"The financial statements of Travel Dynamics and other travel agents and the advertising agents were all zeroed annually in order to avoid this problem [eliminating related party transactions from financial statements] sorry, when I say "zeroed", I mean reduced and any counterbalancing loans to and/or from were reduced and offset so that the effect, the ultimate effect, was you didn't end up with, as it says here, an asset on the one hand which you couldn't put into the financial reports and a liability on the other which you should put into the financial reports because obviously it would have a double impact effect."
74 Holland was unable to comment on that proposition, as he said Meissner controlled the treasury function for the group. His awareness was limited to that of RHM and Travellers.
75 I accept his evidence that RHM generated significant profits, and always had a very positive cash flow. It never had to borrow funds, and was the source of much of the money to the group. He confirmed that it was common practice for money advanced by RHM to go to Incentive Dynamics as part of the overall treasury operation, and then to be 'repatriated' to Travellers, if Travellers required money, from Incentive Dynamics. Consistent with that finding, I also accept that Holland, through his staff, maintained a spreadsheet detailing all inter-company transfers of money from and to Travellers for the period June 1994 to July 1995. He was also aware that Meissner had trouble meeting time constraints in relation to inter-company transfer reconciliations, and each year there was some pressure upon him because Travellers was required to be audited annually by 30 September. Meissner came to Sydney to complete that process, and in doing so met with Copeland and others. Holland specifically describes Meissner and Copeland, on many occasions, working together to try and clarify the entries Meissner had made. He also received a copy of a letter from Copeland to Meissner of 18 October 1994 formally requesting information to complete the audit for the 1994 years in respect of Travellers, RHM, Out and About and TD. The request referred to, and apparently included, signed copies of the financial statements of Travellers, TD, RHM, and Out and About and the financial review conducted by the Travel Insurance Compensation Fund in respect of Travellers, TD and Out and About, and by the media accreditation authority in respect of RHM. As those accounts presumably were audited, it is most surprising that they were not made available in the course of evidence. It is also most surprising that Copeland did not give evidence.
76 Holland further described that, in the period from July 1993 to April 1995, he procured cheques drawn by Travellers to pay retailers who had redeemed bonus bonds, which were payments made on behalf of Incentive Dynamics as Incentive Dynamics had previously received the benefits of monies paid by their clients for the purchase of bonus bonds. The amount which he asserts Travellers paid on behalf of Incentive Dynamics was in the order of $550,000. The amount due by Incentive Dynamics had somehow been offset in the books of Travellers, by amounts Travellers owed to RHM, Maritz and Robins. He did not expand upon that in his evidence. However, it transpired that he was able to assert that offsetting on the basis of information given to him by Meissner.
77 Holland also had some knowledge of a transaction in about March 1994 involving the transfer of furniture and equipment from Incentive Dynamics to RHM. The purpose of the transfer was to make assets available to the group as security for facilities to be provided by the Commonwealth Bank. At the time, Incentive Dynamics' assets were charged to National Australia Bank. Holland does not explain how or why, but was aware that Incentive Dynamics was to sell furniture and equipment to Travellers for about $113,000, and that RHM would then purchase about $77,000 of those assets. He asserts that the entries to reflect that transaction are recorded in the general ledgers of Travellers and of RHM. There are also other assets which he says were sold by RHM to Travellers at the time. He confirmed that there were no cheques drawn by way of payment.
78 Holland also gave evidence about a further relevant transaction during 1995. The Commonwealth Bank was seeking further security for advances it had made to the Robins group. Robins and Meissner decided to arrange for Travellers to "pay" Incentive Dynamics $200,000 being a sum equal to the face value of a mortgage granted by Pagby over the Bacchus March property so as to procure the discharge of that mortgage. The amount then said to be owing by Travellers to John Robins in excess of $600,000 would be credited to Travellers account as against John Robins. It was then contemplated that the indebtedness of Pagby/Hudson to Incentive Dynamics would be transferred to another group company, so as to be available to support further borrowing from the Commonwealth Bank by the giving of security over the Bacchus Marsh property. His evidence about that transaction is very vague. I place no real reliance upon it.
79 Julie Sommers ("Sommers") worked for Meissner from December 1993 to March 1996 as an assistant accountant, and during that time prepared financial accounts primarily for Incentive Dynamics. She also did bank reconciliations between the companies in the Robins group, including between Incentive Dynamics and TD. I found her to be a credible and open witness, not given to exaggeration and I am prepared to accept her evidence generally. Of course, as with all evidence, it must be weighed in the balance to determine the ultimate facts.
80 She understood that Incentive Dynamics operated incentive schemes, and used TD, as a licensed travel agent, to arrange for the travel components of those schemes. Incentive Dynamics provided funds to TD, so that TD could in turn meet the various payments it was required to make to its suppliers, including payments in advance of a proportion of the cost of travel booked and payment of the balance of invoices rendered by suppliers. Those payments by TD represented costs incurred by TD for and on behalf of Incentive Dynamics. It was the practice that those figures would generally be rounded figures, because of the volume of transactions involved, rather than being payments made for specific invoices of TD.
81 Sommers was responsible for journal entries, preparing ledgers, trial balances, profit and loss statements and balance sheets principally for Incentive Dynamics. She used the Solution 6 package on Meissner's computer. She described that a number of the accounts in the ledgers were used to report payments by, and receipts to, Incentive Dynamics from other entities in the Robins group arising out of trading relationships between them, although they were labelled inter-company loan accounts. They were not recorded against specific client accounts, either because of the quantity of the payments or because the payments may have incorporated numerous clients accounts. Adjustments were made at a later time. She therefore recorded receipts from related companies to Incentive Dynamics as credit entries in the inter-company loan accounts of Incentive Dynamics' ledger. She provided some examples. Sometimes when payments were made by Incentive Dynamics to third parties on behalf of related companies such as TD, they also were recorded in the inter-company loan accounts. On occasions, Incentive Dynamics made payments direct to suppliers of TD, rather than making payments to TD to on pay its suppliers. Again she was able to give examples of such entries, where the payment was debited to TD as an inter-company loan in Incentive Dynamics' ledgers, and where later adjusting entries were made to reflect the true nature of the transaction.
82 She described the existence of a Reconciliation File in which was kept the documents relating to the reconciliation of the inter-company transactions. She said the folder was a black one, which was labelled and which she last saw in a shelf behind Meissner's desk in early 1996. She had the practice, on a monthly basis, of printing out the inter-company loan ledgers as she had entered them and of placing that printout in the Reconciliation File. In that way, at least from her point of view, she maintained the Reconciliation File in an up-to-date manner. She was unable to say that, on every occasion that Incentive Dynamics paid money to TD, it represented a debt payable by Incentive Dynamics to TD or that their relationship was purely a trading relationship. The picture which emerges from her evidence is that, generally speaking, payments by Incentive Dynamics to TD were in respect of their trading relationship. If that were so, it is not clear why the reconciliation based upon the ledgers which she printed out each month and placed in the Reconciliation File would have been a difficult exercise.
83 The type of reconciliation which she had in mind is different from the type of reconciliation to which Meissner referred. On the basis of her material, there is no reason why the year end trial balances could not reflect those reconciliations, and be incorporated into the year end accounts. Meissner's evidence was that he was unable to do so because, when he came to do the year end accounts, there may have been entries not then available to be quantified and which could not be incorporated. There would be a time in about late August of each year when it would be necessary to start entries for the then current financial year. He would make such adjustments to the previous financial year as were then available, but leaving a balance of transactions outstanding. He did not have the technical skills, he said, to reopen the computer generated records relating to the previous financial year, so as to make adjustments which were appropriate after that point in time. If Sommer's evidence is correct, at least from her point of view, by the end of July or thereabouts in each year she would have completed and printed out the total record of inter-company transactions between TD and Incentive Dynamics as at 30 June in that year. There would be no reason why that reconciliation could not be given effect to before the "close" of the computer generated accounting figures for that financial year. Meissner did not explain why that was not the case.
84 Sommers' evidence does not deal with inter-company transactions which were not direct between, for example, Incentive Dynamics and TD but also involved other companies in the Robins group, and she had no real knowledge of other non-trading transactions involving Incentive Dynamics and other members of the Robins group. In my judgment, her evidence does show that a significant number of the transactions between Incentive Dynamics and TD involved Incentive Dynamics paying TD for services provided for, or debts incurred by TD, on behalf of Incentive Dynamics. Consequently, I find that the reconciliations proposed by Sommers were required to reflect properly trading relationships between Incentive Dynamics and TD, and were made in a timely way. There is no reason why they could not have been made by the time the Solution 6 accounts were closed off some two months or so after the end of each financial year. The computer generated ledgers do indicate such adjustments being made for each year as a series of adjustments as at 30 June, consistent with the process which Sommers indicated would then occur. Her evidence does not leave much scope for the contention of the respondents that, as between Incentive Dynamics and TD, the amounts outstanding to Incentive Dynamics not recorded in the accounts were by reason of their trading relationship.
85 Sommers' evidence does, however, confirm that Meissner and his staff were unable to backdate entries to a particular financial year's accounting data once the current year accounting data was commenced to be entered. She also was able to confirm that there were some payments made by Incentive Dynamics to other companies in the Robins group to provide cash funds to those entities and which were properly categorised at the time as loans.
86 In her evidence in cross-examination, Sommers indicated that beyond her insertions she did not know what was in the Reconciliation File. She saw that file about monthly, when she put in the printouts to which reference has been made.
87 Jaquelyn Faye Rawling ("Rawling") was employed by Incentive Dynamics from January 1989 as an accounts officer, and then with Meissner from October 1989 to December 1993 in that same capacity. She prepared the financial accounts for Incentive Dynamics, and reconciliations between the inter-group companies. On a daily basis she prepared the ledger accounts for Incentive Dynamics, and on a monthly basis prepared bank reconciliations, using the Solution 6 package on the computer. There were many hundreds of transactions each month, and many cheques each day. To complete bank reconciliations, she had access to all the deposit and cheque books and the bank statements for Incentive Dynamics. She checked them against the respective entries. Where there was no corresponding entry in the deposit books for a deposit, she made enquiries as to the source of the funds. She generally found that the source was a related company. She then said that Meissner prepared journal entries "for the Reconciliation File" and she updated the files on the computer. The bank reconciliations were filed in lever arch folders which had dividers for each month.
88 Rawling's other task was to prepare a reconciliation between the companies in the Robins group, which she did a couple of times each year. It was done in July and December for each previous financial year to enable tax audits to be performed on those companies which required auditing. For the purpose of the reconciliations, she used a Lotus 123 spreadsheet, and she obtained the financial documents of each of the relevant companies in the Robins group. She described ascertaining the opening balances on each of the related company ledgers and using those as the opening balances on the spreadsheet. She then went through the bank statements and deposit books of each of the related companies, and made enquiries of the relevant accounting officers of the related companies, to obtain further details of monies transferred in to and out of those entities. She asked questions such as whether deposits had been made into a related company account on behalf of some other entity. She was conscious of the fact that although there may have been an entry in only two sets of accounts, there may have been a third company debit or credit which also should have been reflected in a reconciliation. Her evidence confirms that there was a general movement of funds within the Robins group including Incentive Dynamics, and that those fund movements were "reconciled" on a reasonably regular basis.
89 Rawling was aware that RHM made payments to Incentive Dynamics when it had excess funds, and when Incentive Dynamics required funds to meet payments. When Incentive Dynamics had funds in its own account, it repaid RHM often in numerous part payments. She described significant funds flowing between Incentive Dynamics and RHM "where one company needed funds to meet commitments". She also described movements between the companies in respect of wages. Incentive Dynamics paid the wages of Nicholls-Cumming, RHM, Travellers (for a time) and BD. It paid those wages directly to employees, and they were not entered into other companies' accounts. She said those other companies generally then deposited money with Incentive Dynamics to cover those wages, or that there were other transactions against which the wage entries were offset.
90 The reconciliation which she carried out was crucial to reflect the true situation between the companies in the Robins group including Incentive Dynamics. She said that that reconciliation was necessary for management and audit purposes. Her practice, upon completing a spreadsheet reconciliation, was to print out the spreadsheet to reflect the reconciliations. She then gave the hard copy printout to Meissner for checking. He appeared to her to make notes on the spreadsheets, or on separate pieces of paper. She then filed all those documents in a blue lever arch folder which was marked on its spine "REC-N FILE". That file was kept in Meissner's office on a shelf behind his desk.
91 Rawling did not see the final accounts of Incentive Dynamics after auditing, as they were kept in Meissner's office and access to them was permitted only to Meissner, John Robins and Copeland. She regarded the Reconciliation File as an important one to properly understand the accounts of the companies in the Robins group including Incentive Dynamics.
92 Rawling ceased working for Meissner in December 1993. Her replacement was Sommers. Sommers did not do the same extensive reconciliation as Rawling, as her evidence discloses. Her role was confined to reconciling the trading transactions between Incentive Dynamics and TD.
