Re Locktronic Systems Pty Ltd (No 1) [2008] VSC 626
In a claim by liquidators and the company under the Corporations Act 2001 (Cth) against the Commissioner of Taxation to recover alleged preferential payments, Robson J ruled mid-hearing that he would not enter judgment on the Commissioner's consent while one third party, a former director, kept a defence under rule 11.09(2) of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) denying the company's alleged insolvency, but would if that director withdrew it, and held that the two who had delivered and then withdrawn the defence were taken to admit the allegations of paragraph 6 of the statement of claim that it had denied.
What the court decided
The liquidators of Locktronic Systems Pty Ltd (Locktronic), with Locktronic (the plaintiffs), applied under section 588FF to have alleged preferential payments to the Commissioner declared voidable [1]. The Commissioner claimed indemnity under section 588FGA from three former directors (the third parties) if held liable (the third party claims) [2], [4].
Under rule 11.09(2), the third parties filed a defence to the plaintiffs' pleading [7]. Save for admitting the parties to, and timing of, the payments, it denied each allegation of paragraph 6, including that Locktronic was then insolvent or became so partly because of them [7]. At the hearing, the plaintiffs sought consent judgment [3]. Mr King and Mr Nissen withdrew their defence [8], [19]. The court was informed the other, Mr Walsh, was prepared to consent to withdrawing his [8]; he was later allowed to reconsider [15].
His Honour reserved the application for judgment, directed the Commissioner to open against the third parties [12] and also reserved, as it affected Mr Walsh's defence to the third party claim against him, the Commissioner's submission that, by withdrawing, the third parties had admitted the alleged insolvency or could not deny it [12]–[13], [15].
Robson J said the rule enabled a third party, among other things, to raise directly a defence to the plaintiff's claim against the defendant [17], so the plea put in issue, as between the plaintiffs and the Commissioner, Locktronic's alleged insolvency at the time of the payments and their alleged preferential result, although the Commissioner had not raised them [18].
On these facts, his Honour held that Mr King and Mr Nissen, having delivered and then withdrawn the defence, were to be taken to admit the allegations of paragraph 6 [19].
If Mr Walsh kept his defence, the plaintiffs would have to prove their case, and judgment would not be entered on the Commissioner's consent because, his Honour said, the authorities establish that Mr Walsh had an interest in it [20]. If he consented to withdrawal, judgment would be entered for the plaintiffs, without affecting the section 588FGB defences open to him, including those turning on a director's reasonable expectation of solvency [6], [21].
The judgment's bracketed postscript records that Mr Walsh agreed to withdraw his defence, consent judgment was given and the third party claims proceeded with insolvency at the dates of the alleged preferences not in issue [22].
Why it matters
Robson J would not give consent judgment against the Commissioner while one third party maintained a rule 11.09(2) defence [20], and treated the two who had delivered and withdrawn it as admitting what paragraph 6 of the statement of claim alleged [19]. Robson J said Mr Walsh's withdrawal would not affect his statutory defences under section 588FGB [6], [21]; the postscript notes that the third party claims then went ahead without insolvency at the time of the alleged preferential payments in dispute [22]. This is one judge's mid-hearing ruling; check the current Act and rules.
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.