Tolcher v Capital Finance Australia Limited

Case [2006] FCA 1804

FEDERAL COURT OF AUSTRALIA

Tolcher v Capital Finance Australia Limited [2006] FCA 1804

CORPORATIONS – whether transactions relating to payments made to the first respondent should be construed as preferential, uncommercial or voidable transactions – whether debtor-creditor relationship existed between first respondent and company subsequently declared insolvent at the time the challenged payments were made - whether payments were made to first respondent by company or another entity – whether totality of arrangements and payments should be construed as a “transaction” – whether statutory defence can apply on basis that the respondents had no reasonable grounds to suspect that the company was insolvent.

Corporations Act 2001 (Cth), ss 9, 588FA, 588FB, 588FC, 588FE, 588FF and 588FG

McDonald v Dennys Lascelles Limited (1933) 48 CLR 457, referred to
Box Valley Pty Limited v Kidd [2006] NSWCA 26, referred to
Jelin Pty Ltd v Johnson (1987) 5 ACLC 463, referred to
Molit (No. 55) Pty Ltd v Lam Soon (Australia) Pty Limited (1996) 21 ACSR 157, referred to
Re Emanuel (No. 14) Pty Ltd (in liq); Macks & Anor v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281, followed
V.R. Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201, followed
Mann v Sangria Pty Ltd (2001) 38 ACSR 307, followed
Walsh v Natra Pty Limited (2000) 1 VR 523, followed
Sheldrake v Paltoglou [2006] QCA 52, cited
Jones v Dunkel (1959) 101 CLR 298, followed
Cook’s Construction Pty Limited v Brown [2004] 49 ACSR 62, followed

RAYMOND GEORGE TOLCHER (AS LIQUIDATOR OF LLOYD SCOTT ENTERPRISES PTY LTD) (IN LIQUIDATION) AND LLOYD SCOTT ENTERPRISES PTY LTD (IN LIQUIDATION) (ACN 002 739 773) v CAPITAL FINANCE AUSTRALIA LIMITED (ACN 069 663 136) AND CAPITAL CORPORATE FINANCE LIMITED (ACN 002 888 048)
NSD 979 OF 2004

TAMBERLIN J
22 DECEMBER 2006
SYDNEY


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD 979 OF 2004

BETWEEN:

RAYMOND GEORGE TOLCHER (AS LIQUIDATOR OF LLOYD SCOTT ENTERPRISES PTY LTD) (IN LIQUIDATION)
First Applicant

LLOYD SCOTT ENTERPRISES PTY LTD (IN LIQUIDATION) (ACN 002 739 773)
Second Applicant

AND:

CAPITAL FINANCE AUSTRALIA LIMITED (ACN 069 663 136)
First Respondent

CAPITAL CORPORATE FINANCE LIMITED (ACN 002 888 048)
Second Respondent

JUDGE:

TAMBERLIN J

DATE OF ORDER:

22 DECEMBER 2006

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The Applicants bring in Short Minutes of Order to give effect to these reasons.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD 979 OF 2004

BETWEEN:

RAYMOND GEORGE TOLCHER (AS LIQUIDATOR OF LLOYD SCOTT ENTERPRISES PTY LTD) (IN LIQUIDATION)
First Applicant

LLOYD SCOTT ENTERPRISES PTY LTD (IN LIQUIDATION) (ACN 002 739 773)
Second Applicant

AND:

CAPITAL FINANCE AUSTRALIA LIMITED (ACN 069 663 136)
First Respondent

CAPITAL CORPORATE FINANCE LIMITED (ACN 002 888 048)
Second Respondent

JUDGE:

TAMBERLIN J

DATE:

22 DECEMBER 2006

PLACE:

SYDNEY

REASONS…

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AGLC
Tolcher v Capital Finance Australia Limited [2006] FCA 1804
Case
[2006] FCA 1804
Decision Date

CaseChat Overview and Summary

Tolcher v Capital Finance Australia Limited was a case before the court that concerned the validity of payments made by National Australia Bank (NAB) to Capital Finance Australia Limited (CFAC), when the payee, LSE, was insolvent. The dispute arose under the Corporations Act, specifically sections 588FF and 588FG, which address voidable transactions and the defence of reasonable grounds to suspect insolvency. The applicants argued that the payments made by NAB to CFAC were voidable because LSE was insolvent at the time, and CFAC did not have reasonable grounds to suspect this insolvency.

