Insolvency Administration: Deangrove Pty Limited v Commonwealth Bank of Australia Case Analysis

This report provides an analysis of the Deangrove Pty Limited v Commonwealth Bank of Australia case, covering legal issues, comparison with similar cases, and wider implications of the decision on insolvency law. It also discusses the power, role, and duties of directors and receivers in receivership.

Insolvency Administration

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
1. The Facts..................................................................................................................................3
2. Legal issues arises in the case and its importance in term of law............................................5
3. Examination of same legal issues arises in Newhart Development Limited v Cooperative
Commercial Bank Limited...........................................................................................................6
4. Comparison Between both case findings and decision............................................................7
5. Summary..................................................................................................................................8
6. Wider Implication of the decision of case...............................................................................8
CONCLUSION................................................................................................................................9
REFERENCES................................................................................................................................1

INTRODUCTION
Insolvency Law provides regulation and provision to the companies that are unable to
pay its debts liability to the creditors. This report will cover whole overview of the case
Deangrove Pty Limited (receiver and manager applicants) v Commonwealth Bank of Australia
including the decision given by the Australian Court of Appeal. The report will also cover the
legal issues identified in the case and the action of both the party such as plaintiff and defendant.
In order to support the issues and decision the report will also cover the similar case such as
Newhart Development Limited v Cooperative Commercial Bank Limited in which similar issues
arises and decision was taken by other court of appeal1. The report will discuss the facts
regarding the current case law and then compare it with the similar case law findings. At last, the
report will cover the summary of the legal principle identified in case and the wider implication
of decision over specific are of insolvency law.
MAIN BODY
1. The Facts
The case Deangrove Pty Limited (receiver and manager applicants) v
Commonwealth Bank of Australia (CBA) was based on the fact i.e., ability of the directors to
take action against the security-holders. In this case, Mr. Jeans and Deangrove has filed case
against the CBA for engaging into misleading and deceptive conduct according s52 TPA. Mr.
Jeans was a director of Deangrove Pty Ltd. As per the Australian Corporation Law, Mr. Jeans
and Deangrove is a plaintiff and applicants while CBA is a defendant and respondent of the case.
Deangrove acquired finance from CBA for the development in Cairns and Mr. Jeans provide
guaranteed to the CBA against this mortgag2. But because of the Deangrove default in its
obligation, CBA appointed receivers and managers under equitable mortgage to takes control of
the company, its assets and business undertakings.
1
Barker, Sarah., . "Directors’ liability and Climate Risk: Australia–Country
Paper." Commonwealth Climate and Law Initiative(2018).
2 Nel de Koker, J., 2020. Regulating Volunteer Directors’ Duties in Companies
Registered with the Australian Not-for-profits and Charities Commission. University of
New South Wales Law Journal, Forthcoming.

The case was filed by the applicants against the CBA on ground that they have induced
Deangrove to purchase property in Cairns by misrepresentation of the facts contained in its letter
of offer. They also influence the plaintiff to provide charge over the assets in favour of CBA.
Such a misleading and deceptive action of respondent causes loss and damage to both Mr. Jeans
and Deangrove as Jeans provide guarantee to the CBA. On 14th June 2000, Hely J (Judge of the
case) asked the applicants to file and serve statement of claim by the end of deadline which was
missed by the Jeans and Deangrove three time3. The statement of claim include the relief sought
by the applicants such as varying the guarantee and paying off the damages. The impact of which
the matter was dismissed by Australian court with cost on ground of Jeans and Deangrove
defaulted action.
In October 2000, a fresh proceeding was commenced by applicants with the same claim
and reliefs but was done without the consent of receivers. But on 11th December 2000 Jeans
solicitor has requested their consent but do not receive reply from that side. While on the other
side, in December 2000, CBA filed a motion related to their claim such as either dismissed the
whole proceeding or dismiss the proceeding related to relief claim by applicants4. Along with
that the defendant also request the court to declare that the solicitor appointed and retained by
applicants is not valid as per Australian corporation law. In February 2001, Jeans applied to the
NSW supreme court look for the leave pursuant to s237.
It is because as per this action the shareholders and directors are liable to bring
proceeding in case if court provide leave to do the same where it is probable that company itself
is not able to bring proceeding and take responsibility. Along with this, the applicants provided
an affidavit regarding reason for their failure to comply with self executing orders. Jeans also
offered an indemnity for legal cost and expenses along with any order for cost. They also declare
that the solicitor are company's sole director only. Such an action of applicants come under the
knowledge of CBA in February 20215.
3 Burgess, Andrew., . Commonwealth Caribbean company law. Routledge, 2017.
4 Cha, Elizabeth, and et.al., . "A survey of nonverbal signaling methods for non-
humanoid robots." Foundations and Trends® in Robotics 6, no. 4 (2018): 211-323.
5 Sannegadu, and et.al., 2018. "Factors influencing the internationalization of small-sized
textile firms in a Small Island Developing State: A Mauritian study." (2021).

