Lewis v Doran

Judgment 1By Originating Process filed on 26 November 2013, the Plaintiffs, Antony Resnick and Brian Raymond Silvia in their capacity as liquidators ("Liquidators") of DJG Securities Pty Limited ("Securities") and as receivers ("Receivers") of the assets of the D&T Family Discretionary Trust ("Trust") sought a range of orders. Several of those orders have previously been made by the Court. Several other orders, particularly those concerning the Fourth Defendant, Autohaus Wholesalers Pty Limited ("Autohaus Wholesalers"), were not pressed in this application. 2In this application, the Liquidators pressed a claim for a declaration that the transfer of 1,000 shares in the First Defendant, DJG Equities Pty Limited ("Equities") to the Second Defendant, Mr Stephen Hitchings, on or about 14 May 2013 ("Transfer"), was voidable under s 588FE of the Corporations Act 2001 (Cth) and seek an order under s 588FF of the Corporations Act that the transfer was void as at, and after, the date it was made. That order was sought on two bases, first, that the Transfer was an uncommercial transaction for the purposes of s 588FB of the Corporations Act and, second, that the transfer was an insolvent transaction of Securities which became a party to the transaction for the purpose, or for purposes including the purpose of defeating, delaying, or interfering with, the rights of any or all of Securities' creditors on a winding up of Securities, for the purposes of s 588FE(5) of the Corporations Act. 3Mr O'Neill appeared for the Liquidators in the application. Mr Carolan was retained on behalf of Equities and Autohaus Wholesalers. However, Mr Carolan did not take any active role in the hearing so far as Equities was concerned, by reason that Equities' sole director, Mr Hitchings, had resigned as its director on 6 December 2013. Mr Carolan submitted that, as a result of Mr Hitchings' resignation, his instructing solicitors were unable to obtain instructions from Equities in relation to the proceedings. It would have been open to the shareholders of Equities to appoint a replacement director who could have given such instructions and it would arguably also have been open to a general meeting of Equities to give such instructions in circumstances that the company had no directors. Mr Carolan did not submit that the hearing of the application could not or should not proceed in these circumstances. Any such submission would have had the obvious difficulty that it should not be possible for the directors of a corporate entity to vacate a hearing involving that entity at will by the simple expedient of resigning, particularly where the shareholders of such an entity could have but did not replace them. Factual background 4Securities is one of a number of companies associated with Mr Antony Gee and his wife Mrs Donna Gee. The Liquidators led evidence, to which no objection was taken, that directors of companies associated with Mr Gee included Mrs Gee, her father Mr Elliott Macedo and Ms Kerry Anne Alford, who is Mr Gee's sister. They led evidence, also without objection, that Mr Gee had been an officer of 57 companies, of which 47 had been deregistered, struck off or subject to external administration and that more than 50 companies of which Mr Gee, Ms Gee and Mr Macedo are directors have been placed in liquidation, receivership or are deregistered. The Liquidators also led evidence, also without objection, of what they characterised as a pattern of transferring shares within Mr Gee's group of companies in an attempt to defeat creditors, and gave examples of various transactions in other companies which have been set aside, generally by consent. I do not consider it necessary to have regard to this evidence for the purposes of determining this application since it is not necessary to rely on any pattern of behaviour of Mr Gee or his associates to reach a conclusion as to whether the particular transaction in issue involved an uncommercial transaction. 5The narrative of events, at least so far as it emerges from the documentary record, is relatively straightforward. There is, however, a question as to the weight to be given to the relevant documents or, to put it another way, the extent to which those documents accurately record the events that they purport to record. The following narrative assumes the accuracy of the relevant documents except as otherwise stated. 6On 16 March 2009, Securities was appointed as trustee of the Trust pursuant to a Trust Deed that entitled it to an indemnity for all liability it incurred in performing the Trust or as trustee. Clause 12 of the Trust Deed of the Trust relevantly provided that: "Subject to the provisions of Clause 10 the Trustee and each Officer of a corporate Trustee shall be entitled to indemnity out of the Trust Fund for expenditure which it may undertake or liability which it may incur by reason of performing and observing its duties as trustee. Any entitlement of the Trustee or Officer under this clause shall be a charge on the Trust Fund." Clause 10 of the Trust Deed in turn limits the liability of the trustee or any officer of a corporate trustee for loss other than that attributable to dishonesty or any wilful act or omission known by the trustee or relevant officer to be a breach of trust, and does not limit the scope of the relevant indemnity. 