(f) plant and equipment on lease or hire would be transferred to the purchaser and leases of premises assigned.
11 In all cases the agreement was carried into effect. In no case was a dividend paid on the "V" class shares. The result of the implementation of the agreements was that the purchaser company acquired all the assets of the vendor company; the vendor company would receive no payment unless dividends were declared by the purchaser company and none were; the purchaser company obtained the employees, premises and equipment of the vendor company free of all liabilities of the vendor company other than liabilities under lease or hire purchase agreements. As I will explain, these liabilities were not only debts to trade creditors specifically referred to in the agreement, but also taxation debts and debts for insurance premiums.
12 In all but one case, the agreement was prepared by Somerville. In the other case it was prepared by another solicitor whom the relevant directors never met. This was because Somerville did not have time at that stage. Nevertheless, the agreement was in precisely the same form as the others and there is no difficulty in drawing the inference that it would not have been provided without the involvement of Somerville. In any event, the work in bringing about what was described as the restructure was done by Somerville not by the other solicitor.
13 There were other documents required to finalise each transaction namely, as I have said, formation of a new company, sometimes change of name of the vendor company so the new company could be formed with that name, preparation of returns as to directors, officers and the like for the new company and preparation of a resolution altering the Constitution of the new company acquired as a shelf company, to bring into existence in the capital of the company the "V" class shares. Generally all of this was attended to in the office of Somerville. It is proper to say that there is little contest on any of this, the solicitor defendants having made proper admissions in their defence.
14 As the dealings in respect of each company and the individual directors must be considered separately I will deal with them describing them in the way each is referred to in the amended statement of claim.
The First Nick Jones Transaction - the Piditty Liditty Transaction
15 The Deputy Commissioner of Taxation served a Creditor's Statutory Demand on Piditty on 13 March 2002 in respect of a tax debt of $56,362. This brought about discussions between Jones and Mr Richard Thorp, an advisor to Jones who discussed the matter with Somerville. Somerville met with Jones on 19 June 2002 and on 26 June 2002 issued a letter of advice in the form I have set out. Somerville arranged the incorporation of Jones' Removals & Storage Pty Limited. Mr Radman, an employed solicitor of Somerville, sent Jones documents to be signed following the incorporation. On 23 July 2002 QBE Workers Compensation (NSW) commenced proceedings for winding up of Piditty. On that day a meeting of the new company resolved upon the creation of the "V" class shares and the agreement for sale of the business was executed. On 25 July 2002 Somerville was advised of the Statutory Demand from the Taxation Department and a separate demand for $96,000 for unpaid superannuation. The QBE winding up application was fixed for hearing on 23 August 2002. Somerville advised Mr Thorp that the settlement date for the sale of the business must be brought forward from the date which had been fixed to a date prior to the return date of the winding up proceedings and the new date was fixed for 21 August 2002 when the transaction was concluded. Piditty was wound up on 23 August 2002. The figure for the "V" class share dividend was $150,000. That figure was arrived at not by valuation but by estimate of Jones.
16 The business continued under the new company. No dividends were declared. It was conceded in argument that the liquidator might have been able to take some proceedings to set aside the transaction as uncommercial or to force consideration by the company as to dividend payments but in any event that did not happen.
17 On 3 July 2006 QBE sent a Creditor's Statutory Demand to the new company, namely Jones' Removals & Storage Pty Limited, for a claimed debt of $11,705 for unpaid workers compensation premiums. By this time Somerville was conducting his business under the auspices of the second defendant. Jones contacted Somerville about this new demand and there was discussion about a restructure and a request to pay $3,500 up front on account of costs. Somerville told Jones that QBE had taken winding up proceedings listed for 9 November 2006. There were negotiations between Jones and Somerville and his advisors as to payment of the required fee by instalments. Somerville arranged an adjournment of the winding up proceedings and told an employee, David Jones, that Jones' Removal & Storage Pty Limited was insolvent, arranged the purchase of a shelf company, arranged the name of Jones' Removals Pty Limited and sent a letter of advice to Jones on 17 November 2006 in the usual terms. Somerville then prepared the agreement for sale of business which was signed on 21 November 2006. The dividend amount this time was fixed at $50,000. The second company, Jones' Removal & Storage Pty Limited, was wound up on 7 December 2006, Mr Neil Geoffrey Singleton being appointed as liquidator. Mr Jones was the sole director of each of the three companies involved in these transactions.
Simon Durant - Stimulus Solutions Pty Limited, Stimulus Solutions Management Pty Limited
18 Mr Durant was the sole director of Stimulus Solutions Pty Limited. It had traded at a loss in the 2001 and 2002 tax years. It had outstanding creditors of over $200,000 as at 1 July 2002. It was apparent that if it was not then insolvent it was likely to become so. Mr John Hurley, the accountant for the company, advised Mr Durant to meet with Somerville which he did on 2 September 2002. The financial problems were discussed. The letter of advice was sent on 4 September 2002. A costs agreement relating to the restructure was sent on 3 September 2002. Somerville prepared or arranged the necessary documents for the change of name of Stimulus Solutions Pty Limited to Stimulus Solutions Management Pty Limited and thereafter for Stimulus Solutions Pty Limited to be formed as a new company. I cannot refrain from pointing out the obvious result of such name swapping is that persons dealing with the new company think they are dealing with the old one, and in fact know of no change unless they look at the ACN number which is unlikely. The agreement was signed on 16 September 2002. The "V" class figure for preferential rights to dividends was $100,000. At the end of September 2002 the Deputy Commissioner of Taxation served a Statutory Demand on the old company for a taxation debt of $136,642 and on the same date issued a penalty notice to Mr Durant under s 222AOE of the Income Tax Assessment Act 1936 for a tax debt of $105,861. Mr Radman who was a solicitor employed by Somerville advised Mr Durant that the only way he could escape personal liability under the latter notice was to place the company into liquidation. Mr Radman then spoke to Mr Martin Green who agreed to be appointed as liquidator and on 14 October 2002, before the expiration of time under the s 222AOE notice, the company was placed into liquidation under a creditors' voluntary winding up. The liquidator made some claims for recovery of $15,359 for invoices issued by the insolvent company but for amounts to be paid to the new company. He also made some claim about the sale being an uncommercial transaction. The claims were settled by payment of a total of $20,359 which really amounted to the repayment of the debts collected by the wrong company and the sum of $5,000 to bring about the settlement of any claim against the directors. No dividend on the "V" class shares was ever paid.
Rowley and Bradnam - VMT Holdings Pty Limited (VMT), Republicorp Pty Limited, Republicorp International Pty Limited, Republic Corp Int Holdings Pty Limited
19 The defendants, Messrs Rowley and Bradnam, were directors of VMT. In April 2002 they arranged the incorporation of a new company, Republicorp Pty Limited, and transferred some of the assets of VMT to it. VMT had a deficiency of assets over liabilities in May 2002. Messrs Rowley and Bradnam had met Somerville before this time. They and their accountant met him in September 2002. After discussions as to requirements for restructure, Somerville gave his usual letter of advice on 18 September 2002. A costs agreement relating to restructure was signed on that day. Somerville and Rowley met again on 25 October 2002. Somerville arranged the registration of Republicorp International Pty Limited. In this case the sale agreement was from VMT and Republicorp Pty Limited as vendors to Republicorp International Pty Limited as purchaser. Somerville had advised that an earlier sale of assets from VMT to Republicorp Pty Limited might not have been effective or might not have been proper. It is of some significance that the sale agreement differed from the others in that the trade creditors' liabilities of Republicorp Pty Limited were assumed or taken over by International but not other liabilities. The liabilities of the VMT company, remained with that company. The "V" class share figure was $100,000. VMT was insolvent as a result of the sale agreement. On 3 May 2004 the Deputy Commissioner of Taxation issued a penalty notice to Rowley and Rowley told Somerville of this. Somerville contacted Mr Krejci and he and Rowley met with him as a result of which on 18 May 2004 a meeting of creditors placed VMT into a creditors' voluntary winding up. In the books of VMT, Rowley and Bradnam had loan accounts under which they owed $65,264 and $42,367 respectively to VMT. There was some explanation for this which seems to have been a device to avoid paying PAYG tax instalment deductions so that salaries were shown as loans. In any event, after negotiations the liquidator's claims were settled for $30,000 and the "V" class shares were transferred to Rowley. There had been no dividend.
20 There was a similar series of transactions in 2005 when the Deputy Commissioner of Taxation served on Rowley s 222 notices in respect of tax debts of Republicorp International Pty Limited, the total amount being about $278,000.
21 Rowley contacted Somerville again. They met, and as result an almost identical series of transactions took place. This time there was no letter of advice but Somerville arranged for Republicorp International Pty Limited to be formed. There was a costs agreement and a sale of business agreement with a "V" class share figure of $400,000. Somerville contacted Mr Warner who agreed to act as Liquidator and was appointed as such pursuant to the creditor's voluntary winding up on 25 April 2005 together with Mr Ivor Worrelll, both of them being partners of Messrs Worrellls Accountants. Some months later Mr Mooney, who was employed as a solicitor with Somerville & Co, made an offer on behalf of Rowley for the "V" Shares for sum of $15,000 and those shares were transferred to Rowley for that amount.
Christopher Paul Martin Jones -Chatswood Furniture & Fine Art Pty Ltd And Memorial Fine China Pty Ltd
22 Mr Christopher Jones was the sole director of Chatswood Furniture and Fine Art Pty Ltd from August 1997 to December 2004 and held all the issued shares in that company. Since June 2003, he has been the sole director of Memorial Fine China Pty Ltd and the sole share holder in that company. In May 2003 the Deputy Commissioner of Taxation issued a Notice of Intended Legal Action to the first company claiming a tax debt of $38,267. Mr Thorp, who was an advisor to Mr Jones, contacted Somerville about a pending insolvency situation and there was a meeting between Somerville, Jones and Thorp on 2 June 2003 where a company restructure was discussed and a note was made that the creditors were to be left in the old company. On 3 June 2003 the usual letter of advice was furnished and a cost agreement was entered into on that date. Somerville instructed Corporate Network Limited to register Chatswood Furniture & Fine Art Pty Ltd as a new company. On 6 June 2003 the Deputy Commissioner of Taxation issued a Penalty Notice pursuant to s 222 of the Income Tax Assessment Act, in respect of unpaid tax debts of the first company in the of $15,255 and a Statutory Demand against the company in respect of unpaid taxes in the sum of $43,214. There was a meeting at Somerville's Office on 10 June 2003 when the Sale of Business Agreement which had been prepared by Somerville or his firm, was executed. The amount of dividends for the "V" class shares this time was $150,000. The business name for the first company was Chatswood Restorations, and after the incorporation of the second company, that became the business name for the second company. All the necessary minutes acquired after incorporation of the second company were prepared in the offices of Somerville & Co. On 23 June 2003 the first company was placed into liquidation pursuant to the resolution of creditors for a voluntary winding up and Mr Green was appointed liquidator. There is some evidence to suggest that the assets of the first company had a value of less than $8,000 and in fact that figure was paid by Jones to the Liquidator.
Troost - B&R Storage and Distribution Pty Ltd & Road Sea Rail Equipment Pty Ltd
23 Mr Troost was at all relevant times the sole director of both companies. B&R Storage and Distribution was a transport, storage and distribution business. In 2002 two drivers employed by the company commenced proceedings which were transferred to the Chief Industrial Magistrate's Court seeking recovery of underpaid employee entitlements. This was a substantial claim which was expected to succeed. Mr Troost consulted Somerville about it in August 2002 and entered into a costs agreement at that stage in respect of a restructure to take place in the future. There was then some delay but in May 2003, Somerville met with Mr Troost and his accountant, Mr Meyers, and discussed the consequences if the claim of the employees' succeeded, it being thought that it would succeed, and that in the event that it did succeed, it would result in a very substantial judgment against the first company. The consequences would be that the company would immediately become insolvent and lose all its assets. There is not in evidence the letter of advice given to Mr Troost after the first meeting but it is clear that some letter was provided on 17 September 2002 because a letter from Somerville to Troost of 11 June 2003 refers to "the previous letter of advice which we provided to you on 17 September 2002". A meeting on 20 May 2003 between Somerville, Troost and Meyers dealt with new proposals as to the transfer of part of the assets to the new company and also dealt with a mortgage over a home unit property, which was owned by Mr Troost's sister, who held 50 per cent of the shares in B&R Storage and Distribution Pty Ltd. B&R Storage and Distribution Pty Limited had considerable assets in vehicles and trailers and it appears that the equity was thought to be worth about $2.5 million. Road Sea Rail Equipment Pty Limited was registered in June 2003. This was arranged by Somerville. The usual documents and resolutions for "V" class shares were prepared and executed, the figure for "V" class dividend being $2,500,000. There were further meetings between Somerville and Troost as to problems relating to stamp duty which might be incurred on transfer of those assets to the new company. It is clear from the notes which were taken, that what was sought to be achieved was the taking those assets of the vehicles and trailers out of the company so that their value would not be available to pay any judgment debt which the employees might obtain as a result of the proceedings before the Chief Industrial Magistrate.
24 Notes of subsequent meetings attended by Somerville and Troost in 2003 indicate that the position had become urgent and that Mr Troost would seek stamp duty exemption if he could.
25 The agreement for sale of business is dated 18 July 2003. This is the agreement which were referred to the transfer of the business assets only which were defined as being trucks, trailers and plant and equipment owned by the vendor. That may not have necessarily have comprised all of the assets but the intention was to take those assets out of reach of the employees if they became creditors as it seemed certain they would. The Chief Industrial Magistrate gave reasons on 24 September 2003 from which it was clear an order would be made for a very substantial sum to be paid by the employer company to the employees. Proceedings were stood over to enable a figure to be agreed upon if possible. In March 2004, there was a meeting between Troost and Somerville discussing a Statutory Demand from the Office of State Revenue ("the OSR") and the final judgment expected from the Chief Industrial Magistrate. For some reason those final orders were not made until January 2005 but were orders for payment to the two employees of the sums totalling in excess of $400,000. It is clear from notes of the meeting between Somerville and Troost on 24 March 2004 that all the assets be transferred under the sale agreement had not been transferred at that date. There was a note that vehicles which had not been transferred, should be transferred to the new company even if some of them were subsequently sold. The first company was put into Liquidation with a Mr Krejci as liquidator on 25 June 2004. Mr Troost informed a meeting of creditors that the litigation of the employees had resulted in that company being unable to meet its financial commitments. By that time any assets which he had, which would have been available to meet those commitments, had been transferred.
Monsell and Wells - Star Chrome Pty Ltd & Star Chrome Patent Pty Ltd
26 The transactions involved here are more or less the same as the other ones which have already been discussed in this judgment. The first Star Chrome company was on the evidence, making operating losses for the years ending 30 June 2000 until 30 June 2004. The Deputy Commissioner of Taxation made a demand for payment of a tax debt of $82,127 on 26 February 2005 and issued a Garnishee Notice to Westpac Banking Corporation. In April 2005, Mr Monsell contacted a Mr Mooney of Somerville & Co Pty Ltd advising that the first Star Chrome Company owed $100,000 to the Australian Taxation Office and that the company's bank accounts had been frozen pursuant to the Garnishee Notice. On 3 May 2005, Mr Wells met with Mr Somerville at his office where Mr Somerville gave the usual advice as to restructure and gave the written advice on 6 May 2005. There then followed the registration of Star Chrome Plating Pty Ltd, the second Star Chrome Company, together with preparation by the Somerville defendants of the necessary minutes of meetings. On 20 May 2005 the agreement for sale of business was executed, the "V" class share dividend amount being in this case $70,000. From that date the Star Chrome Business was carried on by the second Star Chrome company. On 12 July 2005 the Deputy Commissioner of Taxation issued a Creditor's Statutory Demand to the first Star Chrome company demanding a sum of $85,080 for tax debts due and Mr Mooney of Somerville advised Mr Monsell to place the first Star Chrome company into liquidation. Mr Green agreed to carry out the liquidation for a particular fee and on 27 July 2005 the company went into liquidation pursuant to a creditors' voluntary winding up and Mr Green was appointed as liquidator.
Additional Facts Concerning the Particular Transactions involving the Particular Directors
Nick Jones' Transactions
27 The business of Piditty was that of furniture removalists. There was a particular clause in the sale and purchase agreements that the debts to trade creditors would remain with the vendor company. The evidence shows that Mr Jones knew the company was insolvent and in fact he thought it was worth about $5,000 thus the figure for $150,000 for the "V" class share dividend seems to have had little to do with the value of the assets transferred. Mr Jones said that the idea of the transaction was to get some money and pay the creditors back. The creditors in total amounted to about $160,000, for the most part being liabilities for tax or insurance premiums. While the agreement provided that the debts to trade creditors would remain with the vendor company it said nothing about moneys owed to other creditors but the vendor company would have remained liable in any event. There was however, one additional transaction involved in this matter in that by deed dated 24 July 2002 a debt of $80,000 owed by Piditty to Mrs Margaret Jones, the wife of Nick Jones, was dealt with. The deed provided that the new company, Jones' Removals and Storage Pty Limited, would pay the whole of that debt within three months of a demand from Mrs Jones calling for such repayment. The deed provided that the purchaser company would grant a charge over its assets to support the guarantee which it gave under the document for payment of the loan to Mrs Jones and in clause 3.2 Mrs Jones released Piditty from the loan and any claim arising under it.
28 In the transcript taken of the ASIC examination of Jones, the following appears relating to the second transaction:
"Question: Whose idea was it to enter another sale of business agreement? Was it your idea or was it Mr Somerville's?
Answer: Well I went to him to discuss my position and he said, 'Do it again'. I said, 'It sounds a bit rich'. But he said, 'No, it's alright'.
Question: When you said 'It sounds a bit rich' what were you thinking?
Answer: Well, you feel as though you are walking away from liabilities without paying, right, which I don't like doing. But the option was to stop working and have absolutely no future in making money at all so that's what I did. Either way, the only hope of getting money to these people was to continue to work.
Question: In your own words what was the purpose behind this agreement?
Answer: Well, I couldn't continue if they were going to wind the company up so I had to have a means of trading. I had to have a few assets that it owned to use."
Mr Durant
29 The business of the Durant companies was to provide IT support services. He was the sole director and shareholder of both companies. Durant said that the figure of $100,000 was an arbitrary value because the assets of the company amounted only to furniture and some computers. He agreed at his examination that the result of the transfer was that it was a seamless transfer of the business from the vendor company to the purchaser company so that it could carry on as before. During his examination Mr Durant stated on a number of occasions that the purpose of the transaction was to get the staff and suppliers paid. It was never suggested that one of the purposes was to get the tax debt paid.
The Rowley & Bradnam Companies
30 The business of the companies was the marketing and servicing of IT software products. At the time of the first transaction there was a taxation debt of about $150,000. Rowley said at his ASIC examination that the valuation of the business of $100,000 was a bit generous. So far as the second transaction was concerned, Mr Rowley explained again in the examination, that the second series of problems arose through delay in obtaining a government contract which was later obtained. There was a debt due to the Taxation Office of between $140,000 and other debts and he was told by Mr Somerville that he would have to go through the same procedure and get a new company again. Nevertheless, it could not have been said that it was ever intended to keep the second vendor company in existence because on the same date as the agreement for sale was signed Messrs Worrells were asked to call a meeting of creditors for the purpose of putting the vendor company into liquidation.
Troost Companies
31 This was the agreement which provided for the sale of the business assets. It provided that the purchaser company would indemnify the vendor company in respect of any liability of the vendor company under equipment leases. Mr Somerville wrote a letter to Mr Troost on 11 June 2003 which included some advice under the heading "Protection of Trucks and Trailers" as follows:
"Protection of Trucks and Trailers