HCA Publishes Reasons for Confirming Validity of Holding DOCAs
The High Court recently released the reasons for decision in dismissing the appeal in Mighty River International Ltd v Hughes & Ors [2018] HCA 38. This decision confirms the validity of employing a certain form of deeds of company arrangement (“DOCAs”), known as a “holding DOCA” as a restructuring tool.
The case centers around a company Mesa Minerals Ltd (“Mesa”), which was placed into voluntary administration and the entry into a deed of company arrangement (“the Deed”). At the second meeting of creditors, a majority voted in favour of entering into the Deed which, amongst other things, provided for a moratorium on creditors' claims; required the administrators to conduct further investigations and report to creditors concerning possible variations to the Deed within six months; and provided that no property of Mesa Minerals be made available for distribution to creditors.
One of Mesa’s creditors, Mighty River International Ltd (“Mighty River”), disputed the validity of the Deed and subsequently brought proceedings in the Supreme Court of Western Australia alongside another creditor. Mighty River plead four bases for the Deed being void: (i) the Deed was contrary to the object of Pt 5.3A Corporations Act 2001; (ii) the deed invalidly sought to circumvent or sidestep the requirement in s 439A(6) for a court order extending the short convening period during which a second meeting of creditors must be convened by an administrator; and (iii) the deed did not comply with an alleged requirement in s 444A(4)(b) to distribute some property of Mesa Minerals and (iv) the administrators had failed to form the opinions required by s438A(b) and, at the relevant time as per s439A(4).
These arguments were rejected at first instance by Master Sanderson and on appeal to the Court of Appeal where it was held that the Deed was consistent with the object of Pt 5.3A of the Corporations Act 2001 (Cth); that s 444A(4)(b) did not require some property to be made available to pay creditors' claims; and that the use of a "holding" deed of company arrangement was one "gateway" to extend the period for convening a second creditors' meeting beyond the timeframe set by s 439A(5), the other being a court order under s 439A(6). By grant of special leave, Mighty River appealed to the High Court.
Before the High Court, Mighty River made two submissions: First, the Deed was not a valid deed of company arrangement, principally because it was an agreed extension of time that had not been ordered by a court under s 439A(6) and was contrary to the object of Pt 5.3A; Second, the Deed should have been declared void under s 445G(2) for contravening ss 438A(b) and 439A(4), or s 444A(4)(b), or both.
The Court was split 3:2 with Kiefel CJ and Edelman and Gageler JJ forming the majority. The Majority held that the HDOCA was consistent with Pt 5.3A, was validly executed and conferred genuine rights and duties; did not involve an impermissible side-stepping of s 439A(6) as the side-stepping was merely incidental to the purpose of the HDOCA; was not required to be declared void by s445G(2); and s 444A(4)(b) does not require property to be specified in the Deed.
NSWSC: Liquidators Must Not Use Casting Vote to Veto Their Removal
In a recent judgment delivered by the Supreme Court of New South Wales, the court found in favour of a creditor who sought to remove its liquidator, despite previously failing to do so at a meeting convened pursuant to the Insolvency Practice Schedule (Corporations).
Background
The case involved The Owners – Strata Plan 84741 (Strata Plan) who were the body corporate of a block of flats located in Clovelly. Strata Plan commenced proceedings against Iris Diversified Property Pty Ltd (Iris) and the builder of the apartment complex. The builder was subsequently placed in external administration and the proceedings continued against Iris. Before judgement was handed down, Iris sold a substantial property which they claimed was unrelated to Strata Plan’s claim against them. They also asserted that the assets they owned were owned in their capacity as trustee.
Following two 2017 judgements, Strata Plan became a creditor of Iris in the total amount of $1 799 937.91. Iris Group Management (IGM) - an entity associated with Iris Diversified - also claimed debts of $207 000. In October 2017, Iris was placed in liquidation and Henry McKenna appointed as liquidator.
Following this, Strata Plan requested that McKenna convene a meeting with the creditors of Iris Diversified, at which they sought to have him replaced by Liam Bailey and Christopher Palmer.
Prior to the meeting, McKenna was advised by his lawyers that he could exercise his casting vote against the resolution, so that it failed to pass. Strata Plan subsequently initiated proceedings after McKenna acted according to his lawyer’s instruction.
Decision
In deciding the case, the court was required to determine whether McKenna had power to exercise a casting vote against the resolution of his removal and whether resolution for McKenna’s removal should be ‘treated a passed’ and liquidators appointed.
In seeking a declaration that McKenna had no power to exercise a casting vote against his removal and the appointment of Bailey and Palmer as replacement liquidators, Strata Plan relied on r 75-115 (5) of the Insolvency Practice Rules (Corporations).
These rules provide for circumstances in which a resolution is passed at a meeting of creditors after a poll is demanded. The rules specify that the external administrator may exercise a casting vote in favour of the resolution where:
- no result is reached by a majority in number and value of creditors voting in favour or against the resolution; and
- The resolution relates to the removal of an external administrator of a company.
Despite this, they ultimately contended that the rule does not contemplate the external administrator exercising a casting vote against the resolution to remove themselves.
The court held that it was not necessary to determine whether the effect of that rule was to determine whether McKenna had power to exercise a casting vote or if its effect is merely that his vote was to be disregarded.
Ultimately, Black J ordered that Bailey and Palmer be appointed as joint liquidators of Iris, with McKenna ordered to pay costs without recourse to the assets of Iris.
This case signals an important reminder for liquidators tempted to use their casting vote to defeat a resolution calling for their removal. It is also telling for lawyers who are advising clients on how to vote in deadlocked meetings.
FCA: Trustees Entitled to Acquire Assigned Claims
In Rambaldi v Meletsis, in the matter of Karas (Bankrupt) [2018] FCA 791, the court was required to consider whether the trustees of a bankrupt estate had the power to acquire assigned claims.
Background
In 2011, Nick Meletsis replaced his brother-in-law, Tom Karas, as the sole director and shareholder of 70 Nicholson Street Pty Ltd. Following this, the property at 70 Nicholson Street Fitzroy was sold to Establishment 5, and a mortgage which Karas held over the property was subsequently discharged.
Karas become bankrupt on 16 October 2015 and in February 2016, Yeo and Rambaldi were appointed the joint and several trustees of his estate, replacing the initially appointed trustees. Following their appointment, Yeo and Rambaldi commenced investigation of Karas' affairs and subsequently raised questions over the discharge of Karas' mortgage. In doing so, the pair concluded that further investigation was required to confirm that no money was owing to Karas’ estate.
In late 2016, the liquidator provided Yeo and Rambaldi with documents relating to the sale of 70 Nicholson Street, along with a note advising that he intended to finalise the liquidation due to depleted funds. Yeo and Rambaldi subsequently obtained further material from Karas' former lawyers, and enabled by funding from the Deputy Commissioner of Taxation (DCT), conducted further examinations pursuant to s81 of the Bankruptcy Act.
Following this, the pair concluded that 70 Nicholson Street had causes of action against various related parties, and that as a result of property dealings undertaken prior to liquidation, the company owed the bankrupt estate in excess of $1.1 million.
In July 2017, Yeo and Rambaldi offered to acquire the assigned claims for $25 000. Having obtained approval from the creditors of 70 Nicholson Street, the liquidator accepted the offer the following September and a deed of assignment was subsequently executed. Pursuant to the deed, both the liquidator and 70 Nicholson Street assigned their rights, title and interest to the trustees.
Decision
This case ensued after Howard Speer and Establishment 5 Developments (two parties associated with the property transactions) challenged the assignment of claims. In doing so, they sought a summary dismissal of the assigned claims on the basis that they could not be held to be property of the bankrupt estate.
Yeo and Rambaldi subsequently initiated proceedings, seeking confirmation that they had power to acquire the claims from the liquidator of 70 Nicholson Street and that deed of assignment was ‘valid and enforceable’. They also sought judicial advice that they were justified in acquiring the assigned claims.
Moreover, the DCT sought leave to intervene in the hearing of the two interlocutory applications on a limited basis, pursuant to s30 of the Act and r9.12 of the Federal Court Rules.
