By Originating Process filed on 25 January 2019, the Plaintiffs, Mr Pleash and Ms Vouris as joint and several liquidators of A.C.N. 157 853 908 Pty Ltd (in liq) ("Company") and the Company sought orders under ss 588FB, 588FC, 588FE and 588FF of the Corporations Act 2001 (Cth) against the Defendant, Mr Tona Inthavong, in respect of transactions they contend are uncommercial transactions, and relief for monies had and received. The Plaintiffs subsequently filed a Statement of Claim pursuant to orders made by the Court. Paragraph 6 of that Statement of Claim, which was verified by Mr Pleash by affidavit, identified several matters on which the liquidators relied to contend that the Company was insolvent in the period since 1 July 2013, including substantial unpaid trade creditors for part of the period; unpaid superannuation liabilities for a substantial part of the period commencing 1 July 2013; unpaid taxation liabilities for part of the period; and the failure to maintain adequate books and records for the purposes of s 286 of the Corporations Act. Mr Inthavong did not file a Defence or take any active part in the proceedings, despite directions requiring him to do so and extensions of time to permit him to do so, although he participated at one point in settlement discussions with the Plaintiffs.
Agar v Hyde [2020] NSWSC 522 | Case summary | Zoe
By Interlocutory Process filed on 20 March 2020, the Plaintiffs sought judgment against Mr Inthavong under rule 13.1 of the Uniform Civil Procedure Rules 2005 (NSW) for the amount of $98,000 and an order for costs. That rule relevantly provides that:
"If, on application by the plaintiff in relation to the plaintiff's claim for
relief, or any part of the plaintiff's claim for relief, or any part of the
plaintiff's claim for relief:
(a) there is evidence of the facts on which the claim or part of the claim is based, and
(b) there is evidence, given by the plaintiff or by some responsible person, that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part of the claim, or no defence except as to the amount of any damages claimed,
the court may give such judgment for the plaintiff, or make such order
on the claim or that part of the claim, as the case requires."
This rule permits the Court to order summary judgment if the matters specified in paragraphs (a)-(b) are satisfied. Before a Court will give summary judgment, it is necessary for the Court to reach a high level of satisfaction that the order should be made, and the power to order summary judgment should be sparingly employed: Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62 at 91; General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 129; Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 at 575-6; (2000) 173 ALR 665; Westpac Banking Corporation v Lahood [2011] NSWSC 1057 at [15]; and Re Ledir Enterprises Pty Limited [2013] NSWSC 101 at [7]-[8]ff, on which I have drawn for the summary of those principles. Mr Simpson, who appears for the Plaintiffs, points out that the Court may order summary judgment under UCPR r 13.1 where there is evidence before the Court of material that supports the Plaintiffs' claim and evidence of their belief that Mr Inthavong has no defence to the claim put against him.
The Plaintiffs rely on the affidavit dated 25 January 2019 of Mr Pleash which refers to his and Ms Vouris' appointment as administrators of the Company which operated two restaurants in Fairfield and on Pitt Street Sydney, and to Mr Inthavong's role as an employee of the Company, and as floor manager and general manager of the restaurants. Mr Pleash's affidavit and banking records identify payments made to Mr Inthavong personally between February 2014 and October 2015 totalling $98,000, in addition to wage payments that were apparently made to Mr Inthavong's former wife, although some of these related to services provided by Mr Inthavong. Some of the payments made to Mr Inthavong were described as "share" or "div" payments, although Mr Inthavong was not a shareholder in the Company.
Mr Pleash's evidence is that he has formed the view that the Company was insolvent from at least 1 July 2013. An exhibit to that affidavit (Ex BP-1) includes the administrators' report to creditors dated 18 February 2016 which expresses the view that adequate books and records were not maintained to comply with s 286 of the Corporations Act, and that failure gave rise to a rebuttable presumption of insolvency of the Company in recovery actions under Part 5.7B Div 2 of the Act. That exhibit also enclosed copies of bank statements which recorded transactions on which the liquidators rely. An affidavit dated 20 March 2020 of Mr Hidayat, a solicitor acting for the liquidators, annexed copies of further bank statements of the Company.
The Plaintiffs also rely on a schedule to their submissions, and a revised schedule provided to the Court on 6 April 2020, which identifies each of the relevant payments and the evidence relating to those payments. The Plaintiffs fairly recognise that they have not located references to payments constituting $8,000 within bank statements relating to the Company's Westpac account. In supplementary submissions, the Plaintiffs fairly did not press the claims for that amount, where the four payments totalling that amount were not established by the documents in evidence.
Mr Hidayat's second affidavit dated 20 March 2020 referred to communications with Mr Inthavong in respect of the proceedings. The Plaintiffs also relied on Ms Vouris' affidavit dated 20 March 2020, which set out the orders made in the course of the proceedings, including orders requiring Mr Inthavong to file his Defence and extending the time to do so. Ms Vouris' evidence was that Mr Inthavong had not filed a Defence or advised her firm or the liquidators' solicitors that he has a defence to the proceedings. Ms Vouris' evidence indicates her belief that Mr Inthavong had no defence to the Plaintiffs' claim, and confirms that she holds that belief having regard to a liquidator's examination of Mr Inthavong conducted on 19, 21 and 23 November 2018. The Plaintiffs also rely on evidence of service of the Originating Process, Mr Pleash's supporting affidavit and its exhibit, the Statement of Claim, Interlocutory Process seeking summary judgment and supporting affidavits upon Mr Inthavong.
Mr Simpson also points out that the evidence establishes that Mr Inthavong has been aware of the proceedings for over a year and has failed to file a defence in accordance with the Court's orders, and that a deemed admission can arise from a defendant's failure to file a defence in a proper case: Mirembe Pty Ltd v Dangar [2009] NSWSC 1268 at [4].
