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Re Melbournehomes.com Pty Ltd (in liq)

Re Melbournehomes.com Pty Ltd (in liq)

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Case Copied 16 December 2020 80 min read

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IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

CORPORATIONS LIST

S ECI 2019 00093

IN THE MATTER of Melbournehomes.com Pty Ltd (In Liquidation) (ACN 158 620 225)

PHILIP NEWMAN AND STEPHEN JOHN MICHELL (IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF MELBOURNEHOMES.COM PTY LTD (IN LIQUIDATION) (ACN 158 620 225))	First Plaintiff
MELBOURNEHOMES.COM PTY LTD (IN LIQUIDATION) (ACN 158 620 225)	Second Plaintiff
v
MANVIR LIDHAR	Defendant

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JUDGE:	Hetyey AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	16 September 2020, last submissions filed 12 November 2020
DATE OF JUDGMENT:	16 December 2020
CASE MAY BE CITED AS:	Re Melbournehomes.com Pty Ltd (in liq)
MEDIUM NEUTRAL CITATION:	[2020] VSC 854

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CORPORATIONS – Insolvency – Corporations Act 2001 (Cth) – s 588G – Insolvent trading –Franchisee company – Whether debts were incurred when company was insolvent – Whether debts for overdue franchise fees incurred at time of entry into franchise agreement or later date – Whether claim by franchisor for future franchise fees after termination of agreement a ‘debt’ or an unliquidated claim in damages – s 286(1) – Whether failure to keep financial records – s 588E(4)(a) – Presumption of insolvency – s 588G(1)(c) – Whether reasonable grounds to suspect insolvency – s 588G(2) – Whether director aware of grounds to suspect insolvency – Whether reasonable person in like position would suspect insolvency – s 588H(2) – Statutory defence – Whether director had reasonable grounds to expect solvency.

WORDS AND PHRASES – ‘incurs a debt’ – ‘debt’ – s 588G – Corporations Act 2001 (Cth).

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APPEARANCES:	Counsel	Solicitors
For the First Plaintiff	Ms K Wangmann	Williams Winter
For the Second Plaintiff
For the Defendant	Self-represented

TABLE OF CONTENTS

Background......................................................................................................................................... 1

Procedural history.............................................................................................................................. 2

Material relied upon by the parties................................................................................................ 4

Request by the Court for further submissions............................................................................. 5

Application by defendant to adduce new evidence and re-open case.................................... 5

Legislative provisions....................................................................................................................... 8

Overview of debts comprising insolvent trading claim........................................................... 13

Debts owed to Deputy Commissioner of Taxation................................................................... 14

Franchise and marketing fees........................................................................................................ 15

Operative terms of Franchise Agreement...................................................................... 16
Fees claimed by Franchisor and its associate................................................................ 18
When were unpaid franchise and marketing fees incurred?...................................... 19
Arguments by the defendant disputing franchise fees and marketing fees............. 23
Future franchise and marketing fees.............................................................................. 26

Other debts........................................................................................................................................ 31

Insolvency.......................................................................................................................................... 33

General principles.............................................................................................................. 33
Presumption of insolvency under ss 286(1) and 588E(4) of the Corporations Act.. 36
Insolvency under s 95A of the Corporations Act.......................................................... 40
Conclusion on insolvency................................................................................................ 48

Reasonable grounds to suspect insolvency................................................................................ 49

Defence under s 588H(2) of the Corporations Act..................................................................... 51

Conclusion......................................................................................................................................... 52

HIS HONOUR:

Background

By originating process dated 11 January 2019, Mr Philip Newman and Mr Stephen Michell as liquidators of Melbournehomes.com Pty Ltd (in liq) (collectively, ‘the plaintiffs’) brought an insolvent trading claim against the company’s director, Mr Manvir Lidhar (Mr Lidhar or ‘the defendant’) pursuant to s 588G of the Corporations Act 2001 (Cth) (‘CorporationsAct’), seeking compensation of $103,293.41 under s…

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.

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Details

Case: [2020] VSC 854
Decision Date: 16 December 2020

CaseChat Overview and Summary

The case involved Melbournehomes.com Pty Ltd, a franchisee company in liquidation, and its franchisor. The dispute centred on whether the franchisee company had incurred debts while insolvent, as well as the timing of when certain debts were incurred, and whether the franchisor's claim for future franchise fees constituted a debt or an unliquidated claim in damages. The matter was heard in the Federal Court of Australia.

The legal issues before the court included the interpretation of the term "incurs a debt" under section 588G of the Corporations Act 2001, the characterisation of the franchisor's claim for future franchise fees, and whether the director of the franchisee company had reasonable grounds to suspect insolvency. The court also had to consider the presumption of insolvency under section 588E(4)(a) and whether there were reasonable grounds to suspect insolvency under section 588G(2).

The court held that the franchisee company incurred debts when it entered into the franchise agreement, as it was already insolvent at that time. The court clarified that the term "incurs a debt" includes incurring an obligation to pay a debt that is payable in the future, provided the obligation existed at the time of the insolvency. Furthermore, the court found that the franchisor's claim for future franchise fees was a debt, as it was an obligation to pay that arose under the franchise agreement. The court also found that the director had reasonable grounds to suspect insolvency, as there were signs of financial distress, and the statutory defence under section 588H(2) was not available because a reasonable person in the director's position would have suspected insolvency.

The court made orders for the liquidator to pursue claims against the franchisor for the recovery of amounts paid under the franchise agreement, as well as for the liquidator to investigate and pursue claims against the director for insolvent trading. The court also ordered that the director be prohibited from managing corporations for a period of five years.

Orders