GFIN Pty Limited v Gooden, in the matter of GFIN Pty Limited

Principles to be applied 4 Once a person has been made bankrupt a creditor cannot take any fresh step in proceedings in respect of a provable debt: s 58(3)(b). Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy: s 82(2). 5 There appears to be some uncertainty as to the circumstances in which an equitable claim for compensation for breach of fiduciary duty or a statutory claim for compensation under s 1317H of the Corporations Act may be a provable debt: see in SBA Music Pty Ltd v Hall (No 2) [2014] FCA 1116 at [19]-[23] where, after a review of the authorities, Wigney J was inclined to the view that a claim for compensation under s 1317H arising from a claim for breach of the directors' duty provisions was not a provable debt but did not decide the question. 6 A statutory claim for unliquidated damages for misleading and deceptive conduct which induced the making of a contract is only a debt provable in bankruptcy if the conduct induced the making of a contract with the bankrupt by reason of the statutory words requiring the claim to be one arising by reason of a contract: Coventry v Charter Pacific Corporation Limited [2005] HCA 67; (2005) 227 CLR 234 at [6], [71]; and see also Polis v Zombor [2019] FCA 69 at [35]-[44]. By analogy, a similar position may apply to statutory claims for compensation under s 1317H of the Corporations Act which lack the requisite connection to a contract. 7 However, it is well established that where leave is required to pursue a cause of action, the Court may proceed on the basis that such leave is necessary and grant such leave as may be required 'rather than involve the parties in the futile exercise of determining, possibly after a series of appeals, whether the need for such leave has arisen': Allanson v Midland Credit Ltd (1977) 16 ALR 43 at 49 (a decision which has often been applied in the context of applications for leave under s 58(3)). Therefore, it is not necessary to resolve the above uncertainty in order to deal with the application for leave. 8 In Commonwealth Bank of Australia v Prentice (Trustee), in the matter of Shannon (Bankrupt) [2016] FCA 53 at [44]-[46], Gleeson J dealt with the purpose to be advanced, as identified in the decided cases, when considering whether to exercise the power to grant leave. On the one hand there is the freedom from future claims to be afforded to the bankrupt and the need to ensure that the trustee is not put to unnecessary expense in defending court proceedings and on the other hand there is the need to allow appropriate cases to proceed to a hearing rather than to be dealt with according to the proof of debt process. See also the summary by Flick J in 7Steel Building Solutions Pty Ltd v Wright [2011] FCA 328. 9 In that context, on applications for leave, the following matters have been considered to be relevant: (1) whether other parties are involved in the proceedings; (2) whether claims that are not provable debts fall for determination together with the claims for provable debts in circumstances where both claims arise out of the same facts; (3) whether the administration of the bankruptcy would be aided by an adjudication of the claim by the Court rather than to allow the proof of debt process to be undertaken; (4) the interests of other general creditors in the bankruptcy, in particular whether their interests would be advanced by having a complex claim adjudicated by the Court rather than submitted to the trustee for assessment as part of the proof of debt process at the cost of creditors generally; (5) whether the trustee in bankruptcy opposes the application; (6) how long the proceedings have been on foot and the stage that the proceedings have reached at the time of bankruptcy; and (7) whether the leave sought would infringe the prohibition on enforcing any remedy that is expressed in s 58(3)(a) (see Fraser v Deputy Commissioner of Taxation & Official Trustee (1996) 69 FCR 99 at 111-112). 10 Leave may be given nunc pro tunc: Commonwealth Bank of Australia v Prentice at [51].

Significant factors in the present case 11 In this case the proceedings have been on foot for a number of years and the bankruptcy commenced just prior to the scheduled hearing. 12 There is uncertainty as to whether the claims for equitable compensation for breach of fiduciary duty are provable in the bankruptcy. Further, for reasons already given, the alternative claim for statutory compensation under s 1317H of the Corporations Act that had been foreshadowed before the bankruptcy is likely not to be provable in the bankruptcy. Therefore, it is quite likely that at least part of the basis for the claim could be pursued even without leave. 13 The proceedings also involve a claim against Beagle. GFIN seeks to proceed against Beagle. The nature of the claim against Beagle is such that it will be necessary to form a view as to whether the claim of breach of fiduciary duty against Mr Gooden has been established. It is to be noted that Beagle has not actively defended the claim and there are no solicitors on the record for Beagle. Nevertheless, GFIN seeks to proceed substantively against Beagle and to have its claims against Beagle determined at a final hearing. 14 The Court made freezing orders and asset disclosure orders on the basis of the claims to be made against Mr Gooden and Beagle (and with the consent of counsel then acting for those parties) and it is appropriate, in the interests of justice, that the matter proceed to a final hearing where the Court will be required to determine finally the merits of claims which formed the basis for orders of that kind. 15 Whilst Mr Gooden in correspondence to GFIN opposed the grant of leave he did not appear on the application despite being given notice. 16 The trustee in bankruptcy did not oppose the application and no issue has been raised to the effect that to proceed with the hearing would be contrary to the interests of general creditors. The trustee indicated that he did not intend to take an active part in the proceedings. 17 The debtor's petition lodged by Mr Gooden does not include GFIN as a creditor. 18 The claim is supported by substantial affidavit evidence and detailed submissions which are already before the Court. An adjudication by the Court would be likely to assist the trustee in the administration of the bankruptcy to the extent that the claims are provable debts. 19 GFIN should not be left with the uncertainty as to whether leave should have been obtained. 20 Taking all of the above matters into account I was satisfied that the leave sought should be granted. 21 Further, in my view, the joinder of the trustee would leave the trustee to make the decision whether to abide by the outcome of the proceedings in every respect or to seek to take some step in the proceedings. It is conceivable that the trustee, in the interests of general creditors, may seek to participate in the adjudication of the merits of a claim that is a provable debt which might result in the addition of a large creditor to the pool of claims. Also, in the future, issues may arise as to the terms in which any judgment might be expressed, particularly as to whether the relief that may be granted is affected by the terms of s 58(3)(a) or some other matter. Therefore, I made that further order. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin.