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Supreme Court of Victoria |
Last Updated: 2 September 2016
AT MELBOURNE
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JUDGE:
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WHERE HELD:
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Melbourne
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DATE OF HEARING:
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CASE MAY BE CITED AS:
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MEDIUM NEUTRAL CITATION:
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CORPORATIONS – Winding up – Liquidators seek directions as to entitlement to funds – section 511 Corporations Act 2001 (Cth) – Directions given and orders made.
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APPEARANCES:
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Counsel
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Solicitors
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For the Plaintiff
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Penelope Pengilley
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For the First Defendant
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Macpherson Kelley
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For the Second Defendant
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Mr D.C. Harrison
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Rankin & Co
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Introduction
1 By originating process filed on 10 August 2015, the plaintiffs (‘the Liquidators’) make application to the Court pursuant to section 511 of the Corporations Act 2001 (‘Act’).
2 The Liquidators of ACN 065 002 940 Pty Ltd (‘Stomp’) seek directions as to money they hold. Specifically, the Liquidators seek directions with regard to:
• Who should receive the funds held; and
• In what amounts the money should be paid.
3 There are competing claims to the fund held by the Liquidators. The first defendant, Elan Media Partners Pty Ltd (‘Elan’) claims a proprietary interest in the funds held and claims an entitlement to the proceeds in priority to that of secured and unsecured creditors.
4 The second defendant, Mrs Carol Barry (‘Mrs Barry’) claims that Elan has not established any entitlement to the funds, and that, as a secured creditor, she is entitled to the funds.
Stomp’s business
5 Stomp traded under the name ‘Stomp Entertainment’. Stomp conducted an international online wholesale and retail business selling entertainment media and other products, including music CD’s, DVD’s, music-related merchandise, video games, books and other accessories through websites.[1]
6 Stomp was also able to locate rare and eclectic CDs and DVDs. In addition to its sales business, it was regularly engaged by insurance claimants (at the direction of insurance companies) to recreate CD or DVD collections that had been destroyed or stolen. Stomp would be engaged directly by the insured parties who would advise of their requirements. Once engaged, Stomp would source the required items and invoice the insurance company through a specialised online portal.[2]
7 Payments to Stomp were made electronically by way of American Express, WorldPay or by EFT. Stomp operated a number of bank accounts including a BankWest account and two Westpac accounts.[3] Prior to the administrators’ appointment, BankWest applied the funds in the BankWest account toward Stomp’s liabilities under the BankWest facility.[4]
Sale of Stomp’s business
8 On 9 August 2010, Stomp entered into a business sale and purchase agreement (‘Business Sale Agreement’) by which it sold its business to Elan (then called Surrealus Pty Ltd).[5]
9 Under the terms of the Business Sale Agreement:
(a) Stomp remained entitled to trade and other accounts receivable owed in respect of the business as at Completion (which occurred on 12 August 2012);[6] and
(b) Elan was entitled to trade and other accounts receivable in respect of sales after Completion.[7]
10 Customers were to be notified that invoices dated prior to Completion should be paid to Stomp.[8] There was also a regime for collection of invoices[9] and for payment by Elan and Stomp to the other, of invoices paid to it which belonged to the other.[10]
11 Following the sale, Mr Barry, a former director and secretary of Stomp,[11] was employed by Elan between August and December 2010,[12] in a consulting or advisory role.
Stomp’s voluntary administration and liquidation
12 On 26 August 2010, 17 days after the Business Sale Agreement, Stomp went into voluntary administration.[13] Its creditors subsequently resolved that it be wound up.[14] Upon their appointment, Stomp’s administrators opened a new account to receive customer payments and directed Westpac to remit receipts to the new account. This was necessary because many debtors continued to make payments in accordance with the arrangements in place prior to the appointment.[15]
Stomp’s creditors
13 As at the appointment of the administrators, Stomp’s unsecured creditors totalled $4,834,696.58.[16] It had two secured creditors: Stomp Investments Pty Ltd (‘Stomp Investments’) and Commonwealth Bank of Australia trading as Bankwest (‘BankWest’).
