Karl Hardy v International Motor Cars Pty Ltd
[2022] VMC 24
•15 September 2022
IN THE MAGISTRATES’ COURT OF VICTORIA
AT MELBOURNE
Case No. K11296718
| KARL HARDY | Plaintiff |
| v | |
| INTERNATIONAL MOTOR CARS PTY LTD (ACN 063 329 760) (SUBJECT TO DEED OF COMPANY ARRANGEMENT) and | First Defendant |
| MICHAEL CARRAFA (IN HIS CAPACITY AS JOINT AND SEVERAL DEED ADMINISTRATOR OF INTERNATIONAL MOTOR CARS PTY LTD (ACN 063 329 760) (SUBJECT TO DEED OF COMPANY ARRANGEMENT)) | Second Defendant |
and
| OZKAN ABDULLAH | Third Defendant |
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MAGISTRATE: | Magistrate T.W. Greenway |
WHERE HELD: | Melbourne Magistrates’ Court (Online) |
DATE OF HEARING: | 12 September 2022 |
DATE OF DECISION: | 15 September 2022 |
CASE MAY BE CITED AS: | Karl Hardy v International Motor Cars Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2022] VMC 24 |
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CORPORATIONS — Voluntary Administration – Whether plaintiff is a creditor bound by a Deed of Company Arrangement under s 444D of the Corporations Act 2001 (Cth) – Claim arising on or before the appointment date.
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APPEARANCES: | COUNSEL | SOLICITORS |
| For the Plaintiff | Mr L. Currie | Allan McMonnies Barristers and Solicitors |
| For the First Defendant | Mr M. Ryckmans | SR Legal Pty Ltd |
| For the Second Defendant | Mr P. Tatti | Aitken Partners |
| For the Third Defendant | Ms A. M. Flanagan | Nerlich Lawyers |
HIS HONOUR:
This proceeding raises a dispute as to the ownership of a Corvette Chevrolet C7 (Vehicle).
There are several parties asserting an interest in the Vehicle. The plaintiff and third defendant claim to be the legal and beneficial owner of the Vehicle. Both parties had dealings with the first defendant company (Company) in mid to late 2016.
The second defendants are the joint and several administrators (Administrators) of a deed of company arrangement executed by the Company on or around 4 June 2019 (DOCA). The Company had entered voluntary administration on 22 February 2019.
By summons dated 5 August 2022, the Company seeks an order staying the proceedings pending leave of a Superior Court being granted under s 444E(3) of the Corporations Act 2001 (Cth) (Act). It is alleged that the plaintiff is a person bound by the DOCA who has brought a claim against the Company or in relation to any of its property.
To determine whether s 444E(3) of the Act[1] is engaged, consideration of the plaintiff’s claims is required.
[1]Corporations Act 2001 (Cth), s444E(3).
Plaintiff’s Claims
Breach of Trust
The plaintiff’s claim is set out in the Further Amended Statement of Claim (FASOC).[2] Defences to the FASOC are yet to be filed.
[2]Further Amended Statement of Claim dated 14 July 2022.
The claims are as follows.
In or around October 2016, the plaintiff entered into an agreement whereby he provided $60,000 to the Company to act as his agent for the purpose of purchasing and importing the Vehicle (Purchase Funds).
The Purchase Funds were advanced on or around 24 October 2016 for the express purpose of purchasing and importing the Vehicle.
The Company purchased the Vehicle, registered it in the Company’s name, and obtained physical possession sometime in November 2016.
In the above circumstances, plaintiff claims that the Company held the Vehicle on trust for him as the beneficial owner.
On 22 February 2019, the Company entered external administration and the DOCA was executed on 4 June 2019. The DOCA is continuing.
The plaintiff alleges that the Company and/or Administrators continued to hold the Vehicle on trust for him after 22 February 2019.
On 25 January 2019, the plaintiff demanded the Company deliver up the Vehicle. The plaintiff also made demands to the Company and Administrators on 27 March 2019 and 1 May 2019.
In those circumstances, the plaintiff claims that in breach of trust:
(1) the Company failed to deliver up to the Vehicle;
(2) the Administrators failed to deliver up the Vehicle.
As a result, the plaintiff has suffered loss and damage, being the value of the vehicle and any diminution in value.
Contravention of Injunction
On 22 May 2019, the Court made orders that the Vehicle not be sold, disposed of or dealt with (Injunction). A copy of the Injunction was served on the Administrators and the Company on 22 May 2019.
