Daniel Johannes Bredenkamp joint and several liquidators of Conspect Construction Pty Ltd (in Liquidation) v Andrade Holdings Pty Ltd
[2019] WASC 70
•12 MARCH 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION: DANIEL JOHANNES BREDENKAMP joint and several liquidators of CONSPECT CONSTRUCTION PTY LTD (IN LIQUIDATION) -v- ANDRADE HOLDINGS PTY LTD [2019] WASC 70
CORAM: ACTING MASTER WHITBY
HEARD: 28 FEBRUARY 2019
DELIVERED : 12 MARCH 2019
FILE NO/S: COR 179 of 2017
BETWEEN: DANIEL JOHANNES BREDENKAMP joint and several liquidators of CONSPECT CONSTRUCTION PTY LTD (IN LIQUIDATION)
BRYAN KEVIN HUGHES joint and several liquidators of CONSPECT CONSTRUCTION PTY LTD (IN LIQUIDATION)
First Plaintiffs
CONSPECT CONSTRUCTION PTY LTD
Second Plaintiff
AND
ANDRADE HOLDINGS PTY LTD
First Defendant
TIMOTHY HARTEN
Second Defendant
J H CONCRETE REPAIR PTY LTD
Third Defendant
Catchwords:
Corporations law - Voidable transaction - Unfair preference pursuant to s 588FA - Good faith defence under s 588FG(2) - Reasonable grounds for suspecting insolvency - Application dismissed
Legislation:
Corporations Act 2001 (Cth), s 588FA, s 588FF, s 588FG
Result:
Application dismissed
Category: B
Representation:
Counsel:
| First Plaintiffs | : | Mr C K Pearce |
| Second Plaintiff | : | Mr C K Pearce |
| First Defendant | : | Mr A M Prime |
| Second Defendant | : | No appearance |
| Third Defendant | : | No appearance |
Solicitors:
| First Plaintiffs | : | Blackwall Legal LPP |
| Second Plaintiff | : | Blackwall Legal LLP |
| First Defendant | : | MDS Legal |
| Second Defendant | : | No appearance |
| Third Defendant | : | No appearance |
Case(s) referred to in decision(s):
Alsafe Security Products Pty Ltd v Alsafe Trust (In liq) [2016] NSWSC 428
Dean‑Willcocks v Commissioner of Taxation [2008] NSWSC 1113
Metcalf Crane Services Pty Ltd v Rathner [2011] VSC 195
ACTING MASTER WHITBY:
This is the plaintiffs' application for orders pursuant to s 588FF(1) of the Corporations Act 2001 (Cth) (the Act) in respect of the first defendant.
The first plaintiffs were appointed as liquidators of the second plaintiff (Company) on 20 March 2005 by creditors in a voluntary winding up.
The plaintiffs seek the following orders:
1.An order pursuant to s 588FF(1)(a) of the Act that the defendant pay to the Company an amount of $13,333 or such other sum as the court shall determine, being an amount equal to the moneys paid by the Company to the first defendant as an unfair preference within six months of its relation back day or thereafter but before its external administration began (being the period between 29 January 2014 and 29 July 2014), with such sum upon receipt to be then dealt with by the first plaintiffs in accordance with their obligations under Part 5.6 of the Act.
2.Interest.
3.Costs.
4.Such further or other orders as the court deems fit.
The plaintiffs rely upon the Affidavit of Daniel Johannes Bredenkamp sworn on 28 July 2017 in support of their application (Bredenkamp Affidavit).
Background
For orders to be made under s 588FF of the Act, the plaintiffs must show that:
(a)the Company and the first defendant were parties to the transaction in question;
(b)the transaction took place during the relation back period;
(c)the Company was insolvent at the time of the transaction; and
(d)the transaction resulted in the first defendant receiving more from the company than it otherwise would have received in a liquidation.
The following facts and matters are not in dispute:
(a)The relation back date was 29 July 2014.
(b)The relation back period commenced on 30 January 2014 (Relation Back Period).
(c)The Company was insolvent at all times during the Relation Back Period.
(d)On either 27 or 30 June 2014, the Company paid the first defendant $13,333 pursuant to a settlement agreement (Disputed Payment).
(e)The Disputed Payment was made during the Relation Back Period.
(f)The Disputed Payment was an unfair preference pursuant to s 588FA of the Act.
Accordingly, the plaintiffs have satisfied the requirement of s588FF of the Act.
'Good faith' defence
The first defendant's opposition to the application rests upon a good faith defence on the part of the first defendant.
The first defendant relies upon the Affidavit of William James Andrade sworn on 29 November 2018 (Andrade Affidavit) in support of its good faith defence.
The good faith defence is provided for under s 588FG(2) of the Act:
A court is not to make under s 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.
The first and last elements were not in dispute. Counsel for the first plaintiff submitted that the first defendant failed to discharge its onus in satisfying the second and third elements.
Suspicion of insolvency
In Dean‑Willcocks v Commissioner of Taxation [2008] NSWSC 1113, Barrett J summarised the necessary inquiries to be made when considering elements two and three:
[10]As Bryson J pointed out in Mann v Sangria Pty Ltd (2001) 38 ACSR 307 at [46], the first of these inquiries is concerned with the existence of reasonable grounds for the formation of the relevant suspicion by the [defendant], while the second is concerned with the existence of reasonable grounds for the formation of the relevant suspicion by a reasonable person in the [defendant's] circumstances. I do not think it is all that helpful to attempt to characterise one inquiry as 'subjective' and the other as 'objective'. One should merely approach the two inquiries according to the terms in which they have been expressed by the legislature. I would, however, respectfully endorse Bryson J's observation (at [46]) that
it would be seldom that the two tests would produce different results, although it is conceivable that a person might be afflicted by some personal difficulty in forming a suspicion.
[11]His Honour thus accommodates the possibility that the actual frame of mind of the particular person may be affected by factors to which the mind of the hypothetical 'reasonable person' would be impervious, even though each formed a judgment on 'reasonable grounds'. And the 'reasonable person' to whom regard is to be had is, as the Court of Appeal confirmed in Cussen as Liquidator of Akai Pty Ltd v Commissioner of Taxation (2004) 51 ACSR 530 at [31], a 'reasonable business person'.
[12]The relevant concept of 'suspecting' - or 'suspicion' - is that referred to by Kitto J in Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266. It is more than idle wondering. It is a positive feeling of actual apprehension or mistrust without sufficient evidence.
[13]It is important to emphasise that the relevant suspicion is one of actual and existing insolvency, as distinct from impending or potential insolvency. That, as the Full Court of the Supreme Court of South Australia pointed out in Sheahan v Fabienne Pty Ltd [1999] SASC 335, is something that was made clear in Queensland Bacon Pty Ltd v Rees (above).
…
[16]It is, as I have said, necessary for the [defendant] to prove the two negative propositions in para (b) of s 588FG(2). That task arises, however, in a context where the liquidators point to various factors which they say must have engendered relevant suspicion on the part of the [defendant] and the hypothetical 'reasonable business person'. [some citations omitted]
Counsel for the plaintiffs submitted that, in order to rely upon the good faith defence, the test is not whether the first defendant actually suspected that the Company was insolvent, but rather, whether the first defendant has discharged the onus of proving that there were no reasonable grounds for suspecting insolvency, by either itself, or a reasonable person in its circumstances.
I agree with counsel for the plaintiffs characterisation of the exercise I am to engage in when determining whether the good faith defence is available. That is, the first defendant must discharge the onus of proving that there are no reasonable grounds for suspecting insolvency of the Company by either itself, or a reasonable person in its circumstances.
Counsel for the plaintiffs submits that, given the following facts, there are reasonable grounds for suspicion of the Company's insolvency by either the first defendant, or a reasonable person in the first defendant's circumstances:
(a)a number of invoices raised by the first defendant to the Company were undisputed and yet the Company failed to pay those invoices for a significant period of time;[1]
(b)the first defendant, by various emails, advised the Company that payment was urgent, court proceedings would be commenced if the amount was not paid, and overall was required to put significant pressure on the Company to get a response to its request for payment;[2]
(c)partial, round sum payment, not applicable to any specific invoice, was made;[3]
(d)it was necessary for the first defendant to commence debt recovery proceedings in the Magistrates Court;[4]
(e)on 16 June 2014, the first defendant entered into a Deed of Settlement and Release with the Company, and Mr Gavin Lee and Mr Roberto Giuseppe Spananuda, as Guarantors, to resolve the Magistrates Court proceedings (Settlement Agreement) which contained the following clause (at 15.3):
The Guarantors further guarantee immediate payment to [the first defendant] to a maximum amount of $40,000, if all or part of the Conspect to BCH payment of the settlement sum as per clause 4 of this Deed, is later required to be repaid by BCH to an external administrator of Conspect, as a 'preferential payment' or on any other ground. (insert footnote – the Settlement Agreement is attached as “PTS23” to the Fourth Affidavit of Patrick Thomas Spillane sworn on 20 December 2018).