Stomp Investments
14 Stomp Investments is Stomp’s sole shareholder.[17] Until May 2012, Mr Barry was a director of Stomp Investments. Mrs Barry was a director of Stomp Investments until July 2010.[18] Stomp Investments was owed approximately $1,876,684 for financial accommodation provided to Stomp.[19] The debt was secured by a fixed and floating charge over Stomp’s assets and undertaking. In June 2005, Stomp Investments released part of its security, specifically, its security over Stomp’s debtors.[20] On 11 August 2013, Stomp Investments was deregistered.[21] At the time of its deregistration, Andrew Miles Jorgensen was the sole director of Stomp Investments. He owns three shares in the company; the other nine shares are held by Jacmeld Pty Ltd, of which Mr Barry is a director and the sole shareholder.[22] No application has been made to re-instate Stomp Investments and there was no representation or appearance on its behalf or on behalf of its directors or shareholders. In any event, in the circumstances as outlined below, no dividend or payment is likely to be made to Stomp Investments.
BankWest
15 Stomp owed BankWest approximately $4,000,000, secured by a fixed and floating charge.[23] By a Deed of Subordination made in 2008 between BankWest, Stomp, Stomp Investments, and another related company (‘Play4me Pty Ltd’), Stomp Investments agreed to subordinate its debt to BankWest’s.[24] Mr Barry guaranteed Stomp’s obligations to BankWest.[25]
Mrs Barry’s payment to BankWest
16 On 18 May 2011, BankWest executed a notice of assignment, addressed to Stomp, advising that it had assigned its interest in its security to Mrs Barry.[26] At the time of commencing this proceeding, the Liquidators knew that Mrs Barry had paid an amount to BankWest but did not know what amount or when it had been paid.[27] In her affidavit, filed in this proceeding, Mrs Barry states that she paid $1,411,985 to BankWest on 18 May 2011.[28] On the same day, Mrs Barry took an assignment from Bankwest of its security in the company.[29]
17 On 28 and 29 January 2012, the Australian Register of Company charges maintained by the Australian Securities and Investment Commission (‘ASIC’) was transferred to the Personal Properties Securities Register (‘PPSR’). By some error, Mrs Barry’s charge was not migrated.[30] Mrs Barry received notice of this by letter from ASIC dated 30 March 2012. On 25 May 2013, Mr Barry applied to register Mrs Barry’s interest on the PPSR.[31] He did so but with an error. The error was identified on 24 November 2014 and was rectified on 27 November 2014.[32] Mrs Barry’s registration covered “all present and after-acquired property” of the company.[33]
Post-Appointment Calculations
18 Upon their appointment, the administrators and their staff undertook an extensive exercise to identify Stomp’s assets and liabilities.[34] There was correspondence between them and Elan about the process for collection of Stomp’s trade debts. Elan explained that a “weekly reporting template” had been agreed with Mr Barry for reporting the collection of the debts. Some initial reconciliations were provided.[35]
Reconciling the amounts collected by Stomp and Elan
19 Over the next five months, the Liquidators’ staff and Elan’s representatives liaised to calculate the amount that Stomp and Elan had collected for the other. Elan supplied weekly updates (in the form of Excel spreadsheets) showing the amounts, which the liquidators cross-referenced against information they held.[36] There were many meetings and telephone calls between the parties.[37] Mr Barry (who was, at the time, employed by Elan and still Stomp’s director) was involved in the work.[38] During this period, Stomp continued to receive payments into its accounts. The Liquidators initially believed that these were Stomp’s moneys but Elan alleged that they included payments that belonged to Elan.[39]
Difficulties reconciling the amount Stomp collected for Elan
20 The Liquidators realised that, in order to be satisfied as to correct ownership of money as between Elan and Stomp, they needed to review a large number of transactions.[40] When they received the weekly reports from Elan, they endeavoured to reconcile them against relevant bank statements.[41] Because the Business Sale Agreement distinguished between debts due as at completion of the agreement, the critical issue was date of invoice, not date of payment. The reconciliation task involved tracing transactions to receipts in a bank account.[42] For several reasons, the reconciliation task was difficult. Under the Business Sale Agreement, Elan had taken possession of Stomp’s records. The staff, with an intimate knowledge of Stomp’s accounting and billing systems, were now employed by Elan.[43] The Liquidators only had indirect access to information and, after receiving schedules from Elan, had to ask for supporting documentation.[44] As at 12 November 2010, it appeared that Stomp had received $256,245.48 of debts to which Elan was entitled, and that Elan had received $226,373.39 of Stomp’s debtors.[45] In January 2011, following a demand from Elan for payment of the amount it claimed to be owed,[46] the Liquidators wrote to Elan, raising queries about several issues that were impeding their reconciliation of the figures that Elan had provided. These included: missing information for transactions; invoices that did not match funds received; invoices that post-dated the receipt of funds; the fact that some funds claimed by Elan related to the period before the Liquidators’ appointment; and the inability to trace the receipt by Stomp of funds claimed by Elan.[47]
Elan’s calculation of the amount it had collected for Stomp
21 In January 2011, Elan wrote to the Liquidators, setting out its calculation of the amount it had collected for Stomp. The amount was $267,430.77. This amount was first set out in a reconciliation sent by Elan on 14 January 2014,[48] and confirmed by a letter dated 25 January 2011.[49] The letter enclosed a ring-binder (described as “Binder 1”) that contained detailed information of the amounts Elan had collected. The Liquidators reviewed the schedules and supporting material contained in Binder 1, which showed the calculation of the $267,430.47. The material was “consistent with the weekly updates [the Liquidators] had been receiving”.[50] The Liquidators had further comfort in the accuracy of Elan’s assessment because
(a) They and their staff had participated in the process;[51] and
(b) Mr Barry, who was familiar with not only the Company’s business but also how its accounts system worked, had assisted in its preparation.[52] Additionally, given the guarantee that Mrs Barry had given to Bankwest, the Liquidators believed that Mr Barry would be scrupulous in ensuring that Stomp received its full entitlements.[53]
22 The Liquidators therefore determined that it was appropriate to accept Elan’s figure, and proceeded to conduct the liquidation on the basis that Elan had complied with its contractual obligations and that Stomp was entitled to $267,430.77 from Elan.[54]
Further review and reconciliations of the amount Stomp collected for Elan
23 Over the following year, there were meetings, discussions and without prejudice correspondence with regard to how much money Stomp had collected for Elan.[55] This required review and reconciliation of the bank statements and financial records, information provided by Elan, and information provided by Mr Barry.[56] The task took much time and effort[57] and has significantly impacted the costs of the liquidation.[58] The task was complicated by several factors, as set out below.
24 First, from their review of the bank statements, financial records and other information, it became clear to the Liquidators that in the period between completion of the Business Sale Agreement and their appointment, thousands of credit and debit transactions had been processed through Stomp’s bank accounts; Stomp had received funds for both pre- and post-completion invoices. For example, it received payments from insurance companies of invoices that predated completion of the Business Sale Agreement but also amounts relating to post completion debtors that were claimable by Elan, as well as from other unaccounted-for sources; Stomp’s account at BankWest was regularly debited to pay its financiers and other creditors; and many of the transactions were small, less than $100 or between $100 and $200.49.[59]
25 Second, a concern emerged about whether certain transactions for which payment had been made had occurred at all and, if not, whether the relevant customers would seek repayment. The Liquidators wrote to the customers affected. Only one responded. It was repaid an amount that had been paid in error.[60] Due to the passage of time, the Liquidators are satisfied that no further claims will be made from these parties.
26 Third, there were numerous complications relating to Stomp’s dealings with insurance companies, namely:
• invoices appeared to have been paid before the date of the invoice;
• invoices appeared to have been paid the day after the invoice was issued, which was inconsistent with the usual practice whereby insurers took several weeks to process invoices for payment;
• payments did not match the amounts specified on the relevant invoices; and
• the dates of various transactions did not align with sequential invoice numbering.[61]
27 The Liquidators sought information from the insurers. The information was not provided. They also sought confirmation that each of the insurers had no claim regarding the funds. No confirmation was ever received.[62]
Applicable Law
28 Section 511(1) of the Act relevantly provides:
Application to Court to have questions determined or powers exercised(1) The liquidator, or any contributory or creditor, may apply to the Court:
(a) to determine any question arising in the winding up of a company; or
(b) to exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court.
