Perrine v Carrello
[2017] WASCA 151
•17 AUGUST 2017
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: PERRINE -v- CARRELLO [2017] WASCA 151
CORAM: MARTIN CJ
MITCHELL JA
BEECH JA
HEARD: 2 AUGUST 2017
DELIVERED : 17 AUGUST 2017
FILE NO/S: CACV 44 of 2016
BETWEEN: LOUIS JEAN-MIC DU BUISSON PERRINE
MERCEDES DU BUISSON PERRINE
AppellantsAND
GIOVANNI MAURIZIO CARRELLO as liquidator of PERRINEPOD PTY LTD (in liquidation) (ACN 126 598 169)
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :CHANEY J
Citation :GIOVANNI MAURIZIO CARRELLO AS LIQUIDATOR OF PERRINEPOD PTY LTD (IN LIQ) -v- PERRINE ARCHITECTURE PTY LTD [2016] WASC 145
File No :COR 27 of 2014
Catchwords:
Corporations - Insolvent trading - Identification of loss suffered by creditor by reason of the insolvency of the debtor company - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 588G, s 588M
Result:
Appeal dismissed
Category: B
Representation:
Counsel:
Appellants: Mr G R Hancy
Respondent: Mr M Douglas
Solicitors:
Appellants: Fletcher Law
Respondent: Tottle Partners
Case(s) referred to in judgment(s):
Australian Securities Investments Commission v Plymin [2003] VSC 123; (2003) 175 FLR 124
Ball v Sinclair [2015] NSWSC 2103
Carrello (as Liquidator of Perrinepod Pty Ltd) (in liq) v Perrine Architecture Pty Ltd [2016] WASC 145; (2016) 112 ACSR 448
Edenden v Bignell [2007] NSWSC 1122
Fryer v Powell [2001] SASC 59; (2001) 159 FLR 433
Ho v Akai Pty Ltd (in liq) [2006] FCAFC 159; (2006) 24 ACLC 1,526
Manpac Industries Pty Ltd v Ceccattini [2002] NSWSC 330; (2002) 91 NSWLR 786
Re Salfa Pty Ltd (in liq) [2014] NSWSC 1493
Sellars v Adelaide Petroleum [1994] HCA 4; (1994) 179 CLR 332
Smith v Boné [2015] FCA 319; (2015) 104 ACSR 528
Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213
Taylor v Rudaks [2007] FCA 1962; (2007) 166 FCR 451
White Constructions (ACT) Pty Ltd (in liq) v White [2004] NSWSC 71; (2004) 49 ACSR 220
REASONS OF THE COURT:
Introduction
Mr and Mrs Perrine, the appellants, were directors and shareholders of Perrine Architecture Pty Ltd, a company carrying on the business of architects. Perrine Architecture owned 39 million of the 49.5 million shares issued in Perrinepod Pty Ltd (Perrinepod), a company in the business of providing residential and commercial prefabricated buildings. Mr and Mrs Perrine were also directors of Perrinepod. Mr Carrello, the respondent (the Liquidator), is the liquidator of Perrinepod.
The appellants appeal against the decision of the primary judge,[1] finding that they were liable to pay Perrinepod the sum of about $1.35 million, with interest, on the ground that as directors they had failed to prevent insolvent trading by Perrinepod thereby causing loss or damage to a creditor of Perrinepod, namely Perrine Architecture. The appeal challenges the finding in relation to causation of loss or damage.
[1] Carrello (as Liquidator of Perrinepod Pty Ltd) (in liq) v Perrine Architecture Pty Ltd [2016] WASC 145; (2016) 112 ACSR 448 (primary reasons).
For the reasons that follow, we would dismiss the appeal.
The Liquidator's claims at trial
Before the primary judge, the Liquidator made claims substantially beyond the claims ultimately upheld by the primary judge. Claims of the following kinds were advanced by the Liquidator:[2]
(1)Claims against Mr and Mr Perrine for their failure, as directors of Perrinepod, to prevent Perrinepod incurring debts while it was insolvent. These claims totalled $4,215,922.13.
(2)Claims against Perrine Architecture, as holding company of Perrinepod, for Perrinepod's insolvent trading. Those claims were in the sum referred to in (1).
(3)Claims totalling $1,476,974.11 against Perrine Architecture in respect of what were said to be voidable transactions including unfair preferences, uncommercial transactions and unreasonable director‑related transactions.
[2] Primary reasons [4].
The primary judge's reasons
The primary judge outlined the Liquidator's claims. His Honour identified the following central questions:
(1)whether and if so when Perrinepod became insolvent;
(2)whether there were reasonable grounds to suspect insolvency at the time particular transactions were entered into; and
(3)whether the appellants were aware at that time that there were grounds for suspecting Perrinepod was insolvent or whether a person in their position would, in Perrinepod's circumstances, be so aware.[3]
Background facts and unchallenged findings
[3] Primary reasons [5] - [8].
His Honour made detailed findings as to the background facts. Given the limited scope of the grounds of appeal, it is necessary to mention only some aspects of those findings.
From the early stages of Perrinepod's existence, from about 2008, Perrinepod relied heavily on Perrine Architecture's infrastructure, including office equipment, facilities and staff.[4]
[4] Primary reasons [22], [59] - [63].
Perrine Architecture charged Perrinepod for providing office equipment facilities and staff at rates that were within ordinary commercial rates.[5] Payments in respect of those charges were made on a running account.[6]
[5] Primary reasons [63] - [65].
[6] Primary reasons [65].
There was a flexible payment arrangement between Perrinepod and Perrine Architecture such that payments on the running account were only made by Perrinepod to Perrine Architecture as and when Perrinepod had funds to make a payment.[7] His Honour referred to minutes of a Perrinepod board meeting recording a statement by Mr Perrine that demand for payment would not be made by Perrine Architecture to the detriment of Perrinepod's cashflow, but Perrinepod would remain as an outstanding debtor until such time as payment could be made.[8]
[7] Primary reasons [66].
[8] Primary reasons [63], [66].
Before the primary judge, the Liquidator claimed that Perrinepod was insolvent as at 30 June 2009. The primary judge found that he was not satisfied in that respect.[9] His Honour found that Perrinepod was insolvent when, in July 2010, an adjudicator appointed under the Construction Contracts Act 2004 (WA) determined that Perrinepod was liable to pay a sum in excess of $1.5 million.[10] His Honour was not satisfied that the Liquidator had established Perrinepod's insolvency at any time prior to that determination.[11] Later in these reasons we will say something more about certain aspects of his Honour's findings in these respects.
[9] Primary reasons [109].
[10] Primary reasons [134] ‑ [135].
[11] Primary reasons [136] - [144].
His Honour found that upon delivery of the adjudicator's determination there were reasonable grounds to suspect Perrinepod's insolvency.[12]
[12] Primary reasons [145].
His Honour then proceeded to consider Mr and Mrs Perrine's defence under s 588H(2) that they had reasonable grounds to expect and did expect that the company was solvent and would remain solvent even if the debt was incurred. His Honour rejected that defence.[13]
[13] Primary reasons [149] - [172].
The primary judge summarised his conclusions as follows:[14]
•[Perrinepod] was insolvent as from 16 July 2010;
•there were reasonable grounds for suspecting as at that date that the company was insolvent;
•Mr and Mrs Perrine were aware that there were grounds to suspect that [Perrinepod] was insolvent and did not have reasonable grounds to expect, and did not expect, that the company was solvent at that time and would remain solvent even if it incurred further debts; and
•that position did not change at any time up until the appointment of the liquidator.
[14] Primary reasons [173].
There was no challenge on appeal to these conclusions.
The primary judge observed that Mr and Mrs Perrine were therefore liable to pay to the Liquidator the amount of any losses suffered by creditors to whom debts were incurred whilst Perrinepod was insolvent.[15]
Incurring of debt: legal principles
[15] Primary reasons [174].
The primary judge outlined the legal principles relevant to when it could be said that an insolvent company had, for the purposes of the insolvent trading provisions, incurred a debt. His Honour applied the following statement of principles by Mandie J in Australian Securities Investments Commission v Plymin:[16]
The weight of authority shows that a debt can be incurred when the contract giving rise to the debt is entered into, even if contingencies affect the debt or the debt is a future debt. In the case of a future debt, it may be incurred at the time of entering the contract if it is then an ascertained or ascertainable amount. By the same token, a debt may in appropriate circumstances be incurred within the meaning of the section at a time later than the entry of the contract under which the debt arises or may arise. Although it is necessary to consider the terms of the relevant contract, the question when the debt is incurred within the meaning of the section does not depend on strict legal analysis but turns on when, in substance and commercial reality, the company is exposed to the relevant liability. The reason for the emphasis upon substance and commercial reality lies in the need to ensure that the language is interpreted, or applied to the facts, in a way which serves the purpose, or fits the context, of a provision aimed at preventing insolvent trading and in a way which avoids absurd results.
The words 'incurs a debt' cannot be disregarded but, because of the aim and intent of the section, the focus must be on the conduct and choice of the alleged insolvent company. It will often be necessary to identify the time when the conduct and choice of the company caused the debt to be incurred, or brought about the circumstances in which the debt was incurred, because it is at that time that it must be shown that the director failed to prevent the company from incurring the debt in the relevant sense, and it is also at that time that it must be shown that the director had or ought to have had the requisite awareness that there were reasonable grounds for suspecting insolvency [516] ‑ [517].
[16] Primary reasons [175] citing Australian Securities Investments Commission v Plymin [2003] VSC 123; (2003) 175 FLR 124 [516] ‑ [517].
There is no challenge to that statement of principles, or to the primary judge's application of those principles to this case.
Resolution of the insolvent trading claims
His Honour commenced with the invoices issued by Perrine Architecture for rent. Of the six invoices referred to in the statement of claim, two were prior to the date on which, on the primary judge's findings, Perrinepod was insolvent. Consequently, the claims in respect of those invoices were rejected.[17] The primary judge found that Perrinepod was occupying the premises as a monthly tenant, so that it incurred the debt to Perrine Architecture when it continued to occupy the premises in each case.[18] His Honour then said as follows:[19]
Those invoices have not been paid, and Perrine Architecture has suffered loss in respect to the amount of those invoices. Mr and Mrs Perrine plead in their defence that the rent invoices were credited to the invoice account on about the date that they rendered, refer to the arrangement between [Perrinepod] and Perrine Architecture as to the deferral of payments until cash flow permitted, and also plead in their defence that Perrine Architecture could at any time release [Perrinepod] from its obligation to pay the rent invoices. None of those matters is capable of disproving that [Perrinepod] incurred the debts or that Perrine Architecture suffered a loss for the amount of the invoices.
