ACN 079 638 501 Pty Ltd (in liq) (recs & mgrs apptd) v Pattison & Anor [2012] VSC 445 (1 October 2012): whether work in progress an asset and covered by charge, whether insolvency practitioner employee of company

October 30, 2012 |

In ACN 079 638 501 Pty Ltd (in liq) (recs & mgrs apptd) v Pattison & Anor [2012] VSC 445 Justice Ferguson considered whether work in progress was covered by a charge given by company.

FACTS

Mr Paul Pattison (“Pattison”),  a qualified chartered accountant and registered liquidator and trustee in bankruptcy established and was sole director and secretary of the Plaintiff. Until April 2010 he conducted his insolvency practice through the Plaintiff [1]. In November 2006 the Plaintiff charged its assets in favour of bank of Western Australia Ltd (“BankWest”). In 2010 BankWest appointed receivers and managers over the assets of the Plaintiff under the charge [2] & [10] – [11].

The issue in the proceeding was whether the work in progress recorded in the books of the Plaintiff, being time spent by Pattison working on insolvency administrations was an asset caught by the charge [3]. Pattison contended that his appointments were personal to him and the Plaintiff provided services to him in connection with those appointments [4]. The receivers contended that all work performed by him pursuant to his appointments as liquidator, deed administrator or trustee in bankruptcy was performed as an employee of the Plaintiff and his work in progress was an asset of the Plaintiff.

DECISION

Her Honour found:

  1. the Plaintiff would raise invoices  for fees and disbursements payable [7]. The time spent by Pattison was included in the Plaintiff”s invoice on a separate charge made by him personally;
  2. cheques would be paid to Pattison and he would endorse them as payable to the Plaintiff. Payment was made into the company’s bank account [7]; and
  3. the Plaintiff’s payslips evidence fortnightly wages payable to Pattison as an employee although this was disputed in part [8].

Ferguson J framed the question as, at [15]:

..the real question is as to the relationship between Mr Pattison and the Company and the effect (if any) that that had on ownership of the work in progress.

The fact that Pattison had certain obligations arising from the appointment as liquidator, administrator or trustee in bankruptcy is not determinative of the ownership of the work in progress as between himself and and his company [16]. Her Honour found that there was nothing to prevent Pattison from being an employee of the Plaintiff at the same time as accepting personal appointments as liquidator and the role of employee is not necessarily incompatible with those appointments [22]. Her Honour noted that section 556 (1) (de) of the Corporations Act 2001 contemplates the work of the liquidator or administrator being carried on by person appointed or by third parties [22]. The fact that Pattison was a director of the Plaintiff does not of itself prevent him from being an employee [23].

Her Honour found that Pattison was an employee of the Plaintiff in addition to his role as sole director citing as relevant factors:

  1. there was a system of pay slips issued to  him as an employee and a time recording system;
  2. the Plaintiff’s  books recorded him as an employee
  3. Pattison performed tasks beyond those of only a director
  4. the full amount of the fees Pattison charged were paid to the Plaintiff
  5. Pattison did not seek to deduct any amount or receive payment of any other fees before payment was made to the Plaintiff
  6. in his declaration of solvency Pattison considered the work in progress recorded in the Plaintiff’s records as belonging to the Plaintiff
  7. there was no separate work that Pattison performed on various administrations which that was recorded separately or which was subject to a separate charge.

Her Honour found that the work in progress is a separate asset subject to the very wide charge. Once it became enforceable it was for the receivers to realise the asset [30]. As a consequence the Plaintiff was entitled to a declaration that the work in progress recorded in its records was an asset of the Plaintiff.

ISSUE

While this case is decided with close reference to the specific facts the principles are sound as they relate to sole practitioners or professionals who provide personal services and conduct their businesses or operate corporate vehicles. Ferguson J undertook a very detailed analysis of the principles relating to employee versus director relationship and the relevant authorities.

I am informed that a notice of appeal has been filed and it is, accordingly, likely to be considered by the Court of Appeal.

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