Hooper v Lock

Case [2016] FCA 298

FEDERAL COURT OF AUSTRALIA

Hooper v Lock [2016] FCA 298

File numbers: NSD 235 of 2014
NSD 236 of 2014
Judge: MCKERRACHER J
Date of judgment: 24 March 2016
Catchwords:

BANKRUPTCY AND INSOLVENCY – indebtedness of company in liquidation – rejection of proof of debt forms by company liquidator – burden of proving the asserted indebtedness – consequences of lodging proof of debt form with administrators rather than liquidators – whether the creditor acts in a way towards the liquidator which in effect puts forward the document as a proof of debt intended to be assessed by the liquidator – relevance of the creditors’ subjective intent

BANKRUPTCY AND INSOLVENCY – indebtedness of company in liquidation – rejection of proof of debt forms by company liquidator – power of the liquidator pursuant to reg 5.6.47 of the Corporations Regulations 2001 (Cth) to reject a debt or claim without requiring that a formal proof of debt be lodged – whether the liquidators satisfied the requirements of reg 5.6.47 – whether the liquidators rejected the plaintiffs’ proofs of debt without requiring that a formal proof of debt be lodged based on the facts of the case

BANKRUPTCY AND INSOLVENCY – indebtedness of company in liquidation – rejection of proof of debt forms by company liquidator – entitlement of plaintiffs to appeal against the rejection of the proofs of debt as formal proofs of debt – whether the claim sought to be proven is a true liability of the company enforceable against it according to law – claimant bears the onus of demonstrating that the liquidator was wrong in rejecting the proof of debt on the basis of admissible evidence in a hearing de novo – consideration of claims of indebtedness by company to husband and wife directors and shareholder

Legislation:

Corporations Act 2001 (Cth) ss 472, 477, 506, 1321

Corporations Regulations 2001 (Cth) regs 5.6.23, 5.6.47, 5.6.49, 5.6.50, 5.6.63, 5.6.65

Cases cited:

Re Castleplex Pty Ltd (in liq) [2010] QCA 59

Capocchiano v Young [2013] NSWSC 879

Re Equititrust Ltd (in liq) [2013] QSC 346

Selim v McGrath (2003) 47 ACSR 537

Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332

Date of hearing: 10 August 2015
Date of last submissions: 19 October 2015
Registry: New South Wales
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Number of paragraphs: 213
Counsel for the Plaintiffs: Mr R Notley
Solicitor for the Plaintiffs: ERA Legal
Counsel for the Defendants: Mr A Kaufmann
Solicitor for the Defendants: Sheahan Lock Partners

ORDERS

NSD 235 of 2014
BETWEEN:

LIANNE HOOPER
Plaintiff
AND:

IAN LOCK AS JOINT AND SEVERAL LIQUIDATOR OF PM SULCS & ASSOCIATES PTY LIMITED (IN LIQUIDATION) ACN 002 730 958
First Defendant

JOHN SHEAHAN AS JOINT AND SEVERAL LIQUIDATOR OF PM SULCS & ASSOCIATES PTY LIMITED (IN LIQUIDATION) ACN 002 730 958
Second Defendant

JUDGE:

MCKERRACHER J

DATE OF ORDER:

24 March 2016

1.The appeal be dismissed.

2.The plaintiff pay the costs of the defendants, to be…

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AGLC
Hooper v Lock [2016] FCA 298
Case
[2016] FCA 298
Decision Date

CaseChat Overview and Summary

This appeal concerns the rejection of proof of debt forms by the company liquidators, the plaintiffs' burden of proving the asserted indebtedness, and the consequences of lodging proof of debt forms with the administrators rather than liquidators. The plaintiffs, Mr and Mrs Hooper, sought to establish their claims against the company in liquidation and appeal against the liquidators' rejection of their proofs of debt. The primary source of evidence in the appeals was the documentary evidence, with the affidavits of the parties providing additional context.

The key legal issues in this case were whether the liquidators satisfied the requirements of regulation 5.6.47 of the Corporations Regulations 2001 (Cth) when rejecting the plaintiffs' proofs of debt without requiring that a formal proof of debt be lodged, and whether the plaintiffs were entitled to appeal against the rejection of the proofs of debt as formal proofs of debt. The court considered the relevant provisions of the Corporations Act 2001 (Cth) and Corporations Regulations 2001 (Cth), as well as the onus of proof for the claimants.

The court found that the liquidators were justified in rejecting the proofs of debt, as the plaintiffs had failed to provide sufficient evidence to establish their claims. The court emphasised that the primary source of evidence should be contemporaneous documents, and that the affidavit evidence of the Hoopers was largely conclusionary and objected to on those grounds. The court further found that the plaintiffs' claims were not supported by the documentary evidence provided, and that the liquidators were justified in rejecting the proofs of debt.

The appeals were dismissed, and the plaintiffs were ordered to pay the costs of the defendants. The court held that the liquidators had satisfied the requirements of regulation 5.6.47 when rejecting the proofs of debt, and that the plaintiffs were not entitled to appeal against the rejection of the proofs of debt as formal proofs of debt. The court found that the plaintiffs had failed to discharge their onus of proof in establishing their claims, and that the liquidators were justified in rejecting the proofs of debt.

Orders

Orders of the court

1. The appeal be dismissed.

2. The plaintiff pay the costs of the defendants, to be assessed if not agreed.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

As the ‘Amount Agreed to be Lent’ means all unpaid wages, expenses and loans owed to Mr Hooper by the Company from time to time, it includes the outstanding wages and unpaid expenses referred to above. Interest is therefore payable on those amounts. Mr Hooper therefore says that the total amount owing by the Company to him is $5,123,396.62. 6. OTHER EVIDENCE IN SUPPORT OF THE APPEALS The evidence in these appeals was largely documentary. That was particularly so after extensive objection was taken to the affidavit evidence. I do not propose recording in detail the nature of the objections and the rulings which were dealt with in the course of the hearing. In my view, in a matter such as this, the primary source of evidence is the content of contemporaneous documents. That said, each of Mr and Mrs Hooper swore affidavits which elaborated on the background to the documentation, but did not bear greatly on the determination of the issues below. As much of it has been addressed, I refer to the affidavits only briefly. 6.1 Mrs Hooper Mrs Hooper swore two affidavits. The first on 5 March 2014, and the second 23 October 2014. In her affidavits, as in the case of the affidavits of the defendants, she produces a substantial body of documentation by way of annexures. Mrs Hooper confirmed her understanding that a formal call for proof of debts would be made by the defendants prior to funds being available for distribution to creditors and that the purpose of her completion of the proof of debt form was solely for voting purposes and would not be ruled upon by the defendants. She produced the emails from which it is said that understanding arose. Mrs Hooper confirmed the evidence concerning the loans and mortgage previously given by her husband, as discussed above. As noted, Mrs Hooper deposed that she funded the Company loan by borrowing $1.15 million in May 2007 from the Bank on a personal line of credit secured by the Bank with a first priority mortgage over the Roseville property. A further $400,000 was advanced by her as trustee of her self-managed superannuation fund in April 2008 and the Company defaulted on both loans. In the second affidavit, Mrs Hooper annexed a lot of the documentation which she had made available to the defendants in support of her claim and their responses. She also annexed various Australian Securities and Investments Commission (ASIC) reports concerning her appointment as a director of the Company and gave evidence about the Daihatsu litigation. In addition, Mrs Hooper produced credit statements said to support her 13 advances to the Company between May 2007 and April 2008, and also corrected some other amounts incorrectly described in her first affidavit. Mrs Hooper contended that the payments made to her from the Company totalling $1,753,713.84 were comprised of six payments between June 2007 and November 2009. As at 18 December 2009, the date of the appointment of the defendants as administrators, she contended the mortgage shortfall from the Company to her was $300,469.44. That, she says, was a figure she established in working sheets of her calculations of the interest. She produced the working sheets.

Decision

Reasons for decision

As I reject Mr Hooper’s claim for unpaid director’s fees, the claim for interest fails together with that claim. 9. CONCLUSION Much of the affidavit evidence of the Hoopers, and particularly that of Mrs Hooper, was successfully the subject of objection on the basis that it was conclusionary. There was little point in Mrs Hooper or Mr Hooper giving oral evidence as, after several years in which they have had an opportunity to prepare, compile and collate their claims, they have clearly adduced all of the contemporaneous documentation that records the indebtedness of the Company in the way contended. Insofar as Mrs Hooper is concerned, for reasons discussed above, the evidence falls well short of proving the claims in a de novo hearing such as this. There is nothing in substance in the contemporaneous paperwork in relation to any aspect of the claims which persuasively records such indebtedness or explains how it arises. While it may well be the case that Mrs Hooper, in substance, attempted to supply liquidity to her husband, the documentation supplied does not reach the necessary standard to prove that the Company has an indebtedness. I reiterate in relation to the claim of both Mr and Mrs Hooper that they have had now several years to identify and collate records which might provide contemporaneous corroboration. The material provided in evidence does not reach a satisfactory level to establish indebtedness. An appeal of this nature is not a vehicle to embark upon further negotiations, given that years have elapsed since the opportunity for the Hoopers to satisfy the defendants as to the claims first arose. There is no doubt that the defendants were entirely justified in rejecting the claims when made and at all times prior to the commencement of these proceedings. The appeals must be dismissed. In each appeal the following orders are made:(1)The appeal be dismissed.(2)The plaintiff pay the costs of the defendants, to be assessed if not agreed.

Ratio Decidendi

Legal Principle Established

The appeal is pursuant to s 1321 of the Corporations Act2001 (Cth) which relevantly provides:1321 Appeals from decisions of receivers, liquidators etc.(1)A person aggrieved by any act, omission or decision of:(a)a person administering a compromise, arrangement or scheme referred to in Part 5.1; or(b)a receiver, or a receiver and manager, of property of a corporation; or(c)an administrator of a company; or(ca)an administrator of a deed of company arrangement executed by a company; or(d)a liquidator or provisional liquidator of a company;may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit.… Some of the technical arguments raised by the Hoopers require consideration of the powers of a liquidator. Relevantly, s 477 of the Corporations Act provides:…(2)Subject to this section, a liquidator of a company may:…(m)do all such other things as are necessary for winding up the affairs of the company and distributing its property.…(6)The exercise by the liquidator of the powers conferred by this section is subject to the control of the Court, and any creditor or contributory, or ASIC, may apply to the Court with respect to any exercise or proposed exercise of any of those powers.… Section 506 of the Corporations Act relevantly provides:(1) The liquidator may:…(b)exercise any of the powers that this Act confers on a liquidator in a winding up in insolvency or by the Court; … Relevantly, the Corporations Regulations 2001 (Cth) provide:5.6.47 Admission of debt or claim without formal proof(2)If a liquidator admits a debt or claim without formal proof, it is not necessary for the liquidator formally to admit the debt or claim in writing.(3)If a creditor’s debt or claim has been admitted without formal proof, a notice of dividend is sufficient notice of the admission.(4) A liquidator must not reject a debt or claim without:(a)notifying the creditor of the grounds of the liquidator’s rejection; and(b)requiring that a formal proof of debt or claim be submitted for that debt or claim.5.6.49 Formal proof of debt or claim(1)A debt or claim may be formally proved by delivering or sending by post a formal proof of debt or claim to the liquidator.(2)A formal proof of debt or claim:(a)that is prepared and submitted in accordance with regulation 5.6.45—must be in accordance with Form 536; and(b)in any other case—must be in accordance with Form 535.5.6.50 Contents of formal proof of debt or claim(1) A formal proof of debt or claim must:(a)contain detailed particulars of the debt or claim sought to be proved; and(b)in the case of a debt, include a statement of account; and(c)specify the vouchers (if any) by which the statement can be substantiated.(2)The liquidator may at any time call for the production of the vouchers mentioned in subregulation (1).5.6.65 Liquidator to give notice of intention to declare a dividend(1)The liquidator must give notice of his or her intention to declare a dividend not more than 2 months before the intended date:(a)by lodging a notice with ASIC in accordance with subregulation 5.6.75(4); and(b)in writing, in accordance with Form 547 or, for a final dividend, in accordance with Form 548, to any person whose debt or claim has not been admitted and who:(i)for a winding up by the Court—is shown as a creditor in the report on the affairs of the company under subsection 475(1) of the Act; or(ii)for a members’ voluntary winding up—appears in the company’s records to be a creditor; or(iii)for a creditors’ voluntary winding up—is shown as a creditor in the list of creditors prepared in accordance with subparagraph 497(2)(b)(ii) of the Act; or(iv)to the knowledge of the liquidator claims to be, or might claim to be, a creditor of the company.(2)A notice in accordance with subregulation (1) must specify a date, not less than 21 days after the date of the notice, on or before which formal proof, in accordance with Form 535 or 536, of a debt or claim must be submitted to participate in the distribution.(2A)Also, the notice must state at least the following information:(a)the name of the company;(b)any trading name of the company;(c)the ACN of the company.(3)Subject to regulation 5.6.68, a person:(a)who claims to be a creditor; and(b)who does not submit a formal proof of a debt or claim on or before the date specified in the notice given under subregulation (1);is excluded from participating in the distribution to which that notice relates.3. BACKGROUND FACTS