This week’s TGIF considers Arnautovic v Qaqour  FCA 726 in which the Federal Court of Australia ordered a director of a company in liquidation to surrender his passport and prohibited him from travelling outside of NSW without the Court’s prior consent.
- Prior refusal to provide an undertaking not to travel can be used as evidence of future intention to leave a jurisdiction.
- Recent travel can be used to support an inference of future possible travel even if the individual returned to Australia.
- It is the cumulative effect of facts and matters which inform a court’s assessment of whether there is substantial evidence that an individual intends to leave Australia to avoid the consequences of a potential liability to the company.
Scottish Pacific Business Finance Pty Ltd (ScotPac) was engaged in the business of providing debtor finance. In essence, the business model involved ScotPac’s clients assigning particular debts to ScotPac in return for funds. The clients’ debtors would then pay ScotPac directly.
On 11 December 2019, ScotPac entered into such an agreement with Penny World Pty Ltd (Penny World) whose sole director, shareholder and secretary was Mr Shadi Qaqour. On 3 May 2022, ScotPac noted some anomalies in Penny World’s invoices. Later investigations suggested that these invoices were fabricated.
It was later found that withdrawals were made from Penny World’s bank account almost immediately after each deposit by ScotPac. These withdrawals were in round figures and corresponded with the deposited amounts from ScotPac. The amounts were transferred to an account maintained by Wizly Pty Ltd (Wizly) of which Mr Qaqour was the sole director, secretary and shareholder. Penny World’s bank statements also had withdrawals which appeared to be items of personal expenditure including the purchase of an airline ticket with Emirates, international ATM withdrawal fees and hotel accommodation in Jordan.
Receivers appointed to Penny World by ScotPac had correspondence from Mr Qaqour’s former wife and an apparent associate of Mr Qaqour that he may attempt to travel overseas to avoid liability. On 17 June 2022, provisional liquidators were appointed to Penny World.
The provisional liquidators sought orders under section 486A(1) of the Corporations Act 2001 (Cth) (the Act). Under that provision, a court may order an officer of a company to surrender their passport and specified documents as well as impose a travel ban that can only be lifted by the court’s consent. The grounds on which such an order can be made are specified in section 486A(2) of the Act. Relevantly, the elements are:
- a court is satisfied there is at least a prima facie case that the officer will become liable to pay money to the company or to account for the company’s property; and
- a court is satisfied there is substantial evidence that the officer: has concealed or removed funds or property or has tried to leave the jurisdiction or intends to do so, in order to avoid that liability.
The provisional liquidators argued that the withdrawals evidenced a prima facie case against Mr Qaqour that he had breached his fiduciary and statutory duties as director of Penny World. The provisional liquidators also pointed to the personal nature of expenditure items in bank statements, the timing of withdrawals and the destination of those withdrawals being Wizly’s bank account as substantial evidence of concealment and use of funds for personal use.
The provisional liquidators submitted that Mr Qaqour’s recent travels to Dubai and Jordan meant that he could leave with ease. Furthermore, Mr Qaqour had refused to provide an undertaking not to leave Australia in previous related proceedings.
Result and reasoning
The Court found the evidence of the provisional liquidators to be sufficient. Accordingly, it granted the orders sought which required, amongst other things, Mr Qaqour to surrender his passport and be prohibited from leaving New South Wales without the Court’s prior consent.
In considering whether the orders were necessary or desirable to protect Penny World’s rights against Mr Qaqour, the Court took into consideration Mr Qaqour’s absence from the application. Consequently, the travel ban was limited in time with liberty being granted to Mr Qaqour to apply on short notice.
This decision serves as a reminder to insolvency practitioners and their advisers of the extensive powers available to courts to hold individuals accountable to a company in liquidation under the Act.
Parties should also be mindful of a courts’ cumulative approach to assessing the facts. This means that even if no individual fact can conclusively suggest an intention to conceal funds, or leave a jurisdiction, a court can nevertheless arrive at such a conclusion based on the totality of the evidence.
This publication is introductory in nature. Its content is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this publication. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.