FEDERAL COURT OF AUSTRALIA

Lifeplan Australia Friendly Society Ltd v Woff [2013] FCA 1092

THE COURT ORDERS THAT:

1.    The applicants have leave to proceed with the proceeding against the third respondent pursuant to s 471B of the Corporations Act 2001 (Cth) up to the entry of judgment.

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

REASONS FOR JUDGMENT

1    This is an application by the applicants in this proceeding for leave to proceed against a company in liquidation. The company in liquidation is the third respondent to the proceeding. The applicants’ application was supported by an affidavit sworn by a solicitor acting for them. The liquidator opposes the grant of leave.

2    The Court’s power to grant leave to proceed is contained in s 471B of the Corporations Act 2001 (Cth). The Court has a discretion whether or not to grant leave. The reasons for the discretion was explained by McPherson J in Ogilvie-Grant & Anor v East as Liquidator of Gordon Grant and Grant Pty Ltd (in liq) (1983) 1 ACLC 742 in the following terms (at 744):

The precise purpose and function of provisions similar to sec. 230(3) have seldom been explained. From time to time the suggestion has been made that the prohibition exists in order to effectuate the statutory policy of ensuring that corporate assets are distributed rateably amongst all creditors so that none of them will gain an advantage over others: see e.g. Re Sydney Formworks Pty. Ltd. (1965) N.S.W.R. 646 at pp.649-650. But in Australia at least it is not often that the institution of proceedings or even the recovery of judgment operates to confer a priority or advantage on a litigating creditor. A more convincing explanation is that, without the relevant restriction, a company in liquidation would be subjected to a multiplicity of actions which would be both expensive and time-consuming, as well in some cases as unnecessary. This explanation has been accepted in a number of Canadian cases and appears also to have been adopted by Street J in Re A.J. Benjamin Ltd (1969) 90 W.N. (N.S.W.) 107 at p.109 …

3    Unsurprisingly, the factors relevant to the exercise of the discretion have been identified in the cases. For example, Gilmour J identified thirteen relevant factors in Swaby v Lift Capital Partners Pty Ltd [2009] FCA 749 at [29].

4    The background to the application is as follows.

5    On 12 June 2013 the third respondent, Funeral Planning Australia Pty Ltd (ACN 147 314 663), was wound up in insolvency by order of the Supreme Court of Victoria. The petitioning creditor was the Ancient Order of Foresters in Victoria Friendly Society Limited (ACN 087 648 842) (“Foresters”). Foresters is the fourth respondent to the proceeding.

6    The third respondent is an Australian proprietary company limited by shares and it was registered as a company on 11 November 2010. The directors of the company at the time of its winding up were Mr Noel Jeffrey Woff and Mr Richard John Corby. They are the first and second respondents respectively to the proceeding. The first and second respondents are also the secretaries of the company and its only shareholders. The liquidator of the company is Mr Kenneth John Stout. On 22 July 2013, Mr Stout filed with the Australian Securities and Investments Commission a statement verifying as authentic a report as to affairs in relation to the company. The report as to affairs stated that the assets of the company consisted of cash at the bank of $61.00 and a contingent asset estimated to be worth $10,000 being the company’s name. The major creditor of the company is Foresters in the sum of $293,000 and that sum formed the basis of Foresters’ petition to wind up the company. That sum is said to be the alleged debt relating “to costs and disbursements purportedly paid on behalf of the Fourth Respondent to Arnold Bloch Leibler, the First, Second and Third Respondents’ former lawyers, from 18 June 2012 to 24 January 2013 pursuant to an agreement between the Third Respondent and the Fourth Respondent”. The other creditors of the company are alleged to be contingent creditors and include a potential liability to the applicants for costs in the sum of $120,000 and liabilities totalling $17,000 for consultancy and other fees.

7    On 7 June 2013, I made various orders in the proceeding including an order that the applicants be granted leave to join Foresters to the proceeding as the fourth respondent. I delivered reasons for making those orders: Lifeplan Australia Friendly Society Ltd v Woff [2013] FCA 613. In those reasons I summarised the claims made by the applicants against the four respondents, including the claims made against the third respondent (at [5] – [13]). I will not repeat what I there said.

8    In my opinion, leave to proceed should be granted.

9    I am satisfied on the material before the Court that the applicants’ claims against the third respondent have a solid foundation and give rise to a serious dispute (Vagrand Pty Ltd (in liq) v Fielding and Others (1993) 113 ALR 128 at 134 per Wilcox, Burchett and Beazley JJ).

10    Among the orders which the applicants seek in the proceeding is a declaration that they are entitled to a constructive trust over the business and undertaking of the third respondent. Counsel for the liquidator acknowledged that should the liquidator have difficulty in dealing with that claim then he may make an application to the Court for directions. The possibility that if leave is refused, the liquidator may have to approach the Court for directions in relation to the applicants’ claim for a constructive trust, is a reason in favour of granting leave particularly where, as here, the proceeding is relatively well advanced.

11    A powerful reason in favour of granting leave is the fact that the action is relatively well advanced against the third respondent. As I said in my earlier reasons the applicants’ claims against the first three respondents were listed for trial, although the trial date was subsequently vacated. The joinder of the fourth respondent and a re-examination of aspects of the first and second respondents’ defences to the applicants’ claim have slowed the progress of the proceedings. Nevertheless, it is fair to say that the proceeding is fairly well advanced.

12    Another reason in favour of a grant of leave is that whether leave is granted or not, a number of the issues which arise as between the applicants and the third respondent will be the subject of the proceeding because it is alleged that to some extent at least the third respondent was a vehicle through which the first two respondents breached their duties and other obligations to the applicants.

13    Finally, another reason in favour of a grant of leave is that the applicants’ claim against the third respondent raises issues that are potentially complex, both legally and factually.

14    The liquidator emphasised the fact that on the face of it the company has no substantial assets. That matter may be acknowledged, but I do not think it is sufficient to justify a refusal of leave. The liquidator has a number of options open to him. For example, if leave is granted, he can either contest the allegations against the third respondent to the extent that he is able to do so or he can take a neutral stance and in a sense, submit to the order of the Court. If leave is refused, then presumably the applicants will lodge a proof of debt in the liquidation. The liquidator may seek to postpone his decision with respect to the proof of debt in order to await the outcome of this proceeding on the basis that the outcome is likely to have a significant bearing on how he deals with the proof of debt. Alternatively, he could determine the proof of debt, but that could be a costly process with, as I have said, the possibility of an application by the liquidator to the Court and an appeal to the Court against his decision by the applicants. Having said that, it will be for the liquidator to decide how he proceeds.

15    Counsel for the liquidator raised the possibility that if leave to proceed is granted it should be on condition that the applicants pay the liquidators’ costs in any event. I was referred to JJ Leonard Property Pty Ltd v Leonard (WA) Pty Ltd (in liq) (1987) 5 ACLC 575 and Ballantyne Suites Pty Ltd v Ballantyne Chambers Pty Ltd (2013) VSC 66. I do not think that this is the type of case in which such an order is appropriate. At present the major creditor of the third respondent is the fourth respondent and the claims against the third respondent will, as the matter presently stands, be to a significant extent defended by the first and second respondents. I do not see why the applicants should fund the third respondent’s defence of their own claim in those circumstances.

16    I will make an order that the applicants have leave to proceed against the third respondent pursuant to s 471B of the Corporations Act 2001 (Cth) up to the entry of judgment.

Associate:

Dated:    22 October 2013