Australia & New Zealand Banking Group Ltd v Frenmast Pty Ltd

• R Austin and I Ramsay, Ford's Principles of Corporations Law, (15th ed 2012, LexisNexis Butterworths) Category: Principal judgment Parties: Christopher Luff (Plaintiff) Melinda Matthews (First Defendant) Giovanni Licuria (Second Defendant) Representation: Counsel: M Bennett (Plaintiff) C Robinson (First Defendant) J E Richards (Second Defendant) Solicitors: Marsdens Solicitors (Plaintiff) Mitry Lawyers (First Defendant) Dimarco Lawyers Second Defendant) File Number(s): 2012/117832

Judgment 1By Amended Originating Process filed on 30 July 2013, the Plaintiff, Mr Christopher Luff, seeks to establish that Matlic Pty Ltd (in liq) ("Matlic") was insolvent from 19 May 2005 or alternatively that it became insolvent from May 2005 as a result of incurring a debt alleged to have been owed to him. Mr Luff also claims compensation from the First Defendant, Ms Melinda Matthews and/or the Second Defendant, Mr Giovanni Licuria, under s 588M of the Corporations Act 2001 (Cth) quantified in the amount of $280,406, or alternatively in the amount of his loss and damage as assessed, and also seeks interest pursuant to an alleged loan agreement. 2Mr Luff relied on affidavits dated 7 May 2012, 17 January 2013 and 14 May 2014 in the proceedings. Mr Luff also relies on evidence of the liquidator of Matlic, Mr Peter Amos, to which I will refer below. The debt on which Mr Luff relies is alleged to have arisen from a loan made by Mr Luff to Matlic, on 19 May 2005, in connection with a development project undertaken by a third party, Terrigal Development Co Pty Ltd ("TDC"), at Tumut. Messrs Taylor and Horton, the directors of TDC, also gave evidence in the proceedings as to their dealings with Messrs Matthews and Luff in respect of the Tumut project. 3The First Defendant, Mrs Matthews, is one of the two directors of Matlic and the wife of Mr Steven Matthews, who was a financial planner who worked from the same offices as Mr Luff. Mrs Matthews relies on an affidavit dated 31 March 2014 in the proceedings. Mr Matthews also swore an affidavit dated 14 April 2014 in the proceedings. The Second Defendant, Mr Licuria, was also a director of Matlic at the relevant time. He had previously worked in the construction industry and he and his wife now operate a child-care centre, in which his wife plays the major role. Mr Licuria relies on affidavits of himself and Mrs Licuria dated 13 December 2013 and on a further affidavit sworn by him dated 20 August 2014. 4There were a number of factual issues in dispute in the witnesses' evidence, although many of those issues do not need to be resolved in order to determine these proceedings. All parties, other than Mr Amos, had personal interests at stake in the proceedings, either financial or so far as their conduct was under scrutiny. Much of the evidence of the witnesses was not in admissible form, although much inadmissible evidence was admitted in the absence of objection, and other evidence was admitted with limiting orders under s 136 of the Evidence Act 1995 (NSW). Mr Luff was cross-examined and it emerged that his affidavit evidence was at least incomplete in significant respects as to the circumstances in which the alleged loan was made. Mr Matthews was cross-examined and there were issues with his credit, at least so far as he had provided incorrect information to the liquidator, although he claimed to have done so to protect loans made by "investors" in the Tumut project (T190). Mrs Matthews also was cross-examined, although her evidence was of limited utility since her knowledge of events was largely derived from Mr Matthews. Mr Licuria was cross-examined and I consider that he did his best to give honest evidence although he did not have a strong understanding of the relevant transactions. Mrs Licuria was not cross-examined. As is often the case, it seems to me that the objective evidence of the relevant transactions provides a much more reliable basis for the conclusions which I reach below than the witnesses' evidence as to their understanding of the transactions. Incorporation of Matlic and Mr and Mrs Licuria's involvement 5Mrs Matthews and Mrs Licuria became acquainted when Mrs Matthews worked at a preschool owned by Mr and Mrs Licuria as a childcare worker, and Mr and Mrs Matthews and Mr and Mrs Licuria became friendly at that time. Mr and Mrs Matthews and Mr and Mrs Licuria in turn became involved with Matlic prior to its involvement with the Tumut project. Matlic was incorporated on 26 August 2004 and Mr Licuria and Mrs Matthews were appointed as directors. 6Mrs Licuria's evidence was that Matlic and the Matlic Property Trust, of which it was trustee, were formed for the purpose of making investments for Mr and Mrs Licuria and Mr and Mrs Matthews (Mrs Licuria 13.12.13 [5]). A bank account was opened for Matlic at about the same time (Mrs Licuria 13.12.13 [7]). Mr Licuria also gave evidence as to the circumstances in which Matlic was incorporated as trustee of the Matlic Property Trust, to the effect that: "The purpose of establishing the company and the unit trust was to use it as a vehicle for investment opportunities for [Mr Matthews] and [Mrs Matthews] as well as [Mrs Licuria] and I. Although [Mr Matthews] was not appointed as a director of Matlic, as he had a financial background I understood that he would play an active role in identifying investment opportunities for Matlic." (Mr Licuria 13.12.13 [83]) Mr Licuria's evidence was that Matlic undertook no activities other than in respect of the loan to TDC in respect of the Tumut Project, and it appears that other transactions recorded in its bank accounts (Ex D1-1) may have been monies payable to Mr and Mrs Licuria or Mr and Mrs Matthews in their personal capacity. 7Mr Matthews' evidence, led without objection, was that: "As I understood it, Matlic simply existed to hold a first registered mortgage over the property at Tumut the subject of the project, as security for any money paid in as a result of my introductions [of investors to the project]" (Mr Matthews 14.4.14 [32]). That evidence requires some qualification since Matlic was at least established for the additional purpose of undertaking transactions for Mr and Mrs Licuria and Mr and Mrs Matthews and to act as trustee of the trust, and since it appears that at least Mr and Mrs Licuria and Mr Davison, who is not party to the proceedings, lent monies to Matlic in connection with its loan to TDC. The Tumut project 8In the first quarter of 2005, the directors of TDC, Messrs Horton and Taylor, approached Mr Matthews regarding a development opportunity at Tumut (Horton 11.4.14 [2], Mr Matthews 14.4.14 [11]) and sought funding for TDC to purchase land at Tumut for $480,000, whether from Mr Matthews or his clients. 9In April 2005, a loan agreement was executed between Matlic and TDC and signed by Mrs Licuria on behalf of Matlic. Mrs Licuria was not a director or officer of Matlic and her evidence is that she did not recall signing or reading that document, although she gives evidence of an occasion when she signed a document, which may have been that agreement, at Mr Matthews' request without reading it and in circumstances where her attention was distracted by other matters (Mrs Licuria 13.12.13 [15]-[19]). The circumstances in which that agreement was signed are in any event not material for present purposes. That loan agreement provides for a loan of $280,000 by Matlic to TDC to assist with the purchase of the relevant property and cover prepayment of three months interest of $7500 and other specified amounts. The term of the loan agreement is as follows: "You [TDC] must repay the principal loan amount together with interest and any other money due to us [Matlic] in respect of this facility in full six months from the date the loan is first made." That loan agreement provided for a prepayment of three months interest in advance and interest to then be calculated at the lower rate on a monthly basis, and at a higher rate in the event of default. The loan was conditional on security being provided over the land. 10Mr Matthews also prepared an information memorandum for the Tumut project, with Mr Taylor's involvement (T192-193, T151). That information memorandum contemplated the possibility that moneys would not be repaid within the six month period, as follows: "Initial investment is required in a single tranche: $300,000 - 1st Mortgage Security - Interest Rate of 12% and paid in advance for the first 6 months. Investor Group also to be issued a 25% profit share in the overall project. Upon DA approval, finance requirements will be reassessed and we believe that the initial capital can be returned at that point. If the funds are required to remain in the project, the security would be varied to a 2nd mortgage over the property and the terms of the mortgage varied so as to provide a 20% p.a. rate of interest on the funds (i.e. 8% p.a. paid monthly and 12% p.a. accrued and paid on project completion)". 