93 Since November 1989, Ryan has worked for RHM in effect as personal assistant to John Robins. As noted elsewhere, RHM is an advertising agency accredited with the media accreditation authority of Australia. Ryan has been a director of RHM since September 1997, and a shareholder also from about that time. Her interests in what she believes to be 10,000 shares has not yet been recorded in the public register. Since about that time, John Robins also formally ceased his employment with RHM, but Ryan's cross-examination indicated that he was still playing an active role in the operations of its affairs.
94 It was apparent from her evidence that she had quite a detailed knowledge of the Robins group. She worked with Meissner on his visits to Sydney four or five times per year. On those visits, Meissner brought with him various materials and files, including lever arch files titled "Group Annual Accounts", "Inter Company Loans" and "Bank Reconciliations". Ryan described the inter-company loans file as a standard black lever arch file with a handwritten label.
95 Part of her duties involved ensuring that RHM paid its media account on the 15th day of each month, in accordance with the rules of media accreditation. She would therefore, in the days preceding the 15th of each month, arrange for the collection of any money owed to RHM by clients, and where money had been lent by RHM to another company in the Robins group, she would contact Meissner and arrange for repayment. RHM operated in part under the name AdPro. She would inquire of Meissner how much was owed by other companies in the group to RHM, and he would provide her with the details. To her recollection, there was never any offsetting liability, that is money borrowed by RHM from any other company in the Robins group, so that money reimbursed was not ever subject to a deduction for money loaned to RHM by any other company in the Robins group.
96 Her duties also involved liaising with Hudson of Incentive Dynamics concerning the preparation and printing of promotional material for clients of Incentive Dynamics, and in other incidental ways from time to time. She was also responsible for maintaining John Robins confidential files, including one headed "Pagby/Hudson". Although she was not directly involved in negotiating the transaction, she was aware of a document in that file that was a mortgage in favour of Incentive Dynamics from Pagby, and a subsequent mortgage in replacement of that earlier mortgage in favour of John Robins. Her cross-examination disclosed that much of that information was hearsay, and I place little weight on it.
97 Ryan also dealt with Barry Patherjohns, managing director of Travellers, from about December 1994. When Travellers, or its business was proposed to be sold to Carlson Wagonlit Travel, she assisted Patherjohns in preparation of the due diligence documentation. She observed a statement of the liabilities of Travellers, indicating that it owed RHM hundreds of thousands of dollars less than she had believed. In around April 1995, she raised that matter with Patherjohns. She also queried the matter with Meissner, who told her that all explanations were contained within the Reconciliation File.
98 In her work, she was aware from time to time of both Travellers and Incentive Dynamics depositing funds with RHM in repayment of advances previously made by RHM to those entities. She was unable to give any detail about those transactions.
99 She recalled a tension between Robins and Meissner when Robins received a writ in relation to unpaid group tax. That was the first notice she had had of any problems within the group in relation to group tax. She thought she would have been aware of any such issue within the group, had the information earlier been provided to Robins.
100 Ryan described RHM as highly successful. It had a lean overhead cost structure, substantial income, and it delivered a surplus in excess of expenses of around $300,000 per annum on a reasonably regular basis. It was part of her responsibility to complete financial information to submit to the Commonwealth Bank. She also received details of the group net position "following the reconciliation of the inter-company loans" including as at December 1994. She was adamant that RHM was not indebted to anyone, given the profits it was making and the cash it retained in its business.
101 She also gave evidence of the occasion on which Morton executed the search warrant on 7 June 1996, at the premises of RHM at 110 Sussex Street Sydney. I have made my findings as to the significance of that event earlier in these reasons.
102 Overall, I was impressed with Ryan as a witness, although at times she appeared to lean to a protective view of the interests of RHM and of John Robins. Nevertheless in general I accept her evidence. In particular, as she reaffirmed in cross-examination, she maintained an internal reconciliation file (not the Meissner Reconciliation File) from which she worked to check that funds would be available to pay the media accreditation commitment on the 15th of each month. It was on the basis of that record, to which she frequently resorted, at least on a monthly basis, that she was of the firm view that RHM was a lender to the Robins group, and at no time a borrower, within the group. The letter from RHM (John Robins) to Chang of 17 May 1995 in my judgment is consistent with that view as it is in the following terms: