Federal Court of Australia

Naidenov (as liquidator) v Anderson, in the matter of Peach & Co Pty Ltd (in liq) [2024] FCA 1232

ORDERS

THE COURT ORDERS THAT:

1.    Peach & Co Pty Ltd (in liquidation) (ACN 161 445 790) be joined as the second plaintiff to this proceeding.

2.    The plaintiffs file an amended originating process giving effect to Order 1 forthwith.

3.    The amended interlocutory process dated 22 October 2024 be dismissed.

4.    The legal representatives of the parties confer and provide to the Associate to Goodman J within seven (7) days:

(a)    agreed orders as to costs of the amended interlocutory process; or

(b)    failing such agreement, competing orders, any evidence in support, and written submissions (not exceeding two (2) pages).

5.    The question of costs be determined on the papers unless any party indicates an objection to that course.

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

REASONS FOR JUDGMENT

GOODMAN J

A.    Introduction

1    The first plaintiff (liquidator) is the liquidator of the second plaintiff (Company). The defendant is a former director of the Company.

2    By an amended interlocutory process dated 22 October 2024, the plaintiffs seek an order pursuant to s 1323(1) of the Corporations Act 2001 (Cth), for the appointment of a receiver of the property (as defined in s 9 of the Act) of the defendant; alternatively orders in the nature of freezing orders pursuant to s 1323(1) of the Act or Division 7.4 of the Federal Court Rules 2011 (Cth). The application has been heard and determined quickly in a context in which a parcel of land in Griffith in the Australian Capital Territory (Griffith property) of which the defendant is the registered proprietor is to be offered for sale at auction this Saturday, 26 October 2024.

B.    Background

3    The background set out below is taken from the salient parts of the affidavits of the liquidator affirmed on 2 April 2024 and 16 October 2024; and the affidavit of the defendant sworn on 21 October 2024.

4    On 29 November 2012, the Company was incorporated. The defendant was a director of the Company upon incorporation and remained as such until 21 June 2019.

5    On 8 November 2021, the liquidator was appointed to the Company.

6    On 16 November 2021, the Australian Taxation Office (ATO) lodged a proof of debt with the liquidator in the sum of $955,333.98.

7    The liquidator issued reports to creditors on 19 November 2021 and 8 February 2022. In the second of those reports, the liquidator included the following views (noting that the references to “Shane” are to the defendant):

•    The Company was incorporated on 29 November 2012 as “Andara Homes (Canberra) Pty Ltd”.

•    The primary business activity of the Company was the provision of project management services for property development contracts initially for house and land packages, and subsequently for childcare centres in the Australian Capital Territory (ACT). The land for these property development contracts were mainly owned by the ACT Government.

•    During Shane’s directorship, the Company primarily provided project management services for property development contracts for house and land packages. Due to the high building costs and low land values, these projects would incur high GST obligations.

•    According to Minh, Shane had disregarded these GST obligations and neglected to employ or engage a qualified bookkeeper or accountant to ensure that the Company was compliant with its taxation obligations.

•    In June 2019, Minh and Hannah paid Shane approximately $750,000 to remove himself as a director of the Company due to his poor management of the Company’s affairs. At the time:

•    One of Minh’s companies required an occupancy certificate in relation to a project being overseen by the Company.

•    Both Minh and Hannah were unaware of the Company’s taxation position.

•    Both Minh and Hannah intended on continuing the Company’s trading operations as a going concern.

•    This is evidenced by the establishment of a bank account with CBA following the closure of the Company’s STG bank account during Shane’s directorship.

•    The final project involving the Company was completed in September 2019. As a result, the Company ceased trading from October 2019 onwards. The dormancy of the Company is indicated by the minimal transactions processed through the Company’s CBA and STG bank statements from October 2019 onwards.

•    In late 2019, the ATO commenced a review of the Company’s taxation lodgements.

•    In January 2020, the ATO commenced an audit of the Company’s taxation affairs from 1 April 2017 to 31 December 2019 (Audit). During this audit process, Minh assisted the ATO with its requests for information. Minh noted the difficulty of this process due to the minimal Company books and records maintained during Shane’s directorship. The ATO acknowledged the proactive steps taken by Minh to assist with the Audit. This also resulted in a reduction of the penalty, administrative and other charges applied to the Company’s adjusted taxation debt.

•    In March 2020, the ATO finalised the Audit which resulted in adjustments to the Company’s tax lodgements and, therefore, significantly increased the Company’s taxation debt to approximately $1 million. The basis for the ATO’s determination was as follows:

•    The Company made several clerical errors, including the failure to adopt and use a consistent accounting policy.

•    The Company incorrectly claimed GST credits on expenses incurred by other companies.

•    The Company incorrectly claimed GST credits on the private expenses of Shane.

•    The Company incorrectly claimed GST credits on expenses that were not reconcilable to tax invoices as well as on expenses that were not paid.

•    The full extent of taxable sales was not disclosed or were omitted.

•    GST credits were incorrectly claimed due to improper taxation invoices and, at times, for incorrect periods.

•    The Audit determined that the Company:

•    Failed to take ‘reasonable care’ in the preparation and submission of the Company’s taxation lodgements.

•    Made false or misleading statements in the preparation and submission of the Company’s taxation lodgements.

•    Neglected to seek professional advice from the ATO or a registered tax agent regarding its GST obligations and its entitlement to GST credits.

•    Following the outcome of the Audit:

•    Minh determined that the Company would be unable to source adequate work for the repayment of the post-Audit taxation obligations.

•    Minh removed himself as he was unable to be associated with an entity that was likely insolvent, given that he was a director of several other companies that held contracts with the ACT Government.

8    In July and September 2022, the liquidator issued demands to the defendant for payment of sums alleged to be due by the defendant for contraventions by him of s 588G of the Act.

9    In or about April 2023, the defendant purchased the Griffith property. The Griffith property presently secures loans provided to the defendant by: (1) the National Australia Bank (NAB loan); and (2) Mr Ashley Thomson (Thomson loan), for the purpose of funding construction on the property.

10    On 13 April 2023, the liquidator commenced a proceeding in the Supreme Court of New South Wales pursuant to s 596A of the Act for the examination of the defendant. That examination occurred on 13 July 2023. The defendant disclosed his ownership of the Griffith property during the examination.

11    In around late 2023, at a time when construction at the property was nearing completion, the defendant decided to sell the property. He did so because he was experiencing difficulties in servicing the NAB loan and the Thomson loan, for reasons including the cost of construction of a dwelling on the Griffith property.

12    On 21 December 2023, the liquidator and the Company commenced a proceeding against the defendant’s mother in the District Court of New South Wales. In that proceeding the liquidator and the Company sought to recover four payments totalling $271,800 made by the Company to the defendant’s mother between 9 October 2018 and 1 May 2019 as “unreasonable director-related transactions” within the meaning of s 588FDA of the Act.

13    In January 2024 the defendant engaged Berkely Residential, a real estate agency, to sell the Griffith property and from then until about March 2024, it was marketed by way of expressions of interest, but did not sell. In about mid-February 2024 construction of a dwelling and a pool on the Griffith property were completed.

14    Between March 2024 and September 2024, the Griffith property was listed for a private treaty sale through Berkely. It did not sell during this period.

15    On 5 April 2024, the liquidator commenced this proceeding by the filing of an originating process, supported by his affidavit affirmed on 2 April 2024. The liquidator did so, having formed the views that debts totalling $812,217.86 owing to the ATO were incurred by the Company between the date of its incorporation and 21 June 2019; and that the Company was insolvent from the date of its incorporation to 8 November 2021, or from at least 28 February 2017 to 8 November 2021.

16    On 18 April 2024, the liquidator filed a statement of claim in this proceeding, in which he alleged that the defendant had contravened s 588G of the Act by failing to prevent the Company incurring debts to the ATO at a time when the Company was insolvent.

17    On 19 September 2024 and following communications between the defendant and Berkely as to the lack of progress with the sale of the Griffith property and the ongoing costs of owning that property, the defendant signed a further agreement with Berkely for the sale of that property by auction. The auction has since been advertised, at least, on realestate.com.au and domain.com.au.

18    On 9 October 2024, Judge Newlinds of the District Court gave judgment in the District Court proceeding and ordered the defendant’s mother to pay the Company $362,997.83 (which I infer represents the quantum of payments made by the Company to the defendant’s mother, plus interest): see Naidenov as liquidator of Peach & Co Pty Ltd (in liquidation) ACN 161 445 790 v Anderson [2024] NSWDC 488.

19    On 17 October 2024, the defendant filed his defence. Counsel for the defendant, who is instructed by solicitors who replaced the solicitors who prepared the defence, indicated that the defendant would seek to rely upon a more detailed defence.

