ACCC to recover penalties from an 'insolvent' company for price fixing contraventions

The Federal Court today ordered a deed of company arrangement limiting the surplus funds payable to the Commonwealth be terminated on the basis the Commonwealth was unfairly prejudiced by the deed.

In March this year Leahy Petroleum – Retail Pty Ltd was ordered to pay a penalty of $2.5 million for engaging in price fixing the retail price of petrol in Ballarat. Shortly after that decision the directors of the company acknowledged the company was insolvent and placed the company in administration.

In the course of the administration it became clear all creditors, with the exception of the Commonwealth, would be paid in full leaving a surplus of close to $1 million. The creditors voted the company enter a deed of company arrangement distributing the surplus equally between the Commonwealth and the sole shareholder of the company. This deed would have resulted in the Commonwealth receiving only approximately $450,000 in satisfaction of the $2.5 million penalty. The sole shareholder of the company would have received a distribution of $450,000. The Commonwealth filed an application with the Federal Court seeking to have the deed terminated.

In his judgment, Justice Finkelstein noted: "if a penalty or fine were not paid out of any surplus the contributories will receive a windfall and for this result there is no justification".

ACCC Chairman, Mr Graeme Samuel, said this important judgment ensures a company is not able to avoid pecuniary penalties on the basis of insolvency where the penalty is the reason it is insolvent".

The result of today's judgment is Leahy Petroleum – Retail Pty Ltd will be wound up and the Commonwealth will receive the full amount of any surplus to the extent required to satisfy the pecuniary penalty. It is anticipated the Commonwealth will receive approximately $900,000.

"It is important companies realise the consequences of engaging in price fixing may include significant fines which cause them to be wound up".

Background

On 21 May 2002 the ACCC instituted proceedings against a total of 14 companies and individuals, alleging a long-standing price-fixing arrangement existed in the market for the supply of petrol in the Ballarat region. On 20 December 2002, the Federal Court granted the ACCC leave to join two further respondents.

The ACCC alleged the companies arranged to increase prices by telephoning each other, communicating the size and approximate time of price rises and then contacting retail sites to implement the rises. The ACCC alleged when a company became aware that a service station had not raised its price, further calls were made to participants in order to have the site raise its prices. The ACCC also alleged the arrangement involved a number of meetings. Nine respondents admitted the allegations prior to the trial and had penalty hearings before Justice Goldberg.

On 17 December 2004, Justice Merkel found the 7 contesting respondents engaged in price-fixing conduct in breach of section 45 of the Trade Practices Act 1974. On 17 March 2005 Justices Merkel and Goldberg handed down penalty judgments against all the respondents. The penalties totalled $23.3 million dollars.

Two of the contesting respondents (Apco and Mr Anderson) were subsequently successful in having the findings against them overturned by the Full Federal Court. The ACCC has filed an application with the High Court for special leave to appeal that decision.