Alora Davies Developments 104 Pty Ltd (in liq) v Raphael

Affidavit evidence

1. Mr Michell reads several affidavits in support of the application. By his first affidavit dated 26 September 2024, he referred to his appointment as liquidator of the Company by orders made in this Court, in a winding up application brought by the Workers Compensation Nominal Insurer. He refers to the fact of a transfer of funds out of the Company's account to an account which it now emerges was a personal account of Mr Youssef, a director of the Company, on the day in which the Company was placed in liquidation. The moneys which were the subject of the transfer are those which are sought to be returned by the orders sought in these proceedings. Mr Michell also refers to subsequent correspondence with CBA and with a solicitor acting for Mr Youssef in respect of the transfer. His evidence, supported by documents which are tendered, is that the transfer was a payment made by the Company to Mr Youssef as a director of the Company; that there was no apparent corporate purpose or benefit to the Company in the transfer; and the transfers caused financial detriment to the Company, obviously enough, by reducing the funds available to it and its creditors in the winding up; and Mr Youssef received the benefit of the transfer.
2. The documents exhibited to Mr Michell's first affidavit include a file note dated 4 December 2023 where Mr Youssef advised a staff member within the liquidator's firm that he had transferred all of the money out of the Company's bank account to himself. Those documents also record the transfer of $69,000 to an account held with CBA that took place on 4 December 2023, and the result of tracing undertaken by CBA which indicates that the amount was held in Mr Youssef's name. Attempts were subsequently made to avoid the need for these proceedings by the liquidator proposing an agreement by which the relevant funds would be retransferred by Mr Youssef to the Company, but Mr Youssef did not take that course, and it appears that Mr Youssef sought, inter alia, that he be permitted to continue to trade the Company as a condition of repayment of the Company's own funds to the Company. In any event, for whatever reason, those funds were not voluntarily retransferred by Mr Youssef to the Company or the liquidator.
3. By his second affidavit dated 31 October 2024, Mr Michell addresses matters relevant to the claim now brought under s 588FDA of the Corporations Act 2001 (Cth) ("Act") for payment of the relevant amounts, including the limited books and records which have been made available to him; and the extent of the Company's creditors, which significantly exceed the amount of the assets available to the Company. Mr Michell again expresses the view, reinforced by these matters, that the transfer of the funds from the Company to Mr Youssef reduced the Company's available assets, at a time that the Company had significant liabilities, and caused financial detriment to the Company and prejudice to its creditors.
4. Mr Michell also relies on an affidavit dated 6 October 2024 of Ms Sabatino, which proves service of the proceedings upon Mr Youssef, and an affidavit dated 14 October 2024, which proves that Mr Youssef was notified of orders made by the Court for him to file and serve any evidence on which he relied, with which he has not complied, and of the listing of the matter yesterday, when it was adjourned for hearing today. As I noted above, Mr Youssef has not appeared, and CBA submits to the orders sought other than as to costs.

Claim under s 588FDA of the Act

1. Mr Michell initially sought relief under, alternatively, s 588FDA of the Act, or alternatively under s 468 of the Act on the basis that the transaction could properly be characterised as a disposition of the Company's property made after the commencement of the winding up. Mr Kelly, who appears for Mr Michell in the application, has rightly pressed the claim under s 588FDA of the Act where there may be a degree of uncertainty, in the relevant circumstances, as to whether the disposition of property occurred immediately before, at the same time, or after the winding up for the purposes of s 468 of the Act.
2. There is no such uncertainty as to the application of s 588FDA of the Act here. That section relevantly deals with unreasonable director related transactions and provides that, broadly, a transaction between a Company and a director is voidable on a winding up of the Company if it occurs in circumstances where a reasonable person in the Company's circumstances would not have entered into the transaction. Whether a reasonable person in the Company's circumstances would not have entered into the transaction is determined having regard to any benefits to the Company of entering into it; the detriment to the Company of entering into it; the respective benefits to other parties to the transaction of entering into it; and any other relevant matter: s 588FDA(1)(c). In Vasudevan v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14 at [28], the Court of Appeal of the Supreme Court of Victoria, observed that the purpose of this section is "to catch director related transactions of kinds not otherwise liable to avoidance as unfair preferences, unfair transactions, or unfair loans", and similar observations have been made in later cases including Smith (in his capacity as liquidator of Action Paint Ball Games Pty Ltd) v Starke (No 2) (2015) 109 ACSR 1415; [2015] FCA 1119 at [104] and Crowe Maxwell v Frost (2016) 91 NSWLR 414; 111 ACSR 503; [2016] NSWCA 46 at [67]ff. Mr Kelly refers to the relevant case law in his helpful submissions, and I have drawn here on my summary of the applicable principles in Alora Davies Developments 104 Pty Ltd (in liq) v Raphael [2024] NSWSC 547 at [128].
3. I am satisfied that the relevant payment by the Company, from its bank account, to the account held in Mr Youssef's name with CBA was an unreasonable director related transaction of the Company for the purposes of s 588FDA(1) because it was relevantly, a payment made by the Company, to a director of the Company, or at least to CBA for the benefit of a director of the Company, and it would be expected that a reasonable person in the Company's circumstances would not have entered into that transaction having regard to the lack of any benefit to the Company of doing so; and the detriment to the Company of reducing its assets and depriving the liquidator and creditors of access to those assets.

Sections 588FE and 588FF of the Act

1. Where a transaction is an unreasonable director related transaction, for the purposes of s 588FDA, as the transaction here is, it is a voidable transaction under s 588FE(6) of the Act, if it occurred during the relation back period and, relevantly, no later than the day on which the winding up began. That requirement is satisfied. Section 588FF(1) in turn provides that, where the Court is satisfied that a transaction of the Company is voidable because of s 588FE, it can make one or more of the following orders, including an order directing a person, here CBA, to pay to the Company an amount equal to some or all of the money that the Company has paid under the transaction. That order is properly made against CBA here where the moneys were paid to it, to be held in the account in Mr Youssef's name, and I have noted above that CBA submitted to the making of such an order.
2. Section 588FF(1)(c) also permits the Court to make an order requiring a person to pay to the Company an amount that, in the Court's opinion, fairly represents some or all of the benefits that the person has received because of the transaction. It seems to me that an order can also be made under that section, and should be made under that section, requiring CBA to pay the liquidator the amount of interest that has accrued on the funds in the relevant account, including any accrued interest by CBA to the Company, where CBA would have no expectation that it would be entitled to retain for itself the interest that was earned on that account. In this case, Mr Youssef also had the benefit of the funds over that period although that benefit has plainly been qualified by the hold placed by CBA on the relevant account. In those circumstances, the Company has lost the benefit of those funds, and that is sufficient to support an order that Mr Youssef pay interest on the relevant funds, to the extent that that interest is not recovered by the payment of the balance of the funds held in the account.

Costs and orders

1. The liquidator also seeks an order for costs, which should be made against Mr Youssef, and an order reserving its ability to apply for costs on a lump sum basis. I will make that order. I direct the liquidator to submit orders to give effect to this judgment by 4pm today.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 November 2024