Aviation 3030 Pty Ltd (in liq) v Lao

EVIDENCE

1. In support of the application, the Liquidator relied on the affidavit of Gavin Moss affirmed 2 February 2024 as well as a substantial number of documents forming four folders of exhibits to that affidavit.
2. Mr A Martin appeared for the Liquidator, instructed by Hunts.Law.
3. There was no appearance by or on behalf of Mr Salvestrin.

PROCEDURAL MATTERS CONCERNING MR SALVESTRIN

1. As I have stated, Mr Salvestrin did not appear at the hearing before me. Set out below are the circumstances providing the background to Mr Salvestrin's failure to actively defend the proceedings against him.
2. On 17 July 2023, Mr Salvestrin filed an appearance in the proceedings through his solicitors, Aqua Law.
3. On 20 July 2023, the further amended originating process and the points of claim were served by the solicitors for the Liquidator by email to the solicitors for Mr Salvestrin.
4. On 24 July 2023, Mr Salvestrin (by his solicitor) consented to an order that he file his points of defence by 11 August 2023.
5. On 14 August 2023, Mr Salvestrin (by his solicitor) consented to an order that the time for the filing of his points of defence be extended to 25 August 2023.
6. On 28 August 2023, Mr Salvestrin (by his solicitor) consented to an order that the time for the filing of his points of defence be extended to 15 September 2023 and an order that no defence was to be relied on if not filed and served by that date without leave.
7. On 25 September 2023, the solicitor for Mr Salvestrin informed the court that he proposed to give a notice of intention of ceasing to act for Mr Salvestrin.
8. On 6 October 2023, Aqua Law filed a notice of ceasing to act as solicitor for Mr Salvestrin. Since that time, Mr Salvestrin has not been legally represented in the proceedings.
9. On 9 October 2023, at a directions hearing which Mr Salvestrin did not attend, these proceedings were set down for hearing on 17 October 2023 and the Liquidator was directed to use his best endeavours to give notice to Mr Salvestrin of the directions.
10. On 17 October 2023, at a directions hearing which Mr Salvestrin did not attend, the hearing proposed for that day was vacated; the time by which Mr Salvestrin was required to file his points of defence was extended to 20 November 2023; Mr Salvestrin was ordered to file any affidavit on which he intended to rely by 20 November 2023; an order was made that Mr Salvestrin was not entitled to rely on any such affidavit if he had not filed points of defence by 20 November 2023; the proceedings were listed for further directions on 4 December 2023; and the Liquidator was directed to use his best endeavours to give notice to Mr Salvestrin of the directions.
11. On 4 December 2023, at a directions hearing which Mr Salvestrin did not attend, the time by which Mr Salvestrin was required to file his points of defence and affidavit evidence was extended to 31 January 2024, the proceedings were listed for further directions on 5 February 2024 and the Liquidator was directed to use his best endeavours to give notice to Mr Salvestrin of the directions.
12. On 5 December 2023, the solicitor for the Liquidator sent an email to Mr Salvestrin informing him of the orders made the previous day.
13. On 2 February 2024, the solicitor for the Liquidator sent an email to Mr Salvestrin to which was attached the affidavit of Gavin Moss affirmed 2 February 2024, advising that the Liquidator intended to inform the court on 5 February 2024 that the proceedings were ready for hearing.
14. On 4 February 2024, Mr Salvestrin sent an email to the solicitor and counsel for the Liquidator and the court in which he referred to correspondence he had received on behalf of the Liquidator, concluding by saying: I also would like to add that I have been administered [sic] to a mental health warden [sic] from the 1st of February for 8 weeks. The first 2 weeks I am unable to have access to any telecommunication (exempt [sic] on weekends).
15. Mr Salvestrin has not provided any medical evidence to support the assertions made in the email of 4 February 2024 or any further details about them.
16. On 5 February 2024, at a directions hearing which Mr Salvestrin did not attend, the proceedings were listed for hearing before me on 6 March 2024. Also on 5 February 2024, the solicitor for the Liquidator sent an email to Mr Salvestrin informing him of the hearing date of 6 March 2024.
17. On 5 March 2024, the solicitor for the Liquidator sent a text message to Mr Salvestrin asking him if he intended to appear at the hearing on 6 March 2024. There was no response received from Mr Salvestrin.
18. Mr Salvestrin has not filed any points of defence, has not filed any evidence, has not taken any active step in the proceedings, and did not appear at the hearing before me.
19. I am satisfied that Mr Salvestrin was put on notice of the hearing before me and has been provided with the evidence on which the Liquidator relied.
20. In those circumstances, I was content to proceed with the hearing of the application in the absence of Mr Salvestrin.

Incorporation and trust details

1. Estate was incorporated on 1 March 2018, Logistics was incorporated on 14 July 2020, Holdings was incorporated on 13 December 2019, and Enterprises was incorporated on 12 August 2021. In each case, Mr Salvestrin was appointed the sole director and sole secretary of the principal Sans Pareil companies on incorporation and has remained so at all relevant times since.
2. On 4 September 2017, the Salvestrin Enterprises Trust was established by deed with Mr Salvestrin as trustee and appointor. At a subsequent unspecified date, Mr Salvestrin was removed as trustee and Enterprises was appointed as sole trustee of the Salvestrin Enterprises Trust in his place.
3. On 16 December 2019, the Sans Pareil Estate Holdings Trust was established by deed with Holdings as trustee and Mr Salvestrin as the appointor.

