[C] Pty Ltd (in Liquidation) and Domeny and Ors
[2012] FMCAfam 159
•5 April 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| [C] PTY LTD (IN LIQUIDATION) & DOMENY & ORS | [2012] FMCAfam 159 |
| FAMILY LAW – Corporations law – application by liquidator of company in receivership to vary current family law orders effecting assets of the company – application by trustee appointed pursuant to family law orders to exercise discretion pursuant to corporations law as to whether any transactions are void – determination in circumstances of case – application by trustee dismissed. |
| Family Law Act 1975 (Cth), s.79A(1)(b) Corporations Act 2001, ss.468, 471B, 588F, 588FA, 588FB, 588FC, 588FDA(1)(c), 588FE, 588FF, 588FG |
| Applicant: | [C] PTY LTD (IN LIQUIDATION) |
| First Respondent: | MS DOMENY |
| Second Respondent: | MR DOMENY |
| Third Respondent: | MR RUSH |
| File Number: | TVC 654 of 2007 |
| Judgment of: | Coker FM |
| Hearing date: | 25 November 2011 |
| Date of Last Submission: | 25 November 2011 |
| Delivered at: | Townsville |
| Delivered on: | 5 April 2012 |
REPRESENTATION
| Counsel for the Applicant: | Mr Fellows |
| Solicitors for the Applicant: | Roberts Nehmer McKee |
| Counsel for the First Respondent: | Mr Middleton |
| Solicitors for the First Respondent: | Bill Petschler Lawyers |
| Second Respondent: | No appearance |
| Third Respondent: | Self-represented |
ORDERS
That the oral application pursuant to the provisions of the Corporations Act 2001, in relation to the exercise of a discretion by the Court be dismissed.
IT IS NOTED that publication of this judgment under the pseudonym [C] Pty Ltd & Domeny & Ors is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT TOWNSVILLE |
TVC 654 of 2007
| [C] PTY LTD (IN LIQUIDATION) |
Applicant
And
| MS DOMENY |
First Respondent
| MR DOMENY |
Second Respondent
| MR RUSH |
Third Respondent
REASONS FOR JUDGMENT
On 25 May 2007, orders were made between Ms Domeny, whom I shall refer to as “the wife”, and Mr Domeny, whom I shall refer to as “the husband”. Those orders were to finalise the issues of property outstanding between the husband and the wife.
Notwithstanding those orders, however, the husband did not comply with the obligations that arose in relation to those orders, and, in particular, moneys that were to be paid by the husband to the wife were not paid. As a result of that failure to effect payment pursuant to the orders of 25 May 2007, enforcement proceedings were brought by the wife and, on 17 June 2010, orders were made in these terms:
(1)That the Second Respondent is hereby ordered to be joined as a party to the proceeding.
(2)That the Third Respondent is hereby joined and/or heard in this proceeding at his request.
(3)That the orders of the Court made on 31 May 2010, remain in force save and except as varied by these orders.
(4)That the First and Second Respondents are restrained by himself/itself or by his/its servants or agents from selling, mortgaging, encumbering or otherwise dealing with:
(a)The First Respondent’s shares in [C] Pty Ltd ACN [omitted]; and
(b)The Second Respondent’s shares in [W] Pty Ltd ACN [omitted].
(5)That William James Petschler is hereby appointed trustee for the sale of [C] Pty Ltd’s shares in [W] Pty Ltd being:
(a)50 ordinary shares held by it jointly with the Third Respondent, Mr Rush; and
(b)25 ordinary shares held by it solely.
(6)That the trustee is hereby granted all necessary powers to enable him to give effect to these orders.
(7)That the trustee shall hold the net proceeds of the sale of the shares on trust to:
(a)Pay to the Applicant Wife all money, including interest and costs, including indemnity costs, under the orders of the Family Court of Australia dated 25 May 2007 and this Court dated 31 May 2010 and 17 June 2010;
(b) Pay any just debts of [W] Pty Ltd as certified in writing to be true and correct by the directors of [W] Pty Ltd or failing such certification as determined by a Court of competent jurisdiction the trustee’s costs of any such proceedings to be paid by [W] Pty Ltd and/or the First Respondent; and
(c) Otherwise account to the First Respondent for the moneys due and justly owed to him from the sale of the shares save and except that neither the Applicant Wife nor the trustee shall be liable to pay the First Respondent interest thereon.
(8)That the trustee’s reasonable costs of and incidental to his trusteeship shall be paid by the First Respondent on an indemnity basis as agreed or failing agreement as certified by Mr W, Costs Assessor.
(9)That the trustee has liberty to apply on three day’s notice.
(10)That the First Respondent to pay the Applicant Wife’s costs of and incidental to this and the finalisation of the contravention proceedings on an indemnity basis.
(11)That the Applicant Wife’s application for enforcement together with her applications for contravention are adjourned to 9.30am on 20 September 2010.
(12)That the listing of the matter for an oral examination with the Registrar on 28 June 2010 be vacated.
The orders included a second and third respondent, [C] Pty Ltd as the second respondent and Mr Rush as third respondent. The reason for the involvement of [C] Pty Ltd was that, to all intents and purposes, it was the alter ego of the husband, Mr Domeny. Also, the assets of that company constituted the vast bulk, if not the entirety, of the matrimonial assets from which any payment to the wife could be drawn.
Mr Rush held an interest in a company, [W] Pty Ltd, and the principal asset of [C] Pty Ltd was its holding in shares in [W] Pty Ltd.
It was difficult to finally resolve issues in relation to the matter, as the husband was non‑cooperative in the extreme. As a result of that lack of cooperation, it was determined that the only appropriate course to follow, in relation to the proceedings, was to appoint the legal representative for the wife trustee for the sale of [C] Pty Ltd’s shares in [W] Pty Ltd.
The orders that were made effected such an arrangement, and then were to facilitate a payment from the proceeds of sale to the wife, of the moneys required to be paid pursuant to the property settlement and then debts of [W]. Subsequent to the payment of those liabilities, arising pursuant to orders 7(a) and 7(b) of the orders of 17 June 2010, the balance of such moneys were to be paid to the husband.
After the making of the orders on 17 June 2010, [C] Pty Ltd went into liquidation. Orders with regard to the liquidation of the company were made in the Federal Court of Australia, New South Wales District Registry, General Division, on 24 September 2010.
On 6 September 2011, nearly one year after the order was made with regard to liquidation of the company, an affidavit was filed by Ms C, the liquidator appointed in relation to the company, [C] Pty Ltd. No application was filed along with that affidavit, but it appears, at least on the part of the liquidator, that the matter was to come back before the court for the purposes of rectification of difficulties that arose as a result of the company going into liquidation.
The liquidator, through their counsel, indicated that the liberty to apply provisions contained within the orders of 17 June 2010 were wide enough to enable the liquidator of the company to apply for rectification.
In any event, it was contended on the part of the liquidator that liberty to apply in relation to any order, but particularly the order of 17 June 2010, would arise in situations where the order, as it presently stood, could not achieve what it set out to do.
As suggested in the submissions in relation to the matter, the current order is, “no longer apt to achieve the result intended”. The position of the liquidator is that, as and from 24 September 2010, [C] Pty Ltd, having been placed in liquidation, then, the liquidator is obliged to take into his or her custody or control the property of the company and to cause the company’s property to be applied to the discharge of its liabilities.
Counsel for the liquidator indicated that the inquiries so far made by Ms C indicated that the company, [C] Pty Ltd, had significant debts and, as the only asset of any real value held by the company were its shares in another company, [W] Pty Ltd, then those assets should come into the custody or control of the liquidator and be utilised for the payment out of the creditors of the company, the costs of liquidation and, should there be any remainder, then a payment to be made to the husband.
The position of the liquidator, and perhaps in the circumstances it is an understandable position, is to say that, if that application of what I might call, “corporations law”, were not to be followed, then the creditors, who have entitlements in relation to repayment from the proceeds of the liquidation of [C] Pty Ltd, would find themselves in a situation where they may not be able to receive that which they were entitled to.
The argument on the part of the liquidator, in relation to the orders of 17 June 2010, therefore, is to say that they are, simply, not effective or relevant in relation to payments to be made to the wife, though they acknowledge the intent of the orders of 17 June 2010, which was to ensure that the wife was able to recover her entitlements, pursuant to the property settlement order of 25 May 2007.
Counsel for the liquidators of [C] Pty Ltd rely, understandably, upon the provisions of the Corporations Act in relation to what they say is the appropriate course to follow, now that the order of 17 June 2010 is, “no longer apt to achieve the result intended”.
They submit that, immediately upon the order placing the company in liquidation, no person can begin or proceed with an enforcement process, except with the leave of the court. In that respect, I am referred, obviously, to the provisions of section 471B of the Corporations Act 2001, which is in these terms:
While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with:
(a)a proceeding in a court against the company or in relation to property of the company; or
(b)enforcement process in relation to such property;
except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.
