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[2009] WASC 338
respondent. Keith’s application was dismissed; costs were reserved for submissions, and no final order was made on Martyn’s application, with submissions invited on joinder.
Keith was owed money by Senson and wanted the liquidator to transfer to him potential claims against Martyn and associated entities. The court held that the relevant liquidator's claims could not be assigned to Keith on the statutory reasoning it adopted. It also considered that the company's completed winding up prevented an element of an insolvent-trading claim from being met. The application was dismissed. The judgment is Keith v Verge [2009] WASC 338; Movitor is one of the authorities discussed in it, not the name of this judgment.
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The judgment is Keith v Verge [2009] WASC 338, decided by Master Sanderson of the Supreme Court of Western Australia. The heading supplied with the judgment identifies Malcolm Keith as plaintiff and Evan Verge, Senson Technology Pty Ltd’s liquidator, as defendant. Although the prompt’s title begins “Movitor Pty Ltd (receiver and manager appointed) (in liquidation) v Sims”, the text itself is Keith v Verge. Movitor is an authority discussed in the reasons, not the case being decided.
No linked legislation citations have been extracted yet.
Keith had been a director and consultant of Senson. His consultancy arrangement was for $6,000 per month, but Senson initially could not pay that amount in full. The unpaid balance was recorded in Senson’s accounts as a loan. When Keith resigned in February 2003, the accumulated balance was stated to be $209,492.48 ([5]). A repayment arrangement was later made, but payments stopped after about 18 months. Keith sued Senson in the District Court and the matter was listed for trial. Senson subsequently entered administration and then liquidation ([6]-[7]).
Keith accepted, for the purposes of the application, that he was a creditor who could prove in Senson’s liquidation. His application was not a continuation of his District Court claim against Senson. It sought to acquire from the liquidator rights to pursue claims against Richard Martyn, another director and consultant, and entities associated with him ([8]-[10]). The originating process sought an assignment for $2,000 of rights said to arise under ss 588FF, 588FH and 588M of the Corporations Act 2001 (Cth) ([1]).
At the hearing, Keith’s counsel described a narrower proposed assignment: rights concerning consulting fees paid between 2004 and 2008 to Martyn, Senson Applied Technology Pty Ltd and/or their associated entities ([10]). The court identified two concerns with the application’s formulation. First, the revised request was narrower than the request previously put to the liquidator, raising a question about whether the appeal was competent ([11]). Second, “associated entities” was not defined, leaving the scope of the proposed assignment uncertain ([12]).
Martyn separately sought joinder and directions about the liquidator’s power to assign causes of action ([2]). The court dismissed Keith’s application. It indicated that the directions aspect of Martyn’s application should also be dismissed, but left open whether Martyn would continue to seek joinder ([22]-[23]).
The central legal question was whether the liquidator could assign the proposed statutory claims to a creditor. The judgment identifies competing judicial views about whether claims under the relevant provisions could be treated as company property and assigned.
In Movitor, Drummond J appeared to regard an insolvent-trading claim under ss 588M and 588W as company property, and did not distinguish between selling the cause of action and selling its proceeds ([15]). In Tosich, Lindgren J agreed that prospective recoveries could be “property of the company” for s 477(2)(c), observing that the liquidator’s exclusive standing to seek the remedy did not answer the property question ([16]). The court noted the argument that these statements were obiter, but described them as unqualified statements of principle ([17]).
The contrary approach was in UTSA. Hansen J considered that claims under ss 588FB, 588FC and 588FF lay with the liquidator and were not assignable. The Victorian Court of Appeal upheld that decision. Master Sanderson observed that the competing positions could not be reconciled and chose to follow UTSA’s approach because the Victorian Court of Appeal had adopted it ([18]).
For preference claims, the court’s reasoning focused on s 588FI. It described the provision as aiming to put the preferred creditor in the position the company would have occupied if the transaction had not occurred. Section 588FI(3), as discussed in the judgment, also allows the preferred creditor to prove in the winding up as if the transaction had not occurred. The court reasoned that if a third party bought and pursued the preference claim, the company might not be restored to the intended position, while the creditor might be denied the corresponding proof benefit. It therefore considered assignment inconsistent with s 588FI ([18]).
