FEDERAL COURT OF AUSTRALIA

Findex Australia Pty Limited v McKay [2019] FCA 335

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 500(2) of the Corporations Act 2001 (Cth), that on the condition that the applicants not seek to enforce any judgment which they may obtain against Vandaman Pty Ltd (ACN 103 917 773) without leave of the Court, the applicants be granted leave to proceed with this proceeding against Vandaman Pty Ltd (ACN 103 917 773).

2.    The leave ordered in order 1 operate and be effective from 19 February 2019.

3.    The applicants’ costs of and incidental to this application be costs in the proceeding as between the applicants and Vandaman Pty Ltd (ACN 103 917 773).

4.    Time for service of the application be abridged until 11 March 2019.

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

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

STEWART J:

1    The applicants assert claims against the two respondents arising from alleged breaches of restraints of trade and misuse of confidential information by the first respondent, a natural person. The first respondent is the former principal and sole director of the second respondent, a corporation.

2    The claims against the second respondent are asserted on the basis that, in collusion with the first respondent, and by the conduct of the first respondent, it breached the relevant restraint. In the alternative, it is asserted that the second respondent is by the first respondent’s alleged conduct in breach of a contractual undertaking that the first respondent will not breach the restraint.

3    Following customary pre-trial processes including subpoenas for documents, documentary discovery and the filing of affidavits, the matter was listed for hearing commencing on 4 March 2019 with an estimate of 10 days. For reasons not presently relevant, the hearing stood down on 4 and then 5 March 2019 ultimately to commence in earnest today with a reduced estimate of five days. It was then that the applicants moved on an interlocutory application filed on 7 March 2019 for an order pursuant to s 500(2) of the Corporations Act 2001 (Cth) for leave to proceed with the proceeding against the second respondent. The leave that was sought was subject to the usual condition that the applicants not seek to enforce any judgment which they may obtain against the second respondent without leave of the court.

4    The need for leave to proceed against the second respondent arises from the fact that on 18 February 2019 its members resolved that the company be wound up and they appointed Anthony Graeme Lane as liquidator. The liquidation is a creditors’ voluntary liquidation (dealt with under Division 3 of Part 5.5 of the Act) on the basis that the second respondent is insolvent. The proceeding against the second respondent could thus, by operation of s 500(2), not be proceeded except by leave of the court.

5    Notice of the liquidation and the appointment of Mr Lane was given to the applicants’ solicitors on 19 February 2019.

6    The first and second respondents were represented by the same solicitors and counsel until 25 February 2019 when the solicitors filed a notice of ceasing to act for the second respondent. No one thereafter came on record for the second respondent.

7    On 4 March 2019, Mr Lane furnished an initial notice to creditors which gave notice of his appointment and identified two creditors. The first respondent was identified as being an unsecured creditor with a modest claim of less than $2,000, and the first applicant was identified as being a contingent creditor with an estimated claim of $200,000.

8    On the hearing of the application for leave, an email from Mr Lane was tendered. In it he stated that he is “unfunded in the winding up of the second respondent” and is therefore unable to obtain representation for the second respondent either in the application for leave or in the substantive proceeding. He also stated that the second respondent has no assets or entitlement to assets.

9    In light of the fact that the company in liquidation was unrepresented before me, I invited counsel for the first respondent to make submissions to me on the application for leave. I also allowed counsel to read an affidavit by the solicitor for the first respondent which set out certain background matters.

10    I do not understand there to be any disagreement with regard to the principles governing my discretion under s 500(2). In that regard, in Re DSHE Holdings Limited (recs and mgrs appointed) (in liq) [2018] NSWSC 82, Black J (at [18]) gave the following useful summary:

Broadly, the purpose of this section is to prevent a company’s assets being dissipated by unnecessary litigation, and an applicant for leave will be required to show why it should not be left to prove its debt in the winding up … The claimant must establish that the claim has a solid foundation and gives rise to a serious question to be tried; factors relevant to the exercise of the court’s discretion may include the degree of complexity of legal and factual issues and the prospect that a proof of debt will be rejected; and the power to grant leave is discretionary and other factors may be relevant to its exercise …”

(Citations omitted.)

11    Further, in Eopply New Energy Technology Co Ltd v EP Solar Pty Ltd [2013] FCA 356, Foster J (at [22(b)]) stated:

In determining whether leave should be granted, the Court considers whether the balance of convenience lies in allowing the applicant to proceed by way of action to judgment, or whether the applicant should be left to pursue his or her claim by lodging a proof of debt with the liquidator. The matter is one of discretion and the onus is on the applicant to demonstrate why it is more appropriate in respect of the particular claim, to proceed by way of action.

12    The evidence shows that there is only one creditor of the second respondent other than the first respondent and therefore the possible difficulty of multiplicity of actions does not arise. Further, granting leave is not likely to be unduly burdensome or unduly interfere with the liquidation or prejudice other creditors. On the evidence before me there is a serious issue to be tried in respect of the liability or potential liability of the second respondent. The proceedings are certainly at a very well advanced stage.

13    The essential issues in the claim against the company in liquidation overlap with the issues in the claim against the first respondent and all the issues arise out of the same factual matrix and the same suite of contracts. It seems to me that the more efficient course is for the claim against the company to be determined in this proceeding rather than it having to be proved in due course by way of proof of debt. In particular that is because, as the evidence shows, the liquidator is essentially unfunded. Therefore, although he is not able to oppose the claim in these proceedings, equally, he is not likely to be in a position to investigate what on the face of it is a fairly complex claim.

14    It has been submitted against leave being granted that there is a possible offsetting claim by the company against the applicants. On the present evidence that suggestion is highly speculative. In any event, if such a claim was to be formulated in due course, that can be dealt with in particular at the stage where leave would be sought to execute on any judgment that might be granted against the company in these proceedings.

15    I do not regard the fact that the company is said by the liquidator at this early stage to be without assets as being determinative. It may be that once armed with a judgment, if indeed they get one, the applicants will be in a position to justify further enquiries or investigations with regard to assets.

16    So, for those reasons I grant the following orders:

(1)    Pursuant to s 500(2) of the Corporations Act 2001 (Cth), that on the condition that the applicants not seek to enforce any judgment which they may obtain against Vandaman Pty Ltd (ACN 103 917 773) without leave of the Court, the applicants be granted leave to proceed with this proceeding against Vandaman Pty Ltd (ACN 103 917 773).

(2)    The leave granted in order 1 operate and be effective from 19 February 2019.

(3)    The applicants’ costs of and incidental to this application be costs in the proceeding as between the applicants and Vandaman Pty Ltd (ACN 103 917 773).

(4)    Time for service of the application be abridged until 11 March 2019.

Associate:

Dated:    14 March 2019