The plaintiff alleges that the Vehicle was in the possession of the Administrators on 22 May 2019. This fact is in dispute. As set out below, the third defendant claims to have taken possession of the Vehicle under a contract of sale on or around 24 January 2019.
Notwithstanding the third defendant’s defence[3], the FASOC alleges that, sometime after 22 May 2019, the third defendant took possession of the Vehicle.
[3]which also contains a prayer for relief.
In those circumstances, the plaintiff claims damages for breach of the Injunction against the Company and/or Administrators. The damages claimed represent:
(1) the loss of the vehicle; and
(2) a diminution in value caused by the third defendant’s use of the Vehicle.
A claim for contravention of the Injunction is also made against the third defendant.
Finally, the plaintiff’s prayer for relief claims:
(1) an order that the Company, Administrators or the third defendant deliver up the Vehicle;
(2) the Company, Administrator, or the third defendant do all things to effect registration of the Vehicle;
(3) damages.
Third Defendant’s Defence[4]
[4]To the plaintiff’s Amended Statement of Claim dated 20 December 2022.
Some further complexity is added to the proceeding by the third defendant’s claim that he is the legal and beneficial owner of the Vehicle. The defence provides as follows.
Around August 2016, the third defendant entered into an agreement with the Company for the purchase and importation of the Vehicle. The agreement was comprised of a document dated 15 August 2020 signed by the third defendant and Mr Joe Scordo, the director of the Company.
Under the agreement:
(1) the Company arranged the purchase and shipping of the Vehicle for USD $47,000 (Purchase Price);
(2) the Company would guarantee the safe arrival of the Vehicle into Australia;
(3) title to the Vehicle would pass to the third defendant upon the Company paying the Purchase Price; and
(4) the third defendant take possession of the Vehicle upon its delivery to Australia.
The Vehicle was imported into Australia and the third defendant paid the Purchase Price by instalments of $75,424.26 from 15 August 2016 to 12 January 2017.
The third defendant pleads that he took possession of the Vehicle around the date of its arrival in Australia. Some time in February 2017, the third defendant then engaged the Company to convert the Vehicle to a right-hand drive (Works).
Around the same time, the third defendant delivered the Vehicle to the Company for the Works. On or around 24 January 2019, the Company completed the Works. The third defendant paid for the Works and took possession of the Vehicle on or around 24 January 2019.
The Defence then purports to seek the following relief:
(1) a declaration that the third defendant holds legal and beneficial title to the Vehicle; and
(2) an order that the plaintiff’s security interest registered over the Vehicle on the Personal Property Securities Register be removed. [5]
[5]PPSR Registration number 201812170043728 (Security Interest).
It now appears that the third defendant is in possession of the Vehicle. When he obtained possession of the Vehicle is disputed.
Company’s Defence[6]
[6]Defence dated 2 June 2021.
The Company denies that it purchased the Vehicle as the plaintiff’s agent. In its Defence, it pleads that the agreement was a joint venture whereby:
(1) the plaintiff agreed to advance funds of $60,000 for the Company to acquire and import the Vehicle;
(2) the Company would undertake works to convert the Vehicle to right hand drive;
(3) the Vehicle would then be sold and the proceeds be distributed as follows:
a. $60,000 to the plaintiff;
b. the Company’s costs of importing and converting the Vehicle; and
c. further profit to be divided equally between the parties. [7]
[7]Ibid.
Importantly, paragraph [16] of the Defence pleads the following:
Further the Company says that the Vehicle is the property of the Company. Pursuant to clause 4.2 of the DOCA, the plaintiff as a creditor of the DOCA must not begin or continue with any proceeding against the Plaintiff [sic] or in relation to its property except with leave of the Supreme Court or Federal Court and only in accordance with such terms as the Court imposes.[8]
[8]Ibid, 16.
The Defence does not plead that it had sold the Vehicle to the third defendant or that it had transferred possession or ownership of the Vehicle. Nor does the Defence plead that the Vehicle formed part of the Company’s property subject to the DOCA (as set out below).
Finally, the current evidence is that the Vehicle remains registered to IMC. [9]
[9]Affidavit of Marc Ryckmans sworn 5 August 2022, 4.
Terms of the DOCA
Clause 1.1 of the DOCA contains the following definitions:
(a) “Claim” means a debt payable by, and all claims against, the Company (present or future, certain or contingent, ascertained or arising only in damages), being debts or claims the circumstances giving rise to which occurred on or before the Appointment Date.
