Neville Smith Timber Industries v DP Lennan

Neville Smith Timber Industries Pty Ltd (plaintiff) brought an action against David Patrick Lennan, Jennifer Dallas Lennan, and Roy Victor Welfare (defendants) seeking to recover the sum of $218,161 pursuant to s.592 of the Corporations Law for debts owed by Brisbane Wholesale Timbers Pty Ltd (BWT) to the plaintiff. The defendants were directors of BWT which went into liquidation on 17 July 1992. The plaintiff supplied timber products to BWT from September to November 1991, with only a partial payment made. The plaintiff alleged that at the time of incurring the debts, there were reasonable grounds to expect that BWT would not be able to pay all its debts as and when they became due. The defendants denied liability and raised various defences under s.592(2) of the Corporations Law. The court was required to decide whether the plaintiff had established the elements of liability under s.592(1) and whether the defendants had proved the defences in s.592(2).

The court found that the plaintiff had established the elements of liability under s.592(1) of the Corporations Law. The court held that the debt created by the sale of a particular order to BWT fell due in accordance with the practice of their business relationship and that the acceptance by the plaintiff of forward cheques to be banked when the company said it was appropriate to do so must be viewed in the context of the way in which Mr Anderson continually pursued BWT in that connection. The court also held that by the beginning of September 1991, a reasonable and prudent director would have been aware of the deteriorating position of the company and that there were reasonable grounds to expect that the company would not be able to pay all its debts as and when they became due at the time when each of the subsequent debts to the plaintiff was incurred. The court further held that the defences under s.592(2) of the Corporations Law were not made out. The court held that the onus of positively establishing that the debts in question were incurred without Mrs Lennan's express or implied authority or consent lies on her, and on the evidence as it stands, the onus was not discharged. The court also held that Mr Lennan failed to establish the onus of the defence under s.592(2)(b) of the Corporations Law.

The court gave judgment for the plaintiff against the defendants David Patrick Lennan and Jennifer Dallas Lennan in the sum of $218,161 with costs including reserved costs if any to be taxed.