“Ambitious” preference pursuit derailed by judge

Hall Chadwick partner's preference claim derailed.
Hall Chadwick's David Ross "shocked" by judge's ruling

Hall Chadwick’s David Ross “shocked” by judge’s ruling

Liquidators can on occasion err in pursuit of a preference but incorrectly defining insolvency and testifying as one’s own expert witness? The cake has well and truly been taken. Or at least it has if you accept the conclusions of the Federal Court’s Justice Jim Edelman In the matter of FPJ Group Pty Ltd (In Liquidation).

His honour’s judgement deals with a $153,554.00 claim for alleged unfair preferences launched by Hall Chadwick’s David Ross and Shahin Hussain.

The pair were appointed liquidators of Queensland-based building materials supplier FJP Group in July, 2014 and their claim homed in on a series of payments made to FJP’s supplier, CSR, between January and June, 2014.

If they’d been successful, the recovered preferences would have gone towards paying their and their lawyers’ fees. Nothing particularly unusual in that. But Justice Edelman had other ideas.

“This litigation was unfortunate and uncommercial,” he said in his opening sentence. “In some circumstances the public interest in recovery proceedings being brought by a liquidator might justify a risk being taken that legal costs might exceed recovery. But that public interest diminishes substantially where, as here, some of the liquidators’ claims are ambitious,” he said.

“Ambitious”? Ross, who as lead appointee had conduct of the matter, told SiN yesterday that the judge’s remarks were a shock.

“If he is suggesting that any preference payment for $150,000 is uncommercial, well that will change the industry entirely,” Ross said.”We used all endeavours to try and settle this matter. It (the judgement) ignores all efforts we made to settle it.”

After his opening salvo the judge proceeded to lay out a tale of waste, mostly of the liquidators’ time given their application was dismissed and they were ordered to pay CSR’s costs. Additionally, the judge appeared to suggest that this waste could’ve been avoided if only the liquidators – and specifically Ross – had not based their claim on a misinterpretation of something one would expect a liquidator to know backwards.

“In an attempt, no doubt, to reduce expense, one of the liquidators gave expert evidence in support of their case,” Justice Edelman said. “His expert evidence aimed to show that FPJ Group was insolvent on 21 November 2013 and unable to pay its due debts on that date of $46,600,” he said.

“Unfortunately, due to the absence of evidence available to the liquidator concerning debtors and stock, the entirety of the liquidator’s expert evidence was based on a false assumption.

“The liquidator’s expert opinion on solvency was based upon whether there was ready cash available to cover the company’s commitments as they fell due for payment (ts 166),” Justice Edelman said.

“In Rees v Bank of New South Wales [1964] HCA 47; (1964) 111 CLR 210, 218, Barwick CJ said that solvency does not require “ready cash by him to cover his commitments as they fall for payment.”

Declaring himself “not happy” Ross said he would be consulting with his legal advisers about the possibility of an appeal.

He also questioned the judge’s remarks about how he had failed to confirm what might’ve been available to the company from related parties.

“There was a $10 million deficiency in the related companies,” Ross said. “There was a massive shortfall and the bank had cross-collateralized security over all these other companies,” he said. “I don’t understand why he has ignored this point.

“Rest assured the judgement has come as quite a shock to all of us. We thought we had a very strong case. To have lost on all points is a shock to all of us. We’re considering our position in respect to appealing the judgement, although obviously that involves additional cost,” Ross said.

 

About the Author

Peter Gosnell

Sydney Insolvency News illuminates the practice of insolvency in Australia’s largest city, highlighting the triumphs and failures of Sydney’s registered practitioners and the accounting and legal professionals who work with them. SiN is produced by Peter Gosnell, former business editor and senior business reporter at The Daily Telegraph newspaper. During a decade-long career, your correspondent reported on such notable corporate collapses as HIH, One.Tel, Westpoint and Fincorp as well as some of the nation’s highest profile bankruptcies and the investigations and prosecutions arising from Australia’s most notorious instances of white collar crime.

2 Comments on "“Ambitious” preference pursuit derailed by judge"

  1. It is most improper to say that the judge “derailed” the claim.

    The judge determined the claim, and found that the liquidators did not discharge their onus.

    Having been approached by many clients who received ill-considered preference demands (including in in respect of FPJ Group Pty Ltd), without due regard for the merits of the claim, I am not surprised that this litigation was likewise unsuccessful.

    Liquidators should be properly assessing preference claims before issuing demands, and certainly before commencing proceedings. If the practice continues, it should be the subject of similar findings against debt collectors who are held to engage in misleading and deceptive conduct by issuing demands on statute-barred debt.

  2. if there was no underlying source record or evidence to support any of the assertions it would not have mattered whether the “expert report” was one prepared by the liquidator or by an independent “expert”. The “expert” can only express views upon the basis of materials that are in evidence or likely to be admitted into evidence. I do not see anything wrong with a liquidator swearing an affidavit for the purposes of introducing the source record is and because of his direct knowledge of the examinable affairs of the company under control preparing summaries and to some extent drawing conclusions. He cannot however be an “expert” in the traditional sense because he is not independent. He is able to give however direct evidence of his investigations. The end result on a determination of insolvency is however a matter for final determination and it appears that whichever way the matter was conducted the liquidator was unable to satisfy the court on admissible evidence before the court that the company was “insolvent” as was asserted at the relevant time. That being the case the result is somewhat inevitable.

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