7On 13 October 2011, a third party, Araz Investments Pty Limited ("Araz"), contracted with Securities in its capacity as trustee of the Trust to purchase the shares in Euro Automotive Group Pty Limited ("Euro Automotive Group") for a total consideration of $854,000. Araz paid the purchase price but the shares in Euro Automotive Group were not transferred to it. 8It appears that, on 24 September 2012, Bellevue Securities Pty Ltd transferred 2,000 shares in Autohaus Wholesalers to Equities. I will refer further to that transaction in paragraph 18 below. Also on that date, a meeting of the Trust attended only by Mrs Gee purportedly resolved that 1000 paid up ordinary shares in Equities be acquired by the Trust, and also resolved that the Trust "in its own capacity" enter a loan agreement to facilitate the purchase of those shares. Such a loan agreement, if it was entered into, is not in evidence. On 9 October 2012, a Form 484 (Change to Company Details) lodged by Equities with the Australian Securities and Investments Commission ("ASIC") recorded the transfer of 1,000 shares in Equities from another entity associated with Mr & Mrs Gee, Beecham Capital Pty Ltd, to Securities for a stated consideration of $1,000. 9The minutes of a meeting of Securities held on 29 October 2012, signed by Mrs Gee, recorded its subsequent retirement as trustee of the Trust. Assuming, without deciding, that that minute is both authentic and accurate, then Securities' retirement as trustee of the Trust would not affect any accrued right of indemnity against the assets of the Trust. Also on that date, Mr Hitchings was purportedly appointed the trustee of the Trust. A Deed of Trust purportedly made on 29 October 2012 between Mr Hitchings, Securities and Ms Alford recited that Ms Alford, as nominator, appointed Mr Hitchings as the new trustee of the Trust and that he had agreed to act in that capacity and that Securities had agreed to retire as trustee of the Trust, and provided that Mr Hitchings would be appointed as new trustee of the Trust and would manage it under the terms of the Discretionary Trust Deed from the date of the Trust. Mrs Gee signed that Deed as sole director of Securities. 10By a Statement of Claim filed on 5 March 2013, Araz contended that Securities was at all material times the trustee of the Trust; that it became liable to pay Araz sums of $450,000 and $384,000 in respect of, inter alia, monies paid by Araz to Securities and its related entities, and that certain payments were made by Araz at the direction of Mr Antony Gee, who was holding himself out to be Securities' agent. Securities did not file a defence in the proceedings and default judgment was entered against Securities in the sum of $932,565 inclusive of costs on 2 May 2013. The Liquidators led evidence, to which no objection was taken, of their conclusion based on their investigations that Securities engaged in no transactions other than those in which it engaged in its capacity as trustee of the Trust. Where that evidence was led without objection, and no evidence was led by Securities to seek to contradict it, I am satisfied that the dealings between Araz and Securities occurred in Securities' capacity as trustee of the Trust and that Securities was entitled to indemnity against the assets of the Trust for the liability arising by way of default judgment in favour of Araz in these proceedings in respect of those dealings. 11On 14 May 2013, Securities was wound up, not having appeared to oppose the winding up application, and the Liquidators were appointed as its liquidators. On the same day, Equities lodged a further Form 484 (Change to Company Details) with ASIC which purported to record the transfer of 1,000 shares in Equities from Securities to Mr Hitchings for $1.00. A covering letter dated 13 May 2013 from Equities to the Australian Securities & Investments Commission ("ASIC") attaching that Form 484 stated that: "The shareholding of DJG Equities Pty Ltd is held in trust for the DMT Family Discretionary Trust. Therefore the shares in the ASIC register are noted as not beneficially owned. Up until 29th October 2012, the trustee of the DMT Family Discretionary Trust was DJG Securities Pty Limited up until its retirement on this date. As at 29 October 2012, a new trustee was appointed, being Craig Stephen Hitchings as trustee of the DMT Family Discretionary Trust. The shareholding of DJG Equities Pty Limited is now held as follows: Craig Stephen Hitchings as Trustee of the DMT Family Trust." That letter was signed by Mr Elliott Macedo, who is Mrs Gee's father, who did not give evidence in the proceedings. The Liquidators' evidence is that this Form 484 was lodged with ASIC without their knowledge, consent or authority, and that the nominal consideration alleged to have been payable by Mr Hitchings in respect of the Transfer was not in fact received by Securities or the Liquidators. 