Jones re ACN 110 802 938 Pty Ltd - [2006] NSWSC 276

No judgment structure available for this case.

Reported Decision:
57 ACSR 234

New South Wales

Supreme Court

CITATION: Jones re ACN 110 802 938 Pty Ltd [2006] NSWSC 276

HEARING DATE(S): 27/03/06

JUDGMENT DATE :
12 April 2006

JURISDICTION: Equity Division
Corporations List

JUDGMENT OF: Barrett J

DECISION: Order prohibiting director from leaving Australia refused

CATCHWORDS: CORPORATIONS - winding up - application by liquidator for order under s.486A prohibiting director from leaving Australia - whether such order available in creditors voluntary winding up - whether liquidator has shown "at least a prima facie case" of liability of director - whether liquidator has shown "substantial evidence" of director's intention to leave Australia

LEGISLATION CITED: Corporations Act 2001 (Cth), ss.459B, 486A

CASES CITED: American Cyanamid Co v Ethicon Ltd [1975] AC 396
Carter v New Tel Ltd (2003) 44 ACSR 661
ERS Engines Pty Ltd v Wilson (1994) 35 NSWLR 193
Godfrey v Henderson (1944) 44 SR (NSW) 447
May v O’Sullivan (1955) 92 CLR 654
Motor Auction Pty Ltd v John Joyce Wholesale Cars Pty Ltd (1997) 23 ACSR 647
Re Australian Resources Ltd (2004) 52 ACSR 452
Re Dean-Willcocks (as liquidator of Austral Pacific Group Ltd) [2004] NSWSC 1209
Third Chandris Shipping Corporation v Unimarine SA [1979] QB 645 at p.669
Western Australia v Vetter Trittler Pty Ltd (1991) 4 ACSR 795

PARTIES: Michael Gregory Jones as liquidator of ACN 110 802 938 Pty Ltd - Plaintiff

FILE NUMBER(S): SC 2061/06

COUNSEL: Mr J.T. Johnson - Plaintiff

SOLICITORS: Uther Webster & Evans - Plaintiff

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

WEDNESDAY, 12 APRIL 2006

2061/06 MICHAEL GREGORY JONES AS LIQUIDATOR OF
ACN 110 802 938 PTY LIMITED

JUDGMENT

1 The plaintiff is the liquidator of ACN 110 802 938 Pty Limited, formerly DC Corporation Australia Limited. The principal relief sought in his originating process filed in court on 27 March 2006 is the issue of examination summonses in respect of certain officers of that company. One of those persons is Oliver Banovec. The originating process also seeks, as interlocutory relief:

Corporations Act

2 Mr J.T. Johnson of counsel appeared for the plaintiff on 27 March 2006 to pursue the application for this interlocutory order. That application was made and pursued in the absence of Mr Banovec and without the originating process and supporting affidavit having been served on him. Given the nature of the relief sought, I considered it appropriate to hear the application on an ex parte basis. There is a strong analogy with the Mareva jurisdiction where, as Lord Denning MR said in Third Chandris Shipping Corporation v Unimarine SA [1979] QB 645 at p.669:

“Ex parte is of the essence. If there is delay, or if advance warning is given, the assets may well be removed before the injunction can bite.”

3 Section 486A is as follows:

“ Court may make order to prevent officer or related entity from avoiding liability to company

(a) the company is being wound up in insolvency or by the Court, or an application has been made for the company to be so wound up; and

(b) the Court is satisfied that there is at least a prima facie case that the officer, employee or related entity is or will become liable:

(ii) to account for property of the company; and

(i) has concealed or removed money or other property, has tried to do so, or intends to do so; or

in order to avoid that liability or its consequences; and

(3) On hearing an application under subsection (1), the Court must have regard to any relevant application under section 1323.

(5) The Court must not require an applicant under subsection (1) or any other person, as a condition of granting an interim order under subsection (4), to give an undertaking as to damages.

(6) On the application of a person who applied for, or is affected by, an order under this section, the Court may make a further order discharging or varying the first-mentioned order.

(8) A person must not intentionally or recklessly contravene an order under this section that is applicable to the person.

(9) This section has effect subject to the Bankruptcy Act 1966 .

4 The order the plaintiff seeks is an order under s.486A(1)(d). The court’s power to make such an order depends on satisfaction of the several conditions set out in s.486A(2).

5 Mr Johnson acknowledges a threshold difficulty under s.486A(2)(a). The company with which I am here concerned is subject to the form of creditors voluntary winding up that follows on from voluntary administration under Part 5.3A. A winding up of that kind does not satisfy either aspect of s.486A(2)(a). Winding up in insolvency derives from an order of a relevant court under s.459B. Winding up by the Court (which, having regard to the definition of that term in s.9, includes winding up in insolvency) derives from an order of a relevant court under s.461. There has, of course, been no order of either kind in this case. Section 486A is therefore inapplicable and unavailable. It was so held in ERS Engines Pty Ltd v Wilson (1994) 35 NSWLR 193.