Australian Taxation Office audit

1. On 25 October 2022, an audit position paper of an audit of Estate for the period from 1 July 2020 to 30 September 2022 conducted by the Australian Taxation Office (ATO) was issued to Mr Salvestrin. In summary, the ATO found that during the period from 1 January 2021 to 30 September 2022, Estate had lodged Business Activity Statements (BAS) with the ATO which incorrectly claimed input tax credits (ITCs) for goods and services tax allegedly paid by overstating them in the total sum of $17,161,679.
2. The audit position paper details the analysis conducted by the ATO which revealed that fictitious tax invoices had been provided to the ATO in relation to alleged purchases of wines by Estate which had never taken place, totalling in excess of $200 million. In summary, in the audit position paper the ATO concluded at [116]-[117]: 116. Based on all of the above facts and anomalies identified it is evident that a bone fide commercial transaction between certain suppliers did not exist and you fraudulently created various documents, including bank statements and tax invoices, to obtain large GST refunds. 117. The total amounts in refunds received as a result of fictitious amounts claimed totals $17,161,679.

Liquidator's investigations

1. On 27 October 2022, the Liquidator was appointed to each of the Sans Pareil group companies. From that time, the Liquidator has conducted investigations of all of the Sans Pareil group companies and continues to do so.
2. Upon the appointment of the Liquidator, he requested that Mr Salvestrin, as sole director of the Sans Pareil group companies, provide him with a Report on Company Activities and Property (ROCAP). A ROCAP from Mr Salvestrin has not been received by the Liquidator in relation to any of the Sans Pareil Group Companies.
3. The Liquidator has indicated that in the first few days of the liquidation of the Sans Pareil group companies, Mr Salvestrin gave some assistance to him but, since late October 2022, Mr Salvestrin has not assisted the Liquidator with his investigations.
4. Since his appointment, the Liquidator has conducted his investigations into the Sans Pareil group companies by reviewing such of their business records that he has in his possession, as well as responses given to him by third parties to notices he has issued. The Liquidator has also had access to the records of the bank accounts held by the Sans Pareil group companies with National Australia Bank (NAB), Australia and New Zealand Banking Group (ANZ) and the Commonwealth Bank of Australia (CBA), as well as statements of account from American Express (Amex) for accounts held in the name of Mr Salvestrin.
5. Based on the Liquidator's investigations, he has concluded that: 1. The Sans Pareil group companies: 1. had a very small and limited domestic based business that provided bottled wine to local restaurants in the Griffith area, including wine sourced from other vineyards; 2. offered online retail sales of bottled wine of which there was a relatively small volume of business conducted; and 3. exported a small amount of bottled wine to the United Kingdom and New Zealand, 4. (collectively Actual Business). 1. The Actual Business was significantly smaller than the business activities required to support the BAS lodged by the Sans Pareil group companies with the ATO. 2. Almost all of the funds available to the Sans Pareil group companies came from the ATO paying the overstated ITCs to Estate. 3. The funds of each of the other Sans Pareil group companies were, aside from certain loans and other small amounts of actual income, received from Estate. 4. The bank account statements provided to the Liquidator by NAB, ANZ and CBA as part of the third-party records include a large number of transactions which in the Liquidator's opinion are not proper business expenses of the Actual Business or for the benefit of the principal Sans Pareil companies. 5. The Actual Business was likely funded by the fictitious BAS overpayments to Estate. 6. It was not reasonable for Mr Salvestrin to incur expenses for the Actual Business knowing that funds were repayable to the ATO.

Receivership of Salvestrin Enterprises Trust property

1. On 9 November 2023, the Liquidator was appointed as receiver and manager of the property of the Salvestrin Enterprises Trust by order of this court.

Summary of amounts claimed by the principal Sans Pareil companies

1. The Liquidator has identified all transactions that appear to involve a payment by each of the principal Sans Pareil companies to, on behalf of or for the benefit of Mr Salverstrin, and in respect of which the companies collectively seek to recover $8,457,203.09 from Mr Salvestrin pursuant to the operation of ss 588FDA, 588FE(6A), and 588FF(1) of the Corporations Act. There are hundreds of such transactions.
2. Estate seeks to recover the sum of $7,727,177.07 from Mr Salvestrin. The classifications of those transactions that give rise to the claims of the Liquidator on behalf of Estate are as follows: Classification Amount ($) Personal - Alcohol 324.99 Personal - Aldi 40.24 Personal - Apple 4,059.85 Personal - Avenue Hotel Canberra Hall 1,123.10 Personal - Bunnings 56.28 Personal - Bws 27.00 Personal - café 42.00 Personal - Chemist 12.00 Personal - College 187.00 Personal - Dining 2,624.64 Personal - Ebay 0.05 Personal - Facebook 158.38 Personal - Food 74.00 Personal - Foxtel 1,144.00 Personal - Griffith Leagues Club 262.60 Personal - Harvey Norman 395.00 Personal - Health care 4,286.80 Personal - hotel 1,973.50 Personal - IGA 768.82 Personal - Kookora Surgery 282.00 Personal - Mulwala Water Ski Clmulmulwala 502.50 Personal - Overseas 127,082.60 Personal - Paypal 1,175.27 Personal - Rossmann 02 Lublin 42.42 Personal - Spotlight 106.50 Personal - travel 446.74 Personal - Trentham Estate 117,362.92 Personal - Uber 656.03 Personal - unknown 180.00 Personal - Win Television NSW 660.00 Personal - Woolworths 17.45 Personal - Yoyo Shop 25.94 Amex - new transactions 1,683,339.89 Amex 4,206,228.36 Aaron Salvestrin 51,437.36 Internet Transfer 6,500.00 Leo Franco - Mitsubishi 43,725.00 NAB Transfer NOT PRESSED Personal - NAB cards 38,191.17 Personal - Travel 30,000.00 Personal - Universal home theat 18,000.00 Personal Expense 4,050.00 Unknown Inv01 14,000.00 Unknown payment 30,465.50 Unknown payment 342,913.69 Withdrawal 100,197.73 Amex 260,000.00 Personal - Aaron Mobile 872.10 Personal - Bellato Plumb 25,444.63 Personal - Blossoms at home 100.00 Personal - Carpet Court 2,500.00 Personal - Optus 157.15 Personal - overseas Euro 11,168.92 Personal - overseas NZ 42.98 Personal - overseas Poland 5,327.45 Personal - Telstra 660.06 PT1 250,000.00 Unknown payment 312,354.46 Unknown transfer 23,400.00 TOTAL 7,727,177.07

