- BounceLED Pty Ltd v Clear Skies Corp Pty Ltd

Supreme Court of NSW|2024-05-01|Before: Black J

Solicitors: ICL Lawyers (Plaintiffs) File Number(s): 2023/283914

Nature of the application

By Further Amended Originating Process filed, by leave, on 1 May 2024, the Plaintiffs, Pacific Plumbing Group Pty Ltd (in liq) ("Company") and Mr Hurst, in his capacity as liquidator of the Company, seek orders under ss 588FA, 588FC, 588FE and 588FF of the Corporations Act 2001 (Cth) ("Act") for the recovery of unfair preferences against three remaining Defendants. The Plaintiffs previously brought claims against several other Defendants, all of which have been resolved prior to the hearing today, which has continued only against those three remaining Defendants. None of those three Defendants have appeared at the hearing today.
The Court has previously determined, in a judgment in respect of a separate question (Re Pacific Plumbing Group Pty Ltd (in liq) [2024] NSWSC 34), that the Company was insolvent from at least 31 March 2020 until it was placed in voluntary administration, on 7 September 2020. All that remains to be determined is whether the relevant transactions as against the three remaining Defendants constitute unfair preferences for the purposes of s 558FA of the Act. If they had that character, then they constituted insolvent transactions for the purposes of s 588FC of the Act, and voidable transactions for the purposes of s 588FE of the Act, so as to authorise the Court to make orders against the relevant Defendants under s 588FF of the Act. I will first refer to the evidence dealing with the positions in respect of three remaining Defendants, before returning to the relevant principles.

Affidavit and other evidence

The Plaintiffs read the affidavit dated 6 September 2023 of Mr Hurst, the Company's liquidator, which refers to his and Mr Samson's initial appointment as joint and voluntary administrators of the Company and to the circumstances in which they transitioned to become voluntary liquidators of the Company, and Mr Samson subsequently resigned his appointment, leaving Mr Hurst as the remaining liquidator of the Company. Mr Hurst describes the Company's activities, and notes that it operated a commercial plumbing and drainage business and a maintenance and repair division in the Northern Territory and New South Wales. Mr Hurst also refers to the matters which led him to form the view that the Company was insolvent from at least 1 April 2020, and remained insolvent until it was placed in voluntary administration being the relation back day for the purposes of the relevant provisions. I noted above that that issue has been determined as a separate issue by an earlier judgment of the Court.
Mr Hurst also refers to the position in respect of the Third Defendant, Syfon Systems Pty Ltd ("Syfon"), and states that Syfon received one payment from the Company during the relation back period in the amount of $13,724.55, which was made from one of the Company's bank accounts. As will emerge below, Mr Hurst's subsequent evidence indicates that the position in respect of Syfon is somewhat more complex. Mr Hurst's evidence, in respect of the Seventh Defendant, Corestaff NT Pty Ltd ("Corestaff") is that Corestaff received several payments during the relation back period, totalling $8,500, which were made from one or more of the company's bank accounts, and that position has not changed in subsequent evidence. Mr Hurst's evidence is that the Eighth Defendant, C & V Concretors (NT) Pty Ltd ("C & V") received one payment from the Company during the period in the amount of $13,202.20, also made from one of the Company's bank accounts. Again, that position has not changed in subsequent evidence.
By a second affidavit dated 6 March 2024, Mr Hurst extends his evidence as to the dealings between the Company and the relevant Defendants, referring in each case to a review of the Company's general ledger. He refers, in particular, to an extract of the Company's general ledger for Syfon, which indicates a number of transactions with Syfon, and refers to a letter of demand provided to Syfon in that respect. He also there refers to an extract of the Company's general ledger in respect of dealings with Corestaff, and again notes that a letter of demand had been sent to Corestaff, and addresses the position in respect of dealings between the Company and C & V, again by reference to the Company's general ledger.
Mr Hurst expands upon these matters, and specifically upon the more complex position in respect of Syfon, in his third affidavit dated 1 May 2024. He refers to a review undertaken by staff reporting to him of the Company's accounts payable ledger for Syfon, contained within the Company's MYOB records, which records several transactions by way of purchase and apparent payments to Syfon, and records a transaction under the description "spend money" between the Company and Syfon in the amount of $13,724.55 on 3 August 2020, which corresponds to the amount now claimed by the Plaintiffs against Syfon. He also notes a record of the Company's accounts payable general ledger which also records a payment of a bill to Syfon in the same amount.
Mr Hurst then refers to a matter which complicates the analysis of the transaction in respect of Syfon, namely that the Company's general ledger also includes an account titled "undeposited funds" which records dealings between the Company, Syfon and an entity which Mr Hurst contends is a debtor of the Company, Mainbrace Constructions (NSW) Pty Ltd ("Mainbrace") also on 3 August 2020. That ledger records a credit in respect of a transaction with Syfon, again in the amount of $13,724.55, and a debit, recorded as an invoice payment, in respect of Mainbrace on the same day. Mr Hurst also there corrects the position indicated in his first affidavit and notes that there is no payment recorded in the Company's bank statements on 3 August 2020 that can be identified as a payment to Syfon. He expresses the view, reasonably formed having regard to the documents to which he has referred, that a payment was made by Mainbrace to Syfon on 3 August 2020, which he characterises as a payment made on behalf of the Company.
Mr Hurst also refers to correspondence with Mainbrace which provides some support for that characterisation. Mr Hurst had issued a letter of demand to Mainbrace, in respect of an amount that he contended was owed by Mainbrace to the Company, and Mainbrace had responded by providing a reconciliation of the position as between the Company and Mainbrace, which referred to an amount paid by Mainbrace on behalf of the Company in the amount of $79,467.41 plus GST, and to other costs incurred by Mainbrace which it contended had the consequence that the Company was a debtor of Mainbrace in a substantial amount, rather than any debt being owed by Mainbrace to the Company. It follows that there is an unresolved dispute between the Plaintiffs on the one hand, and Mainbrace on the other, as to whether Mainbrace was, or is, a debtor to the Company, or its creditor, and no attempt has been made to resolve that question in these proceedings, where Mainbrace is not party to them and it would not have been cost effective to do so, given the relatively small amount claimed by the Company against Syfon. I will return to the significance of that matter below.
Mr Hurst's third affidavit also addresses the position in respect of Corestaff and C & V and in each case addresses the process which has been undertaken to identify the payments made to Corestaff and C & V, where those payments were made as group payments from the Company's bank account rather than individual payments. The result of that process is consistent with the evidence previously led by Mr Hurst as to the amounts claimed against each of Corestaff and C & V.
The Plaintiffs also rely on an affidavit of service dated 15 September 2023 of a paralegal in the firm of solicitors acting for them, which refers to service of the Originating Process by mail upon the relevant defendants, each of which was situated outside New South Wales, and notes that service was in each case effected in accordance with the requirements of the Service and Execution of Process Act 1992 (Cth). I am satisfied that the relevant Defendants were served, although I have noted above that there has been no appearance by them in respect of the proceedings.

Applicable principles

Turning now to the applicable principles, I have had the benefit of submissions made by Mr May who appears for the Plaintiffs in the proceedings. He outlines the history of the proceedings and the circumstances in which, as I noted above, the proceedings have settled as against numerous Defendants.
He also refers to the approach which should be adopted by the Court in determining an undefended claim, by reference to the principles summarised by McKerracher J in United Group Resources Pty Ltd v Calabro (No 5) (2011) 198 FCR 514; [2011] FCA 1408, where his Honour noted that, where there has been no appearance of a defendant, the plaintiff must nonetheless prove its case on the balance of probabilities in the usual way, and the Court would not go beyond the relief that is being claimed in the proceedings as served upon the relevant defendant. His Honour there pointed out, and I accept, that the Court is entitled to assume the correctness of the facts claimed by a plaintiff in their submissions in that situation, where there is uncontroverted evidence tendered by the plaintiff in support of those submissions. However, I also recognise here that some of the facts which the Plaintiffs seek to establish depend on matters of inference from Mr Hurst's evidence and the Company's ledgers on which he relies.
Mr May also refers, uncontroversially, to the circumstances in which an unfair preference can be established under s 588FA of the Act. He points out, by reference to the terms of that section, that a transaction is an unfair preference given by a company to a creditor if, and only if, the company and the creditor are parties to the transaction, even if someone else is also a party; and the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction was set aside and the creditor were to prove for the debt in a winding up of the company. As will emerge below, those principles are readily applied in respect of the claims against Corestaff and C & V, but issues of greater complexity arise in respect of the claim against Syfon.
Mr May also points out, and it is uncontroversial, that an unfair preference established for the purposes of s 588FA of the Act will, through ss 588FC and 588FE of the Act, potentially allow the Court to make orders under s 588FF of the Act, of the kind that are sought in the relevant transaction. He points out, also uncontroversially, that the relation back day in this case is the day on which a resolution was passed to appoint the voluntary administrators, on 7 September 2020, and points to the Court's previous finding that the company was insolvent on 31 March 2020, and at all times up to and including the date of Mr Hurst's appointment as voluntary administrator, on 7 September 2020.

