Goldie Marketing Pty Ltd's (GM) business involved
the manufacture and distribution of products associated with well
recognised popular culture characters.
The creditor advanced GM around $8.8m and took security over its
assets. After falling into default, GM lodged a dispute with the
Financial Ombudsman Service (FOS) alleging that
negligently lent $2.5m to GM when it was
delayed in assessing and approving seasonal funding for its
business activities; and
failed to give enough assistance to GM to help it overcome its
The creditor argued that the dispute should be excluded under
the FOS Terms of Reference on grounds that:
GM was not a small business;
the dispute exceeded FOS's jurisdictional limit; and
the dispute would be more appropriately dealt with in a
FOS determined that it would exclude the dispute on the sole
basis that it was more appropriately dealt with in court. Soon
after, the creditor informed GM that it would be appointing
receivers to the business.
GM applied to the court seeking an injunction against the
creditor restraining it from taking any enforcement action until an
appeal of the FOS determination had been heard. The basis of the
appeal was that the FOS decision was invalid as it was motivated by
internal resourcing limitations. GM relied upon an 'off the
record' telephone discussion between representatives of GM and
FOS, during which it was alleged that FOS acknowledged that the
availability of key staff was the primary reason why the dispute
had been excluded.
In granting the injunction, the court found that:
There was a reasonable argument that the FOS decision was
motivated by internal resourcing limitations and, therefore, the
decision was not made in accordance with its Terms of
The balance of convenience was "firmly" in favour of
the creditor being restrained from taking any enforcement action,
even though the appeal of the FOS determination was likely to take
up to 18 months to run its course.
Damages would not be an adequate remedy for GM, as the
appointment of receivers would cause "irremediable"
damage to GM's business due to the likely loss of key
Although the case is unusual in that it involved allegations of
an 'off the record' conversation between FOS and GM
representatives, the judgment is of concern to secured creditors
for numerous reasons, including:
Little consideration was given to the prejudice to the creditor
in being unable to enforce its securities for up to 18 months,
including the cost of capital in holding a distressed debt for an
No direct consideration was given to events that may occur in
the restraint period, such as what may happen if the value of the
secured assets depreciated, or an additional default occurred.
As a result of the outcome of this case, a new trend may emerge
where debtors seek to delay enforcement action by appealing against
determinations made by FOS.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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