In the matter of Love D&V XOXO Pty Ltd and D&V Vlahos Pty Ltd (No 2)

Representation: Counsel:
D R Stack (applicant / interested party)
S B Docker SC / D Meyerowitz-Katz (first respondent / plaintiff)
S E Gray (second respondent / first defendant)
Solicitors:
Amberlake Lawyers (applicant / interested party)
Finn Roache Lawyers (first respondent / plaintiff)
W Advisers (second respondent / first defendant)
No other appearances

File Number(s): 2023/316575

Publication restriction: N.A.

JUDGMENT

1. These reasons concern a discrete issue arising on an application made by Mr Desmond Teng, in his capacity as the receiver and manager of both Love D&V XOXO Pty Ltd (Love) and D&V Vlahos Pty Ltd in its own capacity and as trustee for the D&V Unit Trust (the Trust). The application is part of a long-running dispute. To have some understanding of the broader dispute, see In the matter of Love D&V XOXO Pty Ltd (Receiver an**d Manager Appointed) and D & V Vlahos Pty Ltd (Receiver and Manager Appointed) – Desmond Wei Liang Teng in his capacity as Receiver and Manager of Love D&V XOXO Pty Ltd (Receiver and Manager Appointed) and D & V Vlahos Pty Ltd (Receiver and Manager Appointed) v Vlahos; Vlahos v Vlahos; Vlahos v Vlahos [2025] NSWSC 230.

2. Mr Teng seeks orders that he would be justified in proceeding on the basis that financial reports prepared by him, dated 10 October 2025, truly and fairly record the financial position and performance of Love and the Trust.

3. The financial report of the Trust includes director loan account statements for the two directors, Ms Vicki Vlahos and Ms Danielle Makhlouf. The loan account for Ms Vlahos records a net outstanding debt to the Trust in the amount of $276,158.02. That balance reflects credits to her of $221,172.07 on account of “FY2023 Net Profit for Distribution to Unit Holder (Vicki)” and $596,702.44 on account of “FY2024 Net Profit for Distribution to Unit Holder (Vicki)”.

4. In relation to Ms Makhlouf, the director loan account records a net outstanding debt from the Trust to her in the sum of $1,039,743.95. Included in that amount are credits to Ms Makhlouf of $221,172.07 on account of “FY2023 Net Profit for Distribution to Unit Holder (Danielle)” and $596,702.44 on account of “FY 2024 Net Profit for Distribution to Unit Holder (Danielle)”.

5. Ms Vlahos contends that the loan accounts do not truly and fairly record the financial position of the Trust because the net profit for distribution amounts are improperly credited, in the case of both directors. In particular, she challenges the entries concerning distribution of net profit.

6. Ms Makhlouf supports Mr Teng’s application.

The trust deed

7. The dispute turns on the terms of the relevant unit trust deed, which is dated 22 January 2016. Ms Vlahos and Ms Makhlouf are the Initial Unit Holders. The trustee is D&V Vlahos Pty Ltd.

8. Counsel for Mr Teng referred to various parts of clause 5 of the trust deed, which concerns trust fund income.

9. Clause 5.1(a) provides:

The Trustee will in each Accounting Period determine the Income of the Trust Fund.

This imposes an obligation on the trustee, not a discretion.

10. Clause 5.2(a) provides:

The Trustee may, if the Unit Holders so direct, at any time prior to the expiration of any Accounting Period (or such other time as the Commissioner of Taxation may allow for the purposes of the Tax Act) which ends before or upon the Vesting Day determine with respect to all or any parts of the Income of the Trust Fund for that Accounting Period, to do all or any of the following:

(1) Subject to Clause 5.2(b)(7) and to any special rights or restrictions provided in part 1 of the Third Schedule or otherwise attaching to Units of any class, to Distribute the same or any part thereof to all or one or more of the Unit Holders or to any class of Unit Holder; and or

(2) Accumulate the same or any part thereof.

Thus, the trustee has power to distribute income if the unitholders so direct.

11. Clause 5.2(b)(1) and (7) provide:

(1) Any distribution of Income will, unless otherwise specified by the Trustee, be deemed to have firstly been made out of Net Income;…

(7) In making any determinations to distribute any amount the Trustee will, subject to any exercise of power by the Trustee to Distribute any amount in relation to the holders of “C” class units, distribute that amount to Unit Holders entitled to Income in proportion to the number of Units for which they are respectively registered at the time or in such other proportions as the Unit Holders may unanimously agree…

Thus, without unanimous agreement to the contrary, any distribution in this case was required to be equal as between Ms Vlahos and Ms Makhlouf.

