Federal Court of Australia

Dean v My Solicitors Pty Ltd (in liquidation) [2025] FCA 159

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 588T(2) of the Corporations Act 2001 (Cth) (the Act), leave be granted to the applicant to commence proceedings pursuant to s 588M of the Act against Mr Mitchell Steven Klievens in respect of the debt which is the subject of the following default judgments:

(a)    in the Local Court of New South Wales in the amount of $14,624.24 (Matter No 2023/00006618); and

(b)    in the District Court of New South Wales in the amount of $121,965.20 (Matter No 2024/00009712),

plus any applicable interest.

2.    The liquidator of the respondent provide the applicant with one month’s notice of his intention to lodge with ASIC an end of administration return for the respondent.

3.    The proceedings be stood over to a case management hearing on 27 November 2025 at 9.30am.

4.    There be no order as to costs.

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

REASONS FOR JUDGMENT

MOORE J:

1    The applicant, Mr Robert William Dean, is a creditor of My Solicitors Pty Ltd (in liquidation) (My Solicitors). It appears that he is the sole creditor of that company. A representative of the liquidator has informed the Court that the liquidator is not aware of any other creditor of My Solicitors.

2    Mr Dean alleges that during the period March 2022 to November 2022, he undertook work for My Solicitors. During this time, Mr Mitchell Steven Klievens was the sole director, secretary and shareholder of My Solicitors, trading as Klievens and Associates. Mr Dean has obtained the following default judgments against My Solicitors:

(a)    in the Local Court of New South Wales in the amount of $14,624.24 (Matter No 2023/00006618); and

(b)    in the District Court of New South Wales in the amount of $121,965.20 (Matter No 2024/00009712),

amounting to $136,589.44 in total (not including any post judgment interest accrued).

Leave to proceed against Mr Klievens

3    By an amended interlocutory application filed on 17 December 2024, Mr Dean seeks an order pursuant to s 588T of the Corporations Act 2001 (Cth) (the Act), that leave be granted to Mr Dean to commence proceedings pursuant to s 588M(3) of the Act against Mr Klievens. Division 4 of Part 5.7B of the Act contains provisions relevant to proceedings against a director for insolvent trading. Section 588M provides for the bringing of proceedings against a director in respect of contraventions of s 588G (i.e. for insolvent trading), and in respect of losses that a creditor has suffered as a result of an incurring of a debt and the company’s insolvency. Section 588M(3) of the Act provides that:

The creditor may, as provided under Subdivision B but not otherwise, recover from the director, as a debt due to the creditor, an amount equal to the amount of the loss or damage.

It therefore provides for actions by creditors themselves, but only where permitted under the Act.

4    Subdivision B of Division 4 of Part 5.7B of the Act conditions the commencement of an insolvent trading action by a creditor. Section 588R of the Act provides that a creditor can begin proceedings under s 588M with the written consent of the company’s liquidator. In the present case, no such written consent has been provided. Sections 588S and 588T of the Act provide an alternative mechanism.

5    Section 588S of the Act provides as follows:

588S    Creditor may give liquidator notice of intention to sue for compensation

After the end of 6 months beginning when a company begins to be wound up, a creditor of the company may give to the company’s liquidator a written notice:

(a)    stating that the creditor intends to begin proceedings under section 588M relating to:

(i)    the incurring by the company of a specified debt that is owed to the creditor; or

(ii)    a specified disposition by the company of property, because of which (and the company’s insolvency) the creditor has suffered loss or damage; and

(b)    asking the liquidator to give to the creditor, within 3 months after receiving the notice:

(i)    a written consent to the creditor beginning the proceedings; or

(ii)    a written statement of the reasons why the liquidator thinks that proceedings under section 588M in relation to the incurring of that debt, or the making of that disposition, should not be begun.

6    Section 588T of the Act provides as follows:

588T    When a creditor may sue for compensation without liquidator’s consent

(1)    This section applies where a notice is given under section 588S.

(2)    The creditor may begin proceedings in a court under section 588M in relation to the incurring by the company of the debt, or the making by the company of the disposition, specified in the notice if:

(a)    as at the end of 3 months after the liquidator receives the notice, he or she has not consented to the creditor beginning such proceedings; and

(b)    on an application made after those 3 months, the court has given leave for the proceedings to begin.

(3)    If:

(a)    during those 3 months, the liquidator gives to the creditor a written statement of the reasons why the liquidator thinks that such proceedings should not be begun; and

(b)    the creditor applies for leave under paragraph (2)(b);

then:

(c)    the creditor must file the statement with the court when so applying; and

(d)    in determining the application, the court is to have regard to the reasons set out in the statement.

7    Mr Dean provided the liquidator with a written notice of intention to sue for compensation in accordance with s 588S of the Act. The liquidator has provided neither a written consent nor a written statement of the reasons why the liquidator thinks the proceedings under 588M should not be begun. In those circumstances, Mr Dean brought an application under s 588T of the Act seeking the leave of the Court, after the relevant period of 3 months following the provision of the notice had elapsed.

8    As it transpires, the liquidator did not provide the relevant consent, but nor is there any opposition to an order granting leave pursuant to s 588T of the Act. At a case management hearing on 18 February 2025, Mr Ahmed Bise appeared as a representative of the liquidator and informed the Court that the liquidator did not oppose an order being made pursuant to s 588T. Put in slightly more detail, the position expressed by Mr Bise at the case management hearing was consistent with the position expressed in an email from Mr Bise to Mr Dean dated 16 February 2025, the relevant part of which was as follows:

I refer to previous correspondence and to the upcoming mention scheduled to be heard in Court on 18 February 2025.

For the avoidance of any doubt from my perspective it is not a matter of there being a dispute.

Please note the following:

1.    There is no objection to you seeking an Order of a Court to provide you with the legal capacity to initiate proceedings against the Company's Director for insolvent trading.

2.    The Liquidator is currently unfunded. In the circumstances it is reasonable for the Liquidator to seek a recovery of time charges and disbursements incurred to date.

3.    By extension, the Liquidator also does not wish to be drawn into or joined in relation to any proceedings initiated by you or to be placed into a position where he is required to engage legal representation.

I trust that you understand the Liquidator's position in relation to the above. These will be the key points that I will present to the Court on the Liquidator's behalf.

9    Notwithstanding paragraphs 2 and 3 above, at the case management hearing on 18 February 2025, Mr Bise confirmed that the liquidator’s non-opposition was not conditional upon anything in those paragraphs. In light of that position, I indicated to the parties that, although the matter had been listed for case management only, I would not need a separate hearing and would deal with the matter on the basis of the materials provided.

10    Even if the liquidator had sought to advance the matters identified in paragraphs 2 and 3 of the email from Mr Bise, set out above, as reasons against the granting of leave (which he did not), I do not consider that those matters would prevent the grant of leave.

11    In circumstances where:

(a)    Mr Dean appears to be the sole creditor and Mr Dean’s intention to commence an action pursuant to s 588M of the Act will not prejudice the position of any other creditor;

(b)    the liquidator does not oppose a grant of leave; and

(c)    no proper argument against the grant of leave has been identified,

it is an appropriate case for the grant of leave to commence proceedings pursuant to s 588T(2) of the Act, and I will make orders granting the leave sought.

Deregistration

12    On 9 December 2024, Mr Dean filed an interlocutory application seeking, amongst other things, an order under s 509(2) of the Act that My Solicitors not be deregistered until 28 August 2026. On 13 December 2024, Registrar Schmidt made an order dismissing this application.

13    I understood Mr Dean to be pressing for the same relief before me. That is not available to Mr Dean, having regard to the order of Registrar Schmidt.

14    Section 509 of the Act provides that:

509    Deregistration

ASIC must deregister at the end of 3 month period

(1)    If an end of administration return for a company is lodged with ASIC on the basis that the affairs of the company are fully wound up, ASIC must deregister the company at the end of the period of 3 months beginning on the day after the return is lodged (the deregistration period).

ASIC must deregister on a day specified by the Court

(2)    On application by the liquidator or any other interested party, the Court may make an order that ASIC deregister the company on a specified day. The Court must make the order before the end of the deregistration period.

(3)    The person on whose application an order under subsection (2) is made must, within 10 business days after the making of the order, lodge a copy of the order.

15    In effect, Mr Dean is seeking to defer the deregistration of the company in order to forestall the possibility of deregistration interfering with proceedings he wishes to take against Mr Klievens.

16    In a practical sense, it is likely that an order under s 509(2) of the Act can only be made once: Brown, in the matter of Summer Swim Pty Limited (in liq) v Sam Riley Promotions Pty Limited [2020] FCA 1607. This is because s 509(2) specifies that an order under that sub-section can only be made “before the end of the deregistration period”, which is defined in s 509(1) as the three month period commencing with the lodging of the end of administration return. If the date specified in the order under s 509(2) is after the end of the three month period, then there is no potential to subsequently fix a different date, e.g. by extending the date.

17    Further, the date specified must be a fixed date specified in the order, not a date that is determined by reference to the occurrence of some event: James, in the matter of Liquor National Pty Limited (in liq) v Liquor National Pty Limited (in liq) [2017] FCA 721 at [7] – [9] per Jagot J.

18    That means that any date specified in an order pursuant to s 509(2) must be sufficiently far in the future to accommodate all contingencies and possible delays. That is quite difficult in circumstances where Mr Dean has not formulated, let alone commenced, his action against Mr Klievens. Further, setting a date a long time in the future potentially prolongs the liquidation and prolongs the time during which liquidation expenses will be incurred (including but not limited to administrative expenses such as annual fees).

19    As noted above, Registrar Schmidt has dismissed the application. Mr Dean could seek to file a fresh application, although a question might arise as to whether Mr Dean could properly seek relief that had already been refused, without establishing some relevant change of circumstances.

20    To avoid unnecessary procedural complexity, I will instead order that the liquidator provide Mr Dean with one month’s notice of lodging with ASIC of an end of administration return for the company. That would effectively provide Mr Dean with four months’ notice of the impending deregistration of the company, which should be sufficient time to make any fresh application for relief under s 509(2) of the Act, relying upon the impending deregistration as a relevant new circumstance. By that time, there might also be greater clarity as to how long might be required for the deferral of deregistration and why. The proceedings will stay on foot in the meantime, and I will fix a notional date for a further case management hearing which can be postponed or brought forward by an application to my chambers.

Associate:

Dated:    6 March 2025