By Originating Process filed on 19 June 2020, Mr Tayeh and Ms McCallum in their capacity as joint and several liquidators ("Liquidators") of Ahmed & Associates (Aust.) Pty Ltd (in liq) ("AAA") and AAA seek certain relief against Ingleburn Medicos Pty Ltd ("IMPL"), Dr Malik and his wife, Ms Irfan. Relevantly, they seek declarations that an alleged transfer of plant and equipment ("Plant and Equipment") to IMPL constitutes a transaction within the meaning of s 9 of the Corporations Act 2001 (Cth), an uncommercial transaction within the meaning of s 588FB of the Act, an insolvent transaction within the meaning of s 588FC of the Act, an unreasonable director-related transaction within the meaning of s 588FDA of the Act and a voidable transaction within the meaning of s 588FE of the Act. They also seek a declaration that Dr Malik contravened ss 181 and 182 of the Act. The Plaintiffs seek orders under s 588FF of the Act or for compensation under s 1317H of the Act, in each case in the amount of $352,745. They originally also sought a declaration that Ms Irfan was involved in the relevant transaction and involved in Dr Malik's alleged contraventions of ss 181 and 182 of the Act but abandoned the claim against Ms Irfan at the commencement of their closing submissions, and continue to seek a declaration that IMPL was involved in the relevant transactions and contraventions.
It is common ground that I should approach these claims on the basis that the allegations of breach of statutory duties made by the Plaintiffs raise serious matters in determining whether those matters are proved to the civil standard under s 140 of the Evidence Act 1995 (NSW), reflecting the principle in Briginshaw v Briginshaw (1938) 60 CLR 336 at 362; [1938] HCA 34; see also Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 at 170-171; [1992] HCA 66. A critical issue, and possibly the critical issue, in the proceedings is whether AAA had at any point owned the Plant and Equipment so as to at any point dispose of it. If it did not, then it was not party to any transaction by which IMPL acquired that Plant and Equipment and there is no basis for the relief sought, at least in a claim brought by AAA as distinct from a party that did have an interest in the Plant and Equipment. I find below that the Plaintiffs have not established that AAA ever owned or disposed of the Plant and Equipment and the proceedings must therefore be dismissed with costs.
[3]
Affidavit evidence
The Plaintiffs rely on an affidavit dated 19 June 2020 of one of the Liquidators, Mr Tayeh, which referred to the Liquidators' appointment and set out the background to the winding up of AAA. Mr Tayeh's evidence proceeded on the basis that, on or about 6 May 2017, AAA entered into a contract ("Perfect Practice Agreement") with Arconn Pty Ltd trading as Perfect Practice ("Perfect Practice") to acquire certain fit-out for medical premises situated at Ingleburn in New South Wales. That evidence was admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) as submission only and, as I will find below, it was not correct, because AAA had not yet been incorporated when the Perfect Practice Agreement was executed and the Plaintiffs do not contend that agreement took effect as a pre-incorporation contract binding upon AAA under s 131 of the Corporations Act and the principles reviewed by the Court of Appeal in Aztech Science Pty Ltd v Atlanta Aerospace (Woy Woy) Pty Ltd (2006) 55 ACSR 1; [2005] NSWCA 319. Mr Tayeh also referred to a bank transfer of $32,939.50 from a bank account of AAA to a bank account in the name of IMPL but no claim was pressed by AAA in respect of that bank transfer and it is not necessary to address it given the findings that I reach on other grounds as to the matters in issue in the proceedings.
Mr Tayeh's evidence (Tayeh 19.6.20 [47]-[49]), also admitted with a limiting order under s 136 of the Evidence Act as a submission only, was that:
"Based on my review of the books and records of [AAA] it appears to me that the primary asset held by [AAA] was the plant and equipment supplied and fitted-out by Perfect Practice at the Ingleburn premises (the plant and equipment).
The value of the recoverable Plant and Equipment is $352,745.00 (plus GST where applicable). The Plant and Equipment should be recovered at contract value as the transaction entered into by Dr Malik and Ingleburn Medicos appears to have been undertaken to purposely defeat creditors of [AAA]. Accordingly, the total value of this asset at the time of transfer is equivalent to the total value of the Perfect Practice Agreement. A copy of the Perfect Practice Agreement …
On or about 28 April 2018, the Plant and Equipment was transferred to [IMPL] (the plant and equipment transfer).
Mr Tayeh also understood that the Plaintiffs' case was that AAA owned the Plant and Equipment because it had acquired it under the Perfect Practice Agreement, since he was cross-examined as to that question and responded as follows:
"Q: Now, just so I understand where the liquidator is coming from, do you say the fit-out was an asset of AAA because it was AAA that entered into a written contract for the supply and installation of the fit-out with Perfect Practice?
A. Yes."
Mr Tayeh also accepted in cross-examination that the Perfect Practice Agreement was entered into by a company other than AAA "at that time" (T17). As will emerge below, the Plaintiffs have not established that AAA was the owner of the Plant and Equipment supplied and fitted-out by Perfect Practice at the Ingleburn medical premises and, to the extent that Mr Tayeh relied on the Perfect Practice Agreement to do so, the Plaintiffs abandoned that claim in the course of the hearing.
[4]
Chronology
It will be useful to address the factual background to the proceedings by way of a chronology, which will expose the relevant issues. Significant aspects of that chronology were common ground.
AAPL was incorporated on 14 September 2014 and its initial director was Dr Yasmin Ahmed (Ex P2, tab 3). Both Mr Ahmed and his wife, Dr Ahmed, are now deceased. On 4 May 2017, prior to the incorporation of AAA, Perfect Practice wrote a letter to Mr Ahmed setting out a proposal as to fit-out of a new medical centre, at a cost of $257,000 plus GST, subject to finance approval. On or about 6 May 2017, Perfect Practice entered into the Perfect Practice Agreement (Ex P1, 94) to supply and fit out medical premises at Ingleburn in New South Wales for a contract price of $250,000 plus GST, with the amount of $220,000 plus GST to be payable on practical completion and the balance of $30,000 to be paid off over the next six months. The owner of the premises and the other party to that agreement was recorded as "Ahmed & Associates (Australia) Pty Ltd" with an ABN/ACN of 72 110 951 874 and with a registered office at a specified address. There appears to be no company by that name, and the ABN there recorded is that of AAPL, a company associated with Mr Ahmed, a shareholder in AAA who was resident at that specified address. It is not surprising that AAA was not named as party to the Perfect Practice Agreement since it had not yet been incorporated at that date of that agreement. Perfect Practice subsequently issued tax invoices to "Ahmed & Associates (Australia) Pty Ltd" with ABN 72 110 951 874 (Ex P2, tab 6). Those invoices take matters no further than the Perfect Practice Agreement, because they reflect the client name and ABN shown on that agreement; the name shown is not that of AAA; and the ABN shown is that of AAPL, as is the case with that agreement.
AAA was only later incorporated on 13 June 2017 (Ex P1, 30) and Dr Malik and Mr Shams-Uz Zaman Ahmed were its directors. The balance sheet for AAA as at 30 June 2017 recorded total assets of $51,356, largely made up of a rental bond, which is inconsistent with any suggestion that it owned the Plant and Equipment (Ex P1, 299); and that is also the position recorded in AAA's balance sheet as at 30 June 2018 and as at 21 May 2019. A business activity statement for the period 30 June 2017 to 30 September 2017 recorded nil capital purchases and non-capital purchases of $13,940 which was also inconsistent with its acquisition of the Plant and Equipment in that period, although I recognise the Plant and Equipment is alleged to have been acquired before that date and before AAA was incorporated. A business activity statement for AAA for the period 1 January 2018 to 31 March 2018 recorded "non-capital purchases" (including GST) of $75,377 and nil capital purchases; a business activity statement for the period 1 July 2018 to 30 September 2018 recorded nil capital purchases and non-capital purchases of $47,825; a business activity statement for the period 1 October 2018 to 31 December 2018 recorded nil capital purchases and non-capital purchases of $14,392; and a business activity statement for AAA for the period 1 January 2019 to 31 March 2019 recorded nil capital purchases and non-capital purchases of $12,879 (Ex P1, 326-330). These were inconsistent with AAA's acquisition of the Plant and Equipment at a later date in those periods.
[5]
Whether AAA owned the Plant and Equipment and transferred it to IMPL
The Plaintiffs initially pleaded, and the Defendants denied, that AAA was party to the Perfect Practice Agreement. As I noted above, AAA did not exist at the date that agreement was formed and could only have become party to that agreement in the manner provided in s 131 of the Corporations Act, applicable to pre-incorporation contracts. The Plaintiffs abandoned that contention and did not rely on s 131 of the Act in closing submissions. The Plaintiffs also plead, and the Defendants deny, that AAA owned the Plant and Equipment to the value of $352,745 plus GST which was installed, operated or stored at the Ingleburn premises, and that that Plant and Equipment was transferred to IMPL on or about 20 April 2018.
In opening submissions, Mr Ratnam who appears for the Plaintiffs, noted that the primary matter for determination in the proceedings was the Plaintiffs' claim that Dr Malik caused the transfer or otherwise the disposal of the Plant and Equipment belonging to AAA to IMPL for no value. As matters developed, the primary issue for determination was whether AAA had acquired or owned the Plant and Equipment, which it contended were transferred from it to IMPL, since it had no basis for its claim if it did not. Mr Ratnam initially relied on AAA's entry into the Perfect Practice Agreement on 6 May 2017, as pleaded in the Statement of Claim. That proposition had the first difficulty that that agreement was not in the name of AAA, but in the somewhat similar name of Ahmed & Associates (Australia) Pty Ltd; the second difficulty that the ABN shown was that of AAPL rather than AAA; and the third, and most fundamental difficulty, that AAA did not exist at the date of that agreement, and that there is no evidence that the named contracting entity ever came into existence. Mr Ratnam also identified the Plaintiffs' claim that AAA owned the Plant and Equipment to the value of $352,745 plus GST and noted that the Plant and Equipment (or at least the value attributed to it) was "the value of the goods and services supplied to [AAA] pursuant to the Perfect Practice Agreement". Those submissions did not articulate any basis on which AAA came to own that Plant and Equipment other than by reason of it being party to the Perfect Practice Agreement.
