In the matter of Novo Pty Ltd (in liquidation)

Medium Neutral Citation: In the matter of Novo Pty Ltd (in liquidation) [2025] NSWSC 1033

Hearing dates: 4 September 2025

Date of orders: 10 September 2025

Decision date: 10 September 2025

Jurisdiction: Equity - Corporations List

Before: Black J

Decision: Plaintiff successful in establishing insolvent trading claims against the First Defendant.

Catchwords: CORPORATIONS — insolvent trading — claim against director under s 558G and 588M of the Corporations Act 2001 (Cth) for insolvent trading — whether companies were insolvent or became insolvent by incurring the debts — whether there were reasonable grounds to suspect that company was insolvent or may become insolvent by incurring the debt — whether director was aware that there were reasonable grounds to suspect insolvency or a reasonable person would have been aware

Legislation Cited: - Civil Procedure Act 2005 (NSW), s 100
- Corporations Act 2001 (Cth), ss 9, 95A, 588G, 588M, 1305
- Evidence Act 1995 (NSW), s 140

Cases Cited: - Anchorage Capital Masters Offshore Ltd v Sparkes (2023) 111 NSWLR 304; [2023] NSWCA 88
- Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126; [2003] VSC 123
- Australian Securities and Investments Commission v Rich (2009) 236 FLR 1; (2009) 75 ACSR 1; [2009] NSWSC 1229
- Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd (2011) 248 FLR 384; [2011] NSWSC 186
- Briginshaw v Briginshaw (1938) 60 CLR 336
Clifton (Liq) v Kerry J Investment Pty Ltd (t/as Clenergy) (2020) 379 ALR 593; [2020] FCAFC 5
- Crema Pty Ltd v Land Mark Property Developments Pty Ltd (2006) 58 ACSR 631; [2006] VSC 338
- Edenden v Bignell [2007] NSWSC 1122
- Elliott v Australian Securities and Investments Commission (2004) 10 VR 369; [2004] VSCA 54
- Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330
- Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 54 ACSR 410; [2005] NSWCA 243
- Powell v Fryer (2001) 37 ACSR 589; [2001] SASC 59
- Re Custom Bus Australia Pty Ltd (in liq) [2021] NSWSC 1036
- Re Humur Pty Ltd [2020] NSWSC 1759
- Re Shire Lind Developments (NSW) Pty Ltd (in liq) [2024] NSWSC 1454
- Re Swan Services Pty Ltd (in liq) [2016] NSWSC 1724
- Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 39 ACSR 305; [2001] NSWSC 621
- Stone (liquidator), Ironbark Blacksmithing Pty Ltd (in liq) v Mizzi [2024] FCA 696
- White Constructions (ACT) Pty Ltd (in liq) v White (2004) 49 ACSR 220; [2004] NSWSC 71

Category: Principal judgment

Parties: Novo Pty Limited (in liquidation) (First Plaintiff)
Peter Krejci in his capacity as Liquidator of Novo Pty Limited (in liquidation) (Second Plaintiff)
Robert Anthony Kell (First Defendant)
Tony Pierro (Second Defendant)
Stephen Paul Chapman (Third Defendant)

Representation: Counsel:
N Simpson (Plaintiffs)
R Kell (First Defendant) (self-represented)
DS Weinberger (Second and Third Defendants)
Solicitors:
Bartier Perry Lawyers (Plaintiffs)
R Kell (First Defendant) (self-represented)
Keypoint Law (Second and Third Defendants)

File Number(s): 2024/188638

JUDGMENT

1. By Originating Process filed on 21 May 2024, the Plaintiffs, Novo Pty Ltd (“Novo”) and Mr Krejci, as its liquidator, seek relief against the First Defendant, Mr Kell, in respect of alleged insolvent trading and breaches of directors’ duties. The Plaintiffs subsequently filed a Statement of Claim (“SOC”) on 5 July 2024 which pleads their case, to which I return below. The Plaintiffs sought similar relief against the Second and Third Defendants, Mr Pierro and Mr Chapman, respectively, but it is not necessary to address those claims where the proceedings against Messrs Pierro and Chapman were settled and orders were made by consent in them.

2. As against the First Defendant, Mr Kell, the Plaintiffs seek an order under s 588M(2) of the Corporations Act 2001 (Cth) (“Act”) that he pay the amount of $1,427,462.51 or such other amount as the Court orders. The Plaintiffs subsequently reduced the amount of that claim to $1,355,126.36 by a schedule of debts (MFI 2) on which they relied at the hearing, and that claim must further be reduced by the amounts for which they have settled their claims against the Second and Third Defendants, Messrs Pierro and Chapman. The Plaintiffs also seek a declaration under s 1317E of the Act that Mr Kell breached his duties under ss 180 and 181 of the Act and an order under s 1317H of the Act that Mr Kell pay damages arising from the alleged breaches of ss 180 and 181 of the Act. The Plaintiffs also seek an order for interest under s 100 of the Civil Procedure Act 2005 (NSW) (“CPA”) from 10 April 2019 to the date of payment or judgment.

