O'Kearney (Liquidator), in the matter of Aqua Infrastructure Pty Ltd (in liq) v Unimode Pty Ltd

Introduction 1 This is an application for default judgment pursuant to r 5.23 of the Federal Court Rules 2011 (Cth) (Federal Court Rules) by the plaintiff, the liquidator of Aqua Infrastructure Pty Ltd (Aqua Infrastructure), against the defendant, Unimode Pty Ltd, a trade supplier to Aqua Infrastructure.

Background 2 The proceedings were commenced on 23 July 2020. 3 On the material before the Court it is established that the plaintiff's legal representatives served the originating application and statement of claim on the defendant at its registered office (the offices of its accountants). Those documents were served on or around 31 July 2020. 4 The matter was listed for a first case management hearing, to be conducted via Microsoft Teams, on 8 September 2020. On 27 August 2020, the plaintiff's legal representatives informed the defendant of this. However, on that same day, the defendant's accountants contacted the plaintiff's legal representatives to inform them that the originating application had been mailed to Mr Healy, the director of the defendant. The accountants claimed that Mr Healy did not have access to any computer or the internet, and that he would therefore not be able to attend a hearing conducted by Microsoft Teams. 5 On 28 August 2020, the plaintiff's solicitor, Mr Lachlan Bongers, had a telephone conversation with the defendant's accountant. In his affidavit of 4 September 2020, Mr Bongers deposed that during that call the defendant's accountant said words to the effect that Mr Healy had been made aware of the proceeding and the listed hearing date but that the defendant would not be able to attend the hearing by Microsoft Teams, and did not intend to take any steps in response to the claim, statement of claim, or the listed hearing in the proceeding. That information has proved to be accurate. 6 On 8 September 2020, the defendant did not appear at the first case management hearing. Orders were made in the following terms: 1. The respondent file and serve a defence by 4.00 pm on 22 September 2020. 2. If the respondent fails to file and serve a defence to the statement of claim by 4.00 pm on 22 September 2020, the applicant is to file and serve any application for default by 4.00 pm on 24 September 2020. 3. The applicant is to file submissions in relation to any application by 4.00 pm on 29 September 2020. 4. The matter be listed for the hearing of any application at 9.30 am on 1 October 2020. 5. Costs be each party's costs in the cause. 7 The plaintiff has established by evidence that on the day on which those orders were made, it served them on the defendant by sending a copy to the company's registered office. 8 The defendant failed to file a defence on 22 September 2020 or at all. 9 On 24 September 2020, the liquidator filed an application for default judgment for the relief sought in the statement of claim. The affidavits in support of the application establish that the application was duly served on the defendant. 10 When the matter was called on for hearing there was no appearance by the defendant.

Nature of the claim made 11 The claim advanced by the plaintiff against the defendant in the statement of claim is as follows. 12 The plaintiff was appointed as the liquidator of Aqua Infrastructure on 20 February 2018 pursuant to s 491 of the Corporations Act 2001 (Cth) (the Act). As at that date, Aqua Infrastructure owed debts totalling approximately $1,456,564.33, had a net deficiency of assets, and a working capital deficiency of $1,895,863.09. 13 It is alleged that Aqua Infrastructure was insolvent for a period of 12 months prior to the date of winding up on 20 February 2018 and the facts advanced in support of that conclusion sufficiently support it. 14 It follows that, pursuant to ss 91 and 513B(e) of the Act, "the relation back" day for the purposes of the winding up was 20 February 2018. 15 The plaintiff alleges that several payments made by Aqua Infrastructure to the defendant are voidable transactions within the meaning of s 588FE(2) of the Act, being insolvent transactions within the meaning of s 588FC and unfair preferences within the meaning of s 588FA. The voidable transactions fall within two categories: (1) Four discrete payments made by the plaintiff to the defendant between 7 September 2017 and 25 January 2018, totalling $163,500.00; and (2) Payments made pursuant to a "running account" between 25 August 2017 and 20 February 2018. The difference between the highest point of indebtedness on the running account and the indebtedness as at 20 February 2018 was $15,068.40.

The discrete payments 16 In its statement of claim the plaintiff alleges that as a result of the discrete payments being made, the defendant received more money than it would have if the transactions were set aside and the defendant were required to prove for the debt in Aqua Infrastructure's winding up. The plaintiff has received, as at 10 July 2019, formal proofs of debt from 49 separate creditors claiming a combined amount of $1,777,426.00 from Aqua Infrastructure. The statutory report of the plaintiff published on 17 May 2018 indicates that the maximum return to creditors from the liquidation is likely to be 19 cents in the dollar. 17 Unlike those other creditors, the defendant's debt discharged by the four discrete payments was paid in full. 18 It is also alleged that the payments were made at a time when Aqua Infrastructure was insolvent and in the period beginning six months prior to the making of the resolution to wind up the company: ss 91 and 513B(e) of the Act. 19 For these reasons, it is alleged that the discrete payments were voidable transactions under the Act.

The running account payments 20 In respect of the running account payments, the plaintiff also points to the fact that Aqua Infrastructure's net indebtedness to the defendant was increased and reduced throughout the period of 25 August 2017 and 20 February 2018 as a result of a series of separate transactions forming a part of the business relationship between the companies. For this reason, and because the payments were made when Aqua Infrastructure was insolvent and during the relation back period, the plaintiff contends that the running account payments were voidable transactions under the Act.

Relief sought 21 The plaintiff seeks orders declaring the payments to be voidable transactions within the meaning of s 588FE(2) of the Act and that pursuant to s 588FF(1)(a) the defendant is to pay to the plaintiff an amount of $178,568.40, being the amount equal to the sum of the voidable transactions.

Consideration 22 Relevantly, r 5.23 of the Federal Court Rules provides: 5.23 Orders on default … (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 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 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. 23 For the purposes of r 5.23, r 5.22 provides: 5.22 When a party is in default A party is in default if the party fails to: (a) do an act required to be done, or to do an act in the time required, by these Rules; or (b) comply with an order of the Court; or (c) attend a hearing in the proceeding; or (d) prosecute or defend the proceeding with due diligence. 24 There is no doubt in the present case that there has been default by the defendant as it failed to comply with the order of 8 September 2020 that it file its defence by 22 September 2020. That supports the evidence adduced on this application which suggests that it is not interested in defending the action brought against it. 25 It is therefore necessary to consider what relief the plaintiff appears to be entitled to on the face of the pleading. This does not require proof by way of evidence of the plaintiff's claim: Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd (2006) 236 ALR 665; but merely that on the face of the statement of claim there is a claim for the relief sought and that the Court has jurisdiction to grant that relief: Arthur v Vaupotic Investments Pty Ltd [2005] FCA 433.

The transactions 26 In relation to the four discrete payments made between 7 September 2017 and 28 January 2018 totalling $163,500.00, which are referred to in the pleading as "the Transactions", reliance is placed on ss 588FE(2), 588FC and 588FA(1) of the Act to assert that they constituted an unfair preference, an insolvent transaction and a voidable transaction 27 It is alleged (at paragraphs 9 and 10 of the statement of claim) that the Transactions amounted to an unfair preference within the meaning of s 588FA because they were between the company, Aqua Infrastructure, and the defendant, Unimode, and, as is pleaded, would result in Unimode receiving more than it would in respect of the debt if the debt were set aside and Unimode was to prove for it in Aqua Infrastructure's winding up. 28 As is also alleged in the statement of claim, the Transactions were entered into whilst Aqua Infrastructure was insolvent. In the result, the Transactions constituted an insolvent transaction within the meaning of s 588FC of the Act. 29 Additionally, the Transactions were entered into within six months prior to the "relation back day", being 20 February 2018, with the consequence that they were "voidable transactions" within the meaning of s 588FE(2).

The running account amount 30 The second set of payments in respect of which the liquidator seeks relief are those which had the effect of reducing the running account between Aqua Infrastructure and Unimode. The amount claimed is referred to in the statement of claim as the "Running Account Amount" being the difference between the highest point of indebtedness on the running account and the indebtedness on the running account on the date of the appointment of the liquidator. That difference is identified as $15,068.40. 31 It is alleged in the statement of claim that the Running Account Amount was an "unfair preference" within the meaning of s 588FA(3) because: (a) The transaction was for commercial purposes and an integral part of the continuing business relationship between the company and the defendant: s 588FA(3)(a); (b) In the course of the operation of the running account, the level of the company's debt was reduced from time to time as a result of the transactions by an amount of $15,068.40: s 588FA(3)(b). The highest amount of debt was $33,405.15 on 1 September 2017 and the amount owing at 20 February 2018 was $18,336.75; (c) Aqua Infrastructure and Unimode were parties to the transactions and the running account: s 588FA(1)(a); and (d) Unimode received more money from the transactions than it would have had it been required to prove for this amount in Aqua Infrastructure's winding up: s 588FA(1)(b). 32 The Running Account Amount was also alleged to be an "insolvent transaction" pursuant to s 588FC because it was entered into at a time when Aqua Infrastructure was insolvent. 33 Additionally, the Transactions were entered into within six months prior to the "relation back day" being 20 February 2018, with the consequence that it was a "voidable transaction" within the meaning of s 588FE(2).

Pre-empting a defence under s 588FG(1) 34 In the statement of claim, the liquidator seeks to pre-empt a defence based upon s 588FG of the Act by pleading that Unimode suspected or ought to reasonably have suspected that Aqua Infrastructure was insolvent at the times the payments constituting the Running Account Amount and the Transactions were made. Various facts are alleged in support of that allegation which indicate that, at those relevant times, Aqua Infrastructure was not able to meet its outstanding obligations to Unimode and had not been able to do so for some time previously. 35 In the absence of any defence raising reliance on s 588FG it is not strictly necessary to consider this point, however, as the allegation has been made and not responded to it might be safely assumed that the section would not have afforded the defendant any relief.

Conclusion 36 It follows that on the face of the pleading the plaintiff appears to be entitled to the relief it seeks. 37 There are sufficient facts pleaded to enable the Court to make the following declarations and orders being: (1) It is declared that the transactions pursuant to which Aqua Infrastructure Pty Ltd paid to the defendant the sum of $163,500 in the period from 7 September 2017 to 25 January 2018 are: (a) insolvent transactions within the meaning of s 588FC(a)(i) of the Act; (b) unfair preferences within the meaning of s 588FA(1) of the Act; and (c) voidable transactions within the meaning of s 588FE(2) of the Act. (2) Pursuant to s 588FF(1)(a) of the Act the defendant pay to the plaintiff, as liquidator of Aqua Infrastructure Pty Ltd, the amount of $163,500. (3) It is declared that the running account payment totalling $15,068.40 referred to in paragraph 15 of the statement of claim as arising from the operation of a running account between Aqua Infrastructure Pty Ltd and the defendant in the period from 1 September 2017 to 20 February 2018 is: (a) an unfair preference within the meaning of s 588FA(1) and (3) of the Act; (b) an insolvent transaction within the meaning of s 588FC(a) of the Act; and (c) a voidable transaction within the meaning of s 588FE(2) of the Act. (4) Pursuant to s 588FF(1)(a) of the Act the defendant pay to the plaintiff, as liquidator of Aqua Infrastructure Pty Ltd, the amount of $15,068.40.

Interest 38 The plaintiff seeks interest on the amounts paid. It relies upon s 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth) and paragraph 2.2 of the Interest on Judgments Practice Note (GPN-INT), which entitles a plaintiff to recover pre-judgment interest at the rate of 4% above the cash rate last published by the Reserve Bank of Australia. 39 Interest is claimed for the period from 20 February 2018 (the date on which Aqua Infrastructure Pty Ltd was ordered to be wound up) to today's date. By a late affidavit of Mr Bongers, evidence was adduced of the cash rates published by the Reserve Bank of Australia from time to time. It is necessary to mention that in the initial affidavits and written submissions there was a stark absence of any evidence or submission as to the amount of interest sought or how it might be calculated. It was only after my Associate, on my instructions, queried whether interest was being claimed and if so how it was to be calculated and proved, that the further affidavit was produced which established the entitlement to interest and disclosed how the amount claimed was calculated. 40 Based on the evidence of the Reserve Bank cash rates and the number of days from the commencement of Aqua Infrastructure's winding up, the amount of interest payable on the sums of $163,500 and $15,068.40 is $24,219 and the plaintiff is entitled to an order that the defendant pay it that amount.

Costs 41 The plaintiff is also entitled to an order for costs. There is no reason why such an order should not be made and the plaintiff should have the costs of the action to be taxed. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington.