The plaintiff pay the costs of the defendants, to be assessed if not agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ORDERS
[2]
AND: IAN LOCK AS JOINT AND SEVERAL LIQUIDATOR OF PM SULCS & ASSOCIATES PTY LIMITED (IN LIQUIDATION) ACN 002 730 958
[3]
JOHN SHEAHAN AS JOINT AND SEVERAL LIQUIDATOR OF PM SULCS & ASSOCIATES PTY LIMITED (IN LIQUIDATION) ACN 002 730 958
[4]
JUDGE: MCKERRACHER J
DATE OF ORDER: 24 MARCH 2016
[5]
The appeal be dismissed.
The plaintiff pay the costs of the defendants, to be assessed if not agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
[6]
REASONS FOR JUDGMENT
TABLE OF CONTENTS
MCKERRACHER J: [1]
1 OVERVIEW [1]
2 LEGISLATIVE PROVISIONS [3]
3 BACKGROUND FACTS [7]
4 MRS HOOPER'S CLAIMS ON APPEAL [36]
4.1 Mortgage shortfall [45]
4.2 Unpaid expenses [59]
4.3 Unpaid loans to the Company [62]
4.4 Interest on unpaid loans [67]
4.5 Unpaid director's fees [69]
4.6 Interest on unpaid director's fees [74]
5 MR HOOPER'S CLAIMS ON APPEAL [75]
5.1 Director's fees [80]
5.2 Unpaid expenses [83]
5.3 Interest [87]
6 OTHER EVIDENCE IN SUPPORT OF THE APPEALS [91]
6.1 Mrs Hooper [93]
6.2 Mr Hooper [101]
7 THE DEFENDANTS [106]
7.1 Defendants' submissions as to the effect of the transactions [113]
8 SPECIFIC ISSUES [116]
8.1 Proof of debt in administration, not in liquidation [117]
8.1.1 Outline [117]
8.1.2 Consideration [126]
8.2 No request by the Hoopers to deal with proofs of debt [136]
8.2.1 Outline [136]
8.2.2 Consideration [138]
8.3 Appeal if formal proofs of debt and power to reject them [141]
8.3.1 Outline [141]
8.3.2 Consideration [142]
8.4 Consideration of the claims by Mrs Hooper [147]
8.4.1 Mortgage shortfall [157]
8.4.2 Unpaid expenses [168]
8.4.3 Unpaid loans to the Company [170]
8.4.4 Interest on unpaid loans to the Company [179]
8.4.5 Director's fees [183]
8.4.6 Interest on unpaid director's fees [186]
8.5 Consideration of the claims by Mr Hooper [187]
8.5.1 Director's fees [197]
8.5.2 Unpaid expenses [204]
8.5.3 Interest on unpaid loans to the Company [206]
9 CONCLUSION [207]
[7]
OVERVIEW
1 Mr Hooper controlled a company which did not actively trade for some years and is now in liquidation. He and Mrs Hooper each contend that it owes them millions of dollars. The defendants, Mr Ian Lock and Mr John Sheahan (who are now the company liquidators) disagree. In these proceedings, the Hoopers appeal the defendants' rejection of their claims.
2 For reasons discussed below, I am not satisfied the Hoopers have discharged the onus of proving the asserted indebtedness.
[8]
LEGISLATIVE PROVISIONS
3 The appeal is pursuant to s 1321 of the Corporations Act 2001 (Cth) which relevantly provides:
1321 Appeals from decisions of receivers, liquidators etc.
(1) A person aggrieved by any act, omission or decision of:
(a) a person administering a compromise, arrangement or scheme referred to in Part 5.1; or
(b) a receiver, or a receiver and manager, of property of a corporation; or
(c) an administrator of a company; or
(ca) an administrator of a deed of company arrangement executed by a company; or
(d) a liquidator or provisional liquidator of a company;
may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit.
…
4 Some of the technical arguments raised by the Hoopers require consideration of the powers of a liquidator. Relevantly, s 477 of the Corporations Act provides:
…
(2) Subject to this section, a liquidator of a company may:
…
(m) do all such other things as are necessary for winding up the affairs of the company and distributing its property.
…
(6) The exercise by the liquidator of the powers conferred by this section is subject to the control of the Court, and any creditor or contributory, or ASIC, may apply to the Court with respect to any exercise or proposed exercise of any of those powers.
…
5 Section 506 of the Corporations Act relevantly provides:
(1) The liquidator may:
…
(b) exercise any of the powers that this Act confers on a liquidator in a winding up in insolvency or by the Court; …
6 Relevantly, the Corporations Regulations 2001 (Cth) provide:
5.6.47 Admission of debt or claim without formal proof
(2) If a liquidator admits a debt or claim without formal proof, it is not necessary for the liquidator formally to admit the debt or claim in writing.
(3) If a creditor's debt or claim has been admitted without formal proof, a notice of dividend is sufficient notice of the admission.
(4) A liquidator must not reject a debt or claim without:
(a) notifying the creditor of the grounds of the liquidator's rejection; and
(b) requiring that a formal proof of debt or claim be submitted for that debt or claim.
5.6.49 Formal proof of debt or claim
(1) A debt or claim may be formally proved by delivering or sending by post a formal proof of debt or claim to the liquidator.
(2) A formal proof of debt or claim:
(a) that is prepared and submitted in accordance with regulation 5.6.45 - must be in accordance with Form 536; and
(b) in any other case - must be in accordance with Form 535.
5.6.50 Contents of formal proof of debt or claim
(1) A formal proof of debt or claim must:
(a) contain detailed particulars of the debt or claim sought to be proved; and
(b) in the case of a debt, include a statement of account; and
(c) specify the vouchers (if any) by which the statement can be substantiated.
(2) The liquidator may at any time call for the production of the vouchers mentioned in subregulation (1).
5.6.65 Liquidator to give notice of intention to declare a dividend
(1) The liquidator must give notice of his or her intention to declare a dividend not more than 2 months before the intended date:
(a) by lodging a notice with ASIC in accordance with subregulation 5.6.75(4); and
(b) in writing, in accordance with Form 547 or, for a final dividend, in accordance with Form 548, to any person whose debt or claim has not been admitted and who:
(i) for a winding up by the Court - is shown as a creditor in the report on the affairs of the company under subsection 475(1) of the Act; or
(ii) for a members' voluntary winding up - appears in the company's records to be a creditor; or
(iii) for a creditors' voluntary winding up - is shown as a creditor in the list of creditors prepared in accordance with subparagraph 497(2)(b)(ii) of the Act; or
(iv) to the knowledge of the liquidator claims to be, or might claim to be, a creditor of the company.
(2) A notice in accordance with subregulation (1) must specify a date, not less than 21 days after the date of the notice, on or before which formal proof, in accordance with Form 535 or 536, of a debt or claim must be submitted to participate in the distribution.
(2A) Also, the notice must state at least the following information:
(a) the name of the company;
(b) any trading name of the company;
(c) the ACN of the company.
(3) Subject to regulation 5.6.68, a person:
(a) who claims to be a creditor; and
(b) who does not submit a formal proof of a debt or claim on or before the date specified in the notice given under subregulation (1);
is excluded from participating in the distribution to which that notice relates.
[9]
BACKGROUND FACTS
7 Mr and Mrs Hooper (together, the Hoopers) each appeal under s 1321 of the Corporations Act. The appeals of Mr and Mrs Hooper are being heard together.
8 Mr Hooper is the sole director of the Company, PM Sulcs & Associates Pty Ltd (in liquidation). Mrs Hooper was a director of the Company from 6 June 1991 to 19 November 1999, 22 July 2002 to 14 June 2004 and 20 August 2004 to 1 December 2006.
9 The defendants were appointed as joint and several administrators of the Company pursuant to s 436A of the Corporations Act on 18 December 2009. On 9 December 2009, prior to the appointment of the defendants as joint and several administrators of the Company, Mr Hooper wrote to the defendants saying:
Can you please email me a copy of the document that I and [Mrs] Hooper will need to complete in order to vote as creditors and [sic] a possible creditors meeting on 31 December 2009 while we are overseas and unable to attend?
10 The administrators' responsive email of the same date enclosed a 'Proposed proof and proxy as discussed.' A proof of debt form was attached, which was headed 'FORMAL PROOF OF DEBT OR CLAIM (GENERAL FORM)' (proof of debt). The form was addressed '[t]o the administrator of: PM SULCS & ASSOCIATES PTY LTD (ADMINISTRATORS APPOINTED)'.
11 On 21 December 2009, the administrators wrote to the Company creditors (including in this and all other instances, the Hoopers) giving notice that the first meeting of creditors, pursuant to s 436E of the Corporations Act, would be on Monday, 4 January 2010 at 3.00 pm. That letter advised:
Also enclosed with this letter is a proof of debt form and a proxy form. All creditors of the company should complete and return the enclosed proof of debt form to my office in order to lodge their claims. Creditors are only permitted to vote at a meeting convened during the administration if they have lodged a claim with the administrator.
The proof of debt form enclosed was the same as that emailed to Mr Hooper on 9 December 2009.
12 On 22 December 2009, each of Mr and Mrs Hooper lodged with the defendants a completed proof of debt form.
13 Mr Lock, by affidavit sworn on 28 May 2015, confirmed receipt of the proof of debt form in December 2009 and the collection of books and records of the Company on 19 February 2010. At the time of receipt of the proof of debt form of Mrs Hooper in late December 2009, in which a claim was made for $1,223,870.02, there was also a formal proof of debt with annexures including a spreadsheet. Apart from that spreadsheet, there was no further supporting documentation.
14 As there were no funds available for distribution to the Company's creditors, there was no occasion to consider the legitimacy of the creditors' claims. However, the defendants became aware of further creditor claims and resolved to call a meeting of creditors.
15 On 2 February 2010, at the final meeting of creditors of the Company whilst under administration, the creditors resolved to wind up the Company pursuant to s 439C of the Corporations Act and appoint the defendants as liquidators.
16 On 3 February 2012, Mr Lock, for the defendants, wrote to Mr Hooper seeking supporting documentation, which was specified to support the proof of debt. The following information was sought:
…
Unpaid loans
The spreadsheet refers to several unpaid loans made by you to PMSA during the period from 1989 to 1997, plus a loan brought forward from 1988.
Whilst the brought forward figure agrees with the company's 1988 accounts, I have not sighted any documentation in relation to interest payable on that loan, nor does there appear to have been any interest accrued on the corresponding loan balance brought forward at the beginning of that year. Ideally, I would like to sight documents confirming that the loans were indeed made by you to PMSA, and that they were entitled to accrue interest. Such documents might include, for example, loan agreement(s), director's resolution(s) etc, none of which I have been able to find in the company's records.
Unpaid salary
The spreadsheet refers to numerous unpaid salary entitlements accruing and payable to you by PMSA, plus interest thereon. As with the entries relating to unpaid loans, these claimed entitlements do not appear to be supported by any substantiating documentation. Such documentation might include a retainer letter or employment contract. You should also provide a written explanation of the basis on which the salary is calculated, together with the basis upon which you say interest is payable thereon.
Other expenses
The spreadsheet contains several entries relating to out of pocket expenses, including the purchase of stationery and computing equipment, as well as legal, motor vehicle and other general expenses. Whilst it is not immediately apparent why these costs should be paid to you by PMSA, I agree that the nature of the expenses suggests that these are legitimate business expenses. I appreciate that providing proofs of purchase for these items may be difficult given the time elapsed since their purchase. Instead, would you please confirm that these items were purchased by you on behalf of PMSA and provide a written explanation of why these expenses were incurred, together with the basis upon which you say interest is payable thereon.
Legal costs, fees, interest and charges
Your proof of debt refers to an "undetermined amount' in respect of "legal costs, fees, interest and or charges". In order for me to be able to adjudicate upon this component of your claim you will need to quantify the amount claimed and provide related supporting documentation.
