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- Unreported Judgment
Jonsson v Martens QDC 201
DISTRICT COURT OF QUEENSLAND
Anthony James Jonsson as Liquidator of Recruitment Outcomes Pty Ltd (in liquidation) v Martens and Another  QDC 201
ANTHONY JAMES JONSSON AS LIQUIDATOR OF RECRUITMENT OUTCOMES PTY LTD (IN LIQUIDATION) ACN 154 214 141
RECRUITMENT OUTCOMES PTY LTD (IN LIQUIDATION) ACN 154 214 141
ANTHONY WILLIAM MARTENS
LEON PAUL EPONG
11 October 2019
13 & 20 September 2019
Morzone QC DCJ
CIVIL PROCEEDING – CIVIL PROCEDURE – APPLICATION – summary judgment – $351,227.00 claimed against the former directors for insolvent trading – reliance upon deemed admissions and absence of evidence supporting non–admissions – whether defendants have no real prospect of successfully defending all or a part of the plaintiff's claim – whether company insolvent at relevant time debts incurred – whether defence of expectation of solvency – proof of debt inconsistent with general entitlement – some claims of dubious right or origin – whether no need for a trial of the claim or the part of the claim – costs.
Corporations Act 2001 (Cth), ss Part 5.7B, 93A, 588E (4), s 588G, 588G (2) (3) (4), 588H, 588M, 588G (3)
Uniform Civil Procedure Rules 1999 r 166, 190, 199, 292, 293.
ANZ Banking Group Ltd v Barry  2 Qd R 12 Deputy Commissioner of Taxation v Salcedo  QCA 227
Hepburn v McLaughlins Nominee Mortgage Pty Ltd (QSC, Davies JA, Thomas and Fryberg JJ, No 4239/1996, 18 March 1997, unreported, BC9700797)
Tourprint International Pty Ltd (in liq) v Bott (1999) 32 ACSR 201
J. Trevino for the first and second Plaintiff/Applicant
Self-represented for the First Defendant/Respondent
Self–represented for the Second Defendant/Respondent
WGC for the Plaintiff/Applicant
A. Martens for the First Defendant
L. Epong for the Second Defendant
- The first plaintiff liquidator applies for summary judgment for $351,227.00 against the defendant former directors for insolvent trading of the second defendant company pursuant to s 588M(2) Corporations Act 2001 (Cth) (“the Corporations Act”).
- Each party has provided written material, supplemented by oral submission, which I have considered.
- On 18 September 2015, orders were made in the Federal Circuit Court winding up the second plaintiff company, Recruitment Outcomes Pty Ltd, in insolvency and appointing the first plaintiff as liquidator.
- The first plaintiff was appointed as the liquidator of the company, and the first and second defendants were directors of the company with the day to day management and responsibility for it.
- The company was an educational and vocational training service provider. It was reliant upon government project and program funding on a case by case basis. The nature of that funding required that it be fully accounted and acquitted for each project that funds were directed to.
- The first plaintiff alleges that the company incurred debts amounting to $351,227.00 while the defendant directors had day to day control of the company, and subject of proof of debt.
- The second plaintiff company was insolvent in the relevant periods.
- The first plaintiff now applies for summary judgment on the claim against both defendants for payment of $351,227.00 as a debt due and owing to the second plaintiff for loss and damage.
- When a plaintiff seeks summary judgment against a defendant, r 292 provides that:
“If the court is satisfied--
- (a)the defendant has no real prospect of successfully defending all or a part of the plaintiff's claim; and
- (b)there is no need for a trial of the claim or the part of the claim;
the court may give judgment for the defendant against the plaintiff for all or the part of the plaintiff's claim and may make any other order the court considers appropriate.”
- The test to be applied in relation to applications for summary judgment is now settled.
“That review of the authorities clearly establishes to my mind that there has been a significant change brought about by the implementation of Rule 292 and Rule 293 of the UCPR. The test for summary judgment is different, and the Court must apply the words found in Rule. To use other language to define the test (as was contended for in this case by Counsel for the Appellant relying on the reasoning of Chesterman J in Gray -v- Morris) only diverts the decision maker from the relevant considerations. But, and this underlies all that is contained in the UCPR, ultimately the Rules are there to facilitate fair and just resolution of the matters in dispute. Summary judgment will not be obtained as a matter of course and the Judge determining such an application is essentially called upon to determine whether the Respondent to the application has established some real prospect of succeeding at trial; if that is established then the matter must go to trial. In my view, the observations on summary judgment made by the Judges of the High Court in Fancourt are not incompatible with that application of Rule 292 and Rule 293; what is important is that in following the broad principle laid down by their Honours the test as defined by the Rules is applied.” [underlining added]
- The applicant also relies upon r 190, which relevantly provides:
- (1)If an admission is made by a party, whether in a pleading or otherwise after the start of the proceeding, the court may, on the application of another party, make an order to which the party applying is entitled upon the admission.
