If you’re going to ask a court to find that a director traded a company whilst it was insolvent, you need to know the dates on which the relevant debts were incurred.
As one Sydney liquidator recently discovered, failing to do so can be fatal for your statement of claim and it’s never fun to find a costs order tacked to the corpse of your case.
“It is no answer to these requirements to contend that the information is not available. If a Liquidator does not know when a debt was incurred and how it arose, it would seem axiomatic that the alleged debt could not be relied upon for the purpose of an insolvent trading claim.” Justice John Halley.
As is revealed in Copeland in his capacity as liquidator of Skyworkers Pty Limited (in Liquidation) v Murace  FCA 14 liquidator Brendan Copeland was between a rock and a hard place.
While convinced that Skyworkers director Paul Murace, 52 of Warriewood, had traded the company whilst it was insolvent, providing a statement of claim that could survive the director’s subsequent strike out application proved impossible.
This was because Copeland was unable to match the great majority of debts with specific dates.
That meant his statement of claim couldn’t plead with specificity that the debts he’d identified coincided with periods when he could show the company was insolvent.
After receiving particulars of the relevant debts Murace applied for orders for summary dismissal or, failing that, orders to have the claim struck out.
While Federal Court judge John Halley said it was too early in the proceedings to find that the liquidators action was an abuse of process he did agree that the statement of claim in its existing form couldn’t stand.
“Whether evidence is closed or not does not excuse the need to plead essential elements of a cause of action,” he said.
“Nor does any inability or failure to identify essential elements of a cause of action, irrespective of the reasons for that inability or failure, relieve a plaintiff seeking to pursue a claim from pleading sufficient material facts to establish the necessary elements of a cause of action.”
iNO’s mail is that Copeland couldn’t meet that requirement because the director insists that Skyworkers’ books and records had been stolen, though it’s also been suggested to us by sources close to the matter that the “landlord took ’em”.
We understand that Copeland has taken the view that the director has not been cooperative and as such has been referred to the regulator for non-compliance.
That however didn’t cut any ice with the judge.
“It is no answer to these requirements to contend that the information is not available,” the judge said.
“If a Liquidator does not know when a debt was incurred and how it arose, it would seem axiomatic that the alleged debt could not be relied upon for the purpose of an insolvent trading claim.”
In striking out Copeland’s statement of claim the judge also ordered that he pay Murace’s costs since the commencement of proceedings on June 3, 2022.
He did however grant Copeland leave to file an amended statement of claim, that leave being conditional on him paying Murace’s costs.
While the amount is likely to be significant iNO’s sources indicate that there has been some give and take in the weeks since the judgment was delivered in mid-January.
Our understanding is that Copeland has been approached about discussing a possible settlement offer, which might mean he won’t have to pay Murace’s costs as well his own.