FEDERAL COURT OF AUSTRALIA McLellan (as Liquidator of W & M Klein Pty Ltd (in liq)) v Klein [2007] FCA 1576 ANDREW JAMES McLELLAN (AS LIQUIDATOR OF W & M KLEIN PTY LTD (IN LIQUIDATION) (ACN 006 528 543)) v WOLFGANG KARL KLEIN AND MERJA IRMELI KLEIN WAD 184 OF 2007 SIOPIS J 24 SEPTEMBER 2007 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD 184 OF 2007 BETWEEN: ANDREW JAMES McLELLAN (AS LIQUIDATOR OF W & M KLEIN PTY LTD (IN LIQUIDATION) (ACN 006 528 543)) Applicant AND: WOLFGANG KARL KLEIN First Respondent MERJA IRMELI KLEIN Second Respondent JUDGE: SIOPIS J DATE OF ORDER: 24 SEPTEMBER 2007 WHERE MADE: PERTH UPON THE APPLICANT MAKING THE UNDERTAKINGS SET OUT IN SCHEDULE A TO THIS ORDER, THE COURT ORDERS THAT: 1 The service of the Application, supporting Affidavits, Originating Process and Order be effected by 4 pm on 27 September 2007. 2 Subject to the next paragraph, this Order has effect up to and including 8 October 2007 (the Return Date). On the Return Date at 10.15 am there will be a further hearing in respect of this Order. 3 Any person served with or notified of this Order, including the respondents, may apply to the Court at any time to vary or discharge this Order or so much of it as affects the person served or notified. 4 In this Order: (a) "applicant" if there is more than one applicant includes all the applicants; (b) "respondent" if there is more than one respondent includes all the respondents; (c) "third party" means a person other than the applicant or respondents; and (d) "unencumbered value" means value free of mortgages, charges, liens or other encumbrances. 5 (a) If the respondent is ordered to do something, the respondent must do it themselves or through directors, officers, partners, employees, agents or others acting on the respondent's behalf or instruction; (b) If the respondent is ordered not to do something, the respondent must not do it themselves nor through directors, officers, partners, employees, agents or others acting on the respondent's behalf or instruction, nor with the respondent's encouragement nor in any other way. 6 (a) The respondent must not remove from Australia or in any way dispose of, deal with or diminish the value of any of the respondent's assets in Australia ("Australian Assets") up to the unencumbered value of $129,404.00; (b) If the unencumbered value of the Australian Assets exceeds $129,404.00, the respondent may remove any of those assets from Australia or dispose of or deal with them or diminish their value, so long as the total unencumbered value of the Australian Assets still exceeds $129,404.00. 7 For the purposes of this Order: 7.1 The respondent's assets include: (a) all the respondent's assets whether or not in the respondent's name and whether owned solely or co‑owned; (b) any asset which the respondent has the power, directly or indirectly, to dispose of or deal with as if it were the respondent's own (and the respondent will be regarded as having such power if a third party holds or controls the asset in accordance with the respondent's direct or indirect instructions); and (c) the following assets in particular, being the land contained in lot 1 on title plan 383888U (formerly known as part of Crown Allotment 76B, Parish of Beenak), volume 05859, folio 675, or if it has been sold the net proceeds of the sale; 7.2 The value of the respondent's assets is the value of the interest in assets held individually. 8 The respondent is not prohibited by this Order from: (a) paying the respondent's ordinary living expenses and reasonable legal expenses; (b) dealing with or disposing of any of the respondent's assets in the ordinary and proper course of the respondent's business, including paying business expenses bona fide and properly incurred; and (c) in relation to matters not falling within (a) or (b), dealing with or disposing of any of the respondent's assets in discharging obligations bona fide and properly incurred under a contract entered into before this Order was made, provided that before doing so the respondent gives the applicant, if possible, at least two working days written notice of the particulars of the obligation. 9 The respondent and the applicant may agree in writing that the exceptions in the preceding paragraph are to be varied, in which case the applicant or respondent must as soon as practicable, file with the Court and serve on the other party a Minute of Proposed Consent Orders recording the variation signed by or on behalf of the applicant and the respondent, and the Court may order that the exceptions in the preceding paragraph are varied accordingly. 10 (a) This Order will cease to have effect if the sum of $129,404.00 is paid in to Court, or that sum is paid into a joint bank account in the name of the respondent's solicitor and the applicant's solicitor as agreed in writing between them or security in that sum is provided by a method agreed in writing with the applicant and held subject to the Order of the Court; (b) Any payment and any security pursuant to (a) above will not provide the applicant with any priority over the respondent's other creditors in the event of insolvency; (c) If this Order ceases to have effect pursuant to (a) above, the respondent must as soon as practicable file with the Court and serve notice on the applicant of that fact. 11 The costs of this Application are reserved to the Judge hearing the application on the Return Date. 12 This Order does not prevent any bank from exercising any right of set off it has in respect of any facility which it gave to the respondent before being notified of this Order. 13 No bank need inquire as to the application or proposed application of any money withdrawn by the respondent if the withdrawal appears to be permitted by this Order. SCHEDULE A ‑ UNDERTAKING BY THE APPLICANT (1) The applicant undertakes to submit to such Order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct) to any person (whether or not a party) affected by the operation of the Order. (2) As soon as practicable, the applicant will file and serve upon the respondent copies of: (a) this Order; (b) the Application for this Order, for hearing on the Return Date; (c) in so far as they were relied upon by the Applicant at the hearing when this Order was made, Affidavits, Exhibits capable of being copied, written Submissions and any other document provided to the Court; (d) a transcript, or if none is available a note of any exclusively oral allegation of fact that was made and of any exclusively oral submission that was put to the Court; and (e) the Originating Process, or if none was filed any draft Originating Process produced to the Court. (3) As soon as practicable, the applicant will cause any person notified of this Order to be given a copy of it. (4) The applicant will pay the reasonable costs of any person other than the respondent which have been incurred as a result of this Order, including the costs of finding out whether that person holds any of the respondent's assets. (5) If this Order ceases to have effect, the applicant will promptly take all reasonable steps to inform of the cessation, in writing, any person who has been notified of this Order, or who the applicant has reasonable grounds for supposing may act upon this Order. (6) The applicant will not, without the leave of the Court, use any information obtained as a result of this Order for the purpose of any civil or criminal proceedings, either inside or outside Australia, other than this proceeding. (7) The applicant, will not, without the leave of the Court, seek to enforce this Order in any country outside Australia or seek in any country outside Australia an Order of similar nature or an Order conferring a charge or other security against the respondent or the respondent's assets. SCHEDULE B ‑ AFFIDAVITS RELIED UPON Name of Deponent Date Affidavit was made Andrew James McLellan 17 September 2007 Timothy Andrew Searle 24 September 2007 NAME AND ADDRESS OF APPLICANT'S LEGAL REPRESENTATIVE Lavan Legal Telephone: (08) 9288 6000 Level 19 Facsimile: (08) 9288 6001 1 William Street Reference: TAS:SKS:10299545 PERTH WA 6000 Mr Stuart Shepherd Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD 184 OF 2007 BETWEEN: ANDREW JAMES McLELLAN (AS LIQUIDATOR OF W & M KLEIN PTY LTD (IN LIQUIDATION) (ACN 006 528 543)) Applicant AND: WOLFGANG KARL KLEIN First Respondent MERJA IRMELI KLEIN Second Respondent JUDGE: SIOPIS J DATE: 24 SEPTEMBER 2007 PLACE: PERTH REASONS FOR JUDGMENT 1 On 19 September 2007, the applicant, who is the liquidator of a company, W & M Klein Pty Ltd (in liquidation) (the company), commenced a proceeding in this Court against the respondents for recovery of the sum of $129,404, which was paid by the company to the respondents on or about 6 August 2004. The applicant claims that the payment is voidable under one or more of ss 588FA, 588FB, and 588FDA of the Corporations Act 2001 (Cth) (the Act). At the same time, the applicant also applied for freezing orders, pursuant to O 25A of the Federal Court Rules (the Rules), precluding the respondents from disposing of their property in any way that would diminish the value of their property below $129,404. 2 The circumstances of the payment are set out in the affidavit of the applicant, sworn 17 September 2007. The applicant deposes that the respondents were the only directors and shareholders of the company. In 2001, the company commenced a proceeding in the Federal Court against a company then called Art Plastics Pty Ltd (Art Plastics) for an alleged infringement of patent. The company failed in that proceeding. 3 On 23 December 2003, judgment was given dismissing the company's claim and ordering that the company pay Art Plastic's costs. The taxation of costs was made sometime later and on 8 December 2004 an order was made that the company pay Art Plastics the sum of $113,163.43 in costs. 4 In August 2004, after the judgment, but prior to the making of the costs order, the company made a payment in the amount of $129,404 to the respondents. It appears that the payment was made from the proceeds of the sale of a rental property owned by the company. It is said that, by reason of the payment made to the respondents, the company was unable to satisfy the judgment debt in favour of Art Plastics. 5 On 18 October 2005, the Court ordered that the company be wound up in insolvency and that the applicant be appointed as the liquidator. 6 The applicant caused an examination of the respondents to be conducted under s 596A of the Act before a Registrar of this Court in Melbourne. The applicant has exhibited a transcript of that examination to his affidavit. In the course of those examinations, the respondents were asked about the basis upon which the company paid them $129,404. The first respondent explained that the payment was an eligible termination payment on the basis of redundancy, but neither respondent was able to explain the foundation underlying the payment, nor the basis upon which the payment was derived, beyond saying it was an accountant's calculation. 7 Order 25A r 2(1) of the Rules provides that: The Court may make an order (a freezing order), upon or without notice to a respondent, for the purpose of preventing the frustration or inhibition of the Court's process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied. 8 First, I am satisfied that the evidence of the applicant discloses a serious question to be tried, that the payment made by the company to the respondents was a voidable transaction under the sections of the Act relied upon by the applicant in his claim against the respondents. 9 The next issue is whether there is a danger that if the order is not made the respondents will take steps which will cause a judgment in this proceeding to be wholly or partly unsatisfied. 10 The only evidence before the Court as to the assets of the respondents is that they jointly own a property in Victoria. There is no evidence of the value of the property, nor is there any evidence that the respondents are taking steps to sell the property. The applicant, however, relies upon evidence of the respondents' conduct in causing the company to make the impugned payment and thereby, deprive the company of sufficient assets to pay the prospective judgment debt to Art Plastics. I am satisfied that the evidence of this previous conduct of the respondents, in their capacity as directors of the company, provides a sufficient basis to found the inference that there is a danger that the processes of the Court will be frustrated by the respondents attempting to render themselves judgment proof through the disposal of their property (Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft GmbH (The Niedersachsen) [1984] 1 All ER 398 at 406). 11 The respondents are not represented. Accordingly, I will make the orders on an interim basis, so as to give the respondents an opportunity to bring evidence and make submissions 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 Siopis. Associate: Dated: 11 October 2007 Counsel for the Applicant: Mr S Shepherd Solicitor for the Applicant: Laval Legal Counsel for the First and Second Respondents: The first and second respondents did not appear. Date of Hearing: 24 September 2007 Date of Judgment: 24 September 2007