Liquidation

·

29 Sep 2016

Insolvency dispute in the Family Court of Australia

READ TIME

3 min

Prompt, effective, efficient: a force to be reckoned with.


The Family Court of Australia has proved to be an effective and efficient means of resolving an insolvency dispute. In a judgment (where the names of the parties have been changed for privacy) the following chain of events provided a recovery of $65,000 for company creditors.

Background


  • C entered liquidation by order of the Supreme Court of South Australia and Nick Cooper was appointed as the liquidator.

  • C previously traded business as an importer and distributor of lighting products. The directors of C were Mr & Mrs K and Mr K’s mother.

  • At the time of the liquidation, Mr & Mrs K were engaged in property settlement litigation (over several properties) in the Family Court of Australia.


In respect of one of these properties (the "Queensland property"), which Mr K’s mother resided in, it was identified that C had been making mortgage repayments totalling approximately $65,000. C (in liquidation) alleged that the payments C had made towards the mortgage gave rise to an equitable interest in the Queensland property.

While C could have brought a claim in a State Court, as liquidator, we chose to intervene in the Family Court proceedings, to have the matter determined before Mr & Mrs K’s property was divided (and therefore potentially obtaining the best chance of recovery against the property). The Family Court ruled that it had the jurisdiction to hear the claim by C.

Proceedings

  • Mr K argued that the Queensland property was partly used as a storage facility for C's stock and therefore its mortgage payments were, in effect, rental payments.

  • This argument was rejected and the Family Court held that C held an equitable interest in the Queensland property and, further, that the liquidator was entitled to sell the property if Mr & Mrs K did not repay $65,000.


The Family Court is often overlooked as an appropriate jurisdiction for liquidator matters. And is often considered to be a difficult jurisdiction as the matrimonial parties in dispute can focus on more trivial issues, causing an increase in costs.

However, this case demonstrates the Family Court's willingness and effectiveness to resolve such disputes. Generally, this Court looks to ensure the parties' liabilities are first paid and then secondly the surplus dividend between the husband and wife.

In this case, the liquidator’s application was filed in November and the dispute was heard in March of the following year. Judgment was promptly handed down two months after the hearing. Mr K then appealed the judgment, which was dismissed two months later. In our experience, a State Court could take two years or more to reach the same result!

After judgment, the Court also assisted the liquidator to recover the judgment sum.

Mr & Mrs K had the primary responsibility to pay the liquidator’s claim, but failed to make the payment. Furthermore Mr K’s mother, who resided in the property, refused to move out and refused to allow sales agents to inspect the property.

Accordingly, we applied to the Family Court for the vacant possession and sale of the Queensland property. Again, the Court promptly granted the order. Additionally, the Court ordered that should Mr & Mrs K fail to sign appropriate documents to sell the property, the Registrar of the Court will be authorised to sign such documents.

While Family Court disputes are often overlooked as being costly and cumbersome, this case shows it can be an efficient and effective jurisdiction.

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