A recent Federal Court decision is a useful illustration of how rule 7.01 of the Federal Court Rules 2011 (Cth) (Rules) can be deployed where urgent protective relief is needed before a substantive claim has even been filed and of how a court will assess dissipation risk where a respondent has been non-compliant with earlier court orders.
The problem
Our firm acted for the liquidator of HX Food Group (Aus) Pty Ltd (in liquidation) (HXFG), in seeking to restrain a related company, OK International Pty Ltd (OK), from dealing with funds it appeared to hold on behalf of HXFG. The two companies had operated under a services arrangement by which OK collected payments from overseas customers on HXFG’s behalf and remitted them periodically. Following the liquidator’s appointment, public examinations raised real concerns about the true state of the accounts between the two entities, and the answers given were vague as to amounts held and the whereabouts of funds.
The procedural difficulty was that, although the application was brought within the existing public examination proceedings, no substantive proceedings for recovery of the funds were yet on foot. That matters, because interlocutory injunctions are conventionally sought to preserve the status quo pending determination of an existing claim for final relief.
Rule 7.01 in action
The problem was circumvented by invoking rule 7.01 of the Rules, which permits the grant of an injunction in urgent circumstances where a person intends to commence proceedings in the Court. On an undertaking to commence proceedings within 14 days, the liquidator foreshadowed several causes of action: claims in debt, breach of trust, accounts of profits, and a claim under section 588FF of the Corporations Act 2001 (Cth) for voidable transactions. Critically, it was the section 588FF claim that invoked the Federal Court with jurisdiction to grant the relief sought under rule 7.01.
On that basis, the Court was prepared to grant relief by prima facie strength of the claims not yet pleaded, applying the principles in ABC v O’Neill (2006) 227 CLR 57 framework.
Balance of convenience
Two Court’s finding as to dissipation risk turned on two considerations:
- The common director’s answers in public examination were persistently vague on matters that were, or ought to have been, within his knowledge.
- OK’s compliance with an earlier document production under section 597(9) of the Corporations Act was found to have been materially deficient. That is, OK had not produced any financial records that would account for moneys received by it for HXFG, pursuant to the service agreement since 1 January 2025 (approx. 5 months before the liquidator was appointed).
As the Court noted, non-compliance with the earlier production order was a factor that rendered the risk of dissipation ‘real and substantial’. It is not merely a discrete procedural default to be addressed on its own terms. This is a point worth flagging, obstructive or incomplete responses can do more than delay an investigation. They can form part of evidentiary foundation for urgent injunctive relief sought later.
Practical takeaways
- r 7.01 is a genuine tool for prospective applicants. It allows assets to be frozen before proceedings are filed, on condition that substantive proceedings follow within a set timeframe.
- Be ready to articulate the intended claim clearly. Identifying the causes of action helps establish the prima facie case even before proceedings are filed.
- Identify a hook for the Federal Court’s jurisdiction. Here, a foreshadowed s 588FF claim did the critical work, turning what might otherwise have been a straightforward state-based debt or trust claim into one squarely anchored in the Court’s jurisdiction.
- Build the dissipation risk from the record. Examination transcripts and non-compliance with production orders are compelling evidence of real, rather than speculative, risk.
Situations calling for urgent action to protect assets or recover funds can arise quickly. Our team is on hand to assist and happy to discuss the options available.