WA Court of Appeal considers motives of external funder

The Western Australian Court of Appeal has dismissed an attempt by company insiders to block public examinations and document production orders, finding that the profit motive of the respondent, which had taken an assignment of claims from a liquidator and was funding recovery investigations in return for a share of any proceeds, did not render the statutory process improper.

The decision concerned the insolvency of Atari Enterprises, which entered administration on 1 November 2023. That same day, Atari transferred assets including shares, intellectual property and an intercompany debt said to be worth about $4.5 million to Rampage Nominees Pty Ltd, which had ownership links to company insiders. Atari was placed into liquidation in early December 2023, with Giovanni Carrello of BRI Ferrier appointed liquidator. The liquidator later entered into a deed of assignment which gave Can't Escape Karma Pty Ltd rights to pursue assignable claims for a modest upfront payment plus a share of recoveries.

Can’t Escape Karma obtained examination summonses under s 596B and production orders under ss 596D and 597(9) against Lance Rosenberg, Eli Shellim and Gleneagle Securities Nominees Pty Ltd, who were all alleged to have been involved in the challenged transactions. The appellants sought leave to appeal to discharge the summonses, arguing that, among other things, they were obtained for an improper purpose.

The Court of Appeal stressed that attempts to set aside examination summonses face a heavy onus, and that discharge is reserved for exceptional cases. It repeated that examinations are fundamentally an information-gathering tool used to investigate corporate affairs, possible misconduct and recoveries. That meant the appellants had to show the process was clearly abusive, not merely inconvenient or strategically unwelcome.

A core defence argument was that a prior security arrangement meant the transferred assets were effectively already Gleneagle’s property, so no viable claims could arise from the November 2023 transactions. The Court rejected that position, finding it misconceived to suggest the assets ceased being company property merely because they were subject to a security interest.

The appellants also argued that Can't Escape Karma was pursuing the examinations for private gain. The Court rejected that submission, noting the respondent had acquired claims lawfully, was funding investigations where the liquidator lacked resources, and potential recoveries could still benefit creditors. Seeking information to support possible proceedings was within the legitimate scope of the statutory examination power.

The Court acknowledged some production categories were very wide and there was at least an arguable concern they exceeded what was necessary. But that issue did not justify overturning the orders because documents had already been produced, narrower remedies were available, such as limiting inspection, and a full discharge of the summonses would be disproportionate.

As a result, the application for leave to appeal was dismissed.

Read the decision here.

Professionals involved:

• Joel Cook of Eight Wentworth, counsel, and Mendelawitz Morton, solicitors, for the respondent, Can't Escape Karma Pty Ltd

• Anthony Young KC of Greens List and Vicbar and Philip Murray of Fourth Floor Chambers, counsel, and K&L Gates, solicitors, for the appellants, Lance Rosenberg, Eli Shellim and Gleneagle Securities Nominees Pty Ltd