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El-Saafin v Franek (No 2)

El-Saafin v Franek (No 2)

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Case Copied 9 November 2018 82 min read

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IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
TECHNOLOGY, ENGINEERING AND CONSTRUCTION LIST

S CI 2018 01685

HASSAN EL-SAAFIN	First Plaintiff
MOHAMAD EL-SAAFIN	Second Plaintiff
v
MARK FRANEK and others according to the schedule	Defendants

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JUDGE:	LYONS J
WHERE HELD:	Melbourne
DATES OF HEARING:	24, 25 and 26 October 2018
DATE OF RULING:	9 November 2018
CASE MAY BE CITED AS:	El-Saafin & Anor v Franek & Ors (No 2)
MEDIUM NEUTRAL CITATION:	[2018] VSC 683

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CORPORATIONS – Application by administrators of company for directions of Court - Section 90-15 of schedule 2 to the Corporations Act 2001 (Cth) – Extent of power – Principles to be applied

CORPORATIONS – Application to bring proceedings in name of company – Statutory derivative action - Part 2F.1A of the Corporations Act 2001 (Cth) – Section 237 – Company in administration – Not available – Inherent jurisdiction of Court

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr I Upjohn QC with Mr B Mason	Hicks Oakley Chessell Williams
For the First and Fourth Defendants	Mr J Evans QC with Mr P Miller	Mark J Halse
For the Second and Third Defendants	–	Capstone Koroneos Legal
For the Administrators	Dr A Trichardt	Charles Fice Solicitors

HIS HONOUR:

INTRODUCTION AND SUMMARY OF CONCLUSIONS

There are two applications for determination in this proceeding. They arise as a consequence of the reasons for judgment I delivered on 15 August 2018 on the plaintiffs’ application for an interlocutory injunction: El-Saafin & Anor v Franek & Ors [2018] VSC 450 (‘Earlier Judgment’)[1].
[1]In these reasons, I will use the terms defined in the Earlier Judgment. However in these introductory paragraphs, I will refer to the terms already defined in the Earlier Judgment in parenthesis for convenience.

As the Earlier Judgment records, the plaintiffs are the directors of Saafin Constructions Pty Ltd (the Company). The first defendant (Franek) was from 18 April 2018 until 27 July 2018 the sole director and shareholder of the fourth defendant (MAG). On 27 July 2018, Franek resigned as a director of MAG and transferred the shares in MAG to Mekkya and Mekkya became to sole director of MAG.

One of the principal issues in this proceeding is the amount of debt subject to the security interest of MAG. In early May 2018, MAG appointed the second and third defendants as the receivers and managers of the Company (the Receivers). In late June 2018, MAG and the Receivers asserted that the debts of the company secured in favour of MAG totalled $8 million and included debts assigned to MAG of approximately $3.6 million on 20 June 2018 (the 20 June debts). The 20 June debts were assigned to MAG by Mekkya or his companies, and by Sacca. The plaintiffs have at all times accepted that the debts of the Company due, payable and secured total approximately $4.4 million but have disputed that the 20 June debts are secured or that they are due and payable.

On 20 July 2018,…

Grounds of appeal

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

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

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

Consideration

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

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

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Details

Case: [2018] VSC 683
Decision Date: 9 November 2018

CaseChat Overview and Summary

The Federal Court heard an application by the administrators of a company, El-Saafin, to obtain directions from the court regarding proceedings that they wished to bring in the name of the company. The application was opposed by Franek, who argued that the company could not bring such proceedings while in administration and that the court did not have the inherent jurisdiction to allow it. The legal issues before the court included whether the court had the power to grant the directions sought and whether the company could bring proceedings while in administration. The court considered the relevant provisions of the Corporations Act 2001 (Cth), including section 90-15 of schedule 2 and part 2F.1A, which deal with the powers of administrators and statutory derivative actions, respectively.

The court found that the administrators did not have the power to bring proceedings on behalf of the company while it was in administration, as this was not permitted under section 237 of the Corporations Act. However, the court also held that it did have the inherent jurisdiction to grant the directions sought in this case, as the administrators were seeking to protect the company's assets and interests during the administration process. The court noted that the principles to be applied in exercising this jurisdiction were similar to those applied in other cases involving the inherent jurisdiction of the court. The court concluded that it was appropriate to grant the directions sought, as this would allow the administrators to take necessary steps to protect the company's assets and interests while it was in administration.

The final orders made by the court included granting the administrators leave to bring proceedings in the name of the company, subject to certain conditions and limitations. The court also ordered that the administrators pay Franek's costs of the application. The court emphasised that its decision was limited to the specific circumstances of this case and did not represent a general endorsement of the administrators' proposed course of action. The court also noted that the decision did not affect the rights of other creditors or stakeholders in the company.

Orders