FEDERAL COURT OF AUSTRALIA
Royal v El Ali (No 4) [2017] FCA 299
File numbers: NSD 1731 of 2013
NSD 771 of 2014Judge: DAVIES J Date of judgment: 23 March 2017 Catchwords: CORPORATIONS – application by the liquidator for Court approval of a compromise of a debt pursuant to s 477(2A) of the Corporations Act 2001 (Cth) – whether there is a debt for the purpose of s 477(2A) – whether liquidator had the power to enter into the deed of compromise
PRACTICE AND PROCEDURE – application by defendant for stay of orders pending appeal – whether exercise of the discretion to stay an order pending appeal should be exercised – whether applicant defendant in breach of other orders of the Court
Legislation: Corporations Act 2001 (Cth), ss 477(2A)
Evidence Act 1995 (Cth) s 131
Federal Court of Australia Act 1976 (Cth), ss 29(1)(a), 53
Corporations Regulations 2001 (Cth), reg 5.4.02
Federal Court Rules 2011 (Cth), r 36.08(2), 39.05, 41.01
Cases cited: Deputy Commissioner of Taxation v Leaver [2016] FCA 1028
Empire (Aust) Nominees Pty Ltd v Vince [2000] VSC 324; 35 ACSR 167
Malek Fahd Islamic School Limited v Australian Federation of Islamic Councils Inc [2016] NSWSC 672
Re HIH Casualty & General Insurance Ltd (in liq) [2002] NSWSC 1036
Re Hughes [2016] FCA 423
Re One.Tel Ltd (in liq) [2014] NSWSC 457; 99 ACSR 247
Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83
Date of hearing: 10 February 2017 Date of last submissions: 16 February 2017 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 42 Counsel for the Applicants: C Birch SC with P Thew Solicitor for the Applicants: Watson Mangioni Lawyers Pty Limited Counsel for the Second and Third Respondents in NSD 1731 of 2013 and the Second Respondent in NSD 771 of 2014: D Barlin Solicitor for the Second and Third Respondents in NSD 1731 of 2013 and the Second Respondent in NSD 771 of 2014: Bartier Perry Counsel for the Fourth Respondent: T Atkin of Maddocks Solicitor for the Fourth Respondent: Maddocks Counsel for the Sixth Respondent in NSD 1731 of 2013 and the Third and Fifth Respondents in NSD 771 of 2014: A Fernon ORDERS
NSD 1731 of 2013 BETWEEN: PETER PAUL ROYAL
First Applicant
JUDITH LOUISE ROYAL
Second Applicant
MICHAEL GREGORY JONES IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF NATHAN EL ALI
Third Applicant
AND: NATHAN EL ALI
First Respondent (and others named in the Schedule)
JUDGE:
DAVIES J
DATE OF ORDER:
23 MARCH 2017
THE COURT ORDERS THAT:
1.The application filed by the third respondent on 13 October 2016 be dismissed.
2.The third respondent pay the applicants’ costs…
Continue reading Royal v El Ali (No 4)
Sign in free to access the full text
Details
- AGLC
- Royal v El Ali (No 4) [2017] FCA 299
- Case
- [2017] FCA 299
- Decision Date
CaseChat Overview and Summary
The matter of Royal v El Ali (No 4) involved an application by the liquidator of a bankrupt's estate for Court approval of a compromise of a debt under section 477(2A) of the Corporations Act 2001 (Cth). The primary issue before the Court was whether the compromise of a debt was a proper exercise of power and for the benefit of creditors. The Court also considered an application by the defendant for a stay of orders pending appeal, and whether the exercise of the discretion to stay an order pending appeal should be exercised, as well as whether the applicant defendant was in breach of other orders of the Court.
The Court found that the compromise of a debt was a proper exercise of power and for the benefit of creditors. The Court noted that a liquidator's commercial judgment to compromise a debt would generally not be interfered with by the Court unless there was good reason, such as the identification of a legal issue or where the propriety or reasonableness of the liquidator's decision to compromise the debt had been called into question. The Court held that the compromise of a debt was a proper exercise of power and for the benefit of creditors. The Court also found that the exercise of the discretion to stay an order pending appeal should not be exercised and that the applicant defendant was in breach of other orders of the Court.
The Court dismissed both applications, and ordered that the fourth respondent pay the applicants' costs of the application referred to in paragraph 1, such costs to be taxed in default of agreement. The Court held that the compromise of a debt was a proper exercise of power and for the benefit of creditors, and that the exercise of the discretion to stay an order pending appeal should not be exercised. The Court also found that the applicant defendant was in breach of other orders of the Court. The Court's decision provides guidance on the factors to be considered when determining whether a compromise of a debt is a proper exercise of power and for the benefit of creditors.
The Court found that the compromise of a debt was a proper exercise of power and for the benefit of creditors. The Court noted that a liquidator's commercial judgment to compromise a debt would generally not be interfered with by the Court unless there was good reason, such as the identification of a legal issue or where the propriety or reasonableness of the liquidator's decision to compromise the debt had been called into question. The Court held that the compromise of a debt was a proper exercise of power and for the benefit of creditors. The Court also found that the exercise of the discretion to stay an order pending appeal should not be exercised and that the applicant defendant was in breach of other orders of the Court.
The Court dismissed both applications, and ordered that the fourth respondent pay the applicants' costs of the application referred to in paragraph 1, such costs to be taxed in default of agreement. The Court held that the compromise of a debt was a proper exercise of power and for the benefit of creditors, and that the exercise of the discretion to stay an order pending appeal should not be exercised. The Court also found that the applicant defendant was in breach of other orders of the Court. The Court's decision provides guidance on the factors to be considered when determining whether a compromise of a debt is a proper exercise of power and for the benefit of creditors.
Orders
Orders of the court
1. The application filed by the fourth respondent on 16 January 2017 be dismissed.
2. The fourth respondent pay the applicants’ costs of the application referred to in paragraph 1, such costs to be taxed in default of agreement.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
For the reasons that follow, the applications must be dismissed.BACKGROUND On 16 December 2011 Nathan El Ali (“Mr El Ali”) was made bankrupt on the petition of Peter Royal and Judith Royal (“the Royals”) in respect of a judgment debt obtained against Mr El Ali in the sum of $1,099,456.74 together with costs. Michael Jones (“the Trustee”) is the trustee of Mr El Ali’s bankrupt estate and in that capacity, the Trustee, together with the Royals, (collectively “the Applicants”) instituted these proceedings against, amongst others, Mr El Ali, Mr Zreika, Saracen, Ottoman Investments Pty Ltd (“Ottoman”), and Mr Nazloomian seeking declarations that various transactions in which they were involved were void or voidable as against the Trustee pursuant to s 37A of the Conveyancing Act 1919 (NSW) and/or s 121 of the Bankruptcy Act 1966 (Cth). The transactions included:(a)the transfer by Saracen of the property at 1 Sirius Road, Voyager Point (“the Voyager Point property”) to Mr Zreika on 8 December 2011; (b)the transfer by Ottoman of the property at 2 Woodlands Road, Taren Point (“the Taren Point property”) to Mr Zreika on 21 April 2011; and(c)the transfer by Saracen of the property at 1A McDonald Lane, Potts Point (“the Potts Point property”) to Mr Nazloomian on 22 November 2012. The Court held that the Trustee and the Royals were entitled to the relief sought against those respondents: see Royal v El Ali [2016] FCA 782 (“Royal v El Ali” or “the reasons for decision”). On 23 September 2016 the Court made various orders giving effect to the reasons for decision which included declarations that the impugned transactions were void. Other orders were made with the intended effect of putting Saracen and Ottoman back in the position they would have been had the property transfers not taken place. Saracen and Ottoman were the corporate vehicles through which Mr El Ali acquired and owned properties including the three properties the subject of the above impugned transactions. In addition, the Court ordered that Ottoman be wound up on the just and equitable ground pursuant to s 461(1)(k) of the Corporations Act. It was unnecessary to obtain a similar order against Saracen, as that company had gone into liquidation after judgment was delivered in Royal v El Ali but before final orders were pronounced. The final orders pronounced in NSD 1731 of 2013 included the following relevant orders:1.…2.…3.Pursuant to s 471B of the Corporations Act 2001 (Cth), leave is granted to the applicants to proceed with these proceedings against Saracen.4.Pursuant to s 175 of the Corporations Act 2001 (Cth), the register of members of Saracen and Ottoman be corrected to record that the shares presently registered in the name of Mahmoud El Ali be registered in the name of Michael Gregory Jones as trustee of the bankrupt estate of Nathan El Ali.5.…6.Ottoman be wound up pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth).7.…8.Mahmoud Zreika account for the value of the Voyager Point property in the sum of $800,000 by paying the said sum to the official liquidator of Saracen.9.…10.…11.The amount of $250,000 paid by Mr Zreika into Court, pursuant to the Orders made on 26 May 2016 in substitution of the claim to the Taren Point property, be paid to the official liquidators of Ottoman.
Evidence
Evidence Before The Court
The liquidator’s application was supported by three affidavits, two by Timothy Atkin, the solicitor for the liquidator, and the third affidavit by David Mansfield, the liquidator of Saracen. Objections were made to the following parts of Mr Atkin’s affidavit sworn 6 February 2017: paragraphs [9], [11]–[12], [16], [21]–[23] and pages 17–18, 24–25, 28–33 of Ex TAA1; and also to paragraph [19(b)] of Mr Mansfield’s affidavit sworn 9 February 2017. The objections were put on the basis that those paragraphs and pages contain evidence concerning “without prejudice” correspondence and communications which are prima facie inadmissible under s 131(1) of the Evidence Act 1995 (Cth) (“the Evidence Act”). Counsel for Saracen did not press paragraphs [21]–[23] or pages 28–33 but otherwise maintained the admissibility of the evidence. Apart from asserting that various exceptions set out in s 131(2) of the Evidence Act applied, counsel had not come to Court ready to argue the admissibility of the evidence and justify why the exceptions applied. I reserved on the question of admissibility and made orders giving leave to the parties to file short written submissions on the admissibility of the evidence under s 131 of the Evidence Act. Having considered those submissions, I have formed the view that none of the exclusions in s 131(2) relied on by counsel for Saracen applies and the contested evidence is not admissible under s 131(2) of the Evidence Act. But if I am wrong, I have concluded that nothing turns on that evidence in any event as the determination of the application under s 477(2A) does not depend on the admission of that particular evidence. The following reasons explain why. The oft cited authority on the Court’s power to authorise a liquidator to compromise a debt is Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83. At 85–86, Giles J stated with respect to a predecessor provision of s 477(2A):In any application pursuant to s 377(1) the court pays regard to the commercial judgment of the liquidator (Re Chase Corporation (Australia) Equities Ltd (1990) 8 ACLC 1118. That is not to say that it rubber stamps whatever is put forward by the liquidator but, as is made clear in Re Mineral Securities Australia Ltd [1973] 2 NSWLR 207 at 231-2, the court is necessarily confined in attempting to second guess the liquidator in the exercise of his [or her] powers, and generally will not interfere unless there can be seen to be some lack of good faith, some error in law or principle, or real and substantial grounds for doubting the prudence of the liquidator’s conduct. The same restraint must apply when the question is whether the liquidator should be authorised to enter into a particular transaction the benefits and burdens of which require assessment on a commercial basis. Of course, the compromise of claims will involve assessment on a legal basis, and a liquidator will be expected (as was made plain in Re Chase Corporation (Australia) Equities Ltd) to obtain advice and, as a prudent person would in the conduct of his [or her] own affairs, advice from practitioners appropriate to the nature and value of the claims. But in all but the simplest case, and demonstrably in the present case, commercial considerations play a significant part in whether a compromise will be for the benefit of creditors. Section 477(2A) is a supervisory power of the Court in relation to the exercise by liquidators of their power to compromise debts granted by s 477(1) of the Corporations Act. The requirement imposed by s 477(2A) to obtain the Court’s approval for the exercise of that power is a protective measure against error or misconduct by a liquidator: Empire (Aust) Nominees Pty Ltd v Vince [2000] VSC 324; 35 ACSR 167; cited with approval in Re HIH Casualty & General Insurance Ltd (in liq) [2002] NSWSC 1036; and Boné, in the matter of ACN 002 864 002 Pty Ltd (in liq) formerly known as Petrolink Pty Ltd v Smith [2015] FCA 870 (“Boné v Smith”). In considering whether to grant approval, the primary concern of the Court is whether the compromise is a proper exercise of power and for the benefit of the creditors within the overall context of the liquidation: Boné v Smith, at [22]; Re Hughes [2016] FCA 423 at [20]. A court will generally not interfere with a liquidator’s commercial judgment to compromise a debt unless there is good reason, such as the identification of a legal issue or where the propriety or reasonableness of the liquidator’s decision to compromise the debt has been called into question. As stated by Brereton J in Re One.Tel Ltd (in liq) [2014] NSWSC 457; 99 ACSR 247:The role of the court is to grant or deny approval to the liquidator’s proposal, not to reconsider every issue considered by the liquidator, nor to develop some alternative proposal which might seem preferable. In reviewing the liquidator's proposal, the court pays due regard to his or her commercial judgment and knowledge of all of the circumstances of the liquidation, but satisfies itself that there is no error of law or ground for suspecting bad faith or impropriety, and evaluates whether the proposal is consistent with the expeditious and beneficial administration of the winding upA court should not grant its approval under s 477(2A) if a case against the exercise of the power has been sufficiently shown.Applicants’ submissions
Decision
Reasons for decision
Full text does not contain this section.
Ratio Decidendi
Legal Principle Established
Full text does not contain this section.