In deciding the case, the court was required to consider:
- Whether Yeo and Rambaldi as trustees had power to acquire the assigned claims from the liquidator; and
- If the trustees had that power, whether the Court should give the judicial advice sought.
The Court accepted the trustee’s submission that they had power to acquire the assigned claims. In doing so, Davies J held that the powers contained in s134 were of ‘sufficiently broad compass to include the power to acquire property’ and that such a finding was consistent with both the general law and s19 of the Act.
In asserting their claim, the defendants argued that the assigned claims were not after-acquired property of the bankrupt pursuant to s58(1) and s116(1)(a), because the causes of action were acquired by the trustees not the bankrupt. However, the court held that the assigned claims were acquired by the trustees in their capacity as trustees of the bankrupt’s estate and thus the trustees had a right to sue on those claims.
Moreover, the court rejected the defendant’s contention that the assigned claims were not ‘property’ as defined by s5 of the Act. In doing so, Davies J submitted that their argument incorrectly relied upon a restrictive interpretation of the Act that was not warranted by the statutory context.
Ultimately, the court held that it was reasonable and appropriate to give the judicial advice sought and granted the DCT leave to intervene.
This case is among the first to affirm the insolvency reforms introduced last September, and highlights the manner in which insolvency practitioners may approach causes of action.
NSWCA: Liquidators Unable to Recover Third Party Payments as Unfair Preferences
In the recent case of Hosking v Extend N Build Pty Limited, the New South Wales Court of Appeal was required to consider whether payments made by a third party to an insolvent company’s creditor could be recovered by the liquidators as unfair preferences.
In 2012, Built NSW Pty Ltd subcontracted work to Evolvebuilt, with the arrangements subsequently formalised in a building contract. Evolvebuilt then engaged secondary subcontractors to undertake the work, however the subcontractors ceased work on 12 March 2013 after Evolvebuilt failed to pay.
On the same day, the Construction, Forestry, Mining and Engineering Union (CFMEU) wrote to Built instructing them to make the outstanding payments. Built also received a letter from Evolvebuilt, who requested that they pay the secondary subcontractors pursuant to cl 28.2 of the sub-contract.
Following this, Built made initial payments and after assessing the outstanding amounts, made further payments on 28 March. Despite this, Kennico, one of the secondary sub-contractors did not receive any such payments, and so Evolvebuilt made payments to Kennico of its own accord.
After Evolvebuilt entered liquidation in 2015, the company’s liquidators initiated proceedings, alleging the payments made by Evolvebuilt to Kennico and by Built to the other secondary sub-contractors on 28 March were voidable. In doing so, the liquidators argued that the payments were unfair preferences pursuant to s 588FA of the Corporations Act 2001 (Cth), entered into at a time when Evolvebuilt was insolvent.
At first instance Bereton J found that although the Kennico payments were unfair preferences, the Built payments were not. However, he found that Kennico was entitled to rely on the good faith defence in s588FG(2), as a reasonable person in their position would not have had an actual fear that Evolvebuilt was insolvent.
Despite this, the case was later heard on appeal where the liquidators contended that the primary judge erred in concluding that the payments made by Built were made in accordance with CFMEU’s request and not in accordance with Evolve’s request. Moreover, they argued that the primary judge was incorrect in finding that the payments were not made from an asset that benefitted Evolve, and that the request from Evolve to pay its secondary subcontractors was part of a ‘chain of causation’ that caused the payments to be made.
On appeal, the court was required to consider:
- If the payments made by Built were ‘unfair preferences’; and
- Whether Kennico was entitled to rely on the defence.
The court rejected the liquidator’s contentions and so the appeal was unanimously dismissed. In doing so, the court held that as s588FA(1)(a) requires that a debtor company and creditor are ‘parties to the transaction’, it was necessary to identify the ‘transaction’ and determine whether Evolvebuilt was a party to it. Despite this, they did not rely upon a ‘chain of causation’ connecting the debtor company to the payments. It was ultimately held that payments to the five sub-contractors were not unfair preferences.
As to the applicability of the good faith defence, the court held that it was not available to Kennico as a reasonable person in their position would have had ‘a positive apprehension or fear’ that Evolvebuilt was be unable to pay its debts. In doing so, the court relied on evidence which indicated that Kennico had notice that Evolvebuilt was 'unable to pay everyone'.
HCA Confirms Validity of Holding DOCAs
In the recent case of Mighty River International Ltd v Hughes, the High Court of Australia considered 2 cases on appeal from Supreme Court of Western Australia. Both involved a contested deed of company agreement (DOCA) entered into between Mesa Minerals Ltd and its creditors.
The case ensued after Mesa Minerals Ltd entered voluntary administration in July 2016. Subsequently, on 20 October the company’s creditors approved a Holding DOCA that ended the voluntary administration but did not introduce a final proposal to restructure the company and avoid liquidation.
Mighty River International Pty Ltd, a minority shareholder in Mesa, disagreed with this decision and thus initiated proceedings. In doing so they asserted that Holding DOCAs were generally not consistent with the wording and intention of the Corporations Act and were consequently invalid.
At trial, Mighty Rivers argued that the DOCA was void and should thus be set aside. In doing so, they relied on section 444A(4)(b) of the Corporations Act, asserting that the DOCA did not specify any property which would be available to satisfy the claims of Mesa’s creditors and did not otherwise make provision for any return to creditors. They also contended that the natural wording of the act suggests some property must be available for distribution, as it fails to include the words “if any” in relation to property. Lastly, they argued that as the court has the power to extend the convening period for meetings of creditors, Parliament must not have intended administrators to be able to extend the period by DOCA.
However, the respondents argued that the relevant provision was not drafted with the intention that administrators would make property available to creditors but rather, to inform creditors of the property available to be distributed. In doing so, they argued that even where there is no property to distribute, the creditors ought to be made aware of this.
Moreover, they asserted that where there is no property to distribute to satisfy creditor claims in a DOCA, creditor claims may be fulfilled through alternate means such as by offering a debt for equity swap; in which creditors forfeit their rights to enforce their debts in exchange for shares in the company.
The High Court of Australia ultimately upheld the previous decision, dismissing both appeals with costs. They are expected to publish their reasons shortly.
NSWCA: Chorley Exception May Extend to Barristers
In the matter of Pentelow v Bell Lawyers Pty Ltd [2018] NSWCA 150, the New South Wales Court of Appeal was required to consider whether the ‘Chorley exception’ applies to barristers as well as to solicitors. The Chorley exception is an exception to the well-established rule that a self-represented litigant is not entitled to professional costs for acting for him or herself in legal proceedings and provides that self-represented litigants who are solicitors are entitled to recover professional costs for work they have undertaken in legal proceedings.
In doing so, the court was also required to consider whether, if the exception did apply, it would extend to include circumstances in which barristers had engaged legal representation to act on their behalf in the relevant proceeding.
Background
The case involved Janet Pentelow, a barrister who brought proceedings in both the Local Court and Supreme Court of New South Wales, seeking to recover unpaid fees following a dispute with her client (who had been her instructing solicitors). Although the Supreme Court awarded costs in Ms Pentelow’s favour in respect of both proceedings, the cost assessor later rejected in its entirety that part of the costs claimed by Ms Pentelow for preliminary work that she had undertaken herself prior to engaging legal representation, such as drafting the originating process and her affidavit of evidence.
During a subsequent review by the Costs Review Panel, Ms Pentelow’s claim for costs relating to work that she had undertaken was again disallowed on the on the basis that Ms Pentelow was not self-represented as she was represented by solicitors and senior counsel in the prior proceedings, and on the basis that the Chorley exception did not extend to barristers. Ms Pentelow subsequently appealed to the District Court of New South Wales, however was unsuccessful on the same basis and thus sought judicial review of the decision pursuant to s69 of the Supreme Court Act 1970 (NSW).
Here, the New South Wales Court of Appeal was required to consider the following grounds:
- Whether the Chorley exception extends to barristers;
- Whether Ms Pentelow was a self-represented litigant; and
- Whether the Chorley exception applied to Pentelow in circumstances where she engaged legal representatives but also undertook legal work herself.
Whether the Chorley exception applies to barristers
In contending that the Chorley exception applies to self-represented barristers, Ms Pentelow submitted that the court must have regard to the underlying rationale for the rule. In doing so, Ms Pentelow contended that as a barrister’s costs are able to be quantified by the same processes by which a solicitor’s costs are, they too should fall within the ambit of the Chorley exception.
Beazley ACJ (with whom Macfarlan JA agreed) accepted this submission, ultimately concluding that as there was no binding authority, it was appropriate to consider the rationale for the exception. Ultimately, her Honour determined that the Chorley exception extended to the work undertaken by a self-represented barrister, so long as that work was not expressly proscribed by the Bar Rules. Significant in Beazley ACJ’s reasoning was the fact that there was now significant overlap in the work undertaken by both solicitors and barristers and the costs of each may be assessed under the same costs assessment processes. It is important to note that the costs of solicitors and barristers are also assessed under the same costs assessment processes in Queensland and other jurisdictions in Australia, as well as New South Wales.
Whether Ms Pentelow was a self-represented litigant
The court identified that in order to be entitled to relief by way of judicial review, the applicant must establish error of law or jurisdictional error because a question of fact was not amenable to judicial review. In doing so, it held that this ground failed on the basis that it sought to challenge a finding of fact and thus, was not amenable to judicial review.
Whether the Chorley exception applied to Ms Pentelow in circumstances where she engaged legal representatives but also undertook legal work herself
In determining the final ground, Beazley ACJ (with whom Macfarlan JA agreed) concluded that despite having engaged legal representation, Ms Pentelow was entitled to recover costs for legal work she undertook herself. Her Honour held that this issue raised a question of mixed fact and law, which was amenable to judicial review. Ultimately, her Honour concluded that Ms Pentelow’s entitlement to recover specific items of costs claimed was a matter for costs assessment and the matter was remitted to the District Court of New South Wales and the Costs Review Panel for that purpose.
Conclusion
This case highlights an interesting facet of law in that it was found that the costs of self-represented barristers undertaking legal work not otherwise proscribed by the Bar Rules fall within the Chorley exception. Given the criticism that the Chorley exception and its underlying rationale has drawn in recent times, it will be interesting to note how the High Court will handle such matters that emerge in future cases.
NSWCA: Voluntary Administrator Lawful in Terminating Rabbi’s Employment
In a recent matter before the New South Wales Court of Appeal, the court was required to determine whether the Voluntary Administrator of the South Head Synagogue acted lawfully in terminating the employment of Chief Rabbi Benzion Milecki. In doing so, they were required to consider whether Orthodox Jewish Law (Halakah) could be incorporated into Australian Law, thus meaning that the Rabbi’s appointment was for life.
The case ensued after the Synagogue was placed into administration in 2017, following which the administrator immediately terminated the Rabbi’s employment contract and later prohibited him from attending the synagogue.
Rabbi Milecki consequently brought proceedings against the administrators, claiming that Hazakah (life tenure) was a term of the contract, and that the purported termination of his employment was not permitted.
At first instance, the termination of Rabbi Milecki’s employment was found to be unlawful, with Justice Bereton concluding that Hazakah was incorporated, or alternatively implied, as a term of the contract. However, on appeal, the court unanimously found the administrator was acting within the law by terminating the contract.
In finding against the Rabbi, the court held that “It was not a term of the respondent’s contract of engagement with the second appellant that his appointment as rabbi could not be terminated otherwise than in accordance with the halachic or Orthodox Jewish legal principle of Hazakah.”
The appeal judges ruled that Halakah could apply to congregation but not to the company. Accordingly, as Australian law was found to apply, in which all employees are terminated when a company is placed into administration, Rabi Milecki’s termination was ultimately deemed lawful. He was subsequently ordered to pay the administrators costs.