29 The Court’s powers are circumscribed by section 511(2) which provides that:
(2) The Court, if satisfied that the determination of the question or the exercise of power will be just and beneficial, may accede wholly or partially to any such application on such terms and conditions as it thinks fit or may make such other order on the application as it thinks just.
30 The purpose of the relevant provisions within the Act[63] with regard to liquidators making applications to the Court, is to provide guidance and further, to give protection against a claim for breach of duty.[64] The application for directions under the Act is an administrative non adversary proceeding,[65] and the jurisdiction does not extend to determine the rights and liabilities arising from the company’s transactions before the liquidation.[66] Additionally, it is the liquidator’s duty to make full and fair disclosure to the Court with regard to material facts.[67] The Court is not required to resolve factual issues of the case.[68]
31 In Re Murphy,[69] McLelland J said:
A direction given pursuant to the section has no effect on the substantive rights of persons external to the winding up.[70]
32 In Editions Tom,[71] Lindgren J said:
“The preponderance of authority is to the effect that on a liquidator’s application for directions under that provision or its predecessors, the court has no power to make orders binding upon, or affecting the rights of, third parties, and the view is also commonly taken that directions should not be given where the proposed acts of the liquidator which would be “sanctioned” by the directors would affect such rights.”[72]
33 Pursuant to section 511(2), whether the Court is satisfied that the exercise of power by the liquidator is ‘just and beneficial’, is discretionary. In Re Great Southern Managers Australia Ltd (In Liq);[73] Pritchard J said:
“The words 'just and beneficial' in section 511 indicate that the court has adiscretion as to whether making an order will be of advantage in the
liquidation. In deciding whether to give the direction, the court must have
regard to the liquidation process as a whole and not to the interests of any
one particular party.
A determination under s 511 cannot, of itself, bind anyone except the
liquidator and the persons entitled to participate under the winding up.
The effect of a direction or order under s 511 is not to determine rights and liabilities arising out of particular transactions, but to sanction a course of
conduct proposed by a liquidator so as to protect the liquidator from
liability for any alleged breach of duty as liquidator, to a creditor or to the
company, in respect of anything done by the liquidator in accordance with
the direction or order. (However, that does not mean that the court cannot
determine questions involving substantive rights in an application under
s 511, provided that all necessary parties are joined.)
...
The rationale for s 511 is that while a company and its creditors should be
left, if possible, to settle their affairs without coming to the Court at all, the
liquidator in a voluntary winding up should have a means to access the
Court, in the same way as a liquidator in a compulsory winding up may
seek the court's direction, whenever any question arises in the course of the
winding up. In many respects the Court's jurisdiction under s 511 is
analogous to, although not precisely the same as, its jurisdiction under
s 479(3) of the Act. To that end, s 511 confers jurisdiction over subject
matters and powers that the court might not otherwise possess.
A direction may be sought under s 511 in respect of any question arising in
the course of a winding up, and the section should be interpreted widely to
facilitate the liquidator's functions. However, a direction will not be given
merely because the liquidator has a feeling of apprehension or unease
about the business decision and wants reassurance - it is not the Court's
role to make what are regarded as commercial decisions for liquidators.
Consequently, there must be some issue which calls for the exercise of
legal judgment so as to warrant its direction - whether that be a legal issue
of substance or procedure, or an issue of power, propriety or
reasonableness. However, those categories are not exhaustive and other
special circumstances may exist which warrant the giving of a direction.
A further instance where directions may be given is in the context of a
proposed compromise of litigation involving the liquidator. Even in such a
case, the court will be reluctant to give directions if only commercial
considerations are involved, but special circumstances may warrant
directions being given. Those special circumstances may include where
the liquidator is operating in an acrimonious environment in the
liquidation, and the liquidator's proposed decision risks being subjected to
criticism by a particular creditor or creditors as being unreasonable or
made in bad faith, or where there is a degree of personal risk of litigation
attached to the liquidator that could negatively affect the winding up
process. It will suffice if such an attack is in prospect. In other words, a
s 511 direction may be given to protect the liquidator in circumstances
where the compromise could otherwise negatively affect the winding up
process. From that perspective, it can be said that the direction would be
just and beneficial to advancing the liquidation process as a whole.[74]
34 As identified above, the Liquidators are clearly faced with serious legal issues and are accordingly entitled to approach the Court for directions. All relevant parties are before the Court and the Court is able to resolve the legal issues and give appropriate directions accordingly. The directions are clearly just and beneficial in the winding up.
