FEDERAL COURT OF AUSTRALIA Registrar of the District Court of South Australia v Nicholas David Cooper as Official Liquidator of JM Properties Pty Ltd (in liquidation) (ACN 062 504 590) [2007] FCA 42 INTERLOCUTORY APPLICATION – application for leave to proceed with contempt proceedings against a company which is being wound up in insolvency – s 471B of the Corporations Act 2001 (Cth) – consideration of possibility of financial penalty against the company being wound up – requirement of undertaking that no financial penalty to be sought against the company if leave was to be granted. Corporations Act 2001 (Cth) s 471B District Court Rules 1987 (SA) r 84.21 JM Properties v Strata Corporation No 13975 Inc (No 3) [2006] SADC 46 referred to Iberian Trust Ltd v Founders Trust and Investment Co Ltd [1932] 2 KB 87 referred to Lunn's Civil Procedure REGISTRAR OF THE DISTRICT COURT OF SOUTH AUSTRALIA v NICHOLAS DAVID COOPER AS OFFICIAL LIQUIDATOR OF JM PROPERTIES PTY LTD (IN LIQUIDATION) (ACN 062 504 590) No SAD 208 of 2006 FINN J 24 JANUARY 2007 ADELAIDE IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SAD 208 OF 2006 BETWEEN: REGISTRAR OF THE DISTRICT COURT OF SOUTH AUSTRALIA Applicant AND: NICHOLAS DAVID COOPER AS OFFICIAL LIQUIDATOR OF JM PROPERTIES PTY LTD (IN LIQUIDATION) (ACN 062 504 590) Respondent JUDGE: FINN J DATE OF ORDER: 24 JANUARY 2007 WHERE MADE: ADELAIDE THE COURT NOTES THAT: 1. The Registrar of the District Court of South Australia undertakes that no financial penalty will be pursued against JM Properties Pty Ltd (in liquidation) (ACN 062 504 590) in the contempt of court proceedings for which leave to proceed is sought. THE COURT ORDERS THAT: 1. Leave be granted to the Registrar of the District Court of South Australia to proceed against JM Properties Pty Ltd (in liquidation) (ACN 062 504 590) in action number 720 of 2006 in the District Court of South Australia. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SAD 208 OF 2006 BETWEEN: REGISTRAR OF THE DISTRICT COURT OF SOUTH AUSTRALIA Applicant AND: NICHOLAS DAVID COOPER AS OFFICIAL LIQUIDATOR OF JM PROPERTIES PTY LTD (IN LIQUIDATION) (ACN 062 504 590) Respondent JUDGE: FINN J DATE: 24 JANUARY 2007 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 On 28 April 2006 her Honour Judge Simpson of the District Court of South Australia directed the Registrar of that Court to issue a summons against the company JM Properties Pty Ltd (ACN 062 504 590), and Jack Balalis and Marina Balalis in their capacity as its directors and in their personal capacity, to answer a charge of contempt of court in that they failed to comply with the orders of the District Court made on 15 August 2005 and amended on 25 November 2005: see JM Properties v Strata Corporation No 13975 Inc (No 3) [2006] SADC 46. 2 The reason for the present application is that on 16 November 2006 JM Properties was ordered to be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth) ("the Act") and Nicholas David Cooper was appointed liquidator of the company. Section 471B of the Actprovides that while a company is being wound up in insolvency a person cannot begin or proceed with a proceeding in a Court against the company except with the leave of the Court and in accordance with such terms, if any, as the Court imposes. The Registrar has applied under that provision for such leave. 3 The contempt proceedings against JM Properties are proceedings to which s 471B applies. That proceedings, as also parallel proceedings against Mr and Mrs Balalis, were founded on alleged breaches of Mareva orders made against them by Judge Simpson in relation to dealings with a number of the assets of JM Properties and of another company. I need not enlarge upon the orders and their breach as it is clear, as her Honour found (at [78] of her reasons for judgment), that the transactions entered into by Mr and Mrs Balalis in encumbering and otherwise dealing with properties of JM Properties constituted a wilful and therefore contumacious breach of the orders. Mr and Mrs Balalis were directors of the company at the time. 4 The immediate reason for the leave application is occasioned by provisions of the District Court Rules 1987 (SA). Rule 84.21 provides that: "A judgment or order against a body corporate which has been wilfully disobeyed may, by leave of the Court, be enforced by sequestration against the property of the body corporate or by attachment against the directors or other officers thereof or by sequestration of their property." 5 The view taken by the Registrar's legal advisers in reliance upon a commentary in Lunn's Civil Procedure on r 84.21 is that no order could be made against Mr and Mrs Balalis as directors of JM Properties unless the applicant could also proceed against JM Properties. Lunn's commentary relies upon the decision of Luxmoore J in Iberian Trust Ltd v Founders Trust and Investment Co Ltd [1932] 2 KB 87 where it was said of a rule in relevantly identical terms, that as the remedy given against the directors was an alternative one, the rule was not applicable unless the party seeking to enforce the order was in a position to pursue the original remedy against the company: at 98. 6 While there may be a question whether the legislative bar to proceedings against a company in insolvency ought be taken to have the consequence suggested by Luxmoore J when a party seeks to rely upon r 84.21, it is unnecessary for me to consider that matter as the Registrar is seeking (even if only as an abundance of caution) to proceed against the company as well as the directors. 7 The Registrar's lawyers wrote to the liquidator, Mr Cooper, on 15 January advising him that they had received instructions to make this leave application. They indicated in that letter that, while the Registrar wished to continue the contempt proceedings against JM Properties, "the principal reason for this is to pursue the Directors, Mr and Mrs Balalis, for attachment pursuant to r 84.21 of the District Court Rules 1987 in relation to the alleged breaches of the Mareva Injunction Order by JM Properties". The letter to Mr Cooper went on to note that "subject to our receiving final instructions, we are likely to give an undertaking to the Federal Court that we will not pursue any financial penalty against JM Properties in relation to the alleged contempt of court". 8 On 19 January 2007 Mr Cooper indicated to the Registrar's lawyers that he had no objection to the application being made and he confirmed he would not be making any submissions in relation to the matter. 9 Though the present application is an unusual one, I am satisfied I ought give the leave that is sought but on the condition I will mention below. 10 There can be no doubting the seriousness of the question to be raised in the Registrar's proceedings. Its concern is to maintain the integrity and authority of court orders. Subject to what I have to say about the imposition of a financial penalty if the contempt is made out, the proceeding will not impede the ordinary winding up of the company and is unlikely to cause prejudice to the creditors of JM Properties. 11 The liquidation is an insolvent one. I have not been provided with evidence concerning the probable dividend that will be paid to creditors. It may be that ultimately they will be fully paid out, but I have no reason to believe this is so. It would in my view be inappropriate in this state of affairs to permit the possibility of a financial penalty being imposed on JM Properties in the event that the Registrar successfully prosecutes the proceeding against it. Such a penalty would necessarily deplete the assets available to the creditors and to that extent would burden them with satisfying the penalty imposed on JM Properties. For this reason, as a condition of granting the leave sought, I have required the Registrar to given an undertaking not to pursue any financial penalty against JM Properties. Such, as I have already indicated, was foreshadowed by the Registrar and has now been given to the Court. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn J. Associate: Dated: 24 January 2007 Counsel for the Applicant: Mr J Whitington Solicitor for the Applicant: Griffin Hilditch Counsel for the Respondent: The respondent did not appear. Date of Hearing: 24 January 2007 Date of Judgment: 24 January 2007