all of the requested documentation which our clients have in their possession, power or control has now been produced”.
On 4 September 2020, Mr Young filed and served an affidavit in the proceeding setting out the records produced and kept by the Company, many of which had not been produced previously to the liquidator. That affidavit also referred to financial records of the Company which were not exhibited due to their voluminous nature, but which were available for inspection at the offices of ARG Workforce. In response to the liquidator’s demand that those books and records be delivered up to him, the legal representatives for Mr Young refused to do so and sought the issue of a notice to produce.
On 10 September 2020, a further affidavit of Mr Young was filed and served in the proceeding. Again, further books and records of the Company were exhibited that were not previously delivered up to the liquidator.
In addition to the above, the liquidator’s notices pursuant to section 530B of the Act issued to the Company’s former legal representatives had gone unanswered. In the circumstances, the liquidator formed the view that there remained books and records of the Company which he would expect to have been produced which had not been produced.
The Court’s powers to issue search warrants
Pursuant to section 530C of the Act, on the application by the liquidator, provisional liquidator or ASIC, the Court has power to issue a warrant authorising a specified person, with such help as is reasonably necessary, to search for and seize property or books of a company in liquidation which are in the possession of a person whom the Court is satisfied:
- has concealed or removed property of the company with the result that the taking of the property into the custody or control of the liquidator or provisional liquidator will be prevented or delayed; or
- has concealed, destroyed or removed books of the company or is about to do so.
Such an order enables the specified person to “break open a building, room or receptacle where the property is or the books are, or where the person reasonably believes the property or books to be”.
In Tang (liquidator) v Wright, in the matter of Wright’s Transport Pty Limited (in liquidation)  FCA 709 the Court summarised the power to issue warrants under section 530C of the Act as follows:
- The power is discretionary and is only enlivened where the Court is satisfied that the applicant has standing and that the relevant person has concealed or removed property of the Company or has concealed, destroyed or removed books of the company or is about to do so.
- Warrants may be issued generally without any conditions attached.
- The matter of whether or not to attach conditions is a matter for the Court’s discretion.
The exercise of the discretion was summarised in Carello (liquidator), in the matter of Drilling Australia Pty Ltd (in liquidation)  FCA 1563 as follows:
- Section 530C of the Act is ordinarily ‘a remedy of last resort’.
- A warrant should be granted if the Court finds that there has been a ‘persistent pattern of non-cooperation and evasion’.
- Factors that have been relied upon in deciding that a person has concealed or removed the property of the company include: refusals to comply with liquidators’ requests to deliver up the books and records of the company; transfer of assets to, and continued use of the assets by, related companies or entities without proper accounting; and moving of assets, books or records from one place to another.
- Property does not ned to be registered in a person’s name or in their custody to be in their possession. Control over the property will suffice.
Based on the evidence filed by the liquidator, the Court was satisfied that there has been “a clear and persistent pattern of non-cooperation and evasion in the production of the books and records of [the Company]” and that there had been an “intentional drip feeding of material”, and the failure to produce the Company’s books and records was ongoing.
In the circumstances, the Court was satisfied that Mr Young had concealed books of the Company and that the search warrants sought by the liquidator, which were to be executed at Mr Young’s residential address and the premises of ARG Workforce, should be issued.
The case is a useful reminder to insolvency practitioners of the extensive powers available under the Act that are available when faced with recalcitrant directors and officers.