Background
Alexander Stephen Corry had been employed by NHB Enterprises Pty Ltd, a veterinary compounding chemist, from 2008 to 2017, rising to Chief Operations Officer. After leaving, he became a director and shareholder of a competing business, Medicina Pty Ltd. NHB and its related entity Finn Pharmaceuticals commenced proceedings in the NSW Supreme Court in 2019 alleging Corry had retained and used their confidential formulations in breach of a 2018 deed of settlement. Search orders uncovered significant volumes of NHB’s confidential information on Corry’s devices. Corry was subsequently found guilty of contempt of court beyond reasonable doubt, sentenced to three months’ imprisonment, and his appeal was unanimously dismissed by the NSW Court of Appeal in 2023.
Following a costs assessment, the respondents obtained a District Court judgment against Corry for $143,852.12 in costs, upon which they issued bankruptcy notice BN273521 in September 2024. Corry applied to a Federal Court Registrar to set aside the notice on the ground that he held a counter-claim, set-off or cross demand equal to or exceeding that amount under s 40(1)(g) of the Bankruptcy Act 1966 (Cth). The Registrar dismissed the application and ordered costs against Corry. Corry then sought review of those orders before Stewart J.
The asserted counter-claim arose from a June 2019 mediation in the Supreme Court proceeding. Corry alleged that the Medicina Parties and NHB’s managing director Nicholas Bova made or failed to correct misleading representations inducing him to resign as Medicina’s managing director, transfer his 30% shareholding for nil consideration, and forgive approximately $533,000 in debts owed to him by Medicina — all in exchange for what he was told was his proportionate one-third contribution to a $1 million settlement. He pleaded that the true amount paid by Medicina itself was only approximately $100,000, and that material terms of the settlement were concealed from him, giving rise to a damages claim under ss 18 and 236 of the Australian Consumer Law.
The Court’s Holding
Stewart J dismissed Corry’s application on review, conducting a full hearing de novo in accordance with the principles in Bechara v Bates [2021] FCAFC 34 and Totev v Sfar [2008] FCAFC 35. Applying the test from Glew v Harrowell [2003] FCA 373 — that the court must be satisfied the debtor has a claim “deserving to be finally determined” — his Honour found that Corry’s counter-claim was not such a claim. The foundational premise of the misleading conduct allegation, that Medicina was only obliged to pay approximately $100,000, was flatly contradicted by the Terms of Settlement themselves, which imposed a joint and several obligation of $1 million. Finn’s general ledger confirmed that $1 million was in fact paid across eight monthly instalments consistent with the settlement terms.
His Honour also identified that NHB and Finn could not readily be sheeted with liability: it was not pleaded that their managing director Bova had made any affirmative representations to Corry, only that he failed to disclose certain matters. No basis was pleaded or proved for any duty on Bova’s part to inform Corry of the terms negotiated independently between NHB/Finn and the Medicina Parties in a separate arm of the mediation. Moreover, the key fact Corry relied upon — the alleged shortfall in Medicina’s payments — could not have been known to Bova before the Heads of Agreement was signed, as it was said to have occurred afterward.
Stewart J further found that Corry had not established loss exceeding the judgment debt. On a “no transaction” counterfactual, Corry would have remained exposed to the cross-claims that the Heads of Agreement settled, potentially leaving him worse off. On a “different transaction” counterfactual, the analysis rested on the false $100,000 premise, and given Corry’s weak negotiating position arising from his contempt findings, there was no reasonable basis to conclude a more favourable settlement would have been achieved. The court also noted factual inconsistencies across Corry’s various affidavits and pleadings — including the belated emergence of the Heads of Agreement — as indicators of a claim constructed reactively rather than one with genuine substance. The alternative application to extend time for compliance with the bankruptcy notice was dismissed for the same reasons. Costs were awarded against Corry.
Key Takeaways
- To set aside a bankruptcy notice under s 40(1)(g) of the Bankruptcy Act 1966, a debtor must demonstrate a counter-claim, set-off or cross demand “deserving to be finally determined” — a threshold that requires more than a merely arguable or speculative claim.
- A misleading conduct claim under the Australian Consumer Law will fail at the foundational level if the alleged misrepresentation is contradicted by the terms of the very document said to have been misrepresented; a debtor cannot substitute oral assertions for written contractual evidence without evidentiary support.
- Where two settlements were independently negotiated at a mediation, courts will be slow to impose a duty of disclosure on a party to one settlement in favour of a person negotiating a separate settlement, absent a pleaded and evidenced basis for such an obligation.
- A “different transaction” counterfactual for loss must be grounded in realistic evidence of what terms could have been achieved; courts will not accept speculative alternatives, particularly where the claimant was in a weak bargaining position due to proven wrongdoing.
Why It Matters
This decision reinforces the gatekeeping function courts perform when debtors resist bankruptcy notices by asserting counter-claims. While the threshold under s 40(1)(g) is deliberately lower than proof on a final hearing, Stewart J’s analysis makes clear that courts will scrutinise the substance of the asserted claim carefully and will not allow the mechanism to be used as a delay tactic by debtors advancing claims that are speculative, internally contradicted by documentary evidence, or constructed in response to insolvency proceedings rather than arising independently of them.
The case also illustrates the risks for parties who enter mediated settlements without full visibility of related negotiations occurring simultaneously. Corry’s predicament — having forgiven substantial debts and transferred shares in exchange for a contribution he believed proportionate — highlights the importance of ensuring parties to a settlement understand the broader commercial context. However, the court found no legal basis to revisit that outcome where the representation about the $1 million obligation was accurate and where no duty of disclosure was established against the opposing creditors.