For insolvent-trading claims, the court relied on the text of s 588M(3). It noted that the provision allows an aggrieved creditor to recover from a director “as provided by Subdivision B but not otherwise”. Subdivision B provides a route for a creditor to sue for compensation with the liquidator’s consent, after giving notice of an intention to sue. The court considered it inconsistent with those words for a creditor to acquire the liquidator’s claim as company property. It concluded that s 588M(3) prevented assignment of an insolvent-trading claim by the liquidator to a creditor ([19]).
There was also a separate difficulty based on the stage of Senson’s winding up. The court accepted that the affairs of Senson had been fully wound up, the relevant s 509 steps had been completed, and the liquidator had lodged the final notice with ASIC. Although an order had extended the date for deregistration, the court treated the winding up as complete for this analysis ([20]). It considered that s 588M(1)(d) required the company to be “being wound up”, and that this element could not be made out after the final notice had been lodged ([20]). This was an additional reason to refuse the requested orders ([21]).
The judgment presents the law as unsettled at the time on whether liquidators could assign certain statutory causes of action. It does not provide a comprehensive account of the law before Movitor, nor does it decide every possible kind of assignment. Its discussion is specific to the preference and insolvent-trading claims before it.
On one side, Movitor and Tosich supported a view that prospective recoveries could constitute company property for the purposes of a liquidator’s powers. The judgment records that Movitor treated an insolvent claim as company property and that Tosich agreed prospective recoveries could be “property of the company” under s 477(2)(c), notwithstanding that only the liquidator had standing to apply for the remedy ([15]-[16]).
On the other side, UTSA treated the claims under the provisions it considered as resting with the liquidator and not being assignable. The Victorian Court of Appeal upheld that approach. Master Sanderson adopted it in resolving the issue before him ([18]). The judgment’s practical effect was therefore to reject Keith’s proposed assignment, both by applying the reasoning about the statutory scheme and by relying on s 588M(3)’s creditor recovery pathway ([18]-[19]).
The judgment should not be read as eliminating the distinction it records between an assignment of a cause of action and a transfer or sale of the proceeds of a cause of action. It explains that Movitor was “not prepared to draw a distinction” between those arrangements, but the judgment’s own dispositive reasoning turned on the statutory provisions and the proposed assignment to a creditor ([15], [18]-[19]). The reasons do not examine every possible arrangement, every possible assignee, or every statutory recovery right.
The decision also addressed a temporal issue specific to the company’s winding up. On the facts accepted, the liquidator had completed the relevant s 509 steps. The court held this created an additional obstacle under s 588M(1)(d) ([20]). The judgment does not set out a general analysis of all circumstances in which a company may be considered to be “being wound up”, or the effect of different steps in a winding up. Its stated conclusion concerns the final notice having been lodged after the company’s affairs were fully wound up.
At [18], Master Sanderson said: “given that the Victorian Court of Appeal has adopted the approach of Hansen J, I propose to adopt the same approach.” In plain English, he recognised conflicting views but chose the approach that had been upheld by the Victorian Court of Appeal. This is the express basis given for resolving that conflict in this case.
Also at [18], the court explained that the preference provisions seek to put the company in the position it would have occupied if the transaction had not occurred. In plain English, a preference recovery is linked to restoring the company’s position, alongside the preferred creditor’s ability to prove in the liquidation under s 588FI. The court considered that allowing a third party to pursue the claim could separate those connected statutory consequences.
At [19], the court stated: “The effect of s 588M(3) is to prevent the assignment of an insolvent trading claim by the liquidator to a creditor.” This is the judgment’s clearest statement of its conclusion about assignment of the liquidator’s insolvent-trading claim to a creditor. The conclusion rests on the statutory wording “but not otherwise” and the procedure in Subdivision B.
