JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: FLYNN -v- THEOBALD [2008] WASC 263
CORAM: BEECH J
HEARD: 6 NOVEMBER 2008
DELIVERED : 6 NOVEMBER 2008
PUBLISHED : 14 NOVEMBER 2008
FILE NO/S: COR 153 of 2008
MATTER :KITCHENS UCAN FIT PTY LTD
BETWEEN: PAMELA ELIZABETH FLYNN
Plaintiff
AND
SIMON GUY THEOBALD & JEFFREY LAWRENCE HERBERT as Administrators of KITCHENS UCAN FIT PTY LTD (ACN 119 184 119)
Defendants
Catchwords:
Bankruptcy and insolvency - Administrators - Whether order should be made under Corporations Act s 447A - Whether administration should be terminated - Whether company solvent - Whether administrators lack independence - Conduct of administrators - Whether administrators should be replaced
Legislation:
Corporations Act 2001 (Cth) s 447A
Result:
Application dismissed
Category: A
Representation:
Counsel:
Plaintiff: Mr A Shuli & Mr A A Chelvathurai
Defendants: Mr C S Gough
Solicitors:
Plaintiff: iLaw
Defendants: Minter Ellison
Case(s) referred to in judgment(s):
Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270
Australian Securities and Investments Commission v Edwards [2005] NSWSC 831; (2005) 220 ALR 148
Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607
Duncan v Commissioner of Taxation; Re Trader Systems International Pty Ltd [2006] FCA 885
Evans & Tate Premium Wines Pty Ltd v Australian Beverage Distributors Pty Ltd [2005] NSWSC 186
Expile Pty Ltd v Jabb's Excavations Pty Ltd [2003] NSWCA 163; (2003) 45 ACSR 711
Hymix Concrete Pty Ltd v Garrity (1977) 13 ALR 321
Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459
Lewis v Doran [2004] NSWSC 608; (2004) 208 ALR 385
Lewis v Doran [2005] NSWCA 243; (2005) 219 ALR 555
Melbase Corp Pty Ltd v Segenhoe Ltd (1995) 17 ACSR 187
Nambucca Investments Pty Ltd v Star (1995) 13 ACLC 1814
Re Adnot Ltd (1982) 7 ACLR 212
Re Ansett Australia Ltd (No 1) [2001] FCA 1806; (2002) 115 FCR 376
Re Bond Corporation Holdings Ltd (1990) 1 WAR 465
Re Brashs Pty Ltd (1994) 13 ACLC 110
Re National Safety Council of Australia [1990] VR 29
Re Paradise Constructors Pty Ltd [2004] VSC 92; (2004) 182 FLR 135; (2004) 8 VR 171
Re Ricon Constructions Pty Ltd; Ex parte McDonald (1997) 43 NSWLR 174
Re Smarter Way (Aust) Pty Ltd [2000] VSC 408; (2000) 35 ACSR 595
Re St George Builders Hardware Pty Ltd (1995) 18 ACSR 451
Re Unique Doors Pty Ltd [2002] VSC 331
Re View Gold Pty Ltd; Ex parte Saker [2008] WASC 241
Rees v Bank of New South Wales (1964) 111 CLR 210
Sandell v Porter (1966) 115 CLR 666
The Bell Group Ltd v Westpac Banking Corporation (No 9) [2008] WASC 239
BEECH J:
(These reasons are an edited version of reasons delivered extemporaneously on 6 November 2008.)
The defendants (the administrators) were appointed as administrators of Kitchens Ucan Fit Pty Ltd (the Company) on 6 October 2008. The plaintiff, Mrs Pamela Flynn, is the sole director of…
Continue reading Flynn v Theobald
Sign in free to access the full text
- AGLC
- Flynn v Theobald [2008] WASC 263
- Case
- [2008] WASC 263
- Decision Date
CaseChat Overview and Summary
The legal issues before the court involved interpreting the definition of insolvency under s 95A of the Corporations Act. The court had to consider whether the company could meet its debts from its presently available assets, as opposed to a retrospective 'balance sheet' test. This involved assessing the company's liquidity, including the availability of funds that could be obtained through the realisation or mortgage of assets within a short period. The court also had to evaluate the terms of any borrowings to determine if they could be considered in assessing solvency. The court's interpretation of insolvency was influenced by previous cases such as Re Bond Corporation Holdings Ltd, Melbase Corp Pty Ltd v Segenhoe Ltd, and The Bell Group Ltd v Westpac Banking Corporation.