[17] Primary reasons [178].
[18] Primary reasons [178].
[19] Primary reasons [180].
Ground one of the appeal attacks the reasoning and findings in that paragraph.
Next, the primary judge dealt with invoices rendered by Perrine Architecture for management fees. His Honour rejected a claim in respect of one of those invoices on the ground that the subject debt was incurred prior to the date of insolvency.[20] In respect of the remaining invoices his Honour found that they related to services provided after Perrinepod was insolvent and that Perrine Architecture suffered the loss by the non‑payment of the invoices by reason of Perrinepod's insolvency.[21]
[20] Primary reasons [182].
[21] Primary reasons [184].
His Honour reached like conclusions in respect of invoices relating to work, services or disbursements incurred after 16 July 2010. In each case, his Honour concluded that Perrine Architecture suffered a loss in the amount of the unpaid invoice by reason of Perrinepod's insolvency.[22]
[22] Primary reasons [186], [188], [190].
The judge's findings in relation to Perrinepod's debts to Perrine Architecture are the subject of ground one of the appeal.
His Honour then turned to the Liquidator's claim to recover $75,000 as loss said to have been suffered by PricewaterhouseCoopers (PWC) when it settled a claim by the Liquidator that PWC had received a preferential payment from Perrinepod. The primary judge found that the loss suffered by PWC in relation to the insolvent trading debts amounted to $30,144.84.[23] As the ground of appeal relating to this finding was abandoned, it is not necessary to detail the judge's reasoning to that finding.
[23] Primary reasons [193].
The primary judge then dealt with claims made by the Liquidator in relation to other invoices involving other parties, concluding that Mr and Mrs Perrine were not liable in respect of those invoices.[24]
[24] Primary reasons [194] - [217].
As a result, the primary judge found that Mr and Mrs Perrine were liable for failing to prevent insolvent trading when the company incurred debts in the following amounts:[25]
[25] Primary reasons [218].
Perrine Architecture rental invoices
$152,234.43
Perrine Architecture management fees
$647,064.00
Perrine Architecture professional services
$154,000.00
Perrine Architecture employee services
$309,530.61
Perrine Architecture disbursements
$34,937.97
PWC
$30,144.84
Total
$1,327,911.85
The primary judge next dealt with the claim against Perrine Architecture under s 588V and s 588W. He found that Perrine Architecture was liable under s 588V given that Mr and Mrs Perrine were the directors and controlling minds of Perrine Architecture.[26]
[26] Primary reasons [221].
The judge also found that it was appropriate to make an order under s 588Y(2) that the sums paid by the defendants not be available to pay the debts of Perrinepod to Perrine Architecture unless and until all other unsecured debts of Perrinepod have first been paid in full.[27]
[27] Primary reasons [224].
There is no appeal by Perrine Architecture.
Other findings
The primary judge then turned to the Liquidator's unfair preference uncommercial transaction and unreasonable director‑related transactions claims. As there is no challenge to his Honour's dismissal of those claims, there is no need to detail his Honour's findings. In the course of considering those claims, the judge made some findings relating to the relationship between Perrine Architecture and Perrinepod. These may be summarised as follows:
(1)The relationship between Perrine Architecture and Perrinepod was multifaceted. Perrinepod engaged Perrine Architecture to supply professional services, management and administration services, premises and loans, all of which were necessary for Perrinepod to carry out its business.[28]
(2)It was always contemplated that there would be an ongoing relationship between Perrine Architecture and Perrinepod, and that the state of the accounts between them would fluctuate from time to time.[29]
(3)In the period after July 2010, Perrinepod enjoyed the financial support of Perrine Architecture both in the form of forbearance on payment of Perrine Architecture's invoices (in accordance with the terms on which these two companies had always operated) and by the payment of Perrinepod's creditors by Perrine Architecture from time to time. The support and making of payments was designed to facilitate the continuing supply of services and funding by Perrine Architecture which enabled Perrinepod to continue operating, and provided the benefit to Perrine Architecture in the sense that Perrinepod was a consumer of its services.[30]
Conclusion
[28] Primary reasons [243].
[29] Primary reasons [245].
[30] Primary reasons [254].
The primary judge concluded as follows:[31]
For the foregoing reasons, there should be judgment against each of [Perrine Architecture], under s 588W of the Corporations Act, and [Mr and Mrs Perrine], under s 588 of the Corporation Act, for $1,327,911.85 together with interest on the amount of each invoice making up the sums set out in [218] above, pursuant to s 32 of the Supreme Court Act 1935 (WA), from the date of each invoice to the date of judgment.
Pursuant to s 588Y(2) of the Corporations Act, there should be an order that the amount paid by the defendants pursuant to this judgment not be available to pay the debts of [Perrinepod] to Perrine Architecture unless all of [Perrinepod's] other unsecured debts have been paid in full.
[31] Primary reasons [290] ‑ [291].
Grounds of appeal
Mr and Mrs Perrine advance a single ground of appeal challenging the findings in respect of loss or damage relating to the Perrine Architecture invoices. There was a second ground, but that was abandoned.[32] The ground is in the following terms:
1.The learned trial Judge erred in law in:
1.1Holding that amounts recorded in the accounts of Perrinepod Pty Ltd (in liq) (Perrinepod) as loans from or amounts invoiced by Perrine Architecture Pty Ltd (apparent debts) were, and were the quantum of, loss or damage suffered by Perrine Architecture in relation to a debt because of the insolvency of Perrinepod;
1.2Failing to hold that the respondent had not proved that Perrine Architecture had suffered, and had not proved quantum of, loss or damage in that the apparent debts were subject to agreed terms regarding repayment and the respondent did not adduce evidence to prove the value of the apparent debts.
[32] Appeal ts 2.
Legislative provisions
The following provisions of the Corporations Act 2001 (Cth) are relevant:
588G Director's duty to prevent insolvent trading by company
(1)This section applies if:
(a)a person is a director of a company at the time when the company incurs a debt; and
(b)the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and
(c)at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and
(d)that time is at or after the commencement of this Act.
(1A)For the purposes of this section, if a company takes action set out in column 2 of the following table, it incurs a debt at the time set out in column 3.
When debts are incurred
[operative table]
Action of company
When debt is incurred
1
paying a dividend
when the dividend is paid or, if the company has a constitution that provides for the declaration of dividends, when the dividend is declared
2
making a reduction of share capital to which Division 1 of Part 2J.1 applies (other than a reduction that consists only of the cancellation of a share or shares for no consideration)
when the reduction takes effect
3
buying back shares (even if the consideration is not a sum certain in money)
when the buy-back agreement is entered into
4
redeeming redeemable preference shares that are redeemable at its option
when the company exercises the option
5
issuing redeemable preference shares that are redeemable otherwise than at its option
when the shares are issued
6
financially assisting a person to acquire shares (or units of shares) in itself or a holding company
when the agreement to provide the assistance is entered into or, if there is no agreement, when the assistance is provided
entering into an uncommercial transaction (within the meaning of section 588FB) other than one that a court orders, or a prescribed agency directs, the company to enter into
when the transaction is entered into
(2)By failing to prevent the company from incurring the debt, the person contravenes this section if:
(a)the person is aware at that time that there are such grounds for so suspecting; or
(b)a reasonable person in a like position in a company in the company's circumstances would be so aware.
Note:This subsection is a civil penalty provision (see subsection 1317E(1)).
…
588M Recovery of compensation for loss resulting from insolvent trading
(1)This section applies where:
(a)a person (in this section called the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and
(b)the person (in this section called the creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency; and
(c)the debt was wholly or partly unsecured when the loss or damage was suffered; and
(d)the company is being wound up;
whether or not:
(e)the director has been convicted of an offence in relation to the contravention; or
(f)a civil penalty order has been made against the director in relation to the contravention.
(2)The company's liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage.
(3)The creditor may, as provided in Subdivision B but not otherwise, recover from the director, as a debt due to the creditor, an amount equal to the amount of the loss or damage.
(4)Proceedings under this section may only be begun within 6 years after the beginning of the winding up.
588Y Application of amount paid as compensation
(1)An amount paid to a company under section 588J, 588K, 588M or 588W is not available to pay a secured debt of the company unless all the company's unsecured debts have been paid in full.
(2)Where:
(a)under section 588J or 588K, or in proceedings under section 588M or 588W, a court orders a person to pay to the company compensation, or an amount, equal to the amount of loss or damage suffered by a person in relation to a debt because of the company's insolvency; and
(b)the court is satisfied that, at the time when the company incurred the debt, the person who suffered the loss or damage knew that the company was insolvent at that time or would become insolvent by incurring the debt, or by incurring at that time debts including the debt, as the case requires;
the court may order that the compensation or amount paid to the company is not available to pay that debt unless all the company's unsecured debts (other than debts to which orders under this subsection relate) have been paid in full.
(3)Subsection (2) does not apply in relation to proceedings under section 588M in relation to the incurring of a debt by a company if the proceedings are begun by a creditor of the company (as provided for in Subdivision B of Division 4).
(4)Subsection (2) does not apply in relation to a liability that is taken to be a debt because of section 588F.
The appellants' submissions
Mr and Mrs Perrine's submissions were to the following effect:
(1)The judge found that Perrinepod paid for Perrine Architecture's services at commercial rates but subject to an agreement that:
(a)Perrinepod would not pay unless it had the funds to pay and payment would not be detrimental to Perrinepod's cashflow; and
(b)Perrine Architecture would not demand payment;[33]
(2)In relation to the debts to Perrine Architecture, the trial judge equated 'loss or damage in relation to the debt because of the company's insolvency' with 'debt'.[34]
(3)The primary judge erred in law in failing to apply the distinction, found in the language of the statutory provisions, between a 'debt' and 'loss or damage in relation to the debt because of the company's insolvency'.[35]
(4)Whether there was any, and the quantification of, 'loss or damage in relation to the debt because of the company's insolvency' was affected by the agreement that the trial judge found had been made between Perrinepod and Perrine Architecture regarding repayment, with the result that the value of the apparent debts was not the nominal value of amount shown as loans or invoiced amounts in the accounts of Perrinepod.[36]
(5)There is a distinction between the nominal amount shown in the books of account of a company and the value of that apparent debt as is illustrated by the notion of a 'bad debt'. Where a company has a right to receive payment that is subject to fulfilment of a number of conditions, the value of that right is determined by assessing the value of the chance that those conditions will be fulfilled so as to lead to the payment of the money.[37]
(6)The respondent failed to prove that but for the insolvency Perrinepod might have earned income and made some repayments to Perrine Architecture and failed to prove the timing and amount of receipts and repayments and degree of probability of those events occurring.[38]
(7)Under the terms of the agreement between the two companies there was no set date for repayment, and an amount was to be paid only if Perrinepod had funds and payment was not detrimental to its cashflow, and Perrine Architecture would not demand repayment.[39]
(8)Consequently, the respondent failed to prove that Perrine Architecture suffered any loss or damage and did not prove the quantum of any loss or damage.[40]
[33] Appellants' submissions [20] referring to primary reasons [63] ‑ [66] (emphasis added).
[34] Appellants' submissions [21] referring primary reasons [180], [184], [186], [188], [190]; appeal ts 4 - 5, 17.
[35] Appellants' submissions [22], referring to the cases referred to in footnotes 48 and 49 of these reasons; appeal ts 4 - 5.
[36] Appellants' submissions [22.2] - [22.3]; appeal ts 5, 18.
[37] Appellants' submissions [28], referring to Sellars v Adelaide Petroleum [1994] HCA 4; (1994) 179 CLR 332; appeal ts 13.
[38] Appellants' submissions [22.4]; appeal ts 20, 22.
[39] Appellants' submissions [30], (emphasis added).
[40] Appellants' submissions [31].
A new case on appeal?
The respondent contends that ground one is inconsistent with the manner in which the appellants ran their case at trial and the appellants should not be permitted to raise a new case on appeal.[41] We do not accept that contention. The appellants' defence specifically pleaded the deferral arrangement in answer to the Liquidator's plea that Perrine Architecture suffered loss and damage.[42] The judge identified and resolved that pleaded issue. Thus, the appellants are not raising a new case on appeal.
[41] Respondent's submissions [15] - [23].
[42] See defence [143], [146], [150], [153], [156], each of which incorporated by reference the deferral arrangement as pleaded in [91(f)(1)].
However, it must be recognised that the ground of appeal directs close attention to a single issue as to loss or damage, whereas at trial this was merely one of a very large number of issues requiring resolution by the primary judge, and it did not receive any detailed attention in submissions. The appellants' criticisms of the lack of detail in the primary judge's reasoning on this issue must be seen in this light.
The disposition of the appeal
The recovery provisions in pt 5.7B of the Corporations Act depart from the conventional model of compensation under which a party claims compensation for the loss that it has suffered.[43] Relevantly, under s 588M the liquidator of a company is able to recover a loss that has not been suffered by the company, but rather was suffered by a creditor of the company in relation to a debt owed by the company to the creditor. To the extent that that might be thought to produce a somewhat arbitrary result, it nevertheless reflects the plain intention of the statute and is by no means novel in an insolvency context.[44] The recovery of compensation by a liquidator from a director for breach of s 588G is plainly for the benefit of unsecured creditors. That evidently reflects the view of the Harmer Report,[45] that it is unsecured creditors who normally suffer the greatest loss as a result of a company's insolvent trading.[46] The legislative scheme is designed to promote equal sharing between creditors of all sums recovered.[47]
[43] Ho v Akai Pty Ltd (in liq) [2006] FCAFC 159; (2006) 24 ACLC 1,526 [55], referring to s 588J.
[44] Fryer v Powell [2001] SASC 59; (2001) 159 FLR 433 [87] - [88].
[45] The Law Reform Commission, General Insolvency Inquiry, Report 45 (1988).
[46] Taylor v Rudaks [2007] FCA 1962; (2007) 166 FCR 451 [22].
[47] Explanatory Memorandum Corporate Law Reform Bill 1992 (Cth) [1103] - [1106]; Taylor v Rudaks [23] - [24].
Section 588M(2) permits recovery by a company's liquidator of the loss or damage suffered because of the company's insolvency by a creditor in relation to a debt where, in relation to the incurring of that debt, a director contravened s 588G. The liquidator can recover from the director an amount equal to the amount of the loss or damage referred to in s 588M(1). That is the loss or damage suffered by the creditor 'in relation to the debt because of the company's insolvency'.
It is clear from this language that there is a distinction between the amount of the debt and the loss or damage suffered by the creditor. It is the loss or damage suffered by the creditor that is recoverable by the liquidator under s 588M(2). That has been recognised in the cases.[48]
[48] See Ball v Sinclair [2015] NSWSC 2103 [14] and the cases cited in footnote 49 below.
We do not accept that the judge overlooked the distinction between the debt and the 'loss or damage in relation to the debt because of the company's insolvency'. In our view, in [180] of the reasons, set out at [18] above, the primary judge considered the question of the loss suffered by Perrine Architecture and specifically found that, notwithstanding the arrangement for deferral of payment, Perrine Architecture suffered a loss in the amount of the invoices. That finding reflects a conclusion, not an assumption, that the loss suffered by Perrine Architecture because of Perrinepod's insolvency was an amount equal to the amount of the unpaid invoices.
Section 588M refers to loss 'because of the company's insolvency'. That causal question directs attention to a comparison between the position of the creditors at the time of trial and the position if the company were not insolvent: how much worse off is the creditor? Often, that question is answered along the following lines: as at trial, the creditor of the insolvent company will get nothing; if the company were not insolvent, the creditor would be paid the amount of the debt; consequently, the loss is the amount of the debt.
That is why the cases state that, in ascertaining the creditor's loss or damage, the amount of the debt is the starting point and will often, if not normally, reflect the quantum of the loss.[49] If the creditor has received or is receiving a dividend in the winding up, the loss suffered by the creditor is reduced accordingly.[50]
[49] Fryer v Powell [88] ‑ [89]; Australian Securities and Investments Commission v Plymin [535]; Edenden v Bignell [2007] NSWSC 1122 [30]; Re Salfa Pty Ltd (in liq) [2014] NSWSC 1493 [22], [24]; Smith v Boné [2015] FCA 319; (2015) 104 ACSR 528 [410].
[50] Australian Securities and Investments Commission v Plymin [535]; Edenden [30]; Re Salfa [24].
The question is whether the arrangement between the two companies takes the present case outside of the ordinary position. That is to be determined on the basis of the judge's findings as to the arrangement. The appellants do not challenge any of those findings and eschew any reference to the evidence before the primary judge.[51]
[51] Appeal ts 2, 20, 22.
In our opinion, the appellants' submissions misstate the judge's findings as to the terms and effect of the agreement or arrangement regarding payment by Perrinepod to Perrine Architecture. The appellants assert that the judge found that the arrangement that Perrinepod would not pay unless it had the funds to pay.[52] In our view the judge found an agreement that permitted Perrinepod to defer payment; there was no finding of an agreement about if or whether Perrinepod was required to pay. The judge's findings are not of an agreement that payment would not need to be made if Perrinepod's cashflow did not permit it. The judge's findings are expressed in the following terms:
(a)Perrinepod would make payments to Perrine Architecture 'as and when' (not 'if and when') it had funds to do so;[53]
(b)Perrinepod would remain a debtor 'until such time as payment could be made';[54] and
(c)there was an arrangement between Perrinepod and Perrine Architecture 'as to the deferral of payments until cash flow permitted'.[55]
[52] Appellants' submissions [20], [30]; see also appeal ts 15.
[53] Primary reasons [66].
[54] Primary reasons [63], [66].
[55] Primary reasons [180].
On the judge's findings, the arrangement was not to the effect that if Perrinepod's cashflow continued to mean it was not able to make a payment, payment would never be required to be made.
Our reading of the primary judge's reasons is reinforced by the fact that the appellants' evidence in relation to the arrangement between the two companies was in substance to the same effect, being expressed about payment being made when, not if or if and when, Perrinepod's cashflow permitted.[56] Further, there was no finding or evidence that there was anything in the accounts of either company to indicate that Perrinepod's liability for the debt was contingent.[57]
[56] Affidavit of Mr Perrine [54], annexure JMP18; affidavit of Mrs Perrine [31]; ts 226.
[57] Appeal ts 21.
Moreover, on appeal the appellants accepted that there was no submission to the primary judge that the arrangement between the two companies meant that debts owed by Perrinepod to Perrine Architecture might never fall due.[58]
[58] Appeal ts 15.
For these reasons, we do not accept the appellants' assertion as to the content of the arrangement.
In our view, for the reasons that follow, in light of the terms of the arrangement as found by the judge, it was not incumbent on the Liquidator to prove that Perrinepod would have received sufficient revenue to mean that its cashflow sustained the making of payment of the debts owed to Perrine Architecture.
As we have said, the causal inquiry dictated by s 588M directs attention to the position if Perrinepod were not insolvent. A company that is not insolvent is solvent, meaning that it is able to pay all of its debts as and when they become due and payable.[59] In our view, on the primary judge's findings as to the arrangement between Perrinepod and Perrine Architecture and on the hypothesis that Perrinepod could pay all of its debts as and when they became due and payable, Perrinepod would have paid the debts it owed to Perrine Architecture.
[59] Corporations Act, s 95A.
The appellants submit that:
(1)the effect of the judge's findings was that the arrangement meant that the debts owed by Perrinepod to Perrine Architecture were not due and payable upon the issue of an invoice, and would not become due and payable until Perrinepod's cashflow was sufficient to permit payment to be made.[60]
(2)The hypothesis of solvency relates only to debts that are due and payable.[61]
(3)Consequently, the hypothesis of solvency does not sustain a conclusion that Perrine Architecture would have been paid. Rather, the Liquidator needed to demonstrate that Perrinepod would have had sufficient cashflow to produce available funds to pay the debts, something the Liquidator did not prove.[62]
[60] Appeal ts 6, 8.
[61] Appeal ts 21, 23.
[62] Appeal ts 20, 22, 23.
There is no ground or submission alleging that the primary judge erred in failing to find that the effect of the arrangement was that debts to Perrine Architecture were not due and payable. Rather, the first step of the appellants' submission is that the primary judge did so find.
We do not accept that first step in this submission. The primary judge did not make any express finding that the arrangement between the companies meant that debts the subject of an invoice were not due and payable within the meaning of s 95A of the Corporations Act. Nor, in our view, do the findings made by the primary judge sustain an inference to that effect.
The appellants' submissions in this respect fixed on the references to the arrangement made by the primary judge in the course of his assessment of the solvency of Perrinepod as at 30 June 2009 and during the financial year 2009/2010.[63] In our view, consideration of what the primary judge said in these respects does not support the appellants' submission.
[63] Appeal ts 7 - 9, referring to primary reasons [110], [141], [144].
In assessing Perrinepod's solvency as at 30 June 2009, the primary judge had regard to the commercial realities of Perrinepod's trading position,[64] one aspect of which he described as its 'enjoying financial support from Perrine Architecture, both in the form of forbearance in relation to amounts due for rental and other services, and from time to time by way of payments made by Perrine Architecture to [Perrinepod]'s creditors'.[65] In assessing Perrinepod's insolvency during the financial year 2009/2010, the primary judge concluded that he was not satisfied that, 'having regard to the unusual arrangements which existed in relation to many of the substantial components of what were recorded in the books as debts of [Perrinepod], the plaintiff has established [Perrinepod's] insolvency in the relevant sense at any time prior to the adjudicator's determination in July 2010'.[66] These findings are expressed in very general terms and, on their face, are far removed from a finding that the effect of the arrangements was that debts were not due and payable until Perrinepod's cashflow enabled it to make a payment.
[64] Primary reasons [109].
[65] Primary reasons [110], second dot point.
[66] Primary reasons [144].
The appellants also point to the primary judge's finding that the arrangement was that demand for payment would not be made until Perrinepod's cashflow meant that payment could be made.[67]
[67] Appeal ts 9, referring to primary reasons [63], [66].
In our view the judge's reference to demand for payment not being made is a reference to an arrangement not to enforce Perrine Architecture's right to payment, rather than an agreement that the debt is not yet 'due and payable'. That is supported by his Honour's reference to Perrine Architecture's forbearance 'in relation to amounts due … '.[68]
[68] Primary reasons [110] (emphasis added).
In assessing the question of insolvency, the primary judge applied the well‑known outline of principles set out by Palmer J in Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation.[69] While different understandings may be open, those principles do not clearly state a hard and fast rule that an arrangement by which a creditor provides some forbearance can only be relevant to an assessment of solvency if it is established that the arrangement had the effect that the debt was not due and payable.[70] Rather, on our reading of the primary judge's reasons, his Honour took into account the arrangement between Perrinepod and Perrine Architecture on the basis that an arrangement by which a creditor provides some forbearance may be relevant to an assessment of solvency, as part of the 'commercial realities', without it being established that the arrangement meant the debt was not payable. The appellants' grounds of appeal and submissions do not raise any issue as to the correctness of that approach.
[69] Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213 [54]. As the primary judge pointed out, these principles have been frequently cited and applied.
[70] See, for example, Manpac Industries Pty Ltd v Ceccattini [2002] NSWSC 330; (2002) 91 NSWLR 786 [39] ‑ [41]; White Constructions (ACT) Pty Ltd (in liq) v White [2004] NSWSC 71; (2004) 49 ACSR 220 [289] ‑ [294]; Smith v Boné [29].
For these reasons, we do not accept the appellants' submission that the trial judge found, in effect, that the arrangement between Perrinepod and Perrine Architecture meant the debts the subject of an invoice were not due and payable within the meaning of s 95A of the Corporations Act. On the primary judge's findings, the debts owed to Perrine Architecture were due and payable once an invoice was issued.
Consequently, on the hypothesis of Perrinepod's solvency, Perrinepod would have been able to pay its debts including the Perrine Architecture debts, when due and payable and so Perrine Architecture would have been paid the amount of the invoices. Thus, there is no question of assessing the value of the lost chance to recover the amount of the invoices; by reason of Perrinepod's insolvency, Perrine Architecture lost the amount of the unpaid invoices.
This conclusion is reinforced by consideration of what, on the judge's findings, had occurred in the past. Perrinepod made payments in discharge of its liability to Perrine Architecture when it had funds to do so.[71] On the hypothesis of solvency, Perrinepod would have had funds to enable it to pay all of its debts when due and payable which, for the reasons already given, includes the debts to Perrine Architecture.
[71] Primary reasons [66].
For these reasons, the appeal must fail.
Conclusion
For the reasons we have given, we would dismiss the appeal.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: PERRINE -v- CARRELLO [2017] WASCA 151 (S)
CORAM: MARTIN CJ
MITCHELL JA
BEECH JA
HEARD: ON THE PAPERS
DELIVERED : 21 SEPTEMBER 2017
FILE NO/S: CACV 44 of 2016
BETWEEN: LOUIS JEAN-MIC DU BUISSON PERRINE
MERCEDES DU BUISSON PERRINE
AppellantsAND
GIOVANNI MAURIZIO CARRELLO as liquidator of PERRINEPOD PTY LTD (in liquidation) (ACN 126 598 169)
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :CHANEY J
Citation :GIOVANNI MAURIZIO CARRELLO AS LIQUIDATOR OF PERRINEPOD PTY LTD (IN LIQ) -v- PERRINE ARCHITECTURE PTY LTD [2016] WASC 145
File No :COR 27 of 2014
Catchwords:
Bankruptcy - Appellant becoming bankrupt after case heard and after advance copy of reasons provided, but before reasons published and before orders made - Effect of s 60 of the Bankruptcy Act 1966 (Cth) - Appropriate orders to be made
Legislation:
Bankruptcy Act 1966 (Cth), s 60
Result:
Appeal dismissed
Appellant to pay respondent's costs to be taxed if not agreed
Category: B
Representation:
Counsel:
Appellants: No appearance
Respondent: No appearance (on the papers)
Solicitors:
Appellants: No appearance
Respondent: Tottle Partners
Case(s) referred to in judgment(s):
Armour v Mason [2002] NSWSC 464
Beneficial Insurance Co Ltd v Hamilton (1985) 73 FLR 347
Charitopoulos v Deputy Commissioner of Taxation [2009] SADC 120
Cristavao v Tan & Tan Lawyers Pty Ltd [2017] WASCA 171
Cummings v Claremont Petroleum NL [1996] HCA 19; (1996) 185 CLR 124
Fletcher v Westpac [2012] WASCA 154
John v Nieman Holdings Pty Ltd (1986) 84 FLR 84
Perrine v Carrello [2017] WASCA 151
Romeo v de Chiara Constructions Pty Ltd [2012] NSWCA 190
Temsign Pty Ltd v Biscen Pty Ltd (1998) 20 WAR 47
JUDGMENT OF THE COURT:
Introduction
On 2 August 2017 we heard the appellants' appeal against the primary judge's finding that they were liable to pay Perrinepod, a company of which they had been directors, a sum of about $1.35 million. The court reserved its decision.
On 14 August 2017, the court notified the parties that judgment would be delivered on 17 August 2017 and that an advanced copy of the decision would be provided on 16 August 2017.
On 16 August 2017, the court provided an advanced copy.
On 15 August 2017, the appellants presented debtors' petitions for bankruptcy. On 16 August 2017, the official receiver accepted the appellants' petitions, whereupon the appellants became bankrupt by force of s 55 of the Bankruptcy Act 1966 (Cth).
On 17 August 2017, we published our reasons for concluding that the appeal should be dismissed.[72] By then, the court had been advised of the bankruptcy order made the previous day. We ordered that the parties and the trustees in bankruptcy have 28 days within which to provide written submissions on the course which the court should follow. We also ordered that the matter be dealt with on the papers unless a party or the trustees indicate that they wish otherwise.
[72] Perrine v Carrello [2017] WASCA 151.
Subsequently, the trustees recorded that they decided not to make an election pursuant to s 60(2) of the Bankruptcy Act.
Only the respondent filed submissions seeking orders dismissing the appeal and for costs in his favour. No party sought an oral hearing.
The appropriate orders
Section 60 of the Bankruptcy Act provides, relevantly, as follows:
Stay of legal proceedings
(2)An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.
(3)If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action.
An appeal is an action within the meaning of s 60(2).[73]
[73] Cummings v Claremont Petroleum NL [1996] HCA 19; (1996) 185 CLR 124, 130; Fletcher v Westpac [2012] WASCA 154 [10].
There may be a question as to whether and in what way s 60 operates upon the circumstances of this appeal. However, for reasons to be explained, it is not necessary to resolve any such question. That is because the same orders are, in our view, appropriately made whether s 60 applies or not.
In the ordinary course, and leaving aside the possible operation of s 60, the orders flowing from the reasons we have published are that the appeal be dismissed and the appellants pay the respondent's costs.
By the time appellants became bankrupt, the case had been fully argued and the court was in a position to deliver its judgment. There was nothing more for the appellants, or any other party, to do. In those circumstances, there is authority suggesting that s 60 has no operation, essentially on the ground that the evident object of s 60 is to give the trustee in bankruptcy the opportunity of an election so that, if there is nothing further for the bankrupt party to do, there is no occasion for any election.[74] There may be room for a contrary view.[75]
[74] Beneficial Insurance Co Ltd v Hamilton (1985) 73 FLR 347; John v Nieman Holdings Pty Ltd (1986) 84 FLR 84, 86; see also Armour v Mason [2002] NSWSC 464 [15] - [17]; Romeo v de Chiara Constructions Pty Ltd [2012] NSWCA 190 [15].
[75] See, for example Charitopoulos v Deputy Commissioner of Taxation [2009] SADC 120 [14] - [25].
It is not necessary to resolve any such question. Assuming s 60 applies, the position is as follows. The trustee in bankruptcy did not make an election pursuant to s 60(2) of the Act to prosecute or discontinue the appeal. The effect is that the appellant is deemed to have abandoned the appeal.[76] When there is a deemed abandonment, while in some cases a stay may be appropriate, it is open to the court to dismiss the proceeding.[77] In the circumstances of this case, it is plainly appropriate that the appeal be dismissed.
[76] Section 60(3).
[77] Temsign Pty Ltd v Biscen Pty Ltd (1998) 20 WAR 47, 58; Fletcher v Westpac [25] - [31]; Cristavao v Tan & Tan Lawyers Pty Ltd [2017] WASCA 171.
Conclusion
For these reasons we make the following orders:
(1)The appeal be dismissed.
(2)The appellants pay the respondent's costs of the appeal, to be taxed if not agreed.
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