Federal Court hands down decision in bankruptcy case
An SMSF member has had their application to have a bankruptcy notice set aside dismissed in a recent decision by the Federal Court of Australia.
The case of Batterham v Nauer involved Peter Batterham, the sole member and beneficiary of an SMSF, the Batterham Retirement Fund.
The case concerned applications in two proceedings following the issue of a bankruptcy notice to the applicant, Mr Batterham, at the request of the respondent, Mr Nauer.
The bankruptcy notice required Mr Batterham to pay Mr Nauer an amount of $168,595.52. Mr Batterham was declared bankrupt on 13 November 2014. The bankruptcy was discharged on 3 December 2017.
Maylord Equity Management Pty Ltd is the trustee of the Batterham Retirement Fund, and holds any assets of the fund on trust for Mr Batterham as its sole member and beneficiary.
Prior to and since his bankruptcy, between 13 November 2014 and 3 December 2017, Mr Batterham was a director of Maylord.
Mr Batterham applied to set aside the bankruptcy notice and also commenced proceedings against Mr Nauer.
His application was based on section 40(1)(g) of the Bankruptcy Act 1966 (Cth) and supported by an affidavit made by him on 8 June 2018.
In his affidavit, Mr Batterham stated that he had a counter-claim against Mr Nauer for an amount exceeding the amount specified in the bankruptcy notice.
He also contended that the bankruptcy notice was an attempt to stultify any claims that he has against Mr Nauer without those claims proceeding to final hearing and determination.
Mr Batterham alleged that he and Mr Nauer were parties in a joint venture in the business of strata management, and that Mr Nauer and [some] other took control of the joint venture and marginalised Mr Batterham to his financial detriment.
The judgment noted that an amended statement of claim filed by Mr Batterham on 9 July 2018 did not contain facts that might support the creation of the alleged joint venture.
Mr Batterham identified a company called the Victorian Body Corporate Services Pty Ltd (VBCS) as being the foundation business entity for the alleged joint venture.
Around the time that it was identified by Mr Batterham, VBCS provided strata management services in Melbourne for 30,000 strata units.
A settlement deed dated 4 July 2011 was created between Maylord, Mr Batterham, VBCS and a company called Vesture, of which Mr Nauer was a principal shareholder and executive chairman. Mr Nauer was also a director and officer of Vesture.
The settlement deed provided for the sale of shares held in two companies, Ztrata Capital Limited (ZCL) and Ztrata Limited (ZL), by Maylord to Vesture.
It provided for the sale and purchase of 1,250 shares in ZL and 600 shares in ZCL by Maylord to Vesture for $450,000.
Mr Batterham pleaded that the shares in ZL and ZCL were held by him and not by Maylord.
Justice Gleeson found that there was no documentary evidence that Mr Batterham was ever the owner of shares in either ZL or ZCL.
“Despite the allegations in the ASOC that Mr Batterham was the owner of 1,250 shares in ZL and 600 shares in ZCL, there was no evidence to support those allegations and there was ample evidence that, to the contrary, the owner of the shares was Maylord,” Justice Gleeson stated.
“Further, although Mr Batterham’s case was not entirely clear, it was most clearly put on the basis that the beneficial ownership of the shares was held by the Batterham Retirement Fund, of which Mr Batterham is the sole beneficiary.”
Mr Batterham also complained that the value of his interest in the Batterham Retirement Fund was diminished by Maylord’s sale of the fund’s ZL shares for $450,000 when the shares were worth a higher sum.
The judgment stated, however, that any diminution in the value of the Batterham Retirement Fund evidently occurred when Maylord agreed to transfer the ZL and ZCL shares to Vesture on the terms of the settlement deed.
“Mr Batterham has not identified any cause of action against Mr Nauer for losses sustained by the Batterham Retirement Fund in connection with the value of the ZL and ZCL shares,” Justice Gleeson said.
She also determined that the amended statement of claim failed to identify facts upon which a finding could be made that Mr Nauer owed any relevant fiduciary obligation to Mr Batterham or that he engaged in a conspiracy to defraud the trustee of the Batterham Retirement Fund.
Justice Gleeson dismissed the proceeding against Mr Nauer and the application to set aside the bankruptcy notice.