Kugel, in the matter of Charben Haulage Pty Ltd (in Liquidation) [2009] FCA 1039 (28 September 2009)

Last Updated: 30 September 2009

FEDERAL COURT OF AUSTRALIA

Kugel, in the matter of Charben Haulage Pty Ltd (in Liquidation)

[2009] FCA 1039

Corporations Act 2001 (Cth) ss 502, 588FE, 588FF, 588FG

STEVEN KUGEL, IN HIS CAPACITY AS LIQUIDATOR OF CHARBEN HAULAGE PTY LTD (IN LIQUIDATION) (ACN 083 376 701)

NSD 239 of 2009

EMMETT J
8 SEPTEMBER 2009
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION	NSD 239 of 2009

IN THE MATTER OF CHARBEN HAULAGE PTY LTD (IN LIQUIDATION) (ACN 083 376 701)

STEVEN KUGEL, IN HIS CAPACITY AS LIQUIDATOR OF CHARBEN HAULAGE PTY LTD (IN LIQUIDATION) (ACN 083 376 701) Plaintiff

JUDGE:	EMMETT J
DATE OF ORDER:	8 SEPTEMBER 2009
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The originating process be dismissed as against DLA Phillips Fox.
2. The question of DLA Phillips Fox’s costs be reserved.
3. The application be stood over for directions on 11 December 2009.
4. Liberty be reserved to the plaintiff to apply on reasonable notice.
   

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of orders can be located using eSearch on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION	NSD 239 of 2009

IN THE MATTER OF CHARBEN HAULAGE PTY LTD (IN LIQUIDATION) (ACN 083 376 701)

STEVEN KUGEL, IN HIS CAPACITY AS LIQUIDATOR OF CHARBEN HAULAGE PTY LTD (IN LIQUIDATION) (ACN 083 376 701) Plaintiff

JUDGE:	EMMETT J
DATE:	8 SEPTEMBER 2009
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. The liquidator of Charben Haulage Pty Ltd (the Company) has commenced a proceeding, seeking an extension of time pursuant to s 588FF(3)(b) of the Corporations Act 2001 (Cth) (the Corporations Act). Section 588FE defines, for the purposes of the Corporations Act, what constitutes voidable transactions in the winding up of a company. Voidable transactions include transactions that constitute an uncommercial transaction of the company, an unfair preference given by the company to a creditor of the company and an unreasonable director-related transaction of the company. Under s 588FF(1)(a), where the Court is satisfied that a transaction of a company is voidable because of s 588FE, the Court may make one of several orders, including an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction. However, an application under that provision may only be made during the period beginning on the relation-back day and ending three years after the relation-back day, or within such longer period as the Court orders on an application under s 588FF, made by the liquidator during that period.
2. On 31 March 2006, Mr John Vouris was appointed administrator of the Company. He was subsequently appointed liquidator of the Company on 23 June 2006, pursuant to a resolution of the creditors that the Company be wound up. For the purposes of s 588FF, therefore, the relation-back day is 31 March 2006. Accordingly, the three years referred to in s 588FF(3)(b) would have expired on 31 March 2009.
3. This proceeding was commenced by originating process filed on 24 March 2009. By the originating process, the present liquidator of the Company, Mr Steven Kugel, applies for an extension of one year, for the purposes of bringing proceedings under s 588FF, or alternatively, an order extending the time until 31 March 2010, to bring proceedings against several identified entities. Although the Australian Taxation Office was included in the list of entities, the liquidator no longer seeks specific relief in relation to the Australian Taxation Office.
4. There are, relevantly, three categories of entity included in the alternative prayer for relief in the liquidator’s originating process. The first category consists of:
   • Mr Jim Janakis, who was director of the Company, and his wife, Mrs Victoria Janakis, who was secretary of the Company.
   • Mr Steve Paradisis and Mr Theodore Paradisis, who are respectively the brother and father of Mrs Victoria Janakis.
   • Tidal Surge Pty Limited and J & V Property Trust, which are related to Mr and Mrs Janakis; Tidal Surge Pty Limited is the trustee of J & V Property Trust and Mr and Mrs Janakis are beneficiaries under that trust.

That group of six entities are, in a sense, all in the same interest and have been represented by one legal team in the proceeding today.

5. The second relevant entity is Caldas Holdings Pty Limited, a Company of which Mr Steve Paradisis and Mr Theodore Paradisis were directors. That Company is presently in liquidation. It did not appear in the proceeding, although its liquidator has been notified of the proceeding.
6. The third entity is a firm of solicitors, DLA Phillips Fox (DLA), who acted for the Company in a proceeding to which I shall refer later. The firm have been represented on the hearing of the proceeding today and oppose the orders sought by the liquidator.
7. Mr Vouris resigned as liquidator of the Company on or shortly before 16 February 2007, after a proceeding had been commenced by Environmental & Earth Sciences Pty Limited (EES), in which EES sought to have him removed as liquidator. On 16 February 2007, Mr Kugel was appointed as liquidator, pursuant to s 502 of the Corporations Act.
8. On 19 February 2007, Mr Kugel wrote to Mr Jim Janakis, requesting that he provide Mr Kugel with books and records of the Company and a report as to affairs. Mr Janakis had in fact provided a report as to affairs to Mr Vouris, on 5 April 2006. No suggestion is made on behalf of Mr Kugel that any failure on the part of Mr Janakis to provide books and records of the Company is a grounds for granting the extension now sought.
9. Mr Kugel wrote to Mr Vouris on 21 February 2007, asking for books and records, and on 12 March 2007, Mr Kugel received a box of documents from Mr Vouris, containing the books and records of the Company. Further documents were sought on 12 March 2007, and further books and records were provided by Mr Vouris on 16 March 2007. Mr Kugel accepts that, by 29 March 2007, he had all the books and records of the Company from Mr Vouris.
10. The circumstances of the Company’s insolvency are related to a transaction entered into by the Company, involving the purchase of a parcel of land in Killara, New South Wales. The Company had been incorporated on 13 July 1998 and it appears that its only function was to purchase and develop the Killara property. The property was acquired from Caltex Petroleum Pty Limited (Caltex) pursuant to a contract made on 4 December 1998. Completion of that contract was conditional upon the carrying out of remediation works by Caltex. EES was retained by Caltex to carry out and supervise certain of the remediation works, and ultimately EES provided a report to Caltex, which was made available to the Company.
11. The Company settled the purchase of the Killara property in March 2000. Subsequently, the Company incurred expense in carrying out further remediation work. In June 2002 the Company commenced a proceeding in the Court against Caltex and EES. On 8 April 2004, judgment was entered in favour of the Company against EES in the sum of $2,147,800. The sum of $1.4 million was paid by EES to the Company, pursuant to the judgment. The balance of $747,800 was paid into a trust account, pending the outcome of an appeal by EES to the Full Court of the Federal Court.
12. Ultimately, on 22 December 2005, that appeal was upheld, the judgment and verdict were set aside and the proceeding against EES and Caltex was dismissed. The Company filed an application to the High Court for special leave to appeal from the orders of the Full Federal Court and, ultimately, that application was dismissed. The sum of $747,800 held in trust was repaid to EES. However, the Company failed to repay the sum of $1.4 million that had been paid to it in part satisfaction of the judgment.
13. As I have said, Mr Vouris was appointed administrator on 31 March 2006. In his report to creditors of 20 April 2006, Mr Vouris provided information concerning the financial position of the Company. A summary of the Company’s financial statements disclosed that, as at 30 June 2003, 2004 and 2005 and as at 31 March 2006, current liabilities of the Company exceeded current assets. However, the information disclosed net assets of between $280,000 and $406,000, although the non-current assets that were taken into account in arriving at the net assets included legal costs of some $900,000 in respect of the proceeding in the Federal Court.
14. Mr Vouris said in his report of 20 April 2006 that the financial accounts of the Company showed that the directors’ loan account had been used to draw on funds from the Company. He summarised the movement of the funds to show a balance owing in 2004 of in excess of $450,000 and a closing balance, presumably at 31 March 2006, of $167,000.
15. Mr Vouris said in his report that he had identified a number of possible preference payments within the previous six months totalling in excess of $717,000. They included payments to J & V Property Trust, payments to Mr and Mrs Janakis and payments to Tidal Surge Pty Limited. The payments also included a sum of $60,000 paid to DLA. Mr Vouris said that it was his intention, should he be appointed liquidator, to investigate more closely the possibility of proving the Company’s insolvency and the recovery of any possible preferential payments.
16. The report as to affairs provided to Mr Vouris by Mr Janakis on 5 April 2006 disclosed unsecured creditors of the Company totalling in excess of $1,700,000. Those creditors included Caldas Holdings Pty Limited, Mr and Mrs Janakis, DLA and PricewaterhouseCoopers. The report also showed contingent assets consisting of the claim against Caltex and EES in the sum of $3 million and a contingent liability to EES, described as a costs claim, in the sum of $1,400,000. That may be a reference to the payment that had been made by EES.