In opening submissions, Mr Ratnam also contended that, on or about 20 April 2018, Dr Malek caused the Plant and Equipment to be transferred to IMPL for no consideration. The reference to that date appears to be to the letter dated 20 April 2018 (Ex P1, 269) signed by Mr Ahmed, Mr Faiz and Dr Malik, to which reference is also made in the draft accounts to which I referred above, and that proposition assumed but did not establish that AAA owned the Plant and Equipment prior to such a disposal. Mr Ratnam also there characterised the Defendants' position as that the Plant and Equipment were not assets belonging to AAA, but were assets belonging to IMPL. It was never a necessary part of the Defendants' case that those assets belonged to IMPL, since it is sufficient to defeat the Plaintiffs' claim that they did not belong to AAA, and were therefore never transferred from AAA to IMPL.
[6]
The Plaintiffs' consequential claims
As I noted above, the Plaintiffs plead (SOC [37]-[38]) that the alleged transfer of the Plant and Equipment to IMPL was an uncommercial transaction within the meaning of s 588FB of the Act, an insolvent transaction under s 588FC of the Act, an unreasonable director-related transaction within the meaning of s 588FDA of the Act and a voidable transaction within the meaning of s 588FF of the Act and that Dr Malik and IMPL are liable to AAA in the amount of $352,745 plus GST where applicable. In submissions, Mr Ratnam contended that the transfer or disposal of that Plant and Equipment (I interpolate, if AAA had owned it) was an insolvent transaction, unreasonable director-related transaction or otherwise an uncommercial transaction. Mr Ratnam also addresses AAA's alleged insolvency but it is not necessary to address that matter where AAA has not established that it owned the Plant and Equipment, or was party to any transaction concerning that Plant and Equipment. In opening submissions, Mr Moutasallem also addressed submissions to whether a contravention of ss 588FDA, 588FB, 588FC and 588FE of the Act could be established, if AAA had owned the Plant and Equipment.
I will briefly identify the basis on which these claims are not established, given the factual findings that I have reached. In doing so, I recognise that there may be little utility in addressing the applicable legal principles, where there is no room for any application of those principles to the established facts, where the underlying transaction is not established. If an appellate Court reaches a different view to that which I have formed as to whether AAA acquired, owned or disposed of the Plant and Equipment, so as to establish the premises of the Plaintiffs claim, then any subsequent steps in the Plaintiffs' case would need to be addressed in a radically different context.
First, the Plaintiffs seek to establish that the alleged transfer of the Plant and Equipment to IMPL contravened s 588FB of the Act. That section provides that a transaction is an uncommercial transaction if it may be expected that a reasonable person in a company's circumstances would not have entered into the transaction, having regard to the benefit and detriment to the company in entering the transaction, the benefit to other parties to the transaction and any other relevant matter. The term "transaction" is relevantly defined, in relation to a body corporate, as a transaction to which the body is a party, including without limitation a payment made by the body or an obligation incurred by it. That definition gives several examples of transactions, which have the common characteristic that the conduct or dealing engaged in by the company has the consequence of affecting a change in its rights, liabilities or property: Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281; (1997) 24 ACSR 292 at 299; Capital Finance Australia Ltd v Tolcher (2007) 164 FCR 83; (2007) 64 ACSR 705 at 719; [2007] FCAFC 185; Re Employ (No 96) Pty Limited (in liq) (2013) 93 ACSR 48; [2013] NSWSC 61 at [15]. A contravention of the section cannot be established where it is not shown that AAA was party to any relevant transaction or that any such transaction brought about any change to AAA's rights, liabilities or property.
[7]
Orders and costs
For these reasons, the proceedings should be dismissed. My preliminary view is that the Plaintiffs must pay the Defendants' costs of the proceedings, where they have failed in their claims against Dr Malik and IMPL, and would have failed in their claim against Ms Irfan had they not abandoned it. However, I will allow the parties a short opportunity to make further submissions as to costs. I direct the parties to submit agreed Short Minutes of Order, including as to costs, within 7 days or, if there is no agreement between them, their respective Short Minutes of Order and short submissions as to the differences between them.
[8]
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: 12 May 2021
Mr Tayeh also referred to aspects of the financial records of AAA, and contended that those financial records failed to disclose specified matters and did not contain other matters. That evidence went to establish a presumption of insolvency in respect of AAA, and it is not necessary to address it given the question of AAA's insolvency does not arise given the findings that I reach on other grounds. Mr Tayeh also led evidence, by way of assertion, as to the insolvency of AAA and as to indicators of insolvency in respect of AAA, which was largely admitted with a limiting order under s 136 of the Evidence Act by way of submission only. It is also not necessary to address that evidence since that issue also does not arise given the findings that I reach on other grounds. Mr Tayeh made further comments, also admitted with a limiting order under s 136 of the Evidence Act as submission only, in respect of the voidable transactions claim and addressed the extent of production of books and records of AAA to the Liquidators.
By a second affidavit dated 30 October 2020 in reply, Mr Tayeh again addressed questions as to AAA's maintenance of (or failure to maintain) proper books and records complying with s 286 of the Corporations Act and as to indicators of insolvency. Those issues also do not arise given the findings that I reach below. Mr Tayeh also addressed aspects of Dr Malik's affidavit which it is not necessary to address.
