Case: Fryer v Powell (2001) 159 FLR 433
Outcome: considered
The wording of s 588M(2) also, in my view, tends to confirm that no such dramatic change was contemplated by the introduction of Div 4 of Pt 5.7B. Section 588M(2) empowers the liquidator to recover from the director "as a debt due to the company" an amount equal to the amount of loss or damage. That is the loss or damage suffered by the creditor or creditors in relation to the debt because of the company's insolvency. The use of the word "debt" in s 588M(2) and in s 588M(3) in the case of a creditor's action must be given some work. In Fryer v Powell (2001) 159 FLR 433, the Full Court of the Supreme Court of South Australia (Olsson, Duggan and Williams JJ) addressed the use of that word "debt" in s 588G and s 588M. In that case the liquidators of a company in liquidation sued the directors for recovery of a sum of money equivalent to the sum of the debts incurred at the time when the company was insolvent or when grounds existed for a reasonable suspicion that it was insolvent, to the knowledge of the directors. Judgment was given against the directors and they appealed. The relevant issue on that appeal was whether statutory imposts under the ITAA could constitute a debt for the purposes of s 588G of the Corporations Law, so the precise issue in this matter did not directly arise. The claim against the directors included a range of categories of debt including debts due to trade creditors (which do not appear to have been contentious), accrued leave entitlements, unpaid sales tax liabilities, penalties for non-payment of sales tax, unpaid group tax and assessed penalties for non-payment of group tax, and unpaid WorkCover levies and penalties for non-payment of WorkCover levies. Olsson J (with whom Duggan and Williams JJ agreed) concluded at 442, at [62] [63] that the ordinary English meaning of the word "debt" should be adopted, there being nothing in the Corporations Law to suggest any other special meaning, and because that meaning had been attributed to that word in s 556 of the Companies Code: see eg per Gleeson CJ in Hawkins v Bank of China (1992) 26 NSWLR 562 at 572. In respect of the statutory imposts, his Honour said at [72], at 444: ... if, by reason of the normal, ongoing operations of a company (including the mere passive retention of existing staff or premises), it is liable to pay a statutory impost, then it may properly be said that such an impost has been "incurred", as a debt, by the entity in question. In a complementary submission, counsel for the directors in that case (as here) placed emphasis upon the expression "loss or damage" in s 588M. It, too, is not defined either in the Corporations Law or in the Corporations Act . The argument was that the expression "loss or damage" indicated that the quantification of the liability was not the amount of the unpaid trade debt in each instance, and it was necessary for the Court to examine each individual debt and to make various potential abatements of it. His Honour said at [88] [89], at 447 that: I entertain no doubt that, read in context, the loss and damage adverted to is the amount of the unpaid debt due to the creditor in question. This is the view which was obviously taken by Austin J in Tourprint International Pty Ltd (In Liq) v Bott (1999) 32 ACSR 201 at 217 and, in my experience, has always been applied to the practical administration of the statute. Whilst the provisions of the Corporations Law , so applied, may give rise to some practical consequences which could be said to be somewhat arbitrary and possibly inequitable in some respects, the insolvency law has always, as a matter of practicality and commercial expediency, had to adopt certain parameters which are arbitrary. There is nothing particularly novel in the approach here in question. By way of contrast, the adoption of the approach espoused by Mr Randle would render administration in insolvency virtually unworkable. The legislature could not possibly have envisaged creating the inevitable complexity and requirement for detailed examination of collateral issues which Mr Randle propounds. I therefore reject his submissions and conclude that the "loss or damage" in question will normally be the quantum of relevant unpaid debts. Austin J in Tourprint International Pty Ltd (in liq) v Bott (1999) 32 ACSR 201 at 217 at [78] does not appear to have given the matter considerable attention because it did not arise in that case. See at [78]. His Honour's observations are certainly consistent with that conclusion, but they do not contain any consideration specifically of the point. 31 On the other hand, Mandie J in Australian Securities and Investments Commission v Plymin (No 1) recognised, correctly in my view, that Fryer v Powell 159 FLR 433 laid down only a general rule capable of variation according to particular circumstances: see at [2003] VSC 123 ; (2003) 175 FLR 124 at 255, at [535]. In that case, the loss and damage suffered by the creditors of a company in their claim against the directors needed to be adjusted beyond the amount of the unpaid debt because of an interim dividend distributed by the administrator under a scheme of arrangement of the company and for a further dividend which those creditors were likely to receive. His Honour added at 256 [535]: To the extent that any allowance for actual unexpected dividends is contrary to what was decided concerning the meaning of "loss and damage" in Powell v Fryer (2001) 37 ACSR 589, 602-3 (sic), I understand the plaintiff to have conceded that such allowance should be made and I tend, with respect, to think that the concession was correct in principle. 32 There is some apparent inconsistency in expression in the observations of Olsson J in Fryer v Powell 159 FLR 433, between an absolute assertion that loss and damage is the amount of unpaid debt due to the creditor, and that it is normally the quantum of the relevant unpaid debts. Those two things are not necessarily the same. The difference may not have been significant to the resolution of that case. 33 In my view, the difference in expression is also not of significance to the issue which presently arises in this matter. That is because the question is as to the nature of the entitlement in the liquidator established by s 588M(2) so far as it applies in the bankruptcy of the directors, having regard to s 82(1) and (2) of the Bankruptcy Act .