DSHE Holdings Ltd (Receivers and Managers) (in liq) v Potts; HSBC Bank Ltd v Abboud; Potts v National Australia Bank Ltd [2022] NSWCA 165

DSHE Holdings Ltd (Receivers and Managers) (in liq) v Potts; HSBC Bank Ltd v Abboud; Potts v National Australia Bank Ltd [2022] NSWCA 165

Both Mr Potts and Mr Abboud breached their s 180 duty by failing to properly consider whether payment of the final dividend would materially prejudice DSH's ability to pay creditors, contrary to s 254T. Payment of the final dividend caused compensable loss equal to its amount. The evidence did not establish breach or loss regarding the interim dividend. The appeal by DSH on the final dividend succeeded in part. Misleading or deceptive conduct claims by HSBC failed on causation/loss; similar claims by NAB against Mr Potts succeeded. Proportionate liability defence was not established for Mr Potts, as DSH could not be a concurrent wrongdoer on the facts found.

Parties
Appellant (2021/314709): DSHE Holdings Ltd (receivers and managers appointed) (in liq); First Respondent (2021/314709, 2021/311103); Appellant (2021/289675): Michael Thomas Potts; Second Respondent (2021/314709); First Respondent (2021/311103): Nicholas Abboud; Appellant (2021/311103): HSBC Bank Australia Ltd; Respondent (2021/289675): National Australia Bank Ltd
Jurisdiction
Australia
Judgment Date
26 August 2022
Procedural Posture
Appeals (three Consolidated) – Principal Judgment / Appeal Judgment (court of Appeal) – Decision on Merits and Quantum
Outcome
Company appeal (2021/314709): Allowed in part; HSBC appeal (2021/311103): Dismissed; Potts appeal (2021/289675): Dismissed
Legal Topics
Directors' Duties, Dividend Payments Under Corporations Act, Misleading or Deceptive Conduct, Proportionate Liability, Damages, Credit Facilities, Statutory Construction
Corporations Law Banking & Finance Law Civil Procedure Directors' Duties Dividend Payments Under Corporations Act Misleading or Deceptive Conduct Proportionate Liability Damages +2 more

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Parties

DSHE Holdings Ltd (receivers and managers appointed) (in liq)

Appellant (2021/314709)

Michael Thomas Potts

First Respondent (2021/314709, 2021/311103); Appellant (2021/289675)

Nicholas Abboud

Second Respondent (2021/314709); First Respondent (2021/311103)

HSBC Bank Australia Ltd

Appellant (2021/311103)

National Australia Bank Ltd

Respondent (2021/289675)

Procedural Posture

Appeals (three Consolidated) – Principal Judgment / Appeal Judgment (court of Appeal) – Decision on Merits and Quantum

Legal Issues

  1. 1 Whether directors breached s 180 of the Corporations Act by supporting dividend payments
  2. 2 Whether payment of dividend contravened s 254T(1)(c) (material prejudice to ability to pay creditors)
  3. 3 Whether company suffered compensable loss under s 1317H for payment of dividend

Ratio Decidendi

Both Mr Potts and Mr Abboud breached their s 180 duty by failing to properly consider whether payment of the final dividend would materially prejudice DSH's ability to pay creditors, contrary to s 254T. Payment of the final dividend caused compensable loss equal to its amount. The evidence did not establish breach or loss regarding the interim dividend. The appeal by DSH on the final dividend succeeded in part. Misleading or deceptive conduct claims by HSBC failed on causation/loss; similar claims by NAB against Mr Potts succeeded. Proportionate liability defence was not established for Mr Potts, as DSH could not be a concurrent wrongdoer on the facts found.

Court Disposition

Company appeal (2021/314709): Allowed in part; HSBC appeal (2021/311103): Dismissed; Potts appeal (2021/289675): Dismissed

Orders

  • In 2021/314709 (Company appeal): Appeal allowed in part. Set aside previous orders as to costs of Potts & Abboud being paid by DSH in 2017/81927. In lieu, judgment against each of Potts and Abboud for $11,826,000, to take effect from 7 Oct 2021. Appeal otherwise dismissed; no order as to costs. Parties to file...
  • In 2021/311103 (HSBC appeal): Appeal dismissed. Appellant to pay respondents' costs.