12By paragraphs 8-10 of an affidavit of Mrs Donna Gee dated 4 December 2013, which were tendered by the Liquidators as an admission by her, she stated that she was a director of Securities since 13 March 2009 and that: "On or about 14 May 2013 I transferred the shares held by [Securities] in [Equities] to [Mr Hitchings] who is a family friend of my husband and I. At that time, [Equities] had no assets in its own name. [Equities] acted as trustee for the DMT Group Super Fund. ... I arranged for the transfer of the shares in [Equities] from [Securities] to Craig Hitchings as I did not want the trustee of the DMT Group Super Fund to be in any way associated with the liquidators of [Securities]." 13After the date of the winding up, on 21 June 2013, Mr Hitchings transferred 800 shares in Equities to Equities (so that Equities purportedly holds shares in itself, although not beneficially) and 200 shares to the Third Defendant, Argyle Investments & Securities Pty Limited ("Argyle Investments"). A further Form 484 (Change to Company Details) lodged with ASIC on 21 June 2013 recorded that Mr Hitchings had ceased to be the shareholder in Equities and that Equities as trustee for the DMT Group Super Fund ("Super Fund") now held 800 ordinary shares and Argyle Investments now held 200 ordinary shares in Equities. Mr Hitchings previously gave evidence before White J as to the circumstances of that transfer of shares, to the effect that the shares in Equities had a nil value and that the value of Equities, so far as he was aware, was nothing. In answer to a question posed by White J as to why anyone would be interested in taking a transfer of worthless shares, he observed, inconsistently with any other evidence in this application, that: "I am looking at doing business with DJG Equities, so far as getting the Company up and running. We are setting up a Company like that. As far as the value of that is concerned, I believe it is nil - nominal." 14The profit and loss of Equities, for the period July 2012-June 2013, produced in response to a Notice to Produce issued by the liquidators, disclosed a net loss in the order of $90,000 in the relevant period, albeit after substantial expenses including client entertainment, contractors' expenses, fuel and oil and motor expense and legal fees in the order of $27,000 were incurred. The balance sheet of Equities recorded negative total equity as at 30 June 2013 and also as at 30 November 2013. 15On 6 December 2013, Mr Hitchings resigned as a director of Equities leaving it with no directors in contravention of s 201A of the Corporations Act. Whether the Transfer was an uncommercial transaction 16As noted above, the Liquidators seek relief on the basis that the Transfer was an uncommercial transaction for the purposes of s 588FB of the Corporations Act. That section provides that: "A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to: (a) the benefits (if any) to the company of entering into the transaction; and (b) the detriment to the company of entering into the transaction; and (c) the respective benefits to other parties to the transaction of entering into it; and (d) any other relevant matter." The applicable legal principles are well-established, although they were not addressed by the parties' submissions. In Lewis v Doran [2005] NSWCA 243; (2005) 54 ACSR 410 at [136], Giles JA observed that the description of an "uncommercial transaction" in s 588FB(1) of the Corporations Act is directed primary attention to a balancing of benefit and detriment of a transaction of a company. Whether a reasonable person in the company's circumstances would not have entered into the transaction is determined by an objective inquiry by reference to the factors specified in s 588FB(1): Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363 at FCR 367; Old Kiama Wharf Company (in liq) v Betohuwisa Investments Pty Ltd [2011] NSWSC 823; (2011) 85 ACSR 87 at [35]. 17Mr O'Neill appeared to accept in oral submissions that the shares held by Securities in Equities, and subsequently transferred to Mr Hitchings, were held by Securities and Mr Hitchings non-beneficially on behalf of the Trust and I will proceed on that basis. There is, however, a dispute as to whether the shares held by Equities in Autohaus Wholesalers were owned beneficially or not. By a letter dated 29 November 2013 to the Liquidators' solicitors, the solicitors for Securities and Autohaus Wholesalers relied on various documents lodged with ASIC to contend that the transfer of the 1,000 shares in Equities from Securities to Mr Hitchings did not affect the ownership of the assets of Autohaus Wholesalers. The solicitors relied on a statement in the ASIC historical search of Autohaus Wholesalers that Equities held 100% of the shares in Autohaus Wholesalers non-beneficially. I am conscious that s 1274B(2) of the Corporations Act provides that: "In a proceeding in a court, a writing that purports to have been prepared by ASIC is admissible as prime facie evidence of the matters stated in so much of the writing as sets out what purports to be information obtained by ASIC, by using a data processor, from the national database." Obviously enough, the information contained in that company search is derivative of the information that had been provided by Autohaus Wholesalers or its representatives to ASIC. The prima facie position arising from that company search needs to be tested against the circumstances before and after the lodgment of the notices which brought about the present position reflected in ASIC's records. 