Court considers form of orders in first anti-phoenixing case

In Re Intellicomms Pty Ltd (in liq) [2022] VSC 228, the Supreme Court of Victoria held that a sale agreement entered into by Intellicomms Pty Ltd ("Company") was a creditor'€defeating disposition within the meaning of s 588FDB(1) of the Corporations Act 2001 (Cth) ("'Act") and voidable pursuant to s 588FE(6B) of the Act.' '  The decision represented the first occasion on which the Court considered the new anti-phoenixing laws.'  See our earlier report here. In Re Intellicomms Pty Ltd (in liq) (No 2) [2022] VSC 310, the Court considered the appropriate form of order.

The Facts

The Company operated a business which provided translation .'  Immediately prior to its liquidation, the Company sold certain business assets to Technologie Fluenti Pty Ltd ("TF"), which was incorporated two weeks before the transaction.'  The director and shareholder of TF was the sister of the Company's director.

The Decision

In his first judgment, His Honour Associate Justice Gardiner described the sale agreement as a "brazen and audacious example" of a phoenix transaction. In his second judgment, His Honour declared the sale agreement to be a creditor defeating disposition within the meaning of ss.588FDB(1) and 588FE(6B) of the Act.'  ' His Honour also made orders pursuant to s.588FF(1)(b) of the Act that TF deliver to the Company all property of the Company the subject of the impugned sale agreement. Other property At the second hearing, the plaintiffs also sought orders that TF deliver to the Company all its property forthwith (i.e. including property that was not the subject matter of the sale agreement).'  The plaintiffs argued the proposed order was permitted under ss.588FF(1)(c) or (d) of the Act. Where a transaction is voidable because of s. 588FE, the Court may make an order requiring a person to:

• pay to the company an' amount fairly representing some or all of the benefit received because of the' transaction (s 588FF(1)(c));
• transfer to the company property that fairly represents the application of either or both of the following:
  • money that the company has paid under the transaction;
  • proceeds of property that the company has transferred under the transaction (s. 588FF(1)(d)).

In propounding the orders sought, the plaintiffs asked the Court to infer that any property of TF which was not previously the property of the Company had been "derived" by TF as a result of the sale agreement.'  In particular, the Company's intellectual property, including confidential information, had been transferred to TF under the agreement. The plaintiffs argued that it could be reasonably inferred that any property held by TF, that was not the subject of the sale agreement, fairly represented the application and use of the Company's property. Ultimately, the Court held it did not have the power under s.588FF(1)(c) to make the order sought because the section provides for the award of "an amount" which represents the benefit'  received, and there was no basis or evidence for the calculation of such an amount. Further, the Court held there was insufficient evidence that the property captured by the proposed order "fairly represented" the application of proceeds of property transferred under the impugned transaction within the meaning of s.588FF(1)(d). Next, the plaintiff's proposed an order that TF transfer to the plaintiffs all items of intellectual property utilized for TF's business.'  The Court disagreed with this formulation, and maintained that the statutory power under s.588FF(1) is confined to making orders in respect of property transferred under the impeached transaction.'  Accordingly, the Court limited its order to "all items of intellectual property sold" pursuant to the impugned sale agreement. Customer contracts Finally, the plaintiffs sought orders under ss.588FF(1)(h) and (i) of the Act that any contracts between TF and former customers of the Company be varied to: (a) delete any clause prohibiting an assignment; and (b) replace TF with the Company as a party to the agreement. Pursuant to ss.588FF(1)(h) and (i), the Court may make an order:

• declaring an agreement constituting, forming part of, or relating to an impugned transaction to have been void (s.588FF(1)(h));
• varying such an agreement as specified in the order'€¦.(s.588FF(1)(i)).

While the Court acknowledged it could not impose an obligation on the affected customers to be involved in a contractual relationship with the Company if they did not wish to be, the Court'  considered it to be implicit that the affected customers agreed to the proposed variation.'  Accordingly, the Court did not impose any requirement for the affected customers to consent to the variation (as propounded by TF), or any mechanism for affected parties to apply to the Court in respect of the orders (as propounded by the plaintiffs).'  The Court was otherwise content to make orders varying the contracts in question as proposed by the plaintiffs. Take-Aways ' The powers conferred under s.588FF(1) are broad, but the Court's is still prescribed by the terms of each sub-section.

• When seeking broad orders clawing back property and proceeds from third parties, liquidators must provide sufficient evidence:
  • to support the calculation of "an amount" which represents the benefit a person has received because of the voidable transaction (in relation to sub-section (c)); and
  • of how the property "fairly represents" the application of money or proceeds of property the company in liquidation transferred under the voidable transaction (in relation to sub-sections (d)).
• While the judgment suggests the power conferred by ss.588F(1)(h) and (i) extends to the variation of contracts with innocent third parties, it is important to remember the unusual factual matrix which is likely to have contributed to the finding that the affected customers implicitly agreed to the variation.

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~ with Helen Hodgins, Associate