TGIF 21 October 2022 – Keeping it in the Family (Court): successful application to transfer insolvency proceedings

This week’s TGIF examines the decision in Re Farley Bay (in liq) [2022] VSC 604, where an insolvency proceeding was successfully transferred to the Federal Circuit and Family Court despite the Supreme Court of Victoria considering the Applicant’s ultimate proprietary claims to be ‘weak’.

Key takeaways

• Proceedings brought under the Corporations Act 2001 (Cth) are likely to be transferred to the Federal Circuit and Family Court where there is a significant overlap with separate proceedings under the Family Law Act 1975 (Cth).
  
  
• An application to transfer a proceeding will be determined by reference to the overall cost and burden to the court and interested parties. That determination will have little regard to the applicant’s reason for seeking the transfer or their overall prospects of success.
  
  
• Where a liquidation is impeded by an application to transfer a proceeding, a court is likely to make orders on that application that best facilitate the conclusion of the liquidation.

Background

On 10 July 2019 the first plaintiff, Farley Bay Pty Ltd (in liquidation) (Farley Bay), was ordered to be wound up in insolvency under the Corporations Act 2001 (Cth) (Corporations Act) and a liquidator was appointed.

Since 2013, Mary Freeman (a pseudonym) has been involved in a protracted Family Court proceeding with her former de facto partner, Michael Davis (a pseudonym).

Farley Bay’s sole director was Ms Freeman and its sole shareholder was Panker Nominees (Vic) Pty Ltd. Farley Bay had a small number of significant creditors, namely the State Revenue Office and the Australian Taxation Office. Mr Davis had also claimed creditor status.

In August 2018, orders were made in the Family Court proceeding requiring, among other things, that Mr Davis withdraw any caveats he held asserting an equitable interest in property owned by Ms Freeman or Farley Bay. These orders were not complied with and Mr Davis later sought that the orders be set aside in the Family Court proceeding. In 2019, Ms Freeman was the subject of a sequestration order.

The Supreme Court proceeding

The Liquidator sought directions from the Supreme Court of Victoria under sections 90-15 and 90-20 of Schedule 2 Insolvency Practice Schedule (Corporations) (IPSC). The directions sought by the Liquidator included:

• an endorsement of the Liquidator’s treatment of any properties registered in the name of Farley Bay, including their sale and rental arrangements;
  
  
• an endorsement of the Liquidator’s plan to reject a proof of debt lodged by Mr Davis in the winding up of Farley Bay;
  
  
• the registration of a transfer of all shares in Farley Bay to Ms Freeman; and
  
  
• other associated and ancillary relief.

The Defendant’s application

On 17 April 2021, Mr Davis applied to transfer the Supreme Court proceeding to the Federal Circuit and Family Court, to be heard in conjunction with the Family Court proceeding (Transfer Application). The Transfer Application was made pursuant to both section 5(1) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Vic) and section 1337H(2) of the Corporations Act. The Liquidator and Ms Freeman’s bankruptcy trustee (who was an interested party) opposed the Transfer Application.

Mr Davis sought to have the Supreme Court proceeding heard in the Federal Circuit and Family Court alongside his application under section 90SN of the Family Law Act 1975 (Cth) (Family Law Act) to set aside the August 2018 orders made in the Family Court proceeding which also dealt with the properties that were the subject of the Supreme Court proceeding.

Factors relevant to transfer

Associate Justice Gardiner considered eight factors relevant to determining whether the transfer of a proceeding was in the interests of justice. These factors were the:

• stage of the proceedings in the respective courts;
  
  
• commonality or diversity of the parties to undertake the process;
  
  
• nature of the proceedings;
  
  
• commonality or diversity of the issues;
  
  
• risk of conflicting findings of fact and/or orders;
  
  
• costs benefit analysis;
  
  
• potential for unnecessary drain on judicial and other public and private resources; and
  
  
• the presence of particular judicial expertise in one court or the other.

Applicable law

Gardiner AsJ stated that section 1337H of the Corporations Act provided a specific regime for transferring Corporations Act proceedings to the Federal Circuit and Family Court and it was therefore the appropriate provision under which to consider such a transfer.

Moreover, any transfer would need to be ‘in the interests of justice’ as required by section 1337H, an assessment that would primarily consider the need to facilitate and conclude the winding up of Farley Bay.

Determination

Gardiner AsJ ordered that the Supreme Court proceeding be transferred to the Federal Circuit and Family Court.

In reaching this determination, His Honour made the following observations:

• the application to set aside the 2018 orders was due to be heard in the Family Court proceeding;
  
  
• there was a significant degree of commonality between the parties in both proceedings, with each party in some way connected to or influenced by the other;
  
  
• Mr Davis’ claims to the properties were weak and any interests he had in them would likely have been captured by his bankruptcy between 2010 and 2013;
  
  
• in any event, the Liquidation had been stymied and frustrated by Mr Davis’ claims, as the dispute centred around assets that would be sold to meet the claims of Farley Bay’s creditors;
  
  
• there was a clear risk that a determination in the Supreme Court proceeding regarding Mr Davis’ proprietary claims could conflict with a decision in the Family Court proceeding;
  
  
• there would be a duplication of costs if the Liquidator were joined to the Family Court proceeding;
  
  
• an assessment of Mr Davis’ proprietary claims would occur in both proceedings, causing an ‘unnecessary and unjustifiable duplication of judicial resources’ in both courts; and
  
  
• the Federal Circuit and Family Court was empowered to make orders on each of the matters at issue, while the Supreme Court was not empowered to make orders under the Family Law Act.

Comment

This decision reinforces the principles that a court will consider in determining whether to transfer a proceeding to another court.

Significantly, a court which has jurisdiction in particular areas of contention may not be preferred to a court which is empowered to make orders in all areas of contention meaning, where there is substantial overlap between Family Law Act and Corporations Act issues, a proceeding is most likely to be dealt with in the Federal Circuit and Family Court, despite insolvency matters being more commonly dealt with in the Supreme or Federal Courts in specialist lists.

Additionally, this case is an interesting example of a court’s assessment of the ‘interests of justice’. Here, while the Court agreed with the Liquidator that it would be in the interests of justice to make orders to facilitate an otherwise stymied liquidation process, the Court considered the transfer to be more likely to achieve that result in all the circumstances.