(b) “Appointment Date” means 22 February 2019.
(c) “Court” means the Federal Court of Australia, the Supreme Court of Victoria or any other court having jurisdiction to hear and determine matters arising under this Deed.
(d) “Deed Creditor” means any person who has a Claim, excluding the Secured Creditors.
(e) “Participating Creditors” means Deed Creditors other than Secured Creditors and Excluded Creditors.
(f) “Secured Creditors” means Prospa Advance Pty Ltd and MGA Lawyers Pty Ltd.
(g) “PPSA Security Interest” means a security interest that is subject to the Personal Property Securities Act, 2009 (Cth).
(h) “Security” means any mortgage, chattel mortgage, pledge, security interest, charge, agreement, encumbrance lien, any right of set-off (arising otherwise than by operation of law or as a result of a banker’s right to combine accounts), assignment which provides for and secures the payment of any debt or monetary liability or the performance of any obligation.
(i) “Security Interest” means a PPSA Security Interest or any other mortgage, charge, pledge, lien, assignment, hypothecation, assignment by way of security, trust arrangement, or other security interest securing any obligation of any person, or any other agreement, notice or arrangement having similar effect. [10]
[10]DOCA.
The DOCA contains specific provisions that apply to the Vehicle.[11] Under cl 11.1, the Company would complete all necessary works (as agreed by the Deed Administrators) to prepare the Vehicle for sale.[12]
[11]Clause 11.1(a) refers to a black 2015 Chevrolet Corvette C7 (VIN 1G1YK2D79E5135321).
[12]DOCA, clause 11.1.
Under cl 11.5, any costs and expenses incurred by the Deed Administrators for the purpose of clause 11.4 shall form part of the Deed Administrators’ Remuneration and Expenses.[13]
[13]DOCA, clause 11.5.
Pursuant to cl 11.6, following completion of the works, the Deed Administrators shall arrange for the Vehicle to be sold on such terms and conditions, and for such price, as they deem appropriate but subject to the approval of the Company, not to be unreasonably withheld or delayed.[14]
[14]DOCA, clause 11.6.
By cl 11.7, upon sale of the Vehicle, the proceeds shall be distributed as follows:
(1) first, the reasonable costs and expenses of the Company to complete the works provided for in cl 11.2;
(2) second, any payment required to be made to a third party pursuant to clause 11.3 (referring to secured parties);
(3) third, the payment of any additional reasonable costs and expenses (including legal costs) which may have been incurred with respect to:
a. the sale of … the Vehicle;
b. removing any Security Interest attached to … the Vehicle (including the costs and expenses of any legal proceedings which may have been issued).
(4) fourth, the balance (if any) is to be divided as to 60% to the Deed Administrators (to comprise part of the Deed Fund) and 40% to the Company. [15]
[15]DOCA, clause 11.7.
As is apparent from the DOCA, the Deed Administrators considered the Vehicle was property of Deed Fund and the Company.
For completeness, the Administrators informed the Court that they may bring a claim (against the true owner of the Vehicle) for expenses incurred.
Applicable Provisions of the Corporations Act
Part 5.3A of the Act provides for the administration of a company’s affairs and deeds of company arrangement.[16]
[16]Corporations Act 2001 (Cth), Part 5.3A.
Section 444D(1) of the Act sets out the effects of a deed on creditors. It provides:
(1) A deed of company arrangement binds all creditors of the company, so far as concerns claims arising on or before the day specified in the deed under paragraph 444A(4)(i) [17]
[17]Being the day on or before which claims must have arisen if they are to be admissible under the deed.
(2) …
(3) Subsection (1) does not affect a right that an owner or lessor of property has in relation to that property, except so far as:
a. The deed so provides in relation to an owner or lessor property who voted in favour of the resolution of creditors because of which the company executed the deed; or
b. The court orders under subsection 444F(4). [18]
[18]Corporations Act 2001 (Cth), s 444D(1).
Section 444E is headed ‘Protection of company’s property from persons bound by deed’. It provides:
(1) Until a deed of company arrangement terminates, this section applies to a person bound by the deed.
(2) …
(3) The person cannot:
a. Begin or proceed with a proceeding against the company or in relation to any of its property; or
b. Begin or proceed with enforcement process in relation to property of the company except
c. With the leave of the Court; and
d. In accordance with such terms if any as the court imposes
(4) In subsection (3)
Property of a company includes:
a. Any PPSA retention of title property of the company; and
b. Any other property used or occupied by, or in the possession of, the company. [19]
Determination
[19]Corporations Act 2001 (Cth), s 444E.