[3]
Claim for uncommercial transactions
The Plaintiffs contend that the relevant payments, totalling $90,000, were uncommercial transactions within the scope of s 588FB of the Corporations Act and insolvent transactions so as to be voidable under s 588FE of the Act and give rise to relief under s 588FF of the Act.
Section 588FB of the Act provides that a transaction is an uncommercial transaction if it may be expected that a reasonable person in a company's circumstances would not have entered into the transaction, having regard to the benefit and detriment to the company in entering the transaction, the benefit to other parties to the transaction and any other relevant matter. The term "transaction" is relevantly defined, in relation to a body corporate, as a transaction to which the body is a party, including without limitation a payment made by the body or an obligation incurred by it. That definition gives several examples of transactions, which have the common characteristic that the conduct or dealing engaged in by the company has the consequence of affecting a change in its rights, liabilities or property: Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281; (1997) 24 ACSR 292 at 299; Capital Finance Australia Ltd v Tolcher [2007] FCAFC 185; (2007) 164 FCR 83; (2007) 64 ACSR 705 at 719; Re Employ (No 96) Pty Limited (in liq) [2013] NSWSC 61 at [15].
Mr Simpson submits, and I accept, that the evidence led by the Plaintiffs establishes that the relevant payments totalling $90,000 were made by the Company between 18 February 2014 and 19 October 2015; those payments were made to Mr Inthavong; Mr Inthavong had no entitlement to those payments, which did not constitute the payment of his wages and to which he was not entitled as dividends where he was not a shareholder in the Company; there was no benefit to the Company from making those payments; the Company in turn suffered a detriment as a consequence of those payments; and Mr Inthavong benefited from those payments. I am satisfied that, on that basis, the relevant transactions were uncommercial transactions.
A transaction is an insolvent transaction of a company, as defined in s 588FC of the Act, if, relevantly, it is an uncommercial transaction of the company and the transaction is entered into at a time the company is insolvent or the company becomes insolvent because of matters including its entry into the transaction. Section 95A(1) of the Act has effect that a company is solvent if, and only if, it is able to pay all its debts, as and when they become due and payable. Section 95A(2) has effect that a company who is not solvent is insolvent. That definition primarily adopts a "cashflow test" of insolvency and whether a company is able to pay its debts as and when they fall due and payable is a question of fact to be determined objectively and without hindsight in all the circumstances: Re Anton Fabrications (NSW) Pty Ltd; Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd [2011] NSWSC 186; (2011) 248 FLR 384 at [47]-[49]. Section 286 of the Act in turn requires a company to keep written records that correctly record and explain its transactions and financial position and performance and would enable true and fair financial statements to be prepared and audited, and s 588E(4) establishes a presumption of insolvency arising from a failure to keep and retain proper financial records under s 286 of the Act. In order to establish the presumption of insolvency for a particular period, the position must be separately and distinctly proved for that period; and it must be proved either that no documents within the description of "financial records" were kept in that period or that the documents which were kept were "deficient as to content", because they did not correctly record and explain the company's transactions and financial position and performance or would not enable true and fair financial reports to be prepared and audited: Fisher v Divine Homes Pty Ltd; Allen v Harb [2011] NSWSC 8; (2011) 85 ACSR 512 [2011] NSWSC 8; (2011) 85 ACSR 512 at [24].
I am satisfied, by reference to Mr Pleash's affidavit evidence, and the administrator's report to creditors that is in evidence without limitation, that the relevant payments were made at a time when the Company was insolvent. I reach that conclusion primarily on the basis that the Company failed to maintain adequate books and records for the purposes of s 286 of the Act for that period, giving rise to the presumption of insolvency under s 588FE(4) of the Act, and Mr Inthavong has not sought to rebut that presumption. The presumption of insolvency is reinforced by the evidence of the Company's unpaid trade creditors and unpaid tax liabilities in respect of that period. I am satisfied that the relevant transactions were insolvent transactions as defined in s 588FC of the Act on that basis.
I am satisfied that the relevant transactions were made within two years of 28 January 2016, the relation back day, and are therefore voidable transactions for the purposes of s 588FE of the Act where, as I have held, they were uncommercial transactions and insolvent transactions. The Court may make on order under s 588FF of the Act on that basis.
[4]
Claim in unjust enrichment
The Plaintiffs also brought an alternative claim for unjust enrichment, and Mr Simpson placed primary weight on that claim in submissions since it did not require proof of the Company's insolvency. As I noted above, I am satisfied that the Plaintiffs have established the Company's insolvency, and have established that the relevant payments were uncommercial transactions and insolvent transactions so as to be voidable under s 588FE of the Act and give rise to relief under s 588FF of the Act for the reasons noted above. In those circumstances, it is not be necessary to determine the claim for money had and received.
[5]
Declarations and orders
I am satisfied that the Plaintiffs have established the basis for judgment of $90,000 and interest in the amount of $5,667, calculated as set out in their supplementary submissions. The Plaintiffs initially also sought declarations that the monies received by Mr Inthavong constituted uncommercial insolvent and/or voidable transactions within the meaning of the Act and that they constituted monies had and received. There may well have been difficulties in making declarations of that generality. Mr Simpson fairly recognised in oral submissions that those declarations sought were not necessary where the money judgment sought by the Plaintiffs would fully determine their claims.
Accordingly, I make the following orders:
Judgment for the Plaintiffs against the Defendant in the amount of $90,000 and interest in the amount of $5667.
The Defendant pay the Plaintiffs' costs of the proceedings as agreed or as assessed.
[6]
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Decision last updated: 12 May 2020