35 It is necessary to assess the nature and extent of Elan’s claim.
36 As noted, Elan’s claim to moneys received by Stomp arise from the Business Sale Agreement. Elan submitted that all moneys received by Stomp (or other Sellers under the Business Sale Agreement and then paid to Stomp) after completion had occurred under the Business Sale Agreement (which took place at 12.01am on 13 August 2010), which were in respect of invoices issued by Elan in respect of supplies by Elan which took place on or after 13 August 2010, were to be, and were, held on trust by Stomp, by operation of clause 8.2 of the Business Sale Agreement. A similar obligation was imposed on Elan in respect of receipts by it of payments of invoices issued by Stomp or other Sellers under the Business Sale Agreement, by operation of clause 9.4 of the Business Sale Agreement. It is to be observed, as was submitted, that both clause 8.2 and 9.4 speak of an obligation on each of the Buyer and Sellers to pay the other “any amounts received” by them in respect of the debts of the other – not to pay an equivalent amount.
37 In these circumstances Elan contends and the Liquidators agree that the receipts by each of Stomp and Elan, so far as they relate to the relevant invoices of the other, are properly to be regarded as trust funds.[75] The Liquidators propose to deal with the funds on this basis.
38 Although Counsel for Mrs Barry queried whether the various contractual obligations evidenced the asserted trust, the point was not seriously developed or pursued. This is not meant as a criticism. In my opinion it is tolerably clear that the position taken by the Liquidators and Elan is correct and that the contractual arrangements evidence some form of trust. As pointed out, it is neither necessary nor desirable, at this stage, given the nature of the application and the positions of the parties, to be more specific as to the precise legal characterisation.
39 Clauses 8.2 and 9.1 of the Business Sale Agreement are in the following terms:
8.2 The Sellers expressly acknowledge and agree that they must pay to the Buyer any amounts received by the Sellers or any of them that relate to any one or more of the Buyer's invoices, or any sale of goods or services by the Buyer after Completion, within 5 business days of receipt in cleared funds, and must give to the Buyer particulars of the amount received and the relevant debtor and invoices. For the avoidance of doubt, invoices dated on and from the Completion Date Issued by the Buyer are the Buyer's debtors, are the sole and absolute property of the Buyer, and do not form part of the Trade Debts or the property of the Sellers....
9.1 The Sellers are and remain entitled to the Trade Debts. Nothing in this agreement confers any rights in the Buyer in relation to 1he Trade Debts which remain the property of the Sellers at all times and shall continue to be collected by the Sellers.
40 These provisions clearly, in my opinion, evidence the intention of the parties to create some form of trust in respect of the funds received from relevant invoice to which the other was entitled. This regime regarded such payments to be ‘the sole and absolute property of [the other]’ and ‘do not form part of the property of [the other]’. This is the language of trusts and the absence of a requirement to create a separate account is not fatal in the circumstances.[76]
41 Accordingly Elan, to be precise, has an equitable proprietary interest in the funds held by the Liquidators and in the circumstances it is probably not necessary to deal with the various rules in relation to tracing. There is a fund that contains the amount claimed. Interest and other matters are dealt with below.
42 The next question is the amount that is in effect held on trust.
43 The Liquidators contend that the correct amount is $416,099.16 made up as follows:
• Amount collected by Stomp for Elan $654,760.70
• Less amount collected by Elan for Stomp $267,430.77
$387,329.93
• Plus 50% of pre-appointment receipts $28,769.23
$416,099.16
44 Elan disagrees and contends that the figure of $654,760.70 is too low. Three additional claims are made together with a claim for interest that has been earned by Stomp on the ‘trust funds’.
45 The first claim relates to amounts received by Stomp prior to the appointment of the Liquidators as administrators of Stomp on 26 August 2010. The Liquidators have made an allowance of $28,769.23 (50% of $57,538.46). Elan contends that the entire figure, or at the very least 89%, should be allowed despite the admitted difficulties of mathematical precision. The Liquidators disagree and contend that more precision is difficult without engaging in much work and expense.
46 I agree with the submissions made on behalf of the Liquidators and propose to leave the apportionment at 50%.
47 The next claim relates to amounts in respect of unresolved “insurance claims”, being amounts claimed by Elan as receipts by Stomp in respect of invoices issued by Elan in relation to that part of the Business involving dealing with insurers (which is described at paragraph 25 of the affidavit of Robyn-Lee Erskine sworn 7 August 2015, and at paragraph 4 of the affidavit of Paul Uniacke sworn on 16 February 2016). The unresolved claims total $42,944.25.
48 Elan submitted that an allowance of 50% should be made. The Liquidators disagree. I agree with the submissions made on behalf of Elan and propose to allow 50% of the amount of 42,944.25 ($21,472.13).
49 The final claim relates to “Unaccounted for monies”, being amounts claimed by Elan to have been received by Stomp on its behalf, but where the Liquidators have stated that there is no evidence of receipt of those monies. The unresolved claims total $17,632.98.
50 Elan submitted that the correct figure was $31,000 and an allowance of 50% should be made. The Liquidators disagreed with both the amount and the allowance. I propose to allow 50% of $17,632.98 ($8,816.04).
51 Accordingly the final figure for the funds effectively held on trust is $446,387.33.
52 The next question is interest on the funds held on trust. Elan submitted that whatever interest Stomp earned on the net funds from 21 December 2010 should be paid to Elan being in effect an accretion to the trust fund.
53 Elan contended that interest, followed logically, naturally and legally from the retention of the identified trust funds. No benefits should, it was submitted, accrue to the trustee, leaving aside for the moment costs and remuneration. Elan did not seek to claim statutory or other interest but simply the actual interest earned on ‘its money’. Further, recognising that it held funds for Stomp, it submitted that from a practical point of view the best date was 21 December 2010, being an appropriate date to set off the respective amounts.
54 There is some force and practical utility in adopting this approach. The Liquidators and Mrs Barry contended that interest should not be permitted as the matter was raised very late (in June 2015). Alternatively they submitted that a much later date was appropriate.
55 In all of the circumstances I do not propose to allow interest. The complex, time consuming and costly reconciliation process has been ongoing. The joint endeavour to achieve mathematical accuracy has been elusive and costly. The interest on any funds is best utilised towards payment of the Liquidators’ remuneration, costs and expenses.
56 In my opinion Mrs Barry is a secured creditor of Stomp.
57 On 18 May 2011, Mrs Barry paid $1,411.985.18 to Bankwest. On that same date, Mrs Barry took an assignment from Bankwest of its security in the company. At that point, Mrs Barry as assignee was a secured creditor of Stomp.
58 On 28 and 29 January 2012, the Australian Register of Company charges maintained by ASIC was transferred to the PPSR. As noted, by some error Mrs Barry’s charge was not migrated. She received notice of this by letter from ASIC dated 30 March 2012. On 25 May 2013, Mr Barry applied to register Mrs Barry’s interest on the PPSR. He did so but with an error. The error was identified on 24 November 2014 and was rectified on 27 November 2014. Mrs Barry’s registration covered “all present and after-acquired property” of the company.
59 Sections 164 - 166 deal with defects in registration:
164 Defects in registration—general rule(1) A registration with respect to a security interest that describes particular collateral is ineffective because of a defect in the register if, and only if, there exists:
(a) a seriously misleading defect in any data relating to the registration, other than a defect of a kind prescribed by the regulations; or
(b) a defect mentioned in section 165.
(2) In order to establish that a defect is seriously misleading, it is not necessary to prove that any person was actually misled by it.
(3) A registration that describes particular collateral is not ineffective only because the registration is ineffective with respect to other collateral described in the registration.
165 Defects in registration—particular defects
For the purposes of paragraph 164(1)(b), a defect in a registration that describes particular collateral exists at a particular time if any of the following circumstances exist:
...
(b) in a case in which the collateral is not required by the regulations to be described by serial number in the register—no search of the register by reference to that time, and by reference only to the grantor’s details (required to be included in the registered financing statement under section 153), is capable of disclosing the registration;
(c) if the registered financing statement (as amended, if at all) indicates that a security interest in the collateral is a purchase money security interest (to any extent)—the security interest is not a purchase money security interest (to any extent) in the collateral;
...
166 Defects in registration—temporary effectiveness
Scope
(1) This section applies if:
(a) one of the following defects in a registration that describes particular collateral arises at a particular time (the defect time):
(i) a defect mentioned in paragraph 165(a) or (d);
(ii) a defect mentioned in paragraph 165(b), other than a defect resulting from a change of the grantor in relation to the collateral; and
(b) the defect does not arise only because of an irregularity, omission or error in a financing statement or a financing change statement.
Example: A defect mentioned in paragraph 165(a) may occur if there is a change in the serial number under which collateral is required to be described in the register. For example, a patent may be required to be described by serial number (a Patent Application Number or a Patent Number). The Patent Application Number may be changed to a Patent Number when the patent is registered on the patents register.
Note: A change of the grantor may occur if the collateral described in the registration is transferred. In this case, the secured party’s security interest may be temporarily perfected for a certain period (see section 34).
Registration is temporarily unaffected by the defect
(2) Despite sections 164 and 165, the defect does not make the registration ineffective for the period starting at the defect time and ending at the earliest of the following times:
(a) the end time for the registration (as registered immediately before the defect time);
(b) the end of the month that is 60 months after the defect time;
(c) the end of 5 business days after the day the secured party acquires actual or constructive knowledge of the defect.
Note: The period mentioned in paragraph (c) may be extended by a court under section 293.
Registration becomes ineffective
(3) However, the registration becomes ineffective with respect to the collateral under sections 164 and 165 because of the defect immediately after the earliest time mentioned in subsection (2), unless, at or before that time, the registration is amended to correct the defect.
60 Mrs Barry was not aware of the defect until at the earliest, 24 November 2014. The defect was cured on 27 November 2014. Accordingly, the provisions ss 166(2)(c), 164 and 165 of the Act preserve the validity of Mrs Barry’s security for the reasons advanced by Counsel for Mrs Barry.
61 Given my opinion as to the validity of the security it is not necessary to deal with the further contentions raised by Counsel on behalf of Mrs Barry, namely that she was a secured creditor before the PPSR came into operation and further, the rule in Ex Parte James; Re Condon.[77] In my view there is some force in each of these alternative contentions.
62 For reasons that are obvious, it is not necessary to assess the precise amount of Mrs Barry’s (secured) claim. It is sufficient to say that it is at a minimum no less than $1,411,985.18, being the amount she paid to Bankwest.
63 Accordingly for the reasons given I propose to give the Liquidators directions to the following effect. First that they are justified in paying $446,387.33 to Elan. Second that they are justified in conducting the winding up on the basis that Mrs Barry is a secured creditor of the company. The directions are subject to the Liquidators first retaining, in accordance with the established principles,[78] sufficient funds to cover their reasonable remuneration, costs and expenses.
64 It is tolerably clear that much work, including the laborious task of reconciling the accounts (and determining the extent of the ‘trust fund’) was undertaken for the purpose of the winding up. Nevertheless not all work undertaken by the Liquidators was undertaken for the purpose of assessing the nature and extent of the amount effectively representing trust funds. Accordingly the Liquidators should first apply any funds held in excess of the sum of $446,387.33 in satisfaction of their remuneration costs and expenses, and if necessary any remaining amount may be satisfied out of the ‘trust funds’. I do not propose to order that the Liquidators provide details of their remuneration, costs and expenses to Elan.
[1] Factual Background filed by the Plaintiff, page 1, paragraph 1. Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 24. I gratefully adopt the plaintiffs’ summary of background facts.
[2] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 25.
[3] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 55.
[4] Ibid.
[5] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, exhibit ‘RE-7’.
[6] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, exhibit ‘RE-7’ (‘Business Sale Agreement’), clause 9.1
[7] Clause 8.2 of the Business Sale Agreement.
[8] Clause 9.2 of the Business Sale Agreement.
[9] Clause 9.3 of the Business Sale Agreement.
[10] Clause 9.4 and 9.5 of the Business Sale Agreement.
[11] Affidavit of John Barry sworn 16 February 2016, paragraph 1.
[12] Affidavit of John Barry sworn 16 February 2016, paragraph 6.
[13] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 6.
[14] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 7.
[15] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 56.
[16] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 34.
[17] Affidavit of Robyn Lee-Erskine sworn 7 August 2015. Exhibit ‘RE-1’, ASIC search for Stomp.
[18] Affidavit of Robyn Lee-Erskine sworn 7 August 2015. Exhibit ‘RE-5’, ASIC search for Stomp Investments.
[19] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 30.
[20] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, exhibit ‘RE-8’.
[21] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 39, exhibit ‘RE-5’.
[22] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 23, exhibit ‘RE-6’.
[23] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 32, exhibit ‘RE-9’.
[24] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, exhibit ‘RE-10’.
[25] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 33.
[26] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, exhibit ‘RE-11’.
[27] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 36.
[28] Affidavit of Carol Barry sworn 16 February 2016, paragraph 2.
[29] Affidavit of Carol Barry sworn 16 February 2016, exhibit ‘CAB-3’
[30] Affidavit of Carol Barry sworn 16 September 2016, paragraph 6, Affidavit of John Barry sworn 16 February 2016, paragraph 3.
[31] Affidavit of Carol Barry sworn 16 September 2016, paragraph 6.
[32] Ibid.
[33] Affidavit of Carol Barry sworn 16 September 2016, paragraph 6.
[34] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 59.
[35] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraphs 41-45.
[36] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 47.
[37] Ibid.
[38] Affidavit of John Barry sworn 16 February 2016, paragraphs 7-8. Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraphs 51 and 59.
[39] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 60, exhibit ‘RE-18’.
[40] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 61.
[41] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 61.
[42] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 62.
[43] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 62.
[44] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 62.
[45] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 61.
[46] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraphs 63-65, exhibit ‘RE-19’.
[47] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 66, exhibit ‘RE-20’.
[48] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 48, exhibit ‘RE-16’.
[49] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 49, exhibit ‘RE-17’.
[50] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 50.
[51] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 51.
[52] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 51.
[53] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 59.
[54] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 51.
[55] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 67.
[56] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 68.
[57] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 72.
[58] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 73.
[59] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 68.
[60] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 69.
[61] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 70.
[62] Affidavit of Robyn Lee-Erskine sworn 7 August 2015, paragraph 71.
[63] Section 479 of the Act provides for Court-appointed liquidators.
[64] State Bank of NSW v Turner Corp Ltd (1994) 14 ACSR 480, 483.
[65] Re Murphy & Allen (1996) 19 ACSR 569, 570.
[66] Re Mento Developments (Aust) Pty Ltd [2009] VSC 343; (2009) 73 ACSR 622, 627. Re Security Provident Fund Ltd (in liq); Rodger v Gourlay (1984) 9 ACLR 56, 57.
[67] Re Mento Developments (Aust) Pty Ltd [2009] VSC 343; (2009) 73 ACSR 622, 627.
[68] Ibid.
[69] Re Murphy & Allen (1996) 19 ACSR 569.
[70] Re Murphy & Allen (1996) 19 ACSR 569, 570.
[71] (1997) 148 ALR 146, 151-152.
[72] Ibid.
[73] Ex Parte Martin Bruce Jones, Darren Gordon Weaver And James Henry Stewart (In Their Capacity As Liquidators Of Great Southern Managers Australia Ltd (In Liq)) [2014] WASC 312.
[74] [2014] WASC 312, 56-65.
[75] The funds — being funds in a mixed account —are of course not strictly trust funds. Rather, Elan has an equitable proprietary interest in the funds held in the mixed account. Nevertheless it is convenient to refer to the funds as trust funds. Nothing turns on the precise legal characterisation.
[76] See generally G.E. Dal Pont, Equity and Trusts in Australia – 5th edition, Thomson Reuters at [16.115] and [39.55]; Korda v Australian Executor Trustees (SA) Limited [2015] HCA 6.
[78] 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq) [1999] FCA 144; (1999) 30 ACSR 377, 385 (Finkelstein J); Re National Personnel Pty Ltd (in liquidation) [2012] VSC 508, 40-44.
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