18The solicitors for Equities and Autohaus Wholesalers also stated in their letter dated 29 November that: "It is apparent from the attached searches that on 24 September 2012, the 2,000 ordinary shares in Autohaus Wholesalers held by Bellevue Securities as trustee for the Bellevue Unit Trust, were transferred to DJG Equities as Trustee for the DMT Group Super Fund. In other words, DJG Equities did not at that time and indeed has never held a beneficial interest in the shares in Autohaus Wholesalers." With respect, that matter is not apparent from those searches. Those searches disclose a transfer of 2,000 shares in Autohaus Wholesalers to Equities. They do not disclose either that a particular entity previously held those shares as trustee for a particular trust or that Equities acquired them as trustee for a particular trust. That letter also stated that: "With respect to DJG Equities Pty Limited, we are instructed that the Company has no assets in its own capacity and that the only effective purpose that the Company has served has been to be the trustee of the DMT Super Fund. It is for this reason that the shares in the Company were transferred from DJG Securities to Craig Hitchings in May 2013: the beneficiaries of the DMT Super Fund did not want your client being the trustee of the super fund." The matters stated in the first sentence of that paragraph were not proved by evidence in the proceedings and they are not proved by the fact that a solicitor states them in correspondence on instructions from its client. 19The Liquidators point out that there is no evidence, other than a statement by Mrs Gee in her affidavit (which I quoted in paragraph 12 above) and the ASIC historical company search (to which I referred in paragraph 17) that Equities owned the shares in Autohaus Wholesalers non-beneficially and that no documents relating to the Super Fund were produced in response to a Notice to Produce. In my view, the statement to that effect in Mrs Gee's affidavit, which was admitted as part of a paragraph that was otherwise an admission, should be given no weight since it is self-serving and conclusory in character. The fact that documents relating to the Super Fund were not produced allows the Court to infer that either they do not exist or, if they exist, they would not have assisted Equities or Autohaus Wholesalers. These matters in turn allow an inference properly to be drawn that the Super Fund does not exist or at least that Equities does not held the shares in Autohaus Wholesalers on trust for it, where there is no documentation or other persuasive evidence of the trust. In my view, these matters displace any prima facie inference arising from the record held with ASIC stating that Equities held the shares in Autohaus Wholesalers non-beneficially. On the balance of probabilities, I find that the shares in Autohaus Wholesalers were not held on a further trust for the Super Fund. 20The Liquidators primarily relied on the timing of and amount paid for the Transfer as evidencing the uncommercial character of the transaction and contended that the Transfer was at undervalue. There was no substantive financial benefit to Securities in entering the transaction, where the stated consideration was $1.00. Mr O'Neill acknowledged, in oral submissions, that the Liquidators had led no valuation evidence as to the value of Equities' shares at the relevant time. Nonetheless, the Liquidators contend, and I accept, that an inference that those shares had real value may be drawn from the evidence as to Equities' assets and liabilities and from the steps taken to remove Equities from the Liquidators' control on the day that Securities was wound up. That submission has greater force where I have found that the shares in Equities were not held on trust for the Super Fund, and Equities in turn controlled Autohaus Wholesalers which had apparently substantial assets by way of motor vehicles. (I make no assumption as to whether and to what extent those vehicles were otherwise encumbered, where neither party led evidence of that matter.) I note that the Liquidators also rely on Mrs Gee's evidence that she did not want the trustee of the Super Fund to be associated with the Liquidators as an admission that she was attempting to remove