REDRUNNER HOLDINGS PTY LTD, AS TRUSTEE FOR THE JABBOUR FAMILY TRUST

Interlocutory injunction - Mareva order - Application ex parte - Alleged voluntary alienation of property to defraud creditors - Property Law Act s 89 - Defendant company in liquidation - No leave to proceed obtained - Potential interest of liquidator in relief sought - Insufficient case shown for interlocutory relief

Corporations Act (2001) (Clth), s 588FA, s 588FB, s 588FF, s 588FH

1 EM HEENAN J: This afternoon the court has sat in Chambers to hear an urgent application by the plaintiff in this action for an interim Mareva injunction. The application was heard ex parte. The situation in the proceedings is that a writ of summons was issued on 3 November 2003. The chamber summons for the Mareva injunction was taken out on the same day. There is an affidavit of the plaintiff in support of the application for the injunction deposing to a lengthy history between the parties, which I shall mention in a moment, and there has been an undertaking for damages offered. The processes have not been served upon any of the defendants and plainly there has been no appearance on behalf of any of the defendants.

2 The history of the transactions between the several parties is a complicated one which need not be stated in full this afternoon. It is enough to say that the plaintiff, Mr Fouad Antoun Khoury, obtained a judgment for a liquidated sum against a Mr Jabbour and against a company, Rosemist Holdings Pty Ltd, the first defendant, not then, but now, in liquidation. The judgment in favour of Mr Khoury against those parties was in the nature of a claim in debt and was not secured and had no proprietary component in respect of, or over any of, the assets of the judgment debtors. Attempts to enforce the judgment against Mr Jabbour and Rosemist Holdings Pty Ltd have so far been completely unsuccessful.

3 The next significant point to note is that Rosemist Holdings Pty Ltd conducted a trading business on its own behalf and, in that capacity, owned a variety of assets comprising the stock in trade, machinery and equipment of the business, bank deposits and other assets. Rosemist Holdings Pty Ltd was indebted to a variety of trade creditors and apparently under financial siege because of their demands. What it did was to "transfer" the assets of the business to itself as a trustee for the Jabbour Family Trust. Quite how this was done does not appear in the statement of claim but perhaps it involved a declaration of trust that, from that point on, Rosemist Holdings Pty Ltd held those various assets beneficially for third parties, namely, the beneficiaries under the trusts of the Jabbour Family Trust, and upon the terms of those trusts.

4 As a consequence of this transfer of the beneficial interests in the assets of the Rosemist Holdings business to itself for the purposes of the family trust, Rosemist obtained access to moneys held by it on behalf of the family trust and used those moneys to pay the various trade creditors. The details of the payments to the trade creditors are not set out in the statement of claim but the implication from the pleading is that the sum of those payments was less than the value of the property which Rosemist had, from that point on, declared itself to hold on trust for the beneficiaries. So, in effect, the transaction resulted in the trustee obtaining a valuable property for less than its commercial value.

5 This use of the moneys coming from the Jabbour Family Trust controlled by Rosemist Holdings Pty Ltd did not include any payment of the debts due to Mr Khoury and he remained an unsatisfied judgment creditor.

6 A little later Rosemist Holdings Pty Ltd ceased to be trustee of the Jabbour Family Trust. Again quite how that happened does not emerge from the statement of claim. Whether it resigned, whether it was removed or whether some appointor or settlor exercised a power of appointment of a new trustee is not disclosed. But however it came about a new trustee of the Jabbour Family Trust was appointed; namely Red Runner Holdings Pty Ltd, the second defendant; and as the new trustee it became seized of the assets of the business formerly held by Rosemist Holdings Pty Ltd on trust for the Jabbour Family Trust and before that held by Rosemist Holdings Pty Ltd both legally and beneficially for itself. The allegations in the statement of claim proceed on the footing that, as trustee, Red Runner Holdings Pty Ltd continues to hold those business and trading assets.

