ACN 079 638 501 Pty Ltd v Pattison
[2012] VSC 445
•1 October 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
No. S CI 2011 00638
IN THE MATTER of ACN 079 638 501 PTY LTD (ACN 079 638 501) (in Liquidation) (Receivers and Managers appointed)
BETWEEN:
| ACN 079 638 501 PTY LTD (ACN 079 638 501) (in Liquidation) (Receivers and Managers appointed) | Plaintiff |
| v | |
| PAUL ANTHONY PATTISON PATTISONS BUSINESS RECOVERY AND INSOLVENCY SPECIALISTS PTY LTD (ACN 098 345 343) (in liquidation) | Defendants |
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JUDGE: | FERGUSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10 September 2012 | |
DATE OF JUDGMENT: | 1 October 2012 | |
CASE MAY BE CITED AS: | ACN 079 638 501 Pty Ltd v Pattison & Anor | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 445 | |
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CORPORATIONS – Insolvency practice operated through company controlled by insolvency practitioner - Whether work in progress asset covered by charge given by company – Whether insolvency practitioner engaged company to provide services to him – Whether insolvency practitioner employee of company – Whether work in progress asset belonging to insolvency practitioner or company
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr P. Vout | Gadens Lawyers |
| For the First Defendant | Mr I. Percy | O’Donnell Salzano Lawyers |
| For the Second Defendant | No Appearance |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 2
The conduct of the Company’s business....................................................................................... 2
Is the work in progress an asset of the Company?...................................................................... 6
Was Mr Pattison an employee of the Company?..................................................................... 7
What is the effect of Mr Pattison being an employee of the Company?............................. 13
Conclusion......................................................................................................................................... 16
HER HONOUR:
Introduction
Paul Pattison, the first defendant, is a qualified chartered accountant and has for many years been a registered liquidator, official liquidator and, for a time, trustee in bankruptcy. Mr Pattison has practised continually as an insolvency practitioner throughout his career. The plaintiff, which was formerly known as Pattison Consulting Pty Ltd (“the Company”), was incorporated in 1997. Mr Pattison has been and continues to be the sole director and secretary of the Company and he holds all of the shares in the Company. Until April 2010, Mr Pattison conducted his insolvency practice through the Company.
In November 2006, the Company charged its assets in favour of Bank of Western Australia Limited (“Bankwest”). Bankwest has appointed receivers and managers over the assets of the Company under the terms of the charge.
A dispute has arisen as to whether work in progress recorded in the books of the Company for time spent by Mr Pattison and others working on various insolvency administrations is an asset that is caught by the charge. The Receivers contend that it is, because they say all work performed by Mr Pattison pursuant to his numerous appointments as liquidator, deed administrator or trustee in bankruptcy was performed by him in his capacity as an employee of the Company. They seek a declaration that the work in progress is an asset of the Company.
Mr Pattison contends that his appointments are personal to him, that the Company provided services to him in connection with those appointments and, by arrangement with him, the Company was reimbursed for such services. He submitted that the declaration sought ought not be made.
The conduct of the Company’s business
As noted above, the Company was incorporated in 1997 with Mr Pattison as the sole director, secretary and shareholder. Mr Pattison not only established the Company but he also established its procedures, including the way that it managed its records, its payments and hired its staff.
On 30 November 2006, the Company charged in favour of Bankwest all its “rights, property and undertaking of whatever kind and wherever situated and whether present or future.” The charge was executed by the Company by being signed by Mr Pattison as the sole director and secretary.