- (2)The court may give judgment or make another order even though other questions in the proceeding have not been decided. …”
- Once the plaintiff establishes a prima facie entitlement to summary judgment, the evidentiary onus will shift to the defendants to bring evidence in support of the claim or other need for a trial.
- The issues in this application are:
- (a)Do the defendants have no real prospect of successfully defending all or a part of the plaintiff's claim?
- (b)Is there no need for a trial of the claim or the part of the claim?
No real prospect
- The determinative issues on prospects are whether the company was insolvent at any time in the period when it incurred a debt and whether the debt remains unpaid.
Recovery for Insolvent Trading
- The proceeding falls to be determined under Part 5.7B of the Corporations Act – recovering property or compensation for the benefit of creditors of insolvent company. Section 588G relevantly provides:
“Director’s duty to prevent insolvent trading by company
- (1)This section applies if:
- (a)a person is a director of a company at the time when the company incurs a debt; and
- (b)the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and
- (c)at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; ….
- (3)By failing to prevent the company from incurring the debt, the person contravenes this section if:
- (a)the person is aware at that time that there are such grounds for so suspecting; or
- (b)a reasonable person in a like position in a company in the company’s circumstances would be so aware.”
- Section 588H relevantly provides:
- (1)This section has effect for the purposes of proceedings for a contravention of subsection 588G(2) in relation to the incurring of a debt (including proceedings under section 588M in relation to the incurring of the debt).
- (2)It is a defence if it is proved that, at the time when the debt was incurred, the person had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.
- (3)Without limiting the generality of subsection (2), it is a defence if it is proved that, at the time when the debt was incurred, the person:
- (a)had reasonable grounds to believe, and did believe:
- (i)that a competent and reliable person (the other person) was responsible for providing to the first-mentioned person adequate information about whether the company was solvent; and
- (ii)that the other person was fulfilling that responsibility; and
- (b)expected, on the basis of information provided to the first-mentioned person by the other person, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.
- (4)If the person was a director of the company at the time when the debt was incurred, it is a defence if it is proved that, because of illness or for some other good reason, he or she did not take part at that time in the management of the company.
- (5)It is a defence if it is proved that the person took all reasonable steps to prevent the company from incurring the debt.
- (6)In determining whether a defence under subsection (5) has been proved, the matters to which regard is to be had include, but are not limited to:
- (a)any action the person took with a view to appointing an administrator of the company; and
- (b)when that action was taken; and
- (c)the results of that action.”
- Section 588M relevantly provides:
“Recovery of compensation for loss resulting from insolvent trading
- (1)This section applies where:
- (a)a person (in this section called the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and
- (b)the person (in this section called the creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company’s insolvency; and
- (c)the debt was wholly or partly unsecured when the loss or damage was suffered; and
- (d)the company is being wound up;
whether or not:
- (e)the director has been convicted of an offence in relation to the contravention; or
- (f)a civil penalty order has been made against the director in relation to the contravention.
- (2)The company’s liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage.”
- The company is presumed to be insolvent by operation of s 588E(4) of the Corporations Act as it failed to keep proper financial records. In any event, the incontrovertible evidence shows that that the company was unable, during the relevant period, to pay all of its debts as and when they came due as contemplated by s 95A of the Corporations Act.
- The first plaintiff relies upon the allegation in 4(b) of the Statement of Claim as deposed by him. Neither defendant expressly denies the allegation. The defendants do not deny that the company was insolvent during the periods of indebtedness. While the first defendant does not admit insolvency, he has not adduced any evidence to the contrary. The second defendant is taken to have admitted insolvency at the relevant time by reason of r 166(5) of the UCPR, which is relied upon for the purposes of r 199 of the UCPR.
Reasonable grounds for suspecting insolvency
- The first plaintiff deposes to matters relevant to the subjective and objective awareness of the directors of insolvency as pleaded at paragraph 6(a) and 16(a) of the Statement of Claim.
- It is a defence under s 588H(2) of the Corporations Act to show that, at the time of indebtedness, the defendants had reasonable grounds to expect, and did expect, that the company was solvent. An “expectation” of solvency, as required by the section, means:
“... a higher degree of certainty than ‘mere hope or possibility’ or ‘suspecting’. The defence requires an actual expectation that the company was and would continue to be solvent, and that the grounds for so expecting are reasonable. A director cannot rely on a complete ignorance of or neglect of duty and cannot hide behind ignorance of the company's affairs which is of their own making or, if not entirely of their own making, has been contributed to by their own failure to make further necessary inquiries.”
- On my reckoning, the defendants’ material falls well short of the defence s 588H(2), and no matters of ss 588H(3) or (4) arise in the case.
- The second defendant defence, while noncompliant with the UCPR, does not raise any proper grounds for a defence and is not supported by any evidence. He is caught by r 166(5), which is relied upon the first plaintiff pursuant to r 199 of the UCPR. In any event, the second defendant does not show that he actually believed, and had reasonable grounds to believe, that competent and reliable persons were responsible for providing to him adequate information about the company’s solvency and that those persons were fulfilling their responsibility or that he expected on the basis of such information that the company was solvent and would remain solvent during the period even if they continued to incur debts.
- The first plaintiff alleges that debts amounting to $351,227.00 were incurred by the company while the defendant directors had day to day control of the company as follows:
June 2013 – September 2015
June 2014 – June 2015
August 2014 – June 2015
June 2013 – September 2015
- Each of the debts and the timing the defendants were incurred were subject of proof of debt and further supporting evidence. It seems to me that the debts and time they are incurred as claimed by the Department of Prime Minister and Cabinet for $61,271.00 and ANZ Banking Group Ltd for $23,792.00 are plainly incontrovertible.
- The debt claimed by AIIM Financial Services Pty Ltd of $5,543.00 is apparently for accounting, financial and book-keeping etc services to the company, assured by their self imposed guarantee of satisfaction. It seems to me that the role of that company in the financial mismanagement is a matter which ought to be the subject of defence and challenge. I am not satisfied that the plaintiff has shown an entitlement of the amount claimed, there is sufficient evidence before me to find that the defendants have reasonable prospects of successfully defending the claimed amount.
- The debt claimed by Deaf Services Queensland of $1,984.00 seems incongruous to the relationship of that organisation and the company, and it seems to me that the genus of any claimed sub-contract is dubious. Further, the nature of the itemised charges going to general engagement and administration costs lacks any credible substantiation. I am not satisfied that the plaintiff has shown an entitlement to the amount claimed, and there is sufficient evidence before me to find that the defendants have reasonable prospects of successful defending the claimed amount.
- The debt claimed by Australian Tax Office of $258,637.11 is for the most part comprised of penalties and interest. The current print of the account from the client portal shows that the balance owing is $79,019.53, with the amount of $200,617.58 being relegated as “Non-pursuit amount”. My initial impression that the latter amount was ‘written off’ for commercially sensible reasons, but this was subject of the parties’ further investigation, inquiries, clarification and evidence. I accept that the true position is that the Australian Tax Office have not ‘written off’ or waived the total indebtedness of $258,637.00 incurred in the relevant period. Rather, the commissioner employs a categorisation system to internally prioritise recovery – by first focusing on the primary indebtedness, and second the remaining accumulated penalties and interest. In short, the debt incurred during the period of insolvency remains unchanged as $258,637.00.
- It seems to me that the first plaintiff has established an incontrovertible claim for most of the claim in the amount of $343,700.00 being for:
June 2013 – September 2015
June 2014 – June 2015
June 2013 – September 2015
- It must then follow that the plaintiff’s material establishes a prima facie entitlement to summary judgment, and the defendants have no real prospect of successfully defending part of the plaintiff's claim up to $343,700.00.
No need for a trial of the proceeding
- The question remains whether a trial is required for any factual or complex legal issues.
- As can be seen from the above review of the salient issues in respect of the claim, the defendants have no real prospects of defending the claim up to $343,700.00 and there is no need for a trial of the claim.
- However, I think there is sufficient uncertainty about the quality and genesis of the other claims amounting to $7,525.00 that gives rise to a dispute and a need for a trial.
- For these reasons, for these reasons, the application for summary judgment allowed in part, and make the following orders:
- Application allowed.
- Summary judgment is granted to the plaintiff’s against each defendant for $343,700.00 for the claim, plus interest calculated on that amount from the date this proceeding started on 25 May 2017 pursuant to s 58 of the Civil Proceedings Act 2011 (Qld).
- Unless either party applies for, or the parties otherwise agree on, a different costs order, within 14 days of this judgment - the defendants will pay the plaintiff’s costs of the proceeding including the application, to be assessed on the standard basis.
Judge DP Morzone QC
 Deputy Commissioner of Taxation -v- Salcedo  QCA 227 at  –  per Williams JA with McMurdo P and Atkinson J agreeing.
 Deputy Commissioner of Taxation -v- Salcedo  QSA 227 at .
 Cf. ANZ Banking Group Ltd v Barry  2 Qd R 12 at 19 per Derrington J compare Hepburn v McLaughlins Nominee Mortgage Pty Ltd (QSC, Davies JA, Thomas and Fryberg JJ, No 4239/1996, 18 March 1997, unreported, BC9700797).
 Defence, para 4(d).
 Tourprint International Pty Ltd (in liq) v Bott (1999) 32 ACSR 201 at  per Austin J.
 Defence, para 4(a) and (b)
 Defence, para 4(d).
- Published Case Name:
Anthony James Jonsson as Liquidator of Recruitment Outcomes Pty Ltd (in liquidation) v Martens and Another
- Shortened Case Name:
Jonsson v Martens
 QDC 201
11 Oct 2019