Please do not hesitate to contact [Mr] Sheahan or me if you have any queries in relation to this matter.
…
17 On 8 February 2012, the defendants provided the Company's creditors, including the Hoopers, with a report outlining their investigations and progress which confirmed: 'We have written to the Hoopers asking for further information to substantiate their claims'.
18 This report to creditors also informed the creditors of a number other activities, which predominantly involved legal proceedings ensuing at the time. These included:
an action by the Company against the Company's former solicitor for alleged negligence;
the Daihatsu litigation;
a claim by that solicitor against the Company for unpaid costs arising from the Daihatsu litigation, which gave rise to a 51 day trial and an order of damages of $3,273,357 plus costs. The costs claimed by the solicitor had been appealed, giving rise to a balance payable of $417,643;
a claim from Mr Oliveri against the Company seeking a declaration that he is entitled to a lien in respect of outstanding funds;
a claim in relation to the possible tax liability of the Company; and
a claim by the Company against Detroit Diesel Allison Australia, which was also a costs claim.
There had been negotiations about settling all of those matters.
19 The outstanding matters as at the date of this report by the defendants to the creditors were:
(1) the adjudication of creditors' claims; and
(2) the resolution of the proposed settlement and resolution of two of the proposed external issues.
20 The Hoopers' claims were noted, together with three other claims.
21 The defendants invited creditors to attend a meeting of creditors to be held on 23 February 2012 at 11.00 am in Sydney, and said the following:
Formal Proof of Debt or Claim (Form 535)
Please only submit this form if you have not already done so, or if your claim has altered. If you have previously only submitted an informal proof for voting purposes, please complete the enclosed formal proof to lodge your claim in this administration. Please indicate whether you are lodging a new or amended claim. Creditors are asked to clearly specify the nature of their claim differentiating between portions of claims that relate to established debts and portions that relate to estimated claims which are contingent on future events.
Claims will only be accepted for voting purposes to the extent they may be fairly estimated and thus any contingent claims must be separately identified so that they may be given proper consideration.
Please arrange to have all proxies and formal proof of debt forms submitted by post, email or facsimile to our Sydney office no later than 5 pm on Wednesday, 22 February 2012 (Sydney time). For the purposes of the meeting, facsimile or email proxies and proofs of debt will be accepted provided that original forms are subsequently posted to me or brought to the forthcoming meeting for confirmation.
(emphasis added)
22 An email was sent on 22 February 2012 to Mrs Hooper materially stating:
I refer to recent communications and to my previous requests for information and documentation in relation to the salary and interest parts of your claim. I note that to date I have not received such information or documentation.
23 Subsequently in communication with Mr Hooper, on the same date, Mr Lock, relevantly, said:
I have not identified the supporting documents to which you refer in your email below. Can you please confirm which box they might be in - I attach a copy of the detailed archive listing for your ease of reference.
24 On or about the next day, the defendants received from Mrs Hooper a box containing various bank statements. A month or so later, on 26 March 2012, Mr Lock emailed the Hoopers pointing out that:
they had not maintained a general ledger;
they had not prepared financial statements since 1989;
they had not lodged any tax returns since 1989;
there was no cashbook per se;
there was no calculation of profit or loss on sale of assets (property, motor vehicles or other assets); and
the records provided were not accompanied by any schedule itemising what had been provided.
25 Mr Lock noted that the Hoopers had subsequently rearranged everything and prepared a very detailed listing. He observed that he was unable to find anything in the documents provided which pertained to details of salary, any board minutes relating to same or anything relating to the Company's decision to acquire a property from Mr and Mrs Hooper and then borrowing from Mrs Hooper against that property, or paying interest on such borrowings.
26 A further email was sent by Mr Lock to Mr Hooper on 9 June 2012, in which Mrs Hooper was included as a recipient as well as her legal representative stating, amongst other things:
… You [Mr Hooper] have not provided the further information sought. Without that information your claims are likely to be formally admitted for the amounts for which they were admitted for voting purposes, with the balance being rejected.
27 On 25 June 2012, Mr Lock received an important letter, which was sent on behalf of Mrs Hooper by Leonard Legal dated 14 June 2012 The letter enclosed, amongst other things, the following documents in support of her claim:
a deed of loan agreement between Mr Hooper and the Company of 20 September 1989;
a deed of loan agreement between Mrs Hooper or Mr Hooper and the Company dated 7 June 1991;
a deed of loan agreement between Mr Hooper and the Company dated 18 October 1997;
the front page of the contract for sale of land dated 25 May 2002;
a mortgage granted by the Company in favour of Mrs Hooper dated 6 June 2007;
a variation of mortgage between the Company and Mrs Hooper dated 29 April 2008; and
summaries of directors' fees for the financial years ending 30 June 2003 to 20 June 2007.
28 The defendants took advice from solicitors in relation to the claims. In light of these advices, Mr Lock sent a letter to Mr Hooper on or around 25 February 2013, asking Mr Hooper to 'please provide [Mr Lock] with your response to the following questions'. A series of questions for Mr Hooper to answer were then set out.
29 Following this, on 20 March 2013, confirmation of rejection of the proof of debt was given to Mrs Hooper. That was perhaps a slightly qualified rejection, in that Mr Lock said 'on the basis of the information and documents you have provided to me, I [sic] unable to admit your proof at this stage'.
30 Again, Mr Lock requested, amongst other things, that Mrs Hooper provide him with a response to a variety of questions which were set out in the letter. The letter was in these terms:
5 March 2013
…
Dear Mrs Hooper,
PM SULCS & ASSOCIATES PTY LTD (IN LIQUIDATION) ("the Company")
I refer to your proof of debt and to the schedule attached to it in support of your claim. On the basis of the information and documents you have provided to me, I unable to admit your proof at this stage. Notwithstanding my inability to admit your proof, I propose to investigate certain matters further and therefore I require you to provide me with a response to the following questions.
Loans to the Company
I have identified 47 separate loans in 'Schedule A' that you claim you have made to the Company. Accordingly, please provide me with documentary evidence (such as bank statements) to show that (a) the loans were drawn against your own funds and (b) that the Company was the beneficiary of each of those loan [sic].
Employment & Wages
Please confirm that none of the loan amounts to the Company (shown in 'Schedule A') represent a claim by you for unpaid wages or director's fees.
Directorship
I note that recital A of the Deed of Loan Agreement dated 7 June 1991 states that you were a director of the Company as at the date of the Deed. ASIC records do not disclose that you were ever a director of the Company. Please advise if at any time you held a directorship with the Company and, if so, please confirm the relevant period(s) during which you were a director of the Company.
Interest Payments
On what basis do you say that-
(a) Interest is payable by the Company to you on the loans/unpaid monies claimed by you?
(b) Interest is payable to you on the terms that you have claimed in 'Schedule A' to your Proof of Debt?
'Schedule A' to your Proof of Debt
What primary material have you relied upon in order to compile 'Schedule A' to your Proof of Debt?
17 Fontaine Street, Chatswood ("the Property")
Please explain the commercial basis on which the Company purchased the Property in 2002.
How was the Company going to pay for the Property when it already had at the time, according to the claims lodged by you and Mr Hooper, spiralling liabilities to each of you for unpaid loans/wages?
Minutes of meetings of directors
Are you aware of the existence of any minutes of meetings of directors (and which you can provide to me) in relation to the following matters:
8.1 Deed of Loan Agreement dated 7 June 1991 between you and the Company;
8.2 The grant of security by the Company to you (pursuant to clause 6.1 of the Deed); and
8.3 The purchase of the Property by the Company and the grant of mortgage security to you on 6 June 2007 and subsequent variation on 29 April 2008.
Conclusion
On the information I have at the moment, the Company by purchasing the Property from you and Mr Hooper simply increased its liabilities for no discernible benefit to it. Moreover, the Company was likely to have been insolvent when it entered into the transaction.
If that is the case, and your claim (and Mr Hooper's claim) was admitted in full, it would mean that it was very likely the Company had no capacity to pay its liabilities when it purchased the Property in 2002, and almost certainly the Company was insolvent in June 2007 (and April 2008) when it granted the mortgage security to you.
I look forward to receiving the above information and documents as soon as possible. Please contact my associate, David Vlahos, or me if you have any questions in relation to the above matters.
…
No response was received.
31 On about 14 May 2013, the defendants provided the Company's creditors, including the Hoopers, with a further report outlining the investigations and progress of the liquidation. The defendants informed the creditors that they had sought documentary evidence for each loan transaction where the transactions were properly described in order to determine that each loan was made to and for the benefit of the Company.
32 In January 2014, the defendants engaged solicitors to further their investigations and to attempt to seek answers to the questions put to Mrs Hooper in the 5 March 2013 letter. The defendants formed the view that it would be appropriate for the Hoopers to be examined pursuant to s 596A and s 596B of the Corporations Act.
33 On 18 February 2014, based on legal advice obtained an on the information provided to the defendants by the Hoopers, Mr Lock also wrote to Mrs Hooper notifying her of the rejection of her proof of debt setting out the reasons for the rejection in these terms:
…
[10]
MRS HOOPER'S CLAIMS ON APPEAL
36 The specific relief Mrs Hooper seeks through the originating application on the appeal is:
(1) an order pursuant to s 1321 of the Corporations Act that the defendants' decision to reject Mrs Hooper's proof of debt be set aside;
(2) a direction to the defendants to accept the proof of debt;
(3) such further and other relief the Court considers appropriate; and
(4) costs.
37 In addition, in the Hoopers' outline of submissions filed and served on 7 August 2015, by counsel for the Hoopers at the commencement of the hearing, and in the Hoopers' supplementary outline of submissions filed and served on 4 September 2015, Mrs Hooper sought:
(1) a declaration that the completed proof of debt form lodged by Mrs Hooper were not formal proofs of debt for the purposes of Pt 5.6 of the 2001 (Cth) of the Regulations; and
(2) an order that the defendants admit the debt claimed by Mrs Hooper.
38 The Hoopers acknowledge, or at least acknowledge by submissions in reply filed after the hearing, that they need leave to amend the originating process to seek alternate relief. However, in light of my findings and reasons below in relation to the claims of Mrs Hooper and submissions made on her behalf, such an amendment would be futile. I would therefore not permit it.
39 Mrs Hooper says she understood that the purpose of lodging the completed proof of debt form on 22 December 2009 was solely for voting purposes and would not later be ruled upon by the defendants. This position is supported by her husband, now (but not previously) represented by the same solicitors and counsel. Accordingly, they argue that the proof of debt forms were only provided to the defendants in their capacity as administrators of the Company. The defendants had not then been appointed as liquidators.
40 This belief was confirmed, she says, by Mr Lock on two occasions. First, at the second meeting of creditors on 23 February 2012 and again at its conclusion on 23 March 2012. Secondly, she says that her belief was confirmed in various emails between Mr Hooper, Mr Lock and herself on 9 December 2009 and 31 July 2012. Those documents were produced.
41 Mrs Hooper's claims have changed since her first communications with the defendants.
42 Mrs Hooper first deposed in her affidavit sworn on 5 March 2014 that the Company was indebted to her in the sum of:
(1) $122,485.77 in respect of a mortgage shortfall;
(2) $1,101, 384.25 in respect of various loans made by her to the Company; and
(3) an undetermined amount in respect of legal costs, fees, interest and/or charges.
43 However, in a subsequent affidavit sworn on 23 October 2014, Mrs Hooper deposed that her claim amounts to $1,835,468.82. It was said to be comprised of the following amounts:
NATURE OF DEBT AMOUNT OF DEBT
Mortgage Shortfall $300,469.44
Unpaid Expenses $3,295.25
Unpaid Loans to Company $533,779.79
Interest on Unpaid Loans to Company and Unpaid Expenses $504,688.95
Unpaid Directors Fees $223,398.79
Interest on Unpaid Directors Fees $269,836.60
TOTAL $1,835,468.82
[11]
44 I will deal with those amounts in sequence as best I can on the quality of evidence provided to support the claims.
[12]
4.1 Mortgage shortfall
45 First, in relation to the mortgage shortfall, Mrs Hooper says that it arises following the sale of a property owned (wholly or in part) by her to the Company on or about 25 May 2002. The property was at 17 Fontaine Street, Chatswood, New South Wales (Chatswood property). It was sold for $1.4 million with duty paid of $62,490.
46 Mrs Hooper contends there is no suggestion on the evidence that the mortgage was not validly entered into, or that it was not binding on the Company.
47 Rather, the Hoopers both contend:
(a) on 4 May 2007, Mr Hooper, as the sole director of the Company, resolved that the mortgage was for the benefit of the Company;
(b) by way of his affidavit of 23 October 2014, Mr Hooper deposed that he, as the sole director of the Company, confirmed the entry by the Company into the mortgage; and
(c) the key terms of the mortgage (which is in evidence):
(i) by cl 3, the Company was required to pay the principal sum owing under the mortgage or so much as remained unpaid by 30 April 2008;
(ii) by cl 1, the principal sum was defined as all monies that the Company owed to Mrs Hooper at the time or later, whether before or after the signing of the mortgage or arising out of any transaction or thing done by the Company and included, amongst other things the sum of $1 million, and all sums of money owing or owed by Company to Mrs Hooper for all loans advanced or any indebtedness from the Company to Mrs Hooper; and
(iii) by cl 4, interest was payable on the monies lent at 13.5% per annum calculated on a daily basis by equal monthly instalments on the due date, being the 30th of each month until the principal sum was repaid. This interest rate was reducible to 29.5% per annum when paid within 7 days of the interest due date.
48 Mrs Hooper deposed by affidavit that between 7 May 2007 and 21 April 2008 she lent the Company $1 million pursuant to the terms of the mortgage.
49 Mrs Hooper says that this loan was for the purposes of providing the Company with monies to continue funding various court proceedings when, in the six months leading up the global financial crisis, the Company was unable to obtain funds other than at 'exorbitant' interest rates. She did this by borrowing $1.15 million from the Commonwealth Bank of Australia on a personal loan of credit secured by the Bank with a first priority mortgage over a property owned by her at 86 Macquarie Street, Roseville, New South Wales (Roseville property).
50 The dates and amounts of the various payments are said to be as follows:
DATE AMOUNT MRS HOOPER BANK STATEMENT COMPANY BANK STATEMENT
7/05/2007 $100,000 Page 141 Exhibit LH-2 Page 161 Exhibit LH-2
8/06/2007 $100,000 Page 143 Exhibit LH-2 Page 163 Exhibit LH-2
29/06/2007 $500,000 Page 145 Exhibit LH-2 Page 165 Exhibit LH-2
17/08/2007 $50,000 Not available Pages 167 Exhibit LH-2
10/10/2007 $50,000 Page 147 Exhibit LH-2 Page 160 Exhibit LH-2
22/11/2007 $50,000 Page 150 Exhibit LH-2 Page 170 Exhibit LH-2
14/12/2007 $10,000 Not available Page 172 Exhibit LH-2
08/02/2008 $25,000 Page 151 Exhibit LH-2 Page 174 Exhibit LH-2
03/03/2008 $25,000 Page 153 Exhibit LH-2 Page 176 Exhibit LH-2
05/03/2008 $25,000 Page 153 Exhibit LH-2 Page 176 Exhibit LH-2
18/03/2008 $25,000 Page 154 Exhibit LH-2 Page 177 Exhibit LH-2
10/04/2008 $20,000 Page 156 Exhibit LH-2 Page 178 Exhibit LH-2
21/04/2008 $20,000 Page 156 Exhibit LH-2 Page 178 Exhibit LH-2
[13]
51 Mrs Hooper says that in April 2008, when the fixed term of that loan was due to expire, the Company was unable to repay the loan as the Chatswood property had not been resold. Accordingly, in order to provide the Company with further liquidity, Mrs Hooper extended the Company loan for a period of 12 months and advanced an additional $500,000. The Company and Mrs Hooper entered into a variation of mortgage to provide that the principal sum to be repaid was to be increased to $1.5 million, the term of the mortgage extended to 30 April 2009 and the interest rate on the mortgage increased to 15.5% per annum. Mrs Hooper says there was and is no challenge to the validity of this transaction. She funded the further Company loan by investing $400,000 as the trustee of her self-managed superannuation fund on 29 April 2008.
52 Mrs Hooper says the sums duly advanced totalled $550,000. This sum is in contrast to the $500,000 pursuant to the variation of mortgage. She says that according to the 'unchallenged evidence' in her affidavit she lent the $550,000 by three separate payments to the Company between 29 April 2008 and 22 April 2009, being:
(1) $400,000 on 29 April 2008;
(2) $50,000 on 18 December 2008; and
(3) $100,000 on 22 April 2009.
53 The Company defaulted on both the Company loan and the further Company loan, as the Chatswood property was not sold until 26 September 2009 with settlement occurring in November 2009. The loan monies were not repaid until on or about 9 or 10 November 2009.
54 Between 25 June 2007 and 10 November 2009, the Company repaid Mrs Hooper $1,753,713.84 pursuant to those agreements.
55 In her affidavit of 5 March 2014, Mrs Hooper deposes to a shortfall on those transactions of $122,485.77 for interest due and payable under the mortgage agreement. However, Mrs Hooper's affidavit of 23 October 2014 and the submissions filed on behalf of Mrs Hooper on 7 August 2015 record the shortfall owing by the Company to Mrs Hooper as $300,469. This is just one of the the inexplicable and unsatisfactory issues with the Hoopers' case, to which I will return later in these reasons.
56 Mrs Hooper contends that she has calculated the interest owing to her under the terms of the mortgages and the variation of mortgage, in working papers set out in her affidavit. These calculations purport to identify the amount of interest payable by the Company to Mrs Hooper each day on the outstanding principal sum after taking into account the advances made progressively by Mrs Hooper and the repayments received by Mrs Hooper from the Company.
57 In respect of those balances, between 7 May 2007 and 5 July 2007, interest rate of 9.5% was applied, although it was not until 25 June 2007 that the first payment of $2,375 was made, which repays the outstanding interest to that date. Between 6 July 2007 and 28 April 2008, the Company never repaid in full the outstanding interest on the monies lent to it by Mrs Hooper. As a result, for that period, the standard interest of 13.5% per annum, calculated daily is applied. A similar treatment has been given for the variation of mortgage at the higher interest rate.
58 Mrs Hooper says these interest calculations are straightforward arithmetic, which, she repeats, was unchallenged in cross-examination. Mrs Hooper was not called or required for cross-examination.
[14]
4.2 Unpaid expenses
59 Mrs Hooper says that pursuant to the terms of the mortgage, the Company was required to pay Mrs Hooper all costs, charges and expenses that Mrs Hooper paid, incurred or was put to in connection with:
the Chatswood property;
the mortgage;
the preparation, completion or discharge of the mortgage; and
the exercise or attempted exercise of any right, power, authority, discretion or remedy conferred in Mrs Hooper or on any attorney of Mrs Hooper under the mortgage or by statute.
60 Between 1 June 2009 and 3 July 2009, Mrs Hooper obtained advice from solicitors in connection with the mortgage. The following is a summary of the invoices that Mrs Hooper says she paid in respect of legal fees, costs, interest and charges under the mortgage:
Date Name Description Amount (incl. GST)
1 June 2009 A & A Solicitors Variation of Mortgage $325.25
12 June 2009 A & A Solicitors Mortgage advice $990.00
22 June 2009 A & A Solicitors Mortgage advice $990.00
3 July 2009 A & A Solicitors Drafting charge $990.00
Total $3,295.25
[15]
61 Accordingly, pursuant to the mortgage, the unpaid expenses incurred in relation to legal costs, fees and charges are said to amount to $3,295.25.
[16]
4.3 Unpaid loans to the Company
62 In relation to the various loans, Mrs Hooper deposed in her first affidavit of 5 March 2014 that between 4 August 1997 and 18 December 2009, she made approximately 47 separate loans to the Company in the amount of $558,245.79. The loans were said to be for the Company's benefit and, in particular, the funding of litigation, and payment of expenses and incoming bills. These were supported, Mrs Hooper says, by a loan agreement dated 7 June 1991 (the Lianne Loan Agreement). She claims that the Company is indebted to her in the sum of $1,101,394.25. this is the sum of the principal loan amount of $558,245.79, together with the interest of $543,138.46 calculated in accordance with the loan agreement.
63 Subsequently, in her affidavit sworn on 23 October 2014, Mrs Hooper sought to correct her assertion in the earlier affidavit and depose that, in fact, she made 41 separate loans to the Company in the total amount of $533,779.79. These loans were were said to be advanced at the verbal request of Mr Hooper.
64 The following computations were supplied, together with supporting Company bank statements and Company minutes:
65 The total of those advances is $533,779.79. Prior to the winding up of the Company, it repaid Mrs Hooper $100,000 in respect of those loans. Accordingly, Mrs Hooper contends that the balance of $433,779.79 is due and payable to her, together with interest under the Lianne Loan Agreement.
66 Mrs Hooper contends that the balance is due and payable to her by reasons of cl 3.3 of the Lianne Loan Agreement, which provides that the Company agrees to paying the 'Agreed Amount to be Lent on the Repayment Date'. The 'Agreed Amount to be Lent' is defined under the Lianne Loan Agreement to mean 'at any time and from time to time, all unpaid fees, expenses and loans owed to the Lender by the Borrower'.
[17]
4.4 Interest on unpaid loans
67 Interest is claimed pursuant to cl 5.2 of the Lianne Loan Agreement in the amount said to be supported by working papers supplied. These computations, it is said, are also relatively straightforward arithmetic.
68 Mrs Hooper deposes that the interest owed on the various unpaid loans when calculated by reference to the lower interest rate under the Lianne Loan Agreement is $543,138.46.
[18]
4.5 Unpaid director's fees
69 Mrs Hooper also has a claim for a period of unpaid director fees, being a director of the Company from 6 June 1991 to 19 November 1999, 22 July 2002 to 14 June 2004, and 14 August 2004 to 1 December 2006. There is provision for remuneration of directors of the Company pursuant to cl 38 of the Company's constitution.
70 Minutes of a general meeting of the 'shareholders' of the Company (there being in fact only one - Mr Hooper) on 6 June 1991 referred to the director's fee agreement dated 6 June 1991, as do the minutes of the general meeting of the 'shareholders' of the Company on 10 June 1998 and 6 June 2000.
71 The director's fee agreement has not been exhibited to any affidavit of Mrs Hooper.
72 Mrs Hooper relies upon part A of the background of the Lianne Loan Agreement which states that:
The lender is an [sic] Director of the Borrower pursuant to a Director fee agreement with the Borrower of $20,000 per annum. The Director fee shall be for a period of 12 months commencing on 6 day of June 1991 and shall continue thereafter unless and until the agreement shall be determined by either party hereto giving to the other three months notice in writing of such intended determination such notice to expire at or on any day after the end of the said period. The Director fee shall be increased on the 6th of June each year and such increased fee shall be such amounts as she and the board shall mutually agree upon or CPI whichever is the greater.
73 On the strength of that clause, Mrs Hooper produces working papers purportedly setting out the director's fees which is said to total $233,398.79.
[19]
4.6 Interest on unpaid director's fees
74 Further, Mrs Hooper says that the interest payable on the unpaid director's fees calculated at the lower rate of interest is $269,836.
[20]
MR HOOPER'S CLAIMS ON APPEAL
75 The specific relief Mr Hooper seeks in the originating application filed on 5 March 2014 is:
(1) an order pursuant to s 1321 of the Corporations Act that the defendants' decision to reject Mrs Hooper's proof of debt be set aside;
(2) a direction to the defendants to accept the proof of debt;
(3) such further and other relief the Court considers appropriate; and
(4) costs.
76 In addition, relief alternative to that set out in the originating application was sought on behalf of Mr Hooper in the same terms and in the same manner as set out above (at [37]) in relation to Mrs Hooper.
77 In light of my findings on the actual claim as now advanced, the amendment would be futile and will not be permitted.
78 In this appeal, Mr Hooper also explains why he believed, following discussions with Mr Lock and Mr Sheahan, that a formal call for proof of debts would be made by the defendants if and when funds were available for distribution to creditors. In this regard, Mr Hooper explains the purpose of his completion of proof of debt form was solely for voting purposes and would not be ruled upon by the defendants.
79 The debt claimed by Mr Hooper in the liquidation amounts to $8,749,799.84. The debt is said by Mr Hooper to be comprised of the following amounts:
NATURE OF DEBT AMOUNT OF DEBT
Unpaid Directors Fees $3,596,532.88
Unpaid Expenses $29,870.34
Interest $5,123,396.62
TOTAL 8,749,799.84
[21]
5.1 Director's fees
80 Mr Hooper relies on a management contract entered into on 17 March 1987, pursuant to which he agreed to serve the Company as its 'manager'. Clause 3 provided that he would have a salary of $140,000 per annum payable by equal monthly instalments, payable on the first day of each month to be adjusted.
81 Mr Hooper submits there can be no suggestion that the management contract was not validly entered into, or that it was not binding on the Company. He points out that in the 21 years between 1987 and 2009 inclusive, payment of director's fees to Mr Hooper was confirmed in the Company minutes.
82 Mr Hooper claims that the amount owning to him between 1 April 1987 and 18 October 2009 pursuant to cl 3 of the management contract is $4,750,509.28. The total amount paid by the Company to Mr Hooper is $1,153,976.04. Consequently, Mr Hooper claims the balance due to him, including the amounts adjustable by reference to CPI, being $3,596,532.88. Again, it is submitted on behalf of Mr Hooper that the calculations are relatively straightforward arithmetic on which Mr Hooper was not challenged.
[22]
5.2 Unpaid expenses
83 As to unpaid expenses, Mr Hooper draws on cl 6 of the management contract, under which the Company is to pay to the manager all reasonable travelling, hotel and other expenses wholly and exclusively incurred by him on or about the performance of his duties.
84 Mr Hooper also points to the fact that he requested from the defendants copies of the invoices and receipts supporting each of the expenses referred to in his claim, but those are not provided.
85 Further, Mr Hooper says that by trust deed dated 18 October 1997, he was appointed as trustee of the nominee trust with the beneficiary being the Company. The Company agreed to payments of $100 per month to act as trustee to the trust and his unchallenged evidence is that in that capacity there was $14,700 owing to him between 18 October 1997 and 18 December 2009.
86 Accordingly, the total amount owing by the Company to Mr Hooper for unpaid expenses is the total of $15,170.34 and $14,700, which equates to $29,820.34.
[23]
5.3 Interest
87 Interest is payable to Mr Hooper, he says, under the deed of loan agreement between him and the Company made on 22 September 1989 (John Loan Agreement). He produces working papers with a calculation of the interest sum due, which are again 'relatively straightforward arithmetic' on which he was not challenged by any cross-examination.
88 Pursuant to cl 2.3 of the John Loan Agreement, the Company agreed to repay the 'Agreed Amount to be Lent on the Repayment Date.' The 'Agreed Amount to be Lent' is defined by the John Loan Agreement to mean 'at any time and from time to time, all unpaid wages; expenses and loans owed to the Lender by the Borrower.'
89 Further, cl 4.2 of the John Loan Agreement provides that if an 'Event of Default' occurs, Mr Hooper may demand immediate payment of the 'Repayment Amount'. Pursuant to cl 1.1(j), the 'Repayment Amount' includes interest. Pursuant to cl 4.1, an 'Event of Default' includes the Company becoming insolvent.
90 As the 'Amount Agreed to be Lent' means all unpaid wages, expenses and loans owed to Mr Hooper by the Company from time to time, it includes the outstanding wages and unpaid expenses referred to above. Interest is therefore payable on those amounts. Mr Hooper therefore says that the total amount owing by the Company to him is $5,123,396.62.
[24]
OTHER EVIDENCE IN SUPPORT OF THE APPEALS
91 The evidence in these appeals was largely documentary. That was particularly so after extensive objection was taken to the affidavit evidence. I do not propose recording in detail the nature of the objections and the rulings which were dealt with in the course of the hearing.
92 In my view, in a matter such as this, the primary source of evidence is the content of contemporaneous documents. That said, each of Mr and Mrs Hooper swore affidavits which elaborated on the background to the documentation, but did not bear greatly on the determination of the issues below. As much of it has been addressed, I refer to the affidavits only briefly.
[25]
6.1 Mrs Hooper
93 Mrs Hooper swore two affidavits. The first on 5 March 2014, and the second 23 October 2014. In her affidavits, as in the case of the affidavits of the defendants, she produces a substantial body of documentation by way of annexures.
94 Mrs Hooper confirmed her understanding that a formal call for proof of debts would be made by the defendants prior to funds being available for distribution to creditors and that the purpose of her completion of the proof of debt form was solely for voting purposes and would not be ruled upon by the defendants. She produced the emails from which it is said that understanding arose.
95 Mrs Hooper confirmed the evidence concerning the loans and mortgage previously given by her husband, as discussed above. As noted, Mrs Hooper deposed that she funded the Company loan by borrowing $1.15 million in May 2007 from the Bank on a personal line of credit secured by the Bank with a first priority mortgage over the Roseville property. A further $400,000 was advanced by her as trustee of her self-managed superannuation fund in April 2008 and the Company defaulted on both loans.
96 In the second affidavit, Mrs Hooper annexed a lot of the documentation which she had made available to the defendants in support of her claim and their responses. She also annexed various Australian Securities and Investments Commission (ASIC) reports concerning her appointment as a director of the Company and gave evidence about the Daihatsu litigation.
97 In addition, Mrs Hooper produced credit statements said to support her 13 advances to the Company between May 2007 and April 2008, and also corrected some other amounts incorrectly described in her first affidavit.
98 Mrs Hooper contended that the payments made to her from the Company totalling $1,753,713.84 were comprised of six payments between June 2007 and November 2009. As at 18 December 2009, the date of the appointment of the defendants as administrators, she contended the mortgage shortfall from the Company to her was $300,469.44. That, she says, was a figure she established in working sheets of her calculations of the interest. She produced the working sheets.
99 In relation to the unpaid expenses, Mrs Hooper produced various tax invoices from solicitors whom she said she personally paid for advice in respect of the Company's default. She also explained that she paid solicitor's invoices (some which were produced) by credit card over the phone.
100 There are similar evidentiary difficulties relating to Mr Hooper, although it may be accepted that for much of the time he was the sole shareholder and director of the Company.
[26]
6.2 Mr Hooper
101 Mr Hooper purchased all the shares in the Company in or around April 1990. There were various license agreements conferring intellectual property and exclusive territory rights associated with this purchase.
102 The Company commenced proceedings against Daihatsu Australia Pty Ltd in New South Wales to recover licence and management fees in 1993 (Daihatsu litigation). In 1997, further litigation was pursued against various parties (DDAA litigation).
103 The Company did not trade for several years after the commencement of the Daihatsu litigation in 1993.
104 By reference to board minutes of a meeting that took place on 4 May 2007, Mr Hooper says the following was resolved:
To release equity within a fixed real estate asset to provide cash liquidity necessary to meet the Company's short term obligations to:
1. Complete the building renovation works for sale for profits [the Chatswood property];
2. To pay trustee, director employee fees being secured debt; and
3. To pay unsecured debts such as rates, land tax, litigation expenses.
105 Mr Hooper said that Mrs Hooper advanced a number of loans to the Company at his request between 4 August 1997 and 18 December 2009. He refers to Company minutes recording those loans on 10 June 1998, 6 June 2000, 22 June 2001 and 16 May 2002.
[27]
THE DEFENDANTS
106 It is very much at issue between the parties as to whether or not anything said by the defendants could give rise to an inference that the proof of debt was simply an 'Informal Proof' of debt to be used solely for voting purposes. Mr Lock says that, as a matter of practice, he does not invite informal proofs of debt in any administrations and the allegations made by the Hoopers are inconsistent with the normal practice of the defendants.
107 Ultimately, Mr Hooper was examined on 23 March 2015 pursuant to s 596A of the Corporations Act and Mrs Hooper examined on 24 March 2015 pursuant to s 596B of the Corporations Act. The transcripts were produced in evidence.
108 By affidavit sworn on 26 August 2014, Mr Lock explained that Mr Nelson, who was assisting the defendants on Mr Lock's instructions, had removed the documents obtained from the Company from the storage containers in which they were delivered and sorted them into bundles by categories, such as BAS bank statements, legal proceedings etc and created a detailed list of the documents. The list was produced in evidence. Documents were produced in March 2010 and further documents were obtained in October 2013, being two boxes of records which were delivered to the defendants' Adelaide office in response to a request made by Mr Hooper of Mr Lock to have the Company's BAS statements made available to the Australian Tax Office (ATO). Mr Lock duly conveyed the information to the ATO. Some of those documents, despite request, as at the date of swearing the affidavit, had not been returned from the ATO.
109 Mr Lock also swore another affidavit on 28 May 2015 in relation to Mr Hooper's claims. This affidavit recounts much the same history, but in relation to Mr Hooper's claim for $8,846,457.92, comprised of, according to the 'formal proof of debt': a loan in lieu of unpaid salary, a carried forward loan, sundry expenses claimed against the Company and accrued interest, together with an undetermined sum in respect of legal costs, fees, interest and/or charges. The proof of debt produced in this affidavit was accompanied by a spreadsheet annexed to it, but there were no other supporting documents. The content of the affidavit was otherwise consistent with the affidavit directed to the claims by Mrs Hooper.
110 Mr Lock produced an email sent on 26 May 2012 to Mr Hooper and others in response to a series of emails in which he stated, amongst other things:
You have not maintained a general ledger, you have not prepared financial statements since 1989, you have not lodged any tax returns since 1989, there is no cashbook per se, there is no calculation of profit or loss on sale of assets (property, motor vehicles or other assets) and the records provided to us were not accompanied by any schedule itemising what had been provided. We have, as you know subsequently reboxed everything and prepared a very detailed listing. I am unable to find anything in the documents provided to us which pertains to details of your salary, any board minutes relating to same or anything relating to the Company's decision to acquire a property from you and [Mrs Hooper] and then borrow from [Mrs Hooper] against that property, or to pay interest on such borrowings.
111 On 14 May 2013, the defendants provided to the Company's creditors a report which confirmed, amongst other things, that they had sought evidence of the tasks Mr Hooper undertook for the Company and for which he claimed accrued wage entitlement and interest, plus the basis of any superannuation payment/contribution in June 2007.
112 Mr Lock confirmed that the salary component of Mr Hooper's claim, which included director's fees, expenses and trustee's fees was rejected in its entirety. Mr Lock did not consider that there was a proper basis upon which Mr Hooper could claim a salary, or certainly a salary at that quantum, in circumstances when the Company had ceased operating a business from no later than 1993.
[28]
7.1 Defendants' submissions as to the effect of the transactions
113 As with portions of the Hoopers' affidavits, parts of the content of the affidavits for the defendants was effectively in the form of submission. I did not receive such material as evidence, but have treated the following matters as submissions. The defendants submit that from a review of the transcript of the examination of Mr Hooper and the documents provided to the defendants it is open for me to conclude that:
(a) on 6 June 2007, the Company granted a mortgage over the Chatswood property to Mrs Hooper in consideration for a loan of $1 million made from Mrs Hooper to the Company;
(b) in around 29 June 2007, the Company received $500,000 from Mrs Hooper. On the same day, Mrs Hooper caused the Company to transfer $537,686.40 to Mr Hooper in respect of claimed unpaid salary;
(c) on or about 29 April 2008, the mortgage referred to above was varied to increase the rate of interest to 15.5% and to record that the principal sum had been increased to $1,500,000. The term was extended by one year to 30 April 2009. It is not clear what benefit the Company received in further encumbering its only asset; and
(d) after the Chatswood property was sold, on or around 9 November 2011, Mrs Hooper received $1,746,588.84 from the Company in partial repayment of the mortgage in addition to $7,125 previously received by her from loan repayments made in 2007.
114 The defendants also submit that it is unclear why the Company sought the loans from Mrs Hooper, why the Company used the funds received to pay Mr Hooper's claim for wages and why, when the funds were received, the Company did not pay its other creditors, in particular, those creditors whose claims had already become due and payable.
115 The defendants submit that it is open to infer that each of the transactions set out above were not in the Company's best interest and were, in effect, a transfer from Mrs Hooper to Mr Hooper using the Company as a conduit. Alternatively, that those transactions may be regarded as transactions made with the intention of defeating the claims of external creditors. I agree with both these submissions for reasons that follow.
[29]
SPECIFIC ISSUES
116 I will now examine the specific contentions arising in the appeal.
[30]
8.1 Proof of debt in administration, not in liquidation
[31]
8.1.1 Outline
117 The Hoopers argue that the fundamental difficulty with the defendants' rejection of the proofs of debt is that they were not submitted to the defendants for the purpose of the winding up of the Company. Rather, they were lodged when they were the administrators of the Company pursuant to Pt 5.3A of the Corporations Act and were addressed to them in their capacity as administrators.
118 Accordingly, the Hoopers argue that the defendants were not entitled to treat the proofs of debt as being formal proofs of debt in the winding up of a company.
119 In support of this argument, the Hoopers refer to Selim v McGrath (2003) 47 ACSR 537 (at [39]) where Barratt J noted that:
… there are significant differences between proof of debts and claims for voting purposes in relation to Part 5.3A meetings and proof of debts and claims for the purposes of entitlement upon a distribution in a winding up…
120 In the same case, his Honour said (at [78]):
It is next necessary to consider the part that a system of proof of debts plays in the system of voluntary administration created by Part 5.3A. Leaving to one side the possibility that a deed of company arrangement may, for purposes of recognising and quantifying debts, incorporate a proof regime that attains binding force through s.444D (and see MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636), Part 5.3A does not contemplate that creditors will prove their debts or claims or that creditor recognition and rights are dependent on any system of proof of debts. In this, Part 5.3A is to be contrasted with the winding up provisions where the [Corporations] Act proceeds on the basis that, in the final analysis, recognition as a creditor (as distinct from a mere claimant to creditor status) will be determined by adjudication of a proof of debt submitted by the claimant.
121 The Hoopers also referred to Re Equititrust Ltd (in liq) [2013] QSC 346, in which McMurdo J held that a formal proof of debt submitted for the purpose of the administration was not a formal proof of debt for the purpose of the liquidation. The reasoning in relation to that conclusion was set out as follows (at [30]-[38]) (footnotes omitted):
[30] The starting point is that there is no provision of the Act or of the Regulations which is in terms that a proof of debt lodged at an administrator's meeting will constitute a proof of debt as if it had been lodged with a liquidator, in the event that the company is placed in liquidation.
[31] Next there is the difference between a proof of debt which is relevant to an administrator in a meeting under s 439A and a proof of debt for a liquidation, as to the date or dates upon which a debt is said to be owing. For the administrator, the relevant date is that of the meeting itself. For a liquidator the amount of a debt or claim is to be computed as at the "relevant date", which is the day on which the winding up, because of Division 1A of Part 5.6, is taken to have begun. Where a company was under administration immediately before the passing of a resolution for its winding up (as here), then the winding up is taken to have begun when the administration began. Therefore, the relevant date for the purposes of s 554(1), in a case such as the present one, is necessarily a different date from that on which the meeting under s 439A was held.
[32] Further, the liquidator must have a statement, according to Form 535, that the company was not only indebted to the creditor as at the relevant date, but remained indebted as at the date of the proof of debt.
[33] Consequently a proof of debt for voting purposes at a meeting under s 439A could not comply with the requirement of reg 5.6.49(2), at least because it would address the indebtedness as at a different date or dates. As it happens, the document here stated the amount of the debt as at the commencement of the administration. But that factual matter does not affect the proper interpretation of the relevant regulations.
[34] A meeting under s 439A has three possible outcomes: a deed of company arrangement, an end to the administration or a liquidation. Conceivably the creditors might resolve to end the administration but the company might subsequently be wound up, either by the court or voluntarily. In such a case, (again) the relevant date for the existence of the debt would differ between the administration and the liquidation.
[35] Regulation 5.6.48 permits a liquidator to fix a day by which creditors whose debts or claims have not been admitted are to formally prove their debts or claims. If a formal proof lodged for voting at an administrator's meeting is to be treated as a formal proof in the liquidation, the operation of reg 5.6.48 would be unclear where the debt or claim has not been admitted by the liquidator.
[36] Importantly, reg 5.6.49 provides that a formal proof of debt is to be delivered or sent to the liquidator. A proof lodged with the administrator, as the chairperson of a meeting under s 439A, would not satisfy reg 5.6.49 unless subsequently the document was delivered or sent by the creditor to the liquidator. In Re: Castleplex Pty Ltd (in liq), the position apparently was that the creditor asked to have his proof of debt, which had been lodged with the administrator, treated as one which had been submitted to the liquidator.
[37] Further, it would be problematical to give a proof of debt which has been lodged with an administrator an ongoing effect as a proof lodged with a liquidator where the proof had been rejected by the administrator. In Derwinto Pty Ltd (in liq) v Lewis, Austin J said that apart from the possibility of an appeal, a rejected proof of debt has no status for the purposes of the winding up and reg 5.6.56 can therefore have no application to a proof of debt that has been rejected. His Honour was not there referring to a rejection of a proof for voting purposes. But it is difficult to accept that a proof, which has been rejected by an administrator for voting purposes, should nevertheless take effect as a proof which is maintained by the creditor in the liquidation.
[38] In the present case, the creditor has not asked the liquidator to treat the document as a formal proof of debt in the liquidation. In my view, the document was not a formal proof of debt for the purposes of the liquidation. If reg 5.6.23 does provide for the lodgement of a formal proof in a meeting under s 439A, such a document will not be a proof of debt in and for the purposes of a liquidation, at least unless the creditor acts in a way towards the liquidator which effectively puts forward the document as a proof of debt intended to be assessed by the liquidator. Otherwise a proof of debt lodged at an administrator's meeting will not constitute a proof of debt in the liquidation.
(emphasis added)
122 As to their subjective intent, Mr and Mrs Hooper say that they understood that they were filing informal proofs of debt for voting purposes only and at no time did they act in a way towards the defendants that put forward the proof of debt as formal proofs of debt for the purpose of the Liquidation. It is said that is confirmed by the 31 July 2012 email from Mr Hooper to Mr Lock, in which Mr Hooper said:
You have not called for formal proofs of debts.
Do you have a date when you will be calling on formal proofs of debt from all creditors?
123 It is further said that Mr Hooper's email of 13 March 2013 in response to the defendants' letter of 25 February 2013 (referred to above at [28]) supports the conclusion that there were no formal proofs of debt submitted by Mr and Mrs Hooper on which the defendants could adjudicate in the winding up of the Company as none had been submitted by the Hoopers to the defendants. Mr Hooper's email relevantly said:
…
Ian,
RE: Letters to John Hooper & Lianne Hooper re proof of debt - PM Sulcs & Associates Pty Ltd (in liquidation)
Is this a notice that you [sic] calling on all formal proof debts from all creditors?
To my knowledge, all of the questions in your two letters last week have been answered previously either in writing or verbally at creditors meetings or in telephone discussions. At our last meeting we agreed that we would assemble all of our documents, recalculate our proof of debts and submit our formal proof of debts when requested along with all other creditors when funds were ready for distribution.
…
We understand that your letters of last week are to assist us in answering all your questions in one document for the [sic] your formal adjudication when we receive that notice. Do you have any other questions you need answered in our formal proof of debts?
…
124 In the email chain on which the Hoopers rely, the Hoopers also emphasise the email from Mr Hooper of 28 February 2014, saying that he was very disappointed and surprised that the defendants had broken repeated undertakings to give Mr Hooper at least 14 days notice of the intention to call for formal proofs of debt.
125 The Hoopers also submit that the passage in Re Equititrust Ltd (at [38]) on which the defendants rely is incorrect because reg 5.6.49 of the Regulations requires a formal proof of debt to be delivered or sent by post to the liquidator. They submit that a creditor asking a liquidator to treat a proof of debt sent to the administrator as being a proof of debt to the liquidator does not satisfy reg 5.6.49. Even if that submission is wrong, there was no intention on the part of the Hoopers, it is argued, that the proof be treated as being a proof of debt of the liquidation evidenced by the fact that they continually wrote asking when the defendants were calling on formal proofs of debt.
[32]
8.1.2 Consideration
126 I accept the defendants' submission that the nature of the appeals advanced by the Hoopers do not rest on a contention that no proof had been submitted in the liquidation. If the merits of the situation allowed it without injustice being caused, I would allow an amendment. But there are other difficulties. The first difficulty is that the proof of debts lodged by the Hoopers were, on their face, a 'formal proof of debt or claim' completed as a proof of debt form pursuant to reg 5.6.49(2).
127 Fundamentally, however, the reasoning in Re Equititrust Ltd is to be distinguished on its facts from the facts in this case, in which the Hoopers by letter from their then solicitors on 14 June 2012 said 'Please advise what (if any) additional documents you require in support of the proofs of debt filed by our clients to as to be in a position to adjudicate on same' (emphasis added).
128 Regardless of what may have preceded this communication, this correspondence was in substance a request on behalf of the Hoopers to have their proofs of debt, which had been lodged during the administration, to be treated as proofs of debt submitted to the defendants. Indeed, this was the factual circumstance which was considered in Re Castleplex Pty Ltd (in liq) [2010] QCA 59, as noted by McMurdo J in Re Equititrust Ltd (at [35]).
129 In Re Castleplex, McMeekin J, with whom McMurdo J agreed, said (at [79]-[83]):
Formal Proof of Debt
[79] There is one final matter not canvassed in the Outlines of Argument filed by the parties. In the course of the hearing an issue was raised as to the requirement under the Regulations that a formal proof of debt be lodged. Regulation 5.6.47 of the Regulations is relevant. It provides:
"(4) A liquidator must not reject a debt or claim without:
(a) notifying the creditor of the grounds of the liquidator's rejection; and
(b) requiring that a formal proof of debt or claim be submitted for that debt or claim."
[80] Here notification was given of the grounds for rejecting the claim but it does not appear that any formal proof of debt or claim was ever requested after the liquidators were appointed. The matter is complicated because Mr Labaj had, prior to their appointment, already adopted the mechanism that the Regulations provide for proving a debt formally - namely to lodge his proof in accordance with Form 535 (reg. 5.6.49(b)) containing the particulars of the debt or claim sought to be proved (reg. 5.6.50(1)(a)). He did that in the course of the administration of the company and prior to it being placed in liquidation. It is plain that the liquidator treated that Notice as a formal proof of debt in the liquidation. In my view he was entitled to do so. Sub-section 553D(3) of the Act provides that a "claim is proved formally if it satisfies the requirements of the regulations relating to the formal proof of debts and claims." Here those regulations were satisfied.
