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Proving Insolvency: Re Clarinda Pty Ltd (in liq)

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In Re Clarinda (liq) [2023] VSC 109, parties sought the leave of the Court to use documents produced in an earlier proceeding to demonstrate the insolvency of the company. Justice Connock ultimately allowed the documents to be reproduced on the basis that the issues in dispute are the same, or substantially the same, and set out the special circumstances which substantiate this reproduction.

1. Background Events

The solvency of the company was the primary issue in dispute in the previous proceeding.

This proceeding:

  • required consideration as to whether former directors of the company in liquation engaged in insolvent trading and whether the company was insolvent from at least March 2018 until April 2019.

  • involved allegations against the Commissioner of Taxation that transactions constituted unfair preferences, insolvent transactions and voidable transactions under ss588FA, 588FC, and 588FE Corporations Act 2001 (Cth).

These issues in dispute were not determined as the proceeding was resolved through consent orders and dismissed.  

In the present proceeding, the primary issue in dispute is again the solvency of the company.

As such, the plaintiff liquidator sought an order for all parties to be released from their obligations under s27(1) Civil Procedure Act 2010 (Vic) not to produce documents filed in the previous proceeding for a purpose other than in connection with the previous proceeding.

2. Issue to be determined

The Court was required to determine whether special circumstances satisfied the need for documents used in the previous proceeding to be produced and used in a subsequent proceeding on the basis that the issue in dispute is the same or substantially the same.

3. Courts finding and reasoning

The Court released all parties from their obligations under s27(1) Civil Procedure Act 2010 (Vic) and allowed parties to produce documents and evidence used in the previous proceeding for the purpose of the issues in dispute in this proceeding.

For the obligation to be dismissed there must be special circumstances which amount to a good reason for the Court to release parties for their obligations.

This is a broad discretion as special circumstances may be a factor which is not usually present which may constitute a special feature of the specific matter.

The Court found that the combination of the below considerations amounted to a special circumstance to release the parties from their statutory obligations:

  1. The relevance of the documents to the central solvency issue raised in both proceedings;

  2. The considerable or extensive overlap between considerations of solvency which arose in both proceedings;

  3. The documents prepared for the previous proceeding was not adjudicated upon;

  4. No suggestion that any expert reports or deponents were disqualified by disclaimers, and these deponents and experts either consented to or did not oppose the information being used in the second proceeding;

  5. The production of the documents in the second proceeding supports the costly and time-efficient resolution of the proceeding; and

  6. The defendant’s positively supported the obligation being dismissed, and the Commissioner of Taxation did not oppose the application.

The Court also considered that the documents were prepared prior to the commencement of this proceeding but that the above factors outweighed this consideration.

4. Matters to consider for liquidators actions arising from the case

In the provision of documents and evidence to the Court regarding solvency issues it is important for the liquidator or company to consider the below:

  1. Nature of the documents in question;

  2. Circumstances under which the document came into existence;

  3. The attitude of the author and any prejudice they may sustain relating to the issues in dispute;

  4. Whether the document pre-existed the litigation proceeding or was created for that purpose and expected to enter public domain;

  5. The nature of the information, especially if it is personal data or commercially sensitive information; and

  6. The likely contribution of the document to achieve justice in the second proceeding.

The Court will place weight on these considerations to determine whether special circumstances exist to allow for the reproduction of documents in subsequent proceedings.

Please contact the writer on the following contact details if you would like more information or would like to discuss any of the above:

Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au

Alicia Hill