7 The next step in the history is that Rosemist Holdings Pty Ltd, by then insolvent, was put into liquidation and a liquidator appointed. Somewhere about the same time Mr Jabbour, the other judgment debtor, was declared bankrupt on his own petition. The effect of those two insolvencies, in my view, is that all the assets of the bankrupt Jabbour, which were divisible among his creditors at the date of bankruptcy, become vested in the official trustee and that all the assets of Rosemist Holdings Pty Ltd, distributable for the benefit of its creditors at the date of the liquidation, vested in the liquidator.

8 I should point out that the liquidator is not a party to these proceedings and no leave has been sought or granted for this plaintiff to proceed against Rosemist Holdings Pty Ltd while that company is in liquidation. This point was not addressed in any detail in the argument this afternoon but it appears to me that this is a fatal obstacle to the plaintiff proceeding against Rosemist Holdings Pty Ltd unless and until leave to proceed against the company in liquidation is first obtained.

9 The account of events which I have given so far leads to the situation where Mr Khoury, the unsatisfied judgment creditor, is left with a judgment debt against Mr Jabbour, now bankrupt, and against Rosemist Holdings Pty Ltd, now in liquidation. I was not informed whether or not those claims based on the judgment had been proved or admitted in the bankruptcy or in the liquidation but there does not seem to be any reason why they would not be provable on the information, limited though it is, which has been disclosed to me this afternoon.

10 The proceedings which the plaintiff has commenced in the present action take as their unstated premise the probable fact that the claims in the liquidation of Rosemist Holdings Pty Ltd and in the bankruptcy of Jabbour by Mr Khoury under the judgment debt have little prospect of satisfaction or satisfaction in full.

11 The claims also take as a focus the assumption that the transfer of the beneficial interest in the Rosemist Holdings Pty Ltd business assets to the trustee of the Jabbour Family Trust, now Red Runner Holdings Pty Ltd, has put valuable assets beyond the reach of creditors of Rosemist Holdings Pty Ltd. The statement of claim alleges that this transaction by which the assets of Rosemist Holdings Pty Ltd were declared to be held on trust for the benefit of the Jabbour Family Trust, followed by the change in trustee, was a transaction which is voidable under s 89 of the Property Law Act as being a transaction intended to defraud creditors.

12 I accept that it is arguable that the transaction may be one which was voidable as an attempt to defraud creditors, those creditors being creditors Rosemist Holdings Pty Ltd of which the plaintiff is one. The plaintiff submits that this is sufficient to characterise him as a person thereby prejudiced by this transaction within the meaning of that phrase in s 89(1) of the Property Law Act. I am unable to accept that submission as sufficiently well-established to justify the grant of injunctive relief on an ex parte basis on the present application. The reason for my reservation is that the transaction, even if a fraudulent transaction to defeat creditors, is one which prejudices Rosemist Holdings Pty Ltd by attempting to put some or all of its assets beyond reach.

13 Now that Rosemist Holdings Pty Ltd is in liquidation it is my view, if only at a prima facie level, that it is only the liquidator of that company who can pursue or vindicate any claim to set aside the alleged fraudulent transaction because it is the liquidator who is charged with the responsibility of gathering all the assets of the company in liquidation and also of pursuing and setting aside fraudulent, void or voidable preferences. Unless the liquidator takes that action I am not satisfied that there is any basis upon which an individual unsecured creditor of Rosemist Holdings Pty Ltd can do so in his stead.

14 There are of course other provisions in the Corporations Act (2001) (Clth) containing a variety of detailed options to pursue fraudulent preferential or uncommercial transactions. They can be found in Pt 5.7B of the Corporations Act, especially in s 588FA, dealing with unfair preferences, in s 588FB dealing with uncommercial transactions and in s 588FF dealing with the power of courts to make orders about voidable transactions. There is also power under s 588FH for a liquidator to recover from a related entity any benefit resulting from an insolvent transaction. Then there is the opportunity for claims against directors or persons involved in a fraudulent unfair or uncommercial transaction set out in Div 4 subdiv (a) of the Corporations Law.

15 Detailed commentaries and discussions on the statutory provisions are to be found in many places, including an article by Professor Andrew Keay, "Liquidators - Avoidance of Uncommercial Transactions"(1996) 70 ALJ 390, in Justice McPherson's well-known work, "The Law of Company Liquidation" (4th ed), edited by Professor Keay, Law Book Co, at page 430 and following, and in "Ford's: Principles of Corporations Laws in Australia", par 27.212 and following.

16 Only the briefest attention to these provisions was made by counsel for the plaintiff in the present application acknowledging their existence but submitting that some difficulties about their practical implementation in the present case may arise because of the expiration, or apparent expiration, of a limitation period. Whether the limitation period has in fact expired and whether or not there be any answer to a plea relying on the limitation period was not raised and I do not deal with that this afternoon.

17 In further support of the submission that the Court had power to entertain the relief claimed by the plaintiff in this action, notwithstanding that no claim was being made by the liquidator of Rosemist Holdings Pty Ltd, counsel relied on a decision of Barrett J in the Equity Division of the Supreme Court of New South Wales in Green v Schneller [2002] NSWSC 671, 31 July 2002. In that case an application was made to set aside, as a fraudulent preference, the transfer of a property by the respondent, Mrs Schneller, because of an apparent intention to defeat a judgment creditor at a time when, after the transaction but before action brought, Mrs Schneller had gone bankrupt. Reliance by the applicant was placed on s 37A of the Conveyancing Act (NSW), the analogue in that state of s 89(1) of the Property Law Act (WA). The action proceeded to trial in the absence of the official receiver as a representative of Mrs Schneller, although I note that leave had been granted under the provisions of the Bankruptcy Act for the plaintiff to proceed with the action against the bankrupt notwithstanding the bankruptcy. After trial Barrett J concluded that there had been a transaction which was fraudulent in the sense that it was designed to defeat the interests of creditors, and in particular the applicant, and his Honour was disposed to make a declaration to that effect but the actual orders which his Honour made were, it seems, limited.

18 I do not have the benefit of a full report of the case before me this afternoon nor do I have access to any of the formal orders of the court, but the reasons for decision suggest that his Honour, at the completion of the trial, adjourned the proceedings after making certain directions which included one that the Official Trustee in Bankruptcy, as representative of Mrs Schneller, should be served with a copy of the reasons for decision, that the proceedings should be listed for mention at a later date in order to hear any application for joinder of the Official Trustee in Bankruptcy which might be made either by the Official Receiver or by the plaintiff and for submissions as to the precise form of orders to be made.

19 Despite the reliance placed on this decision by counsel for the present applicant, it seems to me that the disposition that was directed in that case acknowledges the interest of the Trustee in Bankruptcy as the sole proprietor of any interests or assets of the bankrupt and, in that capacity, as the party at the very least primarily entitled to initiate proceedings to set aside voidable transactions whether for fraud or other reasons.

20 It is because I consider that it is the liquidator of Rosemist Holdings Pty Ltd in the present case which is primarily, if not exclusively, entitled to challenge the impugned transaction by which property formerly owned both legally and beneficially by Rosemist Holdings Pty Ltd passed beneficially to the trustee of the Jabbour Family Trust, including to a later trustee, that I conclude that the present application has not been made out. When I say it has not been made out I should make it clear that I consider that it has not been sufficiently demonstrated that Mr Khoury has an interest to bring the application to set aside this transaction in the absence of the liquidator of Rosemist Holdings Pty Ltd.

21 Accordingly, the orders which I make this afternoon are as follows:

(1) adjourn sine die the application for the Mareva injunction;

(2) direct that a copy of the writ, the statement of claim, the summons for the injunction, the affidavit of Mr Khoury of 3 November 2003, this order and my reasons for decision be served upon the liquidator of Rosemist Holdings Pty Ltd;

(3) grant liberty to any party to apply to join the liquidator of Rosemist Holdings Pty Ltd in these proceedings or for the liquidator to apply to be joined on his own initiative;

(4) order a stay of proceedings against Rosemist Holdings Pty Ltd (in Liquidation) pending the outcome of any application by the plaintiff for leave to proceed against the company in liquidation;