Federal Court of Australia

Avant Garde Investments Pty Ltd (in liq), in the matter of Avant Garde Investments Pty Ltd (in liq) v Cheema [2021] FCA 125

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 477(2B) of the Corporations Act 2001 (Cth), approval is given nunc pro tunc to the Second Plaintiff in his capacity as liquidator of the First Plaintiff to enter into the Deed of Settlement and Release dated 14 August 2020 annexed at pages 5-23 to the affidavit of the Second Plaintiff sworn 21 December 2020.

2.    Pursuant to r 5.23(2)(c) of the Federal Court Rules 2011 (Cth), default judgment is entered against the Second Defendant in the sum of $1,100,000.

3.    The Second Defendant to pay the Plaintiffs’ costs of the proceedings as agreed or taxed insofar as those costs relate to the Second Defendant.

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

REASONS FOR JUDGMENT

JAGOT J:

1    These reasons for judgment relate to an interlocutory process filed 23 December 2020. In the interlocutory process, two substantive orders are sought. First, an order under s 477(2B) of the Corporations Act 2001 (Cth) (the Corporations Act), approving the liquidator’s entry into the Deed of Settlement and Release dated 14 August 2020 (the Deed), and second, an order pursuant to r 5.23(2)(c) of the Federal Court Rules 2011 (Cth) (the Federal Court Rules), that there be a default judgment against the second defendant (the company) in the amount of $1.1 million. The order under s 477(2B) of the Corporations Act is required because the Deed involves the discharge of the company’s obligations for payment over a period of six and a half years.

Liquidator’s entry into the Deed

2    The relevant principles are identified in the supporting submissions on behalf of the plaintiffs. In short, the role of the Court is to determine whether it is a proper exercise of the liquidator’s powers, and not ill advised or improper on the part of the liquidator to enter into the agreement. Further, the Court is able to give retrospective approval under s 477(2B) of the Corporations Act. As the submissions for the plaintiffs explain, approval of the Deed will result in the potential prolonging of the liquidation for a period up to six and a half years, beyond what ordinarily might be expected.

3    While the liquidator recognises the general expectation that a winding up will proceed expeditiously, the liquidator has reached the view that it would be a prudent course for him and a bona fide exercise of his powers to enter into the Deed and to seek approval for the entry into the Deed, in circumstances where the Deed provides for the first defendant to satisfy the entirety of the admitted proofs of debt in the liquidation. I am satisfied that the approval of the liquidator’s entry into the Deed is consistent with the principles which have been identified, and that approval should be granted.

Default judgment against the company

4    The next order that is sought is for default judgment against the second defendant (referred to as the company below). The relevant facts which are pleaded in the amended statement of claim are set out in paragraph 18 of the submissions of the plaintiffs, provided to the Court in support of the application, and are as follows:

(a)    Mr Cheema was (as with the first plaintiff) the director and shareholder of the company;

(b)    on 25 September 2019 and 26 September 2019, amounts totalling $1.1 million were transferred by EFT from an account of the first plaintiff to an account of the company;

(c)    these transactions occurred at a time when the first plaintiff was insolvent;

(d)    the first plaintiff received no benefit or consideration in respect of the transactions;

(e)    for the purpose of s 588FE(3) of the Corporations Act, the transactions occurred during the relation-back period;

(f)    in the circumstances, the transactions comprised uncommercial, insolvent and voidable transactions for the purpose of ss 588FB, 588FC and 588FE(3) of the Corporations Act; and

(g)    in the alternative, the company was unjustly enriched to the extent of the value of the transactions ($1.1 million) and it would be unconscionable for the company to not repay an amount equivalent to that received.

5    As those submissions also indicate, the evidence demonstrates that the company is in default, in that it failed to file and serve a defence within 28 days of service of the further amended originating process and amended statement of claim in support.

6    As has also been noted in the written submissions for the plaintiffs, r 16.07(2) of the Federal Court Rules provides that allegations that are not specifically denied are taken to be admitted. Further, it is established that an applicant can rely on this deemed admission of facts pleaded in the statement of claim, to support the contention that the defaulting party has admitted those matters. Rule 5.23(2)(c) of the Federal Court Rules provides that if a respondent is in default, an applicant may apply to the Court for an order giving judgment against the respondent, for the relief claimed in the statement of claim, to which the court is satisfied the applicant is entitled. Such judgment may be given in the applicant’s favour, provided that the statement of claim makes the relevant claim for relief on its face, and the claim falls within the jurisdiction of the court: Yeo v Damos Earthmoving Pty Ltd, in the matter of Beechwood Developments Pty Ltd (in liquidation) [2011] FCA 1129 at [9].

7    In the present case, the amended statement of claim alleges the material facts as set out above. As a consequence, the failure by the company to file a defence means those material facts are taken to be admitted by the operation of r 16.07(2) of the Federal Court Rules. There is also no doubt that the relief sought falls within the jurisdiction of the Court, being a claim under s 588 of the Corporations Act and, in the alternative, for restitution.

8    The evidence also establishes that the interlocutory process filed 23 December 2020, together with the order of the Court of 18 December 2020 setting this matter down for hearing, was delivered to the company on 11 January 2021. Accordingly, I accept that the company is on a clear notice of this application. The company did not appear today, when the matter was called for hearing.

9    In these circumstances, I am satisfied that an order for default judgment against the company, in the terms which the plaintiffs seek, is justified.

Associate:

Dated:    22 February 2021