Equities from the reach of the Liquidators. That evidence at least provides no justification for the transaction, where I have found, on balance, that the shares in Autohaus Wholesalers were not held on trust for the Super Fund. 21A second factor supporting the view that the Transfer was an uncommercial transaction, for the purposes of s 588FB of the Corporations Act, is its practical effect in making it more difficult for Securities to exercise its right of indemnity, as former trustee of the Trust, against assets of the Trust, which is particularly striking given the timing of the Transfer on the day that Securities was wound up. The Transfer created a practical impediment to the exercise of Securities' right of indemnity, so far as its effect was that the assets available to Securities to meet that right of indemnity ceased to include its interest in Equities and it no longer had practical control of Autohaus Wholesalers or the vehicles owned by it as at the date of the Transfer. The Transfer also had the result that Securities could not exercise that right if indemnity without, for example, bringing legal proceedings against Mr Hitchings if he was not prepared to cooperate in the exercise of that right. The Transfer also exposed Securities to the risk that Mr Hitchings, to whom the shares in Equities had been transferred, would then transfer them to other entities, as he did, further complicating the exercise of any right of indemnity as against assets that would then be controlled by those other entities. 22For these reasons, the Transfer cannot, in my view, be explained by normal commercial practice and a reasonable person in Securities' circumstances would not have entered into that Transfer and I find that it was an uncommercial transaction, for the purposes of s 588FB of the Corporations Act. 23A transaction is an insolvent transaction of a company, as defined in s 588FC of the Corporations Act, if, relevantly, it is an uncommercial transaction of the company and the transaction is entered into at a time the company is insolvent or the company becomes insolvent because of matters including entry into the transaction. The insolvency of Securities at the time of the Transfer may readily be inferred from the default judgment in favour of Araz and the winding up order made in respect of Securities on the same date as the Transfer. There was no dispute that the Transfer occurred during the relation-back period under s 588FE(4) of the Corporations Act, so that it was also a voidable transaction for the purposes of s 588FE(1) of the Corporations Act, if it was (as I have held) an uncommercial transaction and an insolvent transaction. 24The Liquidators also contended that the Transfer was an insolvent transaction of Securities which became a party to the transaction for the purposes, or for purposes including the purpose of defeating, delaying, or interfering with, the rights of any or all of Securities' creditors on a winding up of Securities, for the purposes of s 588FE(5) of the Corporations Act. The parties again did not address any submissions as to the applicable legal principles. Section 588FE(5) does not give rise to a separate basis to set aside a transaction but only to the application of an extended period in which to do so, since that section requires that it first be established that the transaction is an "insolvent transaction" of Securities. The Transfer would only be an "insolvent transaction" of Securities for the purposes of s 588FC of the Corporations Act if it is, relevantly, an uncommercial transaction of Securities for the purposes of s 588FB of the Corporations Act. Unless the Liquidators succeeded (as they have) in establishing that the transaction was an uncommercial transaction, s 588FE(5) would not assist them; and, if they established that, they did not need recourse to s 588FE(5) since the transaction was in any event within the relation-back period applicable to uncommercial transactions, namely the period of 2 years depending on the relation-back day specified in s 588FE(3) where the transaction was both an insolvent transaction and an uncommercial transaction of Securities. 25Section 588FF of the Corporations Act allows the Court to make any one or more of the orders set out in the section on the application of a liquidator, where a transaction is voidable because of s 588FE, including an order declaring that an agreement constituting, forming part of, or relating to the transaction was void at and after the agreement was made. The Court has power under this section to set aside the Transfer and I am satisfied that this is the appropriate relief given the findings that I have made above. Orders and costs 26I make the following orders, in the form proposed by the Liquidators. These include, for good order's sake, an additional order sought by the Liquidators noting the continuance of injunctions ordered by Lindsay J on 26 November 2013, to make clear that those injunctions are not affected by the judgment in this application: