Hollow and Sons Pty Ltd (in liq) v Hollow
[2002] VSC 543
•28 November 2002
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
PRACTICE COURT
No. 8295 of 2002
| HOLLOW & SONS PTY LTD (IN LIQUIDATION) AND OTHERS | Plaintiffs |
| v | |
| ANDREW HAROLD HOLLOW AND ANOTHER | Defendants |
---
JUDGE: | BEACH J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 27 NOVEMBER 2002 | |
DATE OF JUDGMENT: | 28 NOVEMBER 2002 | |
CASE MAY BE CITED AS: | HOLLOW & SONS PTY LTD (IN LIQUIDATION) | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 543 | |
---
INTERLOCUTORY INJUNCTION – Company trading whilst insolvent – Liability of directors to creditors – Sale of personal assets by diretors to frustrate creditors.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M. Heaton QC and Mr B. Guzzo | Mills Oakley |
| For the Defendants | Mr P.J. Hayes | Frenkel Partners |
HIS HONOUR:
Hollow & Sons Pty Ltd (the company) was a company engaged in the building industry. On 27 March 2002 the company was wound up by order of this Court and Clyde Peter White and Philip Newman were appointed liquidators. The directors of the company were the two defendants Andrew Harold Hollow and Melanie Laura Hollow. Andrew Hollow was appointed a director on 1 September 1997 and still remains one. Melanie Hollow was appointed a director on 9 December 1997 and resigned on 26 November 2001.
In July 1995 the two defendants became the registered proprietors of the property at 47 Mills Street, Hampton (the property). On 17 December 2001, that is one month after the second defendant had resigned and some three months before the company went into liquidation, the first-named defendant transferred his interest in the property to the second defendant, the consideration being "natural love and affection".
Based on the records of the company, it is the belief of the liquidators that during the period from late 2000 to early 2001 the defendants used some $32,000, funds of the company, to carry out renovations to the property, including the erection of a second storey.
On 26 October 2002 the second-named defendant entered into a contract to sell the property for $530,000. Until Wednesday last the second defendant and her solicitors refused to divulge the date of settlement of the sale to the liquidators and/or their solicitors. In fact, the settlement took place on Tuesday last.
As a result of their investigations into the affairs of the company, the liquidators contend that there is significant evidence to establish that as and from about 1 January 2000 the company was trading whilst insolvent.
The liquidators have now instituted a proceeding in the Court against the defendants seeking to recover the losses suffered by the creditors of the company as a consequence of the defendants' behaviour as directors of the company, and seeking to recover moneys which they contend were improperly paid to the defendants by the company. In that latter regard recent investigation by the liquidators has revealed that between January 2001 and July 2001 (that is, of course, at a time when the liquidators consider the company was insolvent) the defendants transferred some $83,000 from the company's accounts to an account of the defendants' with the Bank of Melbourne styled "Special Options Home Loan" account.
The liquidators are now concerned that if the settlement of the property takes place and the balance of the purchase money is paid to the second defendant, any judgment the liquidators may recover against the defendants will be worthless. It is the case for the liquidators in that regard that the first defendant transferred his interest in the property on 17 December 2001 to defraud the company's creditors and in breach of s.172 of the Property Law Act 1958 and that the second defendant sold the property when she did to further achieve that object.
On 22 November last the plaintiffs made an urgent application to me to restrain the defendants disposing of the proceeds of the sale of the property prior to the hearing and determination of their proceeding. I acceded to the application. The defendants have now filed affidavits in opposition to the liquidators' application.
In their affidavits the defendants have sworn that the property in question was transferred by the first defendant to the second defendant at the time it was as a consequence of matrimonial difficulties being encountered by the parties. As a result of those difficulties they say that towards the end of 2001 they agreed to separate. The agreement they allege they entered into at that time was that the first defendant would transfer his interest in the property to the second defendant, that the second defendant would resign as a director of the company and that the first defendant would keep the business. The defendants have sworn that the fact that they have continued to live together at the property is because they cannot afford to live in separate premises. As to the sale of the property, the second-named defendant has sworn that the house was sold to pay personal debts and to allow her to move to a more affordable house with the two children of the marriage.
