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[2025] NSWSC 993
General information, not legal advice.
Supreme Court of NSW
2025-08-29
Brereton J
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Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: In the matter of Trinco (NSW) Pty Ltd (in liq) [2025] NSWSC 993
Hearing dates: 1 July 2025
Date of orders: 29 August 2025
Decision date: 29 August 2025
Jurisdiction: Equity - Corporations List
Before: Brereton J
Decision: 1) the claim against the first defendant is dismissed with no order as to costs;
2) the second defendant is to pay to the second plaintiff as a debt due the amount of $10,059,175.52;
3) if the plaintiffs wish to press any claim for pre-judgment interest, they are to advise my Associate of that fact by 5pm on 4 September 2025; and
4) the parties are to provide any submissions on costs by 5 September 2025 (limited to 3 pages) with any supporting evidence and a decision on costs will be made on the papers (absent good reason).
Catchwords: INSOLVENCY – winding up – insolvent trading – where plaintiffs seek an order pursuant to s 588M of the Corporations Act 2001 (Cth) – where plaintiffs allege the second defendant was a de facto director of the company pursuant to s 9AC(1)(b) of the Corporations Act – where there was no dispute that the company was insolvent within the meaning of s 95A of the Corporations Act – finding that second defendant was a director of the company when the debts were incurred – where there were reasonable grounds for suspecting the company was insolvent – where second defendant failed to prevent the company incurring the debts – where a reasonable person in a like position in the company’s circumstances would be aware that there were grounds for suspecting the company was insolvent –
where the persons to whom the debts were owed suffered loss or damage in relation to the debts because of the company’s insolvency – where not all debts were wholly or partly unsecured at the time the loss or damage was suffered – plaintiffs successful in establishing breach of s 588M – second defendant to pay the second plaintiff the amount of debt specified
Legislation Cited: Civil Procedure Act 2005 (NSW)
Corporations Act 2001 (Cth)
Personal Property Securities Act 2009 (Cth)
Corporations Act 1989 (Cth) (repealed)
Cases Cited: Alora Davies Developments 104 Pty Ltd (in liq) v Raphael [2024] NSWSC 547
Australian Securities and Investments Commission v Edwards [2005] NSWSC 831; 54 ACSR 583
Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; [1993] HCA 15
Australian Securities and Investments Commission v Plymin (No 1) [2003] VSC 123; 46 ACSR 126
BCEG International (Australia) Pty Ltd v Xiao [2022] NSWSC 972; 162 ACSR 601
BCI Finances Pty Ltd (in liq) v Binetter (No 4) [2016] FCA 1351; 117 ACSR 18
Corporate Affairs Commission v Drysdale (1978) 141 CLR 236
Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22
Grimaldi v Chameleon Mining NL (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 200 FCR 296; [2012] FCAFC 6
Hall v Poolman [2007] NSWSC 1330; 65 ACSR 123
In re City Equitable Fire Insurance Company, Limited [1925] Ch 407
In the matter of Squirrel Limited (in liq) [2021] NSWSC 1658
In the matter of Swan Services Pty Ltd (in liq) [2016] NSWSC 1724
In the matter of Wild K9 Pty Ltd (in liq) [2025] VSC 178
Mitchell Warren Ball (in his capacity as official liquidator of Wealthfarm Group Services Pty Ltd) v Nicholas Quinn Sinclair [2015] NSWSC 2103
Newman v Hartwig (2024) 73 VR 326; [2024] VSC 54
Perrine v Carrello [2017] WASCA 151
Powell v Fryer [2001] SASC 59; 37 ACSR 589
Quin v Vlahos (2021) 64 VR 319; [2021] VSCA 205
Smith v Bone, in the matter of ACN 002 864 002 Pty Ltd (in liq) [2015] FCA 319; 104 ACSR 528
Standard Chartered Bank of Australia Ltd v Antico (1995) 38 NSWLR 290; 18 ACSR 1
Stone v Melrose Cranes & Rigging Pty Ltd, in the matter of Cardinal Project Services Pty Ltd (in liq) (No 2) [2018] FCA 530; 125 ACSR 406
Stone (liquidator), in the matter of Ironbark Blacksmithing Pty Ltd (in liq) v Mizzi (No 2) [2024] FCA 927
Treloar Constructions Pty Ltd v McMillan [2017] NSWCA 72; 120 ACSR 130
Texts Cited: Explanatory Memorandum to the Corporate Law Reform Bill 1992 (Cth)
I Ramsay and R Austin, Ford, Austin & Ramsay’s Principles of Corporations Law (17th ed, 2017 LexisNexis)
Category: Principal judgment
Parties: Henry McKenna in his capacity as liquidator of Trinco (NSW) Pty Ltd (first plaintiff)
Trinco (NSW) Pty Ltd (in liq) (second plaintiff)
Robin Azizi (first defendant)
Anthony Azizi (second defendant)
Representation: Counsel:
S Cirillo (plaintiffs)
A Azizi (second defendant – self-represented)
No other appearances
Solicitors:
Henry William Lawyers (plaintiffs)
File Number(s): 2023/465040
Publication restriction: N.A.
Mr Henry McKenna is the liquidator of Trinco (NSW) Pty Ltd (in liq) (Trinco). He and Trinco (the plaintiffs) seek an order pursuant to s 588M of the Corporations Act 2001 (Cth) that Mr Anthony Azizi (the second defendant) pay to Trinco the sum of $11,569,676.43. In broad terms, that section gives a company’s liquidator a right to recover from a director, as a debt due to the company, an amount equal to the loss or damage incurred by creditors arising from insolvent trading by the company. The claim concerns debts incurred by Trinco after 1 July 2018, which will (but for these proceedings) yield a nil return to the creditors.
Mr Azizi was never a formally appointed director of Trinco. He was at all relevant times the sole director of another company, called Trinity Constructions (Aust) Pty Ltd (Trinity), which had a close commercial connection with Trinco. It is alleged that Mr Azizi was a de facto director of Trinco, which would potentially expose him to liability under s 588M.
For the reasons set out below, I am satisfied that the plaintiffs have made out a significant part of their case, but not the whole of it. I am satisfied that Mr McKenna is entitled to recover from Mr Azizi, as a debt due to Trinco, the amount of $10,059,175.52.
(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;
whether or not:
(e) the director has been convicted of an offence in relation to the contravention; or
(f) a civil penalty order has been made against the director in relation to the contravention...
