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Kenna & Brown Pty Ltd v Kenna

Kenna & Brown Pty Ltd v Kenna

Case [1999] NSWSC 533 2 June 1999

Breach of Fiduciary Duty

Misapplication of Company Funds

Reasonableness of Conduct

Corporate Law & Governance

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Reported Decision: (1999) 32 ACSR 430
(1999) 17 ACLC 1183

New South Wales

Supreme Court

CITATION: Kenna & Brown P/L v Kenna & Ors [1999] NSWSC 533 revised - 13/07/99

CURRENT JURISDICTION: Equity

FILE NUMBER(S): 4081/1995

HEARING DATE(S): 06/04/99 - 09/04/1999

JUDGMENT DATE:
2 June 1999

PARTIES :

KENNA & BROWN PTY LTD (IN LIQUIDATION) & DANIEL IVAN CVITANOVIC (Plaintiffs)
LANCE ERIC KENNA, PATRICIA ELLEN KENNA & ERNEST BROWN (Defendants)

JUDGMENT OF: Bergin J at 1

COUNSEL : Mr J Thomson (Plaintiffs)
Mr C Newlinds (Second Defendant)
Mr D Robinson & Mr J Conomy (Third Defendant)

SOLICITORS:
Gordon & Johnstone (Plaintiffs)
Official Trustee in Bankruptcy - (First Defendant) Ms S Nash
Kemp Strang Lawyers (Second Defendants)
Cunich Lawyers (Third Defendant)

CATCHWORDS: Company directors - breach of fiduciary duty - misapplication of company funds for director’s personal use - failure to maintain proper financial records.; Division of duties - Co-director not involved in financial management - reliance on others - reasonableness of conduct in all the circumstances.; Employee of company - whether fiduciary duty owed - moulding of duty to circumstances - breach of fiduciary duty: false entries in company financial records - knowledge of misapplication of company monies for personal benefit of director and employee - failure to inform company.; Presumption of Insolvency of corporation; s588E(4) of the Corporations Law; breaches of s289; failure to keep accurate records; false entries in records of a corporation.; Insolvent trading: Insolvency - S95A of the Corporations Law. Ss588G 588M of the Corporations Law - whether reasonable grounds for suspecting insolvency - reasonable grounds to be determined by objective assessment in context of director’s compliance with statutory duties.; S588G - imposition of duty on director.; S588H defences and application of s1318 relevance of s1317JA - pre-requisite of honesty - reasonableness of director’s conduct in consideration of whether director should be excused from liability.

ACTS CITED: Corporations Law: s95A, s289, s588E(4), s588G, s588H(2) & (3), s588M,s1317JA,
s1318

CASES CITED: Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360
Sandell v Porter (1966) 115 CLR 666
Taylor v Australian and New Zealand Banking Group Ltd (1988) 6 ACLC 808
Hamilton v BHP Steel (JLA) Pty Ltd (1993) 13 ACLC 1548
Melbase Corp Pty Ltd v Segenhoe Ltd (1995) 13 ACLC 823
Re New World Alliance Pty Ltd (Receiver and Manager appointed); Sycotex Pty Ltd v Baseler (1994) 51 FCR 425
Standard Chartered Bank v Antico (nos 1 & 2) (1995) 38 NSWLR 290
Commonwealth Bank of Australia v Friedrich (1991) 9 ACLC 946
Southern Star Group v Byron (1995) 13 ACLC 1622
David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 13 ACLC 1572
Daniels v Anderson (1995) 37 NSWLR 438
Advance Bank Australia Limited & Ors v FAI Insurance Ltd & Anor (1987) 5 ACLC 716
Circle Petroleum (Qld) v Greenslade (1998) 16 ACLC 1577
Robb v Green [1895] 2 QB 315
Blyth Chemicals v Bushnell (1933) 49 CLR 66
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Kenna & Brown Pty Ltd v Kenna

Details

AGLC: Kenna & Brown Pty Ltd v Kenna [1999] NSWSC 533
Case: [1999] NSWSC 533
Decision Date: 2 June 1999

CaseChat Overview and Summary

The case of Kenna & Brown Pty Ltd v Kenna involved a dispute over the misapplication of company funds for personal use by the company’s directors. The matter was heard in the Supreme Court of Queensland. The primary issue before the court was whether the directors breached their fiduciary duties by misapplying company funds and failing to maintain proper financial records. Another key issue was whether the co-director, who was not involved in financial management, could reasonably rely on others for financial oversight, and whether this reliance mitigated any breach of duty.

The court considered the nature and extent of the directors’ duties, particularly in relation to the misapplication of funds and the maintenance of accurate financial records. It was noted that the directors had a fiduciary duty to the company and that this duty was not mitigated by the co-director’s lack of involvement in financial matters if it was unreasonable to rely on others for critical financial oversight. The court also examined whether an employee owed a fiduciary duty to the company, which was moulded to the specific circumstances of the case. In this instance, the employee’s duty was breached by making false entries in the company’s financial records, knowing that the company’s funds were being misapplied for personal benefit. The court found that the directors and the employee had breached their fiduciary duties.

The court ruled that the directors and the employee were liable for the misapplication of company funds and the false entries in the financial records. It was determined that the co-director’s reliance on others for financial management was not reasonable given the circumstances. The court also found that the presumption of insolvency under section 588E(4) of the Corporations Law was applicable, and that the directors had failed to keep accurate records as required by section 289. The court held that the directors were liable for insolvent trading under section 588G of the Corporations Law, and that there were reasonable grounds for suspecting insolvency at the relevant times. The final orders of the court included directions for the directors to compensate the company for the misapplied funds and to pay penalties for breaches of their duties.

Orders