Court Awards Liquidators Unfair Preference Payments
In the matter of Trenfield v HAG Import Corporation (Australia) Pty Ltd the court was required to consider whether the liquidators of Lineville Pty Ltd were entitled to recover a number of payments as preferences pursuant to s588FA of the Corporations Act 2001 Cth. The payments in question were made by Lineville to HAG Import Corporation, with HAG disputing the liquidator’s entitlement to the payments on the basis that they were not made in respect of an unsecured debt. In doing so, HAG argued that the payments were amounts paid for goods which had been supplied to the company on terms granting HAG a security over the goods or the proceeds of sale of those goods, and that the value of HAG's security was in excess of the amount paid.
In reaching a conclusion, the court was required to consider:
- Whether the security interest had been perfected;
- Whether the creditor was a secured creditor, and if so, at what point in time; and
- How any security was to be valued
Had the Security Interest Been Perfected?
The court applied s267 of the PPSA which provides that correct registration of a security interest prevents the security from vesting in a liquidator or administrator if the company goes into external administration. Here, the registration was not valid for the purposes of the PPSA and thus upon appointment of the administrators, any security interest held by HAG vested in Lineville. In delivering its verdict, the court held that the security interest had not been perfected as it had incorrectly been identified as ‘transitional’.
Despite this, the court ultimately contended that the unperfected security interest was still effective between the parties. In doing so, it held that the PPSA does not make an unregistered security interest completely void.
When Did the Creditor Become Secure?
The court held that the relevant time for determining whether the debt was unsecured is pursuant to the time of each payment. In doing so, it applied s588FA (2) of the Corporations Act, contending that the security has to be valued at the date of each particular payment, in order to perform the calculation required by subsection (2).
How Any Security Was To Be Valued?
After much consideration as to how the value of the security was to be determined, the court held that it was to be assessed as the value of the security to the creditor. Relevantly, it held that in circumstances where there was no expert evidence as to the appropriate basis to value the goods, the matter must be resolved as a matter of common sense. Accordingly, the court held that the appropriate way to value the stock held by the company is at the wholesale price.
Concluding Judgement
Ultimately, judgement was handed down in favour of Lineville, with HAG ordered to pay its liquidators $473,291 plus interest pursuant to s58 of the Civil Proceedings Act 2011. However, in determining the period for which interest will accrue, the court contended that HAG must be allowed a reasonable time after the demand was made by the liquidators before interest begins to run. According to the statement of claim admitted by the HAG, the first letter of demand was sent on 7 August 2014, and further letters of demand were sent on 3 December 2014, 18 February, 30 April, 17 July and 28 September 2015. It was thus held that interest was payable from 7 August 2015, 12 months after the first letter of demand.
De Facto Director Ordered to Compensate Unpaid Supplier Following Insolvent Trading
Tremco Pty Ltd ACN 000 024 064 v Thomson & Ors [2018] QDC 101
Case Facts
The plaintiff (Tremco) was the principle supplier of waterproofing materials to a waterproofing business (Kadoe). The defendant (Thomson) was the wife of the formally appointed director of this business. In this proceeding, Tremco sought to recover compensation from the wife under s 588M(3) Corporations Act 2001 (Cth) for losses suffered in relation to unpaid debts.
The debt arose from unpaid invoices beginning in March 2010. In November 2010, the defendant’s account was put on hold. By December 2010, the amount owing to the plaintiff totalled $146,410.20.
In 2015 Tremco brought proceedings against Kadoe for the outstanding debts and obtained a judgment in their favour. Subsequently, Kadoe failed to comply with a statutory demand based on the judgement and was wound up in insolvency on 29 April 2015. The defendant’s husband was made bankrupt in June 2015. Tremco sought compensation for the expenses incurred in this process.
Legal Principles
Section 588M(1) sets out several conditions which must be satisfied before compensation under section 588M(3) can be recovered. The condition in dispute in this case was s 588M(1)(a), which imposes a requirement that, in order to recover compensation, a person (a director) has contravened s 588G(2) or (3) in relation to the incurring of a debt by a company. The key question was therefore whether the defendant was a director within the meaning of director as defined in s 9 of the Act during the alleged period of insolvent trading.
Tremco argued that the defendant was a de facto director of the company due to her involvement in the setting up of the company in 2009 and subsequent management position in the company. The defendant disputed this claim arguing that the company was supposed to be incorporated as a trust. The defendant’s argument was that the setting up of the trust had failed and hence the company had not been trading in its own right.
In support of their claim that the defendant was a de facto director, Tremco pointed to several factors. First, that by the defendants own account, she had been responsible for setting up the Company and the Trust. Second that the defendant had significant involvement and control over the day to day operations of the business including a self-identification as the ‘General Manager’.
In response to Tremco’s assertions, the defendant argued that she had only been a conduit on behalf of her husband in setting up the trust and in any event the incorporation of the trust had failed. In regard to her involvement the defendant relied on the case of Re Swan Services Pty Ltd (In Liquidation) [2016] NSWSC 1724, arguing that her role was only as wife who became involved in the affairs of the company to address the emergency of the invalidity of the Trust. This claim was rejected on the basis that her involvement went far beyond emergency assistance and involved conducting the dispute over the alleged invalid trust for the Company over many years.
Decision
Porter DCJ QC held that the plaintiff was entitled to recover for loss or damage under s 588M. His Honour found that the defendant was a de facto director of the company at all times due to the system of shared management; the husband was responsible for onsite activities whilst the wife was responsible for the operational and administrative affairs of the company. His Honour, in reference to the authority of Grimaldi v Chameleon Mining NL (No 2) (2012) 287 ALR 22, noted the presence of several factors leading to this decision:
- the defendant had independent authority to negotiate and manage matters of importance on behalf of Kadoe and could go further and bind Kadoe in relation to those matters;
- The defendant’s husband had little, if any, oversight or involvement in those matters and largely left executive decision making to her in many areas.
With the question of the defendants status settled, his Honour found that the defendant was in a position to determine the solvency of the business and had reasonable grounds to suspect the company was insolvent during the relevant time period.
Federal Court: Gated Housing Renders Personal Service Impractical
In the recent case of bCode Pty Ltd (in liq) v Holford [2018] FCA 798 the court was required to consider whether an order for substituted service may be granted where multiple attempts to personally serve a notice have been unsuccessful.
The case involved bCode, a mobile technology company, who had unsuccessfully attempted to serve documents on Troy Holford on numerous occasions. Mr Holford lived within a gated community in Sanctuary Cove. The community was monitored by a security team, and thus in order to gain access to Mr Holford’s residence, one was required to first contact the security team via intercom, who was to then contact the residence for access approval.
During the trial, Mr Russ, a commercial agent for bCode, gave evidence that on four occasions, he attempted to serve notice at the Sanctuary Cove address. Specifically, Mr Russ contended that on the first occasion, the guard told him that Mr Holford was abroad, however gave permission for Mr Russ to enter the premises and leave the documents with his son. Mr Russ declined this offer on the basis that he was required to personally serve the notice on Mr Holford.
When he returned a third time, Mr Russ once again contacted the security guard who subsequently phoned Mr Holford’s premises and spoke with a woman, who informed him that Mr Holford was still overseas. Mr Russ notified the guard that he now had authorisation to leave the documents with a resident at the address, however when the guard called back, there was no answer at the premises. On both other occasions Mr Russ was notified that there was no answer at Mr Holford’s address.
In considering bCode’s application, the court was required to determine whether personal service was ‘not practicable’ pursuant to r10.24 of the Federal Court Rules 2011. In doing so, the Gleeson J contended ‘that it is impracticable to effect personal service on Mr Holford since he resides in a secure housing estate where access is only permitted by security guards authorised by a resident’.
The court also heard evidence from bCode’s solicitor Laura Scotten, who verified that; Mr Holford is the owner of the Sanctuary Cove address, that his address in ASIC records is the Sanctuary Cove address and that he is the director and shareholder of Holford Properties Pty Ltd, which lists its principal place of business as at the Sanctuary Cove address. Ms Scotten also gave evidence that in late February 2018, Mr Holford had sent emails from a known email address.
According to this information, Gleeson J submitted that pursuant to the Federal Court Rules 2011, it was appropriate to substitute an alternate method of service. It was ultimately held that notice may been served on Mr Holford by post to the Sanctuary Cove address and by transmitting the documents to his email. Her Honour contended that the documents will be taken to be served seven days thereafter.
