Wallabah Pty ltd & Anor v Navillo Pty Ltd & Anor [1997] FCA 142 (5 March 1997)

CATCHWORDS

CORPORATIONS LAW - application for leave under ss440D and 440J of the Corporations Law

Corporations law sections 440D and 440J

Grenadier Constructions No 2 Pty Ltd (1994) 12 ACLC 460

J & B Records v Brashs Pty Ltd (1994) 12 ACLC 534

Foxcroft v The Ink Group Pty Ltd (1994) 12 ACLC 1063

Roder Zelt-Und Hallenkonstruktionen GMBH v Rosedown Park Pty Ltd & Anor [1995] FCA 1221; 13 ACLC 776

Vital Finance Corporation Pty Ltd v Abor and Ors (1994) 12 ACLC 973

WALLABAH PTY LTD v NAVILLO PTY LTD and LUIGI GALUPPO

VG No. 3015 of 1997

Olney J

Melbourne

5 March 1997

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION No VG 3015 of 1997

BETWEEN:

WALLABAH PTY LTD

Applicant

-and-

NAVILLO PTY LTD

First Respondent

LUIGI GALUPPO

Second Respondent

Coram: Olney J

Place: Melbourne

Date: 5 March 1997

MINUTE OF ORDERS

THE COURT ORDERS THAT:-

1. The applicant's motion for leave under sections 440D and 440J of the Corporations Law be dismissed.

2. The costs of hearing the motion on 28 February 1997 be reserved.

3. The directions hearing be adjourned to 8 May 1997 at 9.30am.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION No VG 3015 of 1997

BETWEEN:

WALLABAH PTY LTD

Applicant

-and-

NAVILLO PTY LTD

First Respondent

LUIGI GALUPPO

Second Respondent

Coram: Olney J

Place: Melbourne

Date: 5 March 1997

REASONS FOR JUDGMENT

On 28 February 1977 I reserved my decision on the applicant's motion for leave pursuant to s 440D of the Corporations Law to continue the proceedings against the first respondent and for leave pursuant to s 440J to enforce a guarantee against the second respondent.

The short facts are that the first respondent carried on business as a licensed restaurant at King's Cross. The second respondent has at all relevant times been a director of the first respondent and at present it appears that he is the only director. The applicant has a charge over the property of the first respondent to secure money said to have been advanced to the first respondent. The second respondent is said to have guaranteed the liability of the first respondent to the applicant but has put in issue the validity of the guarantee and the amounts (if any) which are due under the charge and the guarantee. In exercising its powers under the charge the applicant has appointed administrators of the first respondent. In this proceeding the first respondent seeks, inter alia, judgment against the first respondent for the amount said to be secured and against the second respondent for the amount said to be due under the guarantee.

The only judicial authorities dealing with the construction and application of ss 440D and 440J are decisions of single judges and none is directly on point but such authority as there is, coupled with what was said in the explanatory memorandum when the relevant bill was introduced into Parliament, suggests that a number of principles have emerged. I will refer briefly to the decisions in question.

Grenadier Constructions No 2 Pty Ltd (1994) 12 ACLC 460 is a decision of the Supreme Court of Queensland (Williams J) dealing with an application for leave under s 440J. In that case an administrator had been appointed by the directors of the company who were the persons against whom it was sought to enforce a guarantee. His Honour said in relation to s 440J, at 461, that -

there must be something which establishes that there is good reason for departing from the presumption underlining the legislation that the creditor ought not to be able to proceed against the guarantor in such circumstances.

In Foxcroft v The Ink Group Pty Ltd (1994) 12 ACLC 1063 Mr Justice Young in the Equity Division of the Supreme Court of New South Wales in dealing with an application under ss 440D commented, at 1065, that -

an application under 440D will rarely be granted, it maybe that where the company is insured against the liability of the subject of the proceedings the administrator will ordinarily consent or the court will give conditional leave but outside this field it is hard to see situations where it would be proper to grant leave though doubtless there are such situations.

In J & B Records v Brashs Pty Ltd (1994) 12 ACLC 534 the NSW Supreme Court refused leave under s 440D in a case where the administrator had been appointed by the company. Brownie J commented, at 536, that it did not seem to him that the plaintiffs would be disadvantaged in any material way in the event of leave not being given and went on to say -

... it does not seem to me to be at all desirable at this stage that the administrators be required to incur what seems to be likely to be the very substantial expense involved in litigation, which the plaintiffs wish to commence and to bring on for hearing urgently.

That was a case in which it was sought to litigate issues in relation to the amount secured by the charge prior to the holding of the creditors meeting which was due to be held less than a week later.

The only other case which requires some comment is Re Behan; ex parte Pioneer Concrete (Qld) Pty Ltd (1995) 13 ACLC 1644, a decision of Hill J in the Federal Court. An issue arose in an application to set aside a bankruptcy notice as to whether leave under s 440J was required where the bankruptcy notice was based upon a judgment for an amount secured by a guarantee of a company's debt. His Honour came to the conclusion that it was not necessary to grant leave because the proceeding involved the enforcement of a judgment debt which had been obtained before the administration of the company had commenced. In the course of his reasons his Honour said, at 1646 -

It might be noted the policy referred to in the explanatory memorandum would not appear to extend to positively encourage a director against whom a judgment has been obtained for a guarantee debt to ensure that an administrator is appointed so as to obtain a moratorium against that judgment. If anything the policy was directed to the case where the appointment of an administrator would trigger liability under the guarantee arising however regard to the policy must obviously give way to the proper construction of the language which the legislature has used if there be a conflict.

With respect, I agree with the sentiment of these observations. If Parliament intended that s 440J, and indeed s 440D, should apply only in cases where the appointment of an administrator would actually trigger the liability arising under the charge or the guarantee, it failed to say so with sufficient clarity. One must approach the construction of both sections having regard to the words used and not place some gloss upon them to restrict their meaning.

Two other cases that were cited in argument. Roder Zelt-Und Hallenkonstruktionen GMBH v Rosedown Park Pty Ltd & Anor [1995] FCA 1221; 13 ACLC 776 has no real relevance as leave had previously been granted under s 440D and the case was concerned with the effect of giving that leave. Vital Finance Corporation Pty Ltd v Abor and Ors (1994) 12 ACLC 973 related to the granting of leave retrospectively after the administration had come to an end and I do not think anything said in that case is of assistance here.

Each of ss 440D and 440J gives the Court a discretion which it is required to exercise judicially and upon the merits of each individual case. In so doing the Court must have regard to the general legislative policy of the statute and to the specific provisions of the sections under consideration. Each case will of course have to be determined upon its own facts.

In my opinion the following factors are relevant to the exercise of the Court's discretion in the matter presently under consideration.

1. The administrators were appointed by the applicant as chargee of the company's property. This was done pursuant to s 436C. This is not a case where a director/guarantor has attempted to forestall action or obtain a moratorium by having an administrator appointed.

2. The applicant is the only secured creditor and indeed is the major creditor. It has by its own action triggered the application of ss 440D and 440J.

3. The guarantor (the second respondent) is a director of the company under administration and disputes both the validity of the guarantee and the amount said to be owing to the applicant by both the company and by himself. It was known to the applicant before the administrators were appointed that there was a dispute as to the liability.

4. The company is no longer trading.

5. The administrator is actively seeking to sell the major asset of the company which is a licensed restaurant business in King's Cross but at this stage it is not trading.

6. The company has limited funds available to the administrators to contest any action that is brought against it.

7. The applicant has not demonstrated that it will or may suffer any disadvantage if leave is refused under either s 440D or s 440J.

Having regard to all of the foregoing factors there is in my view no basis to justify the exercise of the Court's discretion in favour of the applicant and accordingly leave will be refused in respect of each aspect of the application.

I certify that this and the preceding 5 pages are a true copy of the Reasons for Judgment of the Honourable Justice Olney

Associate:

Dated:

Heard: 28 February 1997

Place: Melbourne

Judgment: 5 March 1997

Appearances:

Mr H. Jolson QC and Mr M. Goldblatt (instructed by Opat Goldsmith & Goldsmith Pty) appeared for the applicant.

Mr M. Clarke (instructed by Dunhill Madden Butler) appeared for the second respondent.

The administrators of the first respondent did not appear.