Introduction
In the matter of Benjamin Hornigold Ltd v John Bridgeman Limited [2023] FCA 1195, the Federal Court of Australia considered section 453S of the Corporations Act 2001 (Cth) (“Act”) and the circumstances as to when leave should be granted for proceedings to be commenced against a company undergoing a restructure pursuant to the small business restructuring (“SBR”) regime. It was the first case to consider the stay of proceedings for SBR, due to the relatively recent introduction of the SBR regime.
The decision provides clarity in that the legislation governing SBR should be interpreted similarly to the legislation governing voluntary administration. The Federal Court decision also provides guidance as to the factors considered by the Court when exercising its discretion to hand down grants of leave under section 453S of the Act.
Background
In 2017, Benjamin Hornigold Ltd (“BHL”), a listed investment company, had appointed John Bridgemen Limited (“JBL”) to provide financial services and assume responsibility for achieving BHL’s investment policy. JBL was an authorised corporate representative of JB Markets Pty Ltd (“JBM”), who held an Australian Financial Services Licence (“AFSL”).
BHL alleged that:
On 25 August 2023, JBM invoked the SBR scheme and accordingly appointed a SBR practitioner in accordance with section 453B(1) of the Act. BHL was made aware of this eleven (11) days later and subsequently approached the court for urgent relief to commence proceedings against JBM under section 453S of the Act.
Legislation
Section 453S of the Act prohibits the commencement of any claim against a company which is the subject of a restructuring, unless the claim is commenced:
Should it be interpreted analogously to voluntary administration?
The Court held that Part 5.3B of the Act was similar to the object of Part 5.3A of that Act (which concerns voluntary administration), allowing a company to continue in existence. The Explanatory Memorandum stated the SBR process “draws heavily on the established voluntary administration framework in Part 5.3A”, and section 453S of the Act mirrors the terms of section 440D which concerns the stay of proceedings for companies in voluntary administration.
Therefore, the Court held that principles in relation to granting of leave for voluntary administration (section 440D of the Act) would equally apply to an application for leave under section 453S.
Accordingly, the Court reviewed previous decisions and principles established regarding granting leave under s440D of the Act in cases of voluntary administration. The Court particularly considered the matters of Larkden Pty Ltd v Lloyd Energy Systems Pty Ltd (2011) 285 ALR 207, which sets out how a stay of proceedings can facilitate the Act’s object to maximising a company’s chances of staying alive; and Australian Securities and Investments Commission v Marco (No 5) [2020] FCA 1512 (“Marko (No 5)”), which identified the factors that apply in determining whether to grant leave, including:
Decision
Pursuant to s 453S(1)(b) of the Act, the Court granted leave to BHL to commence proceedings against JBM, on the condition that BHL is to take no further step against JBM without the leave of the Court.
The Court held that its reasons for granting leave were:
Takeaway
If you have any questions surrounding a SBR or pending litigation against a company currently undergoing a SBR, please contact Mr Stipe Vuleta or Ms Sayward McKeown of our office.
*This article was prepared with the assistance of Claire Smith.
Can the administrative error of incorrectly dating a statutory demand, its supporting affidavit and cover letter be seen as a sufficient basis for the court to set aside the statutory demand? The recent case of Income2Wealth Pty Ltd v ACN 114 733 569 Limited [2023] QCA 215 examines this issue in further detail.
Case Analysis: Income2Wealth Pty Ltd v ACN 114 733 569 Limited [2023] QCA 215
Facts
In this case ACN 114 733 569 (“the Company”) and Income2Wealth Pty Ltd (“Income2Wealth”) disagreed on the date of service of a statutory demand. The statutory demand was served on the Company by Income2Wealth in December 2022. The statutory demand was dated 21 December 2022, but the supporting affidavit and cover letter were dated 20 December 2022.
On 10 January 2023, the Company notified the appellant of its position that there was a genuine dispute concerning the differing dates on the documents served and asked for the demand be withdrawn. Income2Wealth refused to withdraw the demand and maintained that there were no defects on the documents with respect to the dates. In response, the Company filed and served a set-aside application within the 21-day period asserted by Income2Wealth.
Lower Court Decision
Following Income2Wealth’s refusal to withdraw the demand, the Company sought an order from the Court to set it aside. The Company formed an argument that the demand should be set-aside on the basis that it was misdated. The primary judge found that there was ‘some other reason’ to set aside the statutory demand within section 459J(1)(b) of the Corporations Act 2001 (Cth) (“the Act”). This was on the bases that the supporting affidavit appeared to predate the statutory demand and that Income2Wealth had the opportunity to inform the Company of the true position regarding the date within the 21-day period but failed to do so.