(2) The company's liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage...
The plaintiffs allege that Mr Azizi has contravened s 588G(2) in relation to the incurring of debts by Trinco.
Section 588G relevantly provides:
(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...
(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…
(a) Mr Azizi was a director of Trinco from 1 July 2018; (b) Trinco incurred the alleged debts; (c) Trinco was insolvent from 1 July 2018; (d) There were reasonable grounds for suspecting that Trinco was insolvent from 1 July 2018; (e) Mr Azizi failed to prevent Trinco from incurring the debts; (f) either:
(i) Mr Azizi was aware when he failed to prevent the debts being incurred that there were grounds for suspecting Trinco was insolvent; or (ii) a reasonable person in a like position in Trinco’s circumstances would be aware that there were grounds for suspecting Trinco was insolvent;
(g) the persons to whom the debts were owed suffered loss or damage in relation to the debts because of Trinco’s insolvency; (h) the debts were wholly or partly unsecured when the loss or damage was suffered; and (i) Trinco is being wound up.
In order to succeed in the whole of their claim, the plaintiffs must prove that Mr Azizi was a director of Trinco in the period from 1 July 2018. Mr Azizi was not in that period, or ever, formally appointed to the position of a director of Trinco.
The plaintiffs allege that Mr Azizi was a director of Trinco by reason of the operation of s 9AC(1)(b). Section 9AC(1) provides:
(1) A director of a company or other body is:
(a) a person who:
(i) is appointed to the position of a director; or
(ii) is appointed to the position of an alternate director and is acting in that capacity;
regardless of the name that is given to their position; and
(b) unless the contrary intention appears, a person who is not validly appointed as a director if:
(i) they act in the position of a director; or
(ii) the directors of the company or body are accustomed to act in accordance with the person's instructions or wishes (excluding advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or the corporation).
The plaintiffs allege that both (b)(i) and (b)(ii) are engaged, but the focus of the plaintiffs’ argument was that s 9AC(1)(b)(i) applies. They used the common short-hand expression of “de facto director” to describe a person who is a director by virtue of this provision.
In order to determine whether a person acted in the position of a director within the meaning of s 9AC(1)(b)(i), it is necessary to focus on what is meant by “the position of a director”. It is necessary to understand what a person who is in the position of a director does, or is supposed to do, in order to determine whether some particular person has acted in that position. The relevant principles have been considered in many cases. Two commonly cited cases are Deputy Commission**er of Taxation v Austin (1998) 28 ACSR 565 at 568-571 and Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [62]-[76]. A convenient recent outline of the principles can be found in Alora Davies Developments 104 Pty Ltd (in liq) v Raphael [2024] NSWSC 547 at [84]-[91].
The starting point to ascertain what is meant or encompassed by “the position of a director” must be the Corporations Act itself. The definition of “director” in s 9AC provides some assistance but is also question begging. A person is a director if appointed to that position, and, relevantly, a director is a person who acts in the position of a director. This indicates that a person is a director of a company if he or she acts in the position that would be occupied if he or she had been appointed as a director. That invites attention to the duties and functions that attach to the office of director in the company in question.
The duties and functions that attach to the office of director in a company will vary depending on the particular company. A person appointed as a director of a large, diversified public company will perform a role that differs in many respects from the sole director of a company running a small corner shop: Deputy Commission**er of Taxation v Austin at 570. The manner in which the task of managing a company is to be undertaken, and divided between directors and others, is to a significant extent, left to the company to decide: In re City Equitable Fire Insurance Company, Limited [1925] Ch 407 at 426-427 (Romer J).
Although it is not a particularly precise concept, it is sometimes said that a factor that indicates that a person is acting in the position of a director is that he or she “exercised the top level of management functions in relation to the company”: Deputy Commission**er of Taxation v Austin at 571; BCEG International (Australia) Pty Ltd v Xiao [2022] NSWSC 972; 162 ACSR 601 at [330]. All companies, large and small, will have top level management functions (which I take to mean, or at least include, the decisions that fundamentally affect how a company is to conduct its affairs). In a big company, the directors, may (legitimately and through practical necessity) delegate important management tasks to others, who will not generally be persons who thereby become directors. In such cases, the directors are generally still making the top level management decisions, which may include the decision to delegate. The directors will retain the ultimate oversight of the decisions made by managers. In a large company, a director’s function is mainly to act together with other directors as a board of directors, which will usually meet once a month or so, to perform the ultimate management role, rising far above the day to day of managing a company. That will not be the case where a company has just 1 director. In a small company, a director will often exercise the top, middle and bottom levels of management.
Trinco was registered on 26 November 2015. At all relevant times, its sole director and secretary was Ms Robin Azizi. She is the sole shareholder, owning the single issued share, paid to $1. Ms Azizi is Mr Azizi’s sister. She is the first defendant in these proceedings but is now bankrupt. The claim against her was not pressed.
Trinco’s role, in general terms, was to operate as a management company for Trinity and companies related to it. Trinity was registered on 22 January 2001. Mr Azizi was a director of Trinity at all relevant times.
It would have been helpful to consider Trinco’s constitution, but it was not in evidence.
Mr Azizi gave evidence under cross-examination about the relationship between Trinco and Trinity. That evidence (supplemented by some of the other evidence) can be summarised as follows:
(a) Trinity was a construction company. Around 90% of its work was undertaken under contract, by which I understand that a developer engaged Trinity to construct a building. In some cases, Trinity was both the developer and the head construction company. (b) Trinco was established on the recommendation of Trinity’s accountant. That advice was that accounts should be separate from construction and Ms Azizi should be appointed the director of Trinco. Before that happened, Ms Azizi was fulfilling the same role in administration for Trinity, but not through a separate corporate vehicle. The decision to set up Trinco was made with Trinity’s accountant and Ms Azizi. But it was ultimately Mr Azizi’s decision to structure the affairs in that way. (c) Trinity was generally the “head contractor” on construction projects, meaning that it entered into a building contract with developers to undertake a particular construction project. Where the performance of a head contract required subcontractors and supplies, contracts with subcontractors and suppliers were made with Trinco. Trinco paid the subcontractors and suppliers who provided services and goods on Trinity’s construction projects. (d) Mr Azizi was unable to say whether there was a written agreement between Trinity and Trinco. (e) Trinco did not generate any revenue on its own. It did not charge a management fee for its services and did not make a profit from trading. (f) Decisions about which subcontractors to retain and which suppliers were to be used were generally made by a construction manager employed by Trinity. Those decisions were not made by Ms Azizi (she “had no idea about construction so there was no real use in talking to her about any construction issues”). Mr Azizi had his construction staff negotiate contracts. Mr Azizi got involved personally “if things got bad and there were issues”. (g) The general approach to payment of subcontractors and suppliers was for the Trinity construction manager to sign off on the amount claimed. Trinity would provide funds to Trinco to pay the claim and Trinco would process the money and make payments, usually electronically. (h) Mr Azizi thought that both he and Ms Azizi were signatories on Trinco bank accounts, however there was evidence that he was the sole signatory. (i) Trinco was largely dependent on funding from Trinity. The practice (or intended practice) was that Trinity would make payments each month to Trinco to enable Trinco to pay subcontractors and suppliers. Trinco inevitably incurred losses because Trinity failed to place it in sufficient funds to meet Trinco’s legal liabilities, that were all incurred to support Trinity’s projects. (j) Mr Azizi “ran Trinity”. His expertise and work lay on the construction side. On any construction issues, final decisions were made by Mr Azizi. Mr Azizi was not generally involved with accounting and “rarely spoke to the accounting side”. He spoke to “the guys involved in construction”. If there were construction related issues, they would ultimately come to Mr Azizi. (k) Any “money issue” would go to Ms Azizi. Her role was to undertake the day to day running of administration and accounts. But if there was an issue with a subcontractor that involved a construction matter (such as a safety incident on site or a concern about the quality of work) it would be a Trinity construction person, including Mr Azizi at times, who addressed those issues with the subcontractor. If it was an accounting issue, Ms Azizi would generally deal with it. (l) Mr Azizi gave this evidence:
Towards the end obviously with it all coming down at the end, that's when [Ms Azizi] would ‑ if you had a disgruntled contractor, I'm not going to let [Ms Azizi] go into an office and have a contractor yelling at her so either myself or someone else would go in and, you know, that's when I'd go in because I'm not going to let her walk in there with someone yelling and screaming.
(m) Mr Azizi also gave this evidence:
Q. But you're accepting that when critical problems arose for Trinco, you managed them?
A. Critical problems I think is a very broad aspect. [Ms Azizi] looked after the Trinco entity. We're all under the one roof so at the end of the day if there was [a] problem, there was a screaming contractor, you know, whoever was the right person for that particular contractor, it could have been one of the juniors that might have had a relationship with a particular contractor that could have kept him calm, which happened, it could have been me, it just, you know, there was no perfect science to this, there was nothing black and white.
(n) The staff working on the accounting side for Trinco and the Trinity construction staff and the development team worked at the same premises. Mr Azizi was uncertain about whether some people were employed by Trinity or Trinco. It appears that the email addresses of all staff, be they Trinity or Trinco employees, contained the address “@trinityconstructions.com.au”, including Ms Azizi. (o) Mr Azizi’s affidavit evidence was that “Trinco was not part of the Trinity Group but we often worked on projects together and had established a good working relationship”. His evidence was that his involvement was limited to periodic negotiations on behalf of Trinco (a role shared by other senior members of the Trinity Group). His evidence was he took on this role as he had established relationships with many of the subcontractors with whom Trinco engaged.
Mr Azizi gave evidence and submitted that he was never a director of Trinco, whether formally appointed or otherwise. I accept that this was his belief. However, it is clear that a person who is not appointed as a director and who does not believe that he or she is a director, may still be a director. The test is objective: BCI Finances Pty Ltd (in liq) v Binetter (No 4) [2016] FCA 1351; 117 ACSR 18 at [241]. What matters is what the person is actually doing.
Mr McKenna gave evidence about Mr Azizi’s involvement with Trinco, drawn mainly from the records of Trinco. His evidence was that Mr Azizi was involved in the day-to-day management of Trinco; particularly he communicated with creditors of Trinco and had authority to reach agreements with creditors on behalf of Trinco. There was evidence of specific communications between Mr Azizi and creditors which involved contracts with Trinco and some internal communications where Mr Azizi was giving directions to staff concerning the management of Trinco’s debts. The evidence concerned dealings with the following entities:
(a) Mulberry Construction Group Pty Ltd in November 2018; (b) Mesh & Bar Pty Ltd in November 2018; (c) Pool Windows Pty Ltd in January 2019; (d) Bolt Technology Pty Ltd in May and September 2019; (e) Meega Formwork Aust Pty Ltd and Meega Formwork Pty Ltd in August and September 2019; (f) Rite-Flow Nominees Pty Ltd in October 2019; (g) Interpret Plumbing Pty Ltd between November 2019 and February 2020; (h) Complete Plumbing Solutions Pty Ltd in June 2020; and (i) Allam’s Landworks Pty Ltd in March and April 2021.
The dealings with Interpret Plumbing provides a useful example or illustration of Mr Azizi’s conduct. Interpret Plumbing rendered invoices to Trinco dated 25 July 2018, 1 November 2018 and 25 November 2018 totalling $364,289. An amount of $53,460 was paid in respect of the first invoice (for $116,127) on about 16 August 2018, leaving an outstanding debt of $310,829. There were email exchanges in evidence between Mr Farah, the managing director of Interpret Plumbing, and Mr Azizi. It is evident from the emails that there was a meeting held on 31 October 2019 concerning the “Campbelltown debt”, attended by Mr Azizi. The 3 invoices concerned a project at Campbelltown. Mr Farah indicated that it was mentioned at the meeting that in 2018 before hand over of the Campbelltown project that “you guys had a financial problem”. Mr Farah recorded that “you said to deal with yourself directly, and together a solution will be made”, to which Mr Azizi responded “correct”. On 5 February 2020, Mr Farah emailed Mr Azizi, as follows: “What’s the update with our agreement. No funds have come in yet. You said by Christmas it’s now February and I have tried texting and have had no response”. Later that month, there were further communications between Mr Azizi and Mr Farah, which included a statement from Mr Azizi that he was committed to the sale of an apartment in lieu of the money owed to Interpret Plumbing, which seemed to have involved the prospect of a transfer of property to Interpret Plumbing instead of payment of cash. The evidence is that the debt remains outstanding.
Mr Azizi’s evidence was that the evidence presented by the plaintiffs reflected isolated occasions and was not representative of the extensive dealings that occurred day-to-day with creditors, where he was not involved. These dealings may not be representative of all dealings with Trinco’s creditors, but they do demonstrate that from time to time Mr Azizi took it upon himself to deal with and make decisions concerning Trinco’s dealings with its creditors. On most of these occasions, Ms Azizi was not involved in the communications and there was nothing to suggest that anything done by Mr Azizi for Trinco was subject to any decision from Ms Azizi. Outwardly, Mr Azizi was dealing with these creditors on the basis that he was ultimately in charge. It would not be surprising to creditors that Mr Azizi would act in this way because they were subcontractors or suppliers to Trinity construction projects and no one doubted that Mr Azizi was in charge of Trinity.
I am satisfied that the day-to-day accounting activities undertaken to manage the contracts that existed between Trinco and the various subcontractors and suppliers were managed by Ms Azizi and she exercised a significant level of responsibility in the management of that accounting function. Mr Azizi was not closely involved in most of the dealings for two related reasons. One was that he was relatively inexperienced in accounting and financial management. The other reason was that for the most part, day-to-day accounting management was relatively routine and did not warrant the attention of Mr Azizi, who was running the construction business and could not involve himself with routine (albeit important) matters. Nevertheless, from time to time, Mr Azizi took and had responsibility for dealing with some of Trinco’s creditors.
A total amount of $8,318,630.14 is claimed to reflect debts incurred from 1 July 2018 to 9 September 2021 arising from the provision of services or supplies that are supported by proofs of debt or documents from creditors supporting a claim. These debts are addressed in evidence from Mr McKenna. The plaintiffs rely on the date of the invoice as reflecting the date on which the debt was incurred: see In the matter of Swan Services Pty Ltd (in liq) [2016] NSWSC 1724 at [197]. In some cases, there are no invoices available but Mr McKenna has reconciled claims made by a proof of debt with Trinco’s internal accounting records, maintained by the MYOB platform: see Stone v Melrose Cranes & Rigging Pty Ltd*, in the matter of Cardinal Project Services Pty Ltd (in* liq*)* (No 2) [2018] FCA 530; 125 ACSR 406 at [166]-[182]. In some cases, there was partial payment of some of the invoices. Only the amount unpaid is claimed. Mr Azizi did not dispute the existence or date of any of the debts at the hearing.
The debts include some relatively modest amounts, such as $7,311.80 claimed by The Electricians Aus Pty Ltd in respect of 3 invoices from 1 July 2019 to 16 December 2019. There are some more substantial claims, including, for example, a debt of $843,908.23 claimed by Spec Kitchens NSW Pty Ltd in respect of invoices from 18 April 2019 to 22 February 2021.
With 4 exceptions, I am satisfied that in the period from 1 July 2018, Trinco incurred the claimed debts, being debts that are supported by a proof of debt or a claim by a debtor with supporting evidence. The exceptions are as follows:
(a) There is a proof of debt in respect of payroll tax liability to Revenue NSW Department of Finance Services and Innovation in the amount of $142,316.92 for the period 1 July 2017 to 31 May 2021. It appears that at least part of this debt was incurred before 1 July 2018. There has been no attempt to establish what part concerns the period from 1 July 2018 and so I reject this indebtedness. (b) There is a similar problem concerning a debt to icare Workers Insurance in the amount of $2,015.63, which is also rejected. (c) A proof of debt was lodged by Elephants Foot Waste Compactors Pty Ltd in an amount of $7,095 in respect of a project at Miranda that was said to have been incurred on 9 September 2021. On the face of it, this debt was incurred more than 3 months after Mr McKenna was appointed as voluntary administrator. In the absence of any other evidence, I would reject this as a debt that can be claimed against Mr Azizi. (d) Mr McKenna gives evidence of an invoice issued by HMP Electrical Services Pty Ltd in the amount of $18,700 on 28 June 2021. This invoice concerns a progress claim for June 2021, and thus largely concerns a period after Mr McKenna was appointed as voluntary administrator. Mr McKenna exhibited a proof of debt submitted by HMP Electrical Services which concerned an amount of $18,750 for a progress claim for May 2021. That invoice is not in evidence. It may be that Mr McKenna has exhibited the wrong invoice. However, in the circumstances I would reject this claim.
The Australian Taxation Office has lodged a proof of debt claiming $340,539.81. This debt comprises PAYG related liabilities for the period 1 July 2018 to 21 July 2021 ($170,043.96), superannuation guarantee related liabilities for the period 1 July 2018 to 20 August 2021 ($166,383.15) and income tax liabilities for the year ended 30 June 2019 ($4,112.70). The amount claimed in the proceedings is $340,539.63 (reflecting a discrepancy of $0.18 which I do not otherwise pause to address).
There is authority supporting the proposition that taxation liabilities are considered debts for the purpose of s 588G, and that a taxation liability is incurred by a company at the end of the relevant tax period because that is when the amount of tax to be paid can be calculated, or alternatively, when the company was required to remit payment: see In the matter of Wild K9 Pty Ltd (in liq*)* [2025] VSC 178 at [57].
In this case, the Trinco PAYG running statement went into debit on 21 November 2019 and generally accumulated thereafter. I am only proposing to include the liability up to the point of Mr McKenna’s appointment as voluntary administrator, which was $158,374.96. I accept on the evidence that this amount of taxation liability could be calculated at that time.
The superannuation guarantee was in shortfall for the period 1 October 2019 to 31 December 2019 and for all periods thereafter. The tax liability up to and including the period from 1 January 2021 to 31 March 2021 was $166,383.15.
The income tax liability of $4,112.70 concerned the period 1 July 2018 to 30 June 2019.
The income tax activity statement also records a shortfall penalty relating to recklessness for income tax in the amount of $523,478.10 (effective 22 February 2023) and a debit for an amended tax return for the period 1 July 2018 to 30 June 2019 ($1,046,956.20). Those amounts do not form part of the proof of debt and are not the subject of a claim in these proceedings. The amount claimed in the proceedings reflects debts incurred in the period commencing 1 July 2018.
The plaintiffs claim $669,168.23 arising from court orders and judgments.
There is authority that a company does not incur a debt within the meaning of s 588G by consenting to court orders that would require money to be paid: Newman v Hartwig (2024) 73 VR 326; [2024] VSC 54 at [395]-[401]. Matthews J observed (at [400]) that, as a matter of policy, companies should not be discouraged from consenting to court orders by the prospect of their directors subsequently being rendered liable for insolvent trading in respect of such orders.
