KARAVELLAS T/AS SAVAS KITCHENS v KREY [1996] NSWCA 294

KARAVELLAS T/AS SAVAS KITCHENS v KREY SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

MAHONEY AP, CLARKE and SHELLER, JJA 15 February 1996, 7 March 1996 [1996] NSWCA 294

COMPANIES — directors — s556(1) Companies Code — liability for debts — defence — s556 (2) whether 'reasonable grounds' to expect inability to pay debt

In September 1989, the appellant began proceedings under s556(1) of the Companies (NSW) Code to recover from a director the amount of a debt incurred by a company which subsequently went into liquidation on the ground that at the time the debt was incurred, there were reasonable grounds to expect that the company would not be able to pay all its debts as and when they became due. The director relied upon a defence under s556(2) that at the time the debt was incurred he did not have reasonable cause to expect that the company would not be able to pay all its debts as and when they became due.

McCredie DCJ was not satisfied that, at the time the debt was incurred, there were reasonable grounds to expect that the company would not be able to pay all its debts as and when they became due and in particular the appellant's debt. The appellant appealed on the ground that the trial judge had erred as to the appropriate test to be applied.

HELD

1. The words "able to pay" admitted of some flexibility in regard to the time by reference to which the ability to pay had to be assessed;

Dunn v Shapowloff (1978) 2 NSWLR 235.

2. Whether there were reasonable grounds to expect the company would not be able to pay its debts when they fell due is to be judged by the standard appropriate for a director or manager of ordinary competence;

3M Australia Pty Ltd v Kemish (1986) 10 ACLR 371.

3. The findings of McCredie DCJ should not be disturbed.

ORDER Appeal dismissed with costs.

Mahoney AP I agree with the judgment of Sheller JA and generally with his reasons.