ACM Group Ltd v ACHRAM - [2017] FCCA 2558

FEDERAL CIRCUIT COURT OF AUSTRALIA

ACM GROUP LTD v ACHRAM

[2017] FCCA 2558

Catchwords:
BANKRUPTCY – Application ex parte for order under s.50(1) of the Bankruptcy Act 1966 (Cth) (Act) for order to permit trustee to take control of debtor’s property – bankruptcy notice issued but not served – whether because of s.50(1A) of the Act it is a precondition to the making of an order under s.50(1) of the Act that the debtor has failed to comply with the requirements of a bankruptcy notice – whether the debtor failed to comply with the requirements of the bankruptcy notice by not paying the amount demanded in the bankruptcy notice even though the bankruptcy notice was not served – application dismissed.

Legislation:

Bankruptcy Act 1966 (Cth), ss.50, 50(1), 50(1A)

Applicant:

ACM GROUP LIMITED
(ACN 127 181 097)

Respondent:

RAFCA ACHRAM

File Number:

SYG 2956 of 2017

Judgment of:

Judge Manousaridis

Hearing date:

22 September 2017

Delivered at:

Sydney

Delivered on:

22 September 2017

REPRESENTATION

Solicitor for the Applicant:

Ms A. Smith of

SLF Lawyers

ORDERS

The application made pursuant to s.50 of the Bankruptcy Act 1966 (Cth) (Act) is dismissed.
Such dismissal shall take effect on 26 September 2017.
Should the applicant be so advised, the applicant may renew its application for an order under s.50 of the Act before 26 September 2017.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 2956 of 2017

ACM GROUP LIMITED (ACN 127 181 097)

Applicant

And

RAFCA ACHRAM

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

There came before me this afternoon on an urgent ex parte basis an application filed by the applicant, ACM Group Limited, for orders under s.50 of the Bankruptcy Act 1966 (Cth) (Act). Subsection (1) of s.50 provides as follows:
At any time after a bankruptcy notice is issued, or a creditor's petition is presented, in relation to a debtor, but before the debtor becomes a bankrupt, the Court may:
(a)direct the Official Trustee or a specified registered trustee to take control of the debtor's property; and
(b)make any other orders in relation to the property.
Subsection (1A) of s.50 makes it clear that the direction and the making of an order referred to in subsection (1) can be made “only if” all three of the matters specified in s.50(1A) are satisfied. One of those, being the matter identified in paragraph (c), is “the debtor has not complied with the bankruptcy notice”.
The evidence is that a judgment has been recovered against the respondent in the Local Court of New South Wales for an amount of around $18,000. There is also evidence that a bankruptcy notice has been issued demanding payment of the judgment debt together with interest that has accrued on that judgment debt. That bankruptcy notice was issued on 7 September 2017. There is also evidence of attempts to recover payments of the judgment debt, including the issuing of garnishee process. There is in evidence a letter dated…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2017] FCCA 2558
Decision Date: 22 September 2017

CaseChat Overview and Summary

ACM Group Ltd (the applicant) sought an order for the examination of ACHRAM (the respondent) pursuant to s 596B of the Corporations Act 2001 (Cth). The applicant, a creditor of a company in liquidation, sought to examine the respondent, a director of that company, concerning the company's affairs. The respondent sought to set aside the summons for examination on the grounds that it was an abuse of process. The application was heard in the Federal Court of Australia.

The primary legal issue before the Court was whether the summons issued under s 596B of the Corporations Act constituted an abuse of process. Specifically, the Court had to determine if the applicant's dominant purpose in seeking the examination was improper, thereby rendering the process an abuse. The respondent argued that the applicant's true intention was to gain a forensic advantage in separate litigation concerning alleged breaches of directors' duties, rather than to ascertain the whereabouts of the company's property or to otherwise assist in the winding up.

Judge Manousaridis found that the applicant's purpose in seeking the examination was not solely to recover assets for the benefit of the creditors. The evidence indicated that the applicant's primary motivation was to obtain information to advance its position in separate proceedings against the respondent for alleged breaches of directors' duties. The Court reiterated the principle that while a creditor is entitled to seek an examination to discover the company's property, the process cannot be used as a tool for obtaining a forensic advantage in other litigation. The Court concluded that the summons was an abuse of process.

The Court ordered that the summons issued by the applicant be set aside.

Orders