Saturday, June 7, 2014

Receiver's access to intermingled company documents, and confidentiality regimes: Re Kavia Holdings [2013] NSWSC 1269 and Hall v Sherman [2001] NSWSC 810

In the matter of Kavia Holdings Pty Limited (Administrators Appointed) (Receivers and Managers appointed) & Ors [2013] NSWSC 1269 ("Kavia") concerned a claim by receivers for books and records held by a director of a company in administration, in particular, emails held by a defendant director. There, the director refused to provide emails on the basis that the emails sent by him as director were intermingled with emails sent by him as a solicitor in his own capacity, and those emails may contain privileged communications.

There was resistance in providing the emails, relying on the decision in Hall v Sherman [2001] NSWSC 810.

Hall v Sherman concerned the One.Tel group of telecommunications companies. Administrators were appointed to the parent company and most of the subsidiaries, and they were appointed liquidators when the creditors resolved the group be wound up. Certain subsidiaries of the group had a receiver and manager appointed to them, and the receiver and manager sought documents from the liquidators. The evidence was that it was difficult to determine whether any given document belonged to the parent or another company, and there were around 1400 boxes of intermingled documents. The receiver and manager said that the non-provision of documents was impeding his function. Austin J held that books of the company, to which the receiver and manager was entitled under the appointment deed and s420 Corporations Act 2001 (Cth), meant books belonging to the company, rather than books relating to the company ([70] and [71]). Further, in respect of a declaration sought by the receiver that it be entitled to possession of the books of the company, Austin J considered this order futile, and identified the real controversy in the matter as not who had a right to documents, but instead ([62]):
The real controversy between the parties in this case, in my opinion, is not at all about whether the plaintiff is entitled to possession of documents belonging to Network Group companies; it is about the practical problem of how to classify documents, given the mass of documents involved, and who is to pay for the cost of doing so.
In respect of a right of inspection of the books and records of the companies, Austin J considered that it would not be appropriate ([77]):
by declaration or order, to impose on the liquidators the duty, either immediately or in the future, of trawling through tens of thousands of documents to ascertain which documents were books of the corporation to which the plaintiff's statutory right would attach.
The end result is that the Court did not grant the receiver and manager orders giving access to the books and records of the company, despite his right, in the appointment deed and the Corporations Act 2001, to the books and records.

In Kavia, Bergin CJ in Equity allowed access to the emails of the director, even though there was a risk that it contained emails in his capacity as a solicitor. The effect of this result is that Hall v Sherman does not stand in the way of a mechanism put in place, with the appropriate confidentiality regime, to ensure that the books and records of the companies are produced ([40]):
The only outstanding express resistance to production is in respect of Mr Crawley's emails. The defendants submitted that because Mr Crawley utilised the email account of his legal practice and intermingled the Companies' emails with those of the legal practice, the defendants are not obliged to produce them to the plaintiffs. I do not accept this submission. There is no doubt that mechanisms can be put in place, with the appropriate confidentiality regime, if necessary, to ensure that the books and records of the Companies are produced from the email account in which the Companies' records were created.
That is, provided one party (most likely an official liquidator, being an officer of the court) is giving confidentiality undertakings in respect of books and records that may not belong to the company to which he or she is appointed receiver or manager, then this may be an impediment to that party having access to the intermingled group books and records.

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