12. There is no dispute that there were declarations of distribution of Income for FY2023 and FY2024 in favour of each of Ms Vlahos and Ms Makhlouf. In each case, the amounts were applied by being credited to the director loan accounts that each of Ms Vlahos and Ms Makhlouf had with the Trust as directors. Those amounts are noted above.

The argument advanced by Ms Vlahos

13. Counsel for Ms Vlahos relied on clause 6.2(b) of the trust deed, which provides as follows:

Save and except in the case of fraudulent or wilful default or breach of trust in no event will the Trustee or any officer of the Trustee which is a corporation be bound to make any payment to Unit Holders or the legal personal representatives of Unit Holders except out of the Trust Fund or be liable to Unit Holders or the legal personal representatives of Unit Holders to any greater extent than the moneys and assets of the Trust Fund vested in or received by the Trustee in accordance with this Deed.

There was evidence that the estimated closing cash funds available to the Trust as at 11 March 2026 (as calculated by Mr Teng) was ($378,400.30). This being so, it was submitted that clause 6.2(b) prohibits the distribution of funds to the directors. The submission was that the amounts recorded as “Net Profit for Distribution to Unit Holder” recorded in the loan accounts cannot be paid because there are insufficient funds in the Trust Fund to enable payment to be made. Ms Vlahos submitted that it followed that the relevant financial report did not truly and fairly record the financial position of the Trust.

Ms Vlahos’s argument is rejected

14. Ms Vlahos’s contention cannot be accepted. Her submissions do not properly recognise the accounting and legal consequences of what has occurred.

15. Most importantly, there is a distinction between the issue about (a) whether Mr Teng is justified in proceeding on the basis that the financial reports truly and fairly record the financial position and performance of the Trust, and (b) whether the trustee can be required to make a payment to Ms Makhlouf if she demands it. Mr Teng’s application is concerned with the former matter, not the latter. Ms Vlahos’s concern is more properly connected with the latter.

16. As I have noted, there have been declarations of distribution of Income for FY2023 and FY2024 in favour of Ms Vlahos and Ms Makhlouf. It is true that distributions were not made by way of cash payments to them. Rather, the distributions were made by credits to each director’s loan account. In the case of Ms Vlahos, there was a reduction in the amount she owed to the Trust in a total amount of $817,874.51. This was equivalent to payments of cash and merely reflects distributions in a different form. In the case of Ms Makhlouf, the same total amount was credited to her loan account. However, given that the Trust owed money to her (unlike the case with Ms Vlahos), the effect of the distributions to her was that she lent the amount of the distributions to the Trust. That is, the Trust paid Ms Makhlouf her distributions and took those amounts from her by way of loan.

17. The issue of whether or not the trustee can properly make a payment to Ms Makhlouf, if she demands repayment of her loan to the Trust, is separate from the question of whether the director’s loan accounts truly and fairly reflect the financial position and performance of the Trust.

18. The effect of clause 6.2(b) of the trust deed is that the trustee will not relevantly have to make payments to Ms Vlahos or Ms Makhlouf as unit holders except out of the Trust Fund. That is, the trustee will not have to look to its own resources to make payment to the unit holders. That does not mean that the loan accounts prepared by Mr Teng, reflecting the application of declared distributions, do not truly and fairly record the financial position of the Trust. Clause 6.2(b) does not, in any way, invalidate the entries in the loan account for distributions. The adjustments to the loan accounts reflect the manner in which income was distributed. The question of whether Ms Makhlouf can recover payment of her loan to the Trust is a separate matter and is not the subject of the application before me.

19. Clause 6.2(b) might be engaged if Ms Makhlouf demands payment of the money owed to her and the Trust Fund is insufficient to meet that obligation. In those circumstances, there could be an argument about whether Ms Makhlouf could look to the trustee for payment. On ordinary principles, the trustee is personally liable to Ms Makhlouf, but it has a power of exoneration or indemnity from trust assets: see Carter Holt Harvey Woodproducts Australia Pty Limited v The Commonwealth of Australia (2019) 268 CLR 524; [2019] HCA 20. Clause 6.2(b) may qualify Ms Makhlouf’s right to recover from the trustee. I use the word “may” recognising that there could be an argument that clause 6.2(b) qualifies Ms Makhlouf’s right to recover from the trustee as a unit holder, but does not qualify her right to demand payment of a loan she made as a director to the trustee. This is not a matter that was argued before me and I do not need to decide the question, if there really is one.

20. None of this detracts from the proposition that the financial report prepared by Mr Teng truly and fairly records the financial position and performance of the Trust.

21. I understand that this was the only issue that arose between the parties concerning the financial reports.

Orders

22. I direct the parties to provide to my Associate proposed short minutes of order to give effect to these reasons by 5pm on 13 May 2026.

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Amendments

08 May 2026

Formatting amendment