It is common ground that MHT provided historical military tours, including a substantial tour to Gallipoli for the 100th anniversary of the Gallipoli landing in April 2015, which was to take place on a ship chartered from MSC Crociere SA or MSC Cruises SA, which is incorporated in Switzerland and has operations in Italy. I will assume, without deciding, that those different names refer to the same legal entity, to which I will refer as "MSC". It is also common ground that Mr Murphy was a director of MHT.
The Plaintiffs case is set out in Points of Claim which the Plaintiffs were ordered to file by 10 August 2020 but which they did not in fact file until 1 September 2020, with the unfortunate consequence that Mr Murphy, who is self-represented, filed his Points of Defence before he had access to a full articulation of the claim against him, since he had sought to comply with the Court's orders in that regard. It is apparent from the Points of Defence, and from the hearing, that Mr Murphy feels strongly that the claims against him are unjustified, and he characterises them in the Points of Claim as an attempt by the Plaintiffs to "har[r]ass, threaten and apply other spurious methods to extort monies" from him. It will emerge below that Mr Murphy has reason to feel aggrieved by the conduct of the claims against him. Mr Murphy there refers, in a narrative form, to dealings between MHT and MSC between 2012 and 2015, in respect of a tour to Gallipoli which was organised by MHT and took place in April 2015. I will refer to those dealings below.
MHT was placed in liquidation by a special resolution of its members on 7 March 2016, in a creditor's voluntary winding up, and Mr Baxendale was appointed as its liquidator. In a response dated 4 February 2016 to a questionnaire for directors and officers issued by Mr Baxendale, the former liquidator of MHT, Mr Murphy identified the reasons for MHT's failure as MSC having broken the charter contract in relation to the Gallipoli Tour, in March 2016, and to "gouging" by Item Tourism, a Turkish ground operator, in February 2015 (Gleeson 19.5.20 pp 48-59). Mr Murphy also provided a report of affairs as to MHT, dated 7 March 2016 and verified on 9 March 2016 (Gleeson 19.5.20, pp 27-47). That report of affairs identified unsecured creditors of MHT including MSC in the amount of $783,593, and Ms Carol and Mr Burton, with a total amount owing of $1,567,563. There is no evidence as to whether Mr Murphy had contemporaneous legal advice in forming that view.
Mr Gleeson was subsequently appointed as liquidator of MHT, on a resolution of its creditors, in place of Mr Baxendale on 21 March 2016. Mr Gleeson's report to creditors dated 6 October 2016 (Ex P1, 17) recorded his view that MHT became involved in a dispute with one of its key suppliers, MSC, in relation to shipping/cruises charges and an alleged breach of contract by MSC; also experienced a decline in sales as a result of political and military issues in Turkey; and, as a result of the dispute and the Company's decline in sales, ceased trading on or around 30 June 2015. That observation is of some significance, so far as several of the "debts" now sought to be relied on to establish insolvency arose after the date on which the Company had ceased trading. The report also recorded that:
"Based on my investigations to date, the Company appears to have incurred a liability to MSC Cruises SA in February 2015 which remained unpaid as at the date of Liquidation. The company was disputing this liability. Following this, the company incurred a further debt to Christine Carroll in March 2015 for a partial refund of a cruise fare cancellation. It is arguable that the company may have been insolvent from March 2015.
Based on my analysis, my estimated claim against the director for insolvent trading is approximately $225,000 calculated as external creditor liabilities outstanding and incurred from March 2015 to the date of Liquidation. I note that the major liability incurred from March 2015 relates to Nationwide News ($209,000) and I have not been provided with a full ledger for the company's account to determine what this debt relates to.
Further investigations are required to determine whether the Company continued to trade whilst insolvent and if so, whether the director had reasonable grounds to suspect the company was insolvent. In this regard, I will be required to obtain further information in relation to creditor claims in order to determine the composition of debts and when such debts were incurred."
Mr Gleeson's then assessment as to the position in respect of MSC and Ms Carroll in February and March 2015 appears to be incorrect, for the reasons that will emerge below; the amount he then estimates as an available insolvent trading claim is much less than the amount now claimed by BBRC; the debt in respect of Nationwide News was pursued in these proceedings, but rightly abandoned in closing submissions (T105); and it is not apparent what further investigations Mr Gleeson undertook to satisfy himself as to the further matters which then required investigation.
By a Deed of Assignment dated 14 September 2018 between Mr Gleeson as liquidator of MHT, MHT and Pattison Hardman (Gleeson 19.5.20, p 115ff), Mr Gleeson assigned to Pattison Hardman Pty Ltd ("Pattison Hardman"), which appears to be a company associated with BBRC and the Plaintiffs' solicitors all of his legal and beneficial rights, title and interest or claim in certain claims on 14 September 2018 (Points of Claim [12]). Recital F of that Deed of Assignment recorded that Mr Gleeson had agreed to assign the Claims (as defined), including an insolvent trading claim under s 588M of the Act and all other claims available to him in his capacity as liquidator of MHT and all other claims available to MHT to Pattison Hardman. Pattison Hardman agreed to pay $25,000 to secure an assignment of claims now made in these proceedings for $224,987.02 and EUR 509,336. Clause 1 effected the assignment and cl 2(g) required Mr Gleeson to assist Pattison Hardman with any legal proceedings for any action taken by it with respect to the Claims (as defined) and any other claims available to it and to provide access to the Company's books and records. It appears that Mr Gleeson may have relied on s 100-5 of the Insolvency Practice Schedule (Corporations) ("IPSC") to authorise the assignment of the statutory cause of action arising under s 588M of the Act, which would not generally have been assignable at general law: Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789 at [390]-[403]; Aquatic Air Pty Ltd v Siewert [2015] NSWSC 928 at [87]. However, the obligations imposed on Mr Gleeson under that deed plainly extended over a period of more than 3 months, given the likely length of any litigation, so that Mr Gleeson was arguably required to, but did not, seek the Court's approval for that assignment under s 477(2B) of the Act. I return to supplementary submissions which the Plaintiff sought to make, but was not granted leave to make, as to further aspects of this assignment below.
Mr Murphy appears to have made a payment to Pattison Hardman in response to a demand that it made in reliance on that assignment. Despite that payment, Pattison Hardman then assigned to BBRC all of its rights in the relevant claims (Points of Claim [14]), which cannot have risen higher than any rights held by Pattison Hardman, and BBRC now pursues these proceedings in reliance on those rights. The Plaintiffs did not address how the question whether a statutory cause of action under s 588M of the Act could be further assigned in that manner, where s 100-5 of the IPSC is restricted, in its terms, only to an assignment by an external administrator and does not authorise further assignment of statutory claims by subsequent assignees. I also return to that question below.
The Plaintiffs relied on Mr Gleeson's first affidavit dated 19 May 2020 which made assertions as to MHT's insolvency; as to Mr Murphy's grounds for suspecting insolvency and as to MHT's failure to keep adequate financial records, which substantially replicated matters alleged in the Points of Claim, without providing an admissible basis for those assertions. Those assertions were not admissible and were not admitted or not read. The Plaintiffs also did not read Mr Gleeson's evidence as to the assignment of his rights as liquidator to Pattison Hardman, which was also not admissible, although his affidavit annexed a copy of the Deed of Assignment which I will address below. Regrettably, he did not there disclose the fact that the Court's approval for that assignment was required, and was not obtained. The Plaintiffs opened their case on the false basis that such approval had been obtained although Mr Lipp, who appeared for them, rightly corrected that matter on the second day of the hearing.
By his second affidavit dated 22 October 2020, Mr Gleeson expressed an opinion (Gleeson 22.10.20 [11]) that MHT was insolvent from 24 February 2015 and remained insolvent until it was placed in liquidation on 7 March 2016. That opinion was inadmissible, since Mr Gleeson sought to establish no basis for it; Mr Lipp sought to tender it with a limiting order under s 136 of the Evidence Act as a summary of that affidavit, but that did not assist the Plaintiffs, because the evidence which it summarised was also largely inadmissible and was rejected, not read or itself admitted only as summary. Mr Gleeson also expressed the view (Gleeson [23]) that MHT failed to keep written financial records and his evidence was that he was not provided with specific categories of documents (Gleeson [25(e)]). That evidence did not establish MHT's failure to keep financial records, without evidence as to what inquiries Mr Gleeson had made of his predecessor as liquidator of MHT, Mr Baxendale, to obtain such documents, or what inquiries Mr Baxendale had made to obtain such documents, including from MHT's accountants, Mosman Accountants.
Mr Gleeson's evidence, admitted with a limiting order under s 136 of the Evidence Act as submission only, was also that the Company indicated several indicia of insolvency at 24 February 2015, namely an excess of liabilities over assets; trading losses to 30 June 2015; its overdraft facility with its bank was exceeded on 10 September 2015; unpaid creditor debts and invoices as early as 24 February 2015; and a Court order for judgment obtained on 2 September 2015 for $2,380. This evidence has the difficulties that it involves assumptions, which are not established, as to the nature of the Company's liabilities as at February 2015; and it seeks to establish the insolvency as at February 2015 partly by reference to the position as at June and September 2015. Mr Gleeson also led evidence as to debts owing to particular entities, part of which was not pressed and part of which was admitted as submission under s 136 of the Evidence Act, which largely repeated the allegations in the Plaintiffs' Points of Claim.
Mr Gleeson's affidavit also exhibits bank statements for some but not all of MHT's bank accounts, at least for the period around 2014 and 2015. Those accounts demonstrate substantial credit balances in those accounts for a significant part of that period, reducing only late in that period in May and June 2015. That is a matter of some significance, so far as Mr Lipp sought to establish, from those bank statements, that MHT did not have sufficient funds to meet the debt to MSC which the Plaintiffs contended was incurred in February 2015. Mr Gleeson's affidavit dated 22 October 2020 also addressed the debts on which the Plaintiffs rely to establish insolvency and to establish the amount claimed by BBRC under s 588M of the Act. I will address those debts below.
Mr Gleeson was cross-examined by Mr Murphy, although aspects of that cross-examination related to the propriety of the conduct of these proceedings. It seems to me preferable that I do not address that evidence, where it is not necessary to do so in order to determine the proceedings.
Mr Murphy in turn relied on a document, read as an affidavit, titled "Final Evidence in Points of Defence by Second Defendant", which outlined his response to the particular claims. Mr Lipp, helpfully, took a constructive approach to evidence led by a self-represented defendant, and took minimal objections to that evidence. That affidavit makes clear the aspects in which Mr Murphy contests the relevant debts. I will address Mr Murphy's evidence as to several of the claims in issue below. For completeness, I note that Mr Murphy's "Final Evidence" also addressed the claim initially made by the Plaintiffs in respect of Nationwide News, which was rightly not pressed in closing submissions. Mr Murphy also addressed a proof of debt lodged by Item Tourism, a Turkish ground tour operator, and his evidence was that all amounts due to it had been prepaid, and the additional claim reflected an additional charge to MHT, beyond those which MHT had contracted to pay. Mr Murphy also addressed a proof of debt by Associated Foreign Exchange Australia in the amount of $22,307.34 and a proof of debt by GIO Insurances for $204.60 in respect of the NSW WorkCover Scheme. It is not necessary to address these matters further, where the Plaintiffs do not seek to rely on them to establish MHT's insolvency; it is not established that MHT was insolvent at the pleaded dates for the reasons noted below; and it is not established that BBRC would have standing to recover these amounts in a claim under s 588M of the Act in any event. Mr Murphy was cross-examined and, although he plainly felt aggrieved at the liquidator's and BBRC's actions and the fact of the proceedings, he was a credible witness and I largely accept his evidence.
[2]
Whether MHT was insolvent in fact
In order to establish liability for insolvent trading on the part of Mr Murphy under s 588G of the Corporations Act, the Plaintiffs must establish, relevantly, that (1) as is common ground, he was a director of MHT at the time it incurred a debt; (2) MHT was insolvent at the time the debt was incurred, or became insolvent by incurring the debt; (3) at the time the debt was incurred, there were reasonable grounds to suspect that MHT was insolvent or may become insolvent by incurring the debt; (4) and Mr Murphy was aware that there were reasonable grounds to suspect insolvency or a reasonable person would have been aware of that matter. I proceed on the basis that an insolvent trading claim must be established having regard to the standard of proof recognised in the general law in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362 and under s 140 of the Evidence Act 1995 (NSW), which similarly provides that, in a civil proceeding, the Court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities and that, without limiting the matters that the Court may take into account in deciding whether it is so satisfied, it is to take into account the nature of the cause of action or defence, the nature of the subject-matter of the proceeding and the gravity of the matters alleged.
The question whether MHT was insolvent, in fact, at the time the relevant debts were incurred, or became insolvent by incurring those debts, is to be determined by reference to s 95A(1) of the Corporations Act. That section provides 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) of the Corporations Act has the effect that a person who is not solvent is insolvent. That definition adopts a "cash flow test" of insolvency which turns upon the income sources available to the company and the expenditure obligations that it has to meet, although a balance sheet test can provide context for the application of the cash flow test: Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 39 ACSR 305; [2001] NSWSC 621; Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126; [2003] VSC 123 at [370]ff, aff'd Elliott v Australian Securities and Investments Commission (2004) 10 VR 369; [2004] VSCA 54; and see Re Swan Services Pty Limited (in liq) [2016] NSWSC 1724 at [136]ff, on which I have drawn for this summary of the applicable principles.
[3]
Whether MHT was presumed insolvent under s 588E(4) of the Act
The Plaintiffs also plead that MHT did not keep adequate financial records, and rely on the presumption under s 588E(4) of the Act. That provision provides for a presumption of insolvency throughout a period in which a company has failed to keep financial records as required by s 286(1) of the Corporations Act, which requires a company to keep financial records that correctly record and explain the company's transactions and financial position and performance and which would enable true and fair financial statements to be prepared and audited. The effect of that section is that a company is presumed insolvent throughout the period in which a failure to comply with s 286 of the Corporations Act existed. 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 (for example, because they did not accurately record the matters purportedly recorded) or would not enable true and fair financial reports to be prepared and audited: Woodgate v Fawcett (2008) 67 ACSR 611; [2008] NSWSC 868; Re SSET Construction Pty Ltd (in liq); Sims v Khattar [2010] NSWSC 102; Fisher v Divine Homes Pty Ltd (2011) 85 ACSR 512; [2011] NSWSC 8 at [24]. The presumption under s 588E(4) of the Corporations Act does not arise merely because of a failure to keep or prepare income tax returns, business activity statements, balance sheets or profit and loss accounts: Fisher v Divine Homes Pty Ltd above at [23]. However, the presumption may arise if the financial records maintained by a company are deficient to the point that they did not "correctly record and explain the company's transactions and financial position and performance": Fisher v Divine Homes Pty Ltd above at [24].
I summarised the scope of s 588E(4) of the Act in Campbell Street Theatre Pty Ltd (recs & mgrs apptd) (in liq) v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669 at [24] as follows:
"Section 286 of the Corporations Act 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. Section 588E(4) establishes a presumption of insolvency arising from a failure to keep and retain proper financial records under s 286 of the Corporations 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 (1) no documents within the description of "financial records" were kept in that period or that (2) 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 (for example, because they did not accurately record the matters purportedly recorded) or would not enable true and fair financial reports to be prepared and audited: Woodgate v Fawcett [2008] NSWSC 868; (2008) 67 ACSR 611; Re SSET Construction Pty Ltd (in liq); Sims v Khattar [2010] NSWSC 102; Fisher v Divine Homes Pty Ltd [2011] NSWSC 8; (2011) 85 ACSR 512 at [24]."