20    As noted earlier, the auction of the Griffith property is imminent. The defendant intends – to the extent there are any surplus proceeds from a sale of the Griffith property, after repayment of the NAB loan and the agent’s commission for the sale – to use those proceeds to repay the Thomson loan. The defendant denies having any intention to attempt to defeat creditors by selling the Griffith property or to otherwise decrease the value of his assets.

21    The evidence indicates that: (1) there has been little evident interest from potential purchasers of the Griffith property to date; (2) the expected selling price is in the range of $4.0 to $4.7 million; and (3) the balance owed under the NAB loan is in the order of $3.9 million. The balance owing under the Thomson loan is not apparent on the evidence. The loan contract recorded a facility for $1 million, to be repaid in November 2023.

C.     consideration

22    Section 1323 of the Act provides, in so far as is presently relevant:

1323      Power of Court to prohibit payment or transfer of money, financial products or other property

(1)     Where:

...

(c)     a civil proceeding has been begun against a person under this Act;

and the Court considers it necessary or desirable to do so for the purpose of protecting the interests of a person (in this section called an aggrieved person) to whom the person referred to in paragraph (a), (b) or (c), as the case may be, (in this section called the relevant person), is liable, or may be or become liable, to pay money, whether in respect of a debt, by way of damages or compensation or otherwise, or to account for financial products or other property, the Court may, on application by ASIC or by an aggrieved person, make one or more of the following orders:

...

(h)     an order appointing:

(i)     if the relevant person is a natural person—a receiver or trustee, having such powers as the Court orders, of the property or of part of the property of that person; or

...

(2)     An order under subsection (1) prohibiting conduct may prohibit the conduct either absolutely or subject to conditions.

(3)     Where an application is made to the Court for an order under subsection (1), the Court may, if in the opinion of the Court it is desirable to do so, before considering the application, grant an interim order, being an order of the kind applied for that is expressed to have effect pending the determination of the application.

...

23    It is common ground, for the purposes of the application of s 1323 of the Act in the present case, that: (1) a civil proceeding has been begun against the defendant under the Act; (2) the plaintiffs are persons to whom the defendant may become liable to pay money; and (3) the plaintiffs have applied for an order appointing a receiver of the property of the defendant. At issue is whether the making of the orders sought is necessary or desirable for the purposes of protecting the interests of the plaintiffs. Those interests concern the recovery from the defendant of the amounts sought in this proceeding.

24    If the Court is satisfied that an order appointing a receiver to the defendant’s property is necessary or desirable, then it may make an alternative or lesser order such as a freezing order: see, e.g., Australian Securities and Investments Commission v Burnard [2007] NSWSC 1217; (2007) 64 ACSR 360 at [20] to [22] (Barrett J); Australian Securities and Investments Commission v Krecichwost [2007] NSWSC 948; (2007) 213 FLR 314 at 325 [37] (McDougall J).

25    In Australian Securities and Investments Commission v Sigalla [2010] NSWSC 1423, Barrett J explained at [15] to [20]:

[15]     The next question, therefore, is whether I should conclude that it is either “necessary” or “desirable” to make an order “for the purpose of protecting the interests of’ any such “person aggrieved”. As posed by the legislation in the present case, this question relates to “an order appointing … a receiver” of property of Mr Falconer and Dunbar, given that the order actually sought is a freezing order which, in the particular context, is permitted as an “alternative or lesser order”: see Re Richstar Enterprises Pty Ltd; Australian Securities and Investments Commission v Carey (No 3) [2006] FCA 433; (2006) 57 ACSR 307; Australian Securities and Investments Commission v Krecichwost [2007] NSWSC 948; (2007) 64 ACSR 411; Australian Securities and Investments Commission v Banovec (No 2) [2007] NSWSC 961; (2007) 214 FLR 33; Australian Securities and Investments Commission v Burnard [2007] NSWSC 1217; (2007) 64 ACSR 360.

[16]     There was discussion in the course of submissions about the fact that a receivership order is characterised in some of the cases as more “drastic” with the result, perhaps, that, in order to characterise the “alternative or lesser” freezing order as “necessary” or “desirable”, the court must first be satisfied that the “drastic” remedy of receivership be awarded.

[17]     While that may be, in theory, the correct approach, the central inquiry remains the same for both the “drastic” and the “alternative or lesser” orders: is it “necessary” or “desirable” that the court impinge upon the freedom of disposition that the person concerned enjoys in relation to his, her or its property and impose a regime that denies that freedom? The court’s ordinary jurisdiction to appoint a receiver aims to protect assets that may turn out to belong to someone else. The purpose is protective. The same protective purpose is served, for the same reason, by a freezing order.

[18]     In addressing the “necessary or desirable” question in relation to the “alternative or lesser” freezing order, the court is dealing with an explicit statutory criterion. The approach is not the same as that adopted in relation to an application in equity for a freezing order of a Mareva kind. But factors typically taken into account in the exercise of equitable jurisdiction may well be relevant to questions of what is “necessary” or “desirable” in the interests of aggrieved persons.

[19]     The court may thus take into account all relevant discretionary factors, including those identified by Santow J in Re HIH Insurance Ltd; Australian Securities and Investments Commission v Adler (2001) 38 ACSR 266; [2001] NSWSC 451 at [4] to [7]. Santow J there observed that the public interest role of ASIC may warrant an order in circumstances where it might be denied to a private litigant. At the same time, however, any order the court makes must, as Santow J said “operate in a manner that is proportionate and not more intrusive than is necessary in the circumstances, recognising that it is inevitable that such orders will intrude upon private rights”. Santow J also pointed to the significance of the legislative exemption that ASIC enjoys from the requirement to give an undertaking as to damages.

[20]     In the end, the court’s task is as described, in relation to an application under s 1323(1)(j) and (k), by Nicholson J in Australian Securities and Investments Commission v Ivey (1998) 29 ACSR 391:

“The Court is required to engage in a balancing exercise which includes a balancing of public and private rights.”

(bold emphasis added)

26    Similarly, in Krecichwost, McDougall J explained at 324 ([27] to [30]):

27    Nonetheless, an assessment of necessity or desirability must take into account not only the interests to be protected but also the threats to those interests. For example, if the court were affirmatively satisfied that there was no risk that a relevant person might abscond, it would be difficult to conclude, regardless, that an order under para (j) or para (k) would be necessary or desirable.

28    In this case, ASIC says that the relevant risk is that of dissipation of assets. Before the court could conclude that it is necessary or desirable to appoint a receiver, it must make some assessment of that alleged risk. However, as Santow J pointed out in Adler at [7], the court may appoint a receiver even in the absence of significant risk of dissipation of assets if the case otherwise justifies it.

29    Leaving aside the considerations to which I have just referred, the statutory scheme does not in terms invoke the familiar calculus employed in assessing applications for interlocutory relief: the existence of a serious question to be tried; the insufficiency of damages as a remedy; the related question of balance of convenience; and other discretionary factors.

30    That is not to say that those matters are irrelevant. They remain of significance, as informing the exercise of the statutory discretion if and when it arises, for the reasons explained by Santow J in Adler. But (with the possible exception to which I have referred) they are neither prerequisites to nor fetters upon the exercise of the statutory jurisdiction.

(emphasis added)

27    As Lee J noted in Hogan (liquidator) v McCorkell, in the matter of McCorkell & Associates Pty Ltd (in liq) [2023] FCA 863 at [89] by reference to the observations of McDougall J in Krecichwost at 324 ([27] to [30]), “the risk assessment must take into account not only the interests to be protected but also the threats to those interests and, consequently, the usual indicia for freezing orders are relevant to the Court’s risk assessment”.

28    Later, in Krecichwost, at 326 ([44] to [46]), McDougall J explained:

44    Further, as I have said, the “necessary or desirable” inquiry focuses on protection of aggrieved persons. The drastic nature of the remedy does not inform that inquiry. At most, it informs the subsequent inquiry, arising from the words “may order”, as to the exercise of the discretion (that by hypothesis) has been enlivened. In this context I use the word “exercise” to include at least two matters. The first is whether any order should be made at all. The second, assuming a positive answer to the first, is the form of the order to be made.

45    In short, I think, in asking whether it is necessary or desirable for the protection of aggrieved persons to appoint a receiver, one looks at the needs of those persons, and at the threats or risks to those needs, and not at the drastic nature of the remedy.

46    As I have said, it is necessary to bear in mind the purpose underlying s1323. That purpose is to preserve the status quo pending the outcome of an investigation. What may be preserved includes the assets of those suspected of wrongdoing. The preservation is for the benefit of those who may have a claim against the suspected wrongdoers. It would be quite inconsistent with that purpose to apply, without thought or adaptation, principles developed in relation to the appointment of receivers in other contexts and for other purposes.