When Mr Pattison was appointed as a liquidator, administrator, deed administrator or trustee in bankruptcy, the appointment was personal to him. However, as I have noted above, Mr Pattison operated his insolvency practice through the Company from 1997 to April 2010. Time spent on the various administrations by Mr Pattison and others who were employed by the Company was captured in a time recording system maintained by the Company. When it came time to charge for professional work performed on an administration, Mr Pattison would obtain the requisite approval from a court or creditors or as provided for by the Bankruptcy Act 1966 (Cth). The Company would then raise an invoice and cheque requisition to the relevant entity for the fees and any disbursements payable. The time spent by Mr Pattison was included in the Company’s invoice and no separate charge was made by Mr Pattison personally. Generally a cheque was then made payable to Mr Pattison and he would endorse it as payable to the Company. The cheque was then deposited into the Company’s bank account. Mr Pattison also established internet banking facilities for each of the administrations. Sometimes he used those facilities so that the fees were paid directly to the Company after the relevant fee approval had been obtained and the invoice raised by the Company.
Company payslips evidenced that fortnightly wages were payable to Mr Pattison as an employee. Although some of the payslips in evidence were for the period after 1 January 2007, Mr Pattison deposed that he ceased to be an employee of the Company from that date. However, he continued to record the time he spent on the various administrations in the time keeping records of the Company. According to Mr Pattison, from January 2007 to April 2010, instead of receiving a salary, he received advances from time to time which were recorded against an unsecured loan account. Mr Pattison gave evidence that the payslips after January 2007 were treated as a payment request to transfer funds into a loan account as part payments of advances to him. He gave evidence that the purpose of this arrangement was to increase the profit of the Company. The annual amount that he received was generally equivalent to the annualised net amount that he would have received as net salary as an employee, after tax and superannuation. Mr Pattison gave evidence that the loan has been repaid since the appointment of the Receivers. In addition to the evidence that Mr Pattison gave as to the business structure after 1 January 2007, he also relied on an email of 1 October 2008, that he sent to Bankwest with the subject line “PATTISONS WIP”. In that email he stated:
I confirm that the WIP appearing in the management accounts represents time cost charges and disbursements incurred by Pattison Consulting Pty. Ltd. for services provided to me personally in my roles as an Insolvency Practitioner for each insolvency administration to which I have been appointed.
The Management Accounts each quarter have been supported by an aged WIP analysis for Pattison Consulting Pty. Ltd identifying each of the administrations supporting the WIP BALANCE. Upon receipt of payment for these services the cheques are made payable to me in my personal capacity (as the appointments are personal) which are then immediately assigned to Pattison Consulting Pty. Ltd.
In about April 2010, Mr Pattison decided to place the Company into a members’ voluntary liquidation. In anticipation of that step, Mr Pattison completed a declaration of solvency in respect of the Company.[1] It is an offence for a director to make such a declaration without having reasonable grounds for the opinion that the relevant company will be able to pay its debts in full within 12 months of the commencement of the winding up.[2] It is not surprising that before making the declaration, Mr Pattison gave careful consideration to what he thought would be recoverable for fees in the various administrations to which he had been appointed. He included in the declaration as an asset of the Company, work in progress of $4.1 million. That figure represented the amount which he determined could realistically be recovered of the $6.3 million which was recorded as work in progress in the Company’s time records. Also included as an asset of the Company were loans and advances of approximately $487,000 which Mr Pattison says included the amounts advanced to him after 1 January 2007 in lieu of wages and which he has subsequently repaid.
[1]The declaration is dated 21 April 2010 and is given under s 494(1) Corporations Act 2001 (Cth).
[2]Section 494(4) Corporations Act.
On 22 April 2010, the Company was placed into a members’ voluntary liquidation. On 23 April 2010, Mr Pattison began operating his insolvency practice through Pattisons Business Recovery & Insolvency Specialists Pty Ltd (“PBRIS”), which is the second defendant. Mr Pattison is the sole director and secretary of that company.
On 1 November 2010, the liquidators of the Company appointed Peter Vince and Kylie Wright as administrators. The Receivers were appointed on the same day. On 7 December 2010, the creditors resolved that the Company be wound up and Mr Vince and Ms Wright became the liquidators.
In late December 2010, the Australian Securities and Investments Commission (“ASIC”) initiated an enquiry into Mr Pattison’s conduct in connection with appointments he held in respect of companies. This ultimately led to Mr Pattison consenting to orders resigning from his appointments as liquidator of a number of companies. Various other insolvency practitioners replaced Mr Pattison as liquidators of those companies.