At [20], the court said: “This element can not be made out where the liquidator has already lodged his final notice with ASIC under s 509.” In plain English, the court regarded completion of the winding-up process and lodgement of the final notice as incompatible with the requirement it identified in s 588M(1)(d) that the company be “being wound up”.
The reasons also identify practical application problems. At [11], the court noted that the proposed assignment had changed from the request originally made to the liquidator. At [12], it said the liquidator should know what rights are being assigned and considered “associated entities” uncertain in scope. These observations were additional difficulties, rather than the principal statutory reasoning on which the application was dismissed.
The decision is particularly relevant to a fact pattern in which a creditor asks a liquidator to transfer to that creditor a liquidator-controlled claim under the provisions considered in the judgment. The relevant feature is not simply that the claimant is a creditor. Keith’s status as a creditor was accepted for the application, but the question was whether he could acquire the liquidator’s rights against another party ([8]-[10]).
The preference-claim reasoning applies to the interaction the court identified between a recovery under s 588FF and the statutory restoration and proof mechanism in s 588FI ([18]). A fact pattern involving a proposed assignment of a preference claim to a third party may raise the same issue about whether the company would be restored to the position contemplated by the statute and whether the preferred creditor could obtain the related proof treatment.
The s 588M reasoning applies where the proposed assignee is a creditor seeking to buy or otherwise acquire the liquidator’s insolvent-trading claim as company property. The judgment’s analysis focuses on the method the statute provides for a creditor’s own claim: recovery under Subdivision B, with the required notice and liquidator consent, “but not otherwise” ([19]). It does not decide every question about claims pursued by persons other than creditors or about other forms of statutory recovery.
The winding-up point may be relevant where the company’s affairs have been fully wound up and the liquidator has lodged the final notice under s 509. The court treated those facts as preventing satisfaction of the “is being wound up” element it identified in s 588M(1)(d) ([20]). The case therefore turns partly on the procedural stage reached in the winding up.
Finally, the application illustrates that the scope of a proposed assignment matters. A request that changes materially between the approach to the liquidator and the court application, or that leaves the intended defendants or rights undefined, may raise competence and certainty issues ([11]-[12]). Those points were not the principal statutory conclusions, but the court expressly identified them as factors against granting the orders sought.
The supplied judgment contains no account of later cases applying, distinguishing, approving or rejecting Keith v Verge. It was delivered on 19 November 2009, and the text provided records authorities decided before it: Movitor, Tosich and UTSA. On the material available here, no conclusion can be stated about how later courts have treated this judgment.
The case itself describes its treatment of those earlier authorities. Master Sanderson discussed Movitor and Tosich as supporting the view that prospective recoveries could be company property, while noting the submission that the relevant statements were obiter ([15]-[17]). He then adopted UTSA’s approach because the Victorian Court of Appeal had upheld it ([18]). That is the precedent relationship visible in the reasons, not evidence of later treatment of Keith v Verge.
For legal research purposes, the distinction between the judgment’s stated reasoning and subsequent developments matters. The source text establishes the court’s approach in 2009. It does not establish whether a later appellate decision, statutory amendment or subsequent authority altered that approach. Any account of later treatment would require sources beyond this judgment.
The judgment leaves several issues unresolved or only partly addressed. First, although the court adopted UTSA’s approach for the application before it, it did not reconcile the reasoning in UTSA with Movitor and Tosich. It expressly said there was “no basis upon which the opposing views can be reconciled” ([18]). It chose between them for the case, but did not provide a broader synthesis of when prospective recoveries might be property of the company and when a statutory cause of action remains non-assignable.
Second, the reasons discuss different statutory claims together, including ss 588FF, 588FH and 588M, but the detailed analysis is not identical for each. The s 588FI reasoning concerns preference claims, while the “but not otherwise” reasoning is directed to s 588M(3) ([18]-[19]). The text does not set out a separate, comprehensive analysis of every claim under s 588FH. The judgment’s result should therefore be read with attention to the provision and statutory mechanism in issue.
Third, the court did not decide the uncertain scope of “associated entities” as a standalone legal question. It treated the undefined phrase as a practical deficiency in the proposal because the liquidator needed to know what rights were being assigned ([12]). The precise degree of particularity required in other assignment requests is not stated.
Fourth, the procedural issue about the changed request was noted but not decided as the basis for dismissal. The court said the revised request was narrower than the request put to the liquidator, which raised a question about whether the appeal was competent ([11]). Its reasons do not resolve that question.
Fifth, the s 509 reasoning is tied to the facts as the court understood them: the affairs had been fully wound up, the statutory steps had been completed, and the final notice had been lodged, despite an extension of the deregistration date ([20]). The judgment does not determine how the s 588M(1)(d) requirement applies at other stages, or where the relevant winding-up steps have not been completed.
Finally, the disposition of Martyn’s joinder application was left incomplete. The court indicated that the application for directions should be dismissed, but invited further submissions about whether Martyn wished to continue seeking joinder ([23]). The supplied reasons do not record the eventual outcome of that question.
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JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : KEITH -v- VERGE [2009] WASC 338
Corporation law - Appeal against refusal liquidator to assign potential insolvent trading action to creditor - Whether assignment possible
Movitor Pty Ltd (receiver and manager appointed) (in liquidation) v Sims [1996] FCA 1320; (1996) 64 FLR 380
Tosich Construction Pty Ltd and the Corporations Law [1997] FCA 115; (1997) 73 FLR 219
UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457
UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd [1997] 1 VR 667
1 MASTER SANDERSON: This was the return of two applications. The first in time was the plaintiff's originating process. The application was said to be brought under s 1321 of the Corporations Act 2001 (Cth). This section authorises an appeal against a liquidator's decision. In this case the defendant is the liquidator of Senson Technology Pty Ltd (Senson). The relief claimed by the plaintiff was as follows:
2 The other application was an interlocutory process. Pursuant to that process, Richard Selwyn Martyn (Martyn) applied for the following orders:
3 At the hearing of the application, the plaintiff and the proposed second defendant, Martyn, appeared by counsel. The defendant appeared in his personal capacity. He advised that Senson was without funds and that he was not in a position to engage legal representation. He indicated he would abide by the decision of the court. However, he did file two affidavits; the first sworn 18 June 2009, the second sworn 3 July 2009.
4 The originating process was supported by two affidavits of the plaintiff; the first sworn 27 May 2009, the second sworn 3 July 2009. It is convenient to start with a summary of the facts as drawn from these two affidavits.
5 The plaintiff was a director of Senson between 1995 and February 2003. During that time, he also worked as a consultant for Senson for an agreed figure of $6,000 per month. At the commencement of his consultancy, Senson did not have the capacity to pay the full amount of $6,000 per month. Agreement was reached that Senson would pay at least $500 per week to the plaintiff and the balance was to be recorded in Senson's accounts as a loan to be repaid when funds were available. At all relevant times, Martyn was also a director of Senson and was engaged as a consultant on a similar arrangement. His consultancy fee was $7,000 per month and this was paid to his company, Senson Applied Technology Pty Ltd. When the plaintiff resigned from Senson in February 2003, the accumulated balance of his consultancy fees, less what he had been paid, was $209,492.48. The plaintiff says that Senson's accounts confirmed his entitlement.
6 When he resigned, the plaintiff entered into discussions with Martyn and one Neil Davies (who was appointed director in April 2002) as to how the accumulated balance of his consultancy fees was to be repaid. By letter dated 4 February 2003, Martyn, on behalf of Senson, made an offer to repay the outstanding balance by payment of $500 per week and 10 % of gross monthly sales subject to sales exceeding $15,000 for the month. The letter says that this offer was based on an annual sales figure of $266,000.
7 It would appear that agreement was reached based upon that letter. Senson made payments of at least $500 per week to the plaintiff for a period of 18 months. According to the plaintiff, they did not make payments of the 10 % of monthly sales where those sales exceeded $15,000, although in most months that figure was exceeded. After 18 months, payments stopped. As a result, on 23 December 2004 the plaintiff issued proceedings in the District Court against Senson, seeking to recover the payments that should have been made up to that point. The District Court action progressed to the point where it was listed for a five day trial, commencing on 4 August 2008. On or about 22 July 2008, the plaintiff was advised that Senson had been placed in the hands of an administrator. Subsequently the company was placed in liquidation.
8 Doubtless the plaintiff is much aggrieved by what has occurred. However, there is no question of his action against Senson proceeding. The company is insolvent. Martyn was never a defendant in the proceedings brought by the plaintiff against Senson. There is then no suggestion that the right of action that the plaintiff is seeking to acquire from the defendant is some sort of right of indemnity that Senson may have from Martyn in relation to the plaintiff's claim against Senson. For the purposes of this application, it can be accepted that the plaintiff is a creditor of Senson and is entitled to prove in the liquidation. But the details of the action between the plaintiff and Senson are only relevant to establish that fact - a fact that does not seem to have been in issue between the parties.
9 What the plaintiff is seeking to do by the originating process is acquire from the liquidator any rights the liquidator may have to take action against Martyn for insolvent trading. That is made plain by the terms of the application itself. Reference is made to s 588FF, s 588FH and s 588M of the Corporations Act. Each of these sections is a variation on the theme. They entitle a liquidator to recover from a third party money paid by the company to that third party when the company was insolvent. That raises squarely the question of whether or not it is open to a liquidator to assign to a creditor of the company a right to take action for insolvent trading.
10 During the course of submissions, I pointed out to counsel for the plaintiff that it was difficult on the material filed to work out precisely what the insolvent trading action might be. I invited further submissions on this question. Counsel then refined what the plaintiff sought to have assigned to him as
[A]ny rights which the Liquidator has under the Corporations Act 2001 to apply to the Court (on behalf of the company) for relief under section 588FF, 588FH and 588M in respect of the consulting fees paid by the Company in the years 2004 to 2008 inclusive to Martyn, Senson Applied Technology Pty Ltd and/or their associated entities.
11 It is worthy of note that this formulation of what the plaintiff was seeking is narrower than what was sought in the plaintiff's solicitor's letter of 28 April 2009 - see attachment 'M' of the plaintiff's affidavit sworn 27 May 2009. That, of course, raises the question of whether any appeal against the liquidator's refusal of the assignment is competent given what is now being sought was not actually asked for. That is a factor which counts against the plaintiff on this application.
12 Further, the reference to 'associated entities' in the offer is of uncertain ambit. No attempt is made to define that term, so the liquidator was not in a position to know against which entities the plaintiff proposed to take action. It is axiomatic that the liquidator should know what he is assigning before he assigns it. Again, this is a factor which counts against the orders sought by the plaintiff being made.
13 To overcome these problems, counsel for the proposed second defendant suggested that the appropriate method of dealing with the matter was for the court to give directions as to which causes of action (if any) the liquidator is empowered to assign and, if there is such a power, for the matter to be remitted to the liquidator for further consideration. In my view, that was an eminently sensible suggestion. It is the way in which I intend to proceed.
14 On behalf of the proposed second defendant, it was submitted that while proceeds recovered by a liquidator under s 588FF and s 588M do constitute property of the company and are assignable by a liquidator, the underlying causes of action under those sections rests with the liquidator and are not property of the company which can be assigned. There appear to be differing judicial views as to whether causes of action under s 588FF and s 588M can be assigned by a liquidator.
15 In Movitor Pty Ltd (receiver and manager appointed) (in liquidation) v Sims [1996] FCA 1320; (1996) 64 FLR 380 at 392 - 393, Drummond J appeared to be of the view that an insolvent claim under s 588M and s 588W of the law was property of the company. He was not prepared to draw a distinction between a sale of a cause of action by a liquidator and a sale by the liquidator of the fruits of that cause of action.
