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[2010] NSWSC 547
procedural. The interlocutory process of Andrew Sigalla dated 24 May 2010 is dismissed (see [25]); Sigalla ordered to pay ASIC's costs of that interlocutory process, to be assessed on the indemnity basis (see...
Sigalla sought at short notice to adjourn a contempt hearing on the ground he lacked funds to prepare and expected to obtain funds from a family company, ZMS. The court found ZMS was in receivership, faced a pending winding-up application and liabilities exceeding assets, and that Sigalla had had ample time (over two months) to prepare and to secure representation. Because there was no realistic prospect of funding in the short term and no adequate explanation for the late application, Barrett J refused the adjournment and ordered Sigalla to pay ASIC's costs on the indemnity basis.
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2 cited instruments linked from this judgment.
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ASIC brought contempt proceedings against Mr Andrew Sigalla, alleging breaches of freezing orders made in proceedings under section 1323 of the Corporations Act 2001 (Cth) (see [1]). The contempt motion was listed for trial beginning 1 June 2010 with an estimate of three days (see [2]). On 24 May 2010, eight days before the hearing, Sigalla filed an interlocutory process seeking to vacate or adjourn the hearing because he said he had no funds to prepare and expected to obtain funds shortly, principally from the family company ZMS (see [3], [8]-[9]).
ASIC opposed the late application, submitting that Sigalla had been in this impecunious position for some time yet had nevertheless been able to instruct senior counsel and maintain significant accommodation, that he had had ample time (more than two months) to prepare, and that the asserted source of funds (ZMS) was subject to receivership and pending winding-up proceedings making any near-term payment unrealistic (see [4], [6], [10]-[16]). A hearing of the adjournment application took place on 25 May 2010. Barrett J dismissed the interlocutory process and ordered Sigalla to pay ASIC's costs of that interlocutory process on the indemnity basis (see [25]-[27]).
The court applied a fact-driven exercise of discretion to determine whether to grant a short adjournment. The key legal and practical considerations the court relied on were:
No realistic prospect of obtaining funds: The only potential source of funds was ZMS. Barrett J analysed ZMS's financial position and concluded that, given receivership, a pending Federal Court winding-up application (and the Commissioner of Taxation's presumption of insolvency), substantial liabilities exceeding assets and other significant creditor claims including those in related TZL proceedings, there was only a "faint hope" or no realistic prospect that funds could be obtained in the short term (see [7]-[15], [24]).
Conduct and preparation time: The hearing had been listed on 15 March 2010, providing Sigalla and his counsel with more than two months' notice to prepare (see [2], [20]). Sigalla had a solicitor on the record throughout (Mr Ward), and although one solicitor (Mr Rosenblatt) acted de facto for a time, the circumstances which made Mr Ward feel he should withdraw emerged by 3 May 2010, four weeks before the hearing, yet no timely steps were taken to secure replacement representation (see [18]-[21]). The judge treated this lack of timely action as relevant to the adjournment request.
Narrowness of issues: Barrett J assessed the contempt allegations as relatively narrow, whether specified payments were made on identified dates to identified persons and whether those payments fell within permitted exceptions in the freezing orders (see [5]). That assessment reduced the court's inclination to grant a short adjournment to deal with complex factual or legal issues.
Evidence and corroboration: Assertions about ZMS's available funds were not substantiated: no bank statements were produced for the Dutch account, and third-party claims over that account were indicated (see [8], [12]).
Taken together, these considerations led to the conclusion that the short adjournment sought was not justified because Sigalla lacked a credible, objectively grounded prospect of funding and because he had not taken reasonable preparatory steps in the time available (see [24]-[25]). On costs, Barrett J accepted ASIC's submission that the late application and delinquent preparation justified indemnity costs (see [26]-[27]).
Before this decision, general principles governing adjournments in interlocutory matters were well established: the court has a discretion, exercised having regard to the interests of justice, party conduct, prejudice, and the practicalities of hearing schedules. Barrett J applied those general principles to a fact matrix where the applicant relied on a future source of funds.
This decision reinforces that, where an applicant's asserted source of funding is a company in receivership or otherwise subject to significant insolvency jeopardy, the court will require objective and substantiated evidence of near-term availability before granting an adjournment sought to secure representation or preparation. The judgment also demonstrates the court's readiness to penalise late, unexplained applications by ordering indemnity costs where the applicant's conduct amounts to delinquency (see [13], [20]-[27]).
The decision does not create a novel legal rule; rather it applies and exemplifies the court's discretion in interlocutory scheduling and cost orders in the context of corporations litigation and contempt proceedings.
Passage: "It is common ground that, as things now stand, Sigalla does not have any cash resources available to him..." [6].
Passage: "Everything, therefore, comes back to the prospects of overcoming the obstacle presented by the receivership. On this Sigalla cannot be said to have more than a faint hope." [14].
Passage: "It is in my view unrealistic to think that anything will be obtained in the short term or probably at all from ZMS, given the financial straits in which it is placed." [24].
Passage: "The interlocutory process of Andrew Sigalla dated 24 May 2010 is dismissed." [25].
Passage: "I order that Sigalla pay ASIC's costs ... assessed on the indemnity basis." [27].
This ruling is most directly applicable where:
Where these factors are present, Barrett J's reasoning supports refusal of short adjournments and the imposition of indemnity costs for late, dilatory applications.
This judgment itself does not catalogue subsequent judicial treatment. The reasons provided are fact-specific and exemplify the exercise of discretion rather than state a binding new legal proposition. Practitioners should check later decisions for any directly appellate authority applying or distinguishing Barrett J's ruling in other contexts. The judgment cites the related earlier decision TZ Ltd v ZMS Investments Pty Ltd [2010] NSWSC 196 as establishing the commercial claims against ZMS (see [7]).
Degree of substantiation required: While this judgment criticised the absence of bank statements or third-party corroboration (see [12]), the precise level and form of evidence required to persuade a court that funds will be available at short notice remains case-specific. Different evidentiary combinations (e.g. affidavits from secured creditors, binding undertakings, escrow arrangements) may be sufficient in other cases.
Role of family support: Barrett J remarked on Sigalla's prior ability to fund counsel and accommodation through family generosity and suggested this likely would continue (see [16], [24]). How courts should weigh informal family support against formal inability to self-fund is context-dependent and not definitively settled by this judgment.
Freezing orders and dispensations: The judgment noted that the court might dispense with freezing orders to permit a payment for a proper purpose, including possibly part payment of a director's loan to meet legal expenses, subject to fairness to other creditors (see [13]). The practical contours of such dispensations, when they will be granted and the obligations to other creditors, remain matters for future fact-sensitive rulings.
Costs standards: The decision ordered indemnity costs for a late adjournment application in these circumstances (see [26]-[27]). Whether indemnity costs should follow in all similar late adjournment scenarios will depend on the applicant's conduct and reasons in the specific case.
Final note: This deep dive summarises Barrett J's ex tempore interlocutory ruling in ASIC v Sigalla [2010] NSWSC 547 and quotes and paraphrases paragraphs from that ruling. It is legal information only and not legal advice. I can make mistakes. Before you act on, rely on, or use any part of this content (including any draft), get a qualified Australian lawyer to check it.