In February 2011, ASIC informed Mr Pattison that it was investigating PBRIS. On 7 March 2011, through the process of a creditors’ voluntary winding up, liquidators were appointed to PBRIS.
At least some of the fees for work performed on administrations before 22 April 2010 were collected by PBRIS in the same way as had operated with the Company. Any funds collected were to be used as working capital for PBRIS. Mr Pattison says that this was done with the knowledge of officers of Bankwest and one of the liquidators of the Company. Mr Pattison provided to the Receivers a spreadsheet of case profiles which included details of each of the files for the various administrations including the total work in progress recorded and the amount recovered in respect of it.[3] From that information, the Receivers have calculated that Mr Pattison or PBRIS recovered approximately $910,000 for work in progress that related to the period prior to 22 April 2010. The Receivers seek a declaration that the work in progress recorded in the records of the Company, as particularized in the spreadsheet provided by Mr Pattison, is an asset of the Company.
[3]The spreadsheet is exhibit “RAB-17” to the affidavit of Ross Andrew Blakely sworn 14 February 2011.
Is the work in progress an asset of the Company?
Mr Pattison contended that all of his appointments as liquidator, administrator or trustee in bankruptcy were personal appointments and that the entitlement to remuneration in respect of those appointments was also personal to him. He claimed that this entitlement extended not only to the work that he performed personally but also to work performed by others who were employed by the Company. Mr Pattison submitted that the fact that he facilitated payment to the Company of debts he says were payable to him cannot change the characterisation of his personal entitlement to be remunerated in respect of various administrations. These contentions principally focus on the nature of the relationship between Mr Pattison and the companies or bankrupt estates in respect of which he was appointed. However, it seems to me that 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. Health Services For Men Pty Ltd v D’Souza,[4] involved a dispute about the ownership of medical records between three doctors and the company which engaged them to provide services in the company’s clinics. Mason P drew a distinction between the rights as between the doctors and their patients and the rights as between them and their employers. He concluded:
The passages in Breen v Williams (1996) 186 CLR 71 recognising that a professional person may have property in certain documents prepared in the performance of professional duties address the position as between the professional and the lay patient or client. They have nothing to say about ownership as between groups of professionals (for example, partners inter se or an employer and employee) or as between a corporation employing or engaging the services of professionals.[5]
[4] (2000) 48 NSLWR 448.
[5]Ibid [8].
Here, there is no doubt that Mr Pattison had certain obligations arising from the appointment of him personally as liquidator, administrator or trustee in bankruptcy. However, that is not determinative of the ownership of the work in progress as between Mr Pattison and the Company.
Was Mr Pattison an employee of the Company?
As noted above, the Receivers contend that Mr Pattison was an employee of the Company. On the other hand, Mr Pattison contends that the Company provided various services to him in connection with his appointments and, by arrangement, he reimbursed the Company for those services. Mr Pattison says that the services provided by the Company to him included recording time spent by him and employees of the Company on various administrations and handling the paperwork pursuant to which he was entitled to receive payment for his remuneration. He submitted that the inclusion of time recorded by him in the records of the Company is not determinative of whether a legal entitlement was created in favour of the Company for an amount equivalent to each entry. He contended that the arrangement between him and the Company for reimbursement was an arrangement that he could terminate at any time without notice or penalty. Moreover, Mr Pattison submitted that there was nothing unusual in the way that he chose to conduct his practice. He referred to the decision of Knights Insolvency Administration Ltd v Duncan.[6] The plaintiff in that case, Knights Insolvency Administration Ltd, employed qualified insolvency practitioners and conducted an insolvency practice through them. The defendant, Mr Duncan, an insolvency practitioner, was both a director and employee of Knights Insolvency. Knights Insolvency purported to terminate the executive services agreement it had entered into with Mr Duncan. Were it not for that, Barrett J (as he then was) noted that the “circumstances in which [Mr Duncan], as an individual insolvency practitioner, worked for and with [Knights Insolvency] would have remained uncontroversial.”[7] In reference to Mr Duncan, his Honour stated:
To the extent that he has been appointed by order of the court, it is to him that the court has entrusted the particular administration. To the extent that he owes an appointment to a decision of creditors, then likewise it is to him that the creditors have entrusted the particular task. It may be that those decisions were made against a background of an appreciation of the connection between [Mr Duncan] and [Knights Insolvency], and an expectation that facilities in [the office of Knights Insolvency] would be available to [Mr Duncan] may even have been an unconscious expectation. But it cannot be gainsaid that the appointment is, in each case, a personal one to be performed and discharged by [Mr Duncan] himself as a matter of personal duty and personal responsibility.[8]
[6](2005) 54 ACSR 22.
[7]Ibid at [4].
[8]Ibid at [10].
Mr Pattison also referred to s 165(1)(b) of the Bankruptcy Act 1966 (Cth) which provides that a trustee of the estate of a bankrupt must not make an arrangement for giving up, or give up, a part of his or her remuneration to the bankrupt or any other person. In Re Dare,[9] Drummond J considered an application by an employee of a firm of chartered accountants for registration as a trustee in bankruptcy. His Honour noted that the fact that a person is an employee is not necessarily incompatible with being registered as a trustee in bankruptcy. Of primary importance is whether the employee, when acting as trustee, would enjoy “independence from external control which is essential to the proper discharge of the duties of a trustee in bankruptcy.”[10] In that case, it was proposed that the employee would render accounts for her work as trustee in her own name but there was no evidence as to what would happen to the fees when they were received by her. In this context, his Honour stated that s 165(1)(b):
does not strike at the simple case of a trustee who is a partner in a firm bringing his earnings as trustee into the pool of partnership income; nor would it strike at an employee-trustee paying over or arranging to have paid to his employer his fees earned as trustee. However, while the arrangement in the latter case would not involve any infringement of s 165(1)(b) as so understood, it would still leave unanswered a real question whether the employee-trustee who hands over his fees to his employer is sufficiently independent of the employer to be a proper person to act as a trustee.[11]
[9](1992) 38 FCR 356.
[10]Ibid at 357.
[11]Ibid at 360.
Drummond J gave the applicant an opportunity to provide further material about the arrangements as to fees and other matters and, once that was done, his Honour was satisfied that there was no reason why the applicant should not be registered as a trustee even though she was to be an employee of the firm of chartered accountants.
I note that although Re Dare makes it clear that there may be a question as to whether an employee is sufficiently independent of the employer to be a proper person for appointment as a trustee in bankruptcy, the independence of Mr Pattison and the appropriateness of the business structure he put in place are not matters for determination in this case. What has to be considered here is the relationship between Mr Pattison and the Company and what effect it had on the ownership of the work in progress.
In Wenkart v Pantzer,[12] the trustee of a bankrupt estate (Mr Pantzer) was what was described as an “independent consultant” to Lawler Davidson Partners and later Lawler Partners. The partnerships rendered invoices for Mr Pantzer’s remuneration and expenses as trustee. He was not a partner nor an employee of either firm. Mr Pantzer’s time was charged out by the firms at a particular fixed rate but he received a lesser amount from the firms. The court rejected the submission that the arrangement contravened s 165(1)(b).
[12][2008] FCA 478.