Income2Wealth then appealed the decision.
Court of Appeal Decision
Income2Wealth argued that the decision ought to have been based on the evidence proved at the hearing, which included the evidence about the date issue. This would have enlivened section 459J(1)(a) of the Act instead of section 459J(1)(b) of the Act. As a result, this would have required the Company to establish the substantial injustice element.
Upon review of authorities, the Court found that section 459J(1)(a) of the Act was not applicable because the issue did not give rise to a defect ‘in the demand’. The defect instead was ‘in relation to’ the statutory demand. This means it was not necessary to show substantial injustice as required by section 459J(1)(a) of the Act.
Instead, the Court said the date issue undermined the verifying affidavit, which created ‘some other reason’ under section 459J(1)(b) of the Act to set aside the demand.
Accordingly, the appeal was dismissed.
Takeaway
This case demonstrates the importance of complying with the technical legal requirements before serving documents, as even simple administrative errors can lead to the setting aside of a statutory demand, which can be costly.
How we can help
At Chamberlains Law Firm we can help you to sufficiently understand, and comply with, the legal requirements of serving and dating documents. If you have any questions regarding a statutory demand that you have been served, or are serving on a company, please contact Mr Stipe Vuleta or Ms Sayward McKeown of our office.
*This article was prepared with the assistance of Annabel Randall.
In the matter of Humphrey v Bennett [2023] EWCA Civ 1433
In the case of Humphrey v Bennett [2023] EWCA Civ 1433, the Court of Appeal in the UK handed down a judgment which examined the importance of directors upholding the fiduciary duties they owe to their companies and ensuring that directors have no conflicts of interest in their dealings.
Please note that this article considers a case heard in the UK.
Facts
Mr and Mrs Humphrey (“Humphreys”) argued that Mr Bennett and Ms Murphy (“Directors”) breached their fiduciary duty to Esprit Land Limited (“the Company”) by personally exploiting a business opportunity.
The Company acquired a plot of land and obtained permission to develop the land by building new houses upon it. The Humphreys refused to invest any additional funds for the development. Following the Humphreys’ refusal, the Directors arranged for the Company to sell its assets to a second company, Esprit Homes Construction Limited (“EHC”). The Directors were also the directors of EHC, and Mr Bennett was the sole shareholder.
The property was sold to EHC at the same price that the Company had purchased it for, with no reflection that permission to build houses had been obtained.
As a result, the Humphreys brought a derivative claim on behalf of the Company, arguing that the Directors had breached their fiduciary duties.
Legislation
The Companies Act 2006 (UK) (“the Act”) governs directors’ duties, and includes:
Lower Court Decision
The Lower Court found that the Directors had not complied with their duties under section 175 and 177 of the Act. Additionally, there was no basis to grant relief to the Directors under section 1157 of the Act.
Ultimately, the Court granted summary judgment to the Humphreys.
The Court of Appeal
The Court of Appeal found that the Lower Court applied the approach laid out in section 175 and section 177 of the Act too rigidly. In particular, the Court of Appeal held that the Lower Court did not consider the nature of the Company and how it operated, noting that the thresholds for sections 175, 177 and relief under 1157 may be different for a small and informally run company as opposed to a large company with a formalised board structure and reporting systems.
With regard to section 1157, the Court of Appeal held that the relief should be applied broadly. The Court of Appeal rejected the argument that a director could only rely on this section if they had an ‘extremely powerful case’ and found that the Directors, on the available facts, could potentially have made out a defence at trial and as such summary judgment should not have been awarded.
Takeaway
While this case was decided in the UK, Australia’s legislation and duties for directors are highly similar to that of the UK. This case demonstrates the importance of identifying potential conflicts of interest and dealing with them early on. When dealing with potential conflicts of interest, directors should err on the side of caution.
For more information regarding your duties as a director or any potential breach of your duties, please contact Mr Stipe Vuleta or Ms Sayward McKeown of our office.
*This article was prepared with the assistance of Annabel Randall.
Background
The Insolvency Practice Schedule (Corporations) (“IPS”) was inserted into the Corporations Act 2001 (“Act”) by the Insolvency Law Reform Act 2016 (Cth). Under section 70-45 of the IPS, a creditor can request an external administrator of a company to give company information to the creditor. The impetus behind introducing this section was trying to achieve greater transparency for creditors who, through their inspection of the administrator’s files, can monitor the external administrator’s conduct.
