Silberman v One Tel Ltd [2001] NSWSC 895

Reported Decision : (2002) 20 ACLC 93

New South Wales Supreme Court

CITATION : Silberman v One Tel Ltd [2001] NSWSC 895 CURRENT JURISDICTION: 4258 of 2001 FILE NUMBER(S) : SC 4258 OF 2001 HEARING DATE(S) : 14/09/2001 JUDGMENT DATE : 16 October 2001

PARTIES : MARK SILBERMAN & ORS v ONE TEL LTD JUDGMENT OF : Master Macready at 1

COUNSEL : Mr I.D, Faulkner for plaintiffs Mr P.M. Wood for defendant SOLICITORS : Piper Alderman Laywers for plaintiffs Freehills for defendant CATCHWORDS : Corporations Law. Application for leave to proceed against company in liquidation under s 500(2) of the Corporations Act. Re Summit Design & Construction Pty Ltd 33 ACSR Oceanic Life Ltd v Insurance and Retirement Services Pty Ltd (1993) 11 ACSR 516 at 520 CASES CITED : Madden v Fisher (2001) NSWSC 535 Bank of Queensland Ltd v C.D. Morris & Sons Pty Ltd (In liquidation) (1980) 146 CLR 165 Ex Parte Parker 25 ACSR 560 DECISION : Paragraph 30

- 1 - 1 MASTER: This is an application pursuant to s 500(2) of the Corporations Act for leave to continue proceedings against the defendant which is in liquidation. The defendant had been subject to an Appointment of Administrator on 29 May 2001. Subsequently the creditors have resolved that the company be wound up. The first plaintiff was a director of the defendant at relevant times and the second plaintiff was his service company who had an arrangement with the defendant. The third plaintiff was also a director and the fourth plaintiff his service company. Each of the directors and their contracting companies have already commenced proceedings in the Industrial Relations Commission in New South Wales seeking to set aside certain arrangements entered into with the defendant. In the actions they have also joined Diners Club Pty Ltd and American Express International Inc. 2 The reason for the joinder of these two companies arose from the fact that the matters the subject of the proceedings were the use by the directors of corporate credit cards with those organisations. Each director had a corporate card and as a result had both a joint and several liability along with the defendant, One Tel Ltd, to meet the liabilities on those cards. The cards were used by the directors almost exclusively for the purpose of acquiring services and products for the purposes of the business of the defendant. The amounts that are owing on the cards as at the time of liquidation are very substantial and both American Express and Diners Club are pressing ahead with the proceedings against the directors to recover from them as well as seeking in due course to enforce their rights as an unsecured creditor in the winding up of the defendant. 3 The defendant, One Tel Ltd, from time to time had accepted payment from its customers by the use of the customer's Diners Club or American Express credit cards. Accordingly, in any one month period there would be substantial setoffs as a result of those payments against the amounts incurred on the directors' corporate cards. 4 Each director and their contracting company have brought two proceedings. One Tel Ltd is the defendant in each of the proceedings and each of the credit card companies are defendants in one of the proceedings brought by each of the directors. The applications seek to set aside the various contracts as unfair pursuant to s 106 of the Industrial Relations Act 1966 (New South Wales). In addition compensation is claimed for the amount of the applicant's liability to the credit card company. 5 The application by the plaintiffs is opposed by the defendant notwithstanding that the plaintiffs offer to undertake to the court, first, that the terms of their claim in the Industrial Relations Commission not be amended without the leave of this court and, secondly, that they will not seek to give effect to nor enforce any judgment which may be obtained without the leave of this court. 6 The principal grounds for opposition are that the effect of the proceedings may well be to give the directors a priority over other unsecured creditors and an advantage in relation to setoff of mutual claims. It is also said that the orderly administration of the liquidation of the defendant will be interrupted if the claims proceed in the Industrial Commission. 7 There does not seem to be any doubt that the liquidator would regard the debts to the credit card companies as appropriate debts able to be proved as unsecured debts in the winding up of the company. In the event that recovery is obtained by the credit card company against the directors then to that extent given that the debts relate to obligations of the company, the liquidator would allow the directors to prove in the liquidation for the amounts to the extent that they had paid the credit card companies as a result of the actions brought by the credit card companies against them. The directors then, of course, would only have status as unsecured creditors. 8 The principles upon which a court acts either under s 471B or s 500 of the Corporations Act have been deal with in a number of cases. Two reasons for refusing leave are commonly advanced.