A summary of the plaintiff’s claims is as follows:
(1) a breach of trust by the Company’s failure to return the Vehicle after the demand on 25 January 2019;
(2) a breach of trust by the Administrators’ failure to return the Vehicle after the demands on 27 March 2019 and 1 May 2019;
(3) a breach of the Injunction by the Company disposing of the Vehicle sometime after 22 May 2019;[20]
[20]Per paragraph [17] – [19] above.
(4) a breach of the Injunction by the Administrators disposing of the Vehicle sometime after 22 May 2019;
(5) possession and/or delivery up of the Vehicle from the Company, Administrators or third defendant (whoever is in possession of the Vehicle);
(6) an order that the Company, Administrators or third defendant do all things necessary to effect registration of the Vehicle in the name of plaintiff and/or nominee. (whoever is the registered owner of the Vehicle).
A further claim may include a breach of trust against the Company for disposing of the Vehicle prior to 22 February 2019 (Claim 7). This is on the basis that the third defendant maintains that he took possession on or around 24 January 2019.
There are essentially two separate questions to determine the effect of the DOCA on unsecured creditors. First, whether the plaintiff is a creditor for the purposes of s 444D(1). A creditor encompasses anyone who has a claim that would be a provable debt if the company were wound up as of the admissible claim date.[21]
[21]BE Australia WD Pty Ltd v Sutton [2011] NSWCA 414, 131.
Secondly, which claims arise on or before the admissible claim date (22 February 2019).
Turning to Claim 1, I consider that the plaintiff is a creditor. He is claiming damages for the loss of the Vehicle, capped at a maximum of $100,000. Further, I consider the claim for breach of trust arose on or before 22 February 2019. In my view, the cause of action had crystalised prior to that date. Put another way, the circumstances given rise to the claim occurred before 22 February 2019. This may be contrasted with Claims 2 and 3.
Further, if the Company disposed of the Vehicle on or around 24 January 2019, Claim 7 would also fall in the same category as Claim 1.
Accordingly, I find that the plaintiff is a person bound by the DOCA and the s 444E bar on proceeding against the Company or its property is enlivened.
As to Claims 5 and 6, the current state of the evidence is that the Vehicle is registered in the name of the Company, but in the possession of the third defendant. In those circumstances, it is difficult to see how the claim for possession against the Company would be made out.[22]
[22] It should be noted that the third defendant’s allegation of possession occurred relatively recently, in
his defence dated 22 March 2022.
The Company submitted that leave was nonetheless required even though it was not in possession of the Vehicle. It submitted that the plaintiff claims to be a Secured Creditor in respect of an $80,000 debt. This submission was supported by a security interest registered by the plaintiff on 17 December 2018.
Reliance was placed upon J&B Records Ltd & Ors v Brashs Pty Ltd:
…I have come to the view that s 444D(2) and (3) do not have the effect of removing the requirement for secured creditors and owners or lessors to obtain the leave of the court under s 444E(3) in respect of court proceedings to enforce their rights as secured creditors or owners or lessors, where those persons are creditors with claims arising on or before the day specified in the deed, and where these claims are associated with the security or property. [23]
[23]J&B Records Ltd & Ors v Brashs Pty Ltd (1995) 16 ACSR 285, 293.
I do not consider the plaintiff to be a creditor of the Company within the meaning of s 444D(1) in respect of Claims 5 and 6.[24] There is no reference to security in the plaintiff’s complaint. No reliance is placed upon the Security Interest. Rather, a trust relationship is pleaded to ground an order for delivery up of the Vehicle. There is no counterclaim by the Company seeking to establish any interest in the Vehicle pursuant to a joint venture agreement.
[24]Corporations Act 2001 (Cth), s 444D(1).
Further, a true ownership interest (as distinct from a financing interest) is not a security interest as provided for by the definition in s 12 of the Personal Property Securities Act 2009 (Cth).[25]
[25]Personal Property Securities Act 2009 (Cth), s 12.
Accordingly, I do not consider leave is required for Claims 5 and 6.
For the foregoing reasons, I will stay the plaintiff’s proceeding until leave is granted pursuant to s 444E of the Act.
I will hear the parties on the question of costs and any further orders.
MAGISTRATE GREENWAY
15 September 2022
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