Background
ACN 603 710 274 Pty Ltd, formerly Klyp Australia Pty Ltd, was in liquidation. Its liquidator sued its former director, Gawad Nabi, for repayment of a director loan account and compensation for debts the company incurred while insolvent.
The company’s Xero records recorded a “Loan – G Nabi” balance of $1,596,433.75, comprising company payments to Nabi and debtor payments allegedly redirected to him. The liquidator also alleged that the company had been insolvent from about 26 November 2020 and incurred $2,428,077.76 in unpaid debts through to its liquidation on 13 September 2024.
Nabi was taken to have been served, was ordered to file a defence, and was given an extension to do so. He filed neither a defence nor an address for service and did not attend directions hearings. The plaintiffs therefore sought default judgment.
The Court’s Holding
Justice Derrington granted default judgment under r 5.23 of the Federal Court Rules 2011 (Cth). Nabi’s defaults meant the material pleaded allegations were taken as admitted; the Court was satisfied that the statement of claim properly pleaded each element of the claims.
The Court entered judgment for $1,596,433.75 as a debt owed to the company. The company records were prima facie evidence of the debt under s 1305 of the Corporations Act 2001 (Cth), and the unpaid balance had been demanded.
The Court also awarded $2,428,077.76 under s 588M(2) for insolvent trading. The pleaded case, supported by the liquidator’s solvency evidence, established that Nabi was director while the insolvent company incurred the unpaid debts and failed to prevent that occurring. The Court added $591,466.83 in pre-judgment interest, making the total judgment $4,615,978.34, and ordered standard costs.
Key Takeaways
- A director’s failure to defend can permit judgment based on properly pleaded allegations without proof of every fact.
- Company accounting records may provide prima facie evidence of a director loan debt.
- A liquidator may recover creditor losses from a director under s 588M where insolvent trading is established.
Why It Matters
The decision illustrates the importance of a complete pleading in a default-judgment application: default does not itself supply entitlement to relief, but it permits the Court to treat sufficiently pleaded facts as admitted.
It also shows the potentially cumulative exposure of directors of insolvent companies: personal liability may arise both for amounts taken or owed under a director loan account and for losses caused by insolvent trading.