Disputed debts in winding-up applications

Lanepoint Enterprises Pty Ltd (Receivers and Managers Appointed) v Australian Securities and Investments Commission [2010] FCAFC 49

Facts

Lanepoint Enterprises Pty Ltd (Lanepoint) is a property development company within the Westpoint Group of companies.

In 2006 Lanepoint was engaged in a building and development project on the Regency Motel site in Rivervale. In order to finance the project, Lanepoint borrowed money from Suncorp-Metway Ltd (Suncorp) and Westpoint Management Ltd (Westpoint Management). Westpoint Management was also a member of the Westpoint Group of companies and appears to have acted as a ‘central treasury’, raising capital for related companies through the WIF for projects such as the Regency Motel development.

Both Suncorp and Westpoint Management took charges as security for their loans and in March 2006 Suncorp appointed receivers and managers pursuant to its charge.

In June of 2006 ASIC brought an application to wind up Lanepoint pursuant to section 459P of the Corporations Act 2001 (Cth) (Act) on the basis that the appointment of receivers and managers triggered a presumption of insolvency under the Act.

First instance decision

At the hearing of the winding-up application before the primary judge, Lanepoint opposed the proceedings on the basis that its assets exceeded its liabilities, and that it was, in fact, solvent.

Lanepoint argued that its debt to Westpoint Management was not $6.6 million (as claimed by ASIC), but had actually been reduced to $2.3 million, by a number of complex transactions.

ASIC contended that the relevant transactions were ineffective or liable to be set aside on the basis that they were:

• voidable transactions under s588FE of the Act;
  
  
• uncommercial transactions under s588FB of the Act; and/or
  
  
• unreasonable director related transactions under s588FDA of the Act.

Counsel for ASIC referred to one of these transactions as the ‘$2 million run-around’, reflecting the ‘pass-the-parcel’ type repayment arrangement between a number of companies (including Lanepoint and Westpoint Management). His Honour determined that this transaction could not be relied on by Lanepoint in making its claim for solvency.

Ultimately, his Honour decided that Lanepoint’s debt to Westpoint Management was ‘no less than $6.6m’, that it was insolvent and that it should be wound up.

Appeal

On appeal, Lanepoint contended that the controversy as to the extent of the debt meant that the winding-up application was an inappropriate vehicle for the determination of the question as to whether Lanepoint was insolvent.

The majority of the Court agreed with this view, and found that (among other things):

• the principal judge failed to consider whether all the parties and evidence necessary for the final determination of the issues raised by ASIC’s assertions regarding the transactions were before the court. In other words, how could the court fairly resolve issues affecting the interests of a number of companies (including those involved in the ‘$2 million run-around’) that were neither represented as parties to the proceedings nor called as witnesses;
  
  
• His Honour did not appear to take into account the fact that Lanepoint was not trading and was under the control of receivers and managers, and not its director. This (according to the Full Court) reduced the prejudice that could be suffered by third parties, by staying or dismissing the winding-up application pending the determination of the dispute within the ambit of a more ‘forensically appropriate’ framework; and
  
  
• His Honour failed to turn his mind to whether or not it was appropriate to consider the nature of the impugned transactions in the context of a winding-up application, particularly in the context where:
  
  
  • the Act provided that only liquidators (and not another party, such as ASIC) had the right to commence proceedings seeking relief under s588FF to challenged voidable transactions; and
    
    
  • reversing the transactions (and in this case, increasing Lanepoint’s debt level) would not have been the only available outcome of s588FF proceedings.

The Court ultimately held that Lanepoint’s appeal should be allowed and the primary judge’s orders should be set aside.

Lavan Comment

In light of this decision, ASIC (and other parties with standing) may be required to adopt a more cautious approach in dealing with the ‘presumption’ of insolvency under section 459P. In the context of advising clients on whether to bring a winding up application, practitioners should always be mindful of whether there is likely to be any opposition to the proceedings and if there is, whether a winding up application is the most appropriate or cost effective process. 

For further details please contact:
Alison Robertson, Partner, on 08 9288 6827 / alison.robertson@lavanlegal.com.au; or
Daniel Butler, Solicitor, on 08 9288 6714 / daniel.butler@lavanlegal.com.au.