2. Legal issues arises in the case and its importance in term of law
In the give case law, Mr. Jeans who was the director of the Deangrove company was
bound by a guarantee given to Commonwealth Bank of Australia which provided finance to the
company. The director basically keep their guarantee aside and filed a case against the CBA on
the ground of their alleged misleading and deceptive actions and conduct. That's why, the main
legal issues arises in this case is whether a director can sue or enter the legal proceeding on
behalf of the company in receivership or not. This case is important in the term of law because
it related to the breach of contract and insolvency area of Australian Corporation Law. This case
is important to know the parties including receiver of the mortgage contract that whether the
director of the company can sue the equitable chargee on behalf of its company or not6. It is
because every company in Australia acquire funds from the bank and provide charge over its
assets in term of security. So, understanding the legal rules and regulations behind the contract
helps both the party to maintain the agreement without breach of contract.
This case basically important for understanding the insolvency law which regulates
the companies of Australia that are unable to repay their debts. Another issues arise in this
case law is that whether director required to provide satisfactory indemnity for cost or not. It is
important in term of law because it set a rule for the company's director that whenever they enter
the legal proceeding in the name of company that have to provide the indemnity for legal cost
and expense7. This case is also crucial to identify the duties of receivers, director and equitable
chargee when they enter into the mortgage contract. In this case, the abuse of process defaulted
by Jeans and Deangrove by non-complying with a self-executing order is a disobedience to the
court order. This case is also significant in term of law because such an action and behaviour of
any party is not accepted by the court because of “willfully and obstinately disobedient to
authority”.
6 Evans, and et.al., 2019. Australian Clinical Legal Education: Designing and operating
a best practice clinical program in an Australian law school. ANU Press, 2017.
7 Brady, Mark. . "Is Australian law adaptable to automated vehicles?." Griffith Journal of
Law & Human Dignity 6, no. 3 (2019): 35-71.

3. Examination of same legal issues arises in Newhart Development Limited v Cooperative
Commercial Bank Limited
The case Newhart Development Limited v Cooperative Commercial Bank Limited has
dealt with the same issues which was deal in the Deangrove Pty Limited (receiver and manager
applicants) v Commonwealth Bank of Australia. In the Newhart Development case, the plaintiff
i.e., Newhart Development Limited is a property developer which develop properties in North
Wales. They obtained entire finance from the defendant i.e., Cooperative commercial Bank
Limited and for this mortgage contract defendant has appointed receiver to look out company
assets and to protect its charge8. The plaintiff company provides its 50% shares to the defendant
company against the mortgage security. But later on, Cooperative commercial bank limited
refused to finance to the company and delivered an ultimatum that all the shares in the
development company must be held by bank and must transfer in their name. Such an action of
defendant is illegal because they have right over only half percent shares and that only if the
plaintiff unable to pay its debt. On ground of this default, Mr. Hartley the management of
plaintiff company filed a case on behalf of the company against the cooperative commercial bank
limited.
The plaintiff come into knowledge that this arises the issues such as breach of contract
and the impact of which they will lose their half shares estimated around half million pound.
That's why Mr. Hartley filed a case with the statement of claim which was expected to amount
£920,000 for estimated profit of development including their shares loss of £4600009. In order to
defend this claim, the defendant request the Judge to dismiss the whole proceeding on ground of
inability of the director to sue on behalf of their company. The defended also claim that such an
action by plaintiff is not in the knowledge of receiver which was not true because plaintiff write
a letter to receiver for their approval. But receiver did not reply on the same. In both case, the
same legal issue arises that whether director has the power to take proceeding after the
apportionment of administrative receivers of the company. In this case, the court of appeal has
8 LAW, AUSTRALIAN CORPORATE INSOLVENCY. "THE PARRI PASSU
PRINCIPLE IN AUSTRALIAN CORPORATE INSOLVENCY LAW."
9 Kashyap, and et.al., . "An Introduction to Corporate Insolvency Law and Reforms in
Australia." In Corporate Insolvency Law and Bankruptcy Reforms in the Global
Economy, pp. 107-131. IGI Global, 2019.

dealt in the same manner in which that have said that if plaintiff provide indemnity and court
give leave pursuant to s237 than director of the company can sue the chargee company. But for
this they also need to request the receiver for their approval.
4. Comparison Between both case findings and decision
In the both case i.e., Deangrove Pty Limited v Commonwealth Bank of Australia and
Newhart Development Limited v cooperative commercial bank limited, the plaintiff filed case
against the bank on ground of defendant illegal and misrepresentation action. In Newhart
development case, the court of appeal has announced their decision in the favour of plaintiff and
said that they can file the case on behalf of the company even in receivership company. The
judge also announced that the director should itself to file the case rather than by any of the third
party having no authority10. Along with that, the decision also involve that if the director of the
company retain their power to commence proceedings on behalf of the company when it is under
receivership than they are under greater obligation to take all the necessary steps. The obligation
may be providing indemnity of any legal and court order cost etc. The court of appeal has
decided that the appointment of receiver did not deprive the directors of their duties and power to
take legal proceedings for the benefits of their company.
While on the other side, in the Deangrove Pty Limited v Commonwealth bank of
Australia the decision taken by the court is same and in the favour of the plaintiff. The court has
decided that if the party who are entering the legal proceedings are other than director and
shareholders of the company than its should not be entertained by the court. Both the case
decision given by the different courts of appeal announced same decision that director of
company may seek to bring action against a security-holders on behalf of the debtor's company.
But such an action only allowable on the basis that cost of an action are subject of an indemnity
in favour of the receivers. The director have to ask for the approval of the receiver so that there is
no conflict arises between the interest of the director and receivers. As per the Australian
Corporation Law, in the both case, it was held that a prudent director should offer an appropriate
10 Bidin, Aishah, and Nordin Hussin. "The New Law of Corporate Restructuring in
Malaysia: Analysis of the Concept of Scheme of Creditors' Arrangements in Corporate
Insolvency Proceeding." In Corporate Insolvency Law and Bankruptcy Reforms in the
Global Economy, pp. 153-173. IGI Global, 2019.

indemnity and also seek the receivers consent before commencing proceeding in the name of
company11. On the other side, the receiver also seek the issues carefully before rejecting any of
such request.
5. Summary
In the given case law, it is identified that the legal and practical issues arises as to “
Whether the exercise by a director of any power in the name of the company would interfere
with the legitimate exercise by the receivers of their power”. This case analyses the principles of
receivership and director including their power, role and duties. The director of the Deangrove
company filed case against the CBA in the name of the company which was invalid in the eye of
defendant. But as Mr. Jeans the director of Deangrove fulfil all the legal proceeding requirement
such as request from supreme court regarding pursuant to the statutory derivative action provided
in s236 of the Corporation Law. As per this section, it is clearly permissible to the plaintiff such
as director and shareholders to bring proceeding on company's behalf if the supreme court give
leave to do so.
The same case was Newhart Development in which court of appeal accepted the act of
directors (in circumstances where indemnity was in place) could bring proceeding on sake of the
company. The legal principle is that the fact of receivership does not replace the role of the
director entirely as they able to maintain their role as a manager of the company affairs.
That's why in this case, the decision given by the court is in the favour of the Mr. Jeans and
Deangrove that their action was valid and legal as per the Australian Law system. In both
Deangrove and Newhart development case, director bring action against the security holders
where the receiver does not do so but has provided the proper indemnity of legal and order cost.
6. Wider Implication of the decision of case
As per the Australian Corporation Law, Insolvency act means the regulation against the
companies that unable to pay its debts. In the given case, the court of appeal give decision in the
favour of plaintiff that their action to enter legal proceedings on welfare of company is valid and
11 Steele, and et.al.,. "Insolvency law reform in Australia and Singapore: Directors'
liability for insolvent trading and wrongful trading." International Insolvency
Review 28, no. 3 (2019): 363-391.

accepted. This case is important in term of insolvency law focus on the area of role of receiver
and director when company is in receivership. This case and their decision give deep insight to
both the mortgagor and mortgagee that in case any of such situation arise in future the court will
give decision in the favour of director i.e., plaintiff only. With the help of this case, directors of
the Australian companies has realizes that the legal proceeding must the taken by them or
company not by any of the third party. If so, then court will dismiss whole proceeding on the
ground of plaintiff default.
This case is also important because this review the area of insolvency law to give relief to
the debtors from the harassment from its creditors in self-fulfilment of claims requirement. The
case law also provide insight about the director action when the defendant counter-claim against
the company. The case is also crucial for the mortgagee to understand that if the mortgagor or
plaintiff unable to take action in their first (hearing) but provides valid reason for that then
defendant do not claim regarding dismissal of case. In the given case, on the basis of indemnity
given by the Mr. Jeans was acceptable by the court, the motion filed by CBA i.e., respondent
should be dismissed12. This case help both the parties including receiver to understand their roles
and duties before filling case in the court.
CONCLUSION
The report has concluded the facts and issues arises in the current case law in which
breach of contract are also one of the issue. The main legal issues arises in the case and which is
concluded by this report is that whether the power of director to enter legal proceeding on sake
of company get dissolve by the entrance of receiver.
12 McDougall, Robert. "Recognition of Foreign Insolvency Proceedings–An Australian
Perspective." In 31st LAWASIA Conference, Siem Reap, Cambodia, vol. 3. 2018.

REFERENCES
Online
Deangrove Pty Limited (Rec & Mgrs Apptd) v Commonwealth Bank of Australia. 2021. [Online].
Available through:<https://data.allens.com.au/pubs/pdf/insol/insnov01.pdf>
Newhart Developments Limited v Cooperative Commercial Bank Limited [1978]. 2021.
[Online]. Available through:<http://kenyalaw.org/caselaw/cases/view/38528>
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