The Defendants read the affidavit dated 1 September 2020 of Dr Malik. Aspects of Dr Malik's evidence were directed to the early history of his dealings with Mr Ahmed, who also had an interest in the medical practice, were of limited relevance to the matters in issue in the proceedings and were not read. Dr Malik referred to a discussion with Mr Ahmed contemplating that a new company and trust would be set up to operate the medical practice. Dr Malik also refers to having been shown the Perfect Practice Agreement by representatives of Perfect Practice and to a subsequent conversation with Mr Ahmed, who claimed that he had signed that agreement "a long time back" and forgot to tell Dr Malik about it. Dr Malik also referred to a discussion with Mr Ahmed of Dr Malik's concern that Mr Ahmed had signed that contract in the name of Ahmed & Associates Pty Ltd ("AAPL"), which was Mr Ahmed's company; in fact, the contract did not correctly record that company's name although it referred to its Australian business number. Dr Malik's evidence was that Mr Ahmed then suggested that the parties "sign an agreement to address your concerns" and that each of Mr Ahmed and Dr Malik pay their separate shares of the fit-out costs to Perfect Practice. I refer to an agreement dated 22 August 2017 concerning that matter below. Dr Malik's evidence was also that he was appointed as director of AAA on 28 July 2017, although the appointment form lodged with ASIC on that date showed him as a director of AAA from its incorporation. His evidence was that AAA did not trade and that the funds for its entry into the lease of the medical premises to which AAA was party, and for the Plant and Equipment, were lent by Dr Malik and by Mr Ahmed. Dr Malik also referred to a loan agreement between an associated company, Dr Irfan Malik Pty Ltd ("DIMPL") as trustee of his family trust and IMPL which had funded the payments to Perfect Practice. Dr Malik was cross-examined at substantial length, and it was put to him that aspects of his evidence are not correct or were false. It is not necessary to address that cross-examination, given the Plaintiffs' case fails for the more fundamental reasons which I address below.
The Defendants also read the affidavit of Ms Irfan dated 1 September 2020. It is not necessary to address Ms Irfan's affidavit where the case against her is not pressed, and given the findings that I reach below.
On 14 July 2017, Mr Ahmed sent a text message to Dr Malik (Ex D1, 417), addressing an increase in the price of the works claimed by Perfect Practice, and referring to a change in position since the Perfect Practice Agreement was executed as follows:
"Moreover that time you were not with me & now company structure has changed & a directorship change & so old one doesn't exist and they have to prepare the new contract & … [The text message in evidence is incomplete and ends here]
IMPL was incorporated on 21 August 2017 and Ms Irfan and Mr Ahmed were its first directors, and its shareholders were initially a company associated with Mr Ahmed, and DIMPL. It appears that DIMPL now holds all of the shares in IMPL (Ex P1, 56) and Ms Irfan is also a director of DIMPL. IMPL now carries on the business of the medical practice in Ingleburn, and Dr Malik works as a doctor in that practice.
On 22 August 2017, a "Memorandum of Understanding" (Ex D1, 435) ("MOU") was signed by Mr Ahmed and Ms Irfan, which appears to be the agreement contemplated in the discussions between Mr Ahmed and Dr Malik noted in Dr Malik's affidavit. That document recorded that it set out "the terms and understanding between the director Mr Shamsul Zaman Ahmed and Mrs Mamoona Irfan to operate Ingleburn Village Medical Centre". It recorded that Mr Ahmed and Ms Irfan "came into business partnership, both of them being directors of Ingleburn Medicos Unit Trust" and provided that:
"Ownership of Fit-Outs/Assets
Contract with the builder for the fit-outs was entered into by [AAPL]. However the payment to the builder will be made by Mrs Mamoona Irfan or her nominee and Mr Shamsul Zaman Ahmed equally and not [AAPL]. Therefore the final ownership of the fit-outs, other assets and rental bonds will be of both parties individually or their mutual trading entity [IMPL] and not the leasing entity."
That MOU is inconsistent with the Plaintiffs' case that AAA owned the Plant and Equipment. The first sentence dealing with the ownership of fit-out is to the contrary, so far as it treats AAPL as the party to the contract with Perfect Practice, rather than suggesting that contract was executed on behalf of AAA, which was not then incorporated; the next sentence emphasises that payments to Perfect Practice were not to be made by AAPL or, by extension, by AAA but by Ms Irfan and Mr Ahmed personally or their nominees; and the final sentence contemplates the future possibility of ownership by the parties individually or IMPL "and not the leasing entity", namely AAA, but does nothing to support an affirmative proposition that AAA had, in some unidentified fashion, come to own the Plant and Equipment in the interim.
A loan agreement dated 23 August 2017 provides for DIMPL to make a loan of $485,000 to IMPL, consistent with Dr Malik's affidavit evidence that DIMPL as trustee for the Awan Family Trust made that loan to fund payments to Perfect Practice in respect of fit-out costs.
By a lease executed on or about 10 November 2017, AAA leased the premises at Ingleburn, from which the medical practice trades, from three other companies. It appears that, in January 2018, issues arose in respect of Mr Ahmed's payment of his share of the amounts due to Perfect Practice for the fit-out works (Malik [41]-[42]) and, by a text message sent on 23 January 2018 (Malik [43]), Mr Malik requested Mr Ahmed to pay his unpaid share of Perfect Practice's bills so that an occupancy certificate could be obtained. Dr Malik's evidence is that he subsequently telephoned Mr Ahmed requesting payment of his share of staff wages and rent for the Ingleburn premises (Malik [44]) and again followed up with Mr Ahmed in respect of payment of the outstanding amount in April 2018, and Mr Ahmed explained that he was having difficulty in paying that amount (Malik [46]).
A letter dated 20 April 2018 (Ex P1, 269) signed by Mr Ahmed, Mr Faiz and Dr Malik then recorded that:
"Resignation as a director of [AAA] and other Related Entities
As per your signed instructions the changes have now been actioned for the above entities for Ingleburn Medicos Unit Trust.
The form 484 has been submitted. Please find the attached for the company details extracted today after updating. As per instructions the changes has been made on all entities and related entities.
I, Shams Uz Zaman Ahmed, will remove myself from the director board and shareholding of all of the above entities and all related entities. I or my family will not have any stake or financial obligations or share upon the assets of the above entities or nor [sic] will I share any liabilities that may arise from 19/04/2018.
I am getting a bank cheque of $150,000 as a final settlement to relieve myself from the board and shareholding of those entities. I have given the company accountant, Irshard Faiz to make sure all the necessary changes are made with ASIC and ATO to remove me and my family from my responsibilities in the foreseeable future in the above-mentioned entities.
I wish all the very best for Dr Irfan Rasul Malik and his family for the success of the Ingleburn Medical Centre Village and its future endeavours."
The Plaintiffs rely on a draft financial report of AAA for the year ended 30 June 2018, provided by accountants retained by Dr Malik to the Liquidators during the liquidation, which contained a reference to a non-current liability of AAA for loans from DIMPL for "fit-out cost" of $292,829.05 (Ex P2, tab 5). Dr Malik's evidence was that that reference was in error, and that evidence seems to me to be correct. The loan agreement to which I have referred above records that DIMPL lent the funds to IMPL and there is no other evidence of a transaction by which AAA borrowed those funds from IMPL or paid those funds to Perfect Practice. Those draft accounts also included an asset depreciation schedule which suggested that AAA owned the relevant Plant and Equipment, but that schedule begged the question of how that ownership came about.
Perfect Practice subsequently commenced proceedings against AAA in the Local Court of New South Wales and obtained judgment against AAA for the amount of $58,190.12. That judgment presumably proceeds on the basis that AAA was party to the Perfect Practice Agreement, despite the facts that AAA did not exist when that contract was formed and was not the named party to the contract and that the contract referred to AAPL's ABN for the contracting party. The Plaintiffs did not contend that Dr Malik or Ms Irfan were privy to that judgment so as to be bound by any res judicata or issue estoppel, within the principles considered in Trawl Industries of Australia Pty Ltd (recs & mgrs. apptd) v Effem Foods Pty Ltd (1992) 108 ALR 335, and the evidence would likely not have supported such a contention.
Perfect Practice subsequently commenced winding up proceedings in this Court and, by order made on 6 March 2019, AAA was wound up and the Liquidators were appointed (Ex P1, 167). The Plaintiffs also placed heavy reliance on a letter signed by Dr Malik and a representative of the Liquidators on 6 March 2019, the day on which the Liquidators were appointed, which related to the entry into a licence agreement with the Liquidators for the medical premises leased by AAA. That licence agreement recorded Dr Malik's understanding that the only asset of AAA was its lease in respect of those premises, but that proposition neither advances the Plaintiffs' nor Dr Malik's case, where it is consistent with either AAA never having owned the Plant and Equipment or it previously having disposed of that Plant and Equipment to IMPL. That letter records that the licence agreement will remain in force until certain books and records of AAA are provided to the Liquidators, including "[t]he sale agreement which [AAA] entered into with [DIMPL]/Awan Family Trust in regard to the sale of plant and equipment" and "evidence supporting consideration being paid to [AAA] for the purchase of plant and equipment."
Dr Malik's evidence in cross-examination was that he executed that licence agreement under pressure, when the Liquidators were threatening to close the medical practice on the first day of the winding up. I address that letter further below; even if Dr Malik did not then deny that AAA had ever owned the Plant and Equipment and may have misinformed the Liquidators that such an agreement existed so as to cause them to require production of it, that takes the Plaintiffs no further unless they can establish that Dr Malik's understanding or assumption as to who owned the Plant and Equipment was correct as a matter of fact and law .
By letter dated 4 April 2019 (Ex P1, 284), Dr Malik responded to the Liquidators' request for proof of the sale of the Plant and Equipment to IMPL and responded that:
"Be advised that [AAA] never received any amount for this fit-out since the company in contract with [Perfect Practice] was [AAPL].
On initiation of business it was agreed both parties would pay an equal share of the fit-out cost and that the fit-out would remain the property of [IMPL]. Insurance covering fit-out/contents was taken out by [IMPL] and paid by [IMPL] from the beginning. …
As you are already aware, [Perfect Practice] was paid directly from my personal account. I had always been up-to-date with my payments to them. …
Upon Mr Shams Ahmed's proposal I bought the fixtures and fit-out in consideration of $150,000 to Mr Shams Ahmed. …
Mr Ahmed had agreed that he will pay off his share owed to [Perfect Practice] from this money.
Please note that the agreement between parties was based on mutual trust. There were no lawyers engaged to draft agreements/contracts of sale.
As advised to you earlier, all books and records in my possession have been provided to you. Draft financial [sic] were sent in error by the accountant as mentioned in earlier email, I have contacted my accountant to clarify."
That letter attached a copy of an insurance policy schedule issued by GIO to IMPL, as trustee for the Ingleburn Medicos Unit Trust, which covered contents to a value of $550,000 and stock to a value of $20,000 for the period 5 February 2018 to 5 February 2019. That policy appeared to support Dr Malik's claim that IMPL rather than AAA had taken insurance over the Plant and Equipment.
By a letter dated 17 April 2019, one of the Liquidators, Ms McCallum wrote to Dr Malik and asserted that AAA remained indebted to Perfect Practice and that:
"Based on [AAA's] financial [statements], the depreciation schedule details plant and equipment, which was disposed on 20 April 2018 for a total of $150,000.00. There were assets with an open value totalling $352,745.00. This results in a loss on disposal of $202,745.00."
The reference in that letter to AAA's financial statements was not properly based, because the document to which Ms McCallum referred was only the draft accounts sent by Dr Malik's accountant to which I referred above. The amount of the loss on disposal there calculated is inconsistent with the larger amount claimed in these proceedings. That letter also variously characterised the suggested disposal of AAA's Plant and Equipment as "illegal phoenix activity [which] is criminal in nature"; foreshadowed prosecution of Dr Malik by ASIC in respect of the transaction; and suggested that a disposal of the Plant and Equipment to IMPL may have contravened s 590 of the Act which was a criminal offence. That letter also demanded payment by Dr Malik of $352,745 and threatened automatic disqualification of Dr Malik by ASIC following his conviction of an offence; significant penalties or imprisonment; and notification of the Australian Health Practitioner Regulation Agency of a pending prosecution. Those were serious allegations and serious threats and, on the findings that I reach below, they were not properly based.
In closing submissions, Mr Ratnam advanced a number of propositions. These propositions may appear to have a somewhat scattergun character as I address them below, and that appearance accurately reflects the manner in which the proceedings developed. First, Mr Ratnam conceded that AAA was not party to the Perfect Practice Agreement (despite the Plaintiffs' position in opening and Mr Tayeh's affidavit evidence and evidence on cross-examination) and confirmed that the Plaintiffs did not seek to establish that that agreement was a pre-incorporation contract of AAA or that AAA had ratified that contract so as to be bound by it under s 131 of the Corporations Act. It follows that any claim that AAA at any time owned or disposed of the Plant and Equipment must derive from an acquisition of those assets other than under the Perfect Practice Agreement.
After I allowed a short adjournment for Mr Ratnam to formulate the basis on which the Plaintiffs put any claim that AAA had owned the Plant and Equipment so as to subsequently dispose of it, where that claim no longer derived from the Perfect Practice Agreement, Mr Ratnam formulated that claim as being that the MOU confirmed the parties' understanding and agreement in July 2017 that AAA (which was incorporated for the purpose of pursuing a medical practice) would own the Plant and Equipment until an election was made as to who owned it, and also indicated that the Plaintiffs relied on claims for GST credits later made by AAA and the information recorded in AAA's draft financial reports, to which I have referred above. The Plaintiffs neither pleaded nor established any understanding or agreement formed in July 2017 that AAA owned the Plant and Equipment. I have explained above why the MOU was inconsistent with rather than consistent with a claim that AAA owned the Plant and Equipment. I can also draw little from the proposition that AAA had claimed for GST refunds, and less from the draft financial reports, where both are consistent with a lack of understanding who owned the Plant and Equipment in a relatively complex situation, and neither identifies any transaction by which AAA came to acquire the Plant and Equipment. Mr Ratnam also submitted that Dr Malik had not adduced evidence to prove the existence of an agreement that IMPL owned the Plant and Equipment. However, that proposition did not recognise that it is a matter for the Plaintiffs to prove their claim that AAA owned and disposed of the Plant and Equipment, not a matter for Dr Malik to prove an alternative explanation of events or of the ownership of that Plant and Equipment..
Mr Ratnam also relied on the letter signed on 6 March 2019, to which I have referred above, which he contended confirmed that the Plant and Equipment had been transferred out of AAA. I do not accept that proposition, where any assumption to that effect made by Dr Malik or reflected in that letter is of little weight, unless the Plaintiffs can identify how AAA came to own the assets in the first place. Mr Ratnam also submitted that it was not plausible for Dr Malik to suggest that he was "forced" to sign that agreement. If it were necessary to resolve that question, I would find that that proposition was plausible, when Dr Malik was placed under threat of closure of the medical premises if he did not enter a licence agreement permitting its continual operation and the Liquidators required the provision of specified information as a condition of that licence agreement.
Mr Ratnam also contended, in closing submissions, that it was agreed between Dr Malik and Mr Ahmed that a company would be set up for the purposes of operating the medical practice, and that is plain enough, although ultimately both AAA and IMPL were established. Mr Ratnam also contended that the parties had intended that AAA would be bound to the terms of the Perfect Practice Agreement. The evidence does not establish that proposition, where that agreement was executed in a different name and with AAPL's ABN and the parties subsequently entered alternative arrangements based on their understanding that AAPL rather than AAA was party to that agreement. Mr Ratnam also submits that it cannot be suggested that IMPL owned the Plant and Equipment, as at the date of commencement of the fit-out works at the medical practice in May 2017, when it was not incorporated until August 2017. That is plain enough, but the fact that IMPL did not then own the equipment does not establish that AAA did so, as distinct from AAPL having done so, or the ownership of the Plant and Equipment having been unresolved at that time. Mr Ratnam also refers to Dr Malik's evidence, in cross-examination, as to discussions with Mr Ahmed prior to the MOU, and submits that any oral component of any agreement that IMPL would own the Plant and Equipment is neither pleaded nor disclosed in the evidence, and any agreement that IMPL would own the Plant and Equipment does not accord with the terms of the MOU. I do not find it necessary to determine that question where, as I have noted above, the question I must determine is whether AAA owned the Plant and Equipment, so as to found the subsequent steps in the Plaintiffs' claim, and the determination of that question does not require that I determine who owned the Plant and Equipment, if AAA did not.
Mr Ratnam also submits that the MOU confirms that the Plant and Equipment "was in the first instance owned by AAA". As I have noted above, I can find nothing in the MOU that provides such a confirmation, where it acknowledges that the contract with Perfect Practice was entered into by AAPL rather than AAA, and excludes rather than confirms ownership of the Plant and Equipment by AAA in the future. For the reasons noted above, it is not necessary to go further to determine whether that clause had the effect that IMPL then owned the Plant and Equipment, where it is equally plausible that AAPL did so, subject to the arrangements between the parties to which I have referred, or that ownership of the Plant and Equipment remained undetermined. Mr Ratnam also submits that AAA took other steps in respect of the management of the practice including, uncontroversially, executing a lease after AAA had been incorporated and setting up a domain name and setting up the trading name "Ingleburn Village Medical Centre". It is not necessary to determine whether AAA set up the domain name or the trading name, where the fact that it took such steps, after it was incorporated, also says nothing as to its ownership of the Plant and Equipment.
By his opening submissions, Mr Moutasallem, who appears for the Defendants, emphasised that, as their Defence made clear, they contested the Plaintiffs' claim on the basis that AAA had never owned the Plant and Equipment, as well as denying the contraventions of the Act and asserting the availability of a set-off. Mr Moutasallem pointed out that the Perfect Practice Agreement listed the client as Ahmed & Associates (Australia) Pty Ltd rather than AAA and referred to AAPL's ABN. Mr Moutasallem also submitted that, since AAA did not exist when the Perfect Practice Agreement was entered into, its ownership of the Plant and Equipment could not be established by reference to that agreement; or, I interpolate, at least could not be established without treating that contract as a pre-incorporation contract and satisfying the requirements of s 131 of the Act. Mr Moutasallem also referred to evidence on which the Defendants relied for the proposition that there was an agreement that IMPL would be the owner of the Plant and Equipment, although that was not necessary to displacing the Plaintiffs' claim that AAA was the owner of the Plant and Equipment. Mr Moutasallem emphasised that, as I have noted above, IMPL insured the Plant and Equipment and AAA did not, and that provides some support for the proposition that AAA did not then understand that it was the owner of the Plant and Equipment. Mr Moutasallem also refers to the evidence, to which I have referred above, that the fit-out was paid for using funds lent to IMPL through the Awan Family Trust, and that AAA did not list the fit-out as an asset owned by it in its financial reports.
Mr Moutasallem also pointed out that the Plaintiffs had not pleaded that the Perfect Practice Agreement was a pre-incorporation contract, although I recognise that the question whether that agreement had that character necessarily arose where AAA was not incorporated at the time it was signed, and that the Plaintiffs did not plead ratification of that agreement under s 131 of the Corporations Act. In the event, as I have noted above, Mr Ratnam also did not press a claim for ratification or reliance on the Perfect Practice Agreement in closing submissions. Mr Moutasallem in turn repeated the matters raised by the Defendants in opening submissions as supporting a finding that AAA was not the owner of the Plant and Equipment, and relied on the MOU for its statement, in the final paragraph, that the contract with Perfect Practice for the fit-out was entered into by AAPL, by contrast with the Plaintiffs' position that the MOU supported AAA's ownership of the Plant and Equipment. Mr Moutasallem in turn contended that the requirements of s 131 of the Corporations Act would not be satisfied in respect of the Perfect Practice Agreement. It is not necessary to address that submission, where the Plaintiffs do not contend that that contract was subsequently ratified by AAA.
I can see no basis, on the evidence to which I have referred above, for a finding that AAA acquired the Plant and Equipment, by the Perfect Practice Agreement or by any subsequent transaction or event. Where AAA did not acquire that Plant and Equipment, no transaction can subsequently have taken place by which it disposed of that Plant and Equipment to IMPL. The existence of such a transaction is a fundamental premise of all of the Plaintiffs' claims, which I briefly address for completeness below.
The Plaintiffs also contend that the alleged transfer of the Plant and Equipment to IMPL contravened s 588FC of the Act. A transaction is an insolvent transaction of a company, as defined in that section, if, relevantly, it is an uncommercial transaction of the company and the transaction is entered into at a time the company is insolvent or the company becomes insolvent because of matters including its entry into the transaction. That claim cannot succeed because AAA has not established the fact of a transfer of the Plant and Equipment by AAA to IMPL, or any anterior ownership of it by AAA or disposal of it by AAA, so as to establish an uncommercial transaction.
Third, the Plaintiffs attack the alleged disposal of the Plant and Equipment by AAA to IMPL as an unreasonable director-related transaction within the meaning of s 588FDA of the Corporations Act. Broadly, a transaction between a company and a director or his or her close associate is treated as voidable on a winding up of the company if it occurs in circumstances where a reasonable person in the company's circumstances would not have entered into the transaction, under that section. Whether a reasonable person in the company's circumstances would not have entered into the transaction is determined having regard to any benefits to the company of entering into it; the detriment to the company of entering into it; the respective benefits to other parties to the transaction of entering into it; and any other relevant matter: s 588FDA(1)(c). In Vasudevan v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14 at [28], the Court of Appeal of the Supreme Court of Victoria observed that the purpose of the section is "to catch director-related transactions of kinds not otherwise liable to avoidance as unfair preferences, uncommercial transactions or unfair loans"; see also Smith (in his capacity as liquidator of Action Paint Ball Games Pty Ltd) v Starke (No 2) (2015) 109 ACSR 145; [2015] FCA 1119 at [104]; Crowe-Maxwell v Frost (2016) 91 NSWLR 414; 111 ACSR 583; [2016] NSWCA 46 at [67]-[92]. I have drawn this summary of the elements of the section from my observations in Re RMATA Cutelli Pty Ltd (In Liq) [2018] NSWSC 382 at [23]ff. Where it has not been established that AAA (as distinct from AAPL) acquired the Plant and Equipment under the Perfect Practice Agreement or in any other manner, or paid for them, or disposed of them to IMPL or otherwise entered a transaction concerning them with IMPL, then the elements of this section are not established. That is not a surprising result, where AAA would suffer no disadvantage from a dealing as to Plant and Equipment in which it is not shown that it ever had an interest.
The Plaintiffs also claim (SOC [41]) an order under s 588FF of the Act that IMPL or Dr Malik pay them the amount of $352,745 plus GST where applicable. That section allows the Court to make any one or more of the orders set out in the section on the application of a liquidator, where a transaction is voidable because of s 588FE of the Corporations Act. This claim cannot succeed where the alleged contraventions were not established, and has the further oddity that the amount on which it is based is the amount payable (and largely paid by other parties) under the Perfect Practice Agreement, although the Plaintiffs no longer contend that AAA acquired the Plant and Equipment under that agreement, and not the current value of the Plant and Equipment at the time that AAA is claimed to have disposed of it to IMPL.
The Plaintiffs also plead breach of Dr Malik's duties under s 181 and 182 of the Act, by reason of the matters pleaded and Dr Malik's role in the alleged transaction and claim compensation also quantified as the amount of $352,745 on that basis. The amount claimed is again based on the amount payable (and largely paid by other parties) under the Perfect Practice Agreement, although the Plaintiffs no longer contend that AAA acquired the Plant and Equipment under that agreement.
Section 181 of the Act requires a director or officer of a corporation to exercise his or her powers and discharge his or her duties in good faith in the best interests of the corporation and for a proper purpose. In Chew v R (1991) 4 WAR 21; 5 ACSR 473 at 499, Malcolm CJ summarised the requirements of that duty as being that directors (1) must exercise their powers in the interests of the company, and must not misuse or abuse their power; (2) must avoid conflict between their personal interests and those of the company; (3) must not take advantage of their position to make secret profits; and (4) must not misappropriate the company's assets for themselves. I also summarised the relevant principles in respect of that section in Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789 at [419]-[421] and need not repeat that summary here. Section 182 of the Corporations Act prohibits a director, secretary, officer or employee of a corporation from improperly using his or her position to gain an advantage for himself or herself or someone else, or cause detriment to the corporation, and I also summarised the applicable principles in respect of that section in Re Colorado Products Pty Ltd (in prov liq) above at [432]-[433]. These claims cannot succeed where the pleaded factual basis of the alleged contraventions was not established. In any event, AAA suffered no loss in respect of any dealings with the Plant and Equipment where it is not established that it had either paid for it or acquired it.
Mr Moutasallem also addressed submissions to a set-off defence under s 553C of the Act, and Mr Ratnam also addressed that defence in submissions. It is not necessary to address that defence where AAA has not established that it owned the Plant and Equipment, so as to bring any claim in respect of any transaction with them.
As I noted above, a claim was initially brought against Dr Malik's wife, Ms Irfan, on the basis that she was involved in Dr Malik's alleged breaches of ss 181 and 182 of the Act but that case was abandoned at the hearing and the proceedings against Ms Irfan were dismissed. The Plaintiffs maintained a claim for knowing involvement against IMPL. That claim cannot succeed, because the Plaintiffs have not established that AAA acquired or owned the Plant and Equipment, so as to dispose of it to IMPL, and that disposal is an essential element of the alleged contraventions in which IMPL is said to have been involved.