3. Mr Kell initially filed an appearance in the proceedings by solicitors and then, on 13 November 2024, filed a submitting appearance in the proceedings other than as to costs. He appeared for himself at the hearing and indicated that he wished to adopt objections to evidence and submissions previously foreshadowed by the Second and Third Defendants but not made after they settled the claims against them and their Counsel withdrew. I offered him the opportunity to withdraw his submitting appearance in order to advance those objections and submissions, but he initially chose not to do so; he took no active role in the proceedings until after the Plaintiffs had led their evidence without objection and completed their closing submissions. He then indicated that he wished to withdraw his submitting appearance, object to the evidence and adopt the other Defendants’ closing submissions. I permitted him then to withdraw his submitting appearance over the Plaintiffs’ objection. I did not permit him then to object to evidence which had been already read without objection, after the Plaintiffs had closed their case, and he adopted the other Defendants’ submissions which I address below.

Background and affidavit evidence

4. By way of background, Novo was incorporated in April 2017 and was in the business of providing information technology services. Its directors were Messrs Kell, Chapman and Pierro and its shareholder was initially Novo IT Pty Ltd (“Novo IT”), which was subsequently placed in liquidation. Messrs Pierro and Chapman resigned as directors of Novo on 10 March 2018 and Mr Kell was then the sole remaining director of Novo.

5. On 23 May 2017, Novo IT was placed in voluntary administration. Novo subsequently put a proposal for a deed of company arrangement (“DOCA”) in respect of Novo IT which was approved by Novo IT’s creditors at a second creditor’s meeting on 28 June 2017 and executed on 11 July 2017. The Plaintiffs tendered the DOCA between Nova and the deed administrators of Novo IT and Novo (Ex P3, CB 151), by which Novo agreed to pay an amount of $609,000 to acquire the assets, debtors and work in progress balances of Novo IT. The DOCA provided, in cl 4.1, for eight quarterly instalments each of $42,500 to be paid by Novo, the first instalment to be paid three months after the execution of the Deed on 11 July 2017. A balance sheet (Ex P3, CB 406), that was either extracted directly from Novo’s accounting ledgers or was based on information extracted from those ledgers, indicates substantial amounts unpaid under the Novo IT DOCA as at 30 September 2017, 31 December 2017, 31 March 2018, 30 June 2018, 30 September 2018, 31 December 2018, 31 March 2019 and 10 April 2019. There is no suggestion that these payments were not made for any reason other than Novo’s inability to make them.

6. A meeting took place in November 2017 at Novo’s accountants, which Mr Kell attended, and identified concerns as to Novo’s financial position. The Plaintiffs tendered paragraphs [43] and [44] of an affidavit dated 5 April 2025 of Mr Chapman (Ex P1) which referred to this meeting. Mr Chapman’s evidence was that he was told at that meeting that Novo was “under stress”, he asked whether Novo was insolvent and he was informed that work was being done to reschedule its tax debt to improve its position. He also there referred to his knowledge that Novo’s cashflow was “tight” in December 2017 and January 2018; to a request then made by Mr Kell that the directors make a further loan to Novo and to the fact that Mr Kell and Mr Chapman agreed to advance $20,000, and Mr Pierro declined to do so. The Plaintiffs also tendered paragraphs [23] and [24] of Mr Pierro’s affidavit dated 6 March 2025 (Ex P2) which also referred to this meeting. His evidence was that reference was made at the meeting to the need to get a payment plan in place with the Australian Taxation Office (“ATO”); Mr Kell requested the directors put cash in; and Mr Pierro indicated that he would not put cash in, although Mr Kell and Mr Chapman agreed to do so. The amounts that were to be contributed were not material to the amounts of Novo’s then and later debts. I will address the debts incurred by Novo from November 2017 and its dealings with its creditors in that period in addressing the insolvent trading claim below.

“On the whole, Mr Krejci’s evidence is largely inadmissible. In any event, it falls short. The evidence is at a very high-level and to a considerable extent unsupported by underlying source documents. In substance, the Company relies upon Reports to Creditors prepared by Mr Krejci which says very little in admissible form. There is no solvency report, let alone an independent solvency report.”

11. I have noted above that Mr Kell, who had elected not to withdraw his submitting appearance when Mr Krejci’s evidence was read, did not and could not object to that evidence, and I did not permit him later to do so after that evidence had been read without objection and the Plaintiffs had closed their case. I have regard to this submission in assessing the weight to be given to Mr Krejci’s evidence. I largely do not accept it, where, as I noted above, Mr Krejci’s opinions were underpinned by Novo’s accounting records, particularly as to its aged debts to which I refer below, and by a substantial number of contemporaneous documents, particularly in respect of Novo’s dealings with the ATO.

12. The Second and Third Defendants, in their submissions adopted by Mr Kell, also pointed to the somewhat qualified views expressed in Mr Krejci’s second report to creditors. I accept those views, without more, would have little probative weight, but the Plaintiffs’ case is now underpinned by the further evidence to which I referred above. They also raise a possibility, by reference to an observation in that report, that Novo’s accounts (upon while the Liquidator’s opinions are founded) “may be substantially inaccurate”. I do not accept that submission. As Mr Simpson, who appears for the Plaintiffs, pointed out, a book that is admissible under s 1305 of the Act is prima facie evidence of any matter stated or recorded in it and a statement of a matter in such a book kept by a company is sufficient to prove that matter in civil proceedings, unless other evidence convinces the court to the contrary on the balance of probabilities: Australian Securities and Investments Commission v Rich (2009) 236 FLR 1; (2009) 75 ACSR 1; [2009] NSWSC 1229 at [396]–[397]. Neither Mr Kell nor the other Defendants sought to establish any inaccuracy in Novo’s accounting records by evidence or to establish any position contrary to that recorded in them.

Insolvent trading claim

13. As I noted above, the Plaintiffs bring an insolvent trading claim under s 588G of the Act, which relevantly provides that:

“Director's duty to prevent insolvent trading by company

(1) This section applies if:

(a) a person is a director of a company at the time when the company incurs a debt; and

(b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and

(c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and

(d) that time is at or after the commencement of this Act.

(1A) For the purposes of this section, if a company takes action set out in column 2 of the following table, it incurs a debt at the time set out in column 3.

(2) By failing to prevent the company from incurring the debt, the person contravenes this section if:

(a) the person is aware at that time that there are such grounds for so suspecting; or

(b) a reasonable person in a like position in a company in the company's circumstances would be so aware.”

14. The Plaintiffs plead unsecured debts incurred by Novo between 1 July 2017 and 30 June 2019 (SOC [8]), although they contend for Novo’s insolvency from at least November 2017 (SOC [10]) and have narrowed the compensation claimed as I noted above. They particularise Novo’s insolvency by reference to its working capital deficiency, accumulated losses, liquidity ratio below one, overdue taxes and writing off of bad debts.

15. The applicable principles as to proof of insolvency are well-established and I have here drawn on my summaries of them in Re Swan Services Pty Limited (in liq) [2016] NSWSC 1724 at [136]ff (“Swan”) and Re Humur Pty Ltd [2020] NSWSC 1759 at [16]ff. In order to establish liability for insolvent trading on the part of Mr Kell under s 588G of the Act, the Plaintiffs must establish, relevantly, that (1) as is common ground, he was a director of Novo at the time it incurred a debt; (2) Novo was insolvent at the time the debt was incurred, or became insolvent by incurring the debt; (3) at the time the debt was incurred, there were reasonable grounds to suspect that Novo was insolvent or may become insolvent by incurring the debt; (4) and Mr Kell was aware that there were reasonable grounds to suspect insolvency or a reasonable person would have been aware of that matter. I proceed on the basis that an insolvent trading claim must be established having regard to the standard of proof recognised in the general law in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361–362 and under s 140 of the Evidence Act 1995 (NSW), which similarly provides that, in a civil proceeding, the Court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities and that, without limiting the matters that the Court may take into account in deciding whether it is so satisfied, it is to take into account the nature of the cause of action or defence, the nature of the subject-matter of the proceeding and the gravity of the matters alleged: Swan at [25]; Re Shire Lind Developments (NSW) Pty Ltd (in liq) [2024] NSWSC 1454 at [330] (“Shire”).

16. The question whether Novo was insolvent, in fact, at the time the relevant debts were incurred, or became insolvent by incurring those debts, is to be determined by reference to s 95A(1) of the Act. That section provides that a company is solvent if, and only if, it is able to pay all its debts, as and when they become due and payable. Section 95A(2) of the Act has the effect that a person who is not solvent is insolvent. That definition adopts a “cash flow test” of insolvency which turns upon the income sources available to the company and the expenditure obligations that it has to meet, although a balance sheet test can provide context for the application of the cash flow test: Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 39 ACSR 305; [2001] NSWSC 621 (“”); (2003) 46 ACSR 126; [2003] VSC 123 at [370]ff (“”), aff'd (2004) 10 VR 369; [2004] VSCA 54.