In any event, it is submitted that even if that were not the case, that the sale, which is purported to arise pursuant to a contract entered into by the trustee in December 2010, is one which falls foul of the provisions of section 569 of the Corporations Act, as it is one which occurs within six months of the date of liquidation. That relates to the actions of Mr Petschler as trustee.
Additionally, it is argued that pursuant to the provisions of section 468(1) and (2), that the sale, purported to be effected pursuant to the contract of December 2010, is void. Section 468(1) and (2) is in these terms:
Avoidance of dispositions of property, attachments etc.
(1) Any disposition of property of the company, other than an exempt disposition, made after the commencement of the winding up by the Court is, unless the Court otherwise orders, void.
(2) In subsection (1), exempt disposition , in relation to a company that has commenced to be wound up by the Court, means:
(a) a disposition made by the liquidator, or by a provisional liquidator, of the company pursuant to a power conferred on him or her by:
(i) this Act; or
(ii) rules of the Court that appointed him or her; or
(iii) an order of the Court; or
(aa)a disposition made in good faith by, or with the consent of, an administrator of the company; or
(ab) a disposition under a deed of company arrangement executed by the company; or
(b) a payment of money by an Australian ADI out of an account maintained by the company with the Australian ADI, being a payment made by the Australian ADI:
(i) on or before the day on which the Court makes the order for the winding up of the company; and
(ii) in good faith and in the ordinary course of the banking business of the Australian ADI.
The liquidator says, therefore, that there are two bases upon which it relies, either that the appointment pursuant to the orders of 17 June 2010 is void, as it is a transaction which occurred within six months prior to the date of liquidation or it is prima facie void, as it is not an exempt disposition, pursuant to the provisions of section 468.
The liquidator says therefore that the provisions of the Corporations Law and the obligations that arise therein, particularly relating to the responsibilities of a liquidator, “trump” the orders which have been made, pursuant to the provisions of the Family Law Act.
It is noteworthy, however, and I think quite proper that the liquidator acknowledges, through their counsel, that any order that might be made, which flows from their submissions in relation to this matter, should include an order which provides that at the conclusion of the liquidation, any funds which remain from the liquidation of the company following payment of creditors and the liquidator’s funds, should be held, pending further order of the court, or perhaps pending agreement as between the husband and the wife, it being the case that the husband would be entitled to his share as a shareholder in the company of the net equity that might remain.
The position of the wife and the trustee in relation to this matter is to say, firstly, that the court is functus officio, in other words, that it has completed its obligations in relation to the matter and that no further attention could or should be given to the orders, as they currently stand.
I must say, with respect, that I do not agree at all that that is the case because there may always be circumstances where certain issues that arise, pursuant to orders of the court, particularly those flowing from family law proceedings, may need to be resolved or rectified. In fact, the property provisions of the Family Law Act specifically recognise that that is a real possibility in that section 9A, headed, “Setting aside of orders altering property interests”, specifically notes at section 79A(1)(b) the following:
Where, on application by a person affected by an order made by a court under section 79 in property settlement proceedings, the court is satisfied that:…
(b)in the circumstances that have arisen since the order was made it is impracticable for the order to be carried out or impracticable for a part of the order to be carried out; or
the court may, in its discretion, vary the order or set the order aside and, if it considers appropriate, make another order under section 79 in substitution for the order so set aside.
In other words, the legislation itself recognises that circumstances can change and, of course, the issue of impracticability is only one of those circumstances which may lead to a need for a court to reconsider a position, in respect of orders that have been made.
More particularly, however, counsel for the wife and the trustee, Mr Petschler, says that the appointment of Mr Petschler as trustee is not a preference, arising pursuant to the provisions of section 569 of the Corporations Act 2001, nor is the entering into of the contract in December 2010, a transaction which occurs after the date of liquidation. In that respect, counsel for the wife strongly emphasises that the wife derives her rights from an order of the court and not as the result of a transaction involving the company.
The argument that I am required to deal with in relation to this matter is a preliminary argument. It arises from the contention on the part of the wife and the trustee, that even if the orders of 17 June 2010 are, as counsel for the liquidator put it, “caught by the Corporations Law”, which is not accepted, then there is still a discretion that vests in the court to determine whether or not the orders may or may not be void. In other words, there must be that preliminary determination as to whether the orders of 17 June 2010 are in some way included within the provisions or ambit of operation of the Corporations Act 2001 or whether there is still a requirement for the court to exercise a discretion.