1. Logistics seeks to recover the sum of $116,421.38 from Mr Salvestrin. The classifications of those transactions that give rise to the claims of the Liquidator on behalf of Logistics are as follows: Classification Amount ($) Aaron Salvestrin 8,221.74 Amex 108,199.64 TOTAL 116,421.38

1. Holdings seeks to recover the sum of $412.70 from Mr Salvestrin. The classification of the transactions that give rise to the claim of the Liquidator on behalf of Holdings is as follows: Classification Amount ($) Personal - Overseas 412.70 TOTAL 412.70

1. Enterprises seeks to recover the sum of $613,191.94 from Mr Salvestrin. The classifications of those transactions that give rise to the claims of the Liquidator on behalf of Enterprises are as follows: Classification Amount ($) Amex 67,133.50 Personal - gift 2,093.94 Personal - Griffith Council 422.77 Personal - Spotify 107.91 Personal - Telstra 1,444.60 Unknown payment 501,989.22 Vehicle Purchase 40,000.00 TOTAL 613,191.94

LEGAL PRINCIPLES - UNREASONABLE DIRECTOR-RELATED TRANSACTIONS

Legislation

1. The application by the Liquidator invokes the definition provision relating to unreasonable director-related transactions contained in s 588FDA(1) of the Corporations Act, which is in the following terms: 588FDA Meaning of unreasonable director-related transaction (1) A transaction of a company is an unreasonable director-related transaction of the company if, and only if: (a) the transaction is: (i) a payment made by the company; or (ii) a conveyance, transfer or other disposition by the company of property of the company; or (iii) the issue of securities by the company; or (iv) the incurring by the company of an obligation to make such a payment, disposition or issue; and (b) the payment, disposition or issue is, or is to be, made to: (i) a director of the company; or (ii) a relative of a director of the company; or (iii) a relative of a spouse of a director of the company; or (iv) a person on behalf of, or for the benefit of, a person of a kind referred to in subparagraph (i), (ii) or (iii); and (c) it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to: (i) the benefits (if any) to the company of entering into the transaction; and (ii) the detriment to the company of entering into the transaction; and (iii) the respective benefits to other parties to the transaction of entering into it; and (iv) any other relevant matter.
2. Where a transaction is found to be an unreasonable director-related transaction, the transaction is voidable under s 588FE(6A) of the Corporations Act, provided the other conditions in that section and s 588FE(1)(b) are met. Sections 588FE(1)(b) and (6A) respectively provide: 588FE Voidable transactions (1) If a company is being wound up: … (b) a transaction of the company may be voidable because of subsection (6A) if the transaction was entered into on or after the commencement of the Corporations Amendment (Repayment of Directors' Bonuses) Act 2003; … (6A) The transaction is voidable if: (a) it is an unreasonable director-related transaction of the company; and (b) it was entered into, or an act was done for the purposes of giving effect to it: (i) during the 4 years ending on the relation-back day; or (ii) after that day but on or before the day when the winding up began.
3. Relevantly, once the court is satisfied that a transaction of the company is voidable because of s 588FE, under s 588FF(1) of the Corporations Act the court then has a number of powers which may be exercised, including the power to direct a person to make a payment of the amount paid under the transaction. Section 588FF(1)(a) states: (1) Where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders: (a) an order directing a person to pay to the company an amount equal to some or all of the money the company has paid under the transaction; …
4. By operation of s 588FF(3) of the Corporations Act, an application under s 588FF(1) can only be made during the period beginning on the relation-back day and ending 3 years after the relation-back day or 12 months after the first appointment of a liquidator in relation to the winding up of the company (whichever is the later) or within such longer period as the court orders.
5. There is also a limitation on the amount that can be recovered from a voidable transaction solely because it is an unreasonable director-related transaction. Section 588FF(4) provides: (4) If the transaction is a voidable transaction solely because it is an unreasonable director-related transaction, the court may make orders under subsection (1) only for the purposes of recovering for the benefit of the creditors of the company the difference between: (a) the total value of the benefits provided by the company under the transaction; and (b) the value (if any) that it may be expected that a reasonable person in the company's circumstances would have provided having regard to the matters referred to in paragraph 588FDA(1)(c).

Judicial consideration

1. The operation of these legislative provisions has been the subject of considerable judicial analysis.
2. In Vasudevan v Becon Constructions (Australia) Pty Ltd (2014) 41 VR 445; [2014] VSCA 14, Nettle JA at [28] analysed the legislative purpose of s 588FDA, holding that: …In my view, it is apparent from the terms of s 588FDA, and also from the Explanatory Memorandum, that the very point of the section was and is to catch director related transactions of kinds not otherwise liable to avoidance as unfair preferences, uncommercial transactions or unfair loans. In effect, that is the converse of a Parliamentary intention to confine the operation of s 588FDA to transactions of the kind with [sic] result in the director in question receiving an equitable interest or equity in relation to the disponed property. Contrary to counsel's submission, s 588FG(2) in effect confirms that is so by providing in substance that a court is not to avoid a voidable transaction to which the defences apply unless the transaction is an unfair loan or an unreasonable director-related transaction. The point was also made in para 3.15 of the Explanatory Memorandum, as follows: The insolvency of the company at the time of an unreasonable director-related transaction is not a relevant consideration under the proposed amendments. Accordingly, section 588FG(2) is amended to remove unreasonable director-related transactions (along with unfair loans under section 588FD currently listed) from the scope of the exemption provided under that subsection in relation to knowledge of the company's solvency at the time the transaction was entered into.
3. In Vasudevan, Nettle JA at [21]-[30] discussed and ultimately held that a broad view of the expression "for the benefit of" as used in s 588FDA(1)(b)(iv) should be given, stating at [22]-[24] (references omitted): 21 Counsel for Becon argued that, be that as it may, the benefit received by Mr Thompson was nonetheless beyond the conception of benefit identified by Brereton J in Re Great Wall Resources Pty Ltd (in liq): as one "involv[ing] the notion of the separation of the legal and beneficial interest". In counsel's submission, it requires that the disposition result in an equitable interest or at least something in the nature of an equity in the disponed property in favour of the director. And, therefore, said counsel, it excludes mere financial interests of the kind that were in issue in Ziade Investments and Re Great Wall and mere contractual rights of the kind derived by Mr Thompson. 22 I reject that argument for three reasons. First, if Becon's contention were correct, the words "for the benefit of" in s 588FDA(1)(b)(iii) would add nothing to the preceding expression of "on behalf of". In that connection, I do not accept Becon's suggestion that "on behalf of" is intended to capture cases in which the director in question derives an equitable interest in the disponed property and that "for the benefit of" is directed at cases in which the director in question derives a mere equity in the disponed property (as where the disposition is in favour of a trustee of a discretionary trust of which the director is an object). Although the objects of a discretionary trust may not have an interest as such in the assets of the trust, it is commonplace to refer to assets of that kind as being held on behalf of the objects of the trust, and there is no reason in the context of this legislation to suppose that Parliament would do otherwise. 23 Secondly, the natural and ordinary meaning of a requirement that something be for "for the benefit of" a person is that it be "for the advantage, profit or good" of the person. So, in this context, just as moneys paid by A to B to discharge C's indebtedness to B would ordinarily be conceived of as paid to B for the benefit of C, so too the incurrence by A of obligations to B in order pro tanto to relieve C of his obligations to B would naturally and ordinarily be conceived of as being for the benefit of C. 24 Thirdly, the natural and ordinary meaning of "for the benefit of" accords to the objective of the section of preventing directors stripping benefits out of companies to their own advantage. Conversely, given the ease with which an errant director might channel benefits from a company under his charge to another company in which he is financially although not legally or equitably interested, there is every reason to suppose that Parliament intended not to confine the meaning of the expression to something in the nature of an equitable interest.
4. In Weaver v Harburn (2014) 103 ACSR 416; [2014] WASCA 227, McLure P at [91]-[93] considered what is required to satisfy the test of unreasonableness in s 588FDA(1)(c): 91 The test of unreasonableness in s 588FDA of the Act is objective; it is what a reasonable person in the company's circumstances may be expected not to do. The "company's circumstances" encompass all relevant matters, starting with its status as a company and what flows from that; its controllers, shareholders, business and other activities; and the facts and circumstances of, and surrounding, the transaction. 92 The matters in par (c)(i), (ii) and (iii) of s 588FDA(1) are mandatory relevant matters in the evaluative assessment of what is objectively unreasonable. The "any other relevant matter" requirement in par (c)(iv) recognises that relevance depends on the facts and circumstances of the particular case. 93 The only insolvency related elements (ie necessary conditions) of a voidable unreasonable director-related transaction are that the company is being wound up and the transaction was entered into within four years of the relation-back day. Otherwise, the relevance and/or weight to be given to the fact, or risk, of insolvency depends on the facts. Indeed, a director-related transaction entered into when the company was insolvent would, without more, be caught by s 588FE(4). Further, a transaction may, like an unfair loan, be so objectively unreasonable that the financial position of the company at the time of entry into the transaction is not relevant. In other circumstances, the transaction may be unreasonable solely or primarily because of the financial condition of the company at the time of the transaction.