The plaintiffs accepted that it followed from this decision that this part of the claim would fail. They accepted that I should follow the decision unless I considered that it was plainly wrong. Although they submitted that there are “some oddities” in the decision, they expressly did not submit that it was plainly wrong. I decline to take up the invitation that I look myself for some reason to conclude that it is plainly wrong.
I do not accept that the plaintiffs have established that these debts were incurred in the period from 13 May 2020 to 13 May 2021, as alleged.
The plaintiffs claim $576,310.20 arising from 4 settlement deeds made between 22 May 2020 and 13 April 2021.
An agreement to make a payment to settle a claim raises similar considerations to those considered immediately above: see Ford, Austin and Ramsay’s Principles of Corporations Law at [20.090.15].
I would not draw a general conclusion that a promise to pay an amount under a settlement agreement cannot constitute the incurring of a debt for the purposes of s 588G. Whether a company incurs a debt, for the purposes of s 588G, by entry into a settlement agreement will depend on the circumstances. If there is a pre-existing liability and a settlement agreement merely compromises the liability in some way (for example by payment of an acknowledged debt over defined instalments), it will be unlikely that there is a new debt incurred by the settlement agreement. But if a settlement agreement gives rise to a fresh liability to make a payment that does not arise from a pre-existing liability, a new debt may well be incurred. This is consistent with the analysis in Standard Chartered Bank of Australia Ltd v Antico (1995) 38 NSWLR 290; 18 ACSR 1. In that case, Hodgson J observed (at 314): “In my opinion, a company incurs a debt when, by its choice, it does or omits something which, as a matter of substance and commercial reality, renders it liable for a debt for which it otherwise would not have been liable”. Matters of substance and commercial reality will vary from case to case.
It follows that it is necessary for me to consider the 4 settlement agreements. The pleaded case is that the debts were incurred when Trinco entered into the settlement agreements. I need to determine whether the evidence allows me to conclude whether as a matter of substance and commercial reality, the settlement agreements rendered Trinco liable for a debt for which it otherwise would not have been liable.
On 22 May 2020, a deed of settlement was made by RJS Aluminium Group Pty Ltd, Trinco and Ms Azizi. The deed recites that RJS issued invoices to Trinco in respect of work performed at construction sites at Maroubra and Miranda, where Trinity was undertaking construction as the principal contractor. The amount of the acknowledged debt was $118,810.20. Trinco agreed to pay the amounts claimed by way of instalments, and Ms Azizi gave a personal guarantee and indemnity. On the evidence, the money was never paid. RJS submitted a proof of debt for the full amount.
This seems to be a clear case where Trinco did not incur a debt by the settlement deed for which it otherwise would not have been liable. Rather, it was a deed that reflected debts incurred at earlier points in time. It seems that there are invoices dating back to February 2017. The pleaded case is that the debt was incurred by entry into the settlement deed dated 22 May 2020. I do not accept that a debt was relevantly incurred on that date. I reject this part of the claim.
There were 2 subcontracting arrangements that Mr McKenna deals with separately, although they appear to be of the same character as those falling into the first category addressed above.
Air Conditioning Mechanical Engineers Pty Ltd has lodged a proof of debt in the sum of $27,456.24 in relation to an invoice dated 22 June 2020. I accept that this debt was incurred by Trinco on 24 June 2020.
There is evidence that Trinco entered into a subcontract with Innovative Piling (NSW) Pty Ltd on 4 September 2020. In due course, Innovative Piling obtained adjudication certificates made under s 24 of the Building and Construction Industry Security of Payment Act 1999 (NSW) in the amounts of $150,486.36 (on 8 January 2021) and $480,469.18 (on 1 March 2021). Innovative Piling registered the second certificate and obtained a judgment in the amount of $151,466.26 (which reflected payments or credits of $329,196.92 and costs of $194). Innovative Plumbing issued a creditor’s statutory demand in April 2021, relying on the judgment debt of $151,466.26. It submitted a proof of debt in June 2021 claiming a debt of $480,469.18. On the face of it, the proof of debt is defective because it claims a debt that has been repaid in part. However, in these proceedings, the plaintiffs assert a debt of $151,466.26 was incurred by Trinco to Innovative Plumbing after 30 June 2018 and remains unpaid. I accept that contention. The precise date or dates that the debt was incurred cannot be identified on the evidence. The date cannot be earlier than 4 September 2020 and for convenience I will use that date.
There was no dispute at the hearing that Trinco was relevantly insolvent within the meaning of s 95A of the Corporations Act over the period from 1 July 2018.
The plaintiff relied on a solvency report prepared by Mr Scott Pascoe. Mr Pascoe expressed the opinion that Trinco was insolvent from at least 30 June 2018 and remained insolvent at all times until the date of the liquidator’s appointment on 9 December 2021. None of this evidence was challenged. Mr Pascoe’s evidence can be summarised as follows:
(a) Trinco incurred significant losses from the time it commenced trading in FY17. Net cash outflow from operations for FY17 to FY21 was $15,642,000. It could not generate profits from trading that could be used to pay its debts as and when they fell due. (b) Trinco was dependent on Trinity for funding but funding from Trinity did not provide sufficient cashflow for Trinco to pay its debts as and when they fell due. Trinco’s accounts payable ageing shows that it was not paying debts as and when they fell due. As at 30 June 2017, 9% of accounts payable were being paid after more than 90 days. As at 30 June 2019, that percentage had increased to 66% and by 30 June 2020 it was 99%. (c) At all times between FY17 and 9 December 2021, Trinco had significant net liabilities and was balance sheet insolvent.
Mr Pascoe also considered Trinco’s ability to raise funds from other sources. Mr Pascoe recognised that the notes to the FY18 and FY19 Trinco accounts record that “the director has received a guarantee of continuing financial support”. The existence of any such guarantee is not clearly addressed in the evidence. Mr Pascoe was asked to assume that Ms Azizi is unaware of the existence of such a guarantee. However, I was not taken to, and could not locate in the evidence, anything that made good that assumption. The assumption seems to conflict with the director’s declarations given by Ms Azizi. For both the FY18 and FY19 years she declared it was her opinion that there were reasonable grounds for believing that the company will be able to pay its debts as and when they become due and payable. Anyone with any financial literacy (which Ms Azizi possessed) would understand that the guarantee of financial support was critical to the preparation of the financial statements on a going concern basis. It is not clear who prepared the financial statements. They each include a compilation report over the name Ernst & Young, but the compilation reports are not signed or dated. The accounts were not audited. Mr Azizi was unable to say that there was any written agreement between Trinity and Trinco. He accepted there may not have been but was not sure. He was not cross-examined specifically about the existence of any guarantee.
