Sands Contracting Pty Ltd v Cant

Case [2021] FCA 638

FEDERAL COURT OF AUSTRALIA

Sands Contracting Pty Ltd v Cant [2021] FCA 638   

File numbers: WAD 58 of 2021
Judgment of: MCKERRACHER J
Date of judgment: 11 June 2021
Catchwords: BANKRUPTCY AND INSOLVENCY – liquidators – application to set aside liquidators’ adjudication of a creditor’s proof of debt – where the debt is disputed by the company’s former directors and previously the subject of litigation – hearing de novo – submitting notice filed by liquidators
Legislation:

Corporations Act 2001 (Cth) ss 444B, 446A

Corporations Regulations 2001 (Cth) reg 5.6.54

Federal Court (Corporations) Rules 2000 (Cth) rr 14.1(2), 14.1(3), 14.1(4)

Cases cited:

Capocchiano v Young [2013] NSWSC 879

Re ION Limited (No 2) [2012] FCA 561

Sands Contracting Pty Ltd v Foodcorp (VIC) Pty Ltd [2020] FCA 1274

Sands Contracting Pty Ltd v Foodcorp (VIC) Pty Ltd (No 2) [2020] FCA 1415
Division: General Division
Registry: Western Australia
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 37
Date of hearing: 28 April 2021
Counsel for the Plaintiffs: Mr A Metaxas
Solicitor for the Plaintiffs: Metaxas Legal
Counsel for the Defendants: The Defendants submit to any order of the Court, save as to the question of costs

ORDERS

WAD 58 of 2021
BETWEEN:

SANDS CONTRACTING PTY LTD (ACN 008 711 564), SANDS HOLDINGS PTY LTD (ACN 008 694 915), HECSANDS PTY LTD (ACN 008 748 650), ANTHONY JEROME SANDS, CARMEL JEAN SANDS, KEVIN JOHN SANDS AND LYNNE MARGARET SANDS (IN HER CAPACITY AS EXECUTOR OF THE ESTATE OF THE LATE PETER JAMES SANDS)  

Plaintiffs
AND:

ANTHONY ROBERT CANT AND RENEE SARAH DI CARLO

Defendants

ORDER MADE BY:

MCKERRACHER J

DATE OF ORDER:

11 JUNE 2021

THE COURT ORDERS THAT:

1.The plaintiffs’ appeal be allowed.

2.The defendants’ rejection of the plaintiffs’ proof of debt or claim dated 28 October 2020 in the liquidation of Foodcorp (Vic) Pty Ltd (ACN 074 563 385) be set aside.

3.The defendants or any replacement liquidator do admit the plaintiffs’ proof of debt or claim for $253,051.

4.Should either party seek its costs, the moving party is to file written submissions (not exceeding 3 pages) within 7 days of the date of this order, with the other party permitted a further 7 days from receipt of the moving party’s submissions to file any responsive submissions.

5.Any question of costs be determined on the papers.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

MCKERRACHER J

INTRODUCTION

  1. The plaintiffs (Sands) carry on a storage and delivery business. In or around December 2013, by oral agreement (the 2013 agreement), Sands contracted with Foodcorp (Vic) Pty Ltd (now in liquidation) (the Company) for the storage and delivery of ice cream products. In November 2019, the Company’s directors resolved to place the Company into administration and in January 2020, the Company passed into liquidation by reason of its failure to execute a deed of company arrangement: s 444B and s…

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AGLC
Sands Contracting Pty Ltd v Cant [2021] FCA 638
Case
[2021] FCA 638
Decision Date

CaseChat Overview and Summary

Sands Contracting Pty Ltd has brought an appeal against the liquidators of Foodcorp (Vic) Pty Ltd, challenging their adjudication of a creditor's proof of debt. The liquidators had rejected a claim from Sands for the full amount of $253,051, opting instead to allow a debt of $39,629.50. Sands' appeal was filed under regulation 5.6.54(2) of the Corporations Regulations 2001 (Cth) and proceeded unopposed as the former liquidators decided not to contest the appeal. The key issue before the court was whether the former directors of Foodcorp (Vic) Pty Ltd should have been notified of the appeal as they might have a contingent interest in the outcome, potentially influencing any future actions a liquidator might take against them.

The court examined whether there was a requirement under the Federal Court (Corporations) Rules 2000 (Cth) to notify the former directors of the appeal. Rule 14.1(4) mandates that an appeal initiator must serve a copy of the originating process and any supporting affidavit on each person directly affected by the appeal. The court concluded that the former directors would not be directly affected by the outcome of this proceeding, as their interest was contingent and speculative at best. The court found that there was no statutory requirement for notice, and that serving the former directors would not bind them to a decision in an appeal they had not been joined to or notified of.

The court allowed Sands' appeal, set aside the liquidators' rejection of the proof of debt, and ordered the liquidators or any replacement liquidator to admit Sands' proof of debt for the full amount of $253,051. The court further ordered that any question of costs would be determined on the papers. This decision underscores the principle that an appeal against a liquidator's decision to reject a proof of debt is a hearing de novo, where the court considers all relevant evidence, including any additional evidence not before the liquidator.

