- Australian Securities and Investments Commission v Cassimatis

Affidavit evidence and background

The Plaintiffs rely on the affidavit of Mr Smith dated 9 September 2015 which refers to his appointment as liquidator, the tasks undertaken in the winding up, and the chronology of events in respect of the Company and its dealings with PPHI. Mr Smith's evidence is, inter alia, that he had not received a report as to affairs from the person most recently recorded as a director of the Company, Mr Lowe, and had not received books or records from the persons formerly recorded as directors, Mr Henderson and Mr Timothy Noonan, in response to notices under s 530B of the Corporations Act. Mr Smith also referred to investigations undertaken of transactions in the Company's bank accounts, and copies of the account statements for those accounts and information tracing payments from those accounts were tendered. The Plaintiffs also rely on Mr Smith's further affidavit dated 15 September 2016 which set out the steps that he and his staff had taken to trace payments made from the Company's two bank accounts. I will refer to his evidence as to that matter below. That affidavit also referred to emails from Mr Henderson in relation to the Company's affairs, produced on subpoena in the proceedings, and sent after Mr Henderson had ceased to be recorded as a director of the Company in the records of the Australian Securities and Investments Commission ("ASIC"). I refer to those emails below in respect of the question whether Mr Henderson has been shown to be a de facto director of the Company. The Plaintiffs also tendered part of Mr Henderson's affidavit dated 11 April 2017, in circumstances that he had not appeared to defend the proceedings.
By way of background, PPHI was incorporated on 15 April 2008 and Mr Henderson was its sole shareholder and director throughout the relevant period (Ex P1; Ex P2, CB 62; Ex P5, Henderson 11.4.17 [6]). On 24 April 2009, PPHI entered into a hotel sale agreement (Ex P6, CB 588-702) which provided for its purchase of the business assets of the Central Hotel at Bundaberg from Bundy Central Pty Ltd ("Bundy Central") (Ex P5, Henderson 11.4.17 [7]). As part of the sale transaction, PPHI took an assignment of a lease dated 14 October 2009 between ING Management Limited ("ING") and Bundy Central in respect of the hotel (Ex P5, Henderson 11.4.17 [9]; Ex P6, CB 703-718, CB 719-740). The purchase of the hotel business by PPHI was funded predominantly by finance provided by Members Equity Bank Pty Ltd ("ME Bank") and that finance was secured by personal guarantees provided by Mr Henderson and three others (Ex P5, Henderson 11.4.17 [13]). In June 2009, the hotel sale agreement was varied by a Deed of Collateral Agreement to provide for vendor finance and Mr Henderson and others guaranteed PPHI's obligations under the hotel sale agreement and vendor finance provisions under that Deed (Ex P5, Henderson 11.4.17 [15]-[16]; Ex P6, CB 741-747; Ex P9, CB 1180-1210). The purchase of the hotel was not completed until October 2009 when the liquor licence and gaming machine licence for the hotel business were obtained by PPHI (Ex P5, Henderson 11.4.17 [8]; Ex P9, CB 1254-1255). On 19 October 2009, Mr Henderson and another person also entered a Guarantee and Indemnity Agreement with Bundy Central for PPHI's obligations to Bundy Central pursuant to a loan agreement (Ex P5, Henderson 11.4.17 [17]; Ex P6, CB 748-757).
The Plaintiffs contend that Mr Henderson was a director of the Company between 14 October 2009 and 31 December 2010, a signatory of two relevant bank accounts of the Company on and after 14 October 2009 and a de facto director of the Company after 31 December 2010 (Points of Claim ("PC") [4]). A historical company extract for the Company records that it was incorporated on 14 October 2009 and that Mr Henderson was initially one of two shareholders and two directors, the other being Mr Noonan. That company extract records that Mr Henderson was a director from 14 October 2009 until 31 December 2010, Mr Noonan from 14 October 2009 until 5 May 2011, Ms Collins from 5 May 2011 until 1 March 2012 and Mr Lowe from 1 March 2012. That company extract also records that, subsequent to Mr Noonan's and Mr Henderson's initially each holding one ordinary share in the Company, Ms Collins held two ordinary shares in the Company and Mr Lowe now holds those shares.
The Company acted as manager of the hotel business for PPHI between 19 October 2009 and 12 October 2012. In that capacity, it appears that the Company operated the business of the Central Hotel, received the bar takings, ordered liquor stock to sell, registered for GST and initially lodged business activity statements. From October 2009 until May 2011, Mr Noonan worked at the hotel premises and attended to day-to-day management of the hotel.
The Defendants claimed in their Defence, and Mr Henderson claimed in his affidavit dated 11 April 2017 (in a paragraph admitted with a limiting order under s 136 of the Evidence Act that it was tendered not for the truth of the representation but for the fact that the Defendants asserted those matters in their Defence) that: "In or about October 2009 [PPHI], the [Company] and [Mr Henderson] entered into an agreement whereby [PPHI] agreed to licence the Hotel Business to the [Company]."
A copy of the Licence Agreement was tendered by the Plaintiffs (Ex P4) also with a limiting order under s 136 of the Evidence Act that it was limited to identifying the matter asserted in the Defence. That Licence Agreement is undated and states that it is signed as an agreement, although the execution clauses for PPHI and the Company record that it is executed as a deed. The document is purportedly signed by Mr Henderson for PPHI and the Company and in his own right and not by a second director of either company, and Mr Henderson's signature is not witnessed. Clauses 4.4 and 4.6 of the Licence Agreement provide that: "4.4 Subject to its obligation to pay the Licence Fee, the [Company] is entitled to all profits from the Business during the term of this Agreement and will be responsible for payment of all liabilities and losses incurred as a consequence of the operation of the Business during that period. 4.6 All outgoings with respect to the Business will be paid by the [Company]." The term "Licence Fee" is defined as the licence fee payable by the Company to PPHI in accordance with cl 5 of the Licence Agreement, which provides for payment of an amount of $100 plus GST per week by the Company to PPHI as a licence fee.
It has not been established that the Licence Agreement took effect, since Mr Henderson did not give evidence, and it was tendered by the Plaintiffs with a limiting order under s 136 of the Evidence Act. Even if that agreement had taken effect, it is by no means clear that payments of amounts borrowed by PPHI to purchase the hotel business could properly be treated as "liabilities and losses incurred as a consequence of the operation of the Business" for the purposes of cl 4.4 of the Licence Agreement or as "outgoings", in their ordinary meaning, for the purposes of cl 4.6 of the Licence Agreement. I recognise that it is perhaps also unclear why PPHI, having incurred substantial borrowings to purchase the hotel business, would then licence the business to the Company for a return of only $5,200 plus GST per year if it remained committed to making substantial monthly repayments to repay those borrowings. It is not necessary to address that question, where it has not been established that the Licence Agreement took effect.
Between March 2010 and November 2012, the Company incurred increasing liabilities on its running balance account with the Australian Taxation Office, which had reached nearly $50,000 by July 2010 and had increased to nearly $260,000 by November 2012. Payments made by the Company to discharge liabilities of PPHI in that period, to which I refer below, were made notwithstanding the increasing tax liabilities of the Company over that period.
From 13 July 2010, substantial payments were made by the Company from its bank accounts in respect of the loan by ME Bank to PPHI and the vendor finance provided by Bundy Central to PPHI. The Plaintiffs plead that payments from the Company were made to Bundy Central on behalf of PPHI in the amount of $564,787.67 and to PPHI in the amount of $240,256.66, in the aggregate amount of $805,044.33 (PC [13]), and that those payments were an unsecured loan for $805,044.33 from the Company to PPHI repayable on demand (PC [14]). A lesser claim was pressed at the hearing. Mr Smith's affidavit dated 15 September 2016 sets out the steps which he and his staff had taken in order to trace payments made from the Company's two bank accounts and indicates the result of that tracing which was, in summary, that the Company had transferred $537,153.32 out of a first account to PPHI; had transferred $47,970 out of a third account to PPHI; had transferred $23,600 out of the first account to Bundy Central and had transferred $54,200 out of the third account to Bundy Central. I am satisfied that those conclusions are supported by the documentary material, comprising bank statements and further information provided by National Australia Bank Limited ("NAB"), contained in the exhibit to that affidavit (Ex P3). Mr Henderson accepted in his affidavit, tendered as an admission against him, that the cash book of the Company, as reconstructed by Mr Smith, recorded a number of transactions representing monies paid by the Company in respect of facility repayments to ME Bank and obligations to Bundy Central (Ex P5, Henderson 11.4.17 [40]). Those payments discharged obligations of PPHI to ME Bank and Bundy Central.