The introduction of section 70-45 has birthed a common misconception that creditors have a right to access the company’s books and records without having recourse to the appropriate legislative requirements. If requests are made without adequate grounds to do so, the requests may be denied.
The Legislation
Section 70-45 of the IPS is outlined below:
1. A creditor may request the external administrator of a company to:
a) Give information; or
b) Provide a report; or
c) Produce a document;
to the creditor.
2. The external administrator must comply with the request unless:
a) The information, report or document is not relevant to the external administration of the company; or
b) The external administrator would breach his or her duties in relation to the external administration of the company if the external administrator complied with the request; or
c) It is otherwise not reasonable for the external administrator to comply with the request.
How have requests for books and records been handled by the Courts?
In the matter of Hewson v Gothard; Re Allco Finance Group Ltd (Receivers & Managers Appointed (in liquidation) [2014] FCA 320 it was held that ‘books of the company’ means books in the possession of the company at the commencement of the winding-up of a company, and copies of records of a company made after the company is placed into liquidation, for the purposes of section 486 of the Act. However, this does not include books that were created or retained during the course of the winding-up by the liquidator.
In the matter of Zoll Medical Australia, in the matter of Cardiac Defibrillators Australia Pty Ltd (in liquidation) [2022] FCA 167, a liquidator refused to provide access to the books and financial records of a company without a court order. The court did not criticise the liquidator’s actions, but did nonetheless order that the documents be produced as the provision of the information sought by the plaintiffs were necessary to ensure that the plaintiffs did not suffer “grave damage” and there was a tangible danger to the public if product recall notices could not be provided to purchasers of the products which were the subject of the Distributor Agreements.
Conclusion
In conclusion, this legislation enhances the transparency for creditors when reviewing a company’s books and records which in turn assists in upholding the liquidator’s conduct. Care should be taken, however, when making a request under section 70-45 of the IPS to ensure that the request is correctly made. Vexatious or unreasonable requests may require an external administrator to engage in complex litigation and potentially distract inappropriately from the administration process. This could also reduce the funds available to meet the claims of creditors, potentially making the request self-defeating in nature.
How can we help?
Amendments to legislation can be very complicated and difficult to interpret. At Chamberlains Law Firm we can help you to understand these amendments and ensure your compliance with the new provisions.
This article was prepared with the assistance of Annabel Randall*
Arbitration is a process in which parties to a dispute (usually with the assistance of lawyers) present arguments and evidence to an arbitrator who makes a binding determination which resolves the dispute.
Under the Regulations an arbitrator has to:
In practice, arbitrators are usually experienced barristers or former judges. Arbitrators issue arbitration decisions – essentially acting as a kind of privately engaged judge – where the decision is enforceable once registered in court (section 13H of the Family Law Act 1975 (Cth) [‘the Act’]).
How is arbitration different from mediation?
Mediation is a more common, less formal process in which parties seek to resolve their matter on the basis of agreement with the assistance of a neutral mediator. The mediator assists the parties in narrowing their dispute and focusing on the relevant issues. Matters discussed in mediation are confidential and are inadmissible if the dispute ends up in court, except in very rare circumstances.
Arbitration involves the parties advocating directly to an arbitrator, usually with the assistance of legal representation. The arbitrator, after considering all the matters, makes a binding decision of the parties.
In this sense, arbitration is more similar to the process of litigation than it is to mediation.
When does arbitration occur?
Arbitration must occur with the consent of all parties. Arbitration usually occurs when:
What are the benefits of arbitration?
Rights of Appeal
Decisions of an arbitrator may be reviewed by the court pursuant to section 13J of the Act, but this is also the case with any decision made by a judge. A review of an arbitration award is done by way of application to the court on the basis of questions of law or fact. That means parties cannot simply seek to review an award because they’re unhappy with it. An applicant would have to demonstrate there was an error of law or fact in order to be successful in any appeal. A judge would then assess the application and may affirm, reverse, or vary the award.
One such example of an arbitrators decision being successfully reviewed was the recent case in Vida & Vida [2023] FedCFamC1A 175, which among other things, involved questions of procedural fairness.
A Case Analysis of Official Trustee in Bankruptcy v Kent (No 2) [2023] FCA 1396
In Official Trustee in Bankruptcy v Kent [2023] FCA 1211 (“Principal Case“), the Court found that a bankrupt’s right to claim compensation through the Australian Financial Complaints Authority (“AFCA”) is personal to the bankrupt and that right cannot be assigned to the Trustee.
The second case, Official Trustee in Bankruptcy v Kent (No 2) [2023] FCA 1396 (“Second Case”) is a follow up decision to the Principal Case, specifically surrounding the order for costs and whether or not the Trustee was able to confine their liability to the value of the bankrupt estate.
Principal Case
The Principal Case was a test case which examined the interaction of the AFCA scheme in bankruptcy. Ultimately, the Federal Court of Australia agreed with the bankrupt, and held the resolution of the AFCA claim between the Trustee and the bank did not ultimately resolve the complaint of Mr Kent, and that the compensation acquired from the AFCA complaint was not property that could vest in the Trustee.
The Principal Case was finalised with consent orders, however, the issue of costs found the parties to be back in Court for a further hearing.
Official Trustee in Bankruptcy’s Arguments
In the Principal Case, the Trustee argued that the public interest purpose of the proceeding could be a consideration that was relevant to the issue of costs.
The Trustee further argued that there was an accepted “general practice” that costs ordered against it should be limited to the extent of the assets vested in Mr Kent’s bankrupt estate. The Trustee opposed the idea of an indemnity order due to the supposed idea that Mr Kent had sought to advance his own interests in the litigation.
Decision
Where a Trustee in bankruptcy is unsuccessful in its claim to the Court, the Trustee assumes the same liability for litigation costs as any other unsuccessful party to a litigation proceeding.
The Court held that the Principal Case was more than a mere claim for judicial advice but instead required the Court to make a declaration of substantive rights as a determination of law or fact under the Bankruptcy Act 1966 (Cth). The Court further sustained the principle that a successful party, being Mr Kent, should be entitled to payment of his costs by way of indemnity.
Accordingly, the Court ordered that the Trustee be personally liable to pay Mr Kent’s costs on an indemnity basis, without any capped cost order. The Court also declared the Trustee’s right to indemnity against Mr Kent’s bankrupt estate in relation to its personal liability for Mr Kent’s costs.
Takeaway
Trustees in bankruptcy, despite their role as fiduciaries, need to exercise caution when commencing legal proceedings, particularly in circumstances where the protection afforded to them as trustees may not be absolute and may leave them exposed to personal liability for costs.
If you have any questions about bankruptcy proceedings or any costs orders, please contact Stipe Vuleta or Sayward McKeown of our office.
A Case Analysis of Bosanac v Commissioner of Taxation [2022] HCA 34
In October 2022, the High Court of Australia handed down its judgment with respect to an appeal from Ms Bosanac against the Commissioner of Taxation relating to a resulting trust existing in favour of her husband, on a property held in her name. Here, a resulting trust is a legal doctrine that arises when a person holds property for the benefit of another even when that beneficiary is not the registered interest holder.
Facts
Mr and Ms Bosanac married between 1998 and 2012. In 2006, their former matrimonial home was purchased in Ms Bosanac’s name as the sole registered proprietor. The deposit was paid with funds from a joint account, and the couple entered a home loan under both their names (even after refinancing). Throughout their marriage, the couple’s assets were a mix of properties owned in their separate names as sole registered proprietors. Mr Bosanac moved out of the matrimonial home in 2015 after the couple separated.
In 2016, Mr Bosanac was sued by the Commissioner of Taxation after failing to lodge tax returns from 2006 to 2013, and he was ordered to pay over $9M in tax debt. Following notice of this debt, Mr Bosanac declared bankruptcy.
As a creditor of Mr Bosanac’s bankruptcy, the Commissioner of Taxation attempted to claim possession of his assets.
Argument
As Mr Bosanac was not a registered proprietor of the property, the Commissioner of Taxation sought that 50% of the equity in the matrimonial home belonged to Mr Bosanac due to the existence of a resulting trust over the property.
Ms Bosanac argued that the resulting trust was countered by the presumption of advancement, being the presumption that property is transferred to the recipient along with the full legal title. This presumption is typically seen when a spouse gifts property to another spouse.
The Commissioner of Taxation contested the validity of the presumption of advancement, following the High Court decision in Trustees of the Property of Cummins v Cummins (Cummins).
Full Court of the Federal Court
The Federal Court of Australia determined that the presumption of advancement was not invalidated by Cummins, however, held that the evidence was in favour of a resulting trust as Mr Bosanac for a variety of reasons including that:
Accordingly, the Federal Court of Australia found that Ms Bosanac held 50% of the interest in the property on trust for her husband.
Arriving to the High Court
Ms Bosanac appealed the Full Court decision, contending that there was no basis to infer Mr Bosanac had an intention to have a beneficial interest in the property. The Commissioner of Taxation invited the Court to find that the presumption of advancement ought to be abolished.
Presumption of Advancement
The Court acknowledged that the presumption of advancement was weak and outdated in modern times and could be easily overcome by evidence. However, they declined the notion to abolish the presumption due to its long existence in property law, considering that to be the job of the Parliament.
Decision of the High Court
The High Court of Australia held the Full Court decision should be overturned, finding that Mr Bosanac did not hold an interest to the property as there was no resulting trust arising. The Court found that the evidence supported Ms Bosanac’s assertion that Mr Bosanac did not have an interest in the property and that she was the sole beneficial owner.
Key evidence considered by the Court showed that the Bosanac family had historically held assets separately and in their own individual names and that they did not hold a variety of joint assets beyond certain joint bank accounts. The Court held that the inferences drawn by the Full Court were not the entirety of the facts and were inconsistent with ‘an objective intention to declare a trust’ in favour of Mr Bosanac. The Court further stated that the characteristics of the loan and borrowing do not allow for an inference either way.
Takeaway
If you are involved in a dispute as to the interests in property, particularly stemming in cases of bankrupt or separated spouses, the evidence before the Court will be a crucial element of running or defending your case. You should seek legal advice if you are faced with such a dispute.
If you have any questions relating to the above issues, please contact Stipe Vuleta or Sayward McKeown of our office.
The Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 received Royal Assent on 14 December 2023, warning employers to take action in undertaking the necessary preparation for the criminalisation of wage theft set to take effect in 2025.
The Bill has been divided into two parts. Amendments referring to wage theft are included in both Parts 1 and 2. The Fair Work Legislation Amendment (Closing Loopholes No.2) Bill 2023 (Closing Loopholes Bill No 2) is yet to be passed, however the Albanese Government has announced that it is committed to achieve this early next year.
Chamberlains Law Firm previously published an article summarising the proposed amendments and the motives behind them. (See related Article “Boss Better Have My Money!” – Australia’s Wage Theft Phenomenon – Chamberlains Law Firm for further information)
Criminalising Wage Theft – What Do You Need To Know?
The amendments have raised the stakes significantly for employers found to be liable of contraventions, namely those who engage in the conduct of deliberately underpaying their employees.
Below we set out the key changes warranting any employers consideration.
By 1 January 2025, imprisonment terms of up to 10 years and fines of up to $7.8 million will be faced by employers (including individual directors) who deliberately withhold payment of employee’s wages and superannuation. It is important for employers to be aware of the court’s discretionary consideration of the ‘intention’ element under the new provisions.
Particularly those who recently or currently are on notice for either deliberate or accidental underpayment of employees, the court may consider this as knowingly continuing a practice and thereby a contravention under the new laws effective in 2025. By the same token, any similar conduct which occurs prior to 2025 may still be considered a criminal offence in 2025 under the new laws. Therefore, it is imperative that employers undertake a compliance audit of their employee payroll and management practices to remedy any previous, current and future underpayments.
“I’m A Small Business! Help!”
The Albenese Government will extend an olive branch to small businesses (those with 15 employees or less) and offer protection before the new laws take effect. Small businesses will be provided with additional support and assistance to mitigate an unintended consequence of the amendments. Most notable of this support and assistance is:
Senator Jacqui Lambie assured; “in this legislation we’ve ensured that small businesses are looked after but I can assure you that it is a long way from being a free pass.”
Strike While The Iron Is Hot
Employers of all sizes are strongly urged to act now to further secure protection of your business and remove any potential liabilities. However, this is often not an easy task and requires professional expertise. With the New Year calendar clocking over, now is an optimal time to exercise due diligence and review your organisation’s compliance with the State and Federal Legislation. The Workplace Law team at Chamberlains Law Firm can save you the headache and ensure your organisation is compliant with both current and upcoming legislation to mitigate any potential contraventions.
This article was prepared with the assistance of Isabella Turner.
