Insolvency, Litigation and Dispute Resolution

Agreements to negotiate genuinely in good faith…are they binding?

9 June, 2015

The Australian Securities and Investments Commission (ASIC) has recently invoked its statutory powers under section 206F of the Corporations Act 2001 (Cth) (the Act) to disqualify a Queensland director from managing companies for four years until 13 May 2024. The director was disqualified due to his involvement in three building and construction companies which all fell into administration whilst he was occupying the position of a director.

ASIC also found, amongst other findings, that the director failed to exercise his duties to act with due care and diligence, failed to prevent the companies from incurring debts when they were insolvent and that he engaged in illegal phoenix activity by transferring a company’s business to another business to continue trading.

Section 206F disqualification orders are often overlooked in the broader context of ASIC’s powers to order a director to be disqualified despite it being just as potent and effective as any other comparable disqualification order. ASIC’s recent use of this power provides a timely reminder for directors to be adequately informed about the situations in which they could become subject to a section 206F disqualification order and to understand how to respond to a notice of disqualification if one is served.

So, how does section 206F of the Act operate?

ASIC can disqualify a person from managing corporations for up to 5 years if the three matters addressed below are satisfied:

Threshold requirement

When receiving a notice from ASIC under section 206F of the Act, a director may be disqualified if all the following occurred in the 7 years before the notice:

  1. The person has been an officer of 2 or more companies;
  2. While the person was an officer, or within 12 months of the person ceasing to be an officer, these companies were wound up; and
  3. A liquidator lodged a report with ASIC about the company’s inability to pay its debts.

Procedural fairness

The notice served on the person is required to be in a prescribed form which requires the person to demonstrate why they should not be disqualified (section 206F(1)(b)(i)) and the person will also be afforded the opportunity to be heard on the question of disqualification (section 206F(1)(b)(ii)) in accordance with both the Act and the principles of procedural fairness.

ASIC must also make “available to the person all the material available to ASIC on which the decision will be based and provide the person with the opportunity to respond to, make submissions and call evidence in relation to the material before ASIC”; as per Murdaca v Australian Securities and Investments Commission [2009] FCAFC 92; 178 FCR 119.

Justification of ASIC’s decision

ASIC may disqualify a person as a director if they determine that it “is justified” (section 206F(1)(c)).

In order to determine whether the decision is justified, ASIC:

  1. must have regard to whether any corporations are related to one another (section 206F(2)(a)) and;
  2. may also take into consideration:
    1. the person’s conduct in relation to the management, business or property of any corporation (section 206F(2)(b)(i)); and
    2. whether the disqualification would be in the public interest (section 206F(2)(b)(ii)); and
    3. any other matters ASIC consider appropriate (section 206F(2)(b)(iii)).

Notably, ASIC is not required to consider the report produced by the liquidator when considering whether a disqualification is justified. However, as considered in Murdaca v ASIC, if ASIC places reliance on the report, they “will be called upon to assess the worth of that report or those reports at that stage in order to decide whether the disqualification is justified”.

So, how do disqualification notices fit with the COVID-19 temporary relief measures for insolvent trading?

As explored in our previous article here, there is currently a temporary COVID-19 safe harbour provision in relation to the statutory duty for directors to prevent insolvent trading. The new section 588GAAA of the Act allowing debts to be incurred while a company is insolvent, if the debt is incurred:

  1. in the ordinary course of the company’s business;
  2. during the six-month moratorium period (which currently ends on 25 September 2020) and any longer period that is prescribed by the regulations; and
  3. before any appointment of an administrator or liquidator of the company.
    Importantly, the debts incurred need to be “necessary to facilitate the continuation of the business” and must be in the “ordinary course of business” to fall within the safe harbour provision.

Depending on the size of the debt(s), the new COVID-19 provisions may delay creditors winding up a company and/or a liquidator’s report being issued for these debts, which are required before ASIC can issue a disqualification notice. However, due to disqualification notices being issued in relation to the director’s conduct over a 7 year period, the COVID-19 temporary relief measures (if applicable) only provide relief for the 6 month period and so will largely not affect ASIC’s power to issue disqualification notices (aside from potentially delaying the issuing of a notice).


As noted, section 206F of the Act provides an opportunity for a director who is the subject to a notice of disqualification to submit reasons as to why ASIC should not exercise its discretion to disqualify a director. This opportunity should not be taken lightly, and it’s important that during this process you receive independent legal advice to ensure that you admit evidence and make arguments in a manner which supports your application.

McCabes can guide you as a director or officeholder through this process. Additionally, if you are the director or officeholder of companies which are potentially facing liquidation, it’s important to understand your position in relation to the prospect of facing such an order to implement strategies to reduce the probability of ASIC issuing a notice against you.

McCabes has extensive experience in acting for and advising corporations in relation to the Corporations Act. Please get in touch with our Litigation and Dispute Resolution group to seek assistance and advice on the contents of this article.

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Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract.   Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed.   Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)."   Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and   The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and   The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter.   Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship.   Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest.   What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan
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Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. 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