[4]
Mr Murphy's knowledge of MHT's alleged insolvency
The Plaintiffs plead (Points of Claim [9]) that, when each debt was incurred, there were reasonable grounds for suspecting that MHT was insolvent or would become insolvent by incurring each debt or any of them, and Mr Murphy knew and had reasonable grounds to suspect those matters.
In order to establish their claim, the Plaintiffs must show that, during any period in which MHT was insolvent, there were reasonable grounds to suspect it was insolvent or would become insolvent as a consequence of incurring a relevant debt (s 588G(1)) and Mr Murphy was aware of that matter (s 588G(2)(a)) or a reasonable person in a like position in a company in MHT's circumstances would be so aware (s 588G(2)(b)). This requirement may be satisfied either by proof that a director had a subjective awareness of grounds that constitute reasonable grounds for suspecting insolvency, or that a reasonable person in the position of the director would have been aware of the existence of such grounds: Australian Securities and Investments Commission v Plymin (No 1) above at [426]. This requirement adopts a lower threshold of the existence of reasonable grounds for "suspecting" that the company was insolvent or would become insolvent as a result of the transaction, rather than of an expectation that the company was insolvent or would become insolvent as a result of a transaction. In Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330 at [234], Palmer J noted that the standard of "suspicion" of insolvency:
"falls somewhere between a belief that insolvency exists, on the one hand, and a mere wondering whether it exists, on the other. Suspicion is a positive feeling of apprehension, an admittedly tentative belief, without sufficient evidence to form a concluded and supportable opinion."
In Powell v Fryer (2001) 37 ACSR 589; [2001] SASC 59 at [76]-[77], Olsson J (with whom Duggan and Williams JJ agreed) observed that:
"The test to be applied in relation to s 588G(1)(c) is objective: Metropolitan Fire Systems Pty Ltd v Miller (1997) 23 ACSR 699 at 702-3. As Duggan J pointed out in Group Four Industries Pty Ltd v Brosnan (1991) 56 SASR 234 at 238; 5 ACSR 649, the state of knowledge of a particular director and any assessment which he may have made as to the ability of the company to pay its debts is irrelevant. The court must make its own judgment on the basis of facts as they existed at the relevant time and without the benefit of hindsight."
[5]
Declaration of contravention of s 1317E of the Act
As I noted above, Mr Gleeson and BBRC seek a declaration under s 1317E of the Act that Mr Murphy contravened s 588G(2) of the Act. That section provides that, if the Court is satisfied that a person has contravened a civil penalty provision, the Court must make a declaration of contravention. Subsection 1317E(2) requires that that declaration specify the conduct that constituted the contravention. Such a declaration could not be made, because, for the reasons noted above, it has not been established that Mr Murphy contravened s 588G(2) of the Act. Even if it had been, Mr Gleeson and BBRC do not have standing to seek a contravention of s 1317E of the Act. The balance of authority indicates that that section only applies to proceedings in which relief is sought by the Australian Securities and Investments Commission: One.Tel Ltd (in liq) v Rich [2005] NSWSC 226; (2005) 190 FLR 443; 53 ACSR 623 at [69]-[70]; Primacy Underwriting Agency Pty Ltd v Kilborn [2007] NSWSC 158; (2007) 25 ACLC 160 at [6]-[8].
[6]
Claim for order for payment to BBRC
As I noted above, the Plaintiffs including BBRC claim an order for payment by Mr Murphy to BBRC (and not Mr Gleeson as the liquidator MRT) of compensation under s 588M of the Corporations Act. I will briefly address the case law, although it is strictly not necessary to do so, since no basis for an order under s 588M of the Act can be established where a contravention of s 588G(2) of the Act was not established.
Section 588M of the Act relevantly provides for the recovery of compensation for loss resulting from insolvent trading. In Edenden v Bignell [2007] NSWSC 1122 at [30], Barrett J observed that:
"[Section 588M] does not allow recovery of the amount of the creditor's debt as such. Rather, it is a provision allowing recovery of compensation measured by reference to loss or damage suffered by the creditor in relation to the debt because of the debtor's insolvency. In some cases - perhaps most cases - this will be the equivalent of the amount of the debt: see, for example, Powell v Fryer (2001) 37 ACSR 589. In others - for example where a proof of debt is admitted and a substantial payment is made to all creditors rateably - the relevant loss or damage may be less than the amount of the debt. There may perhaps be circumstances in which the amount of the loss or damage exceeds the amount of the debt. The separateness of the debt, on the one hand, and the loss and damage, on the other, is emphasised by the statement in s 588M(3) that an amount equal to the loss or damage may be recovered "as a debt due to the creditor".
The balance of authority indicates that a liquidator must, in proving loss or damage for the purpose of s 588M, bring to account any anticipated or estimated return to creditors in the relevant insolvency, which will here include the result of the voidable transaction claims noted below. I reviewed the case law in Re Swan Services Pty Ltd (in liq) above and concluded at [216] that:
"The concept of "loss and damage" adopted in [s 588M] seems to require that account be taken of matters that will reduce the amount of that loss or damage, including recoveries by the liquidator that will allow a distribution to creditors, and that result is consistent with fairness so far as it does not result in the defendant, in a claim under s 588M of the Corporations Act, being required to compensate for loss and damage which will not be suffered once other recoveries are made. While the process of establishing loss or damage taking into account future recoveries may be challenging in a particular case, it is by no means impossible. That approach seems to me necessary to establish the amount of "loss or damage" that a creditor will in fact incur and should avoid or limit the risk that judgments are given under s 588M of the Corporations Act for more than the amount of that loss or damage."
Mr Lipp did not seek to contest that approach, although the Plaintiffs also did not address whether there would be other recoveries in the liquidation. It is not necessary to address that issue further given the findings that I reach on other grounds.
[7]
Why the Court did not extend the time for further submissions by the Plaintiffs
I granted leave, at the conclusion of the hearing, for the Plaintiffs to make supplementary submissions within a specified time as to the need for Court approval under s 477(2B) of the Act of the Deed of Assignment that effected the first assignment from Mr Gleeson to Pattison Hardman and the effect of any failure to obtain it, but they did not do so within that time. On 3 December 2020, after that time had expired, my Associate advised the parties, at my request, that no such submissions had been received and the Court would deliver its judgment on the basis that no such submissions were made. Only then did Mr Lipp, on behalf of the Plaintiffs, seek to submit late submissions and an explanation for the delay in making them. I then advised the parties that I would not extend the time for those submissions and would indicate my reasons for reaching that decision in this judgment. I set out my reasons for not extending that time and not having regard to the Plaintiffs' further submissions below.
I bear in mind that I should exercise the discretion whether to extend the time to receive those further submissions having regard to the provisions of ss 56-58 of the Civil Procedure Act 2005 (NSW). Section 58 requires the Court to have regard to the dictates of justice when considering whether to make any order of a procedural nature, here an extension of time for submissions, and requires the Court to have regard to the provisions of ss 56 and 57. Section 56 identifies the overriding purpose of the just, quick and cheap resolution of the real issues in dispute in the proceedings and s 57 requires proceedings to be managed having regard, inter alia, to their just determination. I have also had regard to the treatment of the principles in the case law, including Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 and Hans Pet Constructions Pty Ltd v Cassar [2009] NSWCA 230 at [36].
The Plaintiffs' explanation for the delay in their further submissions, although unsupported by evidence, was that it had become apparent that inconsistent views and potential instructions existed with respect to this issue as between Mr Gleeson and BBRC, although the nature of that inconsistency was not disclosed, which was said to have "required consultation and revised drafts of the submissions"; that Mr Gleeson had obtained separate representation with respect to certain aspects of the matter; and that Mr Gleeson and his separate representative were occupied in other proceedings on the date the submissions were due and the following day. The Plaintiffs sought an extension of time for the filing and service of the submissions and a consequential extension for Mr Murphy to make submissions in response. I recognise that the Plaintiffs' delay in respect of their further submissions was short, and I would have granted the extension of time sought for the further submissions had I been persuaded that those further submissions had any realistic prospect of affecting the outcome of the proceedings. I was not persuaded of that matter, for the reasons set out below.
[8]
Relief under s 1317S of the Corporations Act
Had I reached a conclusion that the elements of an insolvent trading claim were otherwise established, I would have afforded the opportunity to Mr Murphy to bring a claim for relief under s 1317S of the Corporations Act, since his ability to do so would not necessarily have been apparent to him as a self-represented litigant.
The Court has power to grant relief from a contravention of a civil penalty provision under s 1317S of the Act if, in "eligible proceedings" brought against a person, it appears to the Court that that person has or may have contravened a civil penalty provision, but that he or she had acted honestly and, having regard to all the circumstances of the case (including those connected with his or her appointment as an officer of a corporation), the person ought fairly to be excused for the contravention. Matters relevant to relief under that section would here include whether Mr Murphy acted honestly; a value judgment whether, having regard to all the circumstances of the case, he ought fairly to be excused for the contravention; and whether, as a matter of discretion, the Court should exercise its power to relieve him from any liability: Australian Securities and Investments Commission v Edwards (No 3) (2006) 57 ACSR 209; [2006] NSWSC 376 at [10]; Australian Securities and Investments Commission v Healey (No 2) (2011) 85 ACSR 654; [2011] FCA 1003 at [83]-[84]; Re Swan Services Pty Ltd (in liq) above at [236]-[237]. Whether relief from liability should be granted under that section depends not only on subjective honesty but also on the degree to which the relevant conduct fell short of the required standard, the seriousness of the contravention and its actual or potential consequences, any element of impropriety such as deception and personal gain and any contrition of the applicant and the need for general deterrence is also relevant: Morley v Australian Securities and Investments Commission (No 2) (2011) 83 ACSR 620; [2011] NSWCA 110 at [44], [49]-[50]. It seems to me that, on the facts that I have found above, a claim for relief by Mr Murphy under that section would have been strongly arguable.
[9]
Other matters of concern and orders
Several matters of concern arose in the course of these proceedings, including the fact that a payment was apparently made by Mr Murphy to Pattison Hardman in response to a claim based on an assignment for which Mr Gleeson had not obtained Court approval as required by s 477(2B) of the Act; whether Mr Gleeson had undertaken adequate factual inquiry as to the factual basis of the serious allegations of contravention of a civil penalty provision made against Mr Murphy in these proceedings; whether Mr Gleeson had adequately supervised the conduct of the proceedings brought in his name, where it emerged in his cross-examination that he had not authorised and was not informed of a settlement offer made by the Plaintiffs (of which he was one) to Mr Murphy shortly before the hearing; and whether the solicitors acting for the Plaintiffs were able to exercise, and exercised, independent professional judgment in the conduct of the proceedings given their relationship with BBRC. Any detriment that would arise from these matters would plainly be exacerbated where Mr Murphy was an individual facing the disadvantage of lack of legal representation in the proceedings.
As a matter of procedural fairness, I drew Mr Gleeson's attention, at the conclusion of his cross-examination on the first day of the hearing, to the possibility that the Court might invoke its jurisdiction to conduct an inquiry into his conduct in respect of these proceedings, now reflected in Div 90 of the IPSC. Mr Golledge then briefly appeared, separately instructed by Mr Gleeson, on the second day of the hearing to submit that, if the Court were considering that possibility, it should allow a preliminary hearing to Mr Gleeson as to whether such an inquiry was required. I accept that submission.
I have ultimately concluded that I should not invoke that jurisdiction, and it is therefore not necessary to conduct a preliminary hearing in that regard. I bear in mind that this jurisdiction is, rightly, rarely invoked by the Court on its own motion, rather than on the application of a regulator or affected party. These proceedings have now has been determined on their merits and I have recorded my findings above; Mr Murphy is free to draw these finding to the attention of relevant regulatory and self-regulatory bodies; and, while Mr Murphy might well prefer now to put these matters behind him, it is likely open to him to seek such an inquiry under Div 90 of the IPSC if a regulatory or self-regulatory body does not do so. The interest of justice will be better served by considering the commencement of such an inquiry only if a regulator, self-regulator or Mr Murphy seeks to have that course taken and will take an active role in pursing such an inquiry.
[10]
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Decision last updated: 10 December 2020
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, including the nature of its assets and business, and the Court will have regard to commercial realities in that regard: Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation above at [54]; White Constructions (ACT) Pty Ltd (in liq) v White [2004] NSWSC 71; (2004) 49 ACSR 220 at [289]; Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran [2005] NSWCA 243; (2005) 54 ACSR 410 at [103]; Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd (2011) 248 FLR 384; [2011] NSWSC 186 at [48]-[49]. Matters which may support a finding of insolvency include those referred to in Australian Securities and Investments Commission v Plymin (No 1) above at [386], where Mandie J identified several indicia of insolvency including: continuing losses; liquidity ratios below one; overdue Commonwealth and State taxes; a poor relationship with the lenders, including any inability to borrow further funds; no access to alternative finance; inability to raise further equity capital; suppliers placing a company on cash on delivery arrangements or otherwise demanding special payments before resuming supply; creditors unpaid outside trading terms; the issuing of postdated cheques; dishonoured cheques; special arrangements with selected creditors; solicitors' letters, summonses, judgments or warrants issued against a company; payments to creditors of rounded sums not reconcilable to specific invoices; and inability to produce timely and accurate financial information to display a company's trading performance and financial position, and make reliable forecasts; see also Morris v Danoz Directions Pty Ltd (in liq) (No 2) [2010] FCA 836 at [13]. In determining a company's solvency, the Court may also have regard to the likelihood that it will have funds available to it from sources with which it has no formalised agreement or understanding, including loans from its directors or from third parties, at least if they are not repayable in the short term, and the company's ability to borrow funds can also be taken into account: Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran above at [109]-[112]; International Cat Manufacturing (in liq) v Rodrick [2013] QCA 372; (2013) 97 ACSR 200; First Strategic Development Corporation Ltd (in liq) v Chan [2014] QSC 060 at [67]-[69].
Turning now to the Plaintiffs' pleaded case, they claim that Mr Gleeson has received proofs of debts in respect of the claims in the winding up of MHT, although several of those claims were not relied on for the relief sought in these proceedings, and one, a claim by Nationwide News in the amount of $209,000 was rightly not pressed as a basis for relief in the Plaintiffs' closing submissions. The Plaintiffs then plead (Points of Claim [6]) that MHT was insolvent within the meaning of s 95A of the Act from 24 February 2015. That pleading is not supported by a pleading of material facts, but is particularised by reference to a claim that MHT incurred a liability to MSC in February 2015 which remained unpaid at the date of the liquidation. The Plaintiffs also set out in particulars that, in March 2015, MHT incurred a further debt to Ms Carroll and continued to incur other debts from February 2015. The Plaintiffs also plead that, from 24 February 2015 to 29 October 2015, MHT incurred debts totalling $224,987.02 and EUR 509,336, which constitute the amounts now claimed by BBRC. Alternatively, the Plaintiffs pleaded (Points of Claim [10]) that MHT became insolvent by incurring each of seven debts between February 2015 and late October 2015, apparently postulating seven alternative starting dates for the allegation of insolvency. One of those dates falls away, because, as I noted above, the debt to Nationwide News was not pressed as noted above. It will be convenient to deal with these "debts" here, since the proposition that they were debts incurred between February and October 2015 is important to the Plaintiffs' claim that MHT was insolvent and essential to its claims under ss 588G and 588M of the Act.
The "debts" claimed by MSC
The Plaintiffs plead, and Mr Gleeson refers in his affidavit dated 22 October 2020, to a proof of debt provided by MSC on 24 October 2016 and to debts claimed by MSC by an invoice dated 24 February 2015 for "Shorex revenue loss" and "service charge" amounting to EUR 200,000 and EUR 147,000 respectively; an invoice dated 20 March 2015 from MSC for a "service charge" of EUR 22,932; and an invoice dated 30 April 2015 for "food and beverage" of EUR 139,404. Mr Murphy responds in his Points of Defence that MSC's invoice dated 24 February 2015 for EUR 147,000 (but presumably the total EUR 347,000) is a "false claim" and was not made until October 2015, over five months after the cruise was finished. Mr Murphy was in error in that recollection, as he fairly accepted in cross-examination (T72). Mr Murphy also responds in his Points of Defence that MSC's claim dated 20 March 2015 is a "false" claim and noting that it did not identify the relevant service and was issued prior to the date of the cruise. Mr Murphy responds in his Points of Defence to MSC's claim dated 30 April 2015 for EUR 139,404 for "food and beverage" by characterising it as a false claim, and contends that meals and certain beverages were included in the charter costs and other drinks and snacks could be purchased by tour guests and were charged to tour guests by MSC.
In his "Final Evidence", Mr Murphy addressed the history of MHT's dealings with MSC, the circumstances in which MSC, on his account, breached the Charter Party Agreement in April 2014 by withdrawing the "MSC Lirica" and not making available a sister ship, but instead offering a differently configured vessel, the "MSC Opera" for the charter; the difficulties that MHT would then have faced in bringing proceedings against MSC in Switzerland; the arrangements that MHT had made in respect of shore excursions; and the absence of substantiation by MSC for either the "service charge" invoice it issued on 20 March 2015 or the "food and beverage" charge invoice it issued on 30 April 2015, where MSC was required to provide food and beverages under the Charter Party Agreement and additional purchases by tour guests where charged to their cabin and paid by them prior to the return of their passports to allow them to disembark the ship. Mr Murphy's evidence, which I accept, was also that MHT's approach to the difficulties with MSC reflected his wish to discharge MHT's responsibilities, as a travel agent, to the tour guests which had booked the Gallipoli 100th Anniversary Tour with MHT. Mr Murphy also referred, in his evidence and in cross-examination, to the fact that MSC commenced the Gallipoli cruise, when the amounts invoiced for its claimed shore excursion revenue loss and service charges were unpaid and to his communications with MSC's representatives contesting MHT's liability for MSC's claims.
In order to address MSC's claims, it is necessary to review the extended dealings between MSC and MHT in respect of the Gallipoli 100 year tour, as they emerge from correspondence shown to Mr Murphy on cross-examination and then tendered (Ex P3). The position as to shore excursions was negotiated between MSC and MHT in late 2011 and early 2012. In September 2011, Ms Castellano of MSC referred to an unresolved issue as to shore excursion revenue loss coverage as follows:
"Shorex revenue loss coverage: The contract does not contemplate the possibility of organising excursions by your own and this possibility has not been contemplated at the time of the offer because we were not informed accordingly. Considering that you want to provide all shore excursions and for fixing the amount of coverage I would need to know the approximate number of people on your tours to evaluate if there will also be a chance for the purser to sell some shore excursions."
By an email dated 9 January 2012, a solicitor acting for MHT responded as follows:
"Shorex revenue: This issue has been actively discussed since last March with MSC to arrange all non-Anniversary tours with our client being obliged to arrange the specific 100 Anniversary Events with the Turkish authorities. MSC will be able to arrange tours on 19 April and 20 April and again the 26 and 27 April, in Istanbul. As the vessel will be in Cannabale from 0700 on the Tuesday 21 April that leave[s] 3 days to arrange Shorex, so with approximately 1900 passengers, there will be plenty of opportunity to arrange non-100 Anniversary shore tours. The 100 Anniversary tours were arranged and booked well before these discussions and MSC would not be in any position to arrange these tours at the time that they fixed the hire."
By a further email dated 14 January 2012, Ms Castellano responded:
"Shorex revenue: OK MSC to arrange all non-100 Anniversary tours and MHT the specific 100 Anniversary events upon the coverage of loss of revenue for MSC. At the time MSC fixed the hire (final price fixed approx on Dec 2009) the info that the client want to arrange the specific 100 Anniversary events was not shared or confirmed. At that time it was a very confidential agreement with a partner of MHT and we did not even know yet that MHT was the Charterer. The information that MHT was the Charterer can out only later on. I will advise the amount of revenue loss to be covered considering what's stated at point 4 below."
Ms Castellano then advised Mr Murphy and MHT's solicitor, by email dated 16 February 2012 that:
"Shorex revenue
Unfortunately December 2009 MSC had no details. At that time the negotiation was strictly confidential and also the final Charterer was not disclosed. The quote does not reflect the possibility for the Charterer to arrange own excursions.
In an attempt to meet the difficulties that you have raised, we have long discussed the minimum amount acceptable to us.
The Shorex revenue loss has been estimated in 200,000 euro in total.
Consequently, a new clause will be added in appendix 3 - rent and other charges - stating that:
The sum payable by the Charterer in respect of organising shore excursions 'Gallipoli 100 Tour' under clause xx shall be Euro 200,000 (Two Hundred Thousand Euro) and this is due not less than 14 days prior to the delivery of the vessel, by bank transfer."
Mr Murphy took further advice from MHT's solicitor in that respect, and it appears that MHT ultimately accepted a provision providing for payment of Shorex revenue to MSC.
On 5 April 2012, MHT entered into a Charter Party Agreement with MSC in respect of the vessel known as "MSC Lirica" which provided for a charter of that ship for a tour departing from and returning to Venice on 16 April 2015 and 30 April 2015 respectively, stopping at Istanbul and then at Canakkale in Turkey, which is the closest port to Gallipoli. That Agreement is governed by English law; while the parties did not address any relevant differences between English and Australian law, there is no reason to think they would be material to the issue addressed below. The Charter Party Agreement was a detailed document and provided, inter alia, that the hire was inclusive of all "official meals" (cl 16) but did not include beverages and passengers' personal purchases and that on board purchases by passengers were managed by "cashless system". Clause 34 provided that:
"Except for shore excursions arranged by [MHT] as included in the published itinerary of [MHT's] "Gallipoli 100 Tour", all shore excursions including transport, accommodation and food required for them, shall be arranged by MSC and shall be performed by its independent contractors subject to the terms and conditions of the ticket issued by or on behalf of the independent contractor. [MHT] agrees that as between [MHT] and MSC, MSC is entitled at its option to take the benefit of the terms and conditions of the shore excursion tickets for excursions not arranged by [MHT].
Clause 35 in turn provided that:
MSC, its agents and employees collect monies for shore excursions solely as the agent of the independent contractor and shall not be liable to refund such monies other than with the agreement of the independent contractor and only then to the extent that monies have been retained by MSC or refunded to MSC by the independent contractor."
Clause 38 provided that MSC was responsible for the purchasing, preparation and serving of meals to passengers, including breakfast, lunch, afternoon tea, dinner and a midnight buffet and cl 41 provided that passengers and MHT's staff and representatives must have paid for all facilities used before disembarking the vessel and MHT "shall be responsible for any unpaid facilities' costs incurred by their staff and representatives".
Appendix 2 to the Charter Party Agreement set out the particulars of MSC Lirica, and recorded that the number of cabins provided to MHT under the charter would be 780 total and identified the details of those cabins. Appendix 3 set out a hire charge totalling EUR 3,250,000 of which EUR 650,000 was payable by 11 April 2012 by bank transfer and EUR 2,600,000 by 31 March 2014 by bank transfer, and provided for a bank guarantee as to the second instalment of that charge.
Appendix 3 to the Charter Party Agreement provided, in cl 2, that:
"The hire of the vessel does not include service charge.
The sum payable in advance by [MHT] for the service charge for each passenger under clause 16 shall be Euro 7.00 (Seven Euro) per adult/night on board. There is no service charge for children under the age of 14, whereas guests between the ages of 14 and 17 will be charged 50% of the above rates.
[MHT] shall pre-pay the amount of service charge based on the minimum guaranteed of 1,500 lower berths and 14 nights charter within March 15, 2015, by bank transfer. Any balance related to the actual costs of passengers on board, if higher, is due not less than 7 days after the Vessel is re-delivered, by bank transfer."
Clause 6 of Appendix 3 also provided that:
"The sum payable by [MHT] in respect of organising shore excursions under clause 34 shall be Euro 200,000 (Two Hundred Thousand Euro) and this is due not less than 14 days prior to the delivery of the Vessel, by bank transfer."
That clause referred back to cl 34 of the Charter Party Agreement, which provided for MSC to arrange for its independent contractor to perform such excursions, except for excursions arranged by MHT in accordance with its itinerary.
A difficulty subsequently arose when, after MHT had paid the amount due under the Charter Party Agreement, MSC withdrew MSC Lirica from service, apparently to undertake a refurbishment, and substituted a different vessel, the MSC Opera, which was larger and had a significantly different physical configuration. Mr Murphy complained, with vigour, of that decision in his affidavit evidence and in submissions, and appears to have had significant justification for that complaint. It is not necessary to address that matter at any length in order to determine this claim.
An addendum dated 15 April 2014 between MHT and MSC addressed that development, amending the Charter Party Agreement to record that the itinerary and length of the charter would remain unchanged and to replace the particulars of the vessel with those applicable to MSC Opera. Appendix 3 in respect of the hire charge was amended to provide for a service charge based on the minimum guarantee of 1734 lower berths, again payable by 15 March 2015, presumably reflecting the increased size of the MSC Opera, and otherwise remained unchanged.
As I noted above, an invoice dated 24 February 2015 issued by MSC to MHT claimed an amount described as "Shorex revenue loss" of EUR 200,000 and an amount claimed as "service charge" of EUR 147,000. By an email dated 24 February 2015, Ms Misso of MSC referred to an attached invoice for "Shorex revenue loss & service charge" (although that invoice is not attached) and Mr Murphy responded, by email dated 27 February 2015 indicating that:
"Can you advise please how you arrived at the service/gratuities charge, as we are still finalising the numbers of days of adults, 14-17 year olds plus those free of this charge.
I'm fine with the EURO 200K for the shorex." (Ex P1, 251)
Mr Murphy frankly acknowledged in cross-examination that he had there accepted the calculation of the shore excursion charge, although he also fairly accepted that he did not then intend that MHT would pay it, given the losses which he considered that MSC had imposed on MHT by the change of ship (T78). Mr Murphy's request for justification of the calculation of the service charge claimed by MSC seems to me to have been entirely reasonable, where that calculation depended on the mix of adults, 14-17 year olds (who were subject to 50% of the charge) and children (who were not subject to the charge) travelling on the ship. There is no evidence that MSC then sought to justify that claim and the Plaintiffs did not do so in these proceedings.
A second invoice dated 20 March 2015 issued by MSC to MRT claimed an amount by way of "service charge" of EUR 22,932. By an email dated 21 March 2015, Ms Misso of MSC attached an updated invoice of service charge for 1,734 lower berths in an amount of EUR 169,932 (which appears to be the sum of the two service charge amounts previously claimed in the first invoice) and referred to Addendum 2 to the Charter Party Agreement (Ex P1, 250A). A further invoice dated 30 April 2015 issued by MSC to MRT claimed an amount for "food and beverage" of EUR 139,404. None of those invoices sought, by any supporting information, to justify the amount claimed. By letter dated 30 September 2015, MSC Cruises (Australia) Pty Ltd, which described itself as the agent for MSC, pursued a claim for outstanding invoices of EUR 509,336 reflecting the amounts claimed in the invoices noted above.
Mr Lipp relied, in support of the invoices issue by MSC, on Australian Securities and Investments Commission v Rich (2005) 216 ALR 320; 53 ACSR 752; [2005] NSWSC 417 which considered the admissibility of several categories of documents under s 1305 of the Act, which provides that a book kept by a body corporate under a requirement of Act is admissible in evidence and is prima facie evidence of any matter stated or recorded in the book. Mr Lipp also relied on Stone v Melrose Cranes & Rigging Pty Ltd, Cardinal Project Services Pty Ltd (in liq) (No 2) (2018) 125 ACSR 406; [2018] FCA 530 at [166]-[182], where Markovic J referred to a liquidator's reliance on profit and loss statements, balance sheets and board reports, which seem to me to be of an entirely different character to an invoice which is no more than a claim for payment of a particular amount. It seems to me that reliance on s 1305 of the Act does not assist the Plaintiffs' case because, obviously enough, invoices issued by MSC, being a Swiss company with operations in Italy, are not books kept by a body corporate under a requirement of the Corporations Act, and do not give rise to any presumption under s 1305 of the Act.
In my view, MHT's liability in respect of shore excursion revenue was not incurred by MHT in February 2015, but when it entered the Charter Party Agreement giving rise to that liability in April 2012. The Plaintiffs did not plead, and did not establish, that MHT's incurring that liability at that earlier date made it insolvent then or later, which would have depended not only on MHT's financial position at that earlier date, which was not addressed in evidence, but also on likely movements in exchange rates between that earlier date and the date on which payment of that amount would fall due.
The debts claimed by Ms Carol and Mr Burton
Mr Gleeson also refers (Gleeson 22.10.20) to a proof of debt by Ms Carroll dated 21 March 2016 and gave evidence, admitted as a submission only, that:
"This debt was incurred by [MHT] to Christine Carroll for a partial refund of a cruise fare cancellation. Ms Carroll paid $11,290 on 1 August 2012, with an additional two amounts on 28 November 2014 for gratitude charges and late February 2015 for further charges demanded by [MHT].
Ms Carroll commenced recovery proceedings in the Local Court of NSW on 30 December 2015 in relation to the proof of debt."
There is no evidence that Ms Carroll obtained judgment against MHT in any proceedings she brought against it. There is also no evidence that Mr Gleeson undertook any, or any adequate, consideration of Ms Carroll's proof of debt, including identifying any proper basis on which Ms Carroll was entitled to a refund, in part or in whole, when cancelling a cruise for two of the four members of her party shortly before it departed.
In his "Final Evidence", Mr Murphy also addresses Ms Carroll's claim that MHT owed her $11,853, and his evidence that she had booked a tour for a family of four including herself and made full payment for a total amount of $22,580 in August 2012; that two members of her family cancelled their travel on 2 March 2015, six weeks prior to the commencement of the tour in Venice; and Ms Carroll, who had not taken out travel insurance, then requested a refund for the tour. Mr Murphy's evidence is that there was nothing that MHT could do, implicitly because there was no prospect that MSC would then refund any part of the amounts that MHT had paid it to charter the vessel or that ground operators would refund any part of the amounts paid to them for tours.
It seems to me plain that the Company did not incur a debt to Ms Carroll, whether in March 2015 when Ms Carroll cancelled her tour for two parties or in March 2016 when she lodged a proof of debt in the liquidation. There was no such debt because Ms Carroll did not then and the Plaintiffs do not now establish any contractual or other legal basis on which she was entitled to a refund, still less one that led that refund to have the character of a debt or liquidated claim. Ms Carroll's claim does not support either a finding of insolvency of MHT as at February 2015 or March 2015 or a claim under s 588M of the Act.
Mr Gleeson also gives evidence of a claim by Mr Burton and says that:
"As a result of my investigations Mr Burton commenced proceedings in the NCAT and was successful in obtaining a judgment order against [MHT] on 2 September 2015 … The judgment was in relation to a refund that he was requested to pay in addition to the agreed cruise fare."
Presumably, Mr Gleeson is in error in attributing the commencement of proceedings by Mr Burton in the NCAT to his investigation, where it occurred prior to his appointment as liquidator, and the reference to Mr Burton having been requested to pay a refund is obscure.
Mr Murphy takes issue in his Points of Defence with the claim by Ms Carol, so far as it is a claim for a refund of monies paid in advance for the tours, on the basis that it was not properly founded and that it was open to Ms Carol to take out travel insurance. In his "Final Evidence" Mr Murphy addresses Mr Burton's claim and indicates that he has been unable to identify Mr Burton without access to the records of the Gallipoli tour, but assumes that Mr Burton had booked a tour and then cancelled his booking, although he notes that the amount claimed is not referable to the cost of a cabin on the ship. His evidence, albeit by assertion only, is that the amount of the claim would not have caused MHT to be insolvent between February 2015 and October 2015.
The amount of the judgment in favour of Mr Burton is $2,482.08 and there is no evidence that his claim was a liquidated rather than an unliquidated claim. A claim for an unascertained liability would not deprive MHT of solvency for the purposes of s 95A of the Corporations Act, prior to the delivery of judgment: Box Valley Pty Ltd v Kidd [2006] NSWCA 26; Re Centro Properties Ltd (2011) 87 ACSR 131; [2011] NSWSC 1171 at [45]-[46]. Nor did the Plaintiffs establish that a debt would be incurred by MHT when judgment was delivered, for the purposes of ss 588G and 588M of the Act. The case law as to when a debt is incurred for the purposes of those sections is complex; Mr Lipp did not seek to address it in submissions, and Mr Murphy, who was self-represented as I noted above, could not be expected to have done so; and the relevant cases were reviewed at some length by Schmidt J in Rose v Tunstall (No 3) [2018] NSWSC 172. While some cases treat a company that incurs a revenue liability or costs order as incurring a debt for the purposes of those sections, Mr Lipp did not identify any basis for any wider proposition that a company that became subject to a claim or judgment for unliquidated damages incurred a debt. In any event, the evidence of MHT's financial position does not indicate that it was incapable of paying an amount of $2,482.08 to Mr Burton when it fell due in or after September 2015, although it appears that it did not do so. This debt also does not support a finding of insolvency of MHT as at February 2015 or September 2015 or a claim under s 588M of the Act.
The debt claimed by Mosman Accountants
The Plaintiffs also rely on an invoice issued by Mosman Accountants for $1,650 dated 29 October 2015, in respect of the preparation of MHT's profit and loss and balance sheet for "2015 financial year". Mr Murphy responds, in his Points of Defence, that that invoice was issued after MHT ceased to trade. The evidence does not establish the nature of the work done by Mosman Accountants charged in this invoice and Mr Murphy refers to an email sent on or about 18 November 2020 from Mr Ashton of Mosman Accountants indicating that his firm's proof of debt was "lodged to ensure we could vote at any meeting". I am not satisfied that, even as at November 2015, MHT could not have paid an amount of $1,650 invoiced by Mosman Accountants as and when it fell due, although I recognise that it had not done so.
Other aspects of MRT's financial position
The Plaintiffs also plead, and the affidavit evidence demonstrates, that MHT recorded a profit of $10,555 for the year ended 30 June 2014 and a loss of $152,825 for the year ended 30 June 2015. That profit and the loss were each relatively modest, in respect of a company which conducted substantial transactions, and provide little support for a finding of insolvency, particularly where MHT had substantial funds at bank through much of the period, as recorded in the bank statements for some accounts that are in evidence, (For completeness, bank statements for some other accounts are not in evidence). MHT's balance sheet shows net assets of $270,646 for the year ended 30 June 2014 and $117,821 for the year ended 30 June 2015, although the Plaintiffs point out that they include an amount of goodwill in the amount of $250,000, and MHT's assets would be reduced if that goodwill was not properly taken into account. I also recognise that MHT exceeded its overdraft facility with the Commonwealth Bank of Australia between September 2015 and the closure of that account in December 2015, but that provides no support for the Plaintiffs' allegation of MHT's insolvency from 24 February 2015.
It seems to me that the evidence led as to MHT's profit and loss and its balance sheet does not establish insolvency, where MHT had significant cash in bank at February 2015 and for a long period thereafter and the Plaintiffs have not sought to undertake any wider cash flow analysis. The fact that MHT exceeded its overdraft in September 2015, or did not have sufficient assets to meet the claims more than 12 months later, plainly does not establish insolvency as at February 2015 or, without more, at any later date. For these reasons, it seems to me that the Plaintiffs have not established that MHT was insolvent from 24 February 2015 as pleaded in Points of Claim [6], or on the several alternative dates between February and October 2015 pleaded in Points of Claim [10].
The allegation that MHT failed to keep and retain proper financial records so as to give rise to that presumption was not established by evidence. Mr Murphy's evidence, which I accept, is that he kept cashbooks for MHT and his accountant, Mosman Accountants, used those cashbooks to prepare financial records. The case law recognises that, in the case of a company which has relatively simple operations, the maintenance of less sophisticated records may amount to the keeping of adequate financial records. Mr Gleeson's evidence is not sufficient, in any event, to establish that he has made adequate inquiries to obtain the full available set of books and records from his predecessor as liquidator to MHT, Mr Baxendale, or Mosman Accountants, still less that those records were not kept. The Plaintiffs have therefore not established a failure to keep or maintain adequate books or records from MHT so as to give rise to a presumption of insolvency.
The question whether such reasonable grounds to suspect insolvency existed is to be determined by reference to the position of a director of reasonable competence and diligence, who performed his or her duties imposed by law, and reached a reasonably informed opinion as to the financial capacity of MHT: Smith v Bone (2015) 104 ACSR 528; [2015] FCA 319 at [367]; and see also Re Swan Services Pty Limited (in liq) above at [178]ff on which I have drawn for this summary of the applicable principles. It is not necessary to determine whether the allegation as to Mr Murphy's state of mind is established, given the findings that I have reached above. It seems to me that it would at least have been arguable that Mr Murphy did not have reasonable grounds for suspecting insolvency at the relevant time, given the communications with MSC to which he referred in cross-examination.
Mr Lipp recognised that an issue arises as to the treatment of disputed debts in a claim under s 588M of the Act, and referred to the observation of Goldberg J in McLellan; Re Stake Man Pty Ltd v Carroll (2009) 76 ACSR 67; [2009] FCA 1415 at [164], where a defendant director challenged several debts claimed by the plaintiffs, that:
"Mr Carroll challenged a number of other debts claimed by the plaintiffs. The plaintiffs submitted that they were entitled to rely on the books and records of the Company as prima facie evidence of the Company's liabilities. That may be so, but it is necessary to look at the challenge made by Mr Carroll to each of the disputed debts to determine whether that prima facie evidence either has been, or can be, displaced."
I addressed the same issue in Re Swan Services Pty Ltd above (in liq) at [199], although my attention had not been drawn to McLellan Re The Stake Man Pty Ltd v Carroll above, and observed (at [199]) that:
'It does not seem to me that liability under s 588M of the Corporations Act is displaced, in respect of any or all of a company's debts, simply because the company claims to dispute any or all amounts claimed by any or all of the company's creditors, unless it also established, at least, that the dispute had a genuine basis."
Mr Gleeson's report to creditors dated 6 October 2016 had recognised the fact of a dispute with MSC, although he does not seem to have considered it necessary to determine whether MSC's claims were well founded before bringing proceedings that assumed they had a proper basis. In my view, where there is no adequate evidence to support the amounts claimed by MSC for service fees and food and beverage charges and the basis of any claim for a refund by Ms Carroll has not been established, then any prima facie evidence of those claims is plainly displaced and the disputes raised by Mr Murphy in respect of them have more than merely a "genuine basis". Specifically, the Plaintiffs have not established that MHT incurred debts to MSC in the amount of the service charge of EUR 147,000 invoiced by MSC in February 2015, the further amount of EUR 22,932 invoiced by MSC on 20 March 2015 or the amount of EUR 139,404 for food and beverage invoiced by MSC on 30 April 2015, where neither MSC nor the Plaintiffs established a proper factual basis for the calculation of the invoiced amounts. While it seems to me that the Plaintiffs have established that an amount of EUR 200,000 fell due to MSC, for shore excursion revenue loss, that debt was incurred when MHT contracted to pay that amount in the Charter Party Agreement in April 2012, long before it fell due and payable, and the Plaintiffs did not plead and made no attempt to establish that MHT was insolvent when that debt was incurred at that time. I have also rejected the submission above that a debt to Ms Carroll was incurred in March 2015 and Mr Lipp has not established that the judgment in favour of Mr Burton amounted to MHT incurring a debt. A claim under s 588M of the Act would also not succeed for these reasons.
Even if a basis for relief under s 588M of the Act had been established, the order the Plaintiffs seek, that Mr Murphy pay BBRC the amounts specified, could not and should not be made. This claim depends on the assignment by Mr Gleeson of the statutory cause of action under ss 588G and 588M of the Act vested in him to Pattison Hardman and the subsequent assignment of that statutory cause of action by Pattison Hardman to BBRC to which I referred above. The Plaintiffs have not established an essential element of that claims, namely that the successive assignments of Mr Gleeson's statutory claim under ss 588G and 588M of the Act by Mr Gleeson to Pattison Hardman and then by Pattison Hardman to BBRC were effective to allow BBRC an entitlement to the compensation claimed. I explain below why I did not extend the time permit for further submissions by the Plaintiffs as to that matter.
The further submissions for which the Plaintiffs sought leave accepted that the Deed of Assignment that effected the first assignment from Mr Gleeson to Pattison Hardman imposed obligations on Mr Gleeson extending for more than three months beyond the date of that Deed and that those obligations were imposed on a party to the agreement for the purposes of s 477(2B)(b) of the Act. However, Mr Lipp then raised an issue as to whether that Deed of Assignment was entered into on the "company's behalf", notwithstanding that Mr Gleeson does not appear to have any interest in the matter other than as MHT's liquidator; MHT was party to the Deed of Assignment and it was signed by Mr Gleeson on MHT's behalf, in his capacity as its liquidator; and, as Mr Lipp fairly conceded, the Deed of Assignment expressly assigned to Pattison Hardman not only any claim of Mr Gleeson under ss 588FE and 588M of the Act, and all other claims available to Mr Gleeson in his capacity as MHT's liquidator but also "all other claims available to" MHT.
Mr Lipp's submissions then addressed, at length, a complex question whether s 477(2B) of the Act applied to an assignment under s 100-5 of the Insolvency Practice Schedule (Corporations) ("IPSC"), although it was not apparent why it would be necessary to answer that question so far as s 477(2B) applied to the Deed of Assignment because Mr Gleeson had entered the Agreement on MHT's behalf and it had assigned rights which were not within the scope of s 100-5 of the IPSC and his obligations under it would be discharged by performance after three months. Mr Lipp also appeared to advance a submission that s 477(2B) of the Act did not apply unless property of a company was assigned, although it was also not apparent how that assisted the Plaintiffs where property of MHT (namely its other causes of action) was expressly assigned pursuant to the Deed of Assignment. Mr Lipp then advanced a further submission that, on the basis that a claim under s 588M of the Act was not property that could be sold or otherwise disposed (presumably excluding any ability to do so under s 100-5 of the IPSC) it followed that approval under s 477(2B) of the Act was not required, apparently notwithstanding that the Deed of Assignment also assigned other rights and otherwise required such approval under that section.
Mr Lipp then identified the matters which undermined these submissions, fairly recognising that:
"Given the absence of a real contradictor in respect of the complicated matters arising in this submission, the Court's attention is drawn to [the] fact that (a) the company is a party to the Deed and (b) recital F and clause 1(a) of the Deed purport to assign 'all other claims available to the Company'. This might affect consideration of whether the Deed was entered 'on the Company's behalf."
That fair concession was then qualified by a further assertion that only the liquidator assigned anything pursuant to the deed and that assignment was clearly pursuant to Div 100-5, which had the difficulties that, as I note above, MHT was party to the deed and that all other claims available to MHT were assigned by it under that deed.
Mr Lipp's submissions then addressed a further question as to the consequences of a failure to obtain approval under s 477(2B) of the Act, submitting, by reference to Empire (Aust) Nominees v Vince (2000) 35 ACSR 167 that a third party could not object to the absence of such approval; that approval could be sought retrospectively; and that an opportunity should be afforded to the Plaintiffs to obtain retrospective approval should its absence have some effect on rights as between Mr Gleeson, BBRC and Mr Murphy. It seems to me that there is little prospect that such approval would have been granted, given the issues which I have noted above in respect of the merits of the proceedings. Mr Lipp also advanced a further submission as to the effect of Mr Gleeson or MHT being substituted as the party receiving payment of damages, although the order sought was for payment to BBRC.
I am not persuaded that there was any realistic prospect that these submissions could have affected the outcome of the proceedings and I am not persuaded that I should extend the time for making them or expose Mr Murphy to the need to respond to them. I have also borne in mind, in reaching this conclusion, that it has the consequence that BBRC will not have a further opportunity, beyond that which it already had prior to and at the hearing, to seek to recover the compensation it claims. I reach this conclusion because, first, the Plaintiffs' proposed further submissions have the weaknesses to which I have referred above. Second, those proposed further submissions highlight a further difficulty with BBRC's claim, namely that a statutory claim under ss 599G and 588M of the Act is not assignable at general law, and they rely on s 100-5 to support the assignment of that claim by Mr Gleeson to Pattison Hardman, but do not seek to explain how that statutory claim could then be assigned by Pattison Hardman to BBRC, where that is not authorised on the face of s 100-5 of the IPSC and would not have been possible at general law. Even if I had been persuaded by the Plaintiffs' further submissions, they would not have established that BBRC could recover compensation in reliance on a statutory claims under ss 588G and 588M of the Act, unless I had then allowed the Plaintiffs a further opportunity for further submissions as to that further question. Third, the complexity of the matters raised in the proposed further submissions (which Mr Lipp acknowledges) and the fact that Mr Murphy is self-represented means that it would have been necessary to allocate a third day for an oral hearing in the new court year to allow him to seek to understand them and then to respond to them, increasing the costs of the proceedings for all parties and extending the stress which a proceedings of this character would plainly impose upon a self-represented litigant.
I therefore order that these proceedings be dismissed. I reserve liberty to Mr Murphy to apply within 14 days if he has incurred costs which would be recoverable, although a self-represented litigant will not ordinarily be entitled to an order for costs.