C Pty Ltd (In Liquidation) & Burt

Case [2024] FedCFamC1F 428

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA

(DIVISION 1)

C Pty Ltd (In Liquidation) & Burt [2024] FedCFamC1F 428

File number: MLC 13359 of 2022
Judgment of: MCGUIRE J
Date of judgment: 26 June 2024
Catchwords: FAMILY LAW – PRACTICE AND PROCEDURE
Application seeking to appeal the Liquidator’s rejection of the Applicant’s Proof of Debt – where applicant here is applicant in ongoing family law proceedings – where respondent to family law proceedings is sole director and shareholder of company now in liquidation and where applicant seeks to prove a debt in the liquidation and where application and proceedings involving liquidation transferred to and vested in this Court from the Supreme Court of Victoria – consideration of principles of proof of debt in liquidation and consideration of the facts – application proceeds as hearing de novo although termed an “appeal” – application/appeal dismissed
Legislation:

Corporations Act 2001 (Cth) s 90-15 Schedule 2

Family Law Act 1975 (Cth) s 90SN
Cases cited:

Bilta (UK) Ltd (in liquidation) and others v Nazir and others (No.2) [2015] UKSC 23

KIS Realty Pty Ltd v Yeo and Rimbaldi [2016] WASC 149

Re Birds Stores Pty Ltd (1931) 37 ALR 94

Re Elina Construction and Developing Group Pty Ltd [2023] VSC 639

Division: Division 1 First Instance
Number of paragraphs: 59
Date of hearing: 27 and 28 May 2024
Place: Melbourne
Counsel for the Applicant: Mr Schicht
Solicitor for the Applicant: Vasilaras & Co
Counsel for the Respondents: Mr Serong
Solicitors for the Respondents: Serong Legal

ORDERS

MLC 13359 of 2022

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN:

MR BURT

Applicant
AND:

C PTY LTD (IN LIQUIDATION)

First Respondent

MR PQ IN HIS CAPACITY AS LIQUIDATOR OF C PTY LTD (IN LIQUIDATION)

Second Respondent

ORDER MADE BY:

MCGUIRE J

DATE OF ORDER:

26 JUNE 2024

THE COURT ORDERS THAT:

1.The Application/Appeal filed 12 March 2024 be dismissed.

Note:   The form of the order is subject to the entry in the Court’s records.

Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).

Part XIVB of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish an account of proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.

IT IS NOTED that publication of this judgment by this Court under the pseudonym of C Pty Ltd & Burt has been approved pursuant to subsection 114Q(2) of the Family Law Act 1975 (Cth).

REASONS FOR JUDGMENT

McGUIRE J:

APPLICATIONS

  1. This is an appeal by the Applicant against a refusal by the Liquidator of the Respondent Company to accept a proof of debt in the liquidation of that company.

  2. The Applicant and his former de…

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AGLC
C Pty Ltd (In Liquidation) & Burt [2024] FedCFamC1F 428
Case
[2024] FedCFamC1F 428
Decision Date

CaseChat Overview and Summary

In the matter of MLC 13359 of 2022, the applicant, Mr Burt, sought to appeal the liquidator’s rejection of his proof of debt in the liquidation of C Pty Ltd. The matter was heard in the Federal Circuit and Family Court of Australia, Division 1, and was transferred from the Supreme Court of Victoria. Mr Burt, who is also a party in ongoing family law proceedings, sought to prove a debt in the liquidation of the company, which is owned and controlled by his former spouse, Ms Merrill. The primary issue before the court was whether the liquidator's rejection of Mr Burt's proof of debt should be overturned.

The court was required to determine whether Mr Burt had successfully discharged his onus of proving the existence and quantum of the debt on the balance of probabilities. The liquidator argued that there was insufficient evidence to support the claim, particularly regarding the constructive trust asserted by Mr Burt. The court noted that Mr Burt did not provide an affidavit from Ms Merrill nor did he seek to subpoena her to court to testify. The evidence before the court did not support the claim of a debt amounting to $265,741, as the particulars provided did not total this amount.

The court concluded that Mr Burt had failed to prove the asserted debt, primarily because he did not provide evidence that quantified the debt accurately. The particulars of the claim did not match the claimed amount, and Mr Burt did not clarify these discrepancies. Additionally, the court found no evidence of a breach of the constructive trust by Ms Merrill or the company. The unchallenged evidence indicated that the balance in the company’s bank account was $192.23 at the time of liquidation, suggesting any withdrawals occurred before this date. The court dismissed the application, finding that Mr Burt had not discharged his onus of proof.

The court ordered that the application filed on 12 March 2024 be dismissed. The decision was made under the authority of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth), and the form of the order is subject to review or variation as permitted by the rules.

Orders

Orders of the court

MLC 13359 of 2022

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)

BETWEEN:

MR BURT

Applicant

AND:

C PTY LTD (IN LIQUIDATION)

First Respondent

MR PQ IN HIS CAPACITY AS LIQUIDATOR OF C PTY LTD (IN LIQUIDATION)

Second Respondent

ORDER MADE BY:

MCGUIRE J

DATE OF ORDER:

26 JUNE 2024

THE COURT ORDERS THAT:

1. The Application/Appeal filed 12 March 2024 be dismissed.

Note: The form of the order is subject to the entry in the Court’s records.

Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).

Part XIVB of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish an account of proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.

Background

Background to the litigation

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Evidence

Evidence Before The Court

Where the hearing before me proceeded on the papers and oral submissions, the Applicant elected neither to give further evidence nor to adduce any evidence to clarify the above-mentioned discrepancies in his evidence as to the very fundamental issue of the quantum of the claim he asserts to prove as a debt.THE EVIDENCE As indicated, no request was made to give or adduce evidence other than the affidavits and no application was made to cross-examine the deponents of the affidavits relied upon by each of the parties. The Applicant relied on his two affidavits filed 12 March 2024 and 24 May 2024. The Respondent Liquidator relied on his affidavit affirmed 3 April 2024. Significantly, the Applicant did not provide an affidavit from Ms Merrill and did not seek to bring her to court by subpoena to adduce evidence or, if declared adverse, to cross-examine her. Ms Merrill was present during oral submissions but where she did not either provide an affidavit or make relevant submissions to the Court on the appeal.THE RELEVANT LAW The Applicant brings his appeal against the Liquidator’s determination under section 90 – 15 of the Insolvency Practice Schedule in Schedule 2 to the Corporations Act 2001 (Cth). The legislation provides a 14 day period to bring an appeal after notification of the Liquidators determination. I calculate the appeal has been brought in time and no issue was taken with the appeal being brought by application of 12 March 2024. The legislation allows the Court to “make such order as it thinks fit (including on the Court’s own initiative) in relation to the external administration of the company”. The section is broad in its scope and contemplates the exercise of judicial discretion and to determine substantive rights of parties and where, as mentioned above, the Applicant prima facie holds such a right vis-à-vis the company in liquidation as a putative creditor whose Proof of Debt has been rejected by the Liquidator and hence has a financial interest. The nature of the appeal process was succinctly summarised by Hetyey AsJ in Re Elina Construction and Developing Group Pty Ltd[2] at [44]: In determining whether a proof of debt should be admitted or rejected, a liquidator acts in a quasi-judicial capacity.[3] The liquidator must satisfy himself or herself there is an adequate basis to conclude the relevant debt exists to ensure the assets of the company are only distributed amongst true creditors of the company, with any surplus paid to contributories.[4] Where a person who claims to be a creditor is dissatisfied with the liquidator’s decision to reject a proof of debt, the ordinary procedure is for the person to apply to the Court to reverse or modify that decision.[2] [2023] VSC 639.[3] Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332.[4] Footnote omitted. Although referred to as an “appeal”, application such as that now before this Court proceed by way of a hearing de novo where fresh evidence may be given or adduced.[5] [5] Re Birds Stores Pty Ltd (1931) 37 ALR 94.

Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

The Respondent Liquidator maintains that there is no evidence of sufficient probity to ground the claim of Proof of Debt by reason of a constructive trust.CONSIDERATION There are a number of fundamental problems with the case argued by the Applicant which cause me to find that he has not discharged his onus of proving on the balance of probabilities that the asserted Proof of Debt be admitted and the appeal will consequently be dismissed. Firstly and fundamentally the Applicant has not given or adduced evidence which allows the Court to quantify the asserted debt. Where originally the claimed debt was at “$2.4 million plus interest” and later amended to “$1.5 million”, the affidavit, the Statement of Contentions, and argument by counsel all assert a debt of $265,741. The claimed amounts purport to be supported by “tables” of particularised payments into C Pty Ltd from LM Insurance. Put simply, the particulars asserted do not total the alleged debt of $265,741. The table provided in the Applicant’s affidavit totals $646,304. The table provided as particulars of the claim in the Statement of Contentions totals $262,561. Consequently, and where an onus sits with the Applicant to prove not only the debt but also the quantum of such debt, it is not available to the Court to quantify the asserted debt with any precision where there is no evidence in support of the broad claim of $265,741. As mentioned above, the Applicant was not called to clarify such fundamental discrepancies and no evidence was adduced to give clarification. Secondly, and also fundamentally, I am unable to find anywhere in the Applicant’s material that he asserts a breach of the constructive trust by Ms Merrill (or the Company). The Applicant provides two affidavits. Neither allege expressly a breach of trust or allow me to infer a breach of trust. Whilst I accept that sums of money may have been deposited the into the C Pty Ltd bank account (but not with any precision as to quantum), I cannot infer on the evidence that the monies were removed by Ms Merrill or any other person or entity in breach of the asserted constructive trust. I accept the unchallenged evidence of Mr PQ that upon the date of the liquidation the balance of the C Pty Ltd bank account was $192.23. It follows that any withdrawals of whatever amount took place prior to that date. It may be open to me to infer that, as a matter of common sense, Ms Merrill was the only person able to withdraw those monies given that she is the sole director of the Company. Nevertheless, there is no evidence from either the Applicant or from Ms Merrill as to the purpose and object of those withdrawals. Notably, in an annexure to Mr PQ’s affidavit is a document dated 6 December 2021 and authored by the Applicant, addressed to Mr PQ, appears to states inter alia on page 4 “the wife continued to care for [the Applicant]”. It was available for the Applicant to adduce evidence from Ms Merrill by affidavit or, if adverse, by subpoena. He did not elect to do so.