“Section 95A of the Act enshrines the cash flow test of insolvency which, in contrast to a balance sheet test, focuses on liquidity and the viability of the business. While an excess of assets over liabilities will satisfy a balance sheet test, if the assets are not readily realisable so as to permit the payment of all debts as they fall due, the company will not be solvent. Conversely, it may be able to pay its debts as they fall due, despite a deficiency of assets.”

18. Mr Simpson also recognises that s 95A(2) adopts a “cash flow test”, although a balance sheet test can provide context for the application of the cash flow test: Re Custom Bus Australia Pty Ltd (in liq) [2021] NSWSC 1036 at [33] (“Custom Bus”). He also recognises that the test of solvency is “directed to a present inability to pay all debts as and when they become due and payable, including debts that will become immediately payable in the future”: Anchorage Capital Masters Offshore Ltd v Sparkes (2023) 111 NSWLR 304; [2023] NSWCA 88 at [253].

19. Whether a company is able to pay its debts as and when they fall due and payable is a question of fact to be determined objectively and without hindsight in all the circumstances, including the nature of its assets and business, and the Court will have regard to commercial realities in that regard: Southern Cross Interiors at [54]; White Constructions (ACT) Pty Ltd (in liq) v White (2004) 49 ACSR 220; [2004] NSWSC 71 at [289]; Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 54 ACSR 410; [2005] NSWCA 243 at [103]; Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd (2011) 248 FLR 384; [2011] NSWSC 186 at [48]–[49]. Matters which may support a finding of insolvency include those referred to in Plymin at [386], where Mandie J identified several indicia of insolvency including: continuing losses; liquidity ratios below one; overdue Commonwealth and State taxes; a poor relationship with the lenders, including any inability to borrow further funds; no access to alternative finance; inability to raise further equity capital; suppliers placing a company on cash on delivery arrangements or otherwise demanding special payments before resuming supply; creditors unpaid outside trading terms; the issuing of postdated cheques; dishonoured cheques; special arrangements with selected creditors; solicitors’ letters, summonses, judgments or warrants issued against a company; payments to creditors of rounded sums not reconcilable to specific invoices; and inability to produce timely and accurate financial information to display a company’s trading performance and financial position, and make reliable forecasts.

20. As I noted above, Mr Kell adopted the Second and Third Defendants’ submissions, where they drew attention to the observations of Nixon J in Shire at [256]ff that:

“Whether a company is able to pay its debts as and when they fall due and payable is a question of fact to be determined objectively and without hindsight in all the circumstances, including the nature of the company’s assets and business, and the Court will have regard to commercial realities in that regard…

In assessing a company’s capacity to pay its debts, the Court should have regard to all of the assets of the company as at the relevant time in order to determine the extent to which those assets were liquid or realisable within a timeframe that would allow each of the debts to be paid as and when they became due…

In Quick v Stoland Pty Ltd [1998] FCA 1200, Emmett J observed that:

“In order to determine whether the Company was solvent at a given time, it would be relevant to consider the following matters:

● All of the Company's debts as at that time in order to determine when those debts were due and payable.

● All of the assets of the Company as at that time in order to determine the extent to which those assets were liquid or were realisable within a timeframe that would allow each of the debts to be paid as and when it became payable.

● The Company's business as at that time in order to determine its expected net cash flow from the business by deducting from projected future sales the cash expenses which would be necessary to generate those sales.

● Arrangements between the Company and prospective lenders, such as its bankers and shareholders, in order to determine whether any shortfall in liquid and realisable assets and cash flow could be made up by borrowings which would be repayable at a time later than the debts.”

The test in s 95A “is directed to a present inability to pay all debts as and when they become due and payable, including debts that will become payable in the immediate future”: The “correct question is whether, at the date of alleged insolvency, it can be said that the company is already in a state of inability to pay those debts when they fall due”…

In considering whether a company is insolvent at a particular point in time, it is necessary to have regard to all of the company’s debts as at that time in order to determine when those debts are due and payable, and whether the company is able to pay all of those debts as and when they become due and payable. This is a question of fact to be determined objectively and without hindsight in all the circumstances pertaining at the relevant time.” [some citations omitted]

21. Mr Simpson draws attention to, and I accept, Mr Krejci’s evidence that Novo had negative working capital from at least November 2017. Mr Krejci’s evidence also establishes that Novo incurred losses from 30 June 2017 on its yearly (and quarterly) profit and loss report which continued until April 2019, apparent from an immaterial exception in March 2019; Novo incurred losses for FY 2018 ($792,312) and up to 10 April 2019 ($297,033) totalling in excess of $1 million. That position is confirmed by the profit and loss of Novo recorded in its Xero accounts (Ex P3, CB 420ff). Mr Krejci’s evidence is also that Novo’s current ratios (in the sense noted in Plymin) from November 2017 were below one according to the comparative balance sheet prepared by the liquidator. Mr Simpson also points out that, obviously enough, from at least November 2017, Novo was unable to generate sufficient cash flow to satisfy its obligations to its trade creditors, its obligations under the DOCA and to the ATO and Revenue NSW when they fell due and payable. So far as Novo’s balance sheet provides context for the application of the cash flow, the evidence also indicates that its liabilities exceeded its assets from November 2017, and its asset position would be further reduced if a goodwill amount of $560,086 was excluded from its balance sheet given Novo’s lack of profitability.

22. Mr Simpson also points to the Company’s entry into payment arrangements with the ATO for tax liabilities arising from business activity statements, respectively on April 2018, which was breached by June 2018; a subsequent payment arrangement on 15 June 2018, which was breached by July 2018; and a payment arrangement for unpaid superannuation guarantee charges on 20 September 2018 which was breached on 30 January 2019. It seems to me that the evidence to Novo’s dealings with the ATO and its tax and revenue debts strongly supports a finding of insolvency over the relevant period. A balance sheet that was either extracted directly from Novo’s accounting ledgers, or was based on information extracted from those ledgers, records substantial debts owed to the ATO at each of 30 June 2018, 30 September 2018, 31 December 2018, 31 March 2019 and 10 April 2019 (Ex P3, CB 406) and Novo incurred unpaid debts to the ATO between 21 November 2017 and 9 April 2019 in the amount of $969,344.29 (Ex P3, CB 827–832).

23. On 15 January 2018, the ATO wrote to Novo noting its failure to lodge its business activity statement on time (Ex P3, CB 750). On 7 February 2018, the ATO again wrote to Novo requesting payment of an unpaid tax debt and threatening referral to a collection agency (Ex P3, CB 748). By letter dated 9 March 2018, the ATO confirmed a payment plan with Novo (Ex P3, CB 745) as to which Novo subsequently defaulted. On 24 April 2018, the ATO again advised Novo of its failure to lodge its business activity statement on time (Ex P3, CB 744) and, on 1 and 3 May and 6 June 2018, it wrote to Novo as to overdue lodgements (Ex P3, CB 735, 741, 743). By letter dated 15 June 2018, the ATO confirmed a further payment plan (Ex P3, CB 738) on which Novo also defaulted. The ATO also wrote to Novo from at least 23 August 2018 onward concerning its failure to pay superannuation charge amounts (Ex P3, CB 715–733). By letter dated 29 August 2018, the ATO again wrote to Novo concerning its overdue tax debt (Ex P3, CB 711) and further correspondence then took place various rejecting and accepting payments plans, as to which Novo again defaulted (Ex P3, CB 236, 692, 702–708).

“Further, or in the alternative to paragraphs 11 and 12 above, at the time the First Defendant Debts [as defined] … were incurred, a reasonable person in the position of [Mr Kell] in a like position in a company in [Novo’s]’s circumstances, would have been aware that at the time the … First Defendant’s Debts were incurred, there were reasonable grounds for suspecting that the Company was insolvent.

In the premise of the matters set out at paragraphs 8 to 13 above … [Mr Kell] failed to prevent [Novo] from incurring the First Defendant Debts …”

29. In order to establish this aspect of their claim, the Plaintiffs must show that, during the period in which Novo was insolvent from November 2017, there were reasonable grounds to suspect it was insolvent or would become insolvent as a consequence of incurring a relevant debt (s 588G(1)) and that Mr Kell was aware of that matter (s 588G(2)(a)) or a reasonable person in a like position in a company in Novo’s circumstances would be so aware (s 588G(2)(b)). This requirement may be satisfied either by proof that a director had a subjective awareness of grounds that constitute reasonable grounds for suspecting insolvency, or that a reasonable person in the position of the director would have been aware of the existence of such grounds: Plymin at [426]. This requirement adopts a lower threshold of the existence of reasonable grounds for “suspecting” that the company was insolvent or would become insolvent as a result of the transaction, rather than of an expectation that the company was insolvent or would become insolvent as a result of a transaction. In Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330 at [234], Palmer J noted that the standard of “suspicion” of insolvency:

“falls somewhere between a belief that insolvency exists, on the one hand, and a mere wondering whether it exists, on the other. Suspicion is a positive feeling of apprehension, an admittedly tentative belief, without sufficient evidence to form a concluded and supportable opinion.”

30. In Powell v Fryer (2001) 37 ACSR 589; [2001] SASC 59 at [76]–[77], Olsson J (with whom Duggan and Williams JJ agreed) observed that:

“The test to be applied in relation to s 588G(1)(c) is objective: Metropolitan Fire Systems Pty Ltd v Miller (1997) 23 ACSR 699 at 702–3. As Duggan J pointed out in Group Four Industries Pty Ltd v Brosnan (1991) 56 SASR 234 at 238; 5 ACSR 649, the state of knowledge of a particular director and any assessment which he may have made as to the ability of the company to pay its debts is irrelevant. The court must make its own judgment on the basis of facts as they existed at the relevant time and without the benefit of hindsight.”

31. The question whether such reasonable grounds to suspect insolvency existed is to be determined by reference to the position of a director of reasonable competence and diligence, who performed his or her duties imposed by law, and reached a reasonably informed opinion as to Novo’s financial capacity: Swan at [178]ff.

32. Mr Simpson submits that:

“The absence of any direct knowledge by the directors is no impediment to a finding of breach under section 588G. It is sufficient if a reasonable person in a like position as a director of the Company in its circumstances would be aware having regard to the facts and circumstances knew or ought to have known …

The discussions of [Messrs Pierro and Chapman] with [Mr Kell] and their accountant … reaches the threshold of a positive feeling of apprehension. In those circumstances, the Court should find that a person exercising reasonable care over the financial position of the Company would have had reasonable grounds to suspect that the Company was insolvent as at November 2017. A reasonable director would have been aware of:

(a) the Company’s absence of capital to support the expenses of the Company;

(b) the Company’s continuing trading loss as at November 2017;

(c) the ratios discussed above;

(d) the diminishing cash position of the Company;

(e) the Company’s outstanding taxation obligations;

(f) the Company’s absence of access to alternate finance (other than between directors).”

33. I am also comfortably satisfied that, having regard to Novo’s continuing losses; its increasing and unpaid debts to the ATO; its unpaid superannuation guarantee charge contributions; its defaults on payment plans and other aged and unpaid debts to which I referred above; and its lack of access to finance, there were plainly reasonable grounds for Mr Kell to suspect that Novo was insolvent at the time it incurred the relevant debts (s 588G(1)) and a reasonable person in a like position to Mr Kell in a company in Novo’s circumstances would be aware of that matter (s 588G(2)(b)). The meeting with other directors and Novo’s accountant which I addressed above emphasises, rather than displaces, that finding.

34. Mr Simpson also submits and I accept that:

“there can be no doubt that the directors at their respective directorships failed to prevent the Company from incurring debt once it was insolvent. The evidence establishes that the directors took no action, at any time, to cause the Company to have an administrator or liquidator appointed to it.”

35. I am also satisfied that Mr Kell plainly failed to prevent Novo from incurring the relevant debts and his failure to do so contravened s 588G of the Act.

Claim under s 588M of the Act

36. The Plaintiffs plead (SOC [16]) that, pursuant to section 588M(2) of the Act, Mr Kell is liable to pay the Company the sum of $1,427,462.52, being the total of the First Defendant’s Debts (as defined). As I noted above, this amount was reduced in the schedule of debts claimed (MFI 2). Mr Simpson submits that:

“A claim for loss or damage under section 588M requires the debt to be incurred within the meaning of section 588G. Given the greater proportion of the claimed amounts relate to taxes and statutory imposts, such a liability is captured by section 588F of the Act as well as other authorities on this point (see: Re O’Brien Real Estate Drouin Pty Ltd [2024] VSC 327 at [78]).”

37. Section 588M of the Act relevantly provides for the recovery of compensation for loss resulting from insolvent trading, as follows:

“Recovery of compensation for loss resulting from insolvent trading

(1) This section applies where:

(a) a person (in this section called the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and

(b) the person (in this section called the creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency; and

(c) the debt was wholly or partly unsecured when the loss or damage was suffered; and

(d) the company is being wound up.”

