Brisbane South Regional Health Authority v Taylor

REASONS FOR JUDGMENT 1 The plaintiff, Mr Steven Kugel (the Liquidator), is the liquidator of Charben Haulage Pty Limited (the Company). The Liquidator has applied to the Court for an order extending the time within which he may commence a proceeding with respect to voidable transactions in the winding up of the Company under s 588FF of the Corporations Act 2001 (Cth) (the Act). For reasons that I gave on 8 September 2009, I declined to make an order extending the time at that stage (see [2009] FCA 1039). 2 However, I considered that there was sufficient material before me to justify giving the Liquidator the opportunity of proceeding with the examination of former officers of the Company. I therefore adjourned the hearing of the application on terms that the Liquidator prosecute any such examination with all due diligence. Following that adjournment, the Liquidator conducted examinations on 11 December 2009 of Mr Jim Janakis, the former director, and Mrs Victoria Janakis, the former secretary, of the Company. The Liquidator has now renewed his application for orders extending the time within which to commence proceedings in relation to possible voidable transactions. 3 In my reasons of 8 September 2009, I referred to several entities to whom the Company made payments that the Liquidator wished to examine in more detail (at [4]). However, the Liquidator no longer seeks to pursue his examination in relation to some of the entities. The Liquidator's application is now limited to an extension of time to commence proceedings in relation to five categories of payments made by the Company prior to 31 March 2006, to or for the benefit of Mr and Mrs Janakis or Tidal Surge Pty Ltd (Tidal Surge) in its capacity as trustee of the J&V Property Trust (the Prospective Defendants). Mr and Mrs Janakis are beneficiaries under the J&V Property Trust. 4 The impugned payments are as follows: · Payment of the sum of $23,000 to Tidal Surge on 25 March 2005. · Payments of the sums of $12,553.20 and $15,374 made to the Deputy Commissioner of Taxation on 9 June 2005 in respect of the personal liability of Mr and Mrs Janakis. · Five payments aggregating $172,050.93 made between 3 August 2005 and 6 October 2005 in connection with the acquisition by Tidal Surge of two apartments at Mona Vale. · Three payments aggregating $445,715.03 made by the Company in September and October 2005 in connection with the acquisition by Mr and Mrs Janakis of a house at Seaforth. · Other miscellaneous payments aggregating $45,687.37 made after 23 November 2005 for the benefit of Mr and Mrs Janakis or Tidal Surge. 5 There is no dispute as to the fact of the impugned payments. Nor is there any dispute that the payments were made for the benefit of Mr and Mrs Janakis or Tidal Surge in its capacity as trustee of the J&V Property Trust. However, they contend that all of the payments were made by way of reduction of Mr and Mrs Janakis's loan account with the Company. 6 The Liquidator does not accept that the Company was indebted to Mr and Mrs Janakis in an amount exceeding the aggregate of the payments in question. Further, the Liquidator contends that, even if the payments were made in repayment of advances made by Mr and Mrs Janakis to the Company, they were nonetheless unreasonable director-related transactions of the Company. Alternatively, the Liquidator says that the payments had the effect of giving an unfair preference by the Company to Mr and Mrs Janakis as creditors. 7 It is common ground that, as I said in my reasons of 8 September 2009 (at paragraph [23]), three questions must be considered in determining whether or not to grant an extension of time under s 588FF. First, there must be an explanation for the delay in bringing proceedings within the three year period that is limited by the provision. Second, any possible prejudice resulting from the grant of an extension must be taken into account. Third, the Court must make a preliminary assessment of the merits of any proposed proceeding and determine whether there is a triable issue as to whether the transactions in question are voidable transactions. 8 As I indicated in my reasons of 8 September 2009, the Liquidator's explanation for the delay is not entirely satisfactory. Nevertheless, if I am persuaded as to the other two matters to which I have just referred, I consider that the delay is not such as to disentitle the Liquidator from commencing a proceeding for the benefit of the unsecured creditors of the Company generally. 9 No suggestion has been advanced on behalf of the Prospective Defendants that they have suffered any forensic disadvantage or detriment by reason of the delay. However, that is not the only rationale for the enactment of limitation periods. Certainly, as time passes, relevant evidence may be lost. However, it can also be oppressive to a defendant to allow an action to be brought long after the circumstances that gave rise to it have passed. Further, people should be allowed to arrange their affairs and utilise their resources on the basis that claims can no longer be made against them. Finally, of course, the public interest requires that there be an end to disputes as soon as possible (see Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 552-3). 