6 Mr Johnson sought to deal with this point by making an oral application on behalf of the liquidator for a winding up order under s.461. The best course is to put that to one side for the moment and to consider the other matters raised by s.486A(2).

7 I proceed to s.486A(2)(b). In the present context, the first question posed by s.486A(2)(b) is whether Mr Banovec is an “officer or related entity” of the relevant company. The evidence shows clearly enough that he is a director, with the result that that question is answered in the affirmative. The next question under s.486A(2)(b) is whether the court is “satisfied” that there is “at least a prima facie case” that Mr Banovec “is or will become liable” to do one of the things specified in ss.486A(2)(a)(i) and (ii).

8 The requirement that the court be satisfied that there is “at least a prima facie case” will not be satisfied unless the court affirmatively finds that the material before it makes available inferences which, if translated into findings of fact, would justify a conclusion of liability of the specified kind: see Western Australia v Vetter Trittler Pty Ltd (1991) 4 ACSR 795 at p.802. In criminal law, a “prima facie case” is “a case to answer”: May v O’Sullivan (1955) 92 CLR 654. In the present context, the relief predicated upon a finding that there is “at least a prima facie case” is final relief, not interlocutory relief. The court is never called upon to determine the actual existence of liability. The question is as to the existence of a state of affairs leading to final disposition. Express provision is made in s.486A(4) for the making of an interim or interlocutory order which would, in my view, attract a requirement that there be shown a serious question to be tried. That, in turn and coupled with the final nature of an order under s.486(1), seems to me to mean that “at least a prima facie case” is something more concrete than a serious question to be tried: see the observations of Lord Diplock in American Cyanamid Co v Ethicon Ltd [1975] AC 396 at p.407.

9 Under s.486A(2)(b), the liability as to which “at least a prima facie case” must be shown is a liability of the director to pay money to the company (whether in respect of a debt, by way of damages or compensation or otherwise) or to account for property of the company. The liability the plaintiff liquidator asserts in this case is a liability of the director arising from or attributable to apparent sales of assets of the company before it was placed in Part 5.3A administration.

10 The first sale to which the plaintiff points (although the second in time) is a sale by three parties (one being the company) pursuant to an agreement dated 1 November 2005. The three sellers are named and described in that agreement as follows:

11 The “Purchaser” is two companies, CT Franchises Pty Limited and CT Lending Pty Limited.

12 The agreement recites that “the Seller” has conducted business as a mortgage originator, mortgage manager and franchisor of businesses which act as mortgage brokers and originators under franchise agreements and licence agreements, as well as direct business. The first operative provision (apart from one containing definitions) is clause 2.1. It says that the seller sells and the purchaser purchases “the Business with effect from the Effective Date” which is 1 November 2005. The purchase price is dealt with in clause 8. That clause refers to two parts of “the Business”, being the “assigned Franchises” and the “Loan Book”. A price of $358,000 is allocated to the latter, while the price allocated to the former is “nil”.

13 While there are only two items referred to in clause 3.2 which fixes the price, there are additional items actually sold. These are referred to in various provisions of clause 2. In relation to franchises, it is recorded in clause 3.1 that the seller owes money to the franchisees and that the purchaser is to pay those moneys. This may explain why the franchises were sold for zero consideration and why what is effectively the whole price of $358,000 is attributed to the “Loan Book”, that is according to the definition clause, “the rights to receive Commissions and margins accruing from the Business which have been earned by the Seller as a result of loan applications having been submitted by it and Franchisees to various lenders …”. Particulars of the lenders and the loans are set out in a schedule.

14 The plaintiff is concerned about the bona fides of this transaction. His concerns arise from the fact that Mr Banovec appears to have (or to have been promised) a 16% interest in the purchasing group and from his inability to demonstrate receipt of the purchase price by the selling companies. The plaintiff also entertains doubts as to whether the price was a proper price. Part of the plaintiff’s concern centres upon the role of a Mr Frampton who appears to have been involved in both the selling group and the buying group and whose reply to a request for information about the receipt of the purchase moneys came from solicitors and declined to provide any information on that matter. It is a document apparently originating from Mr Frampton which refers to the intention that Mr Banovec should have a 16% interest in the purchasing group. As to the adequacy of the price, the plaintiff refers in his affidavit to the fact that the loans identified in the sale agreement as involved in the “Loan Book” total more than $434 million. While that may be so, the figure of $434 million is not indicative of the value of the “Loan Book” as defined, that is, “the right to receive Commissions and margins” referable to the listed loans.

15 The plaintiff has raised similar concerns in relation to a second (but earlier) transaction of September 2004 under which the company of which the plaintiff is now liquidator (then DC Corporation Australia Limited) purported to assign something to Capital Securitisation Limited. What it was that was intended to be assigned is not clear. It is referred to as “the rights and the title of” another “loan book” pertaining to loans of some $105 million. Again, it seems likely that a right to receive some ongoing commission or reward was intended to be assigned. The price in this case was $150,000. Capital Securitisation Limited was, it may be noted, one of the vendors under the subsequent sale agreement of 1 November 2005. The transaction of September 2004 is the subject of unanswered questions in the mind of the plaintiff generally similar to those raised in relation to the transaction of 1 November 2005.

16 Mr Banovec, I should say, has given the plaintiff some information about both transactions and the prices involved.

17 In the circumstances I have outlined, it is understandable that the liquidator wishes to have examination summonses issued with a view to questioning certain officers of the company. It is clear that, while he has suspicions, he is not yet in a position to make any fully formulated and supported allegations about breach of duty in connection with the sale transactions. Examinations may arm him with further useful information.

18 In the context of the present application, however, the lack of fully formulated and supported allegations means that the plaintiff has not shown “at least a prima facie case” that Mr Banovec is liable to pay or account to the company concerned. According to the evidence presented on this application, the plaintiff’s inquiries have simply not reached a point where he can put before the court material that makes available inferences which, if translated into findings of fact, would justify a conclusion of liability on Mr Banovec’s part.

19 I move nevertheless to the inquiry made necessary by s.486A(2)(c). The aspect of that provision upon which the plaintiff places emphasis is the latter part of s.486A(2)(c)(ii) involving intention to “leave this jurisdiction or Australia”. (I note, in passing, that, under the present legislation, there is very little difference between “Australia” and “this jurisdiction”, both of which are defined in s.9.)

20 Section 486A(2)(c) requires that the court be satisfied as to the existence of “substantial evidence” of intention to leave the jurisdiction. The legislation does not define or explain “substantial evidence”. The s.486A(2)(c) requirement was, however, the subject of discussion by Santow J in Motor Auction Pty Ltd v John Joyce Wholesale Cars Pty Ltd (1997) 23 ACSR 647 at p.652:

“I am satisfied, for the reasons elaborated below, that ‘substantial evidence’ in this context bespeaks a level of evidence that is higher than having to make out a prima facie case as under the preceding para (b). The influence of the minority view expressed in para 177 of the Harmer Report from whence s 486 finds its origin is reflected in the use of the word ‘substantial’.

177. Dissenting view. One member of the Commission (Professor Chesterman) recommends a more restrictive approach. In his view, a power of a court to “freeze” the assets of an officer of a company being wound up in insolvency, or of a “related person”, or to prevent such a person from leaving Australia, should be more strictly circumscribed. It is insufficient to merely require that such measures should be “necessary or desirable for the purpose of protecting the interests of the company” because the officer or related person “is … or may become” liable to pay money to the company. Instead, the court should have to be satisfied that there is at least a prima facie case against the person in question for the alleged money owing and that the person has manifested an intention to conceal assets or to leave Australia with a view to evading liability. Such additional conditions are essential to prevent unwarranted inroads on two important civil liberties – namely, freedom of movement and freedom to deal with property. Although the court would undoubtedly take account of civil liberties considerations in exercising the recommended power, adequate safeguards should still be expressly set out.

Wentworth v Wentworth

Palster v Grindling

21 In Godfrey v Henderson (1944) 44 SR (NSW) 447 at p.454, Jordan CJ distinguished “substantial evidence” from “surmise or a mere scintilla”.

22 In relation to the s.486A(2)(c) requirement, the plaintiff refers to the evidence of two of his employees who have had first hand contact with Mr Banovec, plus evidence that, according to real property searches, Mr Banovec, who is understood to live in rented premises, owns no land in New South Wales. One employee, Mr Ward, deposes to statements by Mr Banovec before liquidation that liquidation did not worry him as he could always work overseas. Mr Banovec is also reported to have said:

“Well my mother is already overseas and she won’t be returning and she doesn’t consider that the company’s status is any of her concern.”

23 Mr Ward also refers to a request he made on 24 February 2006 that Mr Banovec consider providing his passport to the plaintiff as liquidator because he was the only director still in Australia. Mr Banovec replied that he was not required to do so. Mr Ward deposes that Mr Banovec also said:

“I don’t have an Australian passport and I am not a citizen. I’m an Austrian resident only and I only hold an Austrian passport. I’m not going anywhere and I expect my mother is going to come back to Australia shortly. If there is any issues you wish to provide to my mother or Mr Zukriegl, you can forward them to Derek Ziman of Ziman & Ziman Lawyers.”

24 A second employee, Mr Pullen, refers to an apparently casual request by Mr Banovec for information about the rights and responsibilities of a bankrupt, to which Mr Pullen replied by referring to, among other things, a trustee in bankruptcy’s right to require a bankrupt’s passport. According to Mr Pullen, Mr Banovec replied:

“If this was to happen to me, I would immediately contact the Austrian Embassy and they would allow me to leave Australia. The Geneva Convention provides that it would be illegal for me to be held in Australia against my will.”

25 The statements reported by Mr Ward and Mr Pullen cannot, on any meaning of “substantial evidence”, constitute substantial evidence that Mr Banovec intends to leave Australia. In the conversation with Mr Ward, Mr Banovec said, “I’m not going anywhere”. His comment to Mr Pullen was entirely hypothetical and referred to the theoretical possibility of his becoming a bankrupt and being required, in that context, to deliver up his passport.

26 Section 486A(2) envisages the existence of a well-founded and well-defined basis for both a likely finding of liability as referred to in s.486A(2)(b) and a likely finding as to the existence of one of the matters referred to in s.486A(2)(c). If, as Santow J suggested in the Motor Auction case (above), s.486A(2)(c) “bespeaks a level of evidence that is higher than having to make out a prima facie case as under the preceding paragraph (b)”, the court must have before it facts which constitute a clear and sound evidentiary basis pointing towards a finding of liability of the s.486A(2)(b) kind and showing a strong probability of concealment, removal, attempt or intention of the kind referred to in s.386A(2)(b). Suspicion is not sufficient in either case.

27 Because of my conclusion that the plaintiff has failed to make out the elements required by s.486A(2)(b) and s.486A(2)(c), no order will be made in response to the plaintiff’s application based on s.486A(1)(d). It is therefore unnecessary for me to revisit the plaintiff’s oral application for a winding up order under s.461. It may be appropriate for a voluntary winding up to be replaced by a court ordered winding up on the liquidator’s application if some benefit to the body of creditors will thereby be achieved – provided, of course, that some appropriate ground for the making of a winding up order is shown: Re Australian Resources Ltd (2004) 52 ACSR 452; Re Dean-Willcocks (as liquidator of Austral Pacific Group Ltd) [2004] NSWSC 1209; Carter v New Tel Ltd (2003) 44 ACSR 661. Whether a desire by a liquidator to have access to s.486A represents a sufficient reason for such a course is something that may be left to a future occasion.

28 The application for order 6 in the originating process is dismissed. The application was, however, properly and responsibly brought. The plaintiff’s costs of the application should therefore be paid as an expense of the winding up out of the property of the company.

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Citations

Jones re ACN 110 802 938 Pty Ltd [2006] NSWSC 276

Cases Citing This Decision

0

Cases Cited

9

Statutory Material Cited

1

McGrath v Troy [2010] NSWSC 1470

May v O'Sullivan [1955] HCA 38

CITATION:	Jones re ACN 110 802 938 Pty Ltd [2006] NSWSC 276
HEARING DATE(S):	27/03/06
JUDGMENT DATE :	12 April 2006
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Order prohibiting director from leaving Australia refused
CATCHWORDS:	CORPORATIONS - winding up - application by liquidator for order under s.486A prohibiting director from leaving Australia - whether such order available in creditors voluntary winding up - whether liquidator has shown "at least a prima facie case" of liability of director - whether liquidator has shown "substantial evidence" of director's intention to leave Australia
LEGISLATION CITED:	Corporations Act 2001 (Cth), ss.459B, 486A
CASES CITED:	American Cyanamid Co v Ethicon Ltd [1975] AC 396 Carter v New Tel Ltd (2003) 44 ACSR 661 ERS Engines Pty Ltd v Wilson (1994) 35 NSWLR 193 Godfrey v Henderson (1944) 44 SR (NSW) 447 May v O’Sullivan (1955) 92 CLR 654 Motor Auction Pty Ltd v John Joyce Wholesale Cars Pty Ltd (1997) 23 ACSR 647 Re Australian Resources Ltd (2004) 52 ACSR 452 Re Dean-Willcocks (as liquidator of Austral Pacific Group Ltd) [2004] NSWSC 1209 Third Chandris Shipping Corporation v Unimarine SA [1979] QB 645 at p.669 Western Australia v Vetter Trittler Pty Ltd (1991) 4 ACSR 795
PARTIES:	Michael Gregory Jones as liquidator of ACN 110 802 938 Pty Ltd - Plaintiff
FILE NUMBER(S):	SC 2061/06
COUNSEL:	Mr J.T. Johnson - Plaintiff
SOLICITORS:	Uther Webster & Evans - Plaintiff