Insolvency - Court Refuses Application for leave to proceed in the name of company in
Receivership
Tim Elliott and Arnold Siu
1. Background
The recent Full Court of the Supreme Court of South Australia decision of Michalakas v
Powell [2014] SASCFC 132, considered sections 236 and 237 of the Corporations Act 2001
(Cth) and whether leave should have been granted to an individual to bring proceedings on
behalf of a company in receivership.
2. Facts
In 2010, Garden Estate Hackham Pty Ltd (“Garden E”) entered into a loan agreement with
Angas Securities Limited (“Angas”) to borrow $2.6m over a term of 12 months. Security for
repayment of the loan was given by Garden E.
In mid-2012, Garden E failed to repay the loan pursuant to the terms of the loan agreement
and receivers were appointed by Angas to Garden E pursuant to the security documents. As
a result, Mrs Michalakas (“M”), director of Garden E, sought leave from the Court to
commence proceedings against Angas in the name of Garden E on the basis that Angas was
in breach of the loan agreement by appointing receivers.
3. Arguments
At first instance, M’s application for leave was refused.
M appealed to the Full Court of the Supreme Court of South Australia and argued primarily
that leave should be granted as the agreement between the parties was partly in writing and
partly oral and the oral terms should be construed in a way to disentitle the appointment of
receivers by Angas.
4. Decision
It was held by the Full Court of the Supreme Court of South Australia that there were
profound difficulties in M’s arguments, especially as the supposed oral agreement was
contradictory to the terms of the written loan agreement. Further, there was no evidence of
any oral terms.
The Court dismissed M’s appeal and concluded that a party for leave must show at least a
probability that they will succeed in establishing entitlement to the relief to be sought in
their claim.
The Court also stated that as Garden E appeared insolvent and was in receivership, the best
interests of the company should be considered. The Court concluded that based on the
evidence before it, it was not in the company’s best interests to grant leave. Further, the
Court indicated that even if leave was granted, M would have to bear the costs of the
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proceedings and there was no evidence adduced by M to indicate her means or ability to
provide security for costs.
5. Implications
-
-
Written agreements/ terms are always better evidence than oral agreements. It is
therefore essential to have contractual terms drafted clearly and accurately in order
to protect one’s interests and to avoid any unnecessary dispute;
An applicant seeking leave to commence proceedings on behalf of a company in
receivership must demonstrate that:
o the company will not itself bring the proceedings;
o he/she acts in good faith;
o they have reasonable prospects of success; and
o granting leave is in the best interests of the company.
Gold Coast City’s most highly recommended Law Firm
Level 4, 91 Upton Street, Bundall Gold Coast · PO Box 5193, GCMC Bundall 9726 Queensland Australia
P: +61 7 5597 3366 · F: +61 7 5597 3988 · E: [email protected] · W: www.belllegal.com.au