In his affidavit the first defendant has challenged the allegation that since January 2001 the company was trading whilst insolvent and challenged the accuracy of the debts alleged by the liquidators to be owed by the company. Whilst the first defendant agrees that many of the debts are owing, he maintains that in respect of a number of them he had reached agreements with creditors whereby the creditors had granted him extended payment terms. He also contends that the debt of $100,000 to his father is a loan which his father has not called up and that the debt of $96,000 to Mrs Thelma Hagan has now been paid.
I have considered the material placed before the Court by the parties and the submissions of their respective counsel. Having done so I have come to the following conclusions in the matter.
1. It is strongly arguable that the company was trading whilst it was insolvent from approximately 1 January 2000.The following are the more salient features of the evidence causing me to come to that conclusion:
(a)between 29 March 2001 and 6 March 2002 over 120 cheques drawn by the company to pay creditors were dishonoured;
(b)between 15 July 1999 and 20 February 2002, 23 default judgments were entered against the company in respect of debts owed by the company;
(c)over the same period referred to in (b), dozens of letters of demand were sent to the company by solicitors acting for creditors seeking payment of debts owed by the company, usually in respect of building products supplied to the company. In addition, a number of statutory demands were made against the company by creditors for debt;
(d)following court judgments against the company, a number of warrants have been executed on property of the company;
(e)the Deputy Commissioner of Taxation has not been advised of amounts deducted for tax instalment deductions since the December quarter 1999, prescribed payment deductions since November 1999 and no GST has been paid with business activity statements for September 2000, December 2000, March 2001, June 2001, December 2001 and March 2002;
(f)the company was forced to put instalment payment proposals to creditors and extended payment proposals for goods. It has been unable to keep to the terms of the extended payment proposals;
(g)the financial statements covering the relevant period demonstrate that the company was making losses;
(h)the almost complete absence of financial records of the company since July 1999, so much so that the liquidators were obliged to contact the creditors of the company to ascertain the state of their accounts; and
(i)the statements of the company also reveal that the company has a large deficit of assets to liabilities.
I should add that in considering this aspect of the application, I was not impressed by the content of the affidavit of Gess Michael Rambaldi and was not prepared to act on it where it was in conflict with the liquidators' affidavits, particularly the affidavits of Clyde White and the content of the documentary material exhibited to those affidavits.
2. The timing and circumstances surrounding the transfer of the first defendant's half interest in the matrimonial home to the second defendant, and the sale by the second defendant of the matrimonial home, it being the only significant asset of the defendants, leads me to the conclusion that it is highly likely that if the defendants are not restrained from disposing of the proceeds of the sale, those proceeds will be dealt with in such a way as to be lost to the liquidators and creditors of the company in the event the liquidators' claim against the defendants is successful. In my opinion, the circumstances of this case are such that, for the reason I have just indicated, the balance of convenience strongly favours the plaintiffs.
Finally, I would add in conclusion, criticism was made of what was said to be the non-disclosure of material to the Court by the liquidators and the delay by them in making the present application. In my opinion, there was no undue delay on the part of the liquidators and the complaint of non-disclosure simply cannot be sustained.
Mr Heaton, do you renew the undertaking as to damages?
MR HEATON: Yes, I do, Your Honour.
HIS HONOUR: Thank you.
I order that the injunctions granted by me as set out in para. (1) of my order of 22 November 2002 be extended to the trial and determination of the proceeding or further order save that I add to each of sub-paras (a) and (b) of the paragraph after the words "the legal costs" the words "and real estate agent's costs and commission".
I reserve the costs of the applicants.
MR HEATON: Your Honour, the real estate agent's commission and fees, in addition they expended some money on the property to prepare it for sale.
HIS HONOUR: How do you suggest that the order should be worded?
MR HEATON: We have the total amount and it is $23,150.59.
HIS HONOUR: I shall add then the words "and real estate agent's costs and commission of $23,150.59".
MR HEATON: Would Your Honour contemplate an order that the defendants disclose to the plaintiffs their asset position by way of an affidavit?
HIS HONOUR: No.
MR HEATON: As Your Honour pleases.
HIS HONOUR: Not at this stage.
MR HEATON: And I seek that costs be reserved.
HIS HONOUR: I have reserved the costs.
---
0
0
0