Edenden v Bignell

CATCHWORDS : CORPORATIONS - winding up - insolvency - creditors seek declaratory relief and money judgment based on alleged "voidable transactions" - creditors seek declaratory relief and money judgment based on alleged insolvent trading - whether such claims maintainable by creditors - whether claims should be dismissed or struck out

Corporations Act 2001 (Cth), Part 5.3, Division 1A Part 5.6, Division 2 Part 5.7B, ss.588FB, 588FC, 588FDA, 588FE, 588FF, 588G, 588H, 588M, 588R, 588S, 588T, 588U, 1317E LEGISLATION CITED : Supreme Court Act 1970, s.75 Uniform Civil Procedure Rules 2005, rules 13.4, 14.48

Australian Securities Commission v Ampolex Ltd (1995) 38 NSWLR 504 Commonwealth of Australia v BIS Cleanaway Ltd [2007] NSWSC 1075 Foyster v Foyster Holdings Pty Ltd [2002] NSWSC 768 Gardner v Dairy Industry Authority (NSW) (1977) 52 ALJR 180 General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 CASES CITED : Ibeneweka v Egbuna [1964] 1 WLR 219 Johnston v Smith [2002] NSWSC 409 One.Tel Ltd v Rich (2005) 190 FLR 443 Powell v Fryer (2001) 37 ACSR 589 Primary Underwriting Agency Pty Ltd v Kilborn [2007] NSWSC 158 Quick v Stoland Pty Ltd (1998) 157 ALR 615

Stephen Gary Edenden - First Plaintiff Paul Anne Edenden - Second Plaintiff PARTIES : Mark Alexander Bignell - First Defendant Kathryn Margaret Bignell - Second Defendant A J Bignell Pty Ltd - Third Defendant

Mr T.O. Bland - Plaintiffs COUNSEL : Mr J.T. Johnson - First and Second Defendantgs Mr J.D. Chard, Solicitor - Liquidator of Third Defendant

Lindsay Brien - Plaintiffs SOLICITORS : Yates Beaggi Lawyers - First and Second Defendants Strategy Legal - Liquidator of Third Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

3016/07 STEPHEN GARY EDENDEN & ANOR v MARK ALEXANDER BIGNELL & 2 ORS JUDGMENT

The proceedings and the present application 1 By originating process filed on 4 June 2007, the plaintiffs seek various relief against Mr Bignell as first defendant, Mrs Bignell as second defendant and A J Bignell Pty Ltd ("AJB") as third defendant. AJB is a company in the course of being wound up. Mr Bignell and Mrs Bignell were directors of AJB at relevant times. The plaintiffs claim to be creditors of AJB. 2 By interlocutory process filed on 27 August 2007, Mr Bignell and Mrs Bignell claim an order for summary dismissal of the proceedings or, in the alternative, an order that the claims in the originating process be struck out. This judgment is concerned with that application. 3 The claims of Mr Bignell and Mrs Bignell are supported by AJB. Mr J D Chard, solicitor, appeared on the instructions of AJB's liquidator to support and supplement submissions advanced by Mr J T Johnson of counsel of behalf of Mr Bignell and Mrs Bignell.

Factual matters 4 I should refer at once to uncontroversial factual matters. AJB was, at all material times, a builder. In 2000, AJB instituted proceedings against the plaintiffs in the Consumer Trader and Tenancy Tribunal. The claim by AJB was dismissed in March 2002 and AJB was ordered by the Tribunal to pay the plaintiffs' costs. AJB appealed to this court. A costs order was, on 24 February 2003, made against AJB (and in favour of the plaintiffs) in respect of an application to amend. On 18 March 2004, the appeal itself was dismissed with costs. At that point, therefore, there were in existence three costs orders against AJB and in favour of the plaintiffs. 5 Soon after the third of the costs orders had been made against it, AJB became subject to voluntary administration under Part 5.3A of the Corporations Act 2001 (Cth). This happened on 22 April 2004. AJB later passed into creditors voluntary winding up as a sequel to voluntary administration. Mr Nicols became the liquidator and continues in office. Having regard to the provisions in Division 1A of Part 5.6 of the Corporations Act, the winding up is taken to have commenced on 22 April 2004 and that date is the "relation-back day" in relation to the winding up. The plaintiffs' claims 6 In the present proceedings, the plaintiffs seek relief described as follows: 1. "A declaration that at the directions of the third defendant the first and second defendants were trading whilst the third defendant was insolvent."

