In the Matter of Referral Marketing Services Pty Ltd (in liquidation)

[2012] NSWSC 1291

Supreme Court

New South Wales

Medium Neutral Citation:	In the Matter of Referral Marketing Services Pty Ltd (in liquidation) [2012] NSWSC 1291
Hearing dates:	8 October 2012
Decision date:	08 October 2012
Jurisdiction:	Equity Division - Corporations List
Before:	Brereton J
Decision:	Leave granted to commence proceedings
Catchwords:	CORPORATIONS - application for leave by creditor to commence and prosecute proceedings on behalf of a corporation -inherent jurisdiction of the court - proposed proceedings against director for breach of duties and breach of fiduciary duties - criteria informing exercise of the jurisdiction - whether proposed proceedings have solid foundation - views of the liquidator
Legislation Cited:	(Cth) Corporations Act 2001, s 181, s 182, s 237, s 439C(c)
Cases Cited:	Chahwan v Euphoric Pty Ltd [2008] NSWCA 52, (2008) 65 ACSR 661 Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551; (2008) 71 NSWLR 577 Ragless v IPA Holdings Pty Ltd (in liq) (2008) 65 ACSR 700
Category:	Principal judgment
Parties:	Emerton Pty Ltd - Plaintiff Referral Marketing Services Pty Ltd (in liquidation) - Defendant
Representation:	Counsel: C Harris SC - Plaintiff J Dowling (solicitor) - Defendant Solicitors: S&P Lawyers - Plaintiff MBP Legal - Defendant
File Number(s):	2012/291676

Judgment (ex tempore)

1. HIS HONOUR: By originating process filed on 12 September 2012, the plaintiff Emerton Pty Ltd seeks leave to commence and prosecute proceedings on behalf of and in the name of the defendant Referral Marketing Services Pty Ltd (in liquidation) against Kari Allen, in respect of alleged breaches of duties under (Cth) Corporations Act 2001, s 181 and s 182, said to be owed by her to the defendant as its sole director, and/or breaches of fiduciary duty, also owed by her to it in that capacity.

1. The plaintiff is a creditor of, and 30 percent shareholder in, the defendant. Ms Allen was at all material times the sole director of the defendant, and holds the other 70 percent of its shareholding. The defendant went into liquidation on 7 March 2008, when Ms Allen, purporting to be its only creditor, resolved that it do so under Corporations Act, s 439C(c).

1. Emerton alleges that Ms Allen is, contrary to the appearance of the financial statements prepared by or on her behalf, a substantial debtor of the defendant, and that she has utilised its funds for her own purposes without recording payments made for those purposes as debits to her loan account; that she has caused the business of the company to be assigned to another company of which she is the sole beneficial owner; and that she has caused the company to declare a dividend for her benefit at a time when it was not open to the company to declare a dividend.

1. The liquidator of the defendant has not brought proceedings against Ms Allen, and prefers that any proceedings be brought by the creditor that wishes to pursue them. The plaintiff wishes to do so, in the name of the company.

1. In Chahwan v Euphoric Pty Ltd [2008] NSWCA 52, (2008) 65 ACSR 661, the Court of Appeal held that the statutory derivative action under Corporations Act, s 237, was not available in respect of a company in liquidation, and was intended to apply only to a company that was a going concern. However, the Court acknowledged that the inherent jurisdiction of the Court to grant leave to a creditor or contributory of a company in liquidation to take proceedings on behalf of and in the name of the company survived [at [123](d); ACSR 695]. This jurisdiction was exercised by Barrett J, as his Honour then was, in Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551; (2008) 71 NSWLR 577, where his Honour identified three main criteria as informing the exercise of the discretion (at [34]), namely:

1.The question whether the proceedings proposed to be pursued have some solid foundation, in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and to present reasonable prospects of success.

2.The attitude of the liquidator to the question whether the proceedings should be pursued.

3.The question whether "practical considerations support the initiation of the proceedings", with particular reference to financial protection of the liquidator and the estate of the company by means of indemnity and, if indicated, security.

1. As Barrett J indicated, the survival of the inherent jurisdiction in this respect has also been recognised in the Full Court of the Supreme Court of South Australia in Ragless v IPA Holdings Pty Ltd (in liq) (2008) 65 ACSR 700.

1. Turning shortly to the criteria referred to, I am satisfied that the proposed proceedings would not be oppressive or vexatious and have reasonable prospects of success. The evidence adduced on this application demonstrates a basis for thinking that there will be evidence at the final hearing that, if accepted, is capable of sustaining the plaintiff's allegations. That view is, if anything, fortified by the matters referred to on behalf of the liquidator.

1. As to the second criteria, the liquidator, although not proposing to bring the proceedings himself, does not oppose the grant of the leave sought and, indeed, indicates reasons why the leave should be granted. Essentially the liquidator's position is that, given the absence of funds in the liquidation and the relative positions of the parties in terms of interest in pursuing the proceedings, it is preferable that it be left to the creditor to bring them.

1. Thirdly, as to protection of the liquidator and the company, the orders proposed by the plaintiff achieve that result.

1. I make the following orders:

(1)   Order that the plaintiff may commence and prosecute proceedings on behalf of and in the name of the defendant Referral Marketing Services Pty Ltd (in liquidation) against Kari Lee Allen substantially in accordance with the draft originating process initialled by me, dated this day and placed with the papers and including all amendments thereto that may properly be made or permitted in the course of those proceedings.

(2)   Order that the plaintiff outlay and bear all of the costs and fees incurred by the defendant in the commencement and prosecution of those proceedings.

(3)   Reserve liberty to the plaintiff to apply, at the conclusion of those proceedings, for an order that the defendant repay to it all of the money outlaid by it pursuant to order 2.

(4)   Order that the plaintiff indemnify the defendant and the liquidator of the defendant in respect of any costs and fees ordered to be paid by either of them in the proceedings.

(5)   Reserve liberty to the plaintiff and the defendant and to the liquidator of the defendant to apply for such further orders in these proceedings as may become necessary or appropriate.

(6)   Reserve the costs of these proceedings.

(7)   Reserve liberty to the plaintiff, to the defendant and to the liquidator of the defendant to apply in respect of the costs of these proceedings.

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Decision last updated: 26 February 2013