s 588FF
Evidence Act 1995 (NSW) s 69
Cases Cited: Blatch v Archer (1774) 1 Cowp 63 at 65
Source
Original judgment source is linked above.
Catchwords
s 588s 588FCs 588FDAs 588FF
Evidence Act 1995 (NSW) s 69
Cases Cited: Blatch v Archer (1774) 1 Cowp 63 at 65
Judgment (2 paragraphs)
[1]
JUDGMENT; ex tempore
I am going to find in favour of the Plaintiff, notwithstanding Mr Allen's very helpful and, if I may say, concise, well directed, and thoughtful submissions. My reasons are as follows.
This is a claim by a liquidator of a Company for orders under s 588FF of the Corporations Act 2001 (Cth) ("the Act"), relying on what the liquidator contends were a series of unreasonable director-related transactions as that concept is defined in s 588FDA of the Act.
The undisputed facts are as follows:
1. Peach & Co Pty Ltd ("the Company") was incorporated on 29 November 2012.
2. From 29 November 2012 to 21 June 2019, Shane Anderson ("Mr Anderson") was a director of the Company.
3. The Defendant, Rebecca Anderson ("Mrs Anderson"), is the mother of Mr Anderson.
4. On 8 November 2021, the Company was placed into a creditor's voluntary liquidation with the liquidator, Mr Steven Naidenov, being appointed liquidator. Accordingly, the "relation back day" for the purpose of the Act is 8 November 2021.
5. Between 9 October 2018 and 1 May 2019, the Company made various payments to Mrs Anderson totalling $271,800.
It is accepted by Mr Allen, who appears for Mrs Anderson, that each of the payments was a "transaction" as defined in s 9 of the Act and those transactions constituted a "payment by the Company" and were made to Mrs Anderson who was a "close associate" of Mr Anderson as defined in s 588FDA(b)(ii) of the Act.
As I have said, the liquidator contends the payments were unreasonable director-related transactions within the meaning of s 588FDA of the Act.
Section 588FDA is in the following terms (My emphasis):
588FDA Meaning of unreasonable director - related transaction
(1) A transaction of a company is an unreasonable director - related transaction of the company if, and only if:
(a) the transaction is:
(i) a payment made by the company; or
(ii) a conveyance, transfer or other disposition by the company of property of the company; or
(iii) the issue of securities by the company; or
(iv) the incurring by the company of an obligation to make such a payment, disposition or issue; and
(b) the payment, disposition or issue is, or is to be, made to:
(i) a director of the company; or
(ii) a relative of a director of the company; or
(iii) a relative of a spouse of a director of the company; or
(iv) a person on behalf of, or for the benefit of, a person of a kind referred to in subparagraph (i), (ii) or (iii); and
(c) it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to:
(i) the benefits (if any) to the company of entering into the transaction; and
(ii) the detriment to the company of entering into the transaction; and
(iii) the respective benefits to other parties to the transaction of entering into it; and
(iv) any other relevant matter.
The obligation referred to in subparagraph (a)(iv) may be a contingent obligation.
Note: Subparagraph (a)(iv)--This would include, for example, granting options over shares in the company.
(2) To avoid doubt, if:
(a) the transaction is a payment, disposition or issue; and
(b) the transaction is entered into for the purpose of meeting an obligation the company has incurred;
the test in paragraph (1)(c) applies to the transaction taking into account the circumstances as they exist at the time when the transaction is entered into (rather than as they existed at the time when the obligation was incurred).
(3) A transaction may be an unreasonable director - related transaction because of subsection (1):
(a) whether or not a creditor of the company is a party to the transaction; and
(b) even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.
The liquidator's case and the issues can be boiled down as follows. The three payments by the Company to the Defendant were each a payment by the Company (this is accepted), made to a close associate of a director of the Company (this is accepted) within 4 years before the relation back period (this is accepted). The liquidator contends that it may be expected that a reasonable person in the Company's circumstances would not have entered into the transaction(s) having regard to the benefits (if any) to the Company of entering into the transaction and the detriment to the Company of entering into the transaction and the respective benefits to other parties to the transaction of entering into it, and any other relevant matter (s 588FDA(c)).
It is to be observed that subs (2) of s 588FDA makes it clear that, even if a payment was made to a person who was a creditor of the Company at the time, it is still open for there to be a finding that, in all the circumstances, a reasonable person in the Company's circumstances would not have entered into the transaction. If this was not clear enough from the words of the statute itself, so much was put beyond doubt by Hammerschlag J said in Woodgate v Fawcett [2008] NSWSC 868 at [104]-[108] and, again, by Williams J in Re Bryve Resources Pty Ltd [2022] NSWSC 647 at [96]-[100].
The very important distinctions between a claim under s 588FDA and claims for what are commonly known as preferences, is that for the purposes of s 588FDA, a liquidator is not required to establish insolvency and the statutory defences to preference claims, such as good faith and reasonable grounds, are not applicable: see, for example, in the matter of Re Lesvos Pty Ltd [2012] NSWSC 1288 at [22] per Brereton J. In this case, the liquidator attempted to prove that the Company was insolvent at the time of the payments, however, I accepted Mr Allen's submission that that allegation had not been clearly enough pleaded and rejected such evidence. I therefore proceed upon the basis that, at the time the payments were made, the Company was not insolvent.