17. On 30 April 2006, Mr Vouris gave notice of a meeting of creditors to be held on 27 April 2006. The meeting was adjourned to 23 June 2006. Mr Vouris provided a report to creditors of 14 June 2006. He attached to that report a full analysis of related party loans and payments from the period 19 May 2004 to 31 March 2006. Mr Vouris said in his report of 14 June 2006 that, should he be appointed liquidator, he would further investigate all transactions during that timeframe and would review the possible recovery of any voidable transactions. The information enclosed with the report showed significant payments to entities related to Mr and Mrs Janakis.
18. At the meeting of the creditors on 23 June 2006 the creditors resolved, as I have said, that the Company be wound up pursuant to the recommendation made by Mr Vouris. Mr Vouris announced to the meeting that he would pursue actions against Mr Janakis for voidable dispositions, but would require funding. Mr Peter Harkin of Colin Biggers & Paisley solicitors, who was acting for EES, indicated at the meeting that EES was considering funding Mr Vouris in such actions against Mr Janakis.
19. On 25 August 2006, Mr Vouris wrote to DLA. In his letter, Mr Vouris referred to four payments of $15,000 each that had been made by the Company to DLA on 28 November 2005, 29 December 2005, 3 February 2006 and 2 March 2006. He said that it was his opinion that the Company was insolvent at the time each of those payments was made and that each of the payments resulted in DLA receiving a preference, priority or advantage over other creditors. The letter drew attention to defences that were afforded by s 588FG of the Corporations Act.
20. DLA responded on 20 September 2006, saying that the matter was being considered and that a detailed response would be provided shortly. The response came by letter dated 5 December 2006. In that letter, DLA indicated that they were unable to comment on whether the Company was actually insolvent at the time of the relevant payments, but that DLA would rely on the defences in s 588FG to defend any claim that the liquidator may bring against it. DLA outlined the facts that it asserted would give rise to such defences.
21. Mr Vouris also wrote two letters to Mr and Mrs Janakis on 25 August 2006. One referred to payments totalling $48,335.54. The other referred to payments totalling $331,834.22. The payments had been disbursed to Mr and Mrs Janakis and to J & V Property Trust. Mr Janakis responded on 30 October 2006, saying that the funds were used to pay third parties who assisted during the proceeding relating to the Killara property. That seems to be at odds with other evidence before the Court as to the nature of those payments and it may be that the response was not entirely frank.
22. On 12 December 2006, PricewaterhouseCoopers wrote to Colin Biggers & Paisley saying that they had lost confidence in Mr Vouris as liquidator because of his refusal to pursue preference payments that may be owing in respect of the Company. That was an allusion to an indication given by Mr Vouris, in a report to creditors of 13 October 2006, that he had formed the view, with respect to various payments made by the Company, that there was no realistic prospect of recovery proceedings being successful. He said that he did not believe that there was any realistic prospect of the Court holding that the Company was insolvent at the time when the payment of funds was made. He therefore did not see the value of spending creditors’ funds in an examination that may delay the finalisation of the liquidation and any distribution to creditors. In forming that view, he relied upon advice that had been given, both to the Company and subsequently to him, concerning the prospects of the appeal to the Full Court, and subsequently the application for special leave to appeal to the High Court.
23. Three questions must be considered in determining whether or not to grant an extension under s 588FF. First, there must be an explanation for the delay in bringing proceedings within the three-year period. Second, a preliminary view of the merits of any proposed proceeding must be considered. Third, any possible prejudice resulting from the grant of the extension must be taken into account.
24. I am not disposed to grant the primary relief sought by Mr Kugel, seeking a blanket extension of one year. So far as Mr Kugel is concerned, there has been significant delay, although I do not intend criticism by that observation. By the end of March 2007, he had all of the books and records of the Company that he required to make a decision. However, by the time he became liquidator, there were no funds available to pursue any proceeding, including any examination of prospective defendants.
25. In March 2007, Mr Kugel spoke to Mr Harkin about the possibility of EES providing funding to pursue potential voidable transactions claims. In late 2007, Mr Kugel telephoned Mr Harkin on a number of occasions to ascertain whether he had any instructions from EES concerning funding. Mr Kugel heard nothing further from Mr Harkin until 2008. On 3 June 2008, Mr Harkin wrote to Mr Kugel, saying that he had obtained instructions from EES and wanted to organise a meeting to discuss various recovery actions and possible indemnity by EES. A meeting was arranged within several weeks of 3 June 2008. However, Mr Kugel was unable to meet as arranged because of a commitment to go overseas for a month. No meeting was, in fact, arranged with Mr Harkin until early December 2008. No explanation has been provided for the delay from June or July 2008 to December 2008.
