Re O'Brien Real Estate Drouin Pty Ltd - [2024] VSC 327

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT
CORPORATIONS LIST

S ECI 2021 03934

IN THE MATTER of O’BRIEN REAL ESTATE DROUIN PTY LTD (ACN 602 065 734)
(IN LIQUIDATION)

BETWEEN:

O’BRIEN REAL ESTATE DROUIN PTY LTD (ACN 602 065 734) (IN LIQUIDATION) & ANOR (according to the attached Schedule)	Plaintiffs
v
JOHN EDWARDS	Defendant

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JUDGE:	Gardiner AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	10 February 2024, last evidence filed 14 March 2023
DATE OF JUDGMENT:	24 June 2024
CASE MAY BE CITED AS:	Re O’Brien Real Estate Drouin Pty Ltd
MEDIUM NEUTRAL CITATION:	[2024] VSC 327

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CORPORATIONS — Insolvency — Corporations Act (2001) (Cth) — Div 2 and 3 of Pt 5.7B — Claims for alleged insolvent trading and unreasonable director-related transactions — Defendant a director of company in liquidation which operated a real estate agency under a licensing agreement — Whether debts in relation to fees under the licensing agreement were ‘incurred’ at time of entry into the licensing agreement or at some other time — Finding that the licensing fees and other charges were incurred at time of entry into the licensing agreement at a time before it was demonstrated that the company was insolvent — Other debts including taxation debts shown to have been incurred at times that the company was insolvent in breach of ss 588G and 588M of the Corporations Act 2001 (Cth) — Orders made against the director under s 588M — Voidable transaction claims brought by liquidator under s 588FF(1) seeking orders in respect of unreasonable director-related transactions under s 588FDA — Withdrawals by director from company bank account and no explanation provided as to basis of such withdrawals transactions found to be unreasonable director-related transactions — Orders made against the director under s 588FF.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M Tennant of counsel	Aitken Partners Pty Ltd
The Defendant in person

TABLE OF CONTENTS

Introduction

The claims for insolvent trading
The claims for unreasonable director-related transactions
Factual background

Procedural history

The evidence

Plaintiffs’ evidence
Mr Edwards’ evidence
Plaintiffs’ submissions
Mr Edwards’ oral submissions

Applicable principles and legislation

Incurring of a debt

Insolvency

Reasonable grounds to suspect insolvency - s588G(1)

Consideration concerning when the Company became insolvent

When were the debts the subject of the plaintiffs’ claim incurred?

Debts that are not disputed by the defendant or are not the subject of evidence from Mr Edwards

Licensing Agreement fees
Royalties/franchise fees
Marketing contributions and charges
Merchandise
Training and events

At the time the debts were incurred, were there reasonable grounds to suspect insolvency?

Findings on the insolvent trading claims

Conclusion

HIS HONOUR:

Introduction

By originating process filed on 20 October 2021 and amended statement of claim filed on 28 November 2022, the plaintiffs, O’Brien Real Estate Drouin Pty Ltd (ACN 602 065 734) (In Liquidation) (‘Company’) and Jason Stone as liquidator of the Company make claims for insolvent trading under ss 588G and 588M of the Corporations Act 2001 (Cth) (‘Act’)…

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: [2024] VSC 327
Decision Date: 24 June 2024

CaseChat Overview and Summary

In the matter of Re O'Brien Real Estate Drouin Pty Ltd, the court considered claims regarding alleged insolvent trading and unreasonable director-related transactions. The defendant, a director of the company, was involved in the management of a real estate agency which operated under a licensing agreement. The liquidator of the company sought to recover certain debts and challenge transactions made by the director.

The court was required to determine the timing of when certain debts were incurred, specifically whether they were incurred at the time of entering into the licensing agreement or at a later time. Additionally, the court had to ascertain if the company was insolvent at the time these debts were incurred, as well as whether certain transactions made by the director were unreasonable. The legal issues centred on the interpretation of sections 588G and 588M of the Corporations Act 2001 (Cth) concerning insolvent trading, and section 588FF regarding unreasonable director-related transactions.

The court found that the licensing fees and other charges were indeed incurred at the time of entering into the licensing agreement, a period before the company's insolvency was evident. However, other debts, including taxation debts, were incurred while the company was insolvent, violating sections 588G and 588M of the Corporations Act. Consequently, orders were made against the director under section 588M for the insolvent trading. Furthermore, the court found that the withdrawals made by the director from the company's bank account, without any explanation, constituted unreasonable director-related transactions under section 588FDA. Therefore, orders were also made against the director under section 588FF in respect of these transactions.

In conclusion, the court's findings led to orders being made against the director for both insolvent trading and unreasonable director-related transactions. The director was held liable for the debts incurred during the company's insolvency period and for the unexplained withdrawals from the company's bank account.

Orders