Jetobee (in liquidation) v Smith & Young [2015] NSWSC 1526

This case concerned 2 companies, both having a common director and shareholder. One company was owned by a couple and the other by the male partner only. The company owned by the couple (first company) borrowed from the bank on a commercial loan secured by a first registered mortgage and a guarantee given by the second company owned by the male partner (second company), secured by a mortgage over a hotel. The second company went into liquidation and the liquidator took an assignment of the bank’s debt and sought recovery of the loan and possession. The transfer of mortgage was registered and the first company was given notice of the assignment. The first company says it was not indebted and no amount was secured by the mortgage because an agreement was entered into as between the two companies whereby the second company took on the first’s liability and paid out the bank, and the debt is now discharged. The first company sought a discharge of the mortgage. The second company alleges no such agreement was entered into and was concocted after a liquidator was appointed to defeat its claim to the monies. The problem for the liquidator was that the liquidator framed its demand for payment not as recovery of the debt assigned to it, as pleaded in its claim but in purported exercise of the first company’s right of subrogation as a guarantor as a result of paying out the debt.

The court noted the conundrum with the first company’s claim, that if the debt was discharged, how could it take an assignment of that debt and how could the mortgage secure its repayment. However ultimately this was unimportant because the sole argument of the second company was that the agreement discharging the debt was entered into before liquidation.

The court found that the alleged agreement was concocted after a liquidator was appointed for 3 reasons:

  1. A significant discrepancy in the documentation recording the sending of the faxed agreement in that the confirmation failed to appear in the transmission log for the fax machine;
  2. The evidence of the accountants as to the fax not being received;
  3. The conduct of the male partner was inconsistent with the alleged agreement, because he failed to inform the liquidator that the debt had been discharged.

The court found that the agreement was created after the liquidator was appointed not before and ordered that the monies were still owed to the liquidator.

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