Absent evidence, I am not prepared to conclude that the statement in the FY18 and FY19 accounts that there was a guarantee is wrong. This means that Mr Pascoe was instructed to make an assumption that is not supported by evidence.
However, Mr Pascoe provides an analysis that indicates that his view would not be different even if he was not asked to make the assumption. He concludes that Trinity (realistically the only entity who could have given the guarantee) did not have sufficient assets itself to fulfill any guarantee. Trinity’s financial and management accounts show that the net assets available to Trinity to pay Trinco’s debts were as follows: FY18 ($3,510,000); FY19 ($2,436,000); FY20 ($5,826.000); FY 21 ($7,273,000); FY22 ($2,351,000). Trinity did not in fact provide sufficient funds to enable Trinco to pay its debts as and when they fell due. That is, Trinity was not able to and did not honour any guarantee, even if it existed.
Mr McKenna expressed the view that, based on his investigations, Trinco was insolvent from at least 1 July 2018. Mr McKenna’s opinion was based on the following matters, again by way of summary:
(a) Trinco’s gross profit margin consistently fell from 1 July 2016 to 3 June 2021 (from 10% to -17%), with the most significant fall in gross profit coming between 30 June 2018 and 30 June 2019 ($4,737,113 to $485,380). Net profit of $5,015 for 30 June 2018 turned to a net loss of $531,620 by 30 June 2019. (b) Trinco’s liquidity ratio (properly calculated) from at least 30 June 2018 was below 1 (30 June 2018 – 0.26; 30 June 2019 – (0.02); 30 June 2020 – 0.03; 3 June 2021 – 0.15). (c) Trinco was balance sheet insolvent from 30 June 2018. (d) Creditors were being paid outside trading terms. (e) Trinco was reliant on Trinity for funding but Trinity was unable to provide sufficient funds to Trinco to alleviate its deficit in working capital. (f) Trinco was not paying taxes on time. (g) Trinco had been sued by and was in dispute with numerous creditors. (h) Trinco made round payments to creditors throughout time.
Section 588G(1) in this case requires that the plaintiffs establish that at the time Trinco incurred the (unpaid) debts from 1 July 2018, there were reasonable grounds for suspecting that Trinco was insolvent.
This is not an inquiry concerning Mr Azizi and his state of mind. Rather, it is an inquiry into the objectively formed state of mind of a person of ordinary competence: A**ustralian Securities and Investments Commission v Edwards [2005] NSWSC 831; 54 ACSR 583 at [249]; Smith v Bone*, in the matter of ACN 002 864 002 Pty Ltd (in* liq*)* [2015] FCA 319; 104 ACSR 528 at [364]. This person of ordinary competence is diligent and seeks properly to perform his or her duties as imposed by law and is capable of reaching a reasonably informed opinion on the company’s financial position: Smith v Bone at [367].
What is required is that this person of ordinary competence would suspect that Trinco was insolvent. He or she would not have to conclude that Trinco was insolvent. The plaintiffs relied on the following passage from Hall v Poolman [2007] NSWSC 1330; 65 ACSR 123 at [234]:
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: see e.g. Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266, at 303.
(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.
The wording of the section is awkward. That is because it appears to presuppose that the person failed to prevent the company from incurring the debt but seems, in effect, to impose a duty to prevent the company from incurring a debt where either (a) or (b) holds.
Section 588H(5) throws particular light on the nature of the director's duty by making it a defence if it is proved that the director “took all reasonable steps to prevent the company from incurring the debt”. It would seem to follow (subject to the precise language of each defence) that the essence of a failure by a director to prevent a company from incurring a debt is a failure by that director to take all reasonable steps within his power to prevent the company from incurring such debt. The effect of the provisions, shortly stated, is that if the requirements of s 588G(1) are proved in circumstances where either subss (a) or (b) of s 588G(2) is also proved, a director will be taken to have failed to prevent the company from incurring the debt unless it is proved that the director took all reasonable steps to prevent the company from incurring the debt (or one of the other specific defences is proved)…
In effect, s 588G relevantly imposes an obligation to prevent debts being incurred, but there is a defence available by s 588H where a person can show that he or she took reasonable steps to prevent the company from incurring the debt.
(a) recommending the company reduce or postpone discretionary spending and halt non-essential transactions; (b) advising that Trinco consult with financial and legal experts; and (c) suggesting to Ms Azizi that the company review its major contractual obligations with a view to renegotiate or restructure those obligations.
If the elements of s 588G were otherwise established, I would not conclude that these steps would be sufficient to raise a defence based on s 588H(5). Apart from the lack of any indication of when these steps occurred, on any view they were insufficient to constitute reasonable steps. Mr Azizi could have taken steps that would have immediately stopped Trinco from incurring any further debts. Trinco was only incurring debts to assist Trinity to undertake its projects. If Trinity ceased all work and directed Trinco to refrain from making any further contracts for the supply of services or goods, it is inconceivable that Trinco would have continued to incur any further debts. Trinco only incurred debts on the instruction or request from Trinity. If Trinity stopped asking Trinco to enter into contracts to support Trinity’s projects, Trinco would have stopped incurring debts.
I have noted above that I have excluded debts incurred after Mr McKenna was appointed as voluntary administrator. That is because I am not satisfied on the evidence that Mr Azizi failed to prevent those debts being incurred.
The reference in s 588G(2)(b) to “a reasonable person in a like position in a company in the company’s circumstances” appears to require a consideration of the objective, reasonable person who was in a position like that of Mr Azizi placed in the circumstances that faced Trinco. The exercise is to determine whether such a person would have been aware that there were grounds for suspecting that Trinco was insolvent. That is, even if Mr Azizi failed to ascertain that there were grounds for such a suspicion, a reasonable person in his position would have been aware of the grounds for the suspicion. This is consistent with the reasoning of Mandie J in ASIC v Plymin at [426].
