Fresh Start Equity Pty Ltd (in liq) v Bignold

Rule 5.23 26 Rule 5.23 of the Federal Court Rules states as follows: 5.23 Orders on default (1) If an applicant is in default, a respondent may apply to the Court for an order that: (a) a step in the proceeding be taken within a specified time; or (b) the proceeding be stayed or dismissed for the whole or any part of the relief claimed by the applicant: (i) immediately; or (ii) on conditions specified in the order. (2) If a respondent is in default, an applicant may apply to the Court for: (a) an order that a step in the proceeding be taken within a specified time; or (b) if the claim against the respondent is for a debt or liquidated damages - an order giving judgment against the respondent for: (i) the debt or liquidated damages; and (ii) if appropriate, interest and costs in a sum fixed by the Court or to be taxed; or (c) if the proceeding was started by an originating application supported by a statement of claim or an alternative accompanying document referred to in rule 8.05, or if the Court has ordered that the proceeding continue on pleadings - an order giving judgment against the respondent for the relief claimed in the statement of claim or alternative accompanying document to which the Court is satisfied that the applicant is entitled; or (d) an order giving judgment against the respondent for damages to be assessed, or any other order; or (e) an order mentioned in paragraph (b), (c) or (d) to take effect if the respondent does not take a step ordered by the Court in the proceeding in the time specified in the order. Note 1: The Court may make any order that the Court considers appropriate in the interests of justice - see rule 1.32. Note 2: An order or judgment under this Division may be set aside or varied. 27 The principles on which default judgment will be granted were recently referred to by McEvoy J in Michell v Cvetkovic [2022] FCA 1295 at [17] - [19]. His Honour identified that those principles were authoritatively essayed by Yates J in Chamberlain Group Inc v Giant Alarm System Co Ltd (No 2) [2019] FCA 1606 at [13] - [14] as follows: [13] The power to give judgment against a defaulting party is undoubtedly discretionary. The discretion must be exercised cautiously. Where the defaulting party is a respondent to a pleaded claim, the giving of judgment for final relief on the application will deliver complete success to the applicant without investigation of the merits of the pleaded claim: ACOHS Pty Ltd v Ucorp Pty Ltd [2009] FCA 577 at [27]. There is no requirement that the act or acts of default be intentional or amount to contumelious conduct. There is no requirement that the act or acts of default result in inordinate or inexcusable delay. That said, such features, if present, will be relevant to the exercise of the Court's discretion. So too will conduct that persuades the Court that the defaulting party is manifesting an inability or unwillingness to cooperate with the Court and the other party or parties to the proceeding. [14] Rule 5.23(2)(c) requires the Court to be satisfied that the applicant is entitled to the relief claimed in the statement of claim. This requirement has been interpreted as meaning that the Court must be satisfied that 'on the face of the statement of claim' the applicant is entitled to the relief that is claimed. It is not a requirement that the applicant prove its claim by way of evidence. Put another way, the facts alleged in the statement of claim are taken to have been admitted: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2007] FCAFC 146; 161 FCR 513 at [42]. If, on inspection of the statement of claim, the Court is satisfied that the applicant would be entitled to the relief sought then this requirement of r 5.23(2)(c) will be met: CNIP Pty Ltd v Chan & Naylor Norwest Pty Ltd (No 2) [2011] FCA 1170 at [18] - [19]; Speedo Holdings B.V. v Evans (No 2) [2011] FCA 1227 at [23]. The Court may permit further evidence to be adduced, but not evidence that would alter the pleaded case: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2006] FCA 1427; 236 ALR 665 at [45], [48] - [50]; United Broadcasting International Pty Ltd v Turkplus Pty Ltd (No 2) [2010] FCA 1413 at [42] - [44]; Australian Competition and Consumer Commission v Yellow Page Marketing BV (No 2) [2011] FCA 352; 195 FCR 1 at [62] - [63]. (Emphasis added). 28 I adopt those principles, which are supported by the authorities, for the purposes of this application. 29 The material shows that Mr Bignold has been served with the proceedings, and is aware of them and their import. He has, to some extent, participated in them, and he has email addresses which are shown on the material to have emanated from him, such that the Court can have confidence that communications to those email addresses will inform him of the circumstances of this matter. 30 The applicants rely for the purposes of r 5.23 upon a number of defaults. First, Mr Bignold's failure to comply with the order requiring him to provide discovery. That order required him to produce the documents or a response to the order by 13 February 2023. He has not complied with that order at any time, and the obligation to produce the documents remains outstanding. Secondly, the applicants rely on Mr Bignold's failure to attend the mediation. It is quite clear that the mediation was ordered, that a date was agreed upon, namely 25 January 2023, and that, despite the direction to attend, Mr Bignold did not do so. He has not produced any evidence to explain for his failure to participate. 31 The third alleged default relied upon by the applicants is Mr Bignold's omission to attend the case management hearing on 8 March 2023, despite him having been advised of it. 32 For the purpose of this application, I need only to rely upon the default in relation to the discovery order, which seems to be the clearest. That is sufficient to trigger the power under r 5.23, though the other defaults might also do that. 33 Those other defaults are not irrelevant, even if it could be argued that they may not trigger r 5.23, as they show that Mr Bignold has indicated an intention not to participate appropriately in these proceedings. He has manifested an unwillingness to cooperate with the Court and the applicants. 34 His somewhat derisory emails, which are neither fulsome nor provide any explanation for his failure to attend the mediation or hearings of this Court, are indicative of a person who is seeking to put off these proceedings as long as he can.