In that respect I was addressed at length and most helpful submissions were provided by counsel for the wife and the trustee relating to the provisions of section 588 of the Corporations Act 2001. In that respect I was referred to the provisions of section 588FA because of the necessity to establish that the transaction was an insolvent transaction. Section 588FA is in these terms:
(1) A transaction is an unfair preference given by a company to a creditor of the company if, and only if:
(a) the company and the creditor are parties to the transaction (even if someone else is also a party); and
(b) the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company;
(2) For the purposes of subsection (1), a secured debt is taken to be unsecured to the extent of so much of it (if any) as is not reflected in the value of the security.
(3) Where:
(a) A transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including such a relationship to which other persons are parties); and
(b) in the course of the relationship, the level of the company’s net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship;
then;
(c) subsection (1) applies in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and
(d) the transaction referred to in paragraph (a) may only be taken to be an unfair preference given by the company to the creditor if, because of subsection (1) as applying because of paragraph (c) of this subsection, the single transaction referred to in the last-mentioned paragraph is taken to be such an unfair preference.
It should be noted, however, that the section is headed, “Unfair preferences”, and refers to a preference given by a company to a creditor of the company. It is deemed an unfair preference if the transaction resulted in the creditor receiving from the company, in respect of an unsecured debt the company owes to the creditor, more than the creditor would receive from the company in respect of the debt.
It was emphasised, and I accept, that the wife is not a creditor of the company. As best it could be put, she is a creditor of the husband with rights in relation to receipt from the husband’s interests of her entitlements pursuant to the orders of 25 May 2007. In my assessment, section 588FA is not relevant.
Flowing from that, of course, one must question the applicability of the following two subsections of the Corporations Act, sections 588FB through section 588FC. Those two sections relate to uncommercial transactions and insolvent transactions. They are in these terms:
588FB
Uncommercial transactions
(1) A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to:
(a) the benefits (if any) to the company of entering into the transaction; and
(b) the detriment to the company of entering into the transaction; and
(c) the respective benefits to other parties to the transaction of entering into it; and
(d) any other relevant matter.
(2) A transaction may be an uncommercial transaction of a company because of subsection (1):
(a) whether or not a creditor of the company is a party to the transaction; and
(b) even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.
588FC
Insolvent transactions
A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and:
(a) any of the following happens at a time when the company is insolvent:
(i) the transaction is entered into; or
(ii) an act is done, or an omission is made, for the purpose of giving effect to the transaction; or
(b) the company becomes insolvent because of, or because of matters including:
(i) entering into the transaction; or
(ii) a person doing an act, or making an omission, for the purpose of giving effect to the transaction.
It is not clear as to whether, at the time the orders were made on
17 June 2010, the company was insolvent pursuant to this definition, nor could the provisions of the orders of 17 June 2010 be construed as a commercial transaction. In my assessment, they are not relevant in relation to this matter.
Section 588FE headed “Voidable Transactions”, falls into the same class of consideration because the transaction that is the subject of the dispute here is not one that arises as a result of the actions of the company. It arises as a result of the actions of the trustee pursuant to the appointment arising from the order of 17 June 2010.
Significant here, however, are the provisions of the Corporations Act 2001, section 588FF. It is headed, “Courts may make orders about voidable transactions” and in particular, section 588FF relates to those orders which might be made with regard to the repayment of monies. That section is in these terms:
(1) Where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:
(a) an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction;
(b) an order directing a person to transfer to the company property that the company has transferred under the transaction;
(c) an order requiring a person to pay to the company an amount that, in the court's opinion, fairly represents some or all of the benefits that the person has received because of the transaction;
(d) an order requiring a person to transfer to the company property that, in the court's opinion, fairly represents the application of either or both of the following:
(i) money that the company has paid under the transaction;
(ii) proceeds of property that the company has transferred under the transaction;
(e) an order releasing or discharging, wholly or partly, a debt incurred, or a security or guarantee given, by the company under or in connection with the transaction;
(f) if the transaction is an unfair loan and such a debt, security or guarantee has been assigned--an order directing a person to indemnify the company in respect of some or all of its liability to the assignee;
(g) an order providing for the extent to which, and the terms on which, a debt that arose under, or was released or discharged to any extent by or under, the transaction may be proved in a winding up of the company;
(h) an order declaring an agreement constituting, forming part of, or relating to, the transaction, or specified provisions of such an agreement, to have been void at and after the time when the agreement was made, or at and after a specified later time;
(i) an order varying such an agreement as specified in the order and, if the Court thinks fit, declaring the agreement to have had effect, as so varied, at and after the time when the agreement was made, or at and after a specified later time;
(j) an order declaring such an agreement, or specified provisions of such an agreement, to be unenforceable.