16 In Tosich Construction Pty Ltd and the Corporations Law [1997] FCA 115; (1997) 73 FLR 219 at 235, Lindgren J referred to Movitor and agreed with the proposition that prospective recoveries were 'property of the company' within s 477(2)(c). His Honour commented that 'it was not to the point that only the liquidator had standing to apply for the remedy which would give rise to those recoveries'.
17 On behalf of the proposed second defendant, it was submitted that these two statements of principle were obiter and not determinative of the question. Be that as it may, they represent unqualified statements of principle and should be viewed in that light.
18 The contrary line of authority rests upon the decision of Hansen J in UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd [1997] 1 VR 667. His Honour was of the view that claims under s 588FB, s 588FC and s 588FF lay with the liquidators and were not assignable: see UTSA (698). On appeal, the Court of Appeal of the Supreme Court of Victoria upheld his Honour's decision: see UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457. Hayne JA (464) agreed with the primary judge 'substantially for the reasons that he gives' and found there was no basis for interfering with the exercise of the primary judge's discretion. Brooking JA concurred and wished 'only to add my own expression of admiration for the careful and comprehensive judgment of Hansen J'. Phillips JA agreed. There is no basis upon which the opposing views can be reconciled. However, given that the Victorian Court of Appeal has adopted the approach of Hansen J, I propose to adopt the same approach. The aim of the preference provision is for the preferred creditor to 'put the company in the same position as if the transaction had not been entered into'. That is clear from s 588FI(1)(b). Section 588FI(3) then entitles the preferred creditor to prove in the winding up as if the transaction had not been entered into. If a preference claim could be assigned by a liquidator to a third party and was successfully pursued by the third party, then the company will not have been put back in the same position as if the transaction had not been entered into. The preferred creditor will then have been compelled to pay under the preference claim but will be denied the benefit of proving in the liquidation under On this view, an assignment of a preference claim would be inconsistent with
19 Further, s 588M(3) provides that a creditor aggrieved by alleged insolvent trading 'may, as provided by 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'. Subdivision B then provides a procedure whereby the creditor may sue for compensation with the liquidator's consent, following the creditor giving the liquidator notice of intention to sue for compensation. For a creditor to purchase from the liquidator an insolvent trading claim as 'property of the company' would be contrary to the words 'but not otherwise' in s 588M(3). The effect of s 588M(3) is to prevent the assignment of an insolvent trading claim by the liquidator to a creditor.
20 Counsel for the proposed second defendant raised a further impediment in relation to s 588M. As matters stand at present, the affairs of the company have been fully wound up. Under s 509(1) - (3) of the Corporations Act, it is only when the affairs of the company have been fully wound up that the liquidator calls a final meeting and then lodges the relevant notice with the Australian Securities and Investments Commission (ASIC). Notwithstanding the fact that a court order has been made under s 509(6) extending the date for ASIC to deregister the company, the steps taken in s 509(1) - (3) have been completed and the company has been fully wound up. It is an element of insolvent trading under s 588M(1)(d) that the company 'is being wound up'. This element can not be made out where the liquidator has already lodged his final notice with ASIC under s 509.
21 This is a further reason for not making the orders sought by the plaintiff.
22 In my view then, the plaintiff's application should be dismissed. I will hear the parties as to how the costs of that application ought be dealt with.
23 Having reached that conclusion, it would seem that the proposed second defendant's application ought also be dismissed - at least insofar as the application concerns directions to be given to the liquidator. However, the proposed second defendant may wish to persist with his application to be joined as a party to the proceedings. That was not a matter which was canvassed during argument. On publication of these reasons I will allow the parties to make submissions on that question.
Movitor Pty Ltd (receiver and manager appointed) (in liquidation)
Sims
(1996) 64 FLR 380
(1997) 73 FLR 219
Keith’s application was dismissed; costs were reserved for submissions, and no final order was made on Martyn’s application, with submissions invited on joinder.