The exercise is similar to what is required by s 588G(1)(c). However, s 588G(1)(c) does not include the notion of a person “in a like position”. This language caters for the particular position of the director in the company in terms of matters such as the manner in which business has been distributed and any special expertise of the director. This observation is supported by s 232(4) of the Corporations Act 1989 (Cth), which, until the section was repealed, provided that: “In the exercise of his or her powers and the discharge of his or her duties, an officer of a corporation must exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation’s circumstances”. Paragraph 39 of the Explanatory Memorandum to the Corporate Law Reform Bill 1992 recorded in respect of this proposed section that: “the addition of the phrase ‘in a like position’ will enable the court to look both at any special expertise held by individual directors and the distribution of functions within the corporation”.
In considering a reasonable person in a like position in this case, I do not proceed on the basis that I should consider a reasonable person who was concerned with construction activities and was not involved in matters of accounting and financial management. Mr Azizi’s expertise lay in construction, not accounting. But as the person who ultimately controlled Trinity and was effectively the person who bore ultimate practical responsibility for Trinco’s ongoing trading, a reasonable person in that position would need to be acutely mindful of the question of whether the company could pay its debts as and when they fell due.
Trinity was not making enough money from developers on its projects to enable Trinity to put Trinco in funds to pay subcontractors and suppliers working on each project. That was happening by 30 June 2018, but intensified as time went by. It was Mr Azizi’s responsibility as the director of Trinity and the person ultimately in control of Trinco, to have Trinco stop incurring new debts when Trinity and Trinco began to fail to pay the debts on time and in full. Instead, Mr Azizi responded by trying to get more work for Trinity, so that payments from new projects could generate cash to pay creditors on older projects. In effect, subcontractors and suppliers on new projects were being unwittingly called upon to finance Trinity’s efforts to alleviate its financial difficulties from existing projects. The result is that many creditors, most or all being companies in the construction sector of relatively modest size have, together, lost many millions of dollars. They should not have been called upon to take the risk to finance Trinity and Trinco’s efforts to trade out of their combined and intertwined financial difficulties.
Section 588M(1)(b) requires an assessment of whether a creditor has suffered loss or damage in relation to a debt “because of the company’s insolvency”.
The “company’s insolvency” is its inability to pay its debts as and when they fall due. A creditor will have suffered loss or damage because of a company’s insolvency “when it was not paid in accordance with its contractual entitlements”: Treloar Constructions Pty Limited v McMillan [2017] NSWCA 72; 120 ACSR 130 at [59]. The final quantum of the loss or damage will be less than the debt if the company makes some payment to the creditor, or if it receives a distribution by a liquidator on the winding up, or it receives some other payment in respect of the debt: Treloar Constructions v McMillan at [60]; In the matter of Squirrel Limited (in liq) [2021] NSWSC 1658 at [16]. That is, a creditor who suffered loss or damage when it was not paid in accordance with its contractual entitlements may, by the time of the hearing, have suffered no or a lesser amount of loss because of payments it has received in the interim.
In this case, Trinco did pay in part some of the debts. To the extent that has occurred, it has been taken into account. The persons to whom the debts are owed, being those debts I have accepted as engaging s 588M, will suffer loss or damage because of Trinco’s insolvency in the amount of the outstanding debt, because the expected return to creditors (apart from these proceedings) is nil: see Mitchell Warren Ball (in his capacity as official liquidator of Wealthfarm Group Services Pty Ltd*)* v Nicholas Quinn Sinclair [2015] NSWSC 2103 at [14]-[15]: Quin v Vlahos at [269].
Section 588M(1)(c) requires that “the debt was wholly or partly unsecured when the loss or damage was suffered”. This raises a question of timing. It is necessary to identify the time when the loss or damage was suffered.
There is evidence that some of the creditors in this case have security interests against Trinco registered on the Personal Property Securities Register pursuant to the Personal Property Securities Act 2009 (Cth). Ausreo Pty Limited issued 4 invoices to Trinco between 25 September 2020 and 28 September 2020 for the supply of various building materials, totalling $34,188.90. It registered a security interest on 23 September 2020. It has lodged a proof of debt for $34,188.90, indicating that it has surrendered its security interest: see s 554E of the Corporations Act. Arcadia Global Pty Ltd asserts that Trinco remains indebted to it in the amount of $81,852 in respect of the supply of screens and similar items. The existence of the debt is supported by Trinco’s business records. A security interest in its favour was registered in favour of Arcadia Global on the PPSR on 7 May 2019. Arcadia Global has not lodged a proof of debt and has advised Mr McKenna that the payout figure for discharge of the security interest is $81,852.
I conclude that these creditors were not paid in accordance with their contractual entitlements because Trinco was unable to pay the debts and at that time, the debts were secured. If the relevant time for determining whether a debt was wholly or partly unsecured is the time when the debt fell to be repaid in accordance with contractual entitlements, then the plaintiffs have not established that these debts satisfy the requirements of s 588M(1)(c). That is because those debts appear to have been wholly secured at the time they fell due.
The plaintiffs relied on the decision in Quin v Vlahos. In that case the Court observed (emphasis added):
[275] In any event, and assuming for present purposes that some of the creditors’ debts were secured by a retention of title clause, and accepting that one creditor’s security interest was registered under the PPSA, the short answer to any argument that s 588M is not available is that the bulk, if not all, of the books supplied by the Supplier Creditors — being the property over which the debts were secured by the retention of title clauses — are no longer in the possession of the Company. They are thus not available for the Supplier Creditors who had a retention of title clause to possess and sell to recoup their debts. In those circumstances, we consider that the debts of the Supplier Creditors who had a retention of title clause or a registered security were, at the time the s 588M claim falls to be resolved, wholly or partly unsecured within the meaning of s 588M(1)(c) of the Act.
[276] For completeness we note that, if we are wrong in that conclusion, we consider that the Supplier Creditors have surrendered their security and elected to prove as unsecured creditors. Section 554E of the Act provides that a secured creditor may prove in a winding up in one of three ways, namely:
(a) by surrendering the security and proving for the whole debt;
(b) by realising the security and proving for the balance, subject to the liquidator being satisfied as to the circumstances of the realisation; or
(c) by estimating the value of the security and proving for the balance.
Section 588M refers to loss ‘because of the company’s insolvency’. That causal question directs attention to a comparison between the position of the creditors at the time of trial and the position if the company were not insolvent: how much worse off is the creditor? Often, that question is answered along the following lines: as at trial, the creditor of the insolvent company will get nothing; if the company were not insolvent, the creditor would be paid the amount of the debt; consequently, the loss is the amount of the debt.
On this basis, if security has been surrendered before the time of the trial, a debt can properly be regarded as unsecured for the purposes of s 588M(1)(c).
