In the recent case of In the matter of Bleecker Property Group Pty Ltd (In Liquidation) [2023] NSWSC 1071, the New South Wales Supreme Court considered whether default judgment could be granted on a claim in relation to a voidable transaction pursuant to section 588FF(1) of the Corporations Act 2001 (Cth) (the Act) against a single defendant, in circumstances where the proceedings involved multiple voidable transaction claims against multiple defendants.
The case involved a claim by the liquidator of the Bleecker Property Group and a number of entities in that group against multiple defendants in respect of various alleged voidable transactions. Importantly, the claim included claims in relation to payments by Bleecker Property Group Pty Ltd (the Company) against three different defendants. The claims by the Company relied on the presumption under section 588E(4) of the Act that the Company was insolvent due to its failure to keep adequate financial records. Two of the defendants filed general defences, but the third defendant failed to file a defence. The liquidator then applied for default judgment against that defendant.
Justice Williams carefully considered the nature of the pleaded claims, the legal effect of the failure to file a defence, and the implications of the proposed default judgment before dismissing the application.
The companies in the Bleecker Property Group were wound up voluntarily by members’ resolutions passed on 22 September 2020.
In July 2022, the liquidator of the Bleecker Property Group entities (Liquidator) along with seven of the group entities commenced proceedings against nine defendants alleging (amongst other things) that certain payments made to the defendants during the period from February 2018 to September 2020 were voidable transactions pursuant to section 588FE of the Act.
As part of the claim, the Liquidator alleged that the following payments made by the Company were voidable transactions:
The payments to NG Property were said to be uncommercial transactions within the meaning of section 588FB of the Act, unfair preferences within the meaning of section 588FA of the Act, and/or unreasonable director related transactions within the meaning of section 588FDA of the Act.
The Court subsequently ordered that the matter proceed by way of pleadings.
The Liquidator relied on an amended statement of claim filed on 5 June 2023.
Due to the existence of an ongoing criminal investigation, orders were made to dispose of or vary the usual pleading rules that would have applied to the defences of Mr Gazal and Mr El Youssef, and those defendants then filed defences that in essence invoked the privilege against self-incrimination and that did not admit the pleaded allegations against Mr Gazal and Mr El Youssef.
NG Property did not file any defence or any notice of appearance in the proceedings.
The Liquidator then applied for default judgment against NG Property, broadly on the basis that NG Property’s failure to file a defence should be taken to constitute an admission by NG Property of the matters pleaded against it.
The application was supported by an affidavit by the Liquidator which gave evidence of the inadequate financial records maintained by the Company, which the Liquidator said supported the presumption under section 588E(4) of the Act that the Company was insolvent due to its failure to keep adequate financial records.
NG Property did not appear at the hearing of the application, and no other defendant sought to be heard on the application.
Justice Williams dealt separately with the claims that the payments to NG Property were:
Claim that payments were unfair preferences and/or unreasonable director related transactions
As to these claims, it was accepted by Counsel for the Liquidator that the amended statement of claim in fact did not plead all of the elements that had to be established in order for the Court to be satisfied that the payments to NG Property were unfair preferences or unreasonable director related transactions.
In the circumstances, even if it were the case that NG Property’s failure to file a defence constituted an admission (under the applicable NSW procedural rules) of all of the matters pleaded against NG Property, those admissions could not and did not give rise to an admission that the pleaded payments (or any of them) were unfair preferences or unreasonable director related transactions.
As a result, this aspect of the application failed.
Claim that payments were uncommercial transactions
As to this claim, Williams J identified two main concerns.
The first was that the relevant pleading did no more than recite the statutory criteria for an uncommercial transaction, simply stating that a reasonable person in the Company’s circumstances would not have made the payments having regard to the benefits and detriments to the Company and the respective benefits to other parties arising from the transaction. The pleading did not identify any material facts specific to the case which could explain why a reasonable person in the Company’s circumstances would not have made the payments to NG Property.
Williams J noted that it was unclear whether a defendant who failed to file a defence to a voidable transaction claim could fairly be treated as having made any positive admissions where the pleading did no more than recite the statutory criteria for the claim.
However, the second and ultimately decisive concern for Williams J, was that the claim against NG Property also relied on the presumption under section 588E(4) of the Act that the Company was insolvent due to its failure to keep adequate financial records.
The Judge noted that:
For these reasons, Williams J declined to exercise the Court’s discretion to enter default judgment as against NG Property, noting that this would not affect the ability of the Liquidator and the Company to prosecute the claim against NG Property at trial.
As noted by Williams J, this case appears to be the first decision where a Court has been asked to enter default judgment for a voidable transaction claim against one defendant in circumstances where there are multiple defendants to the proceedings.
The judgment strongly suggests that where there is a common issue between multiple claims against multiple defendants, it will be more difficult to obtain default judgment against a single defendant as this could give rise to the risk of inconsistent findings on the common issue following the remainder of the matter going to trial.
This case also provides an important reminder that care should be taken when a matter that would ordinarily proceed based on an originating process is subsequently ordered to proceed by way of pleadings.
If you have any questions about this decision, or in relation to default judgments or voidable transactions in general, the experienced Lavan team are here to assist.