A Case Analysis of Doctors of Optimization Pty Ltd v MPA Engineering Pty Ltd (Subsidiary of Aquatec Maxon Group Ltd) [2023] QCA 219
A statutory demand is a legal document which asserts a formal demand for payment of a debt and is the first step that needs to be taken by a creditor who intends to wind up a company due to the non-payment of a debt. A statutory demand is issued under section 459E of the Corporations Act 2001 (Cth) (“Act”) and is then served on the company that owes the debt. Considering the frequent use of these demands, creditors need to be aware of the potential risks. The case of Doctors of Optimization Pty Ltd v MPA Engineering Pty Ltd (Subsidiary of Aquatec Maxon Group Ltd) [2023] QCA 219 explores this issue further.
Facts
On 14 August 2019, both parties entered into an agreement concerning works on a water treatment plant in exchange for payment. On 30 September 2019, Doctors of Optimization Pty Ltd (the Appellant) issued an invoice to MPA Engineering Pty Ltd (the Respondent). However, there were issues with defects and incomplete works and the parties accordingly attempted arbitration after the termination of the contract.
In December 2022, the Appellant served a statutory demand claiming the sum of $21,898.80 from the Respondent. The Appellant claimed to have suffered loss and damages due to the defects and incomplete works.
On 23 December 2022, the Respondent applied to set aside the statutory demand under section 459G of the Act.
Lower Court Decision
Initially, the Court ruled in favour of the Respondent and found that the statutory demand should be set aside on the basis of a genuine dispute and offsetting claim. The Appellant then appealed this decision.
Court of Appeal
The Court of Appeal similarly ruled in favour of the Respondent. The Judges dismissed the appeal on the basis that it invited the Court to embark on an extended inquiry and attempted to weight the merits of the dispute, which is not within the realm of an application to set aside a statutory demand.
At the hearing, the Respondent indicated that it sought indemnity costs in the event of a successful outcome, however, the Court ruled that the question of costs should be heard separately on the basis of written submissions.
Takeaway
The Appellant lost both instances in the lower court and court of appeal, despite awareness that the evidence existed demonstrating that there was a dispute and an offsetting claim.
If you wish to issue a statutory demand or if you are served with one, you should seek legal advice on the prospects and next steps to minimise such risks. Please contact Stipe Vuleta or Sayward McKeown of our office if you wish to obtain such advice.
This article was prepared with the assistance of Annabel Randall
The Federal Court decision of Copeland in his capacity as liquidator of Skyworkers Pty limited (in Liquidation) (Skyworkers) v Murace [2023] FCA 14 stresses the importance of liquidators adequately particularising claims in a Statement of Claim (SOC). In particular, the liquidator in this case was unable to identify the specific dates that the debts were incurred and how these debts arose. This made particularising the debts in the SOC difficult and the Court therefore needed to consider whether the particulars were inadequate and whether the SOC should be dismissed or struck out.
Background
Paul Murace was the sole director of Skyworkers. The liquidators filed a claim for insolvent trading against Mr Murace. In this claim, the liquidators pleaded:
Mr Murace filed an application for summary dismissal on the basis that:
Legislation
There were two key pieces of legislation that were relied on in this decision:
Arguments
Copeland in his capacity as liquidator of Skyworkers
The liquidator argued that the pleading should not be struck out because evidence had not yet closed. Additionally, the SOC represented all information available to the liquidator at the time of pleading.
Mr Murace
Mr Murace submitted that the liquidator failed to properly particularise the dates when the debts were incurred in the SOC and he was therefore prejudiced by the liquidators failure to do so. Without the dates and information surrounding how the debts incurred, Mr Murace was unable to rely on defences including:
Decision
Presumed Insolvency Claim
Mr Murace argued that section 588E(4) of the Act is not violated simply by the failure to maintain financial records and this failure needed to result in one of the 5 consequences. Skyworkers may have failed to keep financial records which:
The SOC failed to identify one of these possibilities and was held to be unsatisfactory.
Actual Insolvency Claim
Pursuant to section 95A of the Act, Skyworkers was unable to pay its debts as and when they became due and payable. The Court ruled that unlike a claim of presumed insolvency, actual insolvency does not require the same level of particularisation. Accordingly, Skyworkers was found to be insolvent.
Conclusion
Ultimately, the Court did not award summary judgment, however, an order was made for the SOC to be struck out in its entirety.
Takeaway
If a liquidator is going to bring proceedings against a company for insolvent trading, they need to be aware of the issues surrounding particularisation, especially in identifying the specific dates of the debts and how the debts arose.
If your company enters liquidation, or you are looking to pursue a company for any insolvent trading claims, you should seek legal advice on the drafting of pleadings and the overall prospects to minimise these risks.