[81] The point of reg. 5.6.47 is to ensure that the liquidator (and if necessary a court) be appraised precisely of the claim made so as to enable an accurate assessment of it. It is not immediately apparent as to why, in order to achieve that aim, a temporal requirement needs to be introduced into the regulations such that a proof of claim could only be considered a "formal" one if lodged subsequent to the appointment of liquidators. I would be reluctant to read into the Regulations any such requirement. The path followed here of administrators acting for a period, obtaining proofs of claims, and then becoming the liquidators of the company is hardly a novel one. To require re-lodgement, perhaps of all claims made, despite full compliance with the requirements of the Act, does not seem to me to achieve any significant purpose. This approach is consistent with the view taken by Einstein J sitting in the Equity Division in the Supreme Court of NSW, and by members sitting in the Administrative Appeals Tribunal, that the liquidator's duty to deal with the proof of debt is not dependent on him having called for formal proofs of debt.
[82] Mr Labaj has not suggested that any consequence flows from the failure to formally call on him to lodge the same form that he had already lodged. Indeed at one point Mr Labaj plainly assumed for the purpose of his argument that his proof of debt was a formal one. I refer to his contention at one stage that his proof of claim was not dealt with in a timely way and that had the effect of requiring the liquidator to deem his claim to be admitted.
[83] The liquidator wrote to Mr Labaj on five occasions in respect of his proof of debt, the first of those letters enclosing a Notice under reg. 5.6.53 seeking further evidence. Thus Mr Labaj had ample notice of the grounds for rejecting his claim and was asked to provide further evidence if he could. He did not do so. That is because of his mistaken characterisation of his rights under the contract. It cannot be said that Mr Labaj has been denied an opportunity to fully prove his case.
(emphasis added)
130 In Re Equititrust Ltd, the creditor had not requested the liquidator to treat the document provided during the administration as formal proof in the liquidation as noted (at [38]). That was a crucial factor in the qualification as to what McMurdo J said in Re Equititrust Ltd, namely, 'at least unless the creditor acts in a way towards the liquidator which effectively puts forward the document as a proof of debt intended to be assessed by the liquidator.'
131 There is no doubt that the Hoopers, through their solicitors put forward the document as a proof of debt intended to be assessed by the defendants by their conduct of this litigation.
132 It may be that Mr or Mrs Hooper had some subjective understanding which is difficult now to assess with the passage of time, but it is an understanding which was displaced by the entirely conventional communications from their solicitors.
133 Finally, there is no evidence of the 'broken repeated undertakings' or 'clear agreement' referred to in correspondence from Mr Hooper. It is also clear that Mr Lock challenged that response by saying 'I do not accept the accuracy of your account of the history of this matter'. Although Mr Lock was cross-examined as to his understanding of whether he called for 'informal proofs' and rejected doing so, his understanding is really of no more importance than the understanding of the Hoopers. The communication from the solicitors for the Hoopers puts the position beyond doubt.
134 Were this not so, the upheaval this would cause in the management of the winding up of companies is obvious, as pointed out in Re Castleplex. The consequence would be that despite numerous calls by liquidators for formal proofs of debt in reports to creditors, and despite requests for information to support such claims, claimants would not be regarded as having filed a proof of debt in the liquidation on which a valid adjudication could be made.
135 As an amendment to press this claim would have no prospects of success, I disallow any belated foreshadowed application to amend.
[33]
8.2 No request by the Hoopers to deal with proofs of debt
[34]
8.2.1 Outline
136 The 'no request' submission I take to be an extension or variation of the 'no proof lodged in the liquidation' submission. As the Hoopers note, a liquidator has power pursuant to reg 5.6.47 to admit a debt or claim without a formal proof but must not reject a debt or claim without, amongst other things, requiring that a formal proof of debt be submitted for that debt or claim. Similarly, pursuant to reg 5.6.53, a liquidator may admit all or part of a formal proof of debt or claim or require further evidence. That power is triggered only if the liquidator receives a request in writing from a creditor to do so.
137 The Hoopers appear to submit that:
(a) a liquidator must not reject a debt or claim without requiring that a formal proof of debt or claim be submitted for that debt or claim pursuant to reg 5.6.47;
(b) a liquidator has no power to reject a proof of debt or claim or require further evidence in support of it unless the liquidator receives a request in writing from the creditor to do so pursuant to reg 5.6.63; and
(c) a liquidator only has power to reject a formal proof of debt or claim after having given notice of an intention to declare a dividend pursuant to reg 5.6.65.
[35]
8.2.2 Consideration
138 There is no evidence on which a conclusion could be reached that the defendants rejected the Hoopers' proofs of debt without requiring that a formal proof of debt or claim be submitted. As previously noted, this was done on numerous occasions in reports to creditors, which enclosed the proof of debt form stating:
Formal Proof of Debt or Claim (Form 535)
Please only submit this form if you have not already done so, or if your claim has altered. If you have previously only submitted an informal proof of debt for voting purposes, please complete the enclosed formal proof to lodge your claim in the administration …
139 The Hoopers were given every opportunity to substantiate their claims, yet failed to do so. I am unable to accept the Hoopers' contention that the defendants failed to satisfy the requirements of reg 5.6.47. Again, there is no doubt that the solicitor's request in writing sets out the requisite power pursuant to reg 5.6.53. There was a further report to creditors on 14 May 2013 in which the defendants stated 'We propose to declare a dividend as soon as Oliveri's lien claim has been determined and his claim quantified'. At least by that stage, the report to creditors made it clear that the defendants intended to declare a dividend. It follows that they had power to reject the Hoopers' proof of debt pursuant to reg 5.6.65.
140 It is unnecessary to consider the further submission for the defendants that, in any event, there was also power to reject the proofs of debt pursuant to s 477(2)(m) and s 506(1)(b) of the Corporations Act.
[36]
8.3 Appeal if formal proofs of debt and power to reject them
[37]
8.3.1 Outline
141 The Hoopers contend that if the Court finds that the proofs of debt were formal proofs of debt for the purpose of the liquidation and Pt 5.6 of the Corporations Act and Regulations and that the defendants were within power to reject them pursuant to reg 5.6.53, then they are entitled to appeal against the rejection of the proofs of debt as formal proofs of debt. This is the alternative substantive position advanced by the Hoopers to the technical arguments set out above.
[38]
8.3.2 Consideration
142 In this regard, which is really the central focus of the Hoopers' appeals, I am required to take into account all relevant evidence, whether or not it was before the defendants at the time the proof was rejected. This is an important consideration.
143 The fundamental question is whether the claim sought to be proven is a true liability of the Company enforceable against it according to law.
144 The Hoopers bear the burden of proof.
145 If that onus is not discharged, the Court will not overturn the defendants' decision. Furthermore, if the Court is unable to reach a conclusion as to the correct position, then the defendants' decision should stand: Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 per Brennan and Dawson JJ (at 338-341). I also note Capocchiano v Young [2013] NSWSC 879, where Kunc J said (at [44]-[47]):
44 By their originating process the Capocchianos claim:
(1) The decision of the Defendant made on 10 August 2012 to reject the proof of debt of the Plaintiffs made on 6 July 2011 be reversed, and that the proof of debt be admitted in the sum of $4,303,290.64.
(2) In the alternative, the decision of the Defendant made on 10 August 2012 to reject the proof of debt of the Plaintiffs made on 6 July 2011 be modified.
45 The proceedings are brought under s 1321(1)(d) of the Corporations Act 2011 (Cth) ("the Act") whereby ... "the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit".
46 The relevant legal principles are not in doubt. An appeal against the rejection of a proof of debt is a hearing de novo. The Court must take into account all relevant evidence, whether or not it was before the liquidator at the time the proof was rejected. The fundamental question is whether the claim sought to be proved is a true liability of the company enforceable against it according to law. Nevertheless, the claimant bears the onus to demonstrate that the liquidator was wrong in rejecting the proof. If that onus is not discharged, the Court will not overturn the liquidator's decision. If the Court is unable to conclude either way whether the proof should be admitted, then the liquidator's decision must stand.
47 The authorities for the principles summarised in the preceding paragraph are Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 at 338-341 (per Brennan and Dawson JJ); Re Kentwood Constructions Ltd [1960] 1 WLR 646 at 647-648; Westpac Banking Corporation v Totterdell (1998) 20 WAR 150 at 154 per Ipp J, Pidgeon and White JJ agreeing; Re Galaxy Media Pty Limited (recs and mgrs apptd) (in liq); Walker and Another (in their capacity as recs and mgrs of Galaxy Media Pty Ltd) v Andrew (as liq of Galaxy Media Pty Ltd) and others (2001) 39 ACSR 483; [2001] NSWSC 917 at [23]-[34].
(emphasis added)
146 It is the final sentence of [46] in Capocchiano which is particularly important in this appeal.
[39]
8.4 Consideration of the claims by Mrs Hooper
147 I propose to examine the claims by Mrs Hooper in the same order in which they were advanced by her.
148 It is true that Mrs Hooper was not cross-examined on her affidavit. Notwithstanding this, she was still required to prove her claim to the satisfaction of the Court on the basis of admissible evidence in a hearing de novo. The claims have been something of a moving feast. The absence of contemporaneous records to support such significant transactions is conspicuous.
149 Mrs Hooper now claims that the Company is indebted to her in the sum of $1,835,468.82, in contrast to her proof of debt which was '$1,223,870.02 plus an undetermined amount at this time'. The undetermined amount in the proof of debt was said to be 'legal costs, fees, interest and/or charges' as at 18 December 2009, the day on which the defendants were appointed joint and several administrators of the Company.
150 The complaints about the quality of record keeping by the Company are most significant. Those complaints have not been refuted in any way by evidence or argument advanced for the Hoopers. It is clear that appropriate records were not maintained by the Company.
151 There is such uncertainty as to the state of the account by Mrs Hooper and the Company that it is a significant challenge to attempt to arrive at some sort of figure in which a claim should be acknowledged.
152 There is no suggestion on the part of the Hoopers that the defendants should have accepted Mrs Hooper's proof of debt based on the documentation she originally provided. No liquidator could possibly have been expected to accept her claim as first presented without detailed proof. All that was provided were spreadsheets setting out a basis on which the amount then due was said to have been calculated. The defendants were not only correct but bound to seek further support or to reject the proof of debt.
153 Reports were sent by Mr Lock to creditors noting the claims by the Hoopers between 3 February and 9 June 2012. He communicated about the inadequacy of what had been provided by the Hoopers and in respect of the further information that he required indicated that he would simply admit their proofs for the amount admitted for voting purposes only, but reject the balance of their claim. This was what gave rise to the communication from Leonard Legal on 14 June 2012, writing to the defendants on behalf of the Hoopers, but this in turn did not significantly advance the cogency of the claim. Mr Lock responded to Mrs Hooper on 5 March 2013 saying:
I refer to your proof of debt and the schedule attached to it in support of your claim. On the basis of the information and documents you have provided to me, I am unable to admit your proof at this stage. Notwithstanding my inability to admit your proof, I propose to investigate certain matters further and therefore I require you to provide me with a response to the following questions…
154 The questions were then set out. Mr Lock sought the further information from Mrs Hooper in respect of the matters set out in that letter (referred to above at [30]). This information was not forthcoming.
155 Between August 2012 and 4 February 2013, the defendants sought further legal advice in respect of the proofs and reported to creditors in respect of the claims and sought further information from the Hoopers on 5 March 2013. There was no response to this request.
156 On the basis of the material provided at the time, there was no proper basis for a suggestion that the rejection of the proofs of debt was wrong in any respect.