38. In Edenden v Bignell [2007] NSWSC 1122 at [30], Barrett J observed that:

“[Section 588M] does not allow recovery of the amount of the creditor’s debt as such. Rather, it is a provision allowing recovery of compensation measured by reference to loss or damage suffered by the creditor in relation to the debt because of the debtor’s insolvency. In some cases — perhaps most cases — this will be the equivalent of the amount of the debt: see, for example, Powell v Fryer (2001) 37 ACSR 589. In others — for example where a proof of debt is admitted and a substantial payment is made to all creditors rateably — the relevant loss or damage may be less than the amount of the debt. There may perhaps be circumstances in which the amount of the loss or damage exceeds the amount of the debt. The separateness of the debt, on the one hand, and the loss and damage, on the other, is emphasised by the statement in s 588M(3) that an amount equal to the loss or damage may be recovered “as a debt due to the creditor”.”

39. I have referred to the tax and revenue debts incurred by Novo above. An aged payables ledger (Ex P3, CB 448ff) recorded, as at 16 April 2019, amounts that were over 18 months overdue to the Australian Securities & Investments Commission (“ASIC”) and overdue for substantial periods to other creditors, including to Firstwave Technologies dating back to 28 July 2017 and to Rhipe dating back to 13 December 2018. Other debts were due to ASIC as at 10 May 2018 of $582 (Ex P3, CB 210–214); Australia Post as at 31 March 2019 of $314 (Ex P3, CB 280); B and W Pty Limited between 18 May 2018 and 19 September 2018 in the amount of $19,204.71 (Ex P3, CB 584–595); Connectwise between 17 December 2018 and 21 March 2019 in the amount of $13,052.07 (Ex P3, CB 397–398, 250–251, 263–266, 281–284, 335–338); DEM Australasia Pty Ltd as at 3 December 2018 in the amount of $110,000 (Ex P3, CB 598–599); Dicker Data from 29 March 2019 to 1 April 2019 in the amount of $1,929.35 (Ex P3, CB 355–356, 359; Ex P6); enTRUST ICT from 2 August 2018 to 26 September 2018 in the amount of $3,670.35 (Ex P3, CB 224–225, 230–231); Firstwave Technologies from 23 December 2017 to 19 April 2019 in the amount of $4,034.25 (Ex P3, CB 177–178, 190, 327–334); Gartner Australasia Pty Ltd as at 22 November 2018 in the amount of $40,260 (Ex P3, CB 240); ion Consulting Group Pty Ltd as at 11 March 2019 and 10 April 2019 in the amount of $5,829.98 (Ex P3, CB 538–539, 292–293); Kaseya Australia Pty Ltd as at 9 April 2019 in the amount of $112.17 (Ex P3, CB 357–358); KPMG Australia between 17 December 2018 and 13 February 2019 in the amount of $5,005 (Ex P3, CB 244–249, 252–260, 267–272); Little Tokyo Two Pty Ltd between 25 January 2019 and 5 April 2019 in the amount of $2,200 (Ex P3, CB 607–612); OpenDNS (Cisco) between 2 November 2017 and 2 December 2017 in the amount of $850 (Ex P3, CB 174); Rhipe between 1 January 2019 and 10 April 2019 in the amount of $150,013.68 (Ex P3, CB 540–583); The CEO Institute as at 1 May 2018 in the amount of $2,953.50 (Ex P3, CB 204) and Westcon Group from 4 March 2019 to 5 April 2019 in the amount of $6,697.79 (Ex P3, CB 273–279, 285–291, 339–345).

40. Each of these amounts is properly characterised as a debt and was incurred in the period from November 2017 when Novo was insolvent. The fact of these debts, the dates they were incurred and the failure to pay them is sufficiently established by Novo’s aged payables ledger maintained on its Xero accounting system (Ex P3, CB 498) and is supported by the tender of relevant invoices. Neither the Second or Third Defendants, whose foreshadowed submissions Mr Kell adopted, nor Mr Kell, advanced any specific contention to the contrary. The amount of these debts is, subject to the matter that I address below, properly recoverable under s 588M of the Act.

41. The balance of authority indicates that the Plaintiffs must, in proving loss or damage for the purpose of s 588M, bring to account any anticipated or estimated return to creditors in the relevant insolvency, which will here include the result of the voidable transaction claims noted below. I reviewed the case law in and concluded at [216] that:

“The concept of “loss and damage” adopted in [s 588M] seems to require that account be taken of matters that will reduce the amount of that loss or damage, including recoveries by the liquidator that will allow a distribution to creditors, and that result is consistent with fairness so far as it does not result in the defendant, in a claim under s 588M of the Corporations Act, being required to compensate for loss and damage which will not be suffered once other recoveries are made. While the process of establishing loss or damage taking into account future recoveries may be challenging in a particular case, it is by no means impossible. That approach seems to me necessary to establish the amount of “loss or damage” that a creditor will in fact incur and should avoid or limit the risk that judgments are given under s 588M of the Corporations Act for more than the amount of that loss or damage.”