The claim against Syfon

I now turn to the question whether the relevant transactions are unfair preferences, initially in respect of Syfon, which involves issues of greater complexity, and then in respect of Corestaff and C & V. The position as it has emerged, in respect of Syfon, from the evidence to which I have referred above, is that a direct payment was not made by the Company to Syfon, but the Company recorded, in its ledger in respect of undeposited funds, a payment made to Syfon in the amount claimed, and a debit in respect of Mainbrace also in that amount. As I noted above, Mr Hurst has formed the view that a payment was made by Mainbrace to Syfon on behalf of the Company, and that proposition finds support in the fact that Mainbrace claims to have made payments on behalf of the Company to Syfon, albeit in a substantially larger amount than that now claimed by the Plaintiffs against Syfon.
Mr May in turn addresses the circumstances, which have been considered in the case law, in which a payment made by a third party on a company's behalf, can give rise to a voidable transaction. He first notes that a question will arise, in those circumstances, as to whether the company was a "party" to the transaction for the purposes of s 588FA(1) of the Act. That question is determined by authority, in particular by the Court of Appeal's decision in Hosking v Extend N Build Pty Ltd [2018] 128 ACSR 555; (2018) NSWCA 149 (at [92]) where Bathurst CJ (with whom Beazley P and Gleeson JA agreed) observed that a transaction can be made up of a series of interrelated dealings and, if it can be established that, as a result of an arrangement (whether express or inferred) between a company and a third party, the third party then paid the company's creditors, that would constitute a relevant transaction for the purposes of s 588FA(1)(a) of the Act.
There is no evidence of any express arrangement between the Company and Mainbrace for Mainbrace to make any payment on the Company's behalf. Mr May contends that such an arrangement can be inferred and, on balance, I accept that submission. The matters which support that inference include that the Company had sufficient knowledge of the relevant transactions, apparently at the time they occurred, to characterise them in the ledger accounts to which Mr Hurst refers as giving rise to a credit in the amount of $13,724.55 in favour of Syfon and a debit of the same amount in respect of Mainbrace, implicitly recognising that the payment made by Mainbrace to Syfon gave rise to a liability of the Company to Mainbrace. That inference is also consistent with Mainbrace's subsequent claim that payments in a larger amount were made by it on behalf of the Company.
A further question then arises whether, notwithstanding that the payment was made by Mainbrace rather than by the Company, it can be said that the transaction resulted in Syfon receiving "from the [C]ompany" more than it would have received from the Company if the transaction was set aside, for the purposes of s 588FA(1)(b) of the Act. Mr May rightly points out that this question has been considered by the Court of Appeal of the Supreme Court of Victoria in Cant v Mad Brothers Earthmoving Pty Ltd (2020) 63 VR 222; [2020] VSCA 198 ("Mad Brothers") and in two subsequent first instance decisions of this Court. In Mad Brothers, a related entity of a company, made a payment to Mad Brothers under a settlement agreement, and the liquidator of the company contended that that payment amounted to a preference for the purposes of s 588FA of the Act. The Court of Appeal analysed the relevant issues (at [108]ff) and summarised its conclusions (at [120]) as having effect that the reference to receipt from the Company in s 588FA(1) do not form part of the definition of an unfair preference, but are descriptive of the position where the relevant elements of the definition are met; the company may be a party to a transaction, inter alia, by giving a third party a direction as to the making of a payment, or authorising or ratifying that payment, although that does not in itself establish the payment is received "from the company"; the words "from the company" in the section contemplate that the preference be received from the company's own money, meaning money or assets to which the company is entitled; and, further: "(d) it is necessary, in order for a preference to be 'from the company' that the receipt of it by the creditor has the effect of diminishing the assets of the company available to creditors. (e) On the other hand, a payment by a third party which does not have the effect of diminishing the assets of the company available to creditors is not a payment received 'from the company' and is therefore not an unfair preference."