Orders

Orders of the court

1. The plaintiffs’ appeal be allowed.

2. The defendants’ rejection of the plaintiffs’ proof of debt or claim dated 28 October 2020 in the liquidation of Foodcorp (Vic) Pty Ltd (ACN 074 563 385) be set aside.

3. The defendants or any replacement liquidator do admit the plaintiffs’ proof of debt or claim for $253,051.

4. Should either party seek its costs, the moving party is to file written submissions (not exceeding 3 pages) within 7 days of the date of this order, with the other party permitted a further 7 days from receipt of the moving party’s submissions to file any responsive submissions.

5. Any question of costs be determined on the papers.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

For these reasons, no steps were taken to compel Sands to give notice to the directors of this appeal.EVIDENCE In support of the relief sought, the fourth named plaintiff, Mr Anthony Jerome Sands has sworn an affidavit which is the only evidence before the Court. For the reasons that follow, I am satisfied that this evidence establishes that Sands is owed the full amount of its claim against the Company and is therefore entitled to the substantive relief it seeks. THE PRINCIPLES In an appeal of this nature the party appealing against a liquidator’s decision to reject the proof of debt has the onus of showing the decision was wrong. It is a hearing de novo in which the creditor’s claim is to be determined by reference to the evidence before the Court when it considers whether or not to affirm the liquidator’s decision, even if this includes additional evidence to that which was before the liquidator. As was explained by Kunc J in Capocchiano v Young [2013] NSWSC 879 (at [46]-[47]):46The relevant legal principles are not in doubt. An appeal against the rejection of a proof of debt is a hearing de novo. The Court must take into account all relevant evidence, whether or not it was before the liquidator at the time the proof was rejected. The fundamental question is whether the claim sought to be proved is a true liability of the company enforceable against it according to law. Nevertheless, the claimant bears the onus to demonstrate that the liquidator was wrong in rejecting the proof. If that onus is not discharged, the Court will not overturn the liquidator’s decision. If the Court is unable to conclude either way whether the proof should be admitted, then the liquidator’s decision must stand. 47The authorities for the principles summarised in the preceding paragraph are Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 at 338-341 (per Brennan and Dawson JJ); Re Kentwood Constructions Ltd [1960] 1 WLR 646 at 647-648; Westpac Banking Corporation v Totterdell (1998) 20 WAR 150 at 154 per Ipp J, Pidgeon and White JJ agreeing; Re Galaxy Media Pty Limited (recs and mgrs apptd) (in liq); Walker and Another (in their capacity as recs and mgrs of Galaxy Media Pty Ltd) v Andrew (as liq of Galaxy Media Pty Ltd) and others (2001) 39 ACSR 483; [2001] NSWSC 917 at [23]-[34].THE LIQUIDATORS’ ADJUDICATION As is apparent from Sands (No 1) the former directors of the Company dispute the debt claimed by Sands. They say that Sands has already been paid all that it is owed under the 2013 agreement. In 2016, Sands commenced proceedings in the District Court to recover debts said to be owed to it by the Company and Superior Foods (the fourth defendant in the Removal Proceedings and a creditor of the Company). The Liquidators were provided with the pleadings filed by Sands and the Company in the District Court action as well as other supporting documentation. Sands also points to the fact that during negotiations in late 2019, Mr Phillips (former director of the Company) offered to settle the District Court action for $205,000. This was a topic of much debate in the Removal Proceedings: see Sands (No 1) (at [58(d)], [63], [67]-[73] and [124]).

Decision

Reasons for decision

Although there does not appear to be any statutory requirement that notice be given, r 14.1 of the Federal Court (Corporations) Rules 2000 (Cth) provides as follows:14.1 Appeals against acts, omissions or decisions(1)All appeals to the Court authorised by the Corporations Act must be commenced by an originating process, or interlocutory process, stating:(a)the act, omission or decision complained of; and(b)in the case of an appeal against a decision—whether the whole or part only and, if part only, which part of the decision is complained of; and(c)the grounds on which the complaint is based.(2)Unless the Corporations Act or the Corporations Regulations otherwise provide, the originating process, or interlocutory process, must be filed within:(a)21 days after the date of the act, omission or decision appealed against; or(b)any further time allowed by the Court.(3)The Court may extend the time for filing the originating process, or interlocutory process, either before or after the time for filing expires and whether or not the application for extension is made before the time expires.(4)As soon as practicable after filing the originating process, or interlocutory process, and, in any case, at least 5 days before the date fixed for hearing, the person instituting the appeal must serve a copy of the originating process, or interlocutory process, and any supporting affidavit, on each person directly affected by the appeal.(5)As soon as practicable after being served with a copy of the originating process, or interlocutory process, and any supporting affidavit, a person whose act, omission or decision is being appealed against must file an affidavit:(a)stating the basis on which the act, omission or decision was done or made; and(b)annexing or exhibiting a copy of all relevant documents that have not been put in evidence by the person instituting the appeal.(Emphasis added.) Although an appeal instituted under reg 5.6.54(2) of the Corporations Regulations clearly falls within the scope of the types of proceedings to which r 14.1 is directed (see for instance Re ION Limited (No 2) [2012] FCA 561 per Dodds-Streeton J at [13]-[23]), references to this rule in the authorities appear to deal almost exclusively with power to extend the time within which to bring proceedings under subs 14.1(2) and subs 14.1(3). Specific consideration does not appear to have yet been given to the operation of subs 14.1(4), and in particular the phrase ‘each person directly affected by the appeal.’ In my view, the former directors of the Company will not be directly affected by the outcome of this proceeding. They would have, at best, a contingent interest only to the extent that the quantum of proven liabilities in the Company’s liquidation may bear upon the actions a liquidator chooses to take. From both a practical and legal point of view however, if another liquidator were to seek to recover funds from the directors of the Company (on a basis that is not yet articulated with any precision) the directors would not be bound by a decision of the court in this appeal to which they have not been joined or of which (if it be the case) they have not had notice. The prospect of such events materialising are at this point, entirely speculative.

Ratio Decidendi

Legal Principle Established

Sands claims that it is owed $253,051 from the Company under the 2013 agreement. Following adjudication, the Liquidators concluded that Sands’ debt should be allowed in the sum of $39,629.50. Shortly after the report of the adjudication was filed by the Liquidators in the Removal Proceedings, Sands commenced this proceeding against the Liquidators in which it appeals from the adjudication. It does so pursuant to reg 5.6.54(2) of the Corporations Regulations 2001 (Cth) and seeks the following orders:1.[T]he [Liquidators’] rejection of [Sands’] proof of debt or claim dated 28 October 2020 in the liquidation of [the Company] be set aside.2.The [Liquidators] admit [Sands’] proof of debt or claim for $253,051.3. [Sands’] appeal be allowed.4. The [Liquidators] pay [Sands’] costs of the application. Somewhat unusually, shortly after this appeal proceeding was filed, Sands and the Liquidators resolved, in the Removal Proceedings, to provide consent orders to the Court terminating the Liquidators’ appointment to the Company. Accordingly, the defendants to this proceeding are in fact the former Liquidators of the Company and they do not wish to be heard on the issue of Sands’ adjudication appeal and intend to abide the decision of the Court. Accordingly and unusually, the hearing of Sands’ appeal proceeded unopposed. The absence of a contradictor to this appeal (due to the Liquidators’ decision not to oppose it), has given rise to consideration of whether the former directors of the Company should have been given notice of the appeal on the basis that it is conceivable that their interests may be indirectly affected in the event that Sands is successful. Inquiries of Sands post-hearing revealed that Sands had not given notice to the directors of this proceeding, but that they considered such notice need not be given because the appeal concerned only the Liquidators’ adjudication of the claim. No response was received to a similar inquiry of the Liquidators. During the hearing of the appeal, counsel for Sands had indicated that any replacement liquidator that is appointed to the Company may examine two large dividends paid out by the Company’s directors in the years leading up to the liquidation. This is all entirely conjectural at this stage and was in response to my question as to what benefit Sands would receive in a successful appeal given the Company’s current lack of assets. In light of that response, careful consideration was given to the question of whether the directors should have been joined in the appeal or at least given notice of it (if the former Liquidators have not already done so). There is no evidence that the directors have been informed of this appeal. Although there does not appear to be any statutory requirement that notice be given, r 14.1 of the Federal Court (Corporations) Rules 2000 (Cth) provides as follows:14.1 Appeals against acts, omissions or decisions(1)All appeals to the Court authorised by the Corporations Act must be commenced by an originating process, or interlocutory process, stating:(a)the act, omission or decision complained of; and(b)in the case of an appeal against a decision—whether the whole or part only and, if part only, which part of the decision is complained of; and(c)the grounds on which the complaint is based.(2)Unless the Corporations Act or the Corporations Regulations otherwise provide, the originating process, or interlocutory process, must be filed within:(a)21 days after the date of the act, omission or decision appealed against; or(b)any further time allowed by the Court.(3)The Court may extend the time for filing the originating process, or interlocutory process, either before or after the time for filing expires and whether or not the application for extension is made before the time expires.(4)As soon as practicable after filing the originating process, or interlocutory process, and, in any case, at least 5 days before the date fixed for hearing, the person instituting the appeal must serve a copy of the originating process, or interlocutory process, and any supporting affidavit, on each person directly affected by the appeal.(5)As soon as practicable after being served with a copy of the originating process, or interlocutory process, and any supporting affidavit, a person whose act, omission or decision is being appealed against must file an affidavit:(a)stating the basis on which the act, omission or decision was done or made; and(b)annexing or exhibiting a copy of all relevant documents that have not been put in evidence by the person instituting the appeal.(Emphasis added.)