Apple Australia, has won what has been one of Australia’s longest running tech industry court cases, after a NSW Supreme Court Judge ruled in their favour in the multimillion dollar Buzzle Operations Vs Apple case which goes back to the collapse of the dot com era in 2000.
The battle really started when Apple was staving off being placed into Chapter 11 and Apple Resellers were falling over all over Australia.
Out of the carnage six resellers formed Buzzle in an effort to trade as one entity.
The struggling Apple resellers took shares in Buzzle’s holding company, Buzzle Limited. At the time they were confident that the combined business would be more profitable than their individual businesses.
As part of the deal each Apple Reseller had given a charge over its assets to Apple. As part of the merger, the Resellers transferred their stock, plant and equipment and the goodwill of their businesses to Buzzle.
The stock transferred consisted partly of stock purchased from Apple and partly other stock. Each of the principals of the companies whose businesses were merged into Buzzle became a director of Buzzle. But there were few board meetings.
Apple’s consent was needed to the merger because Apple had a charge over the assets to be transferred to Buzzle. The Resellers were also dependent on Apple’s agreeing to enter into a Reseller Agreement with Buzzle. Apple consented to the merger. It entered into a Reseller Agreement with Buzzle pursuant to which it provided stock on credit. It took a charge over Buzzle’s assets.
Then everything went pear shaped.
The proposed float did not proceed. Buzzle’s business failed. Apple appointed receivers on 31 March 2001. On 28 November 2001 an application was filed for the winding-up of Buzzle. On 15 February 2002 an order was made for Buzzle to be wound up.
Shortly afterwards the legal fights started.
The directors of Buzzle contend that Apple was closely involved in the merger and that the debts owed by Buzzle to Apple for stock were unsecured.
Apple thought differently.
The Buzzle group said that say that Apple took a step in enforcement of the charge less than six months after its creation by appointing KPMG as investigating accountants of Buzzle on 2 February 2001.
They said that consideration for the transfer of the stock, plant and equipment and businesses of each of the Resellers to Buzzle was the payment of cash and the issue of shares in Buzzle Limited, Buzzle’s holding company, which was the company whose shares were proposed to be listed on the stock exchange.
On 16 October 2000 Apple issued invoices to Buzzle for $6,298,139 being the value of the Apple stock which the Resellers had transferred to Buzzle.
At the same time Apple debited Buzzle with $6,298,139, it credited the Resellers with their respective proportions of the value of the stock each had transferred to Buzzle. Thus the combined debts owed by the vendor Resellers to Apple were reduced to $8,944,786.
Between 3 October 2000 and 8 December 2000 Buzzle made four payments to Apple on behalf of the vendor Resellers. It paid $1,595,000 on 3 October 2000, $2,168,088.71 on 31 October 2000, $1,016,827.64 on 6 November 2000, and $108,623.55 on 8 December 2000. All of these amounts were credited by Apple to the vendor accounts.
None was credited to Buzzle’s account with Apple. In other words, none of the payments reduced the debt payable by Buzzle to Apple for the Apple stock valued at $6,298,139. Nor were any of the payments credited against the cost of goods supplied by Apple to Buzzle after 13 September 2000. The liquidator contended that prior to the payment of 6 November 2000 all of the debts then due and payable by Buzzle to the vendors for non-Apple stock had been satisfied.
He contended that the only outstanding debts owed by Buzzle to the vendors which might be satisfied by the payments made on 6 November 2000 and 8 December 2000 related to the value of the plant and equipment acquired by Buzzle from the vendors. Apple that the payments made on 6 November 2000 and 8 December 2000 by Buzzle to Apple did not discharge any debt then due and payable by Buzzle to the vendors.
Buzzle directors claim that as at 6 November 2000 and 8 December 2000 Buzzle was insolvent (within the meaning of s 95A of the Corporations Law) and that the payments on those dates were uncommercial transactions within the meaning of s 588FB of the Corporations Law.
Apple disputed their claims saying that they received the payments from Buzzle in good faith, it did not believe Buzzle to be insolvent, it had no reasonable grounds for suspecting that Buzzle was insolvent at the time or would become insolvent, and that a reasonable person in its circumstances would have had no grounds for so suspecting.
