Fitz Jersey Pty Limited v Atlas Construction Group Pty Limited (In Liquidation) (No 3)

The case before the court was an application for an interim preservation order in the form of a freezing order, brought by Fitz Jersey Pty Limited against Atlas Construction Group Pty Limited, which was in liquidation. The applicant, Fitz Jersey, sought to freeze the assets of Atlas Construction to prevent the dissipation of funds that were allegedly held by Atlas in breach of section 254T of the Corporations Act 2001 (Cth), which prohibits insolvent companies from making certain payments and distributions. Fitz Jersey further contended that the dividend declared by Atlas was also in breach of the directors' duty under common law and voidable under sections 588FE of the Corporations Act and section 37A of the Conveyancing Act 1919 (NSW). The application also sought to hold a third party, who had received the dividend, liable to account for the payment.

The primary legal issues for the court to decide were whether a dividend declared in breach of section 254T of the Corporations Act was void or voidable. The court also had to consider whether a director could be held to have breached their duty when declaring a dividend even if there was no contravention of section 254T. Additionally, the court needed to determine whether the term "creditor" in section 254T included contingent creditors. The court found that the declaration of dividend was indeed in breach of section 254T and that the directors were in breach of their duty. The term "creditor" in section 254T was interpreted to include contingent creditors. Given these findings, the court was satisfied that there was a serious question to be tried and granted the freezing order.

The court's reasoning was that the breach of section 254T was clear, and the directors' duty was also breached, making the dividend voidable. The inclusion of contingent creditors in the definition of "creditor" further solidified the argument for the invalidity of the dividend. The court noted that the preservation of assets was necessary to ensure that the applicant could pursue its claims effectively. The court granted the freezing order, effectively preventing Atlas Construction from disposing of the assets that were the subject of the dispute. This decision ensured that the applicant's claims would not be prejudiced by the dissipation of the company's assets.