"The first and second defendants repay $380,000.00."

"An order that leave be granted to Stephen Gary Edenden and Paula Anne Edenden and Everdry Waterproofing ('the creditors') to proceed pursuant to S588T Corporations Act 2001 Cth with an application under S588G Corporations Act 2001 Cth for relief under S588H & M of the Corporations Act 2001, for the reasons set out in the affidavit of Lindsay Harold Brien sworn 22nd day of March 2006."

"An order pursuant to S588F [sic, scil 588FF] Corporations Law 2001 Cth that Mark Bignell and or Katheryn [sic] Margaret Bignell pay 'the creditors' an amount of $117,917.51 which is equal to the amounts owing to the creditors and proven in the report of Steven Nicols dated 11 April 2005."

"A declaration that the payment of directors [sic] loans totalling $260,000 during the relation back period was either an (a) An uncommercial transaction pursuant to S588FB, or (b) an insolvent transaction S588FC or (c) an unreasonable director related transaction S588FDA(1) b (d) a Voidable transaction 588FE Corporations Law 2001 Cth."

"A declaration that the payment of dividends of $120,000 in early 2004 was either (a) An uncommercial transaction pursuant to S588FB, or (b) an insolvent transaction S588FC or (c) an unreasonable director related transaction S588FDA(1) b (d) a Voidable transaction 588FE Corporations Law 2001 Cth."

"A declaration that the directors of A J Bignell Pty Ltd were trading whilst insolvent pursuant to S588G Corporations Act 2001 Cth, for the failure to pay a contingent debt, or make arrangement for the payment of a contingent debt which arose as a result of a cost order made by the Consumer Trader and Tenancy Tribunal on 30 March 2002, as a result of a costs order made by Master Harrison on 24 February 2003 and also as a result of a costs order made by Justice Shaw on 14 April 2004." 7 Mr T O Bland of counsel, who appeared for the plaintiffs, said that "S588F" in Item 4 is a misprint and that the intention is to refer to s.588FF. I approach Item 4 on that basis - also on the basis that the reference to the Corporations Law should be read as a reference to the Corporations Act. 8 Having regard to the sparse information contained in the affidavit filed in support of the originating process, it may be inferred that the sum of $380,000 referred to in Item 2 above is intended to represent the aggregate of the $260,000 referred to in Item 5 and the $120,000 referred to in Item 6 - the former being, one might surmise, amounts alleged to have been paid by AJB to Mr Bignell and Mrs Bignell or both in reduction of loan accounts and the latter being, it seems to be alleged, dividends paid by AJB to Mr Bignell and Mrs Bignell or one of them. For present purposes, I proceed on that basis. 9 The meaning and significance of the reference in Item 4 to $117,917.51 "which is equal to the amounts owing to the creditors and proven in the report of Steven Nicols dated 11 April 2005" are obscure. There is no indication of the identity of "the creditors" but I am prepared, for the moment, to assume that "the creditors" are the plaintiffs. I am also prepared to assume that the report of Mr Nicols to which reference is made is a report dated 15 April 2005 (not 11 April 2005) a copy of which is annexed to the affidavit filed in support of the originating process. 10 But when it comes to identifying, by reference to that report, the amount of $117,917.51 referred to in Item 4 - or, for that matter, any amount of $117,917.51 - the picture is clouded, to say the least. The report refers to amounts of $68,439, $58,441, $21,000, $35,000, $120,000, $42,072.97, $57,917.51, $13,850, $17,250 and $600,000. There is no reference to any amount of $117,917.51. Nor does any combination of the amounts mentioned appear to add up to $117,917.51. For present purposes, however, I am prepared to assume that the $117,917.51 represents $57,917.51 referred to in the report as costs of Mr Bignell and Mrs Bignell described by Mr Nicols as "essentially agreed to on a consent basis with myself as liquidator in approximately August 2004", together with a further $60,000 for costs. I therefore proceed on the basis that the $117,917.51 should be taken to be a sum said by the plaintiffs to have become owing to them before the commencement of the winding up in consequence of the making of the several costs orders to which I have referred. In saying this, however, I do not intend to give any legitimacy to the proposition that the costs orders have actually caused any such indebtedness to come into existence. 11 The central contentions advanced by the plaintiffs through the originating process seem to be that (a) Mr Bignell and Mrs Bignell failed to prevent AJB from incurring certain debts (apparently debts for the costs the subject of the three costs orders) and thereby contravened s.588G (see s.588G(2)); and (b) certain transactions of AJB - notably the alleged loan repayments involving $260,000 and the alleged dividend payments amounting to $120,000 - were "voidable transactions" within the meaning of s.588FE; and (c) by reason of both (a) and (b), rights of action accrued to and may be asserted by the plaintiffs; and (d) those rights of action are such as to warrant the making of the several orders set out at [6] above - or, at least, all of them except the procedural order in Item 3 which raises separate issues to which I shall come presently.

12 The motion for summary dismissal or strike-out brings to the fore questions about the extent to which and circumstances in which an individual creditor may obtain redress against an insolvent company's directors because of insolvent trading by the company and the company's pursuit of "voidable transactions". 13 A claim will warrant an order for summary dismissal under rule 13.4 of the Uniform Civil Procedure Rules 2005 only if it is plain that no cause of action is available or the case sought to be pursued is obviously untenable. As Barwick CJ said in General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125:

"… [T]he plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of cause of action - if that be the ground on which the court is invited, as in this case, to exercise its power of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; 'be manifest that to allow them' (the pleadings) 'to stand would involve useless expense'." 14 The alternative of striking out the claim under rule 14.48 will be indicated where the claim is advanced in a defective or ambiguous or unclear way but, properly formulated, could be maintainable. As O'Keefe J said in Johnston v Smith [2002] NSWSC 409 at [23] in relation to an analogous provision of the former Supreme Court Rules: "The power to strike out a pleading under Pt 15 r 26(1)(b) may be invoked if the way in which the pleading is framed is prone to, or has the inclination towards, or possible effect of, causing prejudice, embarrassment or delay in the fair trial of the action." 15 A claim will have a tendency to cause prejudice, embarrassment or delay (a composite concept) if, as framed, it leaves unexplained, ambiguous or at large some element essential to its viability. 16 It is with these general principles in mind that I turn to the interlocutory process of 27 August 2007 and the several claims in the originating process. The claims in Items 2, 4, 5 and 6 17 I consider first the "voidable transaction" matters. They are reflected mainly in Items 4, 5 and 6 at [6] above. In addition and because of the assumption about the connection between the sum of $380,000 referred to in Item 2 and the sums mentioned in Items 5 and 6, Item 2 also arises for consideration here. 18 Division 2 of Part 5.7B of the Corporations Act is concerned with various kinds of "transactions" to which a company became party in a particular period measured by reference to the commencement of its winding up or the "relation-back day" in relation to its winding up. Among the particular types of transactions are "uncommercial transactions" (s.588FB), "insolvent transactions" (s.588FC) and "unreasonable director-related transactions" (s.588FDA). By virtue of s.588FE, a transaction of such a type will be a "voidable transaction" if it has, in addition to the characteristics bringing it within the particular class, characteristics described in s.588FE itself. 19 By Items 5 and 6 at [6] above, the plaintiffs seek declarations that certain payments were transactions falling within one or more of s.588FB, s.588FC, s.588FDA and s.588FE. Counsel for the plaintiff made it clear that the claims for this declaratory relief are advanced pursuant to s.75 of the Supreme Court Act 1970. There is no attempt to invoke any jurisdiction created by the Corporations Act. 20 The fact that the claims are claims for declaratory relief according to the general principles reflected in s.75 makes it necessary to consider the purpose and effect of a judicial determination that a particular transaction falls within one of the classes relevant to the operation of Division 2 of Part 5.7B. 21 Sections 588FA to 588FE are concerned only with the delineation and definition of types or classes of transactions. They lay down criteria against which a transaction must be assessed in order to decide whether it comes within a particular class of transactions relevant to the operation of other statutory provisions. A conclusion that a transaction falls within one or more of the classes relevant to the operation of Division 2 of Part 5.7B does not, of itself, cause any right or obligation to arise. In particular, a conclusion that a particular transaction is a "voidable transaction" does not indicate the availability of general law contractual remedies in relation to the transaction. "Voidable transaction" is merely a statutory label relevant to the working of the statutory provisions which refer to "voidable transactions". It is not a characterisation for the purpose of the law of contract. 22 If the court is satisfied that a transaction is a "voidable transaction" because of s.588FE, the only jurisdiction that is enlivened is the jurisdiction to make an order under s.588FF - but that jurisdiction is exercisable only upon application made to the court by the liquidator of the company concerned. This is the effect of the opening words of s.588FF(1): "Where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:" 23 Items 5 and 6 at [6] above do not entail any application under s.588FF. Rather and I have said, the plaintiffs seek declaratory relief. They do so, however, in circumstances where they are not competent applicants for any substantive order that might flow from the findings that would form the foundation of the declaratory relief. Because the liquidator is the only competent applicant under s.588FF, the claims in Items 5 and 6 are seen to be claims by A for a declaration that there exist circumstances vesting a statutory cause of action in B, where B is not party to the application for declaratory relief and does not ask the court to grant that relief. 24 In Ibeneweka v Egbuna [1964] 1 WLR 219 at p.225, Lord Radcliffe said that "the power to grant a declaration should be exercised with a proper sense of responsibility and a full realisation that judicial pronouncements ought not to be issued unless there are circumstances that call for their making". Generally speaking, such circumstances do not exist where, in the words of Mason J in Gardner v Dairy Industry Authority (NSW) (1977) 52 ALJR 180 (at p.188), "the Court's declaration will produce no foreseeable consequences for the parties". The jurisdiction is exercisable for "resolution of a real controversy presented in litigation requiring decision": Australian Securities Commission v Ampolex Ltd (1995) 38 NSWLR 504 at p.508 per Kirby P. 25 In the present case, the grant of the declaratory relief would produce no legal consequence as between the plaintiffs on the one hand and Mr Bignell, Mrs Bignell and AJB on the other. The making and existence of the declarations would not define or confirm any right or liability of any person. A finding of "voidable transaction" could result in a grant of relief only in proceedings instituted by the liquidator - and then only if the liquidator persuaded the court that an order under one or more of paragraphs (a) to (j) of s.588FF(1) should be made. An attempt by a creditor to obtain such an order would be doomed to fail. Nor would any declaration obtained by the creditor as to the status of any transaction for the purposes of Division 2 of Part 5.7B be of any relevance from the point of view of any attempt that the liquidator might make to obtain an order under s.588FF(1). 26 In short, the claims in Items 5 and 6 are claims for relief that the court simply would not grant because the relief would serve no useful purpose and would be futile. 27 It remains to consider briefly Items 2 and 4 at [6] above, that is, the plaintiffs' claim for an order for the payment of the aggregate of the money sums in Items 5 and 6 and the claim for an order pursuant to s.588FF. As I have said, an order of the latter kind cannot be made except on the application of the liquidator. An application for such an order made by the plaintiffs is therefore simply meaningless. So too is an application by a creditor for an order for the payment of money, based on s.588FF. Sections 588G(2) and 588M(3) 28 I consider next the insolvent trading issue and the basis on which contravention of the insolvent trading provisions by a company's directors may have the result that a cause of action accrues to a particular creditor of the company. 29 Let it be assumed that, before the commencement of the winding up, the plaintiffs became creditors of AJB in respect of a particular debt which continued to be owing by AJB at the commencement of the winding up. Let it also be assumed that Mr Bignell and Mrs Bignell contravened s.588G(2) by failing to prevent the incurring of the debt by AJB. The only cause of action that these circumstances would put directly at the disposal of the plaintiffs is an action under s.588M(3). Section 588M is in these terms: " Recovery of compensation for loss resulting from insolvent trading (1) This section applies where: (a) a person (in this section called the director ) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and (b) the person (in this section called the creditor ) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency; and (c) the debt was wholly or partly unsecured when the loss or damage was suffered; and (d) the company is being wound up; whether or not: (e) the director has been convicted of an offence in relation to the contravention; or (f) a civil penalty order has been made against the director in relation to the contravention.

(2) The company's liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage.

(3) The creditor may, as provided in 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.

(4) Proceedings under this section may only be begun within 6 years after the beginning of the winding up." 30 This section does not allow recovery of the amount of the creditor's debt as such. Rather, it is a provision allowing recovery of compensation measured by reference to loss or damage suffered by the creditor in relation to the debt because of the debtor's insolvency. In some cases - perhaps most cases - this will be the equivalent of the amount of the debt: see, for example, Powell v Fryer (2001) 37 ACSR 589. In others - for example where a proof of debt is admitted and a substantial payment is made to all creditors rateably - the relevant loss or damage may be less than the amount of the debt. There may perhaps be circumstances in which the amount of the loss or damage exceeds the amount of the debt. The separateness of the debt, on the one hand, and the loss and damage, on the other, is emphasised by the statement in s.588M(3) that an amount equal to the loss or damage may be recovered "as a debt due to the creditor". The claim in Item 3 31 But any cause of action under s.588M(3) would be available to the plaintiffs only "as provided in Subdivision B". This is expressly stated in s.588M(3). Attention is thus directed to ss.588R to 588U which constitute Subdivision B of Division 4 of Part 5.7B. It is desirable that I set out ss.588R, 588S and 588T in full: " 588R Creditor may sue for compensation with liquidator's consent

(1) A creditor of a company that is being wound up may, with the written consent of the company's liquidator, begin proceedings under section 588M in relation to the incurring by the company of a debt that is owed to the creditor.

(2) Subsection (1) has effect despite section 588T, but subject to section 588U.

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 in relation to the incurring by the company of a specified debt that is owed to the creditor; 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 should not be begun.

588T When 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 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." 32 Subdivision B of Part 5.7B creates a screening process. A creditor wishing to pursue a cause of action under s.588M(3) may proceed to do so if the written consent of the liquidator is given. In that event, no other preliminary is necessary. This is the effect of s.588R. If there is no written consent of the liquidator, the matter falls to be dealt with under s.588S and 588T. The effect of those provisions is that the creditor may not proceed unless: (a) the creditor has given written notice to the liquidator in conformity with s.588S; and (b) at the end of three months after the giving of the notice, the liquidator has not consented to the creditor beginning the proceedings; and (c) on an application made after the end of the three months period, the court has given leave for the proceedings to begin. 33 In the present case, a notice of this kind was given by the plaintiffs to the liquidator of AJB. It was given on or about 30 November 2004 (the date it bears) and was in these terms: "To: Steven Nicols Level 5 221-229 Crown Street WOLLONGONG NSW 2500 Liquidator of A J Bignell Pty Limited 1. Stephen Gary Edenden and Paula Anne Edenden intend to bring proceedings under Section 588M against Mark Bignell and Kathryn Margaret Bignell in relation to the incurring by the company of the debt owed to Stphen Gary Edenden and Paula Anne Edenden in the sum of $57,917.51. 2. Steven Nicols, the liquidator, is asked to give to the solicitor of Stephen Gary Edenden and Paula Anne Edenden within three months after receiving this Notice: (a) a written consent to the creditor to begin the proceedings; or (b) a written statement to the reasons why you think that the proceedings under Section 588M in relation to the incurring of that debt should not be begun." 34 It is common ground that the liquidator made no response to this notice. 35 I am satisfied that, because of the notice of 30 November 2004 and the absence of response by the liquidator, it became open to the plaintiffs to proceed under s.588M against Mr Bignell and Mrs Bignell (subject, no doubt, to proof of their director status at material times) in respect of any debt incurred by AJB answering the description in that notice, namely, a debt incurred by AJB and owed to the plaintiff and "in the sum of $57,917.51". 36 Attention must then be focused on the claim in Item 3 at [6] above. One deficiency is immediately obvious: the reference to"S588H & M" implies that the claim in respect of which leave is sought will be advanced under both s.588H and s.588M. The reference to s.588H makes no sense at all. At the least, there is a need to amend to refer to s.588M alone. 37 But even when the reference is understood as a reference to s.588M alone there is a more fundamental problem. The matter in respect of which leave is sought is described as "an application under S588G Corporations Act 2001 Cth for relief under S588H & M of the Corporations Act 2001, for the reasons set out in" the particular affidavit of Mr Brien. Section 588T(2)(b) allows the court to give leave "for the proceedings to begin". This reference to "the proceedings" is a reference to the proceedings mentioned at the start of s.588T(2), that is, the creditor's "proceedings in a court under section 588M in relation to the incurring by the company of the debt specified in the notice". The notice thus referred to is, as s.588T(1) makes clear, the notice given under s.588S. An essential characteristic of such a notice is described in s.588S(a): "stating that the creditor intends to begin proceedings under section 588M in relation to the incurring by the company of a specified debt that is owed to the creditor". [emphasis added] 38 Leave may only be granted under s.588T(2)(b) so as to permit proceedings under s.588M to be brought in respect of the company's incurring of a debt "specified" in a notice given under s.588S. This, of course, makes perfect sense in the statutory context. The first determinant of whether the creditor may proceed is the giving or withholding of the liquidator's consent. If that consent has not been given at the end of the particular period of three months, the function of deciding whether the proceedings should be brought is transferred to the court under s.588T(2)(b). The court is called upon to consider whether the creditor should be allowed to proceed in the absence of the liquidator's consent. It is, I suggest, self-evident that the court's consideration is confined to the particularly proposed proceeding in respect of which the liquidator's consent was sought but not given. This, it seems to me, is clearly the basis of the decision of the Full Federal Court in Quick v Stoland Pty Ltd (1998) 157 ALR 615. 39 In the present case, the only proposed proceeding notified by the plaintiffs to the liquidator was that "specified" in the notice of 30 November 2004 in relation to "the incurring by the company of the debt owed to Stephen Gary Edenden and Paula Anne Edenden in the sum of $57,917.51". The liquidator did not give consent in response to that notice. The court's jurisdiction to grant leave under s.588T(2)(b) was therefore enlivened - provided, of course, that it has before it an application for the leave the court is empowered to give. 40 The claim in Item 3 at [6] above is not a claim for an order granting the leave that it is open to the court to give in this case, that is, leave to bring proceedings under s.588M in relation to the incurring by AJB of the alleged debt of $57,917.51 "specified" in the notice dated 30 November 2004. The claim does not identify any debt and does not refer to the incurring of any debt. It refers, in vague and unspecific terms, to an application for "relief … for the reasons set out in the particular affidavit". The affidavit is discursive. It does not, in terms or by necessary implication, define or delineate any proposed claim or any debt. The claims in Items 1 and 7 41 By Items 1 and 7 at [6] above, the plaintiffs claim declarations that the directors of AJB "were trading whilst the third defendant was insolvent" and that those directors "were trading whilst insolvent pursuant to S588G Corporations Act 2001 Cth". In each case, the declaration, if made, would say that the directors, as individuals, "were trading" while the company of which they were directors was insolvent. That, of course, is not something forbidden by statute or by the general law. A person who is a director of a particular company is free to pursue his or her own trade or calling even if the company is insolvent. What the director must not do, if the company is in that state, is to allow the company to incur debts - or, more accurately, the director must not fail to prevent the incurring of a debt by the company if the circumstances are as described in s.588G(2)(a) or s.588G(2)(b). 42 The intention behind Items 1 and 7 is probably to seek declarations to the effect that each of the directors of AJB failed to prevent the incurring by AJB of one or more debts and thereby contravened s.588G(2). I proceed on the basis that those claims would be amended accordingly. 43 A suggestion that s.1317E is the source of a power for the court to make such a declaration may be dealt with briefly. Section 1317E(1), so far as is relevant provides: "(1) If a Court is satisfied that a person has contravened 1 of the following provisions, it must make a declaration of contravention: … (e) subsection 588G(2) (insolvent trading); …" 44 It is, however, made clear by s.1317J that only ASIC may apply for a declaration of contravention of this kind. Private litigants such as the plaintiffs are not competent applicants: Primary Underwriting Agency Pty Ltd v Kilborn [2007] NSWSC 158, One.Tel Ltd v Rich (2005) 190 FLR 443, Foyster v Foyster Holdings Pty Ltd [2002] NSWSC 768. Section 1317E does not empower the court to make declarations in terms of Item 1 or Item 7, even when those items are understood as referring to alleged contravention by the directors of s.588G(2). 45 To the extent that the claims in Items 1 and 7 may be advanced by reference to the general jurisdiction to grant declaratory relief, objections similar to those already noticed arise. Section 588M(3) makes a statutory cause of action available to an individual creditor in circumstances where s.588G(2) has been contravened and certain other conditions are satisfied. - provided that Subdivision B of Division 4 of Part 5.7B allows the cause of action to be pursued by the creditor. A finding that s.588G(2) has been contravened represents part only of the totality of the findings that must be made if the statutory cause of action is to be successfully pursued by a creditor. A free-standing and isolated declaration by the court as to the existence of s.588G(2) contravention leads nowhere and is of no utility. 46 The present case is therefore within the class recently described by Brereton J in Commonwealth of Australia v BIS Cleanaway Ltd [2007] NSWSC 1075 (26 September 2007) at [28]: "Another, related, category is where no good purpose would be served by granting declaratory relief [ Buck v Attorney-General [1965] Ch 745; Blackburn v Attorney-General [1971] 2 All ER 1380; Gardner v Dairy Industry Authority (declaration if otherwise appropriate would have been declined where it had no foreseeable consequences, not leading to damages or other consequential relief but at best somehow prompting possible administrative or legislative action that that might improve the position of the appellants and others in their position); Rivers v Bondi Junction-Waverley RSL Sub-Branch Ltd [1986] 5 NSWLR 362 (declaration that election of directors involved irregularities refused where they did not affect the result)]. In this respect, it is generally inappropriate to grant declaratory relief if it will be inconclusive, in the sense that the proposed declaration would leave unresolved issues, with the parties still in dispute as to the consequences so that further litigation would be required to resolve the controversy [ Smart v Allen (1970) 91 WN(NSW) 241; Integrated Lighting & Ceilings Pty Ltd v Phillips Electrical Pty Ltd (1969) 90 WN (Pt 1) (NSW) 693, 702]." 47 Also applicable are the principles his Honour set out at [29]: "That a suit for a declaration should not be in substance the determination of a question anterior to a further suit for substantive relief is authoritatively illustrated by Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286. At first instance, Holland J had refused to declare that the vendor had not validly terminated a contract for sale of land. The High Court allowed an appeal, deciding that the contract was on foot, but concluding that - as the parties were not in agreement as to the consequences and in particular whether specific performance was available - it was inappropriate to grant the declaration sought. Barwick CJ and Jacobs J observed that Supreme Court Act , s 75, had to be considered in conjunction with s 63, which provides that the court so far as possible must completely and finally determine in the one proceeding all matters in controversy between the parties. Their Honours said (at 307): When the power under s 75 of the Supreme Court Act 1970 is exercised the duty under s 63 must be borne in mind. This is particularly important in relation to subject matters in which the appropriate curial relief depends upon equitable doctrine and rules, especially the rules relating to the specific performance of contracts. These rules have not been substantially changed by the introduction of the judicature system of procedure and pleading. The court can still grant specific performance of a contract in any case where it could previously do so and cannot grant specific performance in any case where it could not previously do so.

Unless the parties are agreed on the consequences which flow from a declaration that such a contract has or has not been validly rescinded it is generally undesirable that a court should so declare without any orders for consequential relief. If a party to such a contract claims that a contract has not been validly rescinded such a judicial declaration is proper if that party continues ready and willing at the conclusion of the litigation to perform the contract. A consequence of the declaration should be that the party submit to the performance of the contract on his part and to an order for specific performance of the contract if that is appropriate. If such an order is not or cannot be made, nor an inquiry into damages ordered, then a declaration that on a certain day the contract had not been validly rescinded serves no purpose in the litigation. Before such a declaration is made the party seeking the declaration may already have elected to treat the other party's purported rescission as a repudiation and may have himself rescinded the contract. All that has then been achieved is an issue estoppel if and when the claim for damages for breach of contract is pursued in other proceedings. This was not the intention of the legislation as appears from s 63. Conversely, if a declaration be made that a contract has been validly rescinded but no consequential orders for damages or for return or retention of the deposit are made in those proceedings the purpose of s 63 is not achieved." 48 Declarations in terms of Items 1 and 7 (understood in the way described at [42] above) would involve determination of no more than a question anterior to further proceedings for substantive relief. Conclusions 49 Because an individual creditor has no standing to obtain purely statutory relief by way of order under s.588FF, the claim in Item 4 at [6] is entirely devoid of foundation and will be dismissed. And because the allied claims in Items 5 and 6 are likewise doomed to fail, they too will be dismissed, as will the claim in Item 2 (see [8] above). 50 The claims in Items 1 and 7 for declaratory relief have no basis in s.1317E and, to the extent that they seek declaratory relief in relation to part only of a statutory cause of action made available by s.588M(2), lead nowhere and are of no utility. They too will be dismissed. 51 The claim in Item 3 is not tenable in its present form but might be tenable if re-formulated according to the parameters set by the notice of 30 November 2004. That claim should be struck out. Orders 52 The orders of the court are as follows: 1. Order that the proceedings be dismissed as to the claim in the first of the paragraphs numbered 1 in the originating process, the claim in the first of the paragraphs numbered 2 in the originating process, the claim in the second of the paragraphs numbered 2 in the originating process, the claim in the paragraph numbered 3 in the originating process, the claim in the paragraph numbered 4 in the originating process and the claim in the paragraph numbered 5 in the originating process. 2. Order that the second of the paragraphs numbered 1 in the originating process be struck out. (The claims in order 1 are those in Items 1, 2, 4, 5, 6 and 7 at [6] above, while order 2 relates to Item 3.) 53 Order 2 will not, of course, preclude pursuit by the plaintiffs of a s.588T(2)(b) application properly formulated by reference to the notice of 30 November 2004. Costs 54 I will hear the parties on costs at a time to be fixed. **********

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