That decision was considered by Rees J in Re Western Port Holdings Pty Ltd (recs and mgrs apptd) (in liq) [2021] NSWSC 232, where her Honour expressed a degree of disquiet as to the reasoning in the decision, but recognised that the decision was a considered judgment of an intermediate appellate court, and that she could not conclude that the decision was not open to that court and should follow it. Her Honour also there recognised, as Mr May rightly points out, that the question of proof that a transaction involving a third party constitutes an unfair preference may turn on questions of inference, in circumstances that the liquidator may lack adequate documentation, because the company's books and records are incomplete, and that the Court may draw inferences in order to determine whether the transaction falls within s 588FA(1)(b) of the Act as involving the creditor receiving the relevant payment from the company. Mr May also draws attention to the fact that her Honour in fact drew such inferences, in respect of particular transactions, for example, at paragraphs 170 - 171 of her judgment.
Mr May notes that the decision in Mad Brothers was followed by Richmond J, in BounceLED Pty Ltd v Clear Skies Corp Pty Ltd (in liq) [2023] NSWSC 121. His Honour there noted (at [44]) that he was bound by that decision, and also observed that the Court of Appeal had there given a purposive construction to s 588FA(1)(b) of the Act in the light of the text, context (including legislative history) and purpose of the section. I would also follow the approach taken in Mad Brothers, where it is a considered decision of an appellate court, and for the reasons noted by Rees J and by Richmond J in the decisions to which I have referred.
I now turn to the question whether the evidence here establishes that Syfon received the relevant payment "from the [C]ompany" in the extended sense recognised by the case law. Mr May, fairly, indicated that he did not contend that Syfon could have received those amounts "from the [C]ompany" unless the effect of the transaction was to reduce the amount of a receivable owed by Mainbrace to the Company at the relevant time, such that the Company had an asset, namely the receivable, which was reduced by the payment made by Mainbrace to Syfon. Conversely, Mr May did not seek to contend that the payment by Syfon was received "from the [C]ompany" if, at the relevant time, the Company had no such asset which was reduced by the payment, and instead incurred a debt to Mainbrace, or moved from a position where it was already a debtor of Mainbrace to a position where it owed a larger debt to Mainbrace.
I am not able to conclude, from the financial records which were available to the liquidator and absent further evidence, that the Company had such a receivable against Mainbrace at the relevant time, so that the effect of the transaction was to reduce the amount of that receivable, rather than increasing a debt then owed by the Company to Mainbrace. The liquidator's position, in his correspondence with Mainbrace, is that the Company was (or at least is) a creditor rather than a debtor of Mainbrace, but Mainbrace's position is to the contrary. As I noted above, no attempt was made by the Plaintiffs or could reasonably have been made in these proceedings to determine that dispute, given the relatively small amount that is claimed by the Plaintiffs as against Syfon and the lack of utility in seeking to determine a larger dispute between the Company and Mainbrace in order to recover a smaller amount against Syfon.
But for that issue, I would have found that the Plaintiffs had established their claim against Syfon, so far as I would have inferred that the Company was party to the transaction and that the transaction could be characterised as a receipt "from the company". However, I cannot reach that conclusion where Mr May does not contend that it could be reached unless the Company had a receivable owed by Mainbrace that was reduced by a relevant transaction, and it is not possible to reach that conclusion on the available evidence. For these reasons, the Plaintiffs' claim against Syfon must fail. There will be no order of costs in favour of Syfon where it has taken no active part in the proceedings.

Claims against Corestaff and C & V

The position in respect of the Plaintiffs' claims against each of Corestaff, in the amount of $8,500, and C & V in the amount of $13,202.20, is more straightforward. The evidence to which I had referred indicates each of those amounts was paid by the Company from its bank account, albeit as a component of group payments, and it is plain that the Company was party to the relevant transactions. It is also plain that the transaction resulted in each of Corestaff and C & V receiving more than they would receive from the Company, in respect of the relevant debts, if those transactions were set aside and they were to prove for the debt in a winding up. Accordingly, the Plaintiffs' claims against Corestaff and C & V are established. They should each pay the Plaintiffs' costs of the claims against them, as agreed or as assessed.

Orders

The Plaintiffs have prepared a schedule of calculation of the relevant interest, but have not prepared draft orders. I direct that they submit draft orders to give effect to this judgment by 4pm on 2 May 2024.

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: 03 May 2024

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (8 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (7)