[40]
8.4.1 Mortgage shortfall
157 In relation to the mortgage shortfall, there is evidence of a mortgage by the Company in favour of Mrs Hooper dated 6 June 2007. It is not on its face, however, evidence of any 'agreement' by Mrs Hooper to lend the Company $1 million, nor any agreement executed by Mrs Hooper. Nonetheless, it is common ground that the Company granted a mortgage in favour of Mrs Hooper. Without going further into examining the purpose of the mortgage, this does not constitute an agreement by Mrs Hooper to advance money to the Company by way of a loan. It is clear that the mortgage contains covenants as set out above, but the Memorandum Q86000 referred to in [5] of the mortgage and taken with cl 6 requires repayment of the principal sum advanced 'on demand'. There is no evidence of any demand having been made by Mrs Hooper to the Company, at least prior to the insolvency. The defendants argue, therefore, that there is no enforceable debt of the Company to Mrs Hooper.
158 Putting this to one side for a moment, there were further difficulties with the 'loan' argument. There is no evidence as to the exact date on which the principal sum was paid pursuant to the mortgage for the purposes of calculation of any default and calculation of interest pursuant to the mortgage. That information is critical to determine the state of the loan account under the Lianne Loan Agreement between Mrs Hooper and the Company.
159 There is a complete paucity of such contemporaneous, conventional bookkeeping records produced in evidence by the Hoopers, nor do they contend that there is in existence such material which the defendants should or could have produced.
160 The defendants also point out that:
(a) in respect of February, no interest could be payable as there is no 30th day; and
(b) the fact that at least one of the advances appears to have predated the mortgage makes that claim difficult to recognise (advances are said to have been made between 7 May 2007 and 21 April 2008, but the mortgage was not executed until 6 June 2007.
161 There are further, more serious, difficulties. The documents on which the Hoopers rely, and which are referred to in the table of their supplementary submissions, evidence transfers from Mrs Hooper's bank account to Mr Hooper's bank account. This account is in the name of '[Mr] Hooper in trust for PM & Sulcs Pty Ltd'.
162 Fundamentally, and despite the assertion by the Hoopers that these advances were paid to the Company, the advances are actually payments to Mr Hooper ostensibly as trustee for the Company. A transfer of funds to a trustee is not the same thing as a transfer to a beneficiary. There is no evidence that Mr Hooper, as trustee, made a distribution of funds to the Company as beneficiary or at all. This is particularly significant in light of the possibility that the Company was simply being used as a notional, but not actual, conduit of funds coming from Mrs Hooper to Mr Hooper. If the funds were in full just made available to Mr Hooper, then he would appear to be the debtor.
163 Further, even if these transfers were made to the Company's account, there is no evidence that those transfers, which are described as being 'not available' in the table set out above were made from Mrs Hooper's account. I accept the defendants' submission that there is no adequate explanation as to why those statements only are not available given that others are available. This would therefore diminish the transfers made for $50,000 on 17 August 2007 and $10,000 on 14 December 2007 in the absence of some contemporaneous confirmatory documents or an adequate explanation as to why such documents were unavailable. This, in turn, would also affect the interest computation in respect of those advances.
164 The defendants point to the following deficiencies in the documentary evidence and, in particular, the errors in the table as supplied in support of the claims made:
(a) the first of the amounts referred to appears to have been paid into Mrs Hooper's account on 28th rather than 25th of June;
(b) the second of the payments is not evidenced in the way indicated, although there is a payment in a similar sum on 17 August, yet the particular year is unclear; and
(c) the payment in the third row is recorded on a different page.
165 These errors, and in particular the first, would also throw out any calculation of interest. Additionally, there is an error in the computation of interest compounding at 30 days, rather than on the 30th day of each month, contrary to the terms of the mortgage.
166 All of this means that there is no doubt that the defendants were right to reject the claim. The question, as will be seen, is whether anything can be done about that now. The main difficulty is the absence of any agreement by the Company to repay to Mrs Hooper the funds said to have been received by it. Nor is there satisfactory evidence that the Company, rather than Mr Hooper, received those funds.
167 I am not satisfied that it is safe to accept the conclusory submission by Mrs Hooper that the shortfall of $300,469.44 is a true liability of the Company enforceable against it according to law.
[41]
8.4.2 Unpaid expenses
168 As to the unpaid expenses, it is impossible after all this time to give any weight to a claim that the expenses are due when Mrs Hooper has been unable to locate proof of payment of the invoices, nor has she provided any evidence as to what attempts she has made to locate proof of payment. Particularly in regard to sums due to solicitors, it seems unlikely that such verification could not be secured from the solicitors, even if not available in its first format.
169 The defendants accept that by reason of the entry on Mrs Hooper's Visa gold card credit statement, there is sufficient payment of one only of the invoices for $990, but the assertion that she paid $3,295.25 is unsupported by any other evidence. It may be that Mrs Hooper was entitled to some claim for that sum. As I cannot be satisfied as to the claim or its amount, the rejection must stand.
[42]
8.4.3 Unpaid loans to the Company
170 Mrs Hooper corrected the contention that she made 47 rather than 41 separate loans to the Company.
171 After correcting that error, Mrs Hooper sought to make a further correction. She contends that the alleged loan advances are proven by bank statements and minutes. But there were no bank statements prior to 2007, even though it appears they may have been available back to 2005.
172 While the Company's minutes record the 41 payments as loans, I cannot be satisfied that they are due and payable by the Company to Mrs Hooper pursuant to the Lianne Loan Agreement, which is not signed by Mrs Hooper or the Company.
173 There is a further difficulty by virtue of the definition of 'repayment date', which turns a demand in writing of which there is no evidence, at least prior to the insolvency.
174 The defendants contend that Mrs Hooper would be statute barred by virtue of s 14 of the Limitations Act 1969 (NSW) from making a claim against the Company pursuant to the Lianne Loan Agreement, at least in respect of some of the earlier alleged indebtedness.
175 As to this submission, the Hoopers contend that there is no relevant limitation period as the Company repeatedly confirmed that it owes Mrs Hooper the debt. An example appears, they say, in the minutes of the meeting of 28 August 2009, where it is resolved that 'the company is immediately, definitely and irrevocably committed to the payment of the director's fees to [Mr] Hooper AND that the loans from [Mr] Hooper & [Mrs] Hooper.'
176 Once again, there may possibly be some indebtedness from the Company in respect of some advances by Mrs Hooper, but I would treat the internal records of the Company, which is no more than an alter ego for Mr Hooper, as being only prima facie evidence of such indebtedness. The statements have a strong self-serving character. More information would be needed.
177 Once again, it seems to me that Mrs Hooper may have some entitlement, but precisely what entitlement is quite unclear.
178 As I cannot be satisfied as to the claim or its amount, the rejection must stand.
[43]
8.4.4 Interest on unpaid loans to the Company
179 In relation to the interest on unpaid loans, once again, as the amount of indebtedness (if any) is unclear, the amount of interest is unclear. Certainly, if the indebtedness is linked to the Lianne Loan Agreement, it fails all together, as that agreement is not executed.
180 As the defendants observe, the working sheets that were supplied can, at their highest, only constitute a submission as to the computation. I do not receive them as evidence of the true indebtedness of the Company to Mrs Hooper.
181 Mrs Hooper has also indicated that $100,000 of the various loans were repaid. Again, there was no evidence of those repayments, when they occurred or any confirmatory contemporaneous documentation. The repayments could be more or less or none at all. The state of the Company's bookkeeping and accounts is entirely deficient.
182 There may be some interest due to Mrs Hooper on unpaid loans, but what it is, is simply conjecture. That is not sufficient for the appeal to be allowed. Once again, as I cannot be satisfied as to the claim or its amount, the rejection must stand.
[44]
8.4.5 Director's fees
183 In relation to director's fees, there is no evidence of a director's fee agreement, referred to by Mrs Hooper and no adequate evidence as to the terms of any such agreement. Nor is there any evidence that Mrs Hooper performed the duties required of her under the supposed agreement, nor any indication as to what duties were required.
184 It is not clear how Mrs Hooper would overcome the difficulty with the director's fees allegedly due to her, being statute barred in respect of the earlier years of alleged liability.
185 This claim is not satisfactorily established.
[45]
8.4.6 Interest on unpaid director's fees
186 As with the claim for interest on unpaid loans to the Company (addressed above at [193]), the interest fails with the director's fees claim.
[46]
8.5 Consideration of the claims by Mr Hooper
187 In relation to the quantification of the debt claimed by Mr Hooper, there is again a paucity of cogent contemporaneous material to support such a substantial claim.
188 As with Mrs Hooper, Mr Hooper makes the point that he was not cross-examined on the content of the affidavits.
189 But the same point must be made in response to this submission. There was so little admissible evidence remaining in the affidavits that there was no probative evidence upon which the burden of proving the claims de novo could be established. No application was made to call either of the Hoopers to attempt to supplement the deficiencies in their affidavit evidence.
190 It will be recalled that the debt that is said to be owed by the Company to Mr Hooper is in excess of $8.7 million and said to be made up of unpaid director's fees of almost $3.6 million, unpaid expenses exceeding $29,000 and interest exceeding $5 million.
191 The original claim in the proof of debt was $8,846,457.92 plus an 'undetermined amount at this time'. This was said to be relevant to 'legal costs, fees, interests and/or charges', as at 18 December 2009, the day on which the defendants were appointed in their capacity as joint and several administrators of the Company. The claim now is reduced to $8,749,799.84.
192 Mr Hooper contends that the difference is attributable to a reduction of about $200,000 in unpaid loans, salary and other expenses and about $100,000 more now claimed by way of interest. It can immediately be seen that the defendants were correct to reject the proof of debt in the amount claimed. There is no explanation for the reduction of approximately $200,000.
193 Mr Hooper does not contend that the defendants should have accepted the debt. It is not open to Mr Hooper to submit that given that it has now changed in its amount and content.
194 For example, the records show that between 8 February and 9 June 2012 Mr Lock sent reports to creditors noting the claims by the Hoopers and informed them about the inadequacy of the evidentiary support for them and the fact that while he would admit the proofs for the amount for voting purposes, he would reject the balance of the claim.
195 There was also communication from Leonard Legal and the taking of legal advice, together with the advice on 18 February 2014 of the reasons for rejection of the proof of debt, noting in particular that Mr Lock did not consider there was a proper basis for Mr Hooper's salary claim in circumstances where the Company had ceased operating a business from about 1993.
196 I accept the submission for the defendants that there is no proper basis to suggest that the defendants were wrong in rejecting the proof.
[47]
8.5.1 Director's fees
197 In relation to the unpaid director's fees, Mr Hooper faces the same difficulty as Mrs Hooper. There needs to be adequate evidence that he performed his duties in accordance with the management contract and was therefore entitled to be paid the director's fees claimed or some director's fees.
198 The minutes of the meeting purportedly authorising payment to which he refers were subject to various preconditions, including the payment of all operating expenses of the Company. There is no evidence of satisfaction of those preconditions.
199 Mr Hooper acknowledges that he has been partly paid director's fees owed in the amount of $1,153,976.04, but acknowledges that he has not been so paid pursuant to any particular company resolution.
200 The evidence in respect of those payments, the circumstances in which they were paid is all gravely deficient. It is impossible to be satisfied to the level necessary on an application of this nature as to the state of the account between Mr Hooper and the Company. It is by no means clear that such payments would not be statute barred.
201 To respond to this, Mr Hooper contends that the Company minute of 28 August 2009 solves any difficulty by its acknowledgement of the debt in resolving 'the company is immediately, definitely and irrevocably committed to the payment of the director's fees to [Mr] Hooper and the loans from [Mr] Hooper and [Mrs] Hooper'.
202 It may be that some director's fees were due to Mr Hooper, but he has certainly not established the quantum.
203 As I cannot be satisfied as to the claim or its amount, the rejection must stand.
[48]
8.5.2 Unpaid expenses
204 There is no evidence of unpaid expenses. The only document produced is a request to the defendants' former solicitor to provide invoices and receipts of expenses. There was no Notice to Produce.
205 I am not satisfied that Mr Hooper has proven the unpaid expenses for which he contends.
[49]
8.5.3 Interest on unpaid loans to the Company
206 As I reject Mr Hooper's claim for unpaid director's fees, the claim for interest fails together with that claim.
[50]
CONCLUSION
207 Much of the affidavit evidence of the Hoopers, and particularly that of Mrs Hooper, was successfully the subject of objection on the basis that it was conclusionary. There was little point in Mrs Hooper or Mr Hooper giving oral evidence as, after several years in which they have had an opportunity to prepare, compile and collate their claims, they have clearly adduced all of the contemporaneous documentation that records the indebtedness of the Company in the way contended.
208 Insofar as Mrs Hooper is concerned, for reasons discussed above, the evidence falls well short of proving the claims in a de novo hearing such as this. There is nothing in substance in the contemporaneous paperwork in relation to any aspect of the claims which persuasively records such indebtedness or explains how it arises.
209 While it may well be the case that Mrs Hooper, in substance, attempted to supply liquidity to her husband, the documentation supplied does not reach the necessary standard to prove that the Company has an indebtedness.
210 I reiterate in relation to the claim of both Mr and Mrs Hooper that they have had now several years to identify and collate records which might provide contemporaneous corroboration. The material provided in evidence does not reach a satisfactory level to establish indebtedness.
211 An appeal of this nature is not a vehicle to embark upon further negotiations, given that years have elapsed since the opportunity for the Hoopers to satisfy the defendants as to the claims first arose.
212 There is no doubt that the defendants were entirely justified in rejecting the claims when made and at all times prior to the commencement of these proceedings.
213 The appeals must be dismissed. In each appeal the following orders are made:
(1) The appeal be dismissed.
(2) The plaintiff pay the costs of the defendants, to be assessed if not agreed.
I certify that the preceding two hundred and thirteen (213) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.
Parties
Applicant/Plaintiff:
Hooper
Respondent/Defendant:
Lock
Legislation Cited (5)
Relevantly, the Corporations Regulations 2001(Cth)
Your claim against the Company set out in the undated formal proof of debt or claim consists of:
1.1 $1,101,384.25 loan; and
1.2 $122,485.77 loan; and
1.3 an undetermined amount for legal costs, fees, interest and/or charges.
I have disallowed your claim in full.
My grounds for disallowance are as follows:
i. The proof of debt was submitted without any supporting documentation.
ii. The only documents subsequently produced in support of the proof of debt include:
a. Schedule A- a schedule of loan funds advanced by you to the Company commencing on 5 August 1997 totaling [sic] $1,101,384.25 including loans in the sum of $558,245.79 and interest in the sum of $543,138.46.
b. Schedule B- a second schedule of loans advanced by you to the Company totaling [sic] $122,485.77 (being loans totaling [sic] $1,865 [sic] million less the proceeds to sale of 17 Fontaine Street, Chatswood paid to you pursuant to a mortgage) leaving a balance debt claimed of $122,485.77.
c. Deed of Loan Agreement dated 7 July 1991 between you as Lender and the Company as Borrower.
d. Mortgage dated 6 June 2007 granted by the Company in favour of you.
e. Variation of the Mortgage dated 29 April 2008.
f. Summary of Director's fees for financial years ended 30 June 2003 to 30 June 2007.
g. One box of bank records of both you, your Husband and the Company.
iii. Your claim is for money lent to the Company over a period dated back to 1997.
iv. Schedule A to the proof of debt sets out 47 loans you made to the Company of different amounts ranging between $66 and $100,000. These loans aggregate to $558,245.79 and interest has been calculated at $543,138.46, a total debt claimed of $1,101,384.25.
v. I have requested documentary evidence such as bank statements to show loans have been drawn against your own funds and also proof that the Company has been the beneficiary of each loan, however this has not been provided.
vi. I have requested documentary evidence to establish the purpose of each loan and that each loan was made for the Company's benefit, however this has not been provided. The bank statements that were provided by you do not record that monies were advanced by you or your husband to the Company.
vii. The information contained in Schedule B records that you made 16 loan advances to the Company between May 2007 and April 2009. Those 16 loans amount to $1.55 million. You have claimed interest on these advances at 13.5%. A mortgage was granted to you in June 2007 over a property at 17 Fontaine Street, Chatswood.
viii. The mortgage was varied in April 2008 to increase the rate of interest to 15.5% and to record that the principal sum had been increased to $1,500,000. The term was extended by one year to 30 April 2009.
ix. Schedule B records that you received a substantial repayment from the Company in November 2009 of $1,745 [sic] million which I assume came from the proceeds of the sale of the Chatswood property. This left, on your calculation, a residual debt of $122,000 which you now include in the proof of debt.
x. Despite being requested to do so, you have failed to satisfactorily verify the making of the loans you claim to have made.
xi. Despite being requested to do so, you have failed to produce or identify minutes of meetings of the Company authorising the entry by the Company into the Deeds of loan agreements, including specific provision for the grant of security (the mortgage).
xii. By letters dated 3 February 2012 and 5 March 2013 respectively, I requested from you the provision of documentary evidence (such as bank statements, etc) that could prove that the sums you claim that you lent to the Company were actual loans drawn against your own funds and that the Company had been the beneficiary of each of those loans. I also sought production of the primary material upon which you relied to compile schedules A and B.
xiii. Furthermore, I requested responses from you with respect to particular issues that concern the various amounts that you claim in the liquidation. You have failed to provide any documentation or particulars to substantiate your claim in answer to my requests.
xiv. Accordingly, I have disallowed your claim in full for the following reasons:
a. With regards to the sum of $558,245.79, I determine that you have failed to prove that you lent any money to the Company;
b. With regards to the sum of $543,138.46, you have no entitlement to charge interest on any principal sum 'lent' to the Company;
c. With regards to your claim for an "undetermined amount for legal costs, fees, interest and/or charges", you have neither quantified nor established any such entitlement as against the Company; and
d. As to the sum of $122,485.77, I have determined that you are not entitled to any shortfall of interest as a result of the property transaction (i.e. the transfer of the Chatswood property by you to the Company in 2002 and the subsequent grant of a mortgage by the Company to you on 6 June 2007 and subsequent sale) on the basis that there was no commercial benefit to the Company to acquire the property (and concomitant interest liability) at a time when the Company was insolvent.
If you are dissatisfied with my determination as set out above, you may appeal against it, no later than 14 days after the service of this notice or, if the Court allows, within a further period, to the Supreme Court of New South Wales. If you do not do so, your claim will be assessed in accordance with this determination.
Dated: 18 February 2014
…
34 Similarly, on 18 February 2014, based on legal advice obtained an on the information provided to the defendants by the Hoopers, Mr Lock wrote to Mr Hooper notifying him of the rejection of his proof of debt setting out the reasons for the rejection in these terms:
…
Your claim against the Company set out in the undated formal proof of debt or claim consists of:
1.4 $8,846,457.92 (being the 'salary component' of $3,822,766, plus 'interest component' of $5,023,691); and
1.5 an undetermined amount for legal costs, fees, interest and/or charges.
I have disallowed your claim in full.
My grounds for disallowance are as follows:
i. The attachments to the proofs comprise schedules of claimed credits and monthly interest calculations dating back to 1989.
ii. The proof of debt was submitted without any supporting documentation. The only documents subsequently produced in support of the proof of debt include:
a. Schedule of debt claimed commencing from 1998. The schedule is a calculation of a debt totaling [sic] $8,846,457.92 including a primary debt in the sum of $3,822,766.25 and interest in the sum of $5,023,691.
b. Deed of Loan Agreement dated 22 September 1989 between you as Lender and the Company as Borrower.
c. Employment contract dated 17 March 1987 between you as employee [sic] the Company as Employer.
d. Deed of Loan Agreement dated 18 October 1997 between you as Lender and the Company as Borrower.
iii. As an employee earning income you were required to lodge income tax returns with ATO each year disclosing your earnings. The Company as an employer was required to keep paperwork concerning wages paid by the Company pursuant to reporting obligations. Your employment and receipt or non-receipt of wages is not supported by appropriate ATO records such as tax returns.
iv. There is no evidence that the proposed salary was fair and reasonable for the work allegedly performed, nor any evidence of what work if any, you performed.
v. Director's fee statements provided by you for the years 2003/2004, 2004/2005, 2005/2006, 2006/2007 and 2007/2008 showing tax paid by the Company are unexplained. I have sought further particulars with respect to these fees however nothing has been provided.
vi. You claim reimbursement of expenses incurred on the Company's behalf and loans made by you to the Company. In the case of expenses, documents such as invoices or receipts have been sought but not provided. In the case of loans, documents to show that the Company actually received funds and benefited from each loan have been sought but not provided.
vii. Schedule A starts with a figure of $313,558.40 as at 1 July 1989 which is expressed as "Loan carried forward from 1998." (Not 1981). Particulars with respect to this figure have been sought by not provided.
viii. With regards to your claim for an "undetermined amount for legal costs, fees, interest and/or charges," you did not prove by way of documents and/or information an entitlement to be admitted for any such undetermined amount in the liquidation.
ix. By letter dated 3 February 2012, I requested from you the provision of supporting documentation by way of director's resolutions and/or other Company records that would prove your entitlement to claim in the liquidation. Furthermore, I requested that you quantify the component labeled [sic] "undetermined amount". I did not receive any response to my request.
x. On 14 June 2012, I received from your solicitors, Leonard Legal, certain agreements and sale and mortgage documentation concerning the property situated at 17 Fontaine Street, Chatswood NSW.
xi. By letter dated 25 February 2013, I requested that you provide to me specific information in relation to your claim for unpaid wages, entitlement to interest payments, superannuation contribution and Company tax returns. Furthermore, I asked you to explain the basis upon which the Company continued to incur liabilities to you (and to Mrs Hooper) when it did not have the financial capacity to meet those liabilities. I did not receive any response to my request for information.
xii. I have rejected your claim on legal advice for the reasons set out above and below:
a. With respect to the 'salary component' of your claim ($3,822,766), I consider that there is no proper basis upon which you may claim a salary entitlement or director's fees for such a long continuous period during which the Company was not trading. You did not prove by way of documents and/or information that:
i. you are entitled to receive remuneration from the Company for an uninterrupted period in excess of 20 years during which period the Company was not actively trading and did not have the financial capacity to pay remuneration;
ii. the proposed rate of remuneration was reasonable having regard to the services being performed;
iii. you provided services of any value to the Company;
iv. the entitlements have not already been paid.
b. With respect to the 'interest component' of your claim ($5,023,691) It [sic] was not in the Company's best interests (nor was it in accordance with your statutory and fiduciary duties as director) for the Company to pay you for directorship services that were unnecessary and at remuneration levels that were unwarranted. This interest claim exceeds the 'salary/principal' component and it is unsupported by any resolution that would require the Company to pay interest on any principal amount; nor are there any Company documents to show how such interest is payable, at what rates, for what periods, and on what amounts; and
c. As respects the $500,000 that was paid to your superannuation account (the figure has been taken from your schedule that accompanied your proof of debt), and which sum is included in the 'salary component' of your claim. There are no documents to show whether the payment was made by way of employer contribution or by way of a contribution from your salary.
d. As respects the "undetermined amount" component, you did not provide documentation or details that would allow your claim to be quantified.
If you are dissatisfied with my determination as set out above, you may appeal against it, no later than 14 days after the service of this notice or if the Court allows, within any further period, to the Supreme Court of New South Wales. If you do not do so, your claim will be assessed in accordance with this determination.
Dated: 18 February 2014
35 The appeals arise as the result of these notices of rejection issued by Mr Lock on 18 February 2014.