Jonas v Borumba Pty Ltd
[2005] FCA 1240
•23 AUGUST 2005
FEDERAL COURT OF AUSTRALIA
Jonas v Borumba Pty Ltd [2005] FCA 1240
CORPORATIONS — application to set aside the appointment of provisional liquidators — whether appropriate to appoint provisional liquidators prior to final hearing — where fraudulent transaction likely to involve defendant companies
Allstate Explorations NL v Batepro Australia Pty Ltd (2004) NSWSC 261 - applied
WAYNE STUART JONAS AND ROSALIND WILSON JONAS (AS TRUSTEES OF THE JONAS SUPERANNUATION FUND) V BORUMBA PTY LTD (ACN 060 889 205), ALAM ENTERPRISES PTY LTD (ACN 088 229 207) AND SKYTEL PTY LTD (ACN 070 536 408)
VID 836 OF 2005MERKEL J
23 AUGUST 2005
MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VID 836 OF 2005
BETWEEN:
WAYNE STUART JONAS (AS TRUSTEE OF THE JONAS SUPERANNUATION FUND)
FIRST PLAINTIFFROSALIND WILSON JONAS (AS TRUSTEE OF THE JONAS SUPERANNUATION FUND)
SECOND PLAINTIFFAND:
BORUMBA PTY LTD (ACN 060 889 205)
FIRST DEFENDANTALAM ENTERPRISES PTY LTD (ACN 088 229 207)
SECOND DEFENDANTSKYTEL PTY LTD (ACN 070 536 408)
THIRD DEFENDANTJUDGE:
MERKEL J
DATE OF ORDER:
23 AUGUST 2005
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.The application dated 12 August 2005 be dismissed.
2.The costs of the plaintiffs and of the provisional liquidators of and incidental to that application be costs in the cause.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VID 836 OF 2005
BETWEEN:
WAYNE STUART JONAS (AS TRUSTEE OF THE JONAS SUPERANNUATION FUND)
FIRST PLAINTIFFROSALIND WILSON JONAS (AS TRUSTEE OF THE JONAS SUPERANNUATION FUND)
SECOND PLAINTIFFAND:
BORUMBA PTY LTD (ACN 060 889 205)
FIRST DEFENDANTALAM ENTERPRISES PTY LTD (ACN 088 229 207)
SECOND DEFENDANTSKYTEL PTY LTD (ACN 070 536 408)
THIRD DEFENDANTJUDGE:
MERKEL J
DATE:
23 AUGUST 2005
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
The plaintiffs commenced a proceeding in the Court seeking an order that the defendants, who I will refer to as Borumba, Alam Enterprises, and Skytel, be wound up on the just and equitable ground (s 461(1)(k) of the Corporations Act 2001 (Cth)). The plaintiffs then applied, having given notice to the defendants, for the appointment of a provisional liquidator. The defendants did not appear on the return date of the application and the District Registrar, after receiving the usual undertaking as to damages from counsel on behalf of the plaintiffs, appointed Messrs Dwyer and Hancock as provisional liquidators of each of the defendants.
The defendants and their director, Michael Alam — who I will refer to as Alam — have applied to the Court to set aside the orders of the District Registrar. The issue on the application is whether the plaintiffs have made out a sufficient case before the Court today, to maintain the appointment of the provisional liquidators that was made by the District Registrar. It is common ground that, although the appointment is discretionary, the plaintiffs should satisfy the Court that (a) it is reasonably likely that a winding up order would be made at the final hearing, and (b) there is good reason for the appointment to be made prior to the final hearing.
Generally speaking, such an appointment has been regarded as a drastic intrusion into the affairs of a company. Accordingly, it is usually necessary to show that the appointment is needed in the public interest; or to preserve the status quo in relation to the affairs of the company; or to protect the company's assets: see generally, Allstate Explorations NL v Batepro Australia Pty Ltd (2004) NSWSC 261, [27]-[30] per Austin J.
The plaintiffs have standing to bring their application for the winding up of the defendants as creditors of those defendants: see Allstate [21].
The relevant facts are somewhat complex, and my findings at this interlocutory stage are necessarily tentative. Those findings, which may be summarised as prima facie findings are as follows. The plaintiffs lent $500 000 on a short term second mortgage loan to Borumba. The loan was procured by finance brokers, whose substantial fees were ultimately borne by Borumba.
Alam controls Borumba, Alam Enterprises and Skytel, and uses inter-company loans to maintain the liquidity of those companies. The plaintiffs were fraudulently induced to make the loan which, together with interest and other amounts totalling some $660 000, became due for repayment on or about 9 August 2005. Repayment has not occurred, and there appears to be no reasonable prospect of it occurring in the immediate future. The fraud consisted of the provision to the plaintiffs of taxation documents of Borumba which had been forged in order to falsely show it to be a profitable trading entity. It also consisted of the provision to the plaintiffs of a document recording the first mortgage debt to the St George Bank, which had been fraudulently altered so as to show the debt to be $120 000 rather than $720 000. The fraudulent conduct made the second mortgage loan appear to be a far sounder transaction than it in fact was. It appears to be likely that the fraud was either committed by Alam, or at his instigation, or by the finance brokers involved in the transaction. Alam has denied any misconduct, but for present purposes, I am satisfied that it is likely the fraud was committed either by Alam, or by the finance brokers acting with or without his authority, on his behalf.
While it may emerge at trial that the finance brokers were acting on their own behalf, or even as agent for the plaintiffs, the preferable view at this interlocutory stage is that the fraud was committed in the interests of the borrower and, more probably than not, by a person whose conduct is conduct for whom the borrower will ultimately be responsible. The fraud element gives rise to the plaintiffs' claim that they are creditors of each of the three defendant companies which knowingly received the benefit of the fraud, that is the proceeds of the loan or part thereof.
It is common ground that the $500 000 borrowed by Borumba was paid by Alam Enterprises. While there is a dispute as to whether Skytel received any part of the loan, the evidence is to the effect that it was intended to be the recipient of part of the loan funds, and was likely to have been in need of the funds, as it was in a negative asset position at about that time. It was open to Alam to establish that the intended payments were not made, but I am not satisfied he has done so. Accordingly, there is a reasonably arguable case on the part of the plaintiffs that Skytel is also a creditor which was knowingly involved in the fraud.
The present case has some further unusual features. First, there is evidence that Alam Enterprises and Skytel are insolvent. Their accountant even stated that that is so, but later resiled from that statement. Further, it is clear that the defendants are unable to pay the debt due to the plaintiff, and that that situation is unlikely to change. There is also evidence of other outstanding and unpaid debts. Second, the evidence is to the effect that Alam Enterprises has been conducted as a cash business and, prior to the appointment of the provisional liquidators, its takings were not banked.
Overall, the evidence leaves me with little confidence that, absent the appointment of provisional liquidators, the affairs of the defendants will be conducted fairly and with due regard to the interests of their creditors. In the above circumstances, I am satisfied that it is reasonably likely that a winding up order will be made at the final hearing, and that there is good reason for intervention by way of a provisional liquidator at this stage. The intervention is necessary in the public interest, which requires protection against the risk of insolvent trading.
It is also necessary to preserve the status quo, to protect such assets as the companies possess, to ensure that due regard is paid to the interests of the companies' creditors, and to ensure that a fair and independent overview is able to be presented to the Court as to the affairs of those companies. Counsel for Alam and the defendants argued that this is nothing more than a debt case and, at worst, Mareva injunctive relief, rather than the appointment of provisional liquidators, is appropriate. I do not agree.
The present case is about fraudulent conduct that induced the plaintiffs to make loans that were distributed to companies under Alam's control, and which were in urgent need of the funds. It is more likely than not that he, and through him his companies, were in some way implicated in that fraudulent conduct. While, ultimately, that will be the main issue at trial, I am satisfied that the evidence raises a sufficient prima facie case in that regard to justify the conclusion that this is not just a debt case, nor is a Mareva injunction sufficient relief in all the circumstances.
In the result, I am persuaded that it is not appropriate to interfere with the orders of the District Registrar. Accordingly, the application by the defendants and Alam dated 12 August 2005 is to be dismissed.
I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Merkel. Associate:
Dated: 2 September 2005
Counsel for the Applicant: GT Bigmore QC and JDS Barber Solicitor for the Applicant: Eggleston & Whelan Counsel for the Respondent: M Gronow Solicitor for the Respondent: Kliger Partners Solicitor appearing for the provisional liquidators of the defendants: D Porter Solicitor for the provisional liquidators of the defendants: Deacons Date of Hearing: 23 August 2005 Date of Judgment: 23 August 2005
0
0
0