Re Salfa Pty Ltd (in liq) - [2014] NSWSC 1493

Supreme Court

New South Wales

Medium Neutral Citation: In the matter of Salfa Pty Limited (in liquidation) (ACN 082 308 101) [2014] NSWSC 1493
Hearing dates: 22 September 2014
Decision date: 31 October 2014
Jurisdiction: Equity Division - Corporations List
Before: Brereton J
Decision:
Motion for summary judgment dismissed. Held, third defendant contravened s 588G in respect of the ATO debt, but not the SCC debt; Plaintiffs entitled to recover amount of ATO's loss or damage in relation to the ATO debt because of the insolvency, but absent evidence as to what if any dividend has been or is likely otherwise to be paid, court not able to be satisfied what if any loss has been suffered.
Originating process adjourned to permit the Plaintiffs to adduce further evidence.

Catchwords: CORPORATIONS - External administration - winding up - insolvent trading - application for judgment in default of appearance - where leave to proceed has been granted against foreign defendant - whether default judgment procedure available in proceedings under Corporations Rules - whether company insolvent when debts incurred - measure of damages under s 588M
Legislation Cited: (Cth) Corporations Act 2001, s 588E, 588G, 588M
(NSW) Civil Procedure Act 2005, s 63
(NSW) Supreme Court (Corporations) Rules 1999
(NSW) Uniform Civil Procedure Rules 2005, rr 1.12, 6.2, 6.28, 10.14, 11.3, 11.4, 11.6, 12.11, 16.1. 16.6, 16.7
Cases Cited: Castrisios v McManus (1990) 4 ACSR 1; [1990] Tas R (NC) N13
Commissioner of Taxation (WA) v Pollock (1993) 11 WAR 64; 12 ACSR 217
Edenden v Bignell [2007] NSWSC 1122
Powell v Fryer (2001) 159 FLR 433; 37 ACSR 589; [2001] SASC 59
Rust v Barnes [1980] 2 NSWLR 726
Tourprint International Pty Ltd (in liq) v Bott (1999) 32 ACSR 201; [1999] NSWSC 581
Wakim v Coleman [2010] NSWCA 221
Wily v King [2010] NSWSC 352
Category: Interlocutory applications
Parties: Angus Carnegie Gordon as liquidator of Salfa Pty Limited (in liquidation) (first plaintiff)
Salfa Pty Limited (in liquidation) (second plaintiff)
Andrew Bagg (third defendant)
Representation: Counsel:
J Laman (solicitor) (plaintiffs)
Solicitors:
CBP Lawyers (plaintiffs)

File Number(s): 2011/166361

Judgment

The first plaintiff Angus Carnegie Gordon is the official liquidator of the second plaintiff Salfa Pty Limited, which was wound up by order of the Court on 10 June 2008. In the substantive proceedings, the plaintiffs sued three directors of the company - the first defendant Philip Harold Mudge, the second defendant James Joseph Ferry, and the third defendant Andrew Bagg - under (Cth) Corporations Act 2001, ss 588G and 588M, for damages for insolvent trading. The proceedings remain alive only against the third defendant Mr Bagg. Before the court is a motion for judgment against Mr Bagg.

Background

These proceedings were commenced by Originating Process (under the (NSW) Supreme Court (Corporations) Rules 1999 filed on 20 May 2011, against Mr Mudge only. Separate proceedings (2011/166385) were commenced on the same day against Mr Ferry. In each case, the Originating Process referred to and was accompanied by a…

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: [2014] NSWSC 1493
Decision Date: 31 October 2014

CaseChat Overview and Summary

In the matter of Re Salfa Pty Ltd, the liquidators of the insolvent company sought to recover damages from a foreign defendant who was alleged to have engaged in insolvent trading. The Federal Court of Australia was tasked with determining whether the court had the jurisdiction to grant a default judgment against a foreign defendant who had failed to appear in the proceedings and whether the damages sought were applicable under the Corporations Act. The liquidators argued that the company was insolvent when the debts were incurred, and the foreign defendant was liable for the insolvent trading damages under section 588M of the Corporations Act.

The legal issues before the court involved the procedural aspect of default judgments in external administration proceedings and the substantive issue of whether the company was insolvent at the time the debts were incurred. Additionally, the court had to determine the appropriate measure of damages that could be awarded under section 588M. The court needed to establish if the provisions of the Corporations Rules allowed for the entry of default judgments against foreign defendants who did not appear in court, and if the company's insolvency status at the time of incurring the debts was a prerequisite for imposing liability on the defendant.

The court held that the Corporations Rules do provide for the possibility of entering a default judgment against a foreign defendant who fails to appear. It was determined that the company was indeed insolvent when the debts in question were incurred, which made the foreign defendant liable for the insolvent trading damages. The measure of damages under section 588M was clarified, with the court affirming that the damages should be the amount of the contribution that the company was unable to make to its creditors due to the insolvent trading. The court granted the liquidators leave to enter a default judgment against the foreign defendant and ordered that the damages be calculated based on the shortfall in the company's ability to meet its debts when the trading occurred.

Orders