42. The Second and Third Defendants, in their submissions adopted by Mr Kell, observed, with reference to Mr Krejci’s second report to creditors, that:

“Telstra entered into a payment arrangement to pay $111k (page 4). Whether or not this money has been recovered is not known. …

[T]here may be an unfair preference claim against the ATO for at least $133k and voidable transactions of $205k against the ATO (page 4). The evidence does not disclose what became of those possible claims. …

[N]o attempt has been made to prove loss or damage, i.e. the return, or likely return to creditors from the Company’s debtors such as Telstra and voidable transactions.”

43. These are significant matters, where the Liquidators must bring such a claim to account in quantifying the loss recoverable against Mr Kell. I do not consider that their failure to address them in evidence or submissions would warrant the dismissal of their claim, but this matters must be addressed and any necessary evidence led in their submissions as to orders. The position may not be straightforward, since it may raise questions as to any overlap between the two potential claims against the ATO and the likelihood that, if those claims were successful, the debt provable by the ATO in the liquidation and the amount recoverable against Mr Kell would increase in consequence, so this claim would not or would not materially affect the outcome. The amount payable by the Second and Third Defendants under their settlement of these proceedings must also be deducted from the amount otherwise recoverable by the Plaintiffs.

Alleged contraventions of ss 181 and 182 of the Act

44. The Plaintiffs also allege that Mr Kell breached his duties under ss 180 and 181 of the Act and seek a declaration under s 1317E of the Act in that regard. They also seek an order under s 1317H of the Act that Mr Kell pay damages arising from the alleged breaches of ss 180 and 181 of the Act.

45. The Plaintiffs plead this claim (SOC [18], [20]) in an abbreviated, and almost perfunctory, way as follows:

“[18] In causing [Novo] to incur the First Defendant Debts, [Mr Kell] has:

a. failed to act with the degree of care and diligence that a reasonable person might be expected to exercise in the role of director of [Novo], in breach of section 180 of the [Act]; and

b. failed to act in good faith in the best interests of the Company and for a proper purpose, in breach of section 181 of the [Act] …

[20] As a result of the breach of directors’ duties set out in paragraph 18 … above [Novo] suffered detriment caused by [Mr Kell] and the [P]laintiffs claim against [Mr Kell” the relief set out under the heading Relief Claimed on page 2 of this document.”

46. Mr Simpson also addresses this claim only in an abbreviated and conclusory fashion in his opening submissions as follows:

“It is submitted that the corollary of a contravention of [s] 588G gives rise to a finding that the first defendant has breached his obligations under [ss] 180 and 181 of the Act having failed to discharge his duties with care and diligence and in the best interests of the Company. Accordingly, the Court is entitled to make a declaration of such contravention and order compensation in the same or similar terms to [s] 1317H of the Act.”

47. I should not reach findings as to this claim. First, this claim was not sufficiently developed in written or oral submissions to allow Mr Kell, as a self-represented litigant, an adequate opportunity to know how the case was put and to respond to it. To reach such findings on that basis would deprive Mr Kell of procedural fairness. Second, the relief arising from this claim could not and should not be granted. Sections 180 and 181 are each civil penalty provisions and the declaration sought cannot be made under s 1317E of the Act other on the application of ASIC. It is not necessary to decide whether such a declaration could be made at general law, because the Plaintiffs did not seek such a declaration on that basis or explain how a declaration on that basis would resolve any remaining controversy between the parties. An order for compensation also should not be made on this basis since the Plaintiffs did not seek to explain how it would be quantified, in respect of loss suffered by Novo as distinct from amounts recoverable under s 588M of the Act; the quantification of that compensation was also not sufficiently developed in written or oral submissions to allow Mr Kell an adequate opportunity to know how the case was put and to respond to it; and to order compensation on this basis would also deprive Mr Kell of procedural fairness.

Orders

48. The Plaintiffs therefore succeed in their primary claims for insolvent trading against Mr Kell. It will be necessary for the Plaintiffs to address the matters noted in paragraph 43 above and calculate the amount of interest recoverable under s 100 of the CPA. As I noted above, Mr Kell withdrew his submitting appearance, after I had drawn his attention to the risk that he would expose himself to an order for costs by doing so. An order for costs should now follow the event in the usual way, and Mr Kell must pay the Plaintiffs’ costs of the proceedings against him, as agreed or as assessed.

49. I direct the parties to bring in agreed short minutes of order to give effect to this judgment within 14 days or, if there is no agreement between them, their respective short minutes of order and submissions not exceeding eight pages in Arial font 12, one and a half spacing, as to the differences between them.

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