The court found that the company was not insolvent as at the date of the hearing. It noted that insolvency required a 'cash flow' test, considering the company's ability to pay its debts from currently available assets. The court acknowledged that a temporary lack of liquidity did not necessarily constitute insolvency, and distinguished this from insurmountable endemic illiquidity. The court also held that the assessment of insolvency under s 447A(2)(a) was prospective, focusing on the company's situation at the time of the hearing. The administrators' conduct was deemed appropriate, and no grounds were found to replace them. The application was ultimately dismissed.
The final orders of the court were to dismiss the application, affirming that the company was not insolvent at the time of the hearing and upholding the current administrators in their roles. The decision underscored the importance of a prospective analysis of insolvency and the distinction between temporary liquidity issues and insurmountable illiquidity.
Orders
Orders of the court
Application dismissed
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
Full text does not contain this section.
Ratio Decidendi
Legal Principle Established
Prior to the insertion in 1992 of the definition of insolvency in s 95A, it was accepted that insolvency directed attention to whether the company could pay creditors due for payment from its presently available assets. It was not enough that upon realisation the assets would ultimately be sufficient to pay all debtors: Re Bond Corporation Holdings Ltd (1990) 1 WAR 465, 473 ‑ 474. In substance, s 95A is to the same effect. It involves a 'cash flow' test rather than a 'balance sheet' test of insolvency, although the extent of the company's assets is relevant: Melbase Corp Pty Ltd v Segenhoe Ltd (1995) 17 ACSR 187, 198; Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459, 465; The Bell Group Ltd v Westpac Banking Corporation (No 9) [2008] WASC 239 [1065] ‑ [1075]. The company's available assets to pay debts that are due are not restricted to cash resources immediately available; they extend to moneys procurable by realisation or mortgage or pledge of assets within a relatively short time: Sandell v Porter (670); Re Adnot Ltd (1982) 7 ACLR 212, 216. The words 'from his or her own moneys' do not appear in the definition of solvency and insolvency in s 95A. The effect of that was explained by Giles JA in Lewis v Doran [2005] NSWCA 243; (2005) 219 ALR 555 [110] ‑ [112]. Funds which can be gained from borrowings, secured or unsecured, are to be taken into account. Attention must be given to the terms of the borrowing. If and only if the borrowing is on payment terms or otherwise such that the lender is not a creditor whose debt cannot be repaid as and when it becomes due and payable, the borrowing will assist in a conclusion of solvency. Whether that is so is a question of fact. The approach of Giles JA in the Court of Appeal in Lewis v Doran (2005) is consistent with the approach taken by Palmer J at first instance in Lewis v Doran (2004) [109] ‑ [113]. Palmer J's analysis was approved by Owen J in Bell v Westpac [1089]. Consistently with that analysis, loans for a very short term or loans payable on demand will not enhance solvency: Australian Securities and Investments Commission v Edwards [2005] NSWSC 831; (2005) 220 ALR 148 [99], [210]. A temporary lack of liquidity does not necessarily constitute insolvency: Sandell v Porter (670); Hymix Concrete Pty Ltd v Garrity (1977) 13 ALR 321, 328; Duncan v Commissioner of Taxation; Re Trader Systems International Pty Ltd [2006] FCA 885; Bell v Westpac [1090]. Temporary lack of liquidity is to be distinguished from insurmountable endemic illiquidity: Bell v Westpac [1139], [1140]. Section 447A invites attention to whether the company is insolvent. That is to be assessed as at the date of the hearing, not at some earlier point in time, such as when the company went into administration. Thus the analysis of insolvency invited by s 447A(2)(a) is prospective, not retrospective. Prospective and retrospective assessments of solvency present a contextual difference that should be borne in mind in considering the statements made in the cases: Lewis v Doran (2004) [107] ‑ [110]; Bell v Westpac [1076] ‑ [1079].