In the matter of
Key takeaways
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To grant a default judgment against a defendant, in order to clawback a voidable transaction, a court must be satisfied that the transactions are voidable (including that the relevant company was insolvent at the time).
- If such default judgment is sought against one of multiple defendants, there is a risk that this judgment will be inconsistent with the finding in the ultimate proceedings, including where the company is found to be solvent at the relevant time. Such a risk could bring the administration of justice into disrepute because the default judgment would have been entered against the defendant on a premise which a court may have subsequently found, in the same proceedings, to be incorrect.
- The case also serves as an important reminder to structure the pleadings in a way that clearly sets out all required elements and material facts of which a court would need to be satisfied in any allegation concerning voidable transactions, as against each of the defendants. This is particularly important where the plaintiff is considering applying for default judgment following a defendant's failure to file its defence.
- As
Bleecker's counsel accepted, it did not plead the necessary elements to satisfy the Court that the payments to NG Property were unfair preferences or unreasonable director-related transactions, in that:- it did not plead that the payments were made in respect of an unsecured debt owed by Bleecker Property to NG Property; and
- it did not plead that the payment was made to a director, relative or other party pursuant to section 588FDA(1)(b).
- It was unnecessary for the Court to determine whether NG Property's failure to file its defence was an admission to
Bleecker's uncommercial transaction claim, in circumstances where it did not plead the material facts to support this claim, and merely recited the statutory criteria. - it did not plead that the payments were made in respect of an unsecured debt owed by Bleecker Property to NG Property; and
- There was a risk that, after presuming Bleecker Property was insolvent at the relevant time, the Court may make inconsistent findings in the contested application. This would risk bringing the administration of justice into disrepute because the default judgment would be based on a finding that the Court subsequently found to be incorrect.
- These risks would not be removed or avoided if the Court simply caveated its decision on the basis that it had made following NG Property's failure to file a defence (and the deemed admissions that followed).
- In any event, it was contrary to the overriding purpose of the Court's discretionary power to grant default judgments, for facilitating the just, quick and cheap resolution of the real issues in the proceedings.
Background
On
In the main proceedings, their liquidator and the plaintiff companies allege that certain payments made by Bleecker Property and NKG to the defendants throughout
Bleecker Property and its liquidator (
Out of the three corporate respondents, two had filed defences in the main proceedings and as such,
Decision
The application for default judgment against NG Property was dismissed.
First, in considering whether the NG Property payments were voidable transactions, Williams J held:
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It was open to the Court to arrive at the requisite state of satisfaction on the basis of admissions including admissions that are taken to be made by a defendant's failure to file a defence.
Second, in considering the presumption of insolvency and risk of inconsistency, Williams J held:
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For the Court to arrive at the requisite state of satisfaction for the making of default judgment against NG Property, it would need to be satisfied that Bleecker Property was insolvent at the time the payments were made to NG Property, by reason of its failure to keep accurate financial records. Such a presumption would be made in the absence of a contested hearing on these points.
Comment
As her Honour noted, this case appears to be the first published case that considers the question of whether an order can be made under section 588FF(1)(a) of the Corporations Act by way of default judgment against one defendant where there are multiple defendants in the proceedings.
While Williams J found that the necessary elements or material facts had not been pleaded against the relevant defendant in any event, her Honour made it clear that there is a risk of inconsistent findings if default judgment is granted, which would presume the relevant company was insolvent at the time the alleged voidable transactions were made.
The case also serves as an important reminder to structure the pleadings in a way that clearly sets out all required elements and material facts that a court would need to be satisfied of in any allegation concerning voidable transactions, as against each of the defendants. This is particularly important where the plaintiff is considering applying for default judgment following a defendant's failure to file its defence.
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