11Mr Taylor gave evidence of the steps leading to TDC's purchase of the land at Tumut and to discussions with Mr Matthews in respect of the funding of the purchase and development of that land. It appears agreement was reached that, if Mr Matthews could raise the sum of $300,000 in respect of the development, TDC would provide a 33% "profit share" in the development to the "investors" who provided that loan. Mr Taylor's evidence was that TDC intended to repay the capital invested (or, more precisely, lent to it) after the local council gave consent to the development application, by refinancing that amount with a borrowing from a commercial lender. Mr Taylor's evidence is that he was introduced to Mr and Mrs Licuria and another "investor" or lender, Mr Davison, as prospective investors in May 2005. Mr Taylor's evidence is also that: "Mr Matthews identified [Matlic] as the investment company which would provide the funds TDC and hold a mortgage over the Tumut property (as security for the money invested), provided TDC agreed to pay an interest rate of 12% per annum to the investors and issued 25% equity in the project to be distributed to the investors which I believed to be Stephen Davison, Matlic Pty Ltd and Christopher Luff." (Taylor 4.4.14 [10]) 12Mr Matthews' evidence is that he raised the possibility of investment of $100,000 with Mr and Mrs Licuria, with another client, Mr Davison, and with Mr Luff. Mr Licuria's evidence is also that Mr Matthews proposed a transaction by which Mr and Mrs Licuria would lend $100,000 to Matlic which would lend those moneys to TDC in April or May 2005, and that he and Mrs Licuria agreed to that transaction. His evidence is that, although a formal loan agreement was not executed between Matlic and Mr and Mrs Licuria, they understood that the loan to Matlic would be on essentially the same terms as Matlic's loan to TDC within a "back to back" arrangement. There is a conflict in the evidence as to how Mr and Mrs Licuria made their loan to Matlic, with Mr Matthews recalling that they delivered the amount of their investment to solicitors acting for Matlic, and Mrs Licuria's evidence being that she delivered two cheques totalling $100,000 to Mr Matthews at his home (Mr Matthews 14.4.14 [23]; Mrs Licuria 13.12.13 [12]). That conflict is also not material for the determination of these proceedings. 13Mr and Mrs Licuria and Mr Davison were the source of about two-thirds of the amount lent to TDC in May 2005. Mr Matthews' evidence is that he advanced the remaining amount of $100,000 to TDC, through a company associated with him, Taylered Development Pty Ltd ("Taylered"), at a time that Mr Luff did not then have funds available to invest in the project (Mr Matthews 14.4.14 [29]). That evidence is consistent with Mr Horton's evidence that the purchase of the Tumut property by TDC settled on 12 May 2005 with monies advanced through Mr Matthews, some 7 days before Mr Luff made a first and smaller amount of $30,000 available as I will note below. Mr Taylor's evidence was also that he was informed by Mr Matthews that Mr Luff's investment was to be made later than the initial investment to be invested in TDC, and that Mr Matthews would invest the money himself and be repaid by Mr Luff at a later date. 14Mr Matthews' evidence was that Mr Luff later paid the relevant funds to Taylered so as to "take out" Mr Matthews' interest in the project. Mrs Matthews' evidence, admitted as evidence of her understanding only, was that she understood that several persons including Mr Luff had invested directly in the project with TDC. She refers to a conversation in May 2005 in which Mr Matthews informed her that he had told Mr Luff that he could repay the amount of $100,000 previously advanced by Mr Matthews to TDC to "take up my interest" and that "[b]ecause he's treated as an investor his investment will be protected by the Matlic mortgage". Mrs Matthews' evidence is that she did not authorise Mr Matthews to borrow money from Mr Luff on behalf of Matlic. Mr Luff's alleged loan to Matlic 15Mr Luff initially sought to establish that Matlic incurred the claimed debt of $100,000 to him on the terms of a Deed of Agreement dated 19 May 2005, by conclusory statements in his affidavits dated 7 May 2012 and 17 January 2013, which were rejected with leave. Those statements did not disclose the complexity of what had in fact occurred. 16That Deed of Agreement is signed by Mr Luff and purportedly executed by Matlic by Mr Matthews who was not a director of Matlic at the relevant time. A deed of agreement between Matlic and Mr Davison dated 12 May 2005 (Annexure "N" to Mr Amos' report) was in the same terms as the Deed of Agreement between Mr Luff and Matlic and was also signed by Mr Matthews on behalf of Matlic. Recital (a) to the Deed of Agreement recorded that Mr Luff had agreed to advance to Matlic, as trustee of the Matlic Unit Trust, the amount of $100,000. Recital (b) recorded that the "Borrowers" (of which there was only one) had agreed to "repay or protect the said amount" in accordance with the terms of the agreement. Recital (c) recorded that Mr Luff agreed "the funds are being forwarded for a minimum period of six (6) months from the date of this agreement" (emphasis added). Recital (d) recorded that, in consideration of Mr Luff providing the funds to the Borrowers, the guarantors agreed to guarantee the performance of the Borrowers' obligations under the agreement. There were no guarantors to the Deed of Agreement. Recital (f) recorded that the borrower and the guarantor agreed that, in the event of default under the agreement, Mr Luff "has the right place caveat able interests [sic] against certain real estate holdings of which the borrower is holding security on behalf of [Mr Luff]". The relevant property holding was described as follows: "[Matlic] holds a registered 1st mortgage over the property known as [address omitted] Tumut for the amount of $$300,000. Certificate of title attached." 17The operative parts of the Deed of Agreement in turn provided that Mr Luff agreed to advance to the Borrowers funds in the amount of $100,000, directly to the Borrowers upon execution of the Deed of Agreement. Matlic agreed to pay interest on the borrowed funds at the rate of 12% per annum with the first three months to be paid in advance with the principal to be paid along with the return of capital as specified in item 2 within six months of the initial advance. Clause (d) provided that the term of the contract was for a period of six months from the date of the agreement, which may be extended by mutual agreement. Clause (e) provided for the payment of a "default interest penalty amount" if the Borrowers failed to repay the funds to Mr Luff within seven days of the date specified in the agreement. 18The terms of the Deed of Agreement are by no means clear that repayment within six months was necessarily contemplated by it. Recital (b) to the Deed of Agreement appears to contemplate, as an alternative to repayment of the relevant amount, that the Borrower would "protect" the amount, which is consistent with the evidence to which I refer below that the real purpose of the Deed of Agreement was to provide a mechanism for taking security from TDC. Recital (c) contemplates that funds are being "forwarded" for a minimum period of six months, whereas clause (c) provides for repayment of the principal and the return of capital within six months of the initial advance and clause (d) provides for a loan period of six months as extended by mutual agreement. 19The front page of the Deed of Agreement contained handwritten notes on the first page reading "70k 14/08/05" and "30k 19/05/05", which appear to record dates on which Mr Luff claims to have paid the relevant amounts. Mr Luff did not lead other evidence of the payments such as bank or other financial records. In oral evidence given in chief (T14) and in cross-examination (T22), Mr Luff's evidence was that the relevant monies had been paid by cheque drawn in favour of Taylered rather than Matlic and given to Mr Matthews at two different times and there was no other payment to Matlic. I will return to the proper characterisation of that transaction below. Subsequent developments 20Mr Taylor's evidence was that consultants retained by TDC indicated, from late June or early July 2005, that there would be delays in relation to the development application (Taylor 4.4.14 [14], T146) and that he told Mr Matthews and Mr Luff of those delays in June or July 2005 and they agreed to capitalise interest on the loan at a meeting in late June or early July 2005, attended by Mr Matthews, Mr Luff and Mr Taylor (Taylor 4.4.14 [14]). Mr Taylor also gives evidence of subsequent meetings with Mr Matthews over the next 12 months, at which Mr Luff was often present, and of Mr Luff negotiating for a greater profit share to continue the loan to TDC. 21Mr Horton gives evidence of an expectation on the part of TDC that it would be able to service the loan but also gives evidence of delays in the rezoning and subdivision of the land. Mr Horton's evidence is that Mr Taylor and he advised Mr Luff and Mr Matthews of the delays in obtaining rezoning approval and sought an extension of the loan term, and capitalising of interest, which was agreed with Mr Luff, Mr Matthews and TDC (Horton 11.4.14 [20]). Mr Horton's evidence in cross-examination was that it became apparent, within several months of original settlement of the loan, that Tumut Council would not approve the relevant development within the foreseeable future (T52). Mr Horton also gives evidence of further meetings with Mr Matthews, sometimes involving Mr Luff, through to late 2006 and his evidence is that Mr Luff again agreed to extend the loan to seek to bring the project through to the point of development approval. Mr Horton's evidence is that Mr Luff again agreed to extend the investment until issues concerning the development approval were resolved at a meeting at the end of September 2007. 22Mr and Mrs Licuria and Mr and Mrs Matthews fell out in early 2006, after, inter alia, TDC's failure to repay Matlic the amount of that loan and outstanding interest. Mr and Mrs Licuria involved their solicitor and, in about May 2006, sought to have Matlic demand repayment of the loan from TDC and, if TDC was unable to repay the loan, take possession of the Tumut property and sell it as a mortgagee in possession. Mrs Matthews did not agree to that course in her capacity as a director of Matlic. By an email from his solicitor dated 26 October 2006, Mr Licuria sought to make clear that Mr Matthews did not have authority to act on behalf of Matlic. Mr Luff characterises that matter as amounting to a revocation of authority which Mr Matthews previously had to act on Matlic's behalf. I will refer to that issue further below. In March 2007, Mr and Mrs Matthews on the one hand and Mr and Mrs Licuria on the other entered an arrangement to terminate their relationship, on terms that were not fully disclosed in these proceedings. On 8 November 2007, Mr Licuria resigned as a director of Matlic and he and Mrs Licuria each transferred their single share in Matlic to Mrs Matthews who continued as Matlic's sole director. 23Matlic was wound up in insolvency on Mr Luff's application by order made on 23 June 2010 and Mr Amos was appointed as liquidator. Proceedings were brought against Mrs Matthews in 2012 and Mr Licuria was joined as Second Defendant in the proceedings in August 2013. Elements of a claim under s 588M of the Corporations Act 24Section 588M of the Corporations Act provides that a creditor may, with the liquidator's consent, claim compensation from a director who had contravened s 588G of the Corporation Act by allowing a company to incur a debt while insolvent. If that debt was wholly or partly unsecured and a creditor suffered loss or damage in consequence, that creditor may recover an amount equal to the amount of that loss or damage from the director as a debt due to the company, whether or not the director had been convicted of an offence or a civil penalty order has been imposed. The "loss or damage", for the purposes of s 588M, is the amount of the unpaid debt due to the relevant creditor, rather than the difference between that debt and creditor's likely recovery in the winding up: Tourprint International Pty Ltd (in liq) v Bott [1999] NSWSC 581; (1999) 32 ACSR 201 at [78]-[79]; Powell v Fryer [2001] SASC 59; (2001) 159 FLR 433 at [88]. 25In Edenden v Bignell [2008] NSWSC 666 at [16], Barrett J (as his Honour then was) summarised the elements of a claim arising from the combination of s 588G(2) and s 588M(3) of the Corporations Act as follows: "It is therefore appropriate, in the first instance, to identify the elements made essential by s 588G(2) and 588M(3). They are: (a) that the company incurred a debt; (b) that the person against whom recovery is sought was a director of the company when it incurred the debt (s 588G(1)(a)); (c) that the company was insolvent at that time or became insolvent by incurring the debt (or debts including the debt) (s 588G(1)(b)); (d) that, at the time the debt was incurred, there were reasonable grounds for suspecting that the company was insolvent or would become so insolvent (s 588G(1)(c)); (e) that the person against whom recovery is sought failed to prevent the company from incurring the debt; (f) that (i) the person against whom recovery is sought was, at the time the debt was incurred, aware that there were grounds for so suspecting (s 588G(2)(a); or (ii) a reasonable person in a like position in a company in the company's circumstances would have been so aware (s 588G(2)(b)); (g) that the debt was owed to the person by whom recovery is sought (s 588M(1)(a)); (h) that the person by whom recovery is sought has suffered loss or damage in relation to the debt because of the company's insolvency (also s 588M(1)(a)); (i) that the debt was wholly or partly unsecured when the loss or damage was suffered; and (j) that the company is being wound up." It will be convenient to address the issues raised by this application in the order identified in this helpful breakdown of the elements of the sections. Whether Matlic incurred a debt to Mr Luff 26Mr Bennett, who appeared for Mr Luff, submitted that it is "clear from the evidence" that Matlic incurred the relevant debt on 19 May 2005, the date on which it entered into the Deed of Agreement with Mr Luff. As will emerge below, that matter is by no means clear to me on the evidence that emerged at the hearing. Mr Luff did not advance any alternative case, and it is therefore not necessary to decide any alternative case, that Matlic incurred the debt in any manner other than by entry into the Deed of Agreement on that date. 27Mr Robinson, who appears for Mrs Matthews, submits that Matlic did not incur the debt relied by Mr Luff and that any payment by Mr Luff to acquire an interest in the Tumut project was not made by Mr Luff in performance of the Deed of Agreement. Mr Robinson submitted in oral submissions that "there is nothing that Mr Luff can point to that he has done which actually accords with the requirements of the Deed of Agreement. No single fact or evidentiary matter has been pointed to that indicates that he actually had acted in accordance with the deed at all" (T262). Mr Robinson also submits that the payments to Taylered involved the acquisition of the existing interest of Taylered and there is no evidence that the payment to Taylered led to any receipt of funds by Matlic. If that proposition is established, then an element of a contravention of s 588G(2) of the Corporations Act, that Matlic incurred a debt, is not established in respect of the transaction with Mr Luff and it is also not established that Mr Luff was a creditor who suffered loss because of Matlics's insolvency for the purposes of s 588M of the Corporations Act. 28Ms Richards, who appears for Mr Licuria, also submits that the true characterisation of what occurred was that Mr Luff took over the position of Taylered as a lender to TDC and that there is no evidence that Taylered had lent to Matlic (T267). Ms Richards came close to, but possibly fell just short of, a submission that the Deed of Agreement was a sham in putting that: "... there is a creation of some documents which, in my submission, are irregular, do not reflect what happened, do not reflect what any of the parties intended to happen at the time. All that they intended to do was to try and create a structure whereby third parties to the arrangement between Matlic and TDC could somehow hang their hat on the mortgage." (T268) 29I do not find that the Deed of Agreement between Mr Luff and Matlic was a sham, where at least Mr Matthews and Mr Luff may well have intended that he have the benefit of the mortgage given by TDC in favour of Matlic. However, I do find that the Deed of Agreement was not put into effect in accordance with its terms. In particular, Mr Luff did not advance the funds directly to Matlic as that agreement provided and did not do so "upon execution" of the agreement as it contemplated. The first amount of $30,000 was paid to Taylered on the date of execution of the agreement, as is made clear by a deposit slip for a deposit of $30,000 on 20 May 2014 in respect of a cheque drawn by Mr Luff and paid into the bank account of Taylered (Ex D2-2). If the handwritten notes on the first page of the document are accepted in respect of the payment of the second amount of $70,000 - and Mr Luff led no other satisfactory evidence of that payment - then it was not paid until three months later. I should add that Mr Luff also relies on the Deed of Agreement as the basis of the transaction to contend that he is entitled to interest of 12% per annum, or penalty interest as applicable, from 19 May 2005, on the basis that the monies referred to in the Deed of Agreement were advanced on that date. That submission highlights the difficulty which arises when Mr Luff did not in fact conduct himself in accordance with the terms of the Deed of Agreement, either by advancing monies to the Matlic (as distinct from Taylered) or by advancing them on 19 May 2005 in their entirety, as distinct from three months later in the amount of $70,000. 30Mr Bennett submitted that each of Mr Luff, Mr Davison and Mr and Mrs Licuria lent funds to Matlic, which on 12 May 2005 made a loan of $300,000 to TDC. Mr and Mrs Licuria accept that they made an undocumented loan to Matlic with the intent that it would onlend the relevant funds in a back-to-back loan to TDC, and it is possible that the loan from Mr Davison would have been structured in the same manner, consistent with the Deed of Agreement that he signed. However, it does not follow that, because the affairs of Mr and Mrs Licuria or Mr Davison were structured in that manner, then the affairs of Mr Luff were also structured in the same manner. The position in respect of Mr Luff has the significant distinguishing factor that Matlic made the relevant loan to TDC on 12 May 2005 to allow TDC to settle on the purchase of the relevant property and he did not provide funds until seven days later in the amount of $30,000 and, on his own account, he did not provide the balance of $70,000 until 14 August 2005. 31In closing submissions, Mr Bennett also submitted that: "Following execution of the agreement for the Loan, [Mr Luff] provided the funds, as directed by Stephen Matthews, to a related company." However, the evidence on which Mr Luff relied for that proposition was the conclusory statements to that effect in his affidavits that had not been admitted into evidence. That submission, like the conclusory statements in those affidavits on which it was based, involved a significantly oversimplified account of the facts, so far as it omitted reference to the fact that the second payment made by Mr Luff was made to Taylered several months after the loan to TDC had been advanced. 32Mr Bennett also submitted, in his closing submissions, that: "It is not in dispute in these proceedings that [Mr Luff's] $30,000 and $70,000 payments made out to [Taylered] were his advancing funds that were ultimately secured by a mortgage the Company held." That proposition is correct to the extent that no party contested the fact that, when Mr Luff paid Taylered in the two tranches of $30,000 and $70,000 to which I have referred above, representatives of TDC, Mr Matthews and Mr Luff may well have intended that the funds would be secured by the mortgage given by TDC to Matlic, although no thought seems to have been given to how legal effect would be given to that intent. That intent does not seem to me to have been achieved since, by that time, Taylered had already paid the relevant funds to TDC and a loan by Taylered to TDC could not be transformed into a loan by Mr Luff to Matlic and by Matlic to TDC by nothing more than an intent to recharacterise it as the latter rather than the former. 33Mr Bennett also described the legal effect of the relevant transactions in oral submissions as follows: "The legal characterisation, your Honour, is that Matlic by deed agreed to borrow $100,000. Instead of that money being paid to Matlic Pty Limited by way of cash advance or a transfer of funds, its obligation to Taylered was discharged. The evidence makes clear Taylered had an interest in the project, which we submit would be a loan, just as Mr and Mrs Licuria had lent money in and just as Mr Davison had lent money into Matlic, and Mr Luff lent $100,000 to Matlic which it used to discharge the obligation it owed to Taylered." (T245) However, this submission assumes, without evidence, that Matlic in fact had an obligation to Taylered in respect of the monies paid by Taylered (as distinct from Matlic) to TDC. It seems to me that, doing the best I can with somewhat inadequate evidence, what in fact occurred was that Taylered (or Mr Matthews) made a loan directly to TDC, when Matlic was not in a position to do so (in respect of Mr Luff's contribution) because Mr Luff had not yet funded it to do so, that gave rise to a right of Taylered (or Mr Matthews) to receive repayment by TDC, which could have been (but was not) later assigned or novated to Mr Luff, and which did not give rise to any obligation as between Matlic and Taylered. The payments later made by Mr Luff to Taylered did not, in that situation, amount to the incurring of a debt by Matlic. 34Mr Bennett also submits that the only way that the Court could make sense of the structure of the grant of a mortgage by TDC to Matlic was if there were loans from investors to Matlic and a loan from Matlic to TDC supported by the relevant mortgage. I accept that the transactions between Mr Davison and Mr and Mrs Licuria on the one hand and Matlic on the other are explicable in this manner. The transaction between Mr Luff and Matlic would also have "made sense" in that manner had it been implemented as contemplated by the Deed of Agreement. It may be that that agreement could have been amended, or a structure of payments by direction could have been implemented, that could have allowed a similar result to have been achieved when Mr Luff later made payments to Taylered (or Mr Matthews) rather than Matlic. However, there is no evidence that occurred and I do not consider that I can infer such an arrangement, where there is no evidence of it, because it would have been sensible or to Mr Luff's advantage had it existed. 35In my view, the transactions with which Mr Luff was involved did not amount to a loan made by him to Matlic on the terms of the Deed of Agreement. Although I accept the Deed of Agreement was intended, at least by Mr Luff and Mr Matthews, to allow Mr Luff to rely on the security given by TDC to Matlic, I am not satisfied that Matlic in fact incurred a debt to Mr Luff, either in accordance with the Deed of Agreement or by the transactions between Mr Luff and Mr Matthews and Taylered in May and August 2005. Mr Luff's claims must fail for that reason. Mr Matthews' authority to enter into the transaction 36A further issue arose as to the extent to which the Deed of Agreement with Mr Luff was enforceable against Matlic, which depended on whether Mr Matthews had authority to execute that agreement on Matlic's behalf. It is not strictly necessary to determine that question where I have held that, in any event, the monies paid by Mr Luff to Taylered (or Mr Matthews) were not paid pursuant to that Deed of Agreement. I should nonetheless briefly address this issue in case an appellate court were to take a different view as to the former issue. 37Mr Luff submits that Matlic entered the relevant loan because Mr Matthews had actual authority to bind Matlic or, alternatively, had implied authority to bind Matlic. That submission assumes that the loan had been made in accordance with the terms of the Deed of Agreement. That assumption was not established by the evidence, as I have held above. Mr Luff does not seek to establish that Mr Matthews had apparent authority to bind Matlic, since he accepts that apparent authority could only be established had a person with actual authority made a representation that Mr Matthews had authority to enter into such arrangements on Matlic's behalf. 38Mr Luff contends that Mr Matthews' actual or implied actual authority to commit Matlic to the Deed of Agreement arose from the fact that he was Matlic's controlling mind and its directors and shareholders had authorised him to handle its affairs and management; that actions he had undertaken, relevantly in respect of TDC, were confirmed and adhered to by Matlic; that, at least until the falling out between Mr and Mrs Licuria and Mr and Mrs Matthews, Matlic's directors and shareholders deferred to Mr Matthews' decisions; and its directors and shareholders knew that third parties were dealing with it by entering into discussions and dealings with Mr Matthews. There is evidence that supports at least aspects of that submission. Mr Matthews' evidence was that he was not an officer of Matlic, although he accepts that he was involved in its daily affairs and had knowledge of its business dealings (Mr Matthews 14.4.14 [7]). Mr Matthews plainly dealt with various persons, including Messrs Horton and Taylor of TDC, in respect of matters involving Matlic. Mrs Matthews accepted in cross-examination that Mr Matthews was not only involved with Matlic as a financial adviser but was "effectively managing Matlic's business" (T127 - 128). Mr Licuria's affidavit dated 13 December 2013 (paragraphs 8, 10, 14, 18, 30) also acknowledged Mr Matthews' role in respect of Matlic's management. 39Mr Licuria responds that the matters to which Mr Luff refers to establish actual authority do not do so, since they do not indicate that Mr Matthews had authority to borrow money from Mr Luff for and on behalf of Matlic. He also points out that there is no evidence that Matlic's directors were aware that Mr Matthews was holding himself out as having Matlic's authority to borrow monies from any person, implicitly other than Mr and Mrs Licuria and possibly Mr Davison, and that there can have been no ratification of those activities absent knowledge of them. Mr Licuria submits that the directors of Matlic did not concur with Mr Matthews' assumption of power to bind Matlic by entering into a loan agreement with Mr Luff, presumably for the same reason. 40As Mr Luff's submissions recognised, express actual authority of a person is usually derived from a company's constitution or from an antecedent act such as a resolution of the company's directors: Northside Developments Pty Ltd v Registrar-General [1990] HCA 32; (1990) 170 CLR 146 at 205; Perkins v National Australia Bank Ltd [1999] SASC 39; (1999) 30 ACSR 256 at 262; Junker v Hepburn [2010] NSWSC 88 at [39]-[44]. Implied actual authority in turn turns upon the relationship between the parties and their dealings, and depends on the company's intention in conferring authority on the agent, and may be established if persons who have actual authority to delegate acquiesce in another person's entry into transactions which would otherwise be outside his or her authority. In Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 at 134; 11 ACSR 642, Clarke and Cripps JJA noted that whether authority is to be implied and, if so, the scope of that authority, depends on the evidence before the Court which is relied upon to support the implication of actual authority, and that observation was followed in Junker v Hepburn above at [44]. 41In the present case, Matlic's constitution did not confer authority on Mr Matthews nor was there any antecedent resolution of its board of directors conferring such authority on Mr Matthews. He had not been appointed to any position, such as managing director, that itself conferred an actual or usual authority upon its occupant. The practice of Matlic's directors and shareholders on which Mr Luff relies may well have been sufficient to confer actual authority upon Mr Matthews, so far as joint investments on behalf of Mr and Mrs Matthews and Mr and Mrs Licuria were concerned, since that was the purpose for which Matlic had been incorporated, and in dealings between Matlic and TDC, so far as there had been express discussion of the making of a loan by Mr and Mrs Licuria to Matlic and by Matlic to TDC. However, it does not follow from those propositions that that actual authority extended to conduct such as the entry into other borrowings from third parties on Matlic's behalf. For the same reason, it does not seem to me that any implied actual authority of Mr Matthews extended to dealings with Mr Luff involving a borrowing by Matlic from Mr Luff if, contrary to the view which I have reached above, Matlic in fact made such a borrowing from Mr Luff. It also does not seem to me that it has been established that Matlic ratified Mr Matthews' dealings with Mr Luff, since ratification would have required the assent of Mr Licuria as one of the two directors of Matlic, with full knowledge of the relevant facts, and there is no evidence that he had such knowledge at any relevant time: Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 642; Leybourne v Permanent Custodians Ltd [2010] NSWCA 78 at [134]. 42Mr Luff also relies on s 128(1) of the Corporations Act which provides that a person is entitled to make the assumptions in s 129 of the Corporations Act in relation to dealings with a company. In order to establish the fact of such dealings with Matlic, it is not necessary that Mr Luff show that Mr Matthews have had Matlic's authority to commit it to the relevant transaction or execute the relevant documents, and the section can extend to conduct of a person who purports to have, but does not have, authority to represent that company in a particular transaction: Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722; Australia & New Zealand Banking Group Ltd v Frenmast Pty Ltd [2013] NSWCA 459 at [41]. However, the application of the section does require that there in fact be a dealing with the company, requiring at least that the relevant person had authority to take some step such that the dealing is properly treated as one with the company: Soyfer v Earlmaze Pty Ltd [2000] NSWSC 1068 at [82]. I do not understand the decision in Frenmast above to be to the contrary; rather, the Court of Appeal held in that case that the dealing was in fact one with the company, where the relevant director had ostensible authority to undertake communications and negotiations with the lender on behalf of the company. In the present case, I accept that Matlic's directors, being Mrs Matthews and Mr Licuria, had afforded actual authority to Mr Matthews to commit it in its dealings with TDC, at least so far as the loan to be made by Mr and Mrs Licuria and possibly Mr Davison was concerned. It is by no means clear to me that that is sufficient to allow transactions with Mr Luff, executed respectively a week and three months later, by which Mr Luff, in effect, bought out Taylered's (or Mr Matthews') interest in funds advanced to TDC by Taylered (or Mr Matthews) to be characterised as a dealing with Matlic, although it is not necessary to express a final view as to that matter given the findings that I have reached on other grounds. 43Section 129(3) of the Corporations Act provides that a person dealing with a company may assume that a person who is held out by the company to be an officer or agent of the company has, relevantly, authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company. For example, in Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279; (1991) 6 ACSR 464, the Full Court of the Supreme Court of Victoria held that the respondents were entitled to make the assumptions in this section, where one of the persons who executed a guarantee and indemnity had been held out to be a secretary of the company by a person having actual authority to manage the company. It is also by no means clear that Mr Matthews was held out to be a director of Matlic, as distinct from a person involved in some way in its management, or to be an officer or agent of a kind whose powers extended to executing deeds or other formal agreements on Matlic's behalf. It is also not necessary to express a final view as to that matter given the findings that I have reached on other grounds. 44It does not seem to me that s 129(5) of the Corporations Act can assist Mr Luff. That section may, in an appropriate case, allow a person to assume that a document is duly executed, if it appears to have been signed in accordance with s 127(1) of the Corporations Act, that is by two directors of the company or by a director and secretary of the company. However, the execution of the Deed of Agreement by Mr Matthews alone did not comply with that requirement. Second, even if Mr Luff were entitled to assume that the Deed of Agreement were duly executed by Mr Matthews on behalf of Matlic, that does not assist in establishing a debt owed by Matlic to him where he did not advance the relevant funds to Matlic or in the manner provided by it. 45Section 128(4) of the Corporations Act in turn provides that a person may not make an assumption in s 129 of the Corporations Act if, at the time of the dealing, they knew or suspected that the assumption was incorrect. A company seeking to avoid the application of the statutory assumptions bears the burden of persuasion that a person claiming to make an assumption knew or suspected that the assumption was incorrect: R Austin and I Ramsay, Ford's Principles of Corporations Law (15th ed 2012, LexisNexis Butterworths) at [13.300]. That exception only applies where a person has actual knowledge or suspicion and not where circumstances are such as to put a reasonable person on inquiry, if the relevant person had no actual knowledge or actual suspicion: Soyfer v Earlmaze Pty Ltd above at [70]. Mr Licuria submits that Mr Luff was "put on inquiry" by the fact that the Deed of Agreement was not for the purpose of advancing funds for use by Matlic, where he knew that the funds were actually to be paid to Taylered rather than Matlic and were for the use of TDC rather than Matlic. However, the disqualifying factor for the purposes of s 128(4) of the Corporations Act is not merely being placed on inquiry but knowing or suspecting that Mr Matthews did not have the relevant authority. Had a basis for the relevant assumption otherwise been established, the fact that Mr Luff could, or should, have made further inquiries as to the extent of it would not have established that he knew or suspected that Mr Matthews did not have the suggested authority. Whether Mrs Matthews and Mr Licuria were directors of Matlic when it incurred any such debt (s 588G(1)(a)) 46In order to succeed in a claim under 588M of the Corporations Act, Mr Luff must show that a person, relevantly, Mrs Matthews or Mr Licuria, has contravened s 588G(2) in relation to the incurring of a debt by Matlic. A contravention of that section requires that Mrs Matthews or Mr Licuria, be a director of a company at the time it incurs a debt. It was common ground that this requirement was satisfied if, contrary to the finding that I have reached above, it had been established that Matlic had incurred a debt to Mr Luff. Whether Matlic was insolvent or became insolvent by incurring the debt (s 588G(1)(b)) 47It is an element of a contravention of s 588M of the Corporations Act that Mrs Matthews and Mr Licuria contravened s 588G(2) of the Corporations Act, which in turn requires that Matlic was insolvent at that time it incurred the relevant debt or became insolvent by incurring that debt or by incurring debts including that debt. In the ordinary course, where a loan is for a fixed term, a company incurs a debt for the principal and interest for the term of the loan, at least at the prompt payment rate, at the time it enters the loan: Standard Chartered Bank of Australia Ltd v Antico (1995) 38 NSWLR 290; 18 ACSR 1 at 58. It is also a separate, albeit overlapping, element of a claim under s 588M of the Corporations Act that Mr Luff needs to establish that Matlic was insolvent at the time it incurred the relevant debt. This issue does not strictly arise where it has not been established that Matlic incurred that debt, but I will address it against the contingency that an appellate court takes a contrary view as to that issue. 48As Mr Luff accepts in submissions, whether a company is insolvent at a point in time is a question of fact, to be determined by a proper consideration of its financial position in its entirety, by reference to commercial reality: Powell v Fryer above at [75]. Section 95A(1) of the Corporations Act provides that a person is solvent "if, and only if, the person is able to pay all the person's debts, as and when they become due and payable". By s 95A(2), a person who is not solvent is insolvent. In determining whether a company is solvent, the Court has regard to commercial reality in assessing whether, as at the relevant date, a company is able to pay its debts as they become payable: Lewis v Doran [2004] NSWSC 608; (2004) 208 ALR 385 at [108]-[116] and on appeal [2005] NSWCA 243; (2005) 219 ALR 555, where Giles JA (with whom Hodgson and McColl JJA agreed) noted (at 109) that "the key concept is ability to pay the company's debts as and when they fall due" (emphasis in original). I summarised the relevant test in Re Ashington Bayswater Pty Ltd (in liq) [2013] NSWSC 1008 at [3]-[4] as follows: "Section 95A(1) of the Corporations Act has effect that, relevantly, the Company was solvent if and only if it was able to pay all its debts, as and when they became due and payable. Section 95A(2) has effect that a person who is not solvent is insolvent. That definition adopts a "cashflow test" of insolvency which turns upon the income sources available to the Company and the expenditure obligations that it has to meet, rather than a balance sheet test which focuses on the value of the Company's assets and liabilities reflected in its books, although a balance sheet test can provide context for the application of the cashflow test: Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213; (2001) 39 ACSR 305; Australian Securities and Investments Commission v Plymin (No 1) [2003] VSC 123; (2003) 46 ACSR 126; (2003) 21 ACLC 700 at [370]ff. Whether the Company was 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]; Lewis v Doran [2005] NSWCA 243; (2005) 54 ACSR 410 at [103]; Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd [2011] NSWSC 186; (2011) 248 FLR 384 at [48]-[49]. In Playspace Playground Pty Ltd v Osborn [2009] FCA 1486 at [40], [43]; Reeves J observed that a determination of solvency is not based on a simple analysis of a company's current assets and liabilities or liquidity at a particular point in time and must involve a consideration of its financial position in its entirety, including matters such as expected profits and other sources of income and funding. ...." 49In 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, at least if they are not repayable in the short term: Mulherin v Bank of Western Australia Ltd [2006] QCA 175; Williams (as liquidator of Scholz Motor Group P/L (in liq)) v Scholz [2008] QCA 94 at [110]; International Cat Manufacturing Pty Ltd (in liquidation) v Rodrick [2013] QCA 372; (2013) 97 ACSR 200 at 224; First Strategic Development Corporation Ltd (in liq) v Chan [2014] QSC 60 at [69]. 50Mr Luff relies on the report of Matlic's liquidator, Mr Amos, dated 31 May 2013, which sought to assess Matlic's solvency at various dates. It seems to me that only one of those dates, May 2005, was relevant to Mr Luff's claim so far as that is the date of the alleged loan agreement between Mr Luff and Matlic and of the first payment of $30,000 by Mr Luff recorded on the Deed of Agreement. Although a second payment of $70,000 was recorded as having been made by Mr Luff in August 2005, Mr Amos did not address the position as to Matlic's solvency as at that date. There is no reason, in the particular circumstances, to think the position would differ between May and August 2005. Mr Amos also prepared his report as to solvency on the basis that the settlement date for the monies advanced by Mr Luff was 12 November 2005, being six months after 19 May 2005, on the assumption that the entire amount was advanced by Mr Luff on that date. As I have noted above, that was plainly not the case. 51Parts of Mr Amos' report were admitted on a limited basis, and other parts were rejected so far as they sought to reach factual findings based on an interview of Mrs Matthews conducted by Mr Amos in mid-2011. To the extent that any evidence based on information provided to Mr Amos by Mrs Matthews was admitted, it seems to me that that information is of little assistance, because it is plain that Mrs Matthews in fact knew little of the financial position of Matlic, and Mr Amos did not interview Mr Matthews or attempt to seek information from Mr Licuria, notwithstanding that Mr Licuria had been a director of Matlic at the relevant time, before preparing his report. Other parts of that report were admitted as assumptions, and whether they were established depended upon the other evidence led in the proceedings. 52Mr Luff contends that, in order to be able to repay any amounts on the loan he contends he made to Matlic, within the six month period that was (at least on one view) contemplated by the Deed of Agreement, TDC had to effect rezoning of the Tumut land; a development application had to be lodged and approved so that the value of the land would increase; a lending institution had to be approached; and funds could be released by a borrowing from that institution. It is plain that that timetable was ambitious, and the evidence suggests that it was unrealistic. Mr Horton acknowledged in his cross-examination that six months was an "unreasonably short" time to obtain a rezoning and development approval for the Tumut property (T59-60) and Mr Taylor also accepted that it was "highly unlikely" that rezoning would have occurred within a six month period (T156). Whatever prospect of achieving it might initially have existed appears to have receded as a result of changes in government policy in 2005, and ultimately no development application was lodged with Tumut Council. 53Mrs Matthews submits that there is no evidence that Matlic was insolvent in May 2005. She submits that the only debts of any significance incurred by Matlic are the advances which in turn allowed the secured loan to be made to TDC. Mrs Matthews also submits that, because any debt incurred by Matlic at about that time was "back to back" with the loan to TDC, that loan could have been expected to generate the returns to Matlic necessary to meet any amount due to Mr Luff (if, contrary to the view which I have expressed above, Matlic had in fact incurred a debt to Mr Luff). 54I am not satisfied that, apart from entry into the relevant loan with Mr Luff, Matlic was unable to pay its debts as and when they fell due, within the meaning of that concept under s 95A of the Corporations Act. In particular, there is no evidence that Matlic was incurring debts, apart from the dealings with Mr and Mrs Licuria, Mr Davison, and Mr Luff (if, contrary to the findings I have reached above, he made a loan to Matlic). So far as the dealings with Mr and Mrs Licuria and Mr Davison were concerned, it seems to me that the commercial structure of the relevant transaction, as between them and Matlic and between Matlic and TDC, made it very likely or inevitable that they would extend the time for repayment of any loan by Matlic if Matlic was unable to secure repayment by TDC, at least for sufficient time for Matlic to exercise its rights under the mortgage with TDC in the event of default, since it would have been apparent to all participants in the transaction that Matlic had no ability to repay the loan without access to funds from TDC or the exercise of its security over the mortgaged land. There was no reason to think that Mr and Mrs Licuria and Mr Davison would not take that course and their ability to do was wholly within their control. It does not seem to me that Matlic was insolvent by reason of its entry into an obligation to repay a loan, which in practice it would only be required to repay if it had the ability to do so, by receiving repayment from TDC or exercising its rights under the mortgage. I accept that matter could have been better documented by an express provision in any loan agreement between, for example, Mr and Mrs Licuria and Matlic that the loan to them was only repayable if Matlic had been placed in funds to repay it by TDC, but it seems that that position was self-evident from the commercial structure of the transaction. 55If, contrary to the view which I have reached above, Matlic had in fact incurred a debt to Mr Luff in the manner for which he contends, it seems to me that the same result would follow in respect of that loan arrangement. The proposition that Mr Luff would also have extended the time for payment by Matlic, consistent with the commercial logic of the transaction, is supported by the fact that he appears to have done so when delays were suffered in earlier stages of the project (Matthews T174-175, Horton 11.4.14, T63; Taylor 4.4.14 [16]-[18], T144-145). 56Mr Licuria also seeks to establish Matlic's solvency at the relevant time by reason of his suggested willingness to fund the company to meet its debts. Mrs Matthews also relies on the fact that Mr Licuria, who was a beneficiary and director of Matlic, had access to a line of credit which was sufficient to meet the company's obligations to Mr Luff under the terms of the Deed of Agreement. Mr Licuria initially sought to give affidavit evidence by a further affidavit dated 20 August 2014, as did Mrs Licuria, as to finance facilities that were available to them at the time of the relevant transactions, which was rejected by reason of the lateness of the evidence. However, evidence of that character was given during cross-examination of Mr Licuria by counsel appearing for Mrs Matthews. It does not seem to me that Mr and Mrs Licuria would, in fact, have drawn down that line of credit to meet Matlic's obligations to Mr Luff in the relevant circumstances, had they otherwise existed, or that Mrs Matthews or Mr Licuria had any reasonable basis for an expectation that they would do so. The much more likely result, consistent with the position that Mr and Mrs Licuria have in fact taken in these proceedings, is that they would have denied that Matlic owed any obligation to Mr Luff. It does not seem to me that matter would have established Matlic's solvency, had it otherwise been established that Matlic was insolvent. Whether Matlic was presumed insolvent as at May 2005 57Section 588E(4) of the Corporations Act in turn 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 that a company 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: Dean-Willcocks v Air Transit International Pty Ltd [2002] NSWSC 525; (2002) 55 NSWLR 64 at [13]. That presumption applies, inter alia, in a proceeding under s 588M of the Corporations Act and operates unless the contrary is proved in the proceedings: ss 588E(1)(e), 588E(9) of the Corporations Act. 58Mr Luff contends that Matlic failed to keep financial records that correctly recorded and explained its transactions and financial position or performance as required by s 286 of the Corporations Act and is presumed insolvent under s 588E of the Corporations Act and relies on Mr Amos' affidavit dated 31 May 2013 and his report of the same date in support of that proposition. Mr Amos made a record of the documents provided to him on 24 August 2010 (Annexure Z3 to his Report) and it appears these did not include financial statements, business activity statements or income tax returns, still less cash flow projections or list of creditors. I accept, having regard to Mr Amos' evidence, that adequate financial records were not provided to Mr Amos despite requests by him that they be provided. Matlic's external accountants, who at one point were suggested to have prepared the relevant financial reports, denied having done so. It seems to me that the presumption of insolvency under s 588E of the Corporations Act was therefore established. 59However, it seems to me that the evidence to which I referred above, as to the fact that Matlic was not incurring any debts other than those owed to Mr and Mrs Licuria and possibly Mr Davison, and my finding that they would, as a matter of the commercial logic of the transaction, have extended the time for payment by Matlic if TDC was unable to place Matlic in funds to make that payment, at least for a sufficient time for Matlic's rights under the mortgage to be exercised, is sufficient to rebut the presumption of insolvency that would otherwise arise from s 588E of the Corporations Act in the unusual circumstances of the transaction. I would have reached the same view in respect of the position concerning a loan by Mr Luff to Matlic, had I held that such a loan had been established. Whether there were reasonable grounds for suspecting that Matlic was insolvent or would become insolvent by incurring the debt (s 588G(1)(c)) 60A contravention of 588G(2) of the Corporations Act also requires that there are reasonable grounds for suspecting that the relevant company is insolvent or would become insolvent by incurring the relevant debt. That test may be satisfied either by proof that a director had a subjective awareness of grounds which 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) [2003] VSC 123; (2003) 175 FLR 124. That 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 the transaction. It seems to me that the matters to which I have referred in paragraphs 53-55 above were such that there were not in fact reasonable grounds for suspecting that Matlic was insolvent at the time that it incurred a debt to Mr Luff if, contrary to my findings, it had incurred such a debt, or would become insolvent by incurring that debt. Whether Mrs Matthews and Mr Licuria failed to prevent the company from incurring the debt 61A person contravenes s 588G(2) by failing to prevent a company from incurring a debt if he or she is aware at that time that there are such grounds for suspecting that the relevant company is insolvent or would become insolvent by incurring the relevant debt or a reasonable person in a like position in a company in the company's circumstances would be so aware. By his further affidavit dated 20 August 2014, Mr Licuria's evidence was that he did not take steps to cause Matlic to execute the Deed of Agreement relied on by Mr Luff or to cause Matlic to borrow money from Mr Luff; that he and Mrs Matthews did not resolve to borrow any money from Mr Luff; that the first time he saw the Deed of Agreement with Mr Luff was after he was added as the Second Defendant in the proceedings; and that the only transactions that he caused Matlic to enter into were loans of $100,000 from his wife and him in May 2005 and a loan of $100,000 to TDC in May 2005. It is plain that Mrs Matthews and Mr Licuria, who largely abrogated their responsibilities as directors of Matlic, did not take any steps to prevent Matlic incurring any debt owed to Mr Luff if, contrary to the finding that I have reached above, such a debt was incurred. Mr Licuria's evidence to which I have referred above does not avoid the result that he did not prevent the incurring of the debt, albeit that he took no steps that amounted to authorising it. Whether Mrs Matthews and Mr Licuria were, at the time the debt was incurred, aware that there were grounds for so suspecting (s 588G(2)(a)) or a reasonable person in a like position in a company in Maltic's circumstances would have been so aware (s 588G(2)(b)) 62A director contravenes s 588G of the Corporations Act by failing to prevent a company from incurring a debt, in the circumstances specified by s 588G(1), if the director is aware at the relevant time that there are reasonable grounds for suspecting that the company is insolvent, or would become insolvent by incurring the relevant debt or debts, or a reasonable person in a like position in a company in the company's circumstances would be aware of that matter. That test 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. 63Mr Licuria contends that Mr Luff has not established that he had reasonable grounds for suspecting that Matlic was insolvent or would become insolvent, where there is no suggestion that he would have pressed Matlic for payment and there is no evidence that he did press Matlic for payment, if TDC did not repay the loan to Matlic immediately when due. Mr Licuria also points to his lack of knowledge of dealings between Matlic and Mr Luff, but that does not seem to me to assist him where it resulted, at least in large part, from his lack of activity as a director of Matlic. By his further affidavit dated 20 August 2014, his evidence is that: "Because of the back-to-back nature of those loans I expected that when the loan to me and Angela fell due for payment [TDC] was obliged to pay [Matlic] ... apart from those loans I did not cause Matlic ... to conduct any transactions during the time I was a director." Mrs Matthews similarly contends that there were no reasonable grounds to suspect that Matlic was insolvent or had become insolvent in May 2005, by reason of the "back to back" nature of the loan and Mr Licuria's access to a line of credit. 64I have addressed those matters above in respect of the company's solvency. It seems to me that the matters to which I have referred in paragraphs 53-55 above were such that Mrs Matthews and Mr Licuria were not aware that there were grounds for suspecting Matlic's insolvency at the relevant time and that a reasonable person, who was a director of Matlic at the relevant time, would also not have been aware of grounds for suspecting Matlic's insolvency. Defences under s 588H of the Corporations Act 65Mrs Matthews and Mr Licuria each relied on defences under s 588H of the Corporations Act so as to seek to avoid a finding of contravention of s 588G of the Corporations Act and liability under s 588M of the Corporations Act. This question does not strictly arise, since I have found that Matlic did not in fact incur a debt to Mr Luff. 66A defence to a contravention of s 588G of the Corporations Act is available, under s 588H(2) of the Corporations Act, where, at the time a debt is incurred, a person has reasonable grounds to expect and does expect that the company was solvent at that time and would remain so even if it incurred the debt. A defence under this section is only established if the grounds on which the director forms the view as to the company's solvency must be reasonable when considered objectively in the light of the relevant circumstances: Metropolitan Fire Systems Pty Ltd v Miller (1997) 23 ACSR 699 at 711; Tourprint International Pty Ltd (in liq) v Bott above at [68]. 67Mr Licuria relies on the defence under s 588H(2) of the Corporations Act, on the basis that any loan to Matlic was supported by a loan by it to TDC, which was in turn supported by a registered first mortgage over the Tumut property, and the defence under s 588H(2) is made out by the proof of the existence of the back-to-back loan to TDC. Mr Licuria also submits that the evidence as to the financial facilities and financial position of Mr and Mrs Licuria demonstrated that they had financial capacity to pay out the debts of Matlic should the need have arisen. It does not seem to me that Mr Licuria can establish this defence, since there is no evidence that he had any such expectation, on reasonable grounds or otherwise, where he had in fact paid no real attention to the management of Matlic's affairs. There is no evidence that Mrs Matthews or Mr Licuria knew of the incurring of the relevant debt (if, contrary to my finding, Matlic had incurred it) or had given any consideration to Matlic's financial position that would have established reasonable grounds to expect, or an actual expectation, that Matlic would remain solvent if it incurred the debt. 68A defence is also available to a contravention of s 588G of the Corporations Act under s 588H(3) of the Corporations Act where a person has reasonable grounds to believe, and does believe, that a competent and reliable person is responsible for providing adequate information about whether the company was solvent and was fulfilling that responsibility, and the person expected, on the basis of such information, that the company was solvent at the relevant time and would remain solvent even if it incurred the debt and any other debts that it incurred at that time. Mrs Matthews contends that at the relevant time she relied upon Mr Matthews' advice, who she believed to be both competent and responsible, to provide adequate information as to the state of Matlic's financial affairs in connection with the Tumut project. However, there is no evidence that Mrs Matthews or Mr Licuria in fact had reasonable grounds to believe that Mr Matthews was in fact providing adequate information about whether Matlic was solvent or had the relevant expectation, on the basis of such information, and there is no evidence that they in fact received any such information. It also does not seem to me that defence is established. 69A defence is also available, under s 588H(5) of the Corporations Act, if a director took all reasonable steps to prevent the company incurring the debt. A director may be held to have impliedly authorised or consented to a company incurring a debt if he or she fails to take steps to avoid it being incurred: Standard Chartered Bank of Australia Ltd v Antico (Nos 1 and 2) above; Byron v Southern Star Group Pty Ltd (1996) 136 FLR 267; 22 ACSR 553 at 563. Mrs Matthews contends, for the purposes of s 588H, that she was not aware of the Deed of Agreement and consequently that there was no step that she could have taken to prevent Matlic from incurring the debt. It does not seem to me that her claimed lack of knowledge of that matter assists in establishing the relevant defence, where it results from her failure to perform her obligations as a director of Matlic. As I have noted above, Mrs Matthews and Mr Licuria took no steps, by reason of any active involvement in the affairs of Matlic, to prevent the relevant debt being incurred if, contrary to my findings above, Matlic had in fact incurred such a debt to Mr Luff. The defence on that basis is also not established. Other relevant matters 70In order to succeed in a claim under 588M of the Corporations Act, Mr Luff must show that he, being a person to whom a debt is owed by Matlic, has suffered loss or damage in relation to the debt because of Matlic's insolvency. These elements are not established since it has not been established that Matlic owed the relevant debt to Mr Luff. Other relevant matters to a claim under s 588M of the Corporations Act include whether the relevant debt was wholly or partly unsecured when the loss or damage was suffered and whether the company is being wound up. The former question does not arise since it was not established that Matlic owed the relevant debt to Mr Luff. It was common ground that Matlic is presently in liquidation. Orders and costs 71For the reasons set out above, the proceedings are dismissed. Mr Luff must pay Mrs Matthews' and Mr Licuria's costs of the proceedings as agreed or as assessed.

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