5. In Smith v Starke (No 2) (2015) 109 ACSR 145; [2015] FCA 1119, Gleeson J [104]-[111] conducted an extensive review of the case law on s 588FDA: 104 Impropriety or other breach of a director's duty is not an element of an unreasonable director-related transaction. The focus in s 588FDA is not the director's conduct but the reasonableness of the company's conduct, objectively assessed, in entering into the transaction: Weaver v Harburn [2014] WASCA 227; (2014) ACSR 416 ("Weaver") at [79]. The test of reasonableness is what a reasonable person "in the company's circumstances" may be expected not to do. 105 The words "it may be expected that a reasonable person" emphasise the objective nature of the inquiry: cf Tosich Constructions Pty Ltd (in liq) v Tosich (1997) 78 FCR 363 at 366-7 ("Tosich"); Lewis v Doran [2005] NSWCA 243; (2005) 219 ALR 555 ("Lewis") at [156] concerning the interpretation of s 588FB. It must positively appear that the reasonable person would not have entered into the transaction: cf Tosich at 367; Lewis at [157]. 106 In Vasudevan v Becon Constructions (Australia) Pty Ltd [2014] VSCA 14; (2014) 41 VR 445 ("Vasudevan"), at [28], Nettle JA observed that "it is apparent from the terms of s 588FDA, and also from the Explanatory Memorandum, that the very point of the section was and is to catch director related transactions of kinds not otherwise liable to avoidance as unfair preferences, uncommercial transactions or unfair loans." His Honour referred to paragraph 3.15 of the Explanatory Memorandum, which states relevantly: "The insolvency of the company at the time of an unreasonable director-related transaction is not a relevant consideration under the proposed amendments. Accordingly, section 588FG(2) is amended to remove unreasonable director-related transactions (along with unfair loans under section 588FD currently listed) from the scope of the exemption provided under that subsection in relation to knowledge of the company's solvency at the time the transaction was entered into." 107 In Weaver, McLure P (at [91]) expressed the view that the company's circumstances encompass all relevant matters, starting with its status as a company and what flows from that; its controllers, shareholders, business and other activities; and the facts and circumstances of, and surrounding, the transaction. Although it is clear that the company need not be insolvent at the time of the impugned transaction for the transaction to be voidable as an "unreasonable director-related transaction", in her Honour's view, the relevance and/or weight to be given to the fact, or risk, of insolvency depends on the facts: Weaver at [93]. 108 Normal commercial practice is relevant but not decisive on the question of what "may be expected" that a reasonable person in the company's circumstances would do: cf Welcome Homes Real Estate Pty Ltd v Ziade Investments Pty Ltd (in liq) [2007] NSWCA 167 at [54] (Hodgson JA, Spigelman CJ and Santow JA agreeing). At [56], Hodgson JA said, in considering s 588FB, which contains relevantly similar criteria for identifying an "uncommercial transaction", "[t]he circumstance that a transaction does not define or require benefits that are said to be expected from it, and to justify it, is a factor strongly suggesting that the transaction is not one that a reasonable person in the company's circumstances would enter into". 109 In Lewis, the New South Wales Court of Appeal considered a debt restructuring within a group of three companies. One company ("Holdings") paid $4.1 million to a related company ("Constructions"), in part repayment of prior indebtedness and Constructions lent $4.1 million to a third related company. At [136], Giles JA, Hodgson JA and McColl JA agreeing, said: "Transactions at an undervalue were no doubt the primary target of the provisions, but the description of an uncommercial transaction in s 588FB (1) was not limited to such transactions. The description directed primary attention to a balancing of benefit and detriment, only in the broadest sense involving undervalue. A transaction could conceivably be one a reasonable person in the company's circumstances would not have entered into although for full value; or it could be one a reasonable person in the company's circumstances would have entered into although at an undervalue, for example a forced sale to overcome temporary illiquidity. For s 588FB (1), in addition to regard to benefits and detriments to the company, regard was to be had to the benefits to the other parties to the transaction. It appears to have been contemplated that a transaction detrimental to the company but beneficial to other parties to the transaction might not unreasonably be entered into. If, for example, there were no creditors and no prospect of creditors, it may be that the controller of the company could reasonably sacrifice its interests to the interests of other parties to the transaction." 110 A transaction with only derivative benefits to a company can still be for the benefit of the company: Lewis at [148]-[149]. 111 In Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50, it was held that use of the funds of company A to discharge the debt of the wholly-owned subsidiary of related company B was in the interests of company A, essentially because it was necessary to retain the support of the bank the loss of which would be detrimental to, among others in the group, company A. In Linton v Telnet Pty Ltd [1999] NSWCA 33; (1999) 30 ACSR 465 at 472, Giles JA (Beazley JA and Sheppard AJA agreeing) said that a loan to a director from the funds of company A, in order to secure his services for company A and company B, could be seen as for the benefit of company A "both directly and derivatively to the extent to which [the director's] services to [company B] ensured the supply of computers and otherwise the successful conduct of [company A's] retailing business".
6. In Crowe-Maxwell v Frost (2016) 91 NSWLR 414; [2016] NSWCA 46, the Court of Appeal of this court (Beazley P, with whom Macfarlan and Gleeson JJA agreed) referred to the judgments in Vasudevan (at [72]), Weaver (at [71]) and Smith (at [70]) with approval and at [74]-[79] surveyed some of the authorities concerning "uncommercial transactions" under s 588FB of the Corporations Act to assist in identifying circumstances that may constitute unreasonable director-related transactions.
7. The important matters of the burden of proof and the evidentiary onus as they apply to unreasonable director-related transactions were also addressed in Frost, Beazley P at [89]-[91] stating: 89 A common thread in the uncommercial transaction cases is that, where there is limited evidence of the nature or purpose of a transaction, but the surrounding circumstances show it to be a departure from normal commercial practice and to raise inferences as to a lack of benefit to the company, detriment caused to the company, or benefit accruing to other parties, absent some commercial explanation, courts may infer the transaction was uncommercial, without requiring the liquidator to prove its precise uncommercial nature. The same may be said with respect to the identification of unreasonable director-related transactions. 90 In those limited circumstances, for practical purposes, a defendant may be said to bear an 'onus', sometimes referred to as an evidentiary onus, of raising some commercial explanation for the transaction. Thus, in Hawksford v Hawksford [2005] NSWSC 463; (2005) 191 FLR 173 Campbell J explained, at [54]: "The distinction between an onus of proof and an onus of adducing evidence is of particular relevance in the present situation. Where party A has the legal onus of proving a negative proposition, and relevant facts are peculiarly in the knowledge of party B or where party B has the greater means to produce evidence relating to those facts, then provided party A establishes sufficient evidence from which the negative proposition may be inferred, party B then comes under an evidential burden, or an onus of adducing evidence." (citations omitted) 91 Hawksford concerned a challenge to a solicitor's retainer with two corporate entities in which the plaintiffs had interests. Campbell J, at [55], considered that while the legal onus of proving the absence of a retainer lay on the plaintiffs, once they had raised an inference of the negative proposition, the defendants carried an evidential burden "to advance in evidence any particular matters with which (if relevant) the plaintiffs would have to deal in the discharge of their overall burden of proof": Apollo Shower Screens Pty Ltd & Anor v Building and Construction Industry Long Service Payments Corporation (1985) 1 NSWLR 561 at 565 per Hunt J. Campbell J's statement is an application, in the context of proof of a negative proposition, of the principle in Blatch v Archer (1774) 1 Cowp 63; 98 ER 969 at 970 that: "…all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted."
8. Finally, more recently in Cooper v CEG Direct Securities Pty Ltd [2024] FCA 6, O'Sullivan J at [25] referred to the judgment of Anastassiou J in Aviation 3030 Pty Ltd (in liq) v Lao [2022] FCA 458 at [286]-[320], [358]-[360] and [407], summarising the principles stated in Aviation 3030 as follows: 25.1 There are three conditions which are necessary to establish an unreasonable director related transaction. They are the matters listed in s 588FDA(1)(a)-(c): at [298]-[320]; 25.2 Insolvency is not a necessary requirement of s 588FDA. Accordingly, the defence in s 588FG(2) of having no reasonable grounds to suspect insolvency has no relevance to whether a transaction is an unreasonable director-related transaction, citing with apparent approval McClure P in Weaver v Harburn [2014] WASCA 227; 103 ACSR 416 at [65]: at [290], [291]; 25.3 Since the focus on s 588FDA is the reasonableness of the company's conduct, it is not necessary for a liquidator to first prove any impropriety or breach of directors' duties: Smith v Starke (No 2) [2015] FCA 1119; 109 ACSR 145 at [104] (Gleeson J); Weaver at [78]-[79]; 25.4 The test in s 588FDA(1)(c) is an objective one, which requires 'an answer to the question what a reasonable person in the company's circumstances may be expected not to do': Re IW4U Pty Ltd (in liq) [2021] NSWSC 40; 150 ACSR 146 at 162 [82], citing Crowe-Maxwell v Frost [2016] NSWCA 46; 91 NSWLR 414, at [71] (Beazley P) and Weaver at [91]. This test 'substantially adopts' the language used to identify an 'uncommercial transaction' in s 588FB of the Corporations Act, and for that reason, case law regarding s 588FB may provide useful guidance and analogy in cases involving s 588FDA: D Pty Ltd (in liq) v Calas (Trustee), in the matter of D Pty Ltd (in liq) [2016) FCA 1409 at [58]: at [308]. 25.5 Section 9 of the Corporations Act relevantly defines 'benefit' in this context as being 'any benefit, whether by way of payment of cash or otherwise'. Consistent with this, the Plaintiffs say case law suggests that 'benefit' is to be interpreted broadly: at [309]. 25.6 The term 'detriment' is not defined in the Corporations Act, but it is generally accepted that, in this context, the word 'refers to "commercial detriment" but is not limited to a detriment that can necessarily be measured in money terms': Shot One Pty Ltd (in liq) v Day [2017] VSC 741 at [211] (Sloss J): at [310]. 25.7 [T]he matters in para (c)(i)-(iii) of s 588FDA(1) are mandatory relevant matters in the evaluative assessment of what is objectively unreasonable. The 'any other relevant matter' requirement in para (c)(iv) recognises that relevance depends on the facts and circumstances of the particular case; Weaver at [92] (McLure P): at [311]. 25.8 The test in s 588FDA(1)(c) is to be applied to the transaction 'taking into account the circumstances as they exist at the time when the transaction is entered into': Re IW4U at [79]. The enquiry requires the Court to consider 'all relevant matters': Frost at [70] (Beazley P), with each case being considered in accordance with its peculiar facts, circumstances and context": Golden Heritage Golf Pty Ltd (in liq) (recs and mgrs apptd) v Sun [2016] VSC 167; 113 ACSR 550 at [73] (Sifris J): at [312]. 25.9 'Normal commercial practice' is a relevant, but not determinative, consideration when considering what a reasonable person in the company's circumstances would do: Frost at [70]. Other considerations include the company's status 'and what flows from that; its controllers, shareholders, business and other activities; and the facts and circumstances of, and surrounding, the transaction': Weaver at [91]. This may (but need not) include the company's financial condition at the time of the transaction in question: Weaver at [65]. A relevant consideration is whether a benefit received by a party from the company is 'of such commercial magnitude that it is not explainable by normal commercial considerations': Slaven v Menegazzo [2009] ACTSC 94 at [46] (Mansfield J): at [313]. 25.10 Where there is limited evidence of the nature or purpose of a transaction, but 'the surrounding circumstances show it to be a departure from normal commercial practice and to raise inferences as to a lack of benefit to the company, detriment caused to the company, or benefit accruing to other parties', then 'absent some commercial explanation', courts may infer that the transaction is an unreasonable director-related transaction: Frost at [89]. In such circumstances, a defendant may be said to bear an evidentiary onus of raising some commercial explanation for the transaction: Frost at [90]: at [314].

CONSIDERATION - UNREASONABLE DIRECTOR-RELATED TRANSACTIONS

1. In summary, the evidence demonstrates that payments were made by each of the principal Sans Pareil companies to Mr Salvestrin, on his behalf or for his benefit, in circumstances where the overwhelming source of funds for those payments was money received by Estate from the ATO as a result of BAS which had been lodged with the ATO containing claims for ITCs arising from fictitious transactions.
2. Applying Weaver, Smith, and Aviation 3030, the insolvency of the principal Sans Pareil companies is not a necessary requirement of s 588FDA, nor is it necessary to prove any impropriety or breach of directors' duties by Mr Salvestrin for any particular transaction to come within s 588FDA.
3. In this case, it is alleged that each of the transactions is a payment made by one of the principal Sans Pareil companies to, on behalf of or for the benefit of the director of the companies, Mr Salvestrin, which brings them within s 588FDA.
4. Accordingly, adapting the words of s 588FDA to apply to a payment as the relevant transaction, it is necessary for me to address each of the three conditions stated in s 588FDA, being: 1. whether the transaction is a payment by one of the principal Sans Pareil companies; 2. whether the payment has been made to, on behalf of or for the benefit of a director of that company; and 3. whether it is expected that a reasonable person in the company's circumstances would not have made the payment, having regard to: 1. the benefits (if any) to the company of making the payment; 2. the detriment to the company of making the payment; 3. the respective benefits to other parties to the payment of it being made; and 4. any other relevant matter.
5. As stated in Weaver and Smith, the focus of the inquiry to be made is the objective one of what a reasonable person in the circumstances of each of the Sans Pareil companies would be expected not to do. As stated in Vasudevan and Smith, I should interpret the expression "for the benefit of" broadly. Applying Aviation 3030, I should regard "detriment" as meaning commercial detriment. Further, as outlined in Frost and Aviation 3030, the catch-all expression "any other relevant matter" means the facts, circumstances, and context which existed at the time of the payment.
6. In this regard, the vast amount of evidence reveals that the payments were either made directly to Mr Salvestrin or were payments on his behalf or for his benefit, being his personal expenses on items such as supermarket products, food, alcohol, entertainment, motor vehicles, accommodation, travel, gifts, social media, health care and credit cards. The payment of the personal liabilities of Mr Salvestrin on his Amex accounts were particularly substantial.
7. In this case, I am satisfied, based on the evidence, that: 1. each payment was made to Mr Salvestrin or on his behalf or for his benefit; 2. each of the principal Sans Pareil companies making the payment derived no benefit from it; and 3. there was considerable commercial detriment to each of the principal Sans Pareil companies making the payments because the source of the funds for doing so was the money received from the ATO for the fictious ITCs which had been claimed in BAS, which meant that the ability of that company to refund the money to the ATO was thereby reduced, there being no Actual Business which had generated or could generate the funds to otherwise do so.
8. I am particularly mindful that the Liquidator has put evidence before the court which indicates such of the circumstances of each payment as is available to him by way of his access to the records of the Sans Pareil group companies, and documents provided to him by third parties. In my view, applying the matters stated in Frost, given the Liquidator's evidence demonstrating an absence of records capable of indicating that the transactions were a proper business expense or were for the benefit of the principal Sans Pareil companies, Mr Salvestrin bears the evidentiary onus to provide a commercial explanation of each payment, in circumstances where such matters are peculiarly within his knowledge and where he has the means to produce any evidence which could support that explanation. He has not done so, having failed to take part in the hearing. In those circumstances, I am satisfied on the evidence before me that I can infer that a reasonable person in the circumstances of the principal Sans Pareil companies would not have made each of the payments which are the subject of the claims.
9. As a result, I am satisfied that each of the payments claimed are unreasonable director-related transactions within the meaning of s 588FDA of the Corporations Act.
10. I am also satisfied that each of the unreasonable director-related payments claimed is voidable pursuant to s 588FE(6A) of the Corporations Act, as they have all occurred within the period during four years ending on the relation-back day (calculated pursuant to ss 91(23) and 513B(c) of the Corporations Act, so being 27 October 2018 to 27 October 2022), and they occurred after the commencement of the Corporations Amendment (Repayment of Directors' Bonuses) Act 2003 (Cth) (which was 11 April 2003), as required by s 588FE(1)(b) of the Corporations Act.
11. The consequence is the enlivenment of the court's power in s 588FF(1)(a) of the Corporations Act to make an order directing Mr Salvestrin to pay to each of the principal Sans Pareil companies an amount equal to some or all of the money that the particular company has paid under the transaction. This power is conditioned by s 588FF(4) of the Corporations Act, which states that the court may make orders under s 588FF(1) only for the purpose of recovering for the benefit of the creditors of the company the difference between the total value of the benefits provided by the company under the transaction and the value (if any) that it might be expected that a reasonable person in the company's circumstances would have provided having regard to the matters in s 588FDA(1)(c).
12. I am satisfied that the total value of the benefits provided by each of the principal Sans Pareil companies under each transaction was equal to the amount paid by that company and that there was no value that it might be expected that a reasonable person in the company's circumstances would have provided having regard to the matters in s 588FDA(1)(c). As a result, the s 588FF(4) amount is $7,727,177.07 for Estate, $116,421.38 for Logistics, $412.70 for Holdings and $613,191.94 for Enterprises.
13. Finally, as the application under s 588FF(1) was made on 19 July 2023, which is within the period running from the relation-back day (27 October 2022) and ending 3 years after the relation-back day (27 October 2025), the conditions in s 588FF(3) are satisfied so as to enable the application under s 588FF(1)(a) to proceed.
14. I propose to make an order under s 588FF(1)(a) that Mr Salvestrin pay each of those amounts to the respective principal Sans Pareil companies.

BREACH OF DIRECTORS' DUTIES

1. I do not consider that it is necessary for me to consider the Liquidator's alternative ground that the making of each of the payments by Mr Salvestrin was done in breach of the statutory duties contained in ss 180, 181, 182 and 183 of the Corporations Act. This is in light of: 1. the findings I have made above regarding the unreasonable director-related transactions; 2. the fact that no substantive argument was put by the Liquidator in written or oral submissions regarding the subject; and 3. the fact that the breach of directors' duties ground provides no additional remedy beyond that provided under ss 588FF(1)(a) and 588FE(6A).

ORDERS

1. For the reasons set out above, I make the following orders: 1. Declaration that each of the transactions summarised in the schedule to these orders (and identified at pages 181 to 230 of exhibit A to the affidavit of Gavin Moss affirmed 2 February 2024) is an unreasonable director-related transaction within the meaning of s 588FDA of the Corporations Act 2001 (Cth). 2. Declaration that each of the transactions summarised in the schedule to these orders (and identified at pages 181 to 230 of exhibit A to the affidavit of Gavin Moss affirmed 2 February 2024) is voidable under s 588FE(6A) of the Corporations Act 2001 (Cth). 3. Order pursuant to s 588FF(1)(a) of the Corporations Act 2001 (Cth) that the third defendant pay: 1. to the second plaintiff, the sum of $7,727,177.07; 2. to the fourth plaintiff, the sum of $116,421.38; 3. to the fifth plaintiff, the sum of $412.70; and 4. to the tenth plaintiff, the sum of $613,191.94. 1. Order that the third defendant pay the costs of the plaintiffs.

SCHEDULE

1. (1) Payments made by the second plaintiff: Classification Amount ($) Personal - Alcohol 324.99 Personal - Aldi 40.24 Personal - Apple 4,059.85 Personal - Avenue Hotel Canberra Hall 1,123.10 Personal - Bunnings 56.28 Personal - Bws 27.00 Personal - café 42.00 Personal - Chemist 12.00 Personal - College 187.00 Personal - Dining 2,624.64 Personal - Ebay 0.05 Personal - Facebook 158.38 Personal - Food 74.00 Personal - Foxtel 1,144.00 Personal - Griffith Leagues Club 262.60 Personal - Harvey Norman 395.00 Personal - Health care 4,286.80 Personal - hotel 1,973.50 Personal - IGA 768.82 Personal - Kookora Surgery 282.00 Personal - Mulwala Water Ski Clmulmulwala 502.50 Personal - Overseas 127,082.60 Personal - Paypal 1,175.27 Personal - Rossmann 02 Lublin 42.42 Personal - Spotlight 106.50 Personal - travel 446.74 Personal - Trentham Estate 117,362.92 Personal - Uber 656.03 Personal - unknown 180.00 Personal - Win Television NSW 660.00 Personal - Woolworths 17.45 Personal - Yoyo Shop 25.94 Amex - new transactions 1,683,339.89 Amex 4,206,228.36 Aaron Salvestrin 51,437.36 Internet Transfer 6,500.00 Leo Franco - Mitsubishi 43,725.00 NAB Transfer NOT PRESSED Personal - NAB cards 38,191.17 Personal - Travel 30,000.00 Personal - Universal home theat 18,000.00 Personal Expense 4,050.00 Unknown Inv01 14,000.00 Unknown payment 30,465.50 Unknown payment 342,913.69 Withdrawal 100,197.73 Amex 260,000.00 Personal - Aaron Mobile 872.10 Personal - Bellato Plumb 25,444.63 Personal - Blossoms at home 100.00 Personal - Carpet Court 2,500.00 Personal - Optus 157.15 Personal - overseas Euro 11,168.92 Personal - overseas NZ 42.98 Personal - overseas Poland 5,327.45 Personal - Telstra 660.06 PT1 250,000.00 Unknown payment 312,354.46 Unknown transfer 23,400.00 TOTAL 7,727,177.07

1. (2) Payments made by the fourth plaintiff: Classification Amount ($) Aaron Salvestrin 8,221.74 Amex 108,199.64 TOTAL 116,421.38

1. (3) Payment made by the fifth plaintiff: Classification Amount ($) Personal - Overseas 412.70 TOTAL 412.70

1. (4) Payments made by the tenth plaintiff: Classification Amount ($) Amex 67,133.50 Personal - gift 2,093.94 Personal - Griffith Council 422.77 Personal - Spotify 107.91 Personal - Telstra 1,444.60 Unknown payment 501,989.22 Vehicle Purchase 40,000.00 TOTAL 613,191.94

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 March 2024