10 The present application was made only seven days before the expiration of the three year period fixed by the Act. Thus, the Prospective Defendants were given notice of the possible claims against them within the period contemplated by the Act. The Prospective Defendants have derived significant benefits from the impugned payments. It has not been suggested that they have in any way acted to their detriment on the basis that there would be no challenge to the payments. 11 Mr Janakis said, in the course of his examination by the Liquidator, that he was accustomed to borrowing funds from various other entities, to whom he incurred a personal liability, and then lending those funds to the Company. However, it was not until some time after the appointment of the administrator on 31 March 2006 that the books and records of the Company showed Mr and Mrs Janakis as creditors in an amount sufficient to cover the impugned payments. The Liquidator's suspicion was aroused by a series of book entries made after that date, whereby a number of debits were made in respect of various creditors of the Company and corresponding credits were made to the loan account of Mr and Mrs Janakis. 12 There is evidence before the Court to support the contention that Mr Janakis borrowed monies personally. However, the difficulty is that, at the time when the impugned payments were made, Mr and Mrs Janakis were not recorded as creditors of the company. More particularly, on 16 August 2005, Mr Janakis signed a director's declaration that the Company's financial statements and notes presented the Company's financial position fairly as at 30 June 2005. The present contention of the Prospective Defendants is inconsistent with that declaration. The material raises some doubt as to whether or not various payments made to the Company by diverse entities, some of which are associated with Mr Janakis and some of which are not, were advances to the Company by those entities or advances to Mr and Mrs Janakis that were then on lent to the Company by them. 13 The payments to the Company that are said to give rise to the loan account credit are essentially payments emanating from Mr Edward Hayson and his associated entities, totalling $605,000 and a loan of $370,000 from Citibank, together with various other smaller payments. The Company's accounts recognised the Citibank loan as a liability to Mr Janakis personally, although they did not reflect a liability to Mr and Mrs Janakis jointly. The payments from Mr Hayson's associates and the other smaller payments were not shown as advances by Mr and Mrs Janakis until after the adjusting book entries made after 31 March 2006. 14 The Liquidator contends that, even if one accepts that the payments emanating from Mr Hayson and his associates were properly to be characterised as advances to the Company by Mr and Mrs Janakis, which should have been credited to their loan account, Mr and Mrs Janakis were debtors of the Company and not creditors, at the time when the bulk of the impugned payments were made. 15 The bulk of the impugned payments was made between 3 August 2005 and 7 October 2005 to finance the purchase of the properties at Mona Vale and Seaforth. A reconstruction of the loan account made by Mr Tony Kalegerou on behalf of the Prospective Defendants demonstrates that Mr and Mrs Janakis were indebted to the Company when each of those payments was made. They constituted further advances debited to their loan account. Thus, the reconstruction demonstrates the following: Date Amount Purpose Effect on loan account 3 August $80,000 Payment of deposit on the purchase of the 2 Mona Vale Units Increased the indebtedness from $105,511 to $185,511. 6 September $13,492 Payment of stamp duty on purchase of unit 303 Increased the indebtedness from $185,511 to $199,003 6 September $13,492 Payment of stamp duty on purchase of unit 304 Increased the indebtedness from $199,003 to $212,495 9 September $167,000 Payment of deposit on purchase of 33 Edgecliff Esp. Seaforth Increased the indebtedness from $212,495 to $379,495 27 September $77,344 Payment of stamp duty on purchase of 33 Edgecliff Esp. Seaforth Increased the indebtedness from $184,495 to $261,839 6 October $63,026.26 Payment of balance of settlement monies required on purchase of Unit 303 at Mona Vale Increased the indebtedness from $214,509 to $279,535 6 October $63,026.93 Payment of balance of settlement monies required on purchase of Unit 304 at Mona Vale Increased the indebtedness from $279,535. to $344,602 7 October $201,371.03 Payment of balance of settlement monies required on purchase of property at Edgecliff Esp Seaforth Increased the indebtedness from $344,602 to $546,333