At the time Apple’s standard credit terms were 45 days. Apple did not insist on payment of any of its invoices prior to 1 December 2000.
As at 30 November 2000 Buzzle owed Apple $23,965,078. This included the debt of $6,298,139 for Apple stock acquired by Buzzle from the Resellers. No payments had been made prior to this date and no debt to Apple had become due and payable. Apple calculated that the debt payable as at 1 December 2000 was $9,731,346.88.
There was a question as to how payments received after 9 February 201 should be allocated to prior debts. On 9 February 2001 Mr Likidis wrote to Mr Qureshi confirming new trading arrangements. Apple stipulated that future deliveries would be made on a cash-on-delivery basis and said it would release $1 in stock for every $1.20 paid to Apple, with 20 cents of every payment of $1.20 being applied to reduce Buzzle’s outstanding account with Apple. Buzzle agreed to that arrangement.
The plaintiffs contended that the arrangement was not in fact implemented because Apple made what appeared to be random cash allocations which bore no relationship to the terms set out in the cash-on-delivery arrangement. Buzzle did not object to the terms proposed by Apple in its letter of 9 February 2001. By ordering further stock Buzzle is to be taken as having accepted those terms. It was not open to Apple to allocate payments made after 9 February differently. But the arrangement did not specify to which earlier debts the payments of 20 cents in $1.20 were to be allocated.
In the absence of appropriation by Buzzle of those payments to particular debts, it was open to Apple to appropriate such payments to such earlier debts as it saw fit. In light of my conclusion that the defendants have no liability for the debts incurred by Buzzle after 1 January 2001, it is unnecessary to pursue further the questions of allocation of the payments after 15 February 2001 to prior debts.
On 31 March 2001, receivers appointed by Apple took possession of all of the company’s assets including its stock and plant and equipment which, in the receivers’ Report as to Affairs dated 30 May 2001 was valued at $6,655,000 as at the date of their appointment.
he plaintiffs contend that as the charge was void, the receivers were trespassers. Buzzle sues in conversion for the value of the goods dealt with by the receivers in that sum. The receivers realised Buzzle’s property and after the expenses of the receivership, made payments to Apple as the secured creditor. The plaintiffs contend that the charge was void and that Apple’s debt was therefore unsecured.
Shortly afterwards Apple lodged a proof of debt in the liquidation of Buzzle in the amount of $12,003,500. It pleads that that proof has not been adjudicated upon and it seeks to set off such sum as might be found to be owing to it by Buzzle against any amount for which Buzzle would otherwise be entitled to recover from it, other than compensation under s 588M for insolvent trading (T1016).
In March 2010 Justice White ruled that Apple was not an officer of Buzzle at 14 September 2000. Nor was it associated with the directors of Buzzle in relation to the creation of the charge. The charge is not void pursuant to s 267(1) of the Corporations Law.
He said that Buzzle was insolvent from at least 6 November 2000 and that Apple did not suspect and did not have reasonable grounds for suspecting that Buzzle was insolvent. Nor did it suspect or have reasonable grounds for suspecting that Buzzle would become insolvent by making the payment of $108,623.55 made on that day on behalf of Mac’s Place.
He said that by the end of December 2000 Apple had reasonable grounds to suspect that Buzzle was insolvent and would remain solvent if it incurred debts.
He also said that Apple executive Jim Likidias the Companies former finance director was not a shadow directors of Buzzle as a result Buzzle’s claim against Apple failed.
He said that he not accepted all of Mr Likidis’ evidence. In some respects it was not consistent with contemporaneous documents or objective probabilities. But I regard Mr Likidis as a generally reliable witness. Given the lapse of time between the events of which he was speaking and the time he came to prepare his affidavit, there must have been some element of reconstruction in his memory.
Nonetheless, he appeared to have a sound recollection of events. Where his evidence conflicted with Messrs Hartono, Liu, Qureshi or Mekrizis I generally prefer Mr Likidis’ testimony. However, I prefer the contemporaneous records and the objective probabilities to any of the oral or affidavit testimony.
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p class=”MsoNormal”>See full ruling here.
