Search

Quality and consistency through collaboration

All.Corporate & Commercial.Insolvency & Restructuring

In February 2023 we published an article (Liquidators beware! The necessity of properly particularising a claim for insolvent trading) reporting on the matter of Copeland as liquidator of Skyworkers Pty Limited (in Liquidation) v Murace [2023] FCA 14 as a reminder of the need for liquidators (and their lawyers) to properly particularise the basis on which it is asserted that the relevant company was insolvent at the time it incurred the debts the subject of the claim. 

In the proceeding, the liquidator sought the sum of $4,478,016.88 from Mr Murace pursuant to s 588M of the Corporations Act 2001 (Cth) (Act) for failing to prevent the company of which he was a director from trading while insolvent in breach of s.588G of the Act.

Mr Murace filed an application for summary dismissal and alternatively to strike out the statement of claim (in full or in part) on the basis that:

  1. In relation to s 588G of the Act, the statement of claim did not plead the dates on which debts were alleged to have been incurred or how the debts were incurred.
  2. The allegation that Skyworkers failed to keep financial records in relation to a period as required by ss 286(1) of the Act or failed to retain financial records for the period of seven years required by ss 286(2) of the Act, required to support the presumption of insolvency pursuant to s 588E(4) of the Act, was not adequately particularised.
  3. The allegation that of insolvency pursuant to s 95A (of actual insolvency) lacked adequate particulars.

Mr Murace succeeded on the first two grounds and on 18 January 2023. His Honour Justice Halley  made an order striking out the statement of claim but granting the liquidator leave to replead.

On 10 May 2023, the liquidator filed an amended statement of claim in which the debts alleged to have been incurred in contravention of s 588G of the Act were more limited and pleaded with greater particularity.  The claim was reduced from $4,478,016.88 to $1,093,744.98.

Final Determination

Ultimately the liquidator got his man but in a vastly reduced quantum.  On 23 August 2024 Justice Halley delivered his judgment finding, in summary, that each of the elements necessary to establish a contravention of s 588G of the Act against Mr Murace had been satisfied.  Specifically, His Honour found that:

  1. The majority of the impugned debts were incurred at a time when Mr Murace was a director of Skyworkers.
  2. A reasonable person in a like position to Mr Murace would have suspected that Skyworkers was insolvent at the time it incurred the impugned debts.
  3. Mr Murace did not have reasonable basis to consider that Skyworkers was solvent at the time it incurred the impugned debts.
  4. Mr Murace did not have reasonable grounds to believe that another competent and reliable person was responsible for providing him with adequate information as to Skyworkers solvency, nor that the information provided was sufficient to expect that Skyworkers was solvent at the time the debts were incurred and that the company would remain solvent after the impugned debts were incurred.

Mr Murace failed to establish a defence pursuant to s 588H of the Act.  

The debts found to have been incurred when Mr Murace was a director totalled $776,370.10.  His Honour Justice Halley made an order  pursuant to s 588M(2) of the Act that Mr Murace pay as a debt due to the company the amount of $776,370.10.

Summary

The liquidator, having failed to initially particularise properly allegations of insolvency and having his statement of claim struck out, ultimately succeeded in establishing a claim for insolvent trading against the director albeit in a substantially reduced amount. It seems apparent that, having subsequently taken the time to particularise the allegations of insolvency, it was established that a significant number for the debts included in the initial statement of claim were not incurred either while the company was insolvent or while Mr Murace was a director.  The result was a significantly reduced claim. 

It is a timely reminder, again, that precision in framing allegations of insolvency are critical to ensure efficiency in any claim for breach of s 588G.  

Return To Top