The central legal issue in the case was whether CFAC had a defence under section 588FG of the Corporations Act, which allows a party to avoid liability for a voidable transaction if they can prove they had no reasonable grounds to suspect the debtor was insolvent. The court had to determine if CFAC had acted with due diligence and whether they could reasonably have suspected LSE’s insolvency given the circumstances. Additionally, the court considered the nature of the contractual arrangements between LSE, NAB, and CFAC, and whether these arrangements influenced the obligations and responsibilities of the parties involved.

The court found that CFAC did not discharge the onus of proving they had no reasonable grounds to suspect LSE’s insolvency. The evidence suggested that CFAC should have been aware of LSE’s financial difficulties, given the context of the payments and the broader industry knowledge. The court concluded that the payments were voidable under section 588FF of the Corporations Act. Consequently, the applicants were entitled to relief, and the payments were deemed invalid. The court ordered the applicants to prepare Short Minutes of Order to formalise these findings, and further directions were given regarding the consideration of costs.

Orders

Orders of the court

1. The Applicants bring in Short Minutes of Order to give effect to these reasons.

Background

Background to the litigation

It is common ground that at the time each of the payments was made, LSE was in fact insolvent. It is also agreed that the payments were made from the NAB Office Suspense Account to CFAL on or about the dates specified. The parties are similarly in agreement that immediately prior to each of the above payments being made, the then existing liabilities of LSE to the NAB, as secured by a charge to NAB by LSE, exceeded the reasonable value of all assets of LSE.BACKGROUND The contractual arrangements between LSE and the respective Capital companies were governed by Principal and Agency Agreements (“P & A Agreements”). On 7 July 1995, LSE entered into a P & A Agreement with Capital Corporate. This Agreement provided that Capital Corporate would provide “vendor finance” to LSE, which supplied office equipment to a range of end users in the region of Newcastle and north of Newcastle. This involved LSE approaching Capital Corporate as financiers to buy office equipment, which was then leased to an end user such as a local council, a university or hospital. The equipment was purchased by Capital Corporate and leased to the end user by LSE as lessor pursuant to a lease agreement between the end user and LSE, with the equipment being owned by Capital Corporate at all times and with Capital being the undisclosed principal in the leasing transaction. On 1 July 2000, another P & A Agreement was entered into between LSE and Capital Finance. For all practical purposes, this second Agreement provided for a similar arrangement between LSE and Capital Finance. LSE would receive inquiries from persons who wished to lease equipment and would then request Capital Finance to purchase the equipment and lease it to the end user with LSE acting as agent for Capital Finance. LSE would then collect the rentals from the end users and hold the monies on trust for Capital Finance. From time to time, LSE would account to Capital Finance after deduction of monies owing to it. It was acknowledged in the Agreements that lessees, from time to time, may seek to pay out liabilities under the leasing agreements prior to the due date. In these circumstances, Capital Finance would quote a payout amount for the particular leasing agreement. It was the responsibility of LSE to notify the lessee of the amount of the payout fee. The Agreement also provided for sale of the equipment in circumstances where Capital Finance would agree to sell the equipment to LSE and LSE would agree to purchase it from Capital Finance on the “sale date” for the sale price. The “sale date” was defined as the date on which the leasing agreement relating to that equipment expired at the completion of the contracted rental period, and the “sale price” was the price as agreed between the parties at the time Capital Finance approved the leasing proposal. The sale price included the equipment’s residual value plus GST. Problems concerning the management of LSE came to light in mid-December 2000. On 15 December 2000, an unrelated company known as Leasetec Australia Pty Ltd obtained orders against LSE and its principal, Mr Lloyd Scott, in the form of a preservation order restraining LSE from dealing with assets up to an amount of approximately $3.61 million. Leasetec had also been involved for some time in financing LSE in respect of hiring agreements.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

TAMBERLIN J
I am not satisfied that the Capital companies have discharged the statutory onus to enable reliance on the defence provided by s 588FG of the Act. I am not persuaded that Capital Finance had no reasonable grounds to suspect that the company was insolvent at the time the payments were made.CONCLUSION For the above reasons, I am satisfied that each of the challenged payments are voidable and that the applicants have made out a case for relief under s 588FF. I direct the applicants to bring in Short Minutes to give effect to these reasons at a time to be arranged with my Associate. At that time, I will hear the parties on costs.

Ratio Decidendi

Legal Principle Established

Established by: TAMBERLIN J

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