As can be seen from these cases, there was nothing to prevent Mr Pattison from being an employee of the Company at the same time as he accepted personal appointments as a liquidator, administrator or trustee in bankruptcy. Further, the role of employee is not necessarily incompatible with those appointments. Indeed, the Corporations Act contemplates that persons other than a liquidator will perform tasks that could have been performed by the liquidator. Section 556(1)(de) of the Corporations Act provides for priority in payment of “deferred expenses” in a liquidation. “Deferred expenses” in relation to a company means expenses properly incurred by a relevant authority[13] including “remuneration, or fees for services, payable to the relevant authority” and “expenses incurred by the relevant authority in respect of the supply to the relevant authority of services that it is reasonable to expect could have instead been supplied by… the relevant authority.”[14] As such, the legislation contemplates that the work of a liquidator or administrator may be carried out by the person appointed or by third parties. In either case, the cost incurred for the services supplied (both the personal services of the appointee and the third party services) is afforded some priority for payment. The Receivers contended that here all of the services that Mr Pattison, as liquidator, could have provided were provided by the Company, albeit that some of that work was performed by Mr Pattison in his capacity as an employee of the Company.
[13]“Relevant authority” is defined in Corporations Act s 556(2) to be a provisional liquidator, liquidator, administrator or deed administrator.
[14]Definition of “deferred expenses” in Corporations Act s 556(2)(a), (c)(i).
Further, the fact that Mr Pattison was a director of the Company does not of itself prevent him from also being an employee.[15] Rather, it is the “totality of the relationship between the parties which must be considered”[16] in determining whether a person is an employee.
[15]Lee v Lee’s Air Farming Ltd [1961] AC 12; Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424 at [45]-[52].
[16]Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 at 29; Hollis v Vabu Pty Ltd (2001) 207 CLR 21 at [44] – [45].
In Southern Group Ltd v Smith,[17] Ipp J (with whom Pidgeon and Parker JJ agreed) said:
There may be particular cases where a managing director may not be regarded as an employee. But that is not the case where the managing director performs managerial functions different and in addition to the functions ordinarily performed by a director….
In the present case, the [director] was not merely required to perform functions as a director. He was also required to manage the [company] on a day-to-day basis and in so doing was under the control of … the board. He was entitled to significant remuneration otherwise than in the form of director’s fees…. In my opinion, his appointment as managing director in these circumstances necessarily involved him being an employee of the appellant.[18]
[17](1997) 37 ATR 107.
[18]Ibid at 118.
I have formed the view that Mr Pattison was an employee of the Company in addition to his role as the sole director. Whilst it might be said that Mr Pattison controlled the Company rather than it controlling him, that is only one factor to be taken into account in determining whether the relationship was one of employee/employer. In my opinion, although still relevant, the control factor is of less significance here than other matters to be taken into account because the Company is a sole director company. In that sense, the question of who is controlling who is of little assistance in determining Mr Pattison’s status as an employee. There are a number of other facts that lead to the conclusion that he was an employee. Mr Pattison established and oversaw the systems in operation in the Company, including the issue of payslips to him as an employee and the time recording system. The Company’s books recorded him as an employee. In essence he performed tasks beyond those that would be performed if he were only a director. The work that he undertook as an administrator, liquidator and trustee in bankruptcy falls into the category of work beyond that of a director. That work was recorded as work of the Company. There was no separate work that Mr Pattison performed on the various administrations that was recorded separately or for which a separate charge was made by him. The full amount of the fees charged (including for Mr Pattison’s time) was paid to the Company either through the endorsement of the cheques by Mr Pattison or by electronic transfer. Mr Pattison did not seek to deduct any amount or receive payment of any part of the fees before the payment was made to the Company. Rather, until at least January 2007, Mr Pattison was entitled to fortnightly wages of a fixed amount plus superannuation less tax. Those wages were not linked to the work that he performed on any particular administration. Even if Mr Pattison’s evidence is accepted that after January 2007 he was paid amounts in lieu of wages, nevertheless in substance he remained working as an employee. He continued to record the work that he performed on the various administrations in the Company’s records; he made no separate charge for that work and he received from the Company amounts for that work that replicated wages rather than payment of the hourly fees charged for his time working on the administrations.
In addition, Mr Pattison considered the work in progress recorded in the Company’s records to belong to the Company and made this clear in the declaration of solvency that he gave in April 2010. I accept Mr Pattison’s submission that the declaration of solvency that he made is not of itself determinative as to whether the work in progress is an asset of the Company. However, Mr Pattison is an experienced insolvency practitioner and took seriously his obligation to make a truthful declaration. His declaration is consistent with a finding that as an employee of the Company, he did not own the work in progress, rather it was an asset of the Company. It is also consistent with the fiduciary duty that a senior employee[19] and director would have to the Company not to profit from their position as an employee or director at the expense of the Company.[20] The endorsement of cheques and electronic transfer of funds by him in respect of the work performed on the various administrations by the Company is also consistent with fulfilment of the fiduciary duties that an employee and director owe to account for property received on behalf of the company employer.[21] Given that the whole amount claimed was charged for and paid to the Company, without the retention of any amount by Mr Pattison, and in view of Mr Pattison’s treatment of the work in progress in the declaration of solvency, I have come to the view that although the remuneration was paid to Mr Pattison in his name, once he received payment he accounted to the Company for it because he received payment as a director or as an employee. Mr Pattison was merely a conduit for payment of the money to the Company.
[19]As to fiduciary duties owed by senior employees, see Warman International Ltd v Dwyer (1995) 182 CLR 544. See also Weldon & Co v Harbinson [2000] NSWSC 272 at [3], [13] which concerned a senior employee in a small accountancy company.
[20]In respect of a senior employee: Victoria University of Technology v Wilson (2004) 60 IPR 392 at [149].
[21]Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557-558.
I should note that although I have reached this conclusion, I nevertheless accept that the arrangement saw the Company provide services to Mr Pattison to enable him to perform the role of liquidator, administrator or trustee in bankruptcy. However, those services were provided to him as an employee of the Company acting as the liquidator, administrator or trustee as the case may be. As such, Mr Pattison’s characterisation of the payments made to the Company as reimbursement for the services provided[22] is inapposite.
[22]See also his email of 1 October 2008 referred to in [8] above.
What is the effect of Mr Pattison being an employee of the Company?
Mr Pattison submitted that even if he was an employee that is not determinative of the issue as to ownership because he says there was no entitlement to the benefit of the work in progress recorded in the Company’s records until such time as he decided it and facilitated it being paid. Rather, Mr Pattison submitted it is not until the money is paid across by him that it becomes an asset of the Company and subject to the charge. I do not accept this submission. It is the work that was performed that is the asset. The time records of the Company are akin to an inventory record for stock. It is the actual work in progress that is the asset rather than the record of it. It is a valuable asset that might be converted into money, just as an item of stock might be sold for cash. As an employee and director of the Company, one of Mr Pattison’s obligations was to make an appropriate charge for the recorded work in progress and to collect an appropriate payment for it. He could not properly act on a whim in deciding whether or not to charge for the work that had been performed by the Company.[23] It matters not whether the charge made for the work recorded is for an equivalent monetary amount, nor whether an amount less than that charged for the work is recovered. In this regard, the work in progress is again like any other asset – its value is dependent upon what may be charged and recovered. This will not always equate to the cost of the item plus a margin for profit.
[23]In this regard, I note that where a company is insolvent or nearing insolvency, among other things, directors must have regard to the interests of creditors in addition to shareholders: Walker v Wimbourne (1976) 137 CLR 1 at 7.
The wording of the charge is very broad. As noted above, the Company charged in favour of Bankwest, all its “rights, property and undertaking of whatever kind and wherever situated and whether present or future.” The work in progress falls within the terms of this charging provision.
Even if the work in progress were an asset or property subject to Bankwest’s charge (which Mr Pattison did not concede), he contended that the bank could have no relevant entitlement under the charge unless and until the work in progress was converted to a debt (being a debt owed to him) and the debt paid at his direction to, and received by, the Company. However, in my view, the work in progress is a separate asset subject to the charge and, once the charge became enforceable, it was for the Receivers to realise that asset. Mr Pattison chose to structure his business affairs such that the Company owned the work in progress. The Company had the right to charge for that work through him as an employee and to receive payment through him as an employee for it from the various insolvency administrations to which he was appointed.
