First test of anti-phoenixing laws exposes difficulties in recovering assets
The Supreme Court of Victoria was the first Australian court to test the new creditor defeating disposition laws that came into effect in early 2020 (read our summary of the laws here). The decision of Re Intellicomms Pty Ltd (in liq) [2022] VSC 228 has shown that proving a transaction was intended to defeat creditors may be easier, but recovering assets outside of the transaction will remain a challenge.
Factual background
On 8 September 2021, Intellicomms Pty Ltd (Intellicomms) entered into a sale share agreement with Technologie Fluenti Pty Ltd (TF) and sold a number of assets, including their intellectual property. The court expressed the opinion that this sale agreement had “all the hallmarks of a classic phoenix transaction”. This was based on the following factors:
- TF was controlled by the sister of IntelliComms' sole director and shareholder;
- TF was incorporated two weeks prior to the sale agreement;
- The assets were sold for significantly less than what they were valued at by a different potential purchaser;
- Intellicomms was placed into creditors’ voluntary liquidation immediately after the share sale;
- one of Intellicomms’ major creditors, who was also a shareholder, was not notified of the shareholders’ meeting proposing to appoint the liquidators; and
- there was no evidence that Intellicomms had taken steps to sell the business to any third party.
The Court found that the sale agreement was a creditor-defeating disposition under section 588FD(1) and 588FE(6B) of the Corporations Act 2001 (Cth), as the consideration payable under the sale was less than market value and best price reasonably obtainable having regard to the circumstances existing at the time of the sale agreement. As a result, it was void at and after the time it was made.
The liquidators applied to the court to have an order that TF deliver up all property of IntelliComms under section 588FF(1)(b), which was uncontroversial. However, what was unique was the request under either section 588FF(1)(c) or section 588FF(1)(d) was to have all property which was “derived by” TF as a result of the sale agreement.
Can a liquidator recover property that was “derived” from a voidable sale?
Under section 588FF(1)(c), the court may make an order requiring a person to pay to the company an amount that, in the court’s opinion, fairly represents some or all of the benefits that the person has received because of the transaction.
The Court can also make an order under section 588(1)(d) requiring a person to transfer to the company property that, in the court’s opinion, fairly represents the application of either or both money that the company has paid under the transaction and proceeds of property that the company has transferred under the transaction.
The liquidators claimed that any new software licences that had entered into was as a result of the intellectual property, know-how and confidential information of IntelliComms. The court declined to make orders because:
- there was no evidence to calculate ‘an amount’ of benefit which TF received; and
- could not determine what ‘fairly represents’ the proceeds of the property transferred to TF and there was no evidentiary basis to make such a determination.
Gardiner AsJ confirmed that the clawback powers in section 588FF(1) are limited to property transferred in the impeached transaction. This is due to the nature of the relief under this provision being restitution rather than compensation for loss or damage.
This decision was the first to test out the parameters of the anti-phoenixing legislation and provides a useful example of the considerations the court will take into account when determining what is a “creditor defeating disposition”. However, this decision also demonstrates how difficult it may be to claim relief under section 588FF for assets that are not specifically part of the relevant transaction and whether relief sought is restitution or compensatory.
