I’m Taking You Down With Me

In June 2018, the liquidator of Takema Investments Pty Ltd was ultimately successful in bringing forward a proceeding against a former director of the company, Mr Kerry Tatnell. The liquidator sought payment of $286,356.03 from Mr Tatnell for contravening subsections 558G(2) and 588M(2) of the Corporations Act 2001 (Cth) plus costs.

For those who are unfamiliar with those sections, the liquidator was successful in arguing that Mr Tatnell breached his director’s duty to prevent the insolvent trading of Takema Investments, by failing to prevent the company from incurring a debt. As such, the liquidator was able to recover from Mr Tatnell an amount equal to the amount of the loss or damaged incurred.

Notwithstanding this, prior to the judgment given by Justice O’Callaghan on 29 July 2019, the parties were successful in reaching a settlement at mediation. Here, Mr Tatnell consented to a judgment against him for the sum of $175,000.00, inclusive of costs and pre-judgment interest.

In accordance with advice received by his lawyers, Mr Tatnell brought a cross-claim against his co-director wife seeking equitable contribution of 50% of any amount he would have been ordered to pay the liquidator. This was not disputed at trial despite the settlement that had occurred between the liquidator and Mr Tatnell.

Decision

Justice O’Callaghan confirmed that when ‘one director of a company is found liable for insolvent trading…s/he may recover from any other director who was not sued for that same loss or damage.’ This decision was made in accordance with the decision in Hall v Poolman (2007) NSWSC 1330, where Justice Palmer concluded that the doctrine of equitable contribution is applicable ‘where the person from whom contribution is sought has not been sued, although s/he could have been sued.’ Therefore, the person who seeks equitable contribution must show that had the co-obligor been sued, they would be liable for the same or proportionate part of the same loss.’

Here, Mr Tatnell was successful in establishing his claim for equitable contribution against his co-director wife, even though his own liability had been agreed to in the settlement. Specifically, the court highlighted that a ‘settling party may recover equitable contribution from a person who is liable for the underlying loss of the subject of the settlement.’ Justice O’Callaghan concluded the following:

(a) A settlement agreement making one party liable to another is sufficiently a common obligation to make a third-person who would be liable…liable for the same amount and to the same extent to attract the doctrine; and

(b) The settlement in this case was objectively reasonable.

The takeaway message from this case is that even if one director has reached a settlement in response to a liquidator’s insolvent trading claim, the doctrine of equitable contribution can still be used against a fellow director who had not originally been joined to the liquidator’s proceedings.