Counsel for Mr Pattison was critical of the reliability of the spreadsheet which the Receivers relied upon as particularization of the work in progress. However, that spreadsheet was provided by Mr Pattison to the Receivers. There is no evidence that it was not accurate as at the date it was prepared although there was a suggestion from the bar table that some of the work in progress has now been converted into money. In part, the spreadsheet lists the various bankruptcy estates and companies in respect of which Mr Pattison had been appointed and beside each specifies a figure for the balance outstanding of the work in progress. It is the best evidence of the work in progress.
Mr Pattison submitted that in the exercise of the discretion as to whether to grant the declaration sought, there were additional matters that should be taken into account. In this regard, he submitted that:
· The declaration is unworkable and the making of it would serve no useful purpose – rather, to have utility, any declaration would need to go beyond what the work in progress is to deal with any moneys that are collected in respect of remuneration.
· All relevant parties were not represented - there was no material from the liquidators of the Company nor from the liquidators of PBRIS.
· Being in the nature of final relief, on discretionary grounds, the declaration should not be entertained until a Federal Court proceeding in which Bankwest has applied for sequestration orders against Mr Pattison has been heard and determined.
· Ideally, the issue for determination should be postponed until after the Federal Court determines whether or not to bankrupt Mr Pattison because if a sequestration order is made against Mr Pattison, his trustee in bankruptcy should be given an opportunity to participate in any determination of the declaration sought.
In relation to the last two points, as I understand it, the principal issue in the Federal Court proceeding concerns the quantum of the fees to be recovered in respect of the various insolvency administrations and whether that amount is sufficient to extinguish the debt owed by the Company to Bankwest and guaranteed by Mr Pattison (regardless of whether the reduction in debt results from a direct payment by the Company or by payment from Mr Pattison as a guarantor). It does not seem to me that in those circumstances there is anything to be gained by refusing to grant the declaration sought in this proceeding. Mr Pattison was represented by counsel at the hearing. There is no reason to wait to see whether a sequestration order will be made against him and whether, if such an order is made, his trustee in bankruptcy would want to be heard. A trustee in bankruptcy would be in no different or better position to argue the case put by Mr Pattison.
In relation to the liquidators of the Company, in my opinion there is no need for the Court to hear from them. Their position (which is consistent with that of the Receivers) is that the work in progress and money received in payment are assets of the Company. If the work in progress is an asset of the Company, then that will be for the benefit of the Company. The Company’s position as plaintiff is represented by the Receivers. There is no need for the liquidators to duplicate the case put on by the Company through the Receivers by filing additional material or by being represented at the hearing.
The issue in dispute is whether the Company or Mr Pattison owns the work in progress recorded for the various administrations in the books and records of the Company. The liquidators of PBRIS could have nothing of relevance to say as to that dispute. PBRIS was named as a defendant at the commencement of the proceeding when relief of a wider nature was sought against Mr Pattison and PBRIS. That wider relief included declarations that PBRIS was in knowing receipt of moneys paid to it in breach of Mr Pattison’s fiduciary duties to the Company and that it held all moneys paid to it in relation to the work in progress on trust for the Company. Injunctive relief was also sought against PBRIS. The wider relief is no longer pursued and PBRIS is not a necessary party to the declaratory relief now sought.
Determination of the ownership of the work in progress as between Mr Pattison and the Company does resolve a substantial issue between them. There may be a dispute at a later date between the Receivers and the other insolvency practitioners appointed in place of Mr Pattison as to who has priority for payment in respect of amounts recovered in the various administrations. However, this does not detract from the utility of the declaration sought in this proceeding to determine ownership of the work in progress. Each of the insolvency practitioners who had taken over from Mr Pattison was given notice of this proceeding. None of them sought to intervene or to be heard.
Conclusion
The Company is entitled to a declaration that the work in progress recorded in the Company’s records, as particularised in the spreadsheet provided by Mr Pattison to the Receivers, is an asset of the Company.
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