26. On 8 December 2008, Mr Kugel wrote to Mr Harkin indicating that his investigations of the Company’s affairs had revealed a number of potential clawback actions that could be pursued in order to achieve a recovery for unsecured creditors. He said that it would be his contention that so long as the appeal to the Full Federal Court was on foot, payments for the benefit of related entities were unreasonable because of the prospect that the Company might be unsuccessful in the appeal.
27. Mr Kugel referred to the fact that after 19 May 2004 there had been payments in favour of Mr and Mrs Janakis and associated entities in amounts in excess of $1,400,000. He expressed the view that there were reasonable prospects of a successful recovery action against Mr Janakis and the associated entities, including Caldas Holdings Pty Limited and its director. Mr Kugel referred to his power to conduct examinations under the Corporations Act and, with leave of the Court, to examine any other relevant person. He said that it would be appropriate to examine Mr Janakis and his associated entities including the directors of Caldas Holdings Pty Limited about the payments made by the Company. However, he said that, without funds, he could not conduct an examination at that stage.
28. On 10 February 2009, Mr Kugel received an email from Mr Harkin confirming that EES had agreed to fund an examination hearing. He therefore instructed Colin Biggers & Paisley to prepare applications for examination of the officers of the Company and the director of Caldas Holdings Pty Limited. As at 20 March 2009, those applications were still being finalised.
29. Mr Kugel says that the examination process would allow him to assess the prospects of pursuing voidable transaction claims against Mr Janakis, against Caldas Holdings Pty Limited and against any other third party, together with the potential return or benefit to creditors in pursuing those claims. It is significant that Mr Kugel did not refer expressly to DLA.
30. I do not consider that, having regard to the amount involved and the fact that DLA is in fact a substantial creditor, an adequate case has been made out for extending the time to commence a proceeding against DLA. In his letter of 8 December 2008, Mr Kugel made no mention of DLA, and in explaining in his affidavit in support of this proceeding that instructions have been given to commence the preparation of court process for examination, no express reference was made to DLA. I do not consider that there is an adequate explanation for failing to commence a proceeding against DLA prior to the expiration of the three-year period, and accordingly, I propose to dismiss the originating process as against DLA.
31. The position with respect to Mr and Mrs Janakis and their related entities is different. Notwithstanding the unexplained delay to which I have referred, I am persuaded that some steps should be permitted to enable the liquidator to consider whether or not to commence proceedings at least against Mr and Mrs Janakis and their related entities. Mr Kugel has indicated that, although he is in a position to fund examinations, having negotiated an arrangement with EES, he has not yet satisfied himself that there are sufficiently strong claims against relevant entities to commence proceedings. On the other hand, he has formed the view that possible claims are not merely fanciful, ill-conceived or devoid of merit. It would not be appropriate for a claim to be made for recovery of moneys pursuant to s 588FF until the liquidator is satisfied of the substance of a claim.
32. Mr Kugel has indicated that the particular transactions that he would be concerned to explore are a payment of $200,000 to Caldas Holdings Pty Limited in August 2005 and the payments that were the subject of the demands of August 2006. In his report to creditors of 20 April 2006, Mr Vouris identified payments to J & V Property Trust of some $446,824, which may include the sum of $331,000-odd to which I have referred. Mr Kugel has also identified large numbers of payments that seem to have been made for or on behalf of Mr and Mrs Janakis, which may fall within s 588FF. No specific prejudice has been identified in relation to such claims.
33. On the basis of the material presently before me, I am not persuaded that the possible claims have sufficient merit to justify extending the time at this stage. However, there is sufficient material to justify giving the liquidator the opportunity of proceeding with examination of such of the former officers and other individuals as he thinks appropriate. I consider, therefore, that the appropriate course is to adjourn the hearing of this application for a suitable period to give the liquidator the opportunity of taking the step that I have foreshadowed. If at the end of that period, he is able to persuade me that there is a claim against some entity or individuals of sufficient merit, then I would consider extending the period.
34. Accordingly, I propose to adjourn the hearing of the application for three months, on terms that the liquidator prosecute with all due diligence any application for examination of the directors of the Company and Caldas Holdings Pty Ltd and other relevant individuals.

I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated: 8 September 2009

Counsel for the Plaintiff:	Mr S Golledge
Solicitor for the Plaintiff:	Colin Biggers & Paisley
Counsel for Jim Janakis, Victoria Janakis, Steve Paradisis and Theodore Paradisis:	Mr M Oakes SC
Solicitor for Jim Janakis, Victoria Janakis, Steve Paradisis and Theodore Paradisis:	Watson Mangioni Lawyers
Solicitor for DLA Phillips Fox:	DLA Phillips Fox

Date of Hearing:	8 September 2009
Date of Judgment:	8 September 2009