The claims by the liquidators 35 The main claim by the liquidator is made pursuant to s 588M of the Corporations Act 2001 (Cth) (Corporations Act). That section provides an avenue by which a liquidator may recover from a director of an insolvent company, as a debt, an amount which is equal to the loss or damage suffered by the company consequent upon the director's insolvent trading. 36 The Amended Statement of Claim served on Mr Bignold has set out the allegations in relation to his stewardship of the company, Fresh Start Equity, and the manner in which it became insolvent. As mentioned earlier, the date of the identified insolvency was recently changed in accordance with the evidence to Mr Staatz, the liquidator. His solvency report identifies that the relevant date is 31 August 2018. As a result, two of the debts which were incurred prior to that date, and which were initially claimed in the Statement of Claim, are not recoverable. The basis on which the company was insolvent is set out in the Amended Statement of Claim, and the allegations made meet the test for insolvency. 37 As is pleaded in the Amended Statement of Claim, in the period from approximately 31 August 2018 to 22 April 2020, Fresh Start Equity incurred debts in the sum of $1,375,500.67, the details of which are set out in the schedule to the pleading. 38 It is alleged that Mr Bignold was the director of the company at the relevant times and that a reasonable person in his position would have been aware that there were reasonable grounds for suspecting that the company was insolvent and/or would become insolvent as a result of the incurring of the debts. On the basis of the allegations and/or the facts as they are presently known, that would seem to be correct. That inference can be drawn from Mr Staatz's solvency report. 39 Accordingly, it is possible to be satisfied that, in his role as director, Mr Bignold caused Fresh Start Equity to incur substantial debts in the amount of $1,375,500.67. 40 In the result, the relevant elements of the insolvent trading claim are pleaded and are made out on the face of the Amended Statement of Claim. A proper claim exists for the payment of a debt in the sum identified exists. It follows that, in his capacity as liquidator, Mr Staatz is entitled to recover that amount under s 588M(2) of the Corporations Act as a debt due and owing to the company. His solicitors have set out a calculation of interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), and it is appropriate to allow interest at the rates identified. The total interest is $57,087.05. 41 In these circumstances, the following orders should be made: (1) Pursuant to r 5.23(2)(c) of the Federal Court Rules 2011 (Cth) and s 588M of the Corporations Act 2001 (Cth), the respondent pay to the first applicant the sum of $1,375,500.67. (2) Pursuant to s 51A of the Federal Court Act Australia 1976 (Cth), the respondent pay to the first applicant interest on the amount in paragraph 1 from the date the first applicant was appointed as liquidator of the second applicant in the amount of $57,087.05 as calculated in accordance with the attached Annexure A. (3) The respondent pay the applicants' costs of the proceedings. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington.

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