The Full bench of the Federal court in McCracken v Phoenix Constructions (Queensland) Pty Ltd [2013] FCAFC 41 by unanimous decision and per Lander J’s reasons, upheld an appeal against a sequestration order made by the Federal Magistrate’s Court.  The issue on appeal, at [34], is succinctly described as:

“..first, whether if a debt is relied upon for the issue of the bankruptcy notice and as an act of bankruptcy, that debt must continue to be owing at the time when the creditor’s petition is heard for the Court to make a sequestration order; secondly, if the debt is no longer owing at that time, whether the petitioning creditor can rely upon a later debt which first arose after the act of bankruptcy and after the filing of a creditor’s petition; and thirdly, if that debt can be relied upon at the hearing of the creditor’s petition and at the time of the making of the sequestration order, must that debt be for a liquidated sum.”

Facts 

The Appellant (“McCracken”) and the Respondent (“Phoenix”) were involved in a proceeding which culminated in judgement being entered for Phoenix in the sum of $2,025,212.17 on 15 June 2011. On 7 July 2011 the official receiver issued a bankruptcy notice directed to McCracken [4]. On 12 July 2011 McCracken filed a notice of appeal [5] and on 13 July the trial judge ordered McCracken to pay Phoenix’s cost of the proceedings [6]. Those costs were never assessed. On 10 August 2011 a bankruptcy notice was served on McCracken [12] with Phoenix filing a creditor’s petition on 11 August 2011. The creditors petition relied on a number of acts of bankruptcy including McCracken absenting himself from Australia and his dwelling house to avoid service. It did not rely upon the appellants failure to pay the judgement sum [13].  On 27 September 2011 in the Court of Appeal refused McCracken’s application for a stay of the judgement [15] and the Federal Magistrates Court refused his application for a stay of the bankruptcy proceeding [16]. On 18 October 2011 Phoenix filed an amended creditors petition relying upon McCracken’s failure to comply with the bankruptcy notice [17].

On 18 May 2012 the Court of Appeal allowed McCracken’s appeal and set aside the orders made by the trial judge [19]. On 19 July 2012  the Federal Magistrates Court heard the petition and made a sequestration order against McCracken on 14 September 2012 [22]. Their Honours’ noted that at the time the Federal Magistrates Court heard the creditor’s petition the debt which was relied on in both the bankruptcy notice and the creditor’s petition no longer existed, having been discharged by the Court of Appeal [23]. The Federal Magistrate concluded that even though the amount may have changed there was an ongoing debt that which was still doing due and owing [31] and that once an act of bankruptcy had been committed it remained available for the purposes of a sequestration order and did not rely on other acts of bankruptcy relied upon by Phoenix, such as the conduct of the appellants to avoid service [33].

Decision

Where the debtor who has committed an act of bankruptcy is ordinarily resident in Australia the court may make a sequestration order against the estate of the debtor [51].  The first requirement to found that jurisdiction is that the debtor has committed an act of bankruptcy [52]. The second necessary fact is that the debtor comes within one of the descriptions and section 43(1) (b) of the Bankruptcy Act 1966 (the “Act”).

The Court found that whilst the debt need not be the same debt as was relied upon to the act of bankruptcy it must be a debt which existed at the time of the act of bankruptcy [63]. The debt must Read the rest of this entry »

The UK Times has published the award winning and second and third winnings essays of the topic Privacy and the press: is state regulation in the public interest. They are found here.

They provide:

On May 10, 1768, the crackle of musketry tore through a crowd that had gathered at St George’s Fields. The imprisonment of John Wilkes for seditious and obscene libels had helped to trigger widespread protests against the Government, and the St George’s Fields Massacre was but another bloody milestone in the broader struggle for civil and political liberties in Britain.

Wilkes was not a wholly sympathetic character. A bawdy womaniser, occasional MP and radical journalist, his writing veered between passionate criticisms of the Government and downright obscenity. A practical joke of his involving Read the rest of this entry »

In Re Australian Property Holdings Limited (in liq) (recs & mgrs apptd) (No 2) [2012] VSC 576  Robson J considered applications by the defendants to stay the proceedings, which was refused, and to file limited defences, which was granted.

FACTS

Australian Property Custodian Holdings (“APCH”) commenced proceedings in the Supreme Court against seven of its former directors to recover $30 million that was paid out of its assets it held on trust as a fee to companies controlled by Mr Lewski [1].  ASIC  commenced action in the Federal Court against APCH and 5 of its directors who are also defendants in this proceeding alleging breaches of the Corporations Act (“the Act”).