The plaintiffs contend that to the extent that any creditors had security, it was surrendered when they proved for the outstanding debt. In those cases where there was no proof of debt and there is the theoretical possibility of a retention of title (although none has been shown), the plaintiffs rely on the non-existence of any equipment or supplies.
An argument could perhaps be mounted that s 588M(1)(c) requires that the debt is wholly or partly unsecured at the time the creditor first suffers loss because of the company’s insolvency, which was when the debt fell due and could not be paid because the company could not pay its debts when they fell due: see Treloar Constructions v McMillan at [59]. However, this was not the subject of any submissions before me and I am not satisfied that the decision in Quin v Vlahos is wrong, plainly or otherwise, and so I will follow it: Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 492; Farah Construction**s Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [135].
The result is that the Ausreo debt was unsecured when the loss or damage was suffered. However, on the evidence before me, the debt to Arcadia Global is still secured. The plaintiff’s claim in respect of that debt therefore fails.
The plaintiffs have established that s 588M is engaged and that Mr McKenna is entitled to recover from Mr Azizi, as a de facto director of Trinco, the amount of $10,059,175.52 as a debt due to Trinco, being the loss or damage that was shown by the plaintiffs to have been suffered because of Trinco’s insolvency.
Annexure A to these reasons identifies the debts incurred by Trinco that remain outstanding and which I have accepted as giving rise to liability under s 588M.
The Originating Process seeks pre-judgment interest under s 100 of the Civil Procedure Act 2005 (NSW). The plaintiffs did not specifically advance a claim for interest at trial but did not formally abandon any claim. Questions about pre-judgment interest on claims under s 588M are not necessarily straightforward. In Powell v Fryer [2001] SASC 59; 37 ACSR 589, (Olsson J, Duggan and Williams JJ agreeing) observed (at [115]):
As Professor O'Donovan pointed out, the making of a demand is not a pre-requisite to a cause of action pursuant to s588M. Further, unlike proceedings related to undue preferences (where the transaction remains valid unless and until it is avoided), s588M gives rise to liability, as and when each debt is inappropriately incurred and is not satisfied according to its terms. Theoretically, interest ought, as a matter of logic, to be computed as from when each relevant debt fell due and was not met. As a matter of convenience, interest has been allowed to run from the date of appointment of a liquidator. This is consistent with Re Mike Electric (Aust) Pty Ltd (In Liq) (1983) 7 ACLR 600 and a series of authorities stemming from it. These cases all related to preference claims. There is an even greater reason to apply the practice to a claim such as that now before the Court.
It could be suggested that a different approach was taken in Stone (liquidator)**, in the matter of Ironbark Blacksmithing Pty Ltd (in liq) v Mizzi (No 2) [2024] FCA 927 at [33]. Absent any submissions about interest (or quantification), I do not propose to make orders for the payment of interest.
The Court orders:
the claim against the first defendant is dismissed with no order as to costs;
the second defendant is to pay to the second plaintiff as a debt due the amount of $10,059,175.52;
if the plaintiffs wish to press any claim for pre-judgment interest, they are to advise my Associate of that fact by 5pm on 4 September 2025; and
the parties are to provide any submissions on costs by 5 September 2025 (limited to 3 pages) with any supporting evidence and a decision on costs will be made on the papers (absent good reason).
********** Annexure A - Table of Amounts Outstanding (747 KB, rtf)
(1993) 177 CLR 485
(1978) 141 CLR 236
(2007) 230 CLR 89
(2012) 200 FCR 296
(2024) 73 VR 326
(2021) 64 VR 319
(1995) 38 NSWLR 290
(1966) 115 CLR 266
While I do not suggest that it is a general test or requirement, in my view a person is almost certainly acting in the position of a director in a company if he or she is the person who, as a matter of reality, has the ultimate responsibility for management decisions. That is, there is no person of greater authority, in practical terms, to make a management decision.
It would be wrong to equate the activities of Trinco merely with the day-to-day running of administration and accounts. Trinco was not merely managing contracts made by Trinity with its subcontractors and suppliers. A critical part of Trinco’s activities involved entry into contracts for the supply of labour and materials for the work on Trinity’s development activities. Trinco made the contracts as principal, not merely as agent for Trinity. Trinco, as the contractual counterparty, was intimately involved in development activities and handling disputes relating to construction matters. As a matter of substance, Trinco operated as a division of Trinity.
Ms Azizi was not responsible for significant aspects of Trinco’s activities – she was not qualified to do so. Decisions about which subcontractors to retain and which suppliers to use were made by Trinity employees and the ultimate decision-maker was Mr Azizi. If there was a construction issue with a subcontractor or supplier, it was handled by Trinity and the ultimate decision-maker was Mr Azizi. If any issue was sufficiently important to justify the ultimate decision-maker, that person was Mr Azizi. If Mr Azizi did not want Ms Azizi to deal with a contactor (including for her own protection), he made the decision to exclude her from the negotiation. I am satisfied that if Mr Azizi wanted something to occur in a particular way at Trinco, it was he and not Ms Azizi who had the final say.
Whatever the reasons for establishing Trinco as a separate company, the business model involved Trinco operating not for the benefit of itself or its shareholder (or its creditors). Trinco served Trinity and was always run to serve Trinity. That decision was made by Mr Azizi. He was the person responsible for Trinco continuing to operate as it did; that is, as a vehicle to enable Trinity to run its projects. Trinco was effectively being instructed to enter into contracts with subcontractors and suppliers by Trinity to support Trinity’s construction projects. Trinco was incurring liabilities to those counterparties for supplying services and goods to Trinity. There is no evidence of a written agreement between Trinity and Trinco. The only substantive source of funds to honour Trinco’s contractual commitments was Trinity. Trinco was not paid a fee to provide this service to Trinity.
Ms Azizi did not have the ultimate say in decisions about who Trinco would enter into contracts with to support Trinity’s projects. Nor did she have the ultimate say if there was a problem with the performance of the contracts. The person with whom the buck stopped was Mr Azizi. I am satisfied that Mr Azizi was the ultimate decision-maker for Trinco. I am satisfied that at all times he acted in the position of a director of Trinco.
Mr Azizi was a director of Trinco within the meaning of s 9AC(1) at all material times from 1 July 2018. Mr McKenna was appointed as a voluntary administrator of Trinco on 3 June 2021 and as liquidator on 9 December 2021.