Background
Jonathon Colbran, the liquidator of Balsub Pty Ltd (in liquidation), sued former director Bradley Alastair Marks. The claim alleged that Marks had breached his duty to prevent insolvent trading and sought compensation under s 588M of the Corporations Act 2001 (Cth). The proceeding against a second defendant, Angela Marks, had already been dismissed by consent.
The plaintiffs alleged that Balsub incurred unpaid debts totalling $3,520,511.13 between 26 July 2012 and 26 July 2019 while Marks was a director and the company was insolvent. Marks was served, his solicitors entered an appearance, but he neither filed a defence nor opposed the application. Through his solicitor, he said he would not defend or take an active role in the case.
The Court’s Holding
Justice McEvoy held that Marks was in default under rr 5.22(b) and (d) of the Federal Court Rules 2011 (Cth): he had not complied with the order requiring a defence and had not defended the proceeding with due diligence. The Court was satisfied that he had been served and that the pleaded insolvent-trading case, on its face, entitled the plaintiffs to relief under r 5.23(2)(c).
The Court entered judgment requiring Marks to pay Balsub $3,520,511.13 under s 588M. It also awarded $1,580,347.80 in interest under s 51A of the Federal Court of Australia Act 1976 (Cth), plus costs. The remaining claims, including the unpressed directors’ duties claims, were dismissed.
Key Takeaways
- A director who elects not to defend a properly served insolvent-trading claim may face final default judgment.
- For default judgment, the Court assesses whether the statement of claim establishes entitlement to the relief; the applicant need not prove the claim through a full merits trial.
- The Court included a disputed $2.124 million related-party debt because the pleaded allegations were admitted by default and the debt had not been released, forgiven, or withdrawn.
Why It Matters
The decision illustrates the substantial exposure available under the insolvent-trading regime where a director fails to participate in proceedings. A deliberate decision not to file a defence can support the exercise of the Court’s discretion to give final judgment.
It also confirms that a creditor’s possible willingness to withdraw a proof of debt, or an assertion that repayment was contingent on the company’s ability to pay, will not displace an otherwise pleaded and admitted debt on a default-judgment application.