APCH is the responsible entity of the Prime Retirement and Aged Care Property Trust, a managed investment scheme under the Act [5].  In 2006 the constitution of the Prime Trust was amended by the board of APCH to provide for a payment of a listing fee to APCH if units of the Prime Trust were listed on the ASX [7], which they were in August 2007[8] and APCH received $33m out of the assets of the trust. The Supreme Court proceedings were commenced by the liquidator on 5 March 2012 in the name of APCH [13] and a statement of claim was filed and served against all defendants for compensation under sections 1317H and HA or 1325 of the Act as well as a claim for equitable compensation[14]. ASIC commenced proceedings in the Federal Court on 21 August 2012 [15].

Both proceedings allege that APCH breached its statutory duties under the Act in amending the trust to the detriment of the unit holders [10] and both rely upon section 601FD [11].

DECISION

STAY OF PROCEEDINGS

The Supreme Court has an inherent power to stay proceedings in the interests of justice [19] (which is the overriding consideration [24]).  His Honour set out, at [21], the relevant principles regarding a stay found in McMahon v Gould as follows (absent citations):

(a) Prima facie a plaintiff is entitled to have his action Read the rest of this entry »

Griffiths J in Platinum Communications Pty Ltd v Computer Networks Pty Limited [2012] FCA 1260 considered an amendment to application to set aside a statutory demand.

FACTS

The plaintiff, a retailer, and the defendant, a software provider, entered into an agreement whereby the plaintiff would use the defendant’s software under licence and receive related services for payment [1].  When the software was switched on the plaintiff suffered difficulties in many of its stores [7].  The plaintiff claimed Read the rest of this entry »

Re Willmott Forests Limited [2012] VSCA 202 is a very important decision in insolvency jurisprudence. The Victorian Court of Appeal upheld an appeal from a finding of a trial judge that the disclaimer of a lease agreement by the liquidator did not have the effect of extinguishing the leasehold interests in land [19]. In doing so the court undertook a detailed analysis of section 568 of the Corporations Act.

FACTS

The majority defined the question as, at [1]:

whether a leasehold interest in land is extinguished by the disclaimer of the lease agreement by the liquidator of the lessor, pursuant to s 568(1) of the Corporations Act 2001 (Cth) (‘the Act’)

Willmott Forests Ltd (“WFL”) owned leases from third parties freehold properties. It entered into 25 year leases. The liquidators of WFL sought to sell the interest in the properties unencumbered by the leases and seek to disclaim the lease agreement.  They applied to the court for approval of such disclaimers [2]. Sale contracts for the sale of the land contained conditions precedent to their completion of the liquidators obtaining orders and directions from a court authorising the liquidators, at [9]:

a) to exercise the powers to terminate, relinquish or surrender the project documents of the registered MIS and Professional Investor MIS; and

(b) to disclaim the project documents of the contractual and partnership MIS as onerous pursuant to s 568(1) of the Act.

The liquidators made application under section 511 of the Act and 477 (2B) for approval of their entry into contracts.

 DECISION

Warren CJ and Sifris AJA

Regarding the operation of section 568 their honours stated:

1. liquidators have the power to disclaim property of a company in liquidation or contracts entered into by the company [15]
2. it is to enable a liquidator to Read the rest of this entry »

The Personal Liability for Corporate Fault Bill passed the Houe of Representatives today. The bills web page is found here.

The Bill arose from the Council of Australian Governments’ National Partnership Agreement to Deliver a Seamless National Economy whose aim is to remove regulatory burdens on directors and corporate officers that cannot be justified on public policy grounds, and to minimise inconsistency between Australian jurisdictions in the application of personal liability for corporate fault in government laws.

The relevant COAG Principles are

• Where a corporation contravenes a statutory requirement, the corporation should be held liable in the first instance.
• Directors should not be liable for corporate fault as a matter of course or by blanket imposition of liability across an entire Act.
• A ‘designated officer’ approach to liability is not suitable for general application.
• The imposition of personal criminal liability on a director for the misconduct of a corporation should be confined to situations where: Read the rest of this entry »

The Full Bench of the Federal Court in Georges v Seaborn International Pty Ltd (Trustee), in the matter of Sonray Capital Markets Pty Ltd (in liq) [2012] FCAFC 140 considered the right of the liquidator to recover proceeds of shares the purposes of pooling and distribution to creditors.

FACTS

Sonray was the holder of the Australian financial services licence from 4 May 2005 until it went into administration on 22 June 2010 [87]. It provided access to trading platforms made available by third parties. Clients deposited money with Sonray, which was held in accounts and subject to statutory trust under the Corporations Act [88]. It had 18 segregated accounts which were used to receive deposits in respect of margin calls, proposed trades and the return of funds. In these accounts clients’ funds were co-mingled with funds from other clients [90] to the point where the trial judge found that the funds were so thoroughly mixed as to be almost impossible to ascertain entitlements to each of the segregated accounts [93]. Efax, the trustee of a family trust, entered into a written agreement in 2009 with Sonray regarding its trading activities.  In April 2010 Efax instructed Sonray to purchase 78,000 shares in BHP Billiton Ltd (“BHP”) [5] for $3 million [6], which it did through Saxo Bank (“Saxo”), one of its trading platforms. Efax’s funding for the purchase was deposited into a Sonray accounted which was subject to numerous defalcations.  The purchase price for the shares however was not paid out of a tainted account but rather by Saxo using its own money or by way of credit arrangements.  Sonray debited Efax’s ledger account with the purchase price of the BHP shares.