ASIC's records indicate that Mr Henderson ceased to be a director of the Company on 31 December 2010 (Ex P2, CB 54) although the Form 484 notifying that change was not lodged with ASIC until 31 August 2011, some eight months later, and was signed by Mr Noonan purportedly as a director of the Company, although he appears from ASIC's records to have ceased to be a director by 5 May 2011, when Ms Collins was appointed as a director. The Company was wound up and Mr Smith was appointed as its liquidator by orders made on 12 October 2012 on the application of the Deputy Commissioner of Taxation. The Plaintiffs plead the fact of two transfers from the Company's bank account on 13 October 2012, but no submissions were made in respect of that matter and I do not determine it.
It appears that, by April 2013, a management agreement may have come into existence between PPHI and another entity, Central Hotel Bundaberg Pty Ltd, in place of the Company (Ex P11), but nothing turns on that matter for the purposes of this judgment.
By letter dated 31 March 2015, the solicitors acting for the Plaintiffs made a demand in the amount of $780,474.33, referring to allegations that Mr Henderson was a director of PPHI, a director of the Company until 31 December 2010 "and continued to be involved in its management after that time". That letter also referred to payments made by the Company on behalf of PPHI between 1 July 2010 and 13 October 2012 totalling $780,474.33, quantified as payments made to Bundy Central on behalf of PPHI of $564,787.67 and payments made directly to PPHI in the amount of $215,686.66. By letter dated 8 April 2015, the solicitors acting for PPHI denied any amount was owed by it to the Company and otherwise requested information in respect of the allegations made. The solicitors for the Plaintiffs responded by a detailed letter dated 28 April 2015 to that request.

The Plaintiffs' claim under s 180 of the Corporations Act against Mr Henderson for the period after 31 December 2010

The Plaintiffs' claim for breach of s 180 of the Corporations Act against Mr Henderson for the period after 31 December 2010 depends on establishing that Mr Henderson was a de facto director of the Company after that date. I will first address the relevant principles before turning to the evidence on which the Plaintiffs rely in support of this claim.
Mr Marshall submits that Mr Henderson was a de facto director of the Company from the time he ceased to be a director according to ASIC on 31 December 2010. Mr Marshall refers to my discussion of that concept in Re Swan Services Pty Ltd (in liq) [2016] NSWSC 1724 at [27]-[32] and the observations of Barrett AJA in Re ACN 092 745 330 [2017] NSWSC 241 at [110]-[113]. In Re Swan Services Pty Ltd (in liq) above at [27]-[29], I observed that: "The definition of the term "director" in s 9 of the Corporations Act extends, in paragraph (b)(i) (unless the contrary intention appears), to a person who is not validly appointed as a director but who is acting in the position of director. A person may be a "de facto" director if he or she is engaged in the affairs of a company generally, as distinct from performing specific functions as a consultant: Mistmorn Pty Ltd (in liq) v Yasseen (1996) 21 ACSR 173; 14 ACLC 1387 per Davies J at 1395. In Deputy Cmr of Taxation v Austin (1998) 28 ACSR 565 at 570; 16 ACLC 1555, Madgwick J observed that that whether a person acts as a director: "will often be a question of degree, and requires a consideration of the duties performed by that person in the context of the operations and circumstances of the particular company concerned." His Honour also observed (at 569) that, in order to establish that a person was "acting in the position of a director" so as to fall within the definition of "director" in the former s 60 of the Corporations Law, it would be necessary to show that he or she "exercises what might be called the actual (and statutorily extended) top level of management functions". His Honour noted (at 570) that a conclusion that a person acted in the position of a director could well be justified, if he or she acted in relation to matters of great importance for a small company, other than as an arm's length expert engaged for a limited purpose. In Natcomp Technology Australia Pty Ltd v Graiche [2001] NSWCA 120; (2001) 19 ACLC 1117, Stein JA (with whom Spigelman CJ and Heydon JA agreed) applied the approach in Deputy Cmr of Taxation v Austin above and noted (at [13]) that issues relevant to whether a person acted as a de facto director would include how outsiders who dealt with the company would have reasonably perceived that person and whether that person held himself or herself out as director. In International Cat Manufacturing Pty Ltd (in liq) v Rodrick [2013] QSC 91 at [189], McMurdo J in turn identified several factors, on the facts of that case, relevant to whether the defendant had become a de facto director of the relevant company. The liquidator relies on the observations of the Full Court of the Federal Court of Australia as to the concept of a "de facto director" in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 at [64]-[76]. The Full Court there observed (at [66]) that whether the roles and functions performed by a person are such as to constitute that person a director for the purposes of the Corporations Act will often be a question of degree having regard to the "nature of the functions or powers which are exercised and the extent of their exercise"; the relationship of a person with a company may evolve over time into that of a de facto director (at [67]); the question is one of substance and not simply how the person has been described in or by the company (at [68]); and whether a person is a director will turn on the nature and extent of the functions he or she performs (both in and beyond the engagement) and on the constraints imposed on him or her (at [68]). The Full Court also observed that the fact that a company has an active director apart from the alleged de facto director does not preclude a finding that that person was a de facto director (at [74]) and that perceptions by others that the person was a director can have evidentiary significance, particularly if those perceptions were "independently formed, reasonable in the circumstances and support the appearance that the person was acting 'under colour of office'" (at [75])."
Re ACN 092 745 330 above at [110]-[111] referred to the discussion of the concept in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 and also accepted that guidance as to whether a person was a de facto director may be obtained from the observations of Arden LJ in Smithton Ltd v Naggar [2014] EWCA Civ 939; [2015] 1 WLR 189 at [33]ff, observing (at [112]) that attention may usefully be directed to: "(a) whether the person has assumed responsibility to act as a director; (b) the nature of the corporate governance structure and the position the person occupies within it; (c) what the person actually did, as distinct from any job title; (d) the cumulative effect of the activities relied on, with the whole of the circumstances being looked at "in the round"; (e) whether the company regarded the person as a director and held him or her out as such; (f) whether third parties considered that the person was a director; and (g) whether the person was consulted about or participated in directorial decisions."
By paragraph 28 of his affidavit dated 15 September 2016, Mr Smith led evidence, in a conclusory form, of matters which might, if established, indicate that Mr Henderson was a de facto director of the Company, after he is recorded as resigning as a director of the Company on 31 December 2010, namely that: "He continued to: (a) be a signatory to the Company's bank accounts with NAB; (b) be involved in decisions about which suppliers of services to the hotel business, creditors of the Company and creditors of PPHI were to be paid; (c) be involved in decisions about whether the Company's NAB accounts were to be used as a source of funds to make such payments; (d) communicate regularly with another director, Timothy Noonan, about such matters; and (e) communicate with Pinnacle Taxation Services at least up to 6 October 2011, when he instructed that firm to prepare financial statements for the Company for the year ending 30 June 2011."
That paragraph can reflect no more than conclusions reached by Mr Smith from other evidence, and I give it little weight, beyond the other evidence which might establish the basis for those conclusions. Mr Smith's evidence is also that, in the course of his investigations, he received information that Mr Noonan processed payments out of the Company's NAB accounts at the request of Mr Henderson. That summary statement also cannot go further than any underlying evidence led by the Plaintiffs to support the correctness of that statement.
The Plaintiffs rely on email communications involving Mr Henderson to support their claim that he was a de facto director of the Company after his recorded resignation as its director from 31 December 2010. By email dated 7 February 2011, a credit analyst with ME Bank advised Mr Henderson that its analysis showed that the hotel could not meet its loan repayments. Mr Henderson referred to the effect of cyclones in March 2010 and floods in December 2010 and advised that a: "cash flow shortfall … should be rectified by trading by the end of this month, will be met be [sic] further contributions of the shareholders". It is likely Mr Henderson's involvement with that correspondence reflected his role with PPHI, which was the borrower from ME Bank and as to which Mr Henderson was still a director, rather than any role as a de facto director of the Company.
By emails on 15 March 2011, Mr Noonan sent Mr Henderson information as to aged payables, presumably for the hotel business or for the Company; Mr Henderson requested "total monies due to ATO, super, any employee entitlements and others please" and also asked about workers' compensation and payroll tax and Mr Noonan responded, on 22 March 2011: "[the Company] owes the ATO approx $120,000 + interest, Central Employment is approx $125,000 + interest, super is $69,000. Workers comp is up to date and we have no payroll tax."
By an email dated 23 March 2011, Mr Henderson advised Mr Noonan that he was going to remove Mr Noonan and himself as directors of another entity, Central Employment, "as part of where we have to head to" and that the Company would follow later down the track and instructed Mr Noonan to make sure that all superannuation was paid from 1 March onward and to pay superannuation in full of a person who had complained to the Australian Taxation Office and that all employees would need to be employed by a new entity on 1 July and also gave instructions as to other aspects of the Company's financial affairs. Aspects of that email are somewhat cryptic and were not further explained in the absence of evidence from Mr Henderson. However, it provides some support for a characterisation of Mr Henderson as involved in managing the Company's financial affairs, potentially consistent with a role as a de facto director of the Company.
By email dated 19 April 2011, Mr Noonan advised Mr Henderson that: "hotel is making around 4,000 a week we need 150,000 from somewhere by the end of the fina[n]c[i]al year to clear up ATO super and some payables. [A]n overdraft or something … this is not a want mate but a need or we go under …" It seems to me that that email, taken in isolation, would not support a characterisation of Mr Henderson as a de facto director, since it would be equally consistent with a communication with PPHI's shareholder and director, where PPHI had borrowed the funds to purchase the hotel and plainly had a substantial interest in its survival or failure.
Also in April 2011, Mr Henderson corresponded with ME Bank concerning the possibility of a purchase of the freehold of the hotel, paying out the entirety of ME Bank's debt, and referred to "substandard trade due to floods", and referred to statutory payments being behind "along with everyone else in QLD" and to a deferral of rent by ING. ME Bank then requested further financial information to complete a loan review. By email dated 2 June 2011, Mr Henderson provided information to ME Bank concerning the make up of expenses in management accounts "compiled on a group basis", after obtaining information from Mr Noonan to address these matters. Although this correspondence addresses matters relating to the Company, it seems to be at least equally consistent with having been sent on behalf of PPHI, the borrower from ME Bank, of which Mr Henderson was a director, rather than as sent on behalf of the Company.
In June 2011, Mr Henderson corresponded with an insurance broker concerning insurance requirements for the hotel and forwarded that correspondence to Mr Noonan for comment, and Mr Noonan advised Mr Henderson by email dated 15 June 2011 that the matters referred to had been actioned. Those emails indicate a line of reporting to Mr Henderson, but do not seem to me to support, alone or with the other matters to which I have referred, a characterisation of him as a de facto director. Also in June 2011, Bundy Central forwarded correspondence to Mr Henderson received from ING, relating to a threat by ING to issue a notice of breach under the lease and call on the bank guarantee, unless arrears under the lease were paid. Mr Henderson forwarded that email to Mr Kukulovski who appears to have had an involvement with the purchase of the hotel. That email chain also involves other correspondence between ING and Mr Noonan rather than Mr Henderson. That correspondence does not seem to me to provide any strong support for a characterisation of Mr Henderson as a de facto director of the Company, where his involvement would be at least equally explicable by reference to his role as a director of PPHI, which had taken the assignment of the lease from ING to Bundy Central.
By email dated 13 June 2011, Mr McKee, the principal of Bundy Central, sent an email to Mr Henderson seeking reimbursement of a bank guarantee service fee and requesting that Mr Henderson have Mr Noonan deposit funds out of the hotel's weekend takings. Plainly, Mr McKee was proceeding on the basis that Mr Henderson had the power to procure such a payment, and that is a matter which provides some support for the Plaintiffs' characterisation of Mr Henderson as exercising ultimate control of the Company even after he ceased to be a director of it. In late June 2011, Mr Henderson advised a third party that Mr Noonan (presumably on behalf of the Company or PPHI) would transfer funds to his account. Mr Henderson was also involved in correspondence with Mr Kukulovksi in late June 2011, where Mr Kukulovski expressed a negative view as to the position of the hotel and the inability to retrieve that position, and Mr Henderson responded "I will get it back", which suggests a significant level of intended involvement with the direction of the hotel, but is again equivocal as to whether that involvement related to the Company or PPIL. Mr Henderson also corresponded with external legal advisers to a person who was (or claimed to be) in a position to appoint receivers and a consultant as to the possibility of the appointment of that consultant as independent managing agent, presumably for the hotel business rather than external administration, presumably for the Company or PPIL or both, although the correspondence does not make that clear.
In August 2011, Mr Henderson and Mr Noonan exchanged emails in relation to financial performance and rental payment for July 2011. Mr Noonan in turn advised Mr Henderson on August 2011 when a bailiff attended the hotel seeking to enforce an order against the Company.
In September 2011, Mr Henderson was involved in cryptic correspondence with Mr Noonan in respect of arrangements to seek to sell the hotel, and it appears that Mr Noonan acted on Mr Henderson's instructions as to the payment of part of a bill sent by the agent engaged in respect of the sale process. Mr Henderson also appears to have had carriage of negotiations with a finance broker in late 2011 to seek to achieve a refinancing of the hotel. Mr Henderson was also involved in correspondence with a hotel broker in October 2012 in respect of a potential resale of the hotel to the vendor. It seems to me that this correspondence was consistent with Mr Henderson's position as director and shareholder of PPHI and does not support an inference that he was acting as a de facto director of the Company in respect of these matters.
Mr Marshall submits that, although it appeared that Mr Henderson ceased to be a director of the Company on 31 December 2010 and apparently alienated his shares in it, he nevertheless continued to act as a director of the Company. Mr Marshall submits that Mr Henderson: "was concerned with strategic and tactical direction of the Company. He made the important decisions. Others did as he said. The evidence contains much email traffic between Mr Henderson and others at the Company including Mr Noonan. These were people he was clearly supervising and controlling …"
It seems to me that the evidence is slight that Mr Henderson had assumed responsibility to act as a director of the Company after 31 December 2010, although he prompted Mr Noonan to take particular actions on several occasions; the evidence as to what Mr Henderson actually did after that date is also slight, and it is largely consistent with activities undertaken as a director and shareholder of PPHI whose financial interests were at risk; Mr Henderson was not held out by the Company to third parties as a director, although ME Bank and Bundy Central dealt with him in a manner that is consistent with his being a director of the borrower, PPHI, having initiated the borrowing by PPHI, and remaining as a guarantor of that borrowing; and there is little evidence of any systematic practice of Mr Noonan consulting Mr Henderson as to day-to day "directorial" decisions.
I am not satisfied that it has been established that Mr Henderson is a de facto director of the Company. There are occasions on which Mr Henderson requested Mr Noonan to take particular steps and Mr Noonan generally appears to have complied with those requests, but it seems to me that those requests are consistent with the kind of requests that could be made by a director of PPHI which was the borrower under the loan facilities and the assignee of the hotel lease. Mr Henderson's dealings with ME Bank and insurance brokers and in respect of a possible sale of the hotel are also explicable on that basis. While I accept that Mr Henderson's involvement, at least so far as it emerges from the emails that are in evidence, may give rise to suspicion that he may have played a larger role in the management of the Company, a suspicion of that matter is not sufficient to establish it on the balance of probabilities and that conclusion is reinforced where a finding that a person is a de facto director is capable of having serious consequences for that person.
Had Mr Henderson been shown to be a de facto director of the Company after 31 December 2010, then the impugned payments after that date would also have involved a breach of s 180 of the Corporations Act for the reasons noted above in respect of the transactions up to that date.
The Plaintiffs did not contend that Mr Henderson owed a fiduciary duty to the Company in this period on any basis other than that he was a de facto director of the Company and the claim for breach of fiduciary duty in this period must also fail.

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