Whether there is a danger of disposal of assets such that a liquidator, if it succeeds in claims against the Respondents, may not be able to have its judgment satisfied
- I recognise that the DCT has the burden of demonstrating that the circumstances of the case warrant the continuance of the freezing order that was previously made on an ex parte basis and then continued. In opening submissions, Mr Golledge relies on the fact that Mr and Mrs Cordina have previously caused HPack to dispose of the majority of its assets by pension payments to themselves, purchases by entities related to them and rollovers of superannuation interests to CKJJJJ for their own benefit; the fact that the assets now held by Mr and Mrs Cordina seem to be less than the amount of the funds transferred to them; and their failure to declare income in the years ending 30 June 2015 - 30 June 2017 as establishing a risk of further dissipation of assets so as to frustrate a judgment against them or CKJJJJ. Mr Golledge also draws attention to the size of the liabilities to which CKJJJJ and Mr and Mrs Cordina are potentially exposed and the existence of dealings that are not at arm's length between the relevant parties as matters that support the continuance of the freezing orders.
- Ms Needham, with whom Mr Kohn appears, submits there are no allegations of fraud against the Respondents, and no allegations that the DCT has any direct claim against CKJJJJ or Mr and Mrs Cordina. I accept that submission, but it is not necessary for the DCT to allege fraud in order to support the making of a freezing order, nor is it necessary for the DCT to have a direct claim against the Respondents in order to obtain a freezing to preserve a claim by a liquidator appointed to HPack, on its application, against the Respondents. Ms Needham also points out that the Corporations Act contains a statutory regime for the appointment of a provisional liquidator. Mr Golledge responds that the possibility that a provisional liquidator might be appointed is no answer to the case for the making of freezing orders. It seems to me that the possibility that a provisional liquidator could be appointed to HPack is not to the point, where that would not preserve the Court's ability to enforce a judgment against Mr and Mrs Cordina or CKJJJJ, in respect of claims that a liquidator of HPack may have against them, against an ongoing dissipation of assets without regard to their potential liabilities.
- Ms Needham submits that there is no evidence of any risk that CKJJJJ or Mr or Mrs Cordina will dissipate their assets so as to frustrate the enforcement of a judgment against them by a liquidator or that they have exercised or intend to exercise a power of disposition over assets of HPack or CKJJJJ. Mr Golledge submits, in reply, the evidence that the Respondents hold significant amounts of cash; that they have demonstrated a capacity to move large sums of money between entities and outside Australia; and that they have not explained the difference between the funds and benefits they received and the identified value of their current assets. In submissions in reply, Mr Golledge also points to the absence of evidence explaining the movements of significant sums of money between HPack, CKJJJJ and Mr and Mrs Cordina before the period under review by the DCT, during that period and after that period.
- I do not find that CKJJJJ or Mr and Mrs Cordina have any present formulated intention to take steps to dissipate their assets so as to frustrate the enforcement of a judgment against them by a liquidator. However, I have pointed above to the fact that Mr and Mrs Cordina have a history of dealing with HPack's assets in a way that does not recognise the public liabilities that attach to them, and it seems to me that there is no reason to think that they would give greater weight to a prospective judgment in favour of a liquidator of HPack than they have given to a prospective liability for income tax. I bear in mind that Mr and Mrs Cordina contend that they were not aware of a prospective liability for income tax. It seems to me that that proposition is not established by the evidence, where they have not disclosed the advice which they had received over the relevant period or the qualifications to it. There is no reason to think that they would not also take the view that they are not aware of a prospective liability to a liquidator of Hpack until it is established.
- Ms Needham also submits that, if a liquidator were appointed to HPack then, by the operation of s 120(2)(e) of the SIS Act, HPack would become a "disqualified person" and prohibited from performing the functions of trustee of a small managed superannuation fund which would include dealing with the assets of CSF and that this "means that the liquidator would be prohibited from issuing the proceedings". Mr Golledge responds that the removal of HPack as trustee of CSF would not immunise it from claims by a liquidator appointed to HPack, and that the Court would have jurisdiction to appoint that liquidator as a receiver to deal with the property of a superannuation fund in a proper case.
- I am not persuaded by Ms Needham's submission. The short answer to it seems to me to be that, if a liquidator is appointed to HPack, he or she will have all the powers of a liquidator appointed to a company under the Corporations Act including the power to pursue claims available to a liquidator under the Act. A claim for breach of director's duties is available to HPack under its liquidator's control and a claim for an unreasonable director-related transaction is available to the liquidator of the company, and neither depends on any dealing with the assets of CSF. It also seems to me that there is no reasonable prospect that the Court would restrain, or strike out, proceedings that a liquidator might commence for breach of director's duties or in respect of unreasonable director-related transactions undertaken by a company that was the trustee of a SMSF, by reason of s 120 of the SIS Act, where those proceedings are brought in the performance of the liquidator's statutory duties under the Corporations Act. To do so would hardly promote the objectives of the SIS Act, which include preserving the assets of superannuation funds, rather than immunising persons who may have dissipated their assets from liability.
- Ms Needham also submits that, if HPack were wound up, it would be prohibited from enforcing its right of exoneration by reason of s 126K of the SIS Act. It is not necessary to address that submission, since its consequence would be to increase the potential liability of Mr and Mrs Cordina, and possibly CKJJJJ, in any claims that a liquidator might bring against them. If it were correct, that proposition would strengthen, rather than undermine, the basis for a freezing order.
- Ms Needham also points to exoneration provisions under the CSF Trust Deed, but they do not assist Mr and Mrs Cordina or CKJJJJ when any claims brought against them would be for breach of general law and statutory duties under the Corporations Act rather than for breach of trust. Ms Needham points to Mr Cordina's evidence that he would not have taken particular steps, had he known that a distribution from the CSF would have incurred additional tax liabilities. It seems to me that that proposition also does not assist Mr Cordina, because it emphasises the extent to which any loss suffered by HPack arises from any failure by Mr Cordina to adequately inform himself as to HPack's potential tax liabilities so as to take those steps. Ms Needham submits that there is no evidence that Mr and Mrs Cordina made the relevant payments with an intention to defeat, hinder or delay creditors of CSF, but such evidence is not necessary to establish liability for breach of director's duties or unreasonable director-related transactions or to support a freezing order. She submits that Mr and Mrs Cordina relied on professional advice from accountants, tax advisers and auditors, but I have explained above why the evidence presently led by Mr and Mrs Cordina falls well short of supporting such a finding.
- Ms Needham also submits that Mr and Mrs Cordina would have a "valid defence" to a voidable transaction claim or breach of director's duty claim under s 588FG(1)(b) or s 1317S of the Corporations Act. Mr Golledge submits, in reply, that the evidence led in support of asserted defences and relief under s 1317S of the Act is insufficient for the Court to reach any view as to the prospects of the Respondents establishing those defences. I am also not persuaded by Ms Needham's submission in this respect, given the evidentiary issues that I have noted above and the matters necessary to establish a case for relief under s 1317S of the Corporations Act, which I reviewed in Re Pages Property Pty Ltd above and need not repeat.
- Ms Needham also submits that the Respondents have engaged in good faith with the DCT and I will assume the correctness of that proposition, at least from the point at which the DCT advised HPack's advisers that its affairs were under review. The correctness of that proposition prior to that point is not established by evidence to which I referred above. Ms Needham also points to a right of indemnity available to directors of HPack under the CSF Trust Deed. That proposition was not sufficiently pursued, in the evidence or in submissions, to displace the basis for any freezing order that would otherwise be made. Ms Needham also submits the Respondents have emphasised that they wish to resolve the payment of outstanding tax liabilities.
- I give little weight to Ms Needham's submission as to the Respondents' wish to resolve the matter, where the suggested resolution has presently been limited to the amounts that remain within HPack. As I noted above, I do not consider it necessary to determine the dispute as to whether additional contributions by Mr and Mrs Cordina and CKJJJJ would or would or would not be permitted in an SMSF environment at this stage.
- Mr Golledge also points out that the only offer made by the Respondents to resolve their tax liability is to pay an amount of approximately $3.9 million, against a debt of more than $20 million, being the amount of assets that remain accessible within Hpack in July 2020. Mr Golledge contends that there is no legal impediment to the Respondents restoring funds to HPack to pay its debt, referring to the correspondence from the DCT's solicitors to the Respondents' solicitors in that respect, although it is not necessary to decide that matter.
- Ms Needham also submits that a liquidator appointed to HPack could not seek to recover payments made in the financial year ended 30 June 2015 or 30 June 2016 as unreasonable director-related transactions, because the payments were made more than four years before the relation-back date, being 10 September 2020. It does not seem to me that that proposition assists Mr and Mrs Cordina or CKJJJJ, where any claims that would be available on that basis could also likely be available as a claim for breach of director's duties or for knowing receipt or against CKJJJJ under the alternative forms of third party liability identified in Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; 287 ALR 22; 87 ACSR 260; [2012] FCAFC 6.
- In summary, I recognise that, as I noted above, the purpose of freezing orders is not to provide a security for judgment in favour of the DCT or a liquidator but only to prevent the Court's processes from being frustrated in the circumstances set out in the relevant rules and, in particular, is not intended to prefer the DCT or a liquidator over other creditors in the event of the Respondents' impecuniosity. I also recognise that there is no evidence that the Respondents in fact intend to remove or otherwise deal with their assets for the purpose of frustrating or inhibiting the Court's process. However, the Court may draw inferences from the Respondents' earlier conduct in respect of the dissipation of their assets, in the manner to which Gleeson CJ referred in Patterson v BTR Engineering (Aust) Ltd above; see also Samimi v Seyedabadi [2013] NSWCA 279 at [74]; Re Black Eagle Media Pty Ltd [2014] NSWSC 1778 at [21]. The DCT did not submit that, and I do not find that, the Respondents have an actual present subjective intention to defeat a judgment. However, I do find that the pattern of their conduct over a significant period indicates a propensity for transactions between related parties and for payments out of HPack without regard to public liabilities such as income tax, and that raises a real risk that they would not act differently in respect of a potential future liability to a judgment in favour of a liquidator of HPack. It seems to me that that is sufficient to support the making of a freezing order, in respect of claims that have good arguable prospects and are of significant size, in these circumstances.