The real battleground is a factual one revolving around Mr Allen's fundamental and ultimate submission in answer to the case. His submission is that the payments made were repayments by the Company of a loan. Leaving to one side the legal position that even if I was satisfied that, as a matter of fact, the payments were payments of a loan, it would still be open to make this finding under s 588FDA, I have concluded that on the evidence I am not satisfied that the payments were repayments of a loan. I do not think that the Company received any benefit at all as a consequence of the payments. In particular, it did not receive a benefit in the reduction of an amount that it owed to the Defendant.
The payments appear to have been nothing more than a gift, if you like, by the Company to its only director's mother. The reasons I have come to that conclusion are as follows. Firstly, the question is whether the Company and the Defendant had a relationship of debtor and creditor at the time of the payment. The two people who would be best placed to demonstrate that fact by direct evidence would be the sole director of the Company, that is, Mr Anderson and Mr Anderson's mother, the Defendant. Yet, neither has given evidence before me. I do not think it could sensibly be said that they are witnesses in the "camp" of the liquidator and yet, it can be very powerfully said that they fit within that definition in relation to the Defendant's position. In other words, it was open to the Defendant to call direct evidence to demonstrate any loan arrangement.
Instead, the Defendant asks for inferences to be drawn from various books and records of the Company that have been put before me by the liquidator. What those books and records demonstrate, if anything, is as follows. Whilst the payments are referred to in the general ledger of the Company as "unknown paid Shane's mum" or "return of funds" (see pages 206, 230, and 239 of the court book), that same evidence, which includes the particular ledger relating to or entitled "loan Shane's mum", does not show any outstanding monies due by the Company to the Defendant at the time of the payments. Moreover, the state of mind of the person who I infer would have been an employee or agent of some sort of the Company at the time, acting under the direction and supervision of Mr Anderson, when seeking to allocate the payments into the Zero accounting software maintained by the Company, was, "unknown paid Shane's mum" or "unknown interest free payment for moneys borrowed" or "unknown".
Accordingly, I infer that the various entries, "return of funds" or "paid to Shane's mum", were not entries made by anyone involved at the Company who actually thought that the payments were a return of funds or a repayment to the Defendant. Rather, they were guessing in circumstances where they did not know the fact. As such, the various entries in the books of the Company probably do not prove the fact because the person who made the entries cannot be found to have been made by a person "who might be reasonably supposed to have knowledge of the asserted fact": s 69 of the Evidence Act 1995 (NSW). When I combine that documentary evidence with the absence from the witness box of either the Defendant or her son, I am comfortably satisfied that, at the time that the payments were made, the Company did not owe the Defendant any money. In any event, as I have said, I am not prepared to draw a conclusion in favour of the Defendant by inference on such sketchy and unreliable evidence where it was open to the Defendant to call direct evidence of the fact: Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969.
In those circumstances, taking into account the particular matters identified in s 588FDA(c), I do not consider that a reasonable person, in the Company's circumstances, would have entered into the transaction. Fundamentally, there was no benefit at all to the Company. In fact, there was a detriment to the tune of $270,000 and a respective benefit to the Defendant of that same amount which ultimately, I can infer has caused prejudice to the creditors of the Company who, as things stand, will not receive any dividend sufficient to pay their debts in full.
For those reasons, I am satisfied that the relevant payments were unreasonable director-related transactions, as defined in s 588FDA, which means that I have power to make an order under s 588FF. There is a question floating around in the authorities as to whether the "may" in s 588FF(1) confers on the Court any sort of residual discretion which would enable a court to not make an order if otherwise satisfied that the statutory requirements to give jurisdiction under s 588 had been made good. For my part, and the matter has not really been argued fully before me, I do not think that there is any such discretion. Rather, I think that the proper construction of s 588FF(1) is that the "may" is simply directing attention to the fact that there is a wide variety of relief available to a court, and it ought make a choice of an evaluative nature, as to what is the most appropriate relief as a matter of discretion. I do not think that is inconsistent with what Moshinsky J said in D Pty Ltd (in liq) v Calas [2016] FCA 1409 at [68].
I am satisfied that, in all the circumstances, the appropriate order to be made is under s 588FF(c). That is, requiring the Defendant to repay the amount that she actually received, but also so that the order fairly represents the benefit that she received because of the payments, she should also pay interest on that amount at the rates prescribed from time to time by the Court rules. Even though the proper Plaintiff to the suit is the liquidator, s 588FC makes it clear that an order can be made at the suit of the liquidator in favour of the Company, which is a party to the proceedings, and that is what I propose to do.
Accordingly, the orders I make are as follows:
1. The Defendant to pay the second Plaintiff the amount of $362,997.83, pursuant to s 588FF(c) of the Corporations Act 2001 (Cth), inclusive of interest up to 9 October 2024.
2. The Defendant to pay the Plaintiff's costs of the proceedings.
[2]
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Decision last updated: 18 October 2024
Parties
Applicant/Plaintiff:
Naidenov as liquidator of Peach & Co Pty Ltd (in liquidation) CAN 161 445 790