CITATION : ASIC v Sigalla [2010] NSWSC 547
JURISDICTION : Equity Division Corporations List
CATCHWORDS : PROCEDURE - adjournment - defendant's financial position - whether any likelihood of his obtaining funds - hearing in eight days time - no preparation by defendant in two months available - adjournment refused
LEGISLATION CITED : Corporations Act 2010 (Cth), s 1323
CASES CITED : TZ Ltd v ZMS Investrments Pty Ltd [2010] NSWSC 196
Australian Securities and Investments Commission - Plaintiff Andrew Sigalla - First Defendant PARTIES : John Falconer - Second Defendant Michael Otten - Third Defendant BZI Pty Ltd - Fourth Defendant Dunbar Associates Ltd - Fifth Defendant
COUNSEL : Mr D R Stack - Plaintiff Mr C R C Newlinds SC - First Defendant
SOLICITORS : Mr Conrad Gray - Plaintiff Bridges Lawyers - First Defendant
IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST
2009/290316 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v ANDREW SIGALLA & ORS
1 On 1 February 2010 the plaintiff ("ASIC") filed an interlocutory process and statement of charge in respect of alleged contempt of court by the first defendant ("Sigalla") in the form of alleged disobedience of orders made in these proceedings brought by ASIC under section 1323 of the Corporations Act 2001 (Cth). The orders were in the nature of freezing orders. 2 On 15 March 2010, it was ordered that the contempt motion be listed for hearing on 1 June 2010 with an estimate of three days. It was indicated on that occasion (although without, it seems, any order or direction being made) that the matter should proceed on the basis that Sigalla would not be required to put on evidence until after ASIC had closed its case: in other words, he would be in a position to reserve his defence until he knew in full the case sought to be made against him. 3 On 24 May 2010, that is eight days before the start of the scheduled hearing, Sigalla initiated a motion seeking vacation of the hearing. I heard that motion yesterday, 25 May 2010. ASIC opposed the application. Sigalla's contention is that he cannot proceed on 1 June 2010 because he has no money and has, therefore, been unable to make necessary preparations (including, in particular, by instructing solicitors and counsel) and that he has an expectation of being able to obtain funds within a short time, so that an adjournment of the order of only two weeks is needed. 4 The position taken by ASIC is that Sigalla's financial position will not improve in the ways he apparently thinks possible. ASIC points out that, despite that financial position, Sigalla has been able, over the last nine months, to attend successfully to his legal affairs in both these proceedings and associated proceedings brought against him (and others) by TZ Limited ("TZL"), including being represented by senior counsel at all hearings of any consequence; also, that there is no satisfactory explanation of why the perceived need for an adjournment arose only eight days before the date appointed for the hearing of the contempt motion. 5 Counsel for Sigalla emphasised that the motion could have very grave consequences for Sigalla, in that a sentence of imprisonment is sought in the event the contempts are proved. Counsel for ASIC pointed out, however, that the allegations are not complex, in that the orders in question prohibited the making of payments by Sigalla except within certain permitted exceptions and that ASIC's allegations involve no more than allegations that several specific payments were made on several specific days with each payment being to a clearly identified person for a clearly identified purpose not within any of the permitted exceptions. 6 It is common ground that, as things now stand, Sigalla does not have any cash resources available to him and would not have any cash resources available to him even if freezing orders in both these proceedings and the associated TZL proceedings were not in force. I shall deal at once with this question of financial resources. 7 It is accepted on both sides that the only potential source of funds for Sigalla is the family company ZMS. ZMS is a defendant in the TZL proceedings with claims of about $7.7 million against it as outlined at paragraphs 7 and following of a judgment I delivered on 19 March 2010: [2010] NSWSC 196. The claims were there assessed as giving rise to a good arguable case on the part of TZL. 8 According to Sigalla, ZMS has what one might call potentially available assets of $1.1 million. It says that these consist of funds on deposit with a Dutch bank to the extent of $350,000, shares in TZL with a current market value of about $150,000 and equity (after allowing for encumbrances) in real property in Adelaide and Ingleburn to the extent of $600,000, in the sense that it is considered possible to borrow that sum on the security of those properties. 9 The foregoing presupposes, however, that a receiver of the whole of the assets of ZMS has retired with the secured creditor by which the receiver was appointed having been paid a sum of money. Sigalla thought until recent days that the secured creditor would be satisfied with the payment of $800,000 from a controlled moneys account established in the course of proceedings unrelated to these. However, that expectation has not been realised and it now appears that the secured creditor expects about double the amount foreshadowed, that is, $1.6 million. If ZMS is required to pay the additional $800,000, that will absorb the whole of the Dutch bank account balance of $350,000 and the TZL share sale proceeds of $150,000 and leave a shortfall of some $300,000 to be found from the uncertain possibility of further secured borrowings over the two properties. 10 Counsel for ASIC submitted that, even on the basis outlined, there is simply no realistic chance that Sigalla can obtain funds from ZMS. Counsel referred to total liabilities of ZMS of the order of $10,000,000 made up as follows: St George Bank $360,000, BankWest $955,000, Pontego $639,500, Commissioner of Taxation $3,190,000, Kemp Strang $45,000, unsecured portion of receiver debt $800,000, directors' loans $4,100,000. Against this stand assets of around $3.6 million on the best assessment of the value. 11 Special reference should be made to the ZMS tax debt of $3.1 million. The Commissioner of Taxation has pending an application in the Federal Court for the winding up of ZMS. Furthermore, the Commissioner has the benefit of a presumption of insolvency because of non-compliance with a statutory demand. Sigalla says that the tax debt is disputed but there is no suggestion that ZMS has sought leave under section 459S to allow the dispute to be raised on the winding up hearing. As things now stand, it will be for ZMS to prove its solvency in the winding up proceedings. No suggested basis on which it may be able to do so has been indicated. 12 Reference should also be made to the $350,000 said to be in ZMS's Dutch bank account. No bank statement or other verification of this has been produced, added to which there is evidence that a third party may lay claim to any balance. 13 To obtain funds from ZMS, Sigalla would first have to cause a cash balance to be generated in ZMS and then cause ZMS to make a partial repayment of its loan account. Even if the cash balance could be generated, there would be two obstacles: first, the receivership and, second, the freezing orders outstanding against ZMS. It may be apprehended that a dispensation would be forthcoming from the court in respect of the freezing orders if some proper purpose of ZMS were being served by the proposed payment. On the face of things, part payment of a director's loan due and payable to enable the director to meet legal expenses would be a proper purpose subject to any questions that may be raised about other creditors not similarly favoured in respect of debts likewise due and payable. 14 Everything, therefore, comes back to the prospects of overcoming the obstacle presented by the receivership. On this Sigalla cannot be said to have more than a faint hope. He deposed to negotiations which he thought had resulted in a solution but those broke down a few days ago. The court has nothing to go on but his unsubstantiated assessment of what he can achieve in negotiations. That assessment, in my view, provides no objectively sound basis for any expectation at all that the receivership will be removed in the short term. Whatever subjective confidence Sigalla may have is in objective terms overborne by several particular realities. First that ZMS, the company affected by the receivership, has liabilities substantially in excess of its assets. Second, a winding up application is pending against ZMS in circumstances where ZMS is put to affirmative proof of its solvency. Third, ZMS is subject to the substantial claims made in the TZL proceedings of $7.5 million or thereabouts, the possible impact of which is entirely ignored in the figures I have mentioned so far. Fourth, Sigalla himself is without assets and the subject of existing proceedings for sequestration in bankruptcy brought by a party unconnected with the events that have prompted these present proceedings and the TZL proceedings. 15 ZMS is, to put it mildly, not in any position of strength when it comes to negotiating with any creditor, particularly a secured creditor. The prospects of Sigalla obtaining any funds through his ZMS loan account must be rated as very remote indeed. That means that there is no apparent source of finance available to Sigalla out of his own resources. 16 As counsel for ASIC pointed out, however, Sigalla has been in this position for some time - indeed, virtually from the commencement of these proceedings and the TZL proceedings; yet he has been represented by senior counsel at all hearings of any consequence. Also, he has been able to live comfortably occupying a suite at a top city hotel for some three months late last year and then a month at a serviced apartment in the city. He is now in a rented house in the eastern suburbs for which he pays rent of $2000 per week. 17 Sigalla explained that he had been able to afford senior counsel and the accommodation that I have mentioned because of the generosity of his wife's family. That, it is said, may be coming to an end but, of course, there is no evidence from family benefactors of either unwillingness or inability to give further financial help. Family concerns will no doubt be heightened in circumstances where ASIC's stated position is that it will seek an order for Sigalla to be imprisoned if the alleged contempt is proved. 18 I go next to the matter of preparations for the hearing. Mr Ward has been the solicitor on the record throughout for Sigalla, although he was for a time replaced in a de facto sense by Mr Rosenblatt; and while now again in place, Mr Ward finds it necessary to withdraw because of an apprehension that he may be a witness in Sigalla's case in the present contempt matter. 19 Senior and junior counsel were briefed by Mr Rosenblatt during the time he was acting. He described them to Mr Ward as holding "full briefs" but both counsel returned their briefs when a request for assurances as to the availability of funds were not forthcoming. Mr Ward says that he has read the papers only in a cursory way. He had a conference of one and a half hours with the counsel I have mentioned before those counsel withdrew. 20 It is now 26 May, somewhat more than two months since the proceedings were listed for hearing commencing on 1 June and three and a half months since the contempt motion was filed by ASIC. When the matter was before the court on 15 March for the allocation of hearing dates, ASIC pressed for an earlier hearing. The court calendar and the need for Sigalla to prepare combined to produce a period of more than two months for preparation. That time was more than adequate, given what appears to be the narrow factual issues that is, as I have said, whether Sigalla made certain payments and if so whether the making of any of the payments was a contravention of the freezing orders. 21 Sigalla had a solicitor acting for him at all material times, either Mr Ward or in a de facto sense Mr Rosenblatt. The conference of one and a half hours with the counsel at which the need for Mr Ward to cease acting became clear occurred on 3 May 2010, which was four weeks before the scheduled hearing. Steps should have been taken then if Mr Ward was to be replaced but Sigalla, it seems, saw no need to take any such steps. 22 Counsel for Sigalla questioned whether the three days allocated for the hearing will in any event be sufficient. Counsel for ASIC maintains that it will. If, as is appropriate in cases such as this, Sigalla is not required to indicate his position or go into evidence or make a decision to do so until ASIC has closed its case, there must be a very distinct likelihood that any adjournment application Sigalla makes at the close of ASIC's case will receive favourable consideration. The need for vacation of the hearing on the basis that three days will not be enough is not established. 23 It was put by counsel for Sigalla that an adjournment of two weeks should be granted on the footing that that will allow a final chance to make arrangements for the obtaining of funds from ZMS. Implicit in that approach is the proposition that two weeks will be sufficient preparation time. The response must be that if that is so then with hard work and bearing in mind the apparently simple factual issues, one week will also be enough. 24 It is in my view unrealistic to think that anything will be obtained in the short term or probably at all from ZMS, given the financial straits in which it is placed. Sigalla was able to brief senior counsel on this present adjournment application, presumably, because of family support. There must be a strong likelihood that that support will again be forthcoming in circumstances where a regulatory agency is seeking to have Sigalla imprisoned. 25 The interlocutory process of Andrew Sigalla dated 24 May 2010 is dismissed.
[Counsel addressed on costs] 26 ASIC makes an application for a costs order and for an order that costs are to be assessed on the indemnity basis. It puts as relevant delinquency the fact that no preparation was made towards the final hearing and that the adjournment application was made at a very late stage and quite clearly on that basis. Counsel for Sigalla has not sought to submit that there has not been relevant delinquency. 27 I order that Sigalla pay ASIC's costs of the interlocutory process dated 24 May 2010. I order that those costs be assessed on the indemnity basis.
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ASIC
Sigalla
The interlocutory process of Andrew Sigalla dated 24 May 2010 is dismissed (see [25]); Sigalla ordered to pay ASIC's costs of that interlocutory process, to be assessed on the indemnity basis (see [27]).