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 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 »

Section 461(1)(k) of the Corporations Act is a very useful provision when dealing with directors and shareholders who are in dispute but there is no evidence of oppression (where sections 232 and 233 would apply). The circumstances giving rise to the court exercising the very broad discretion vary.  As such it is worth briefly reviewing 3  decisions to gauge the approach the court’s take in the very practical exercise of deciding whether it is appropriate to wind up a company; Giacobbe & Anor v Giacobbe & Anor [2012] VSC 285, Warner v Global Pacific Aerospace Pty Ltd & Anor [2012] VSC 291 and White Family No 1 Pty Ltd v Organic Brands Pty Ltd & Anor [2011] VSC 247.

Giacobbe & Anor v Giacobbe & Anor [2012] VSC 285

Facts

Michele and Antonio Giacobbe, brothers, went into business in 1962 manufacturing and selling office furniture. In October 1974, a family trust was established and the furniture business became an asset of the trust.  The beneficiaries of the trust were the two brothers and their respective family members. In the early 1980s, Michele and Antonio fell out Read the rest of this entry »

In recent decisions of Sportsco Pty Ltd v Singh Group Pty Ltd (No 2) [2011] VSC 576 (per Ferguson J) and BKW Investments Pty Ltd v Training Connect Limited [2011] FCA 1314 (per Cowdroy J) the courts considered applications to set aside statutory demands. In Sportsco the court, hearing an appeal from an Associate Justice, refused to set aside the application.  In BKW the court set aside the application.

Sportsco Pty Ltd v Singh Group Pty Ltd (No 2)

Facts

The underlying dispute related to the purchase of a franchise business.  Singh, the purchaser, submitted that the statutory demand on Sportsco for $70,500 was a refundable deposit under the franchise agreement. Sportsco, the vendor, applied to set aside the demand claiming there was a genuine dispute concerning the debt and that it had an offsetting claim.  Singh alleged there was an agreement that the money was refundable if it was unable to obtain finance for the franchise business.  Singh did not obtain finance.  While Singh was provided with an  an offer to lease premises from which the franchise would operate it was never executed by Singh.  Sportsco claimed there was a dispute as to what constituted the agreement and whether the agreement was subject to finance. It also claimed Singh was liable to pay a franchise royalty fee of five years as a consequence of the breach and was liable for damages of approximately $300,000.

Decision

Ferguson J referred to TR administration proprietor Ltd V Frank marketing and Sales Brochure Ltd as support forthe proposition that Read the rest of this entry »

In two recent decisions the Victorian Supreme Court considered the issue of what is meant by genuine dispute for the purposes of setting aside a statutory demand under section 459G(1) of the Corporations Act with the Court in  Freestyle Energy Limited v Renewtek Pty Ltd finding there was a genuine dispute while in  Re LPD Corporation Pty Ltd the Court refused to set aside a statutory demand.  In the third decision, Renegade Rigging Pty Ltd v Hanlon Nominees Py Ltd, the Court considered the service of statutory demands.  These decisions which will be of use to practitioners who practice insolvency law.

LPD Corporation

In determining whether there was a genuine dispute Davies J set out the relevant principles:

1. any dispute must be a genuine dispute [3] and one which is bona fide and Read the rest of this entry »

Yesterday’s Federal Court decision in Grant Thornton Services (NSW) Pty Limited v St. George Wholesale Distributors Pty Ltd (No 2) throws up both a curious factual situation but the relatively little considered section 459(S) of the Corporations Act 2001. It is also a salient and sombre lesson in how to run an application.

Facts

Grant Thornton Services (NSW) Pty Ltd (“Grant Thornton”) provides accounting services.  It provided those services to the “Paul’s Warehouse” group of companies.  St George Wholesale Distributors Pty Ltd (St George) is part of that group but unlike other companies in that group it had net asssets.  Grant Thornton issued invoices on St George totalling $91,305.50. When the invoices were not paid Grant Thornton issued a statutory demand.  St George neither paid the sum nor applied to set aside the demand.  When St George found itself the subject of winding up application it roused itself to apply for leave to oppose the application on the basis that there was a genuine dispute. Leave is required because, per section 459 (S), St George could have earlier applied to set aside the statutory demand because there was a genuine dispute.

The issues

Section 459(s) (pars [7]  – [10])

To get leave section 459(s) requires that a court is satisfied that the ground is material to proving that a company is solvent.

The Federal Court decision in  Lodge Partners Pty Ltd v Pegum is a salutory lesson that while the threshold for determining whether there is a genuine dispute is low where the facts are essentially agreed and the main dispute  is the construction of a contract a court can and does make that call. In this proceeding that construction was against the applicant and the statutory demand was not set aside. On his way to that conclusion Lingren J provided a very useful analysis.

Issues

The focus here was on what constitutes a genuine dispute.  Lingren dealt with that in a two stage process. At [17] he quickly reviewed the authorities and distilled the principle that no “genuine dispute” exists where  the contentions by the applicant is devoid of substance such that “no further investigation is warranted.”  He said: Read the rest of this entry »