The Liquidators seek a direction to allow them to pool shares purchased on instructions by Efax with proceeds attributable to all other Sonray clients which would then be distributed amongst all of the clients [8].

 The trial judge held that Efax is entitled to resist the claim for pooling on the ground that it is entitled to the BHP shares in specie [9].

DECISION

The Majority upheld the appeal by a 2-1 majority.

THE MAJORITY

Jacobsen J

His Honour commenced his analysis by Read the rest of this entry »

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 Read the rest of this entry »

The Court of Appeal in Lederberger & Anor v Mediterranean Olives Financial Pty Ltd & Ors [2012] VSCA 262 considered issues of partnership, a solicitors duty to a client and the identity of parties to a contract.

FACTS

Hirsch Lederburger established Loaders Traders Pty Ltd  in the late 1950s.  In his will he left the third of his business to each of his son Israel,  Samuel and on trust in the estate with income to go to his wife, Mrs Lederberger. In 2000 Mrs Lederberger retained the third party to advise an act for her in proving the will of her late husband and obtain a grant of probate. In 2003 Samuel bought Israel’s share of the business. The will was proven on September 2003 and Mrs Lederberger became executrix  and sole trustee of her husband’s estate [4]. To minimise exposure to the debts of the business a partnership was established in 2003, Loaders Manufacturers and Traders (“Loaders Manufacturers”). Loaders Traders was a bare trustee for the partners of which Mrs Lederberger was one. The primary business activity was importing wholesaling and selling of camping goods[5]. Through Samuel, Loaders Manufacturers entered into a tax effective scheme, the Blue Gum scheme, [9] and the Mediterranean Olives Project [10]. Partners claimed and received reductions in the taxable income in 2006 and 2007 [11].

DECISION

The Honours identified the issues, at [3], as

1. with whom did the respondents contract
2. could the respondents rely upon post-contractual conduct to determine the identity of the contracting parties?
3. if the members of the partnership were the contracting parties, did Samuel Lederberger have actual or ostensible authority to enter into the contracts?
4. whether the  contracts involved carrying on in the usual way business of the kind carried on by the partnership?
5. whether the partners had provided authority to enter into the contracts pursuant to powers of attorney?
6. if Samuel Lederberger had acted without authority, had Mrs Lederberger ratified or impliedly sanctioned the investments?
7. was the trial judge able to make adverse findings of fact  which were contrary to the facts set out in a witness statement which had  not been the subject of cross examination?
8. was the third party obliged to advise the widow as to the risks associated with becoming the trustee of her husband’s estate?
9.  if the third party was breached its duty, was it causative of her liability to the respondents?

Identity & post contractual conduct

The Appellants contended that the trial judge erred in holding that the partners or Mrs Lederberger had entered into the contracts.  While their Honours rejected this ground they undertook a review of the law as to the methodology in determining the identity of a party to a contract and the admissibility of evidence, stating:

1. Identification of the parties to a contract must be in accordance with the objective theory of contract;  the conclusion of a reasonable person, with the knowledge of the words and actions of the parties communicated to each other, and the knowledge that the parties had of the surrounding circumstances; [19]
2. there needs Read the rest of this entry »

The Victorian Court of Appeal in 360 Capital Re Limited v Watts & Ors [2012] VSCA 234 dismissed an appeal from a decision in Watts & Watts & Ors v 360 Capital Re Limited & Anor [2012] VSC 320 which held modifications to the 360 Capital Fund’s constitution were invalid for want to compliance with section 601GC(1)(b) of the Corporations Act 2001 (the “Act”).

FACTS

The 360 Capital Industrial Fund (“360 Capital”) is a managed investment scheme under Chapter 5C of the Act. There are 180.63 million units in the Fund. The Constitution of the Fund relevantly provides, at [4] :

1) Clause 5.1(a): The Trustee could only issue units in accordance with clause 5 and subject to the Constitution.

2) Clause 5.2(a): The Trustee could not grant Options unless the Trust were Listed.

3) Clause 5.4: New Units were required to be issued at a price determined in accordance with clause 5.4.

4) Clause 13.5(a): An Option did not confer on the Optionholder any interest in the Fund.

On 31 May 2012 the directors of 360 Capital executed a Supplemental Deed Poll which Read the rest of this entry »