(2) Nothing in subsection (1) limits the generality of anything else in it.
(3) An application under subsection (1) may only be made:
(a) during the period beginning on the relation-back day and ending:
(i) 3 years after the relation-back day; or
(ii) 12 months after the first appointment of a liquidator in relation to the winding up of the company;
whichever is the later; or
(b) within such longer period as the Court orders on an application under this paragraph made by the liquidator during the paragraph (a) period.
(4) If the transaction is a voidable transaction solely because it is an unreasonable director-related transaction, the court may make orders under subsection (1) only for the purpose of recovering for the benefit of the creditors of the company the difference between:
(a) the total value of the benefits provided by the company under the transaction; and
(b) the value (if any) that it may be expected that a reasonable person in the company's circumstances would have provided having regard to the matters referred to in paragraph 588FDA(1)(c).
A final and perhaps most telling provision, however, arises pursuant to section 588FG. It is headed, “Transactions Not Voidable As Against Certain Persons”, and is sought to be relied upon, particularly here, by the wife as a means by which the appointment of Mr Petschler as trustee and the contract entered into by Mr Petschler are not void. Section 588FG is in these terms:
(1) A court is not to make under section 588FF an order materially prejudicing a right or interest of a person other than a party to the transaction if it is proved that:
(a) the person received no benefit because of the transaction; or
(b) in relation to each benefit that the person received because of the transaction:
(i) the person received the benefit in good faith; and
(ii) at the time when the person received the benefit:
(A) the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and
(B) a reasonable person in the person's circumstances would have had no such grounds for so suspecting.
(2) A court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company, or an unreasonable director-related transaction of the company, and it is proved that:
(a) the person became a party to the transaction in good faith; and
(b) at the time when the person became such a party:
(i) the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and
(ii) a reasonable person in the person's circumstances would have had no such grounds for so suspecting; and
(c) the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction.
(3) For the purposes of paragraph (2)(c), if an amount has been paid or applied towards discharging to a particular extent a liability to pay tax, the discharge is valuable consideration provided:
(a) by the person to whom the tax is payable; and
(b) under any transaction that consists of, or involves, the payment or application.
(4) In subsection (3):
"tax" means tax (however described) payable under a law of the Commonwealth or of a State or Territory, and includes, for example, a levy, a charge, and municipal or other rates.
(5) For the purposes of paragraph (2)(c), if an amount has been paid or applied towards discharging to a particular extent a liability to the Commonwealth, or to the Commissioner of Taxation, that arose under or because of an Act of which the Commissioner has the general administration, the discharge is valuable consideration provided by the Commonwealth, or by the Commissioner, as the case requires, under any transaction that consists of, or involves, the payment or application.
(6) Subsections (3) and (5):
(a) are to avoid doubt and are not intended to limit the cases where a person may be taken to have provided valuable consideration under a transaction; and
(b) apply to an amount even if it was paid or applied before the commencement of this Act.
Reliance is placed here upon the receipt of a person, the wife, of a benefit, in good faith and that the person receiving the benefit had no reasonable grounds for suspecting that the company was insolvent or would become insolvent.
It is that particular wording which is relevant here because, clearly, the transaction, whether it is one involving the company, the liquidator, the trustee, the wife or the husband is not one that has come into existence yet. The wife has received no benefit from the transaction which arises, it would seem, from the contract of December of 2010.
She is now, as is the trustee, obviously aware of the company [C] Pty Ltd being placed in liquidation and is aware of the debts that are owed by the company to its creditors. In my view, the fact that the transaction, if it is to be described that way, has not yet come to any fruition but knowledge is now held, means that the provisions of section 588FF are not in any way applicable in relation to this matter and, accordingly, the provisions of the corporations law are relevant in relation to this determination. I therefore dismiss the oral application upon argument arising pursuant to the various provisions of the Corporations Act 2001, and to any exercise of discretion sought to be relied upon.
I certify that the preceding thirty-seven (37) paragraphs are a true copy of the reasons for judgment of Coker FM
Date: 5 April 2012
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