[1] Andrade Affidavit at WJA1.
[2] Bredenkamp Affidavit DJB8.
[3] Bredenkamp Affidavit DJB8.
[4] Bredenkamp Affidavit [28].
Counsel for the first defendant submits that:
(a)the first defendant had no reasonable grounds for suspecting the Company was insolvent; and
(b)a reasonable person in the first defendant's circumstances would have had no reasonable grounds for so suspecting.
In support of the first defendant's contention there were no reasonable grounds for suspecting insolvency, either by itself or by a reasonable person in its circumstances, counsel for the first defendant relied upon the following facts:
(a)the Company made various payments to the first defendant;[5]
(b)the invoices issued to the Company by the first defendant were genuinely disputed by the Company;[6]
(c)the Company defended the proceedings in the Magistrates Court when they were commenced;[7]
(d)the fact that the Settlement Agreement included a personal guarantee by the directors of the Company would lead a reasonable person to suspect that the company was solvent because directors would not, or would be less likely to, provide a personal guarantee in circumstances where a company was not solvent;[8]
(e)clause 15.3 in the Settlement Agreement is consistent with a guarantee clause which was drafted to cover all possible contingencies, not as a reflection of a suspicion of insolvency;[9]
(f)the Company paid the first instalment of $13,333 in accordance with the terms of the Settlement Agreement;[10]
(g)the Company was well‑known in the industry, was receiving media attention in relation to large scale projects and was a major sponsor of the West Coast Eagles Football Club.[11]
[5] Andrade Affidavit WJA1.
[6] Andrade Affidavit WJA2, WJA3, WJA4, WJA5 and WJA6.
[7] Andrade Affidavit [20].
[8] First defendant's submissions [40] to [41].
[9] First defendant's submissions [39].
[10] First defendant's submissions [36].
[11] Andrade Affidavit [24] to [28].
Application of legal principles to the facts
It is not disputed that the Company was a major sponsor of the West Coast Eagles Football Club. A similar arrangement was considered by Black J in Alsafe Security Products Pty Ltd v Alsafe Trust (In liq)[2016] NSWSC 428 [32]:
Even if the Company's involvement in the Orange Project, its attendance at the Sydney Home Show and its sponsorship of the Manley Rugby Football Club tendered to indicate the Company's 'success' to 'the directors', it does not seem to me that those matters would have displaced a reasonable person's suspicion that the Company could not pay its debts as and when they fell due, given its actual payment record […] and the other matters to which I have referred. A reasonable person would have understood that the matters were, at best, equally consistent with solvency and a continuation of the Company's business notwithstanding its ability to pay its debts as and when they fell due.
In light of Black J's comments in Alsafe, the fact that the Company was a major sponsor of the West Coast Eagles is a factor that neither weighs in favour of or against the suspicion of insolvency. I have therefore, not had regard to this fact in considering whether the first defendant, or a reasonable person in the first defendant's circumstances, had no reasonable grounds for suspecting insolvency.
On the basis of the evidence contained in the Bredenkamp Affidavit and the Andrade Affidavit, I am satisfied of the following relevant facts in considering whether the first defendant has discharged its onus of proving that there were no reasonable grounds upon which either the first defendant or a reasonable person in its circumstances, would have suspected the Company's insolvency:
(a)there was a genuine dispute in relation to the invoices;
(b)the Magistrates Court proceedings were defended by the Company;
(c)clause 15.3 of the Settlement Agreement was only one of a raft of contingency scenarios placed in Settlement Agreement;
(d)the first instalment payable under the under Settlement Agreement was paid on time.
Although there was a persistent failure of the company to pay invoices issued by the first defendant, mere failure to pay debts on time does not by itself constitute grounds for suspecting insolvency.[12]
[12] Metcalf Crane Services Pty Ltd v Rathner [2011] VSC 195.
In light of all the above, I find that there are no reasonable grounds upon which either the first defendant, or any reasonable person in the first defendant's circumstances, would have had a reasonable suspicion of insolvency of the Company. The defence of the first defendant pursuant to s588FG(2) of the Act is made out.
For these reasons, the application is dismissed and the first plaintiff should pay the first defendant's costs of the application.
I will hear the parties as to the form of the orders.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EP
Associate to Acting Principal Registrar Whitby12 MARCH 2019
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