The NSW Supreme Court has ruled that liquidators of companies being wound up can reject a creditor’s claim for a debt on the grounds of illegality.
The court found that the liquidator of the company, Giraffe World Australia Pty Ltd (in liquidation), could refuse a claim by creditors for commission income earned from illegal pyramid selling activity. The pyramid selling conduct had been declared a breach of the Trade Practices Act 1974 by the Federal Court in 1999, following Australian Competition and Consumer Commission court action for contraventions of the referral and pyramid selling provisions in sections 57 and 61 of that Act.
Justice Barrett commented: "There is in each section an objective of protecting the public … I consider the position in this case to be that the effectiveness of contracts to pay commissions … is so inconsistent with the attainment of the purposes of the section as to indicate a legislative intention that such effectiveness is to be denied".
ACCC Chairman, Mr Graeme Samuel said the decision confirmed the liquidator's right to deny claims for money derived from illegal activities, such as Trade Practices Act contraventions.
"It makes clear that pyramid selling conduct will not be rewarded in the liquidation process – ill-gotten gains will not be recoverable when a company is wound up".
The ACCC acknowledges the assistance of the Liquidator, Ferrier Hodgson, in seeking judicial advice from the court to clarify this area of the law.