(emphasis added)

29    The plaintiffs contend that the orders they are seeking are necessary or desirable to protect their interests because of:

(1)    the “findings” of the audit of the Company by the ATO, as described in the liquidator’s second report to creditors (see [7] above);

(2)    the contended willingness of the defendant to cause the Company to make payments to his mother, where there was no reasonable basis to do so and in preference to the Company paying its creditors (principally, the ATO);

(3)    a contended lack of co-operation by the defendant in producing documents to the liquidator and in answering questions in his public examination. In this regard, the liquidator gave evidence of delays in the defendant producing documents as part of the Supreme Court proceeding; and the liquidator characterised the defendant’s evidence in his examination as “largely uncooperative” and the defendant as a witness who “repeatedly asserted that he did not know answers to simple questions which a person in his position would be expected to be able to answer”. I was taken during the course of submissions to parts of the transcript of that examination said to meet this characterisation;

(4)    the contended extensive history of the defendant being a director of companies that have entered external administration, which have failed to maintain adequate books and records and which collectively owe unsecured creditors millions of dollars. In this regard, the liquidator provided evidence that the defendant is or had been a “director and/or secretary of dozens” of companies of which nine (including the Company) had been placed into external administration. The liquidator provided some further detail with respect to seven of those nine companies (excluding the Company);

(5)    the defendant selling the only real property that appears to be registered in his name;

(6)    the nature of the claims made by the plaintiffs in this proceeding against the defendant; and

(7)    a contention that absent any recovery of the monies owing by the defendant’s mother as a result of the District Court judgment, or the recovery of monies claimed against the defendant in this proceeding, there is unlikely to be any return to unsecured creditors of the Company.

30    I am not persuaded that any of these matters, individually or collectively, render it necessary or desirable to appoint a receiver to the defendant’s property (or part thereof) for the purpose of protecting the interests of the plaintiffs. The probative force of much of the evidence is open to question. For example, and without being exhaustive, the assertions in the liquidator’s reports set out at [7] above are largely based upon assertions by a later director of the Company or by the ATO; the manner in which the defendant answered questions in his examination was, in parts, far from exemplary but this does not suggest a risk to the interests of the plaintiffs; and the prior corporate history of the defendant as outlined by the liquidator includes many companies with no apparent problems and more cogent evidence would be required before drawing conclusions adverse to the defendant concerning the companies to which the liquidator drew particular attention.

31    Counting most strongly against the proposition that the orders sought by the plaintiffs are necessary or desirable to protect the plaintiffs’ interests is the time that has elapsed since the various events upon which the plaintiffs rely to justify the orders sought. Many of those events occurred a significant time ago. For example, the concerns relating to the ATO audit were published by the liquidator in his report to creditors dated 8 February 2022 and by July 2022 the liquidator had made demands asserting contraventions of s 588G of the Act; the events concerning the defendant’s examination by the liquidator occurred in mid-2023; and the District Court proceeding concerning the payments made to the defendant’s mother was commenced in December 2023. That these events did not spur the liquidator to seek freezing orders at the time(s) they occurred, and particularly as these events accumulated over time, rather suggests that such events did not (and do not) make orders of the kind now sought necessary or desirable for the purpose of protecting the plaintiffs’ interests.

32    The apparent catalyst for the present application is the impending sale of the Griffith property. In this regard, the defendant’s unchallenged evidence is that: (1) he seeks to sell the Griffith property because of difficulties in servicing the NAB loan and the Thomson loan, which evidence is supported by the most recent NAB loan statement for the period ending 11 October 2024 and by correspondence from the defendant to Berkely sent in June 2024 in which he expressed concern about the costs of holding the Griffith property; and (2) he proposes to use the proceeds of sale of the Griffith property to repay the NAB loan, to pay Berkely’s fees for the sale, and to pay any surplus against the loan provided by Mr Thomson. These circumstances – in essence the sale of an asset to pay secured creditors – do not suggest that the orders sought are necessary or desirable to protect the plaintiffs’ interests.

33    Finally I note that, as counsel for the plaintiff fairly and frankly acknowledged, there is no suggestion that the defendant has sought to dissipate any of his assets.

34    For the reasons set out above, the plaintiffs’ alternative claim for a freezing order pursuant to Division 7.4 of the Rules must also fail.

D.    Conclusion

35    The application should be dismissed. Counsel for the defendant indicated a desire to be heard on the question of costs. I will make orders accordingly.

Associate:

Dated:    24 October 2024