Fisher v Divine Homes Pty Ltd - [2011] NSWSC 8

Supreme Court

New South Wales

Medium Neutral Citation: Fisher v Divine Homes Pty Ltd; Allen v Harb [2011] NSWSC 8
Hearing dates: 2 September 2010
Decision date: 03 February 2011
Jurisdiction: Equity Division - Corporations List
Before: Barrett J
Decision:
Claim under Corporations Act 2001 (Cth), s 588FF(1) dismissed. Order to be made under s 598(2).

Catchwords:
CORPORATIONS - winding up - insolvent transactions - application by liquidator under s 588FF(1) - need for liquidator to prove insolvency at relevant times - resort by liquidator to s 588E(4) presumption - discussion of matters to be proved to raise presumption - no sufficient proof thereof
CORPORATIONS - winding up - misfeasance summons procedure - proof that company funds paid for director's private purposes and benefit - order for recovery from director with interest to be made
Legislation Cited: Corporations Act 2001 (Cth), ss 9, 286(1), (2), 471A, 475, 530A, 588E(4), (6), 588FC. 588FE(1), (4), 588FF(1), 596A. 598(2), (3), 1318(1)
Uniform Civil Procedure Rules 2005, rule 36.7
Cases Cited: Commonwealth Bank of Australia v Tabet [2008] VSC 161
Fox v Gadsden [2003] NSWSC 748; (2003) 46 ACSR 713
Sheahan v Londish [2010] NSWCA 270; (2010) 88 ACSR 337
Sims (as liquidator of SSET Construction Pty Ltd) v Khattar [2010] NSWSC 102
Woodgate v Fawcett [2008] NSWSC 868; (2008) 67 SCSR 611
Category: Principal judgment
Parties: Brian Hugh Allen as liquidator of Divine Homes Pty Ltd (Plaintiff)
Francois Harb (Defendant)
Representation: Counsel:
Mr A R Reoch (Plaintiff)
Mr T J Rickard (Defendant)
Solicitors:
John Dowling Solicitor Corporation Pty Ltd (Plaintiff)
Sabab El Hanania Lawyer (Defendant)

File Number(s): 2007/254432

Judgment

Background

Divine Homes Pty Ltd was registered on 8 November 2001. Mr Francois Harb became and has remained its sole director and shareholder. Divine Homes thereafter engaged in several building projects.

A winding up order was made in respect of Divine Homes on 16 April 2007. Mr Allen became and has remained its liquidator.

Mr Allen's consideration of the company's affairs brought to light a number of payments made by means of cheques drawn on Divine Homes' bank account that he considered worthy of further investigation. Mr Harb, the company's sole bank signatory, signed all the cheques.

Mr Allen was hampered in his further investigations by the fact that he had no books and records of Divine Homes; nor did Mr Harb furnish a report as to affairs when he should have done (a report was ultimately furnished in June 2008 after Mr Harb had been prosecuted for a second time for failure to attend to his statutory obligations in relation to the winding up). Mr Harb was examined under s 596A of the Corporations Act 2001 (Cth) on 21 April 2009. Almost a year later, on 15 April 2010, Mr Allen commenced these proceedings against Mr Harb.

The liquidator's claims against Mr Harb

Mr Allen proceeds against Mr Harb on two distinct bases.

First, Mr Allen says that each of certain payments made by Divine Homes by means of cheques…

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: [2011] NSWSC 8
Decision Date: 03 February 2011

CaseChat Overview and Summary

In the case of Fisher v Divine Homes Pty Ltd, the liquidator of Divine Homes Pty Ltd sought to recover funds from the company's former director, Fisher. The dispute centred on the utilisation of company funds for private purposes and the potential misfeasance under the Corporations Act 2001. The Court was tasked with determining whether the liquidator had adequately proven that certain transactions were insolvent and whether Fisher was liable for misfeasance by improperly directing company funds for his own benefit.

The legal issues before the Court included whether the liquidator was required to prove insolvency at the relevant times when transactions occurred and whether the presumption under s 588E(4) of the Corporations Act could be raised to establish insolvency. Additionally, the Court had to consider whether sufficient evidence was presented to prove that funds were paid for Fisher's private purposes and if he was liable for misfeasance.

The Court found that the liquidator's burden was to establish insolvency at the relevant times and that the presumption under s 588E(4) could only be invoked if certain conditions were met, which were not sufficiently demonstrated in this case. The Court held that the liquidator had not provided adequate proof that the company was insolvent at the relevant times and that the presumption could not be applied. Consequently, the Court ruled against the liquidator on this point. Regarding the misfeasance claim, the Court determined that there was insufficient evidence to prove that Fisher had improperly used company funds for his private purposes. Therefore, the claim for misfeasance was also dismissed.

The Court's final orders dismissed the liquidator's application to recover funds under the presumption of insolvency and rejected the misfeasance claim against Fisher. The Court found no grounds to support the liquidator's application for an order for recovery of funds or for an order against Fisher for misfeasance.

Orders