Chaos followed in the wake of Bimlesh Ram, an entrepreneur described as having ‘a spotty business record.’ A debt factoring contract was valid even though signed by the wrong company; a related company had adopted the contract by its conduct, performing its terms.
Mr Ram was discharged from bankruptcy in 2015. Within a year, he was in control of a company called Fabri-Cell International Ltd, a company nominally under the control of his spouse Ashika Kant. One year later, it was in receivership and liquidation with a reported shortfall of some $1.5 million. Liquidators Gerry Rea Partners sued financiers Avanti Finance Ltd claiming it should return some $811,000, money it was allegedly not entitled to. Legal confusion over Mr Ram’s operation of Fabri-Cell was spelt out in the High Court. In 2016, an agreement was signed with JSR Group Ltd, controlled by Mr Ram, buying assets owned by Fabri-Cell. It was signed back-to-front: Ms Kant signed on behalf of JSR ‘as seller;’ Fabri-Cell signed ‘as buyer.’ JSR was buying; Fabri-Cell selling. Equally unusual, JSR subsequently purchased all the shares in Fabri-Cell (having previously separately bought all Fabri-Cell’s assets) with these shares later transferred into sole ownership of Mr Ram.
The High Court was told a debt factoring agreement with Avanti was also surrounded by confusion. Mr Ram arranged financing having his business sell its invoices to Avanti for eighty per cent of their face value with Avanti taking a mortgage over these debts as security for repayment. This loan facility was limited to $350,000; interest charged at 18 per cent. The financing agreement was signed between Avanti and JSR Group. JSR at no time issued any invoices; Fabri-Cell did. Over subsequent months, invoices raised by Fabri-Cell were passed on to Avanti with cash advances made by Avanti to JSR Group, a different company. When Fabri-Cell went into liquidation, liquidators said Fabri-Cell was not party to any Avanti debt factoring arrangement and had given away its invoices for nothing; Avanti had recovered payment due on Fabri-Cell invoices while the cash went elsewhere, to JSR.
Associate judge Bell ruled Fabri-Cell was party to the debt factoring contract. JSR had signed, but Fabri-Cell performed the contract and by its conduct had adopted its terms. Avanti’s release of finance to JSR was for Fabri-Cell’s benefit; JSR was paying Fabri-Cell’s bills.
Fabri-Cell International Ltd v. Avanti Finance Ltd – High Court (13.05.20)
20.080