Oppression and winding up on the just and equitable ground in respect of PEH, Phire and Sales
PPI's oppression claim as to PEH, Phire and Sales
- PPI pleads that several of the matters which I have addressed above and a failure by PEH, Phire and Sales to keep proper financial records (5FASC [197], [201], [204], [208], [211], [215]), which I address below, were conduct contrary to the interest of the members of PEH, Phire and Sales as a whole and oppressive to, and unfairly prejudicial to, PPI's interests as a member of those companies. PPI's pleading (5FASC [216]) claims for oppression under s 232 of the Act and for winding up on the just and equitable grounds under s 461(1)(e) and (k) of the Act on that basis. PPI also seeks declarations that the affairs of PEH, Sales and Phire have been and are being conducted in a manner that is oppressive or unfairly prejudicial to it, or unfairly discriminatory against it, or contrary to the interests of the members as a whole within the meaning of s 232 of the Act and/or in a manner that is unfair and unjust to other members, including PPI, within the meaning of s 461(1)(e) and (k) of the Corporations Act (5FASC, Relief, [12C]-[12E]).
- I first turn to the applicable legal principles, as to which I have drawn upon in my summary of these principles in Re Pure Nature Sydney Pty Ltd [2018] NSWSC 914 and Re ICB Medical Distributors Pty Ltd [2018] NSWSC 1315 at [65]ff. Section 232 of the Corporations Act provides that the Court may make an order under s 233 if, relevantly, the conduct of a company's affairs is either contrary to the interests of the members as a whole or oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity. That section and its predecessors extend to conduct involving "commercial unfairness" or where the conduct complained of involves a visible departure from the standards of fair dealing and a violation of the conditions of fair play, or a decision has been made so as to impose a disadvantage, disability or burden on the plaintiff that, according to ordinary standards of reasonableness and fair dealing, is unfair: Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704; Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459. In Morgan v 45 Flers Avenue Pty Ltd above at 704, Young J observed that the phrases "oppressive, unfairly prejudicial or unfairly discriminatory" in a predecessor to s 232 of the Corporations Act should be construed as "a composite whole and the individual elements mentioned in the section should be considered merely as different aspects of the essential criterion, namely commercial unfairness". His Honour also there noted that whether oppression was established was to be determined by reference to the nature of the business carried on by the company and the nature of the relations between its participants and:
"whether objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair."
- The principles applicable to a claim for oppression were also summarised by Austin J in Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 at [39], and the Court of Appeal noted the parties did not challenge that summary of the applicable principles in Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104; (2011) 84 ACSR 121 at [140] . His Honour observed that:
"(a) consistent with the principle that the purpose of relief is to terminate the effects of oppression, relief will generally be inappropriate as a matter of discretion if there is no continuing oppression: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 , at [182]; [2009] HCA 25;
(b) unfairness is assessed by reference to whether "objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair": eg, Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359 , per Basten JA at [181]; [2008] NSWCA 95 ;
(c) while it is recognised that conduct may be oppressive if inconsistent with the "legitimate expectations" of shareholders, expectations are not immutable. The non-fulfilment of expectations will not establish oppression, if there has been some good reason for the extinguishment of the expectation: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672, at [85], [86], [175]; [2001] NSWCA 97; Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343 , at [96]; [2009] NSWSC 342 per Barrett J;
(d) "it is important when assessing corporate activities to see if there has been oppression that judges do not remain in their ivory tower": Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1988) 28 ACSR 688 , Young J at 739; [1998] NSWSC 413;
(e) a particular matter which will be taken in account in assessing the gravity of any allegation of oppression, is the extent to which the minority shareholder has "baited" the majority shareholder to act in an oppressive manner: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1988) 28 ACSR 688 , at 741; [1998] NSWSC 413 …"
- In Munstermann v Rayward [2017] NSWSC 133 at [22], Stevenson J summarised the applicable principles as follows (omitting citations):
(1) The test of oppression is an objective one of unfairness …
(2) The court must look to determine whether on the balance of probabilities the objective commercial bystander would be satisfied that the affairs of the company were being conducted unfairly …
(3) A director may act oppressively in the sense relevant to the operation of s 232 and yet not breach any fiduciary or other duty owed as a director …
(4) Conduct of a company's affairs may be oppressive even though the conduct is otherwise lawful …
(5) Conduct that has the effect of paralysing a company in the operation of its business is properly characterised as conduct contrary to the interests of the members as a whole …
(6) A shareholder of 50 per cent of the shares in a company can seek relief for oppressive conduct because they do not have control in the form of power to prevent the oppression, particularly where individual strong arm tactics are used …
(7) The court must formulate an opinion about oppression or unfair prejudice as at the date of the institution of proceedings and the issue of relief under s 233 must be determined at the date of the hearing …
(8) The discretion under s 233 is wide as to the appropriate remedy …
(9) The nature of the remedy chosen by the court under s 233 will be dependent upon the conclusions drawn by the court as to the type of oppression with which the court is dealing and the court will choose the remedy which is least intrusive ….
(10) The aim of any order under s 233 must be to put an end to the oppression …
(11) The court should only look to wind up an otherwise solvent company as a "last resort"…
(12) As a remedy for oppression, an oppressor can be ordered to sell their shares to the oppressed party ….
(13) If an order is to be made for the purchase of shares under s 233 the task of the court is to fix a price that represents a fair value in all the circumstances." [citations omitted]
- I have also borne in mind the observation in Tomanovic v Global Mortgage Equity Corporation Pty Ltd above that each case has to be considered on its own facts and circumstances, and by reference to the conduct as a whole.
- PEH, Phire and Sales may also be wound up under s 461(1)(e) of the Act if the Court finds that Mr Boros is conducting its or their affairs in his own interests, rather than in the interests of the members as a whole or in a manner which appears to be unfair or unjust to PPI: Re National Discounts Ltd (1951) 52 SR (NSW) 244; 69 WN (NSW) 115; Re William Brooks & Co Ltd and Companies Act [1962] NSWR 142; (1961) 79 WN (NSW) 354; Re Weedmans Ltd [1974] Qd R 377; Re Cumberland Holdings Ltd (1976) 1 ACLR 361 at 375; (1975-76) CLC 40-250. Section 461(1)(k) of the Act in turn provides that the Court may order the winding up of a company if it is of the opinion that it is just and equitable that the company be wound up. It is well established that the Court can make a winding up order under that section by reason of, inter alia, lack of confidence in the conduct and management of a company's affairs, or if a company has not carried on its business candidly and in a straightforward manner with the public, or has failed to comply with the requirements of the Corporations Act with respect to financial records and reports. The authorities are numerous, but include at least Loch v John Blackwood Ltd [1924] AC 783; Australian Securities and Investments Commission v Chase Capital Management Pty Ltd [2001] WASC 27; (2001) 36 ACSR 778; and Australian Securities and Investments Commission v ABC Funds Managers Ltd above at [119], where Warren J (as her Honour then was) observed that a winding up on just and equitable grounds could take place where there was "a lack of confidence in the conduct and management of the affairs of the company" and "a risk to the public interest that warrants protection", and also noted that the Court would be reluctant to wind up a solvent company. In Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [2013] FCA 234 at [19]ff, Gordon J summarised those principles as permitting a company to be wound up where there is a lack of justifiable confidence in the conduct and management of its affairs and a risk to the public interest that warrants protection, and noted that that could be established where the Court could not have confidence that the company's controllers would comply with their obligations, including keeping books, records and documents and looking after the company's affairs: see also Re Bicher & Son Pty Ltd [2020] NSWSC 711.
- I also bear in mind s 467(4) of the Corporations Act, which applies where a winding up order is sought on the just and equitable ground, and is likely also relevant to the exercise of the Court's discretion where a winding up order is sought under s 233 of the Corporations Act: Asia Pacific Joint Mining Pty Ltd v Allways Resources Holdings Pty Ltd [2018] QCA 48; (2018) 125 ACSR 227 at [46]-[47], [62]. McMurdo JA there observed:
"In my view, the reasonableness of the applicant's position is to be assessed by reference to the consequences of the events and circumstances upon which the application is founded and what is necessary to redress them. If they could be redressed only by a winding up, then the pursuit of a winding up order would not be unreasonable in the relevant sense. On the other hand, if there is an alternative remedy which would equally redress those consequences, then an applicant's preference for a winding up order would usually be considered to be unreasonable, because ordinarily the winding up of a solvent company will have far reaching effects. It will not only deprive the other shareholders of their investment in a solvent enterprise, but it will also be likely to affect the interest of others, such as the company's employees and third parties whose interests from transacting business with the company would be affected. It is the likelihood of substantial and wide ranging prejudice of this kind which would cause judges to describe a winding up of a solvent company in this context as an extreme step."
PPI's claims as to financial records for PEH and Phire
- Paragraphs 196-204 of the Fifth Further Amended Statement of Claim plead a failure by PEH, Phire and Sales to keep proper financial records in support of this claim. PPI pleads (5FASC [196], [199], [202]) that, at all material times, each of PEH, Phire and Sales were required by s 286 of the Act to keep written financial records that correctly recorded and explained its transactions and financial position and performance and that would enable true and fair financial statements to be prepared and audited and to retain those financial records for 7 years after transactions covered by the records are completed. PPI pleads (5FASC [197], [200]) that, from 29 July 2003 onwards, PEH and Phire failed to keep the written financial records required by s 286 of the Act, particularised as the records listed in paragraphs 54-55 of Ms Bateman's second report dated 30 August 2019 and Appendix 7 of her report dated 4 June 2020. PPI's Revised Schedule summarises its claims as to the deficiencies in PEH's and Phire's financial records, and I will address the most significant of these claims here. I addressed the position in respect of PPI above and address the position in respect of Sales below.
- Turning first to PEH, PPI submits that PEH's audited financial statements for several years are inconsistent with the tax returns produced, with an apparent under-reporting of income for tax purposes of $2,433,970 and, if those tax returns were not lodged, there has been a material failure to prepare required financial records. Ms Bateman refers in her report dated 4 June 2020 (Bateman, Ex P11, [37], [546]-[549]) to material differences between the profit shown in PEH's financial reports and the profits declared in its income tax returns, with the total understatement in the tax returns in excess of $2.4 million. Mr Boros responds to this issue, in his response to PPI's Revised Schedule, by developing a position that was not established by evidence, as follows:
"I believe the only differences between the tax returns and the financials was the accounting versus tax depreciation for all the years.
These depreciation differences were eventually equated by way of once off write downs and matching in the year 2019. It is possible that some of the structures and hire assets may have been written off for tax purposes while still being carried on as Plant & Equipment on books. Many of these items are disposed of once their effective life ends.
In 2019, the directors intended to bring the balance sheet at a more realistic position, so that the Property, Plant, Equipment and vehicles recorded matched with tax records, and could be generally associated back to physical; verifiable items. That explains a big write down in the assets values against the share premium reserves, original of which is not known to the shareholders/directors."
- I recognise that no inconsistency in the income stated in PEH's audited accounts and its tax returns is established in PEH's 2015 and 2017 financial years and the difference between the two is immaterial in the 2018 and 2019 financial years. The amount involved is, however, substantial, in the other years and the accurate recording of income is a self-evidently important aspect of keeping true and fair financial records. Ms Bateman explains, and I accept, that that overstatement is not attributable to the treatment of WIP as Mr Boros contended in his affidavit evidence and submissions. This criticism is well-founded and amounts to a serious failure to keep true and fair accounts of PEH.
- PPI also submits that the sale of the "triple storey structure", which I addressed above, was not properly recorded or processed in PEH's accounts and results in an understatement of its assets. Ms Bateman also referred in her report dated 30 August 2019 to the absence of accounting work papers for the transfer of the triple storey structure from PEH to Phire and expresses the view that those work papers should form part of the financial records of PEH. Mr Boros responds to this issue, in his response to PPI's Revised Schedule, by submitting that:
"These were journal entries between the companies PHC [which changed its name to Phire] and [Sales] I believe. At the time of the internal journal entry the product had been fully depreciated and was out of contracted work. There was no sham 'sale'. Pages was attempting to renew its contract with the Australian Formula One Grand Prix and it was left in PEH for that purpose."
The reference to the asset as "fully depreciated" and "out of contractual work" is radically inconsistent with the sale price at which the asset was purportedly transferred to Phire, and Mr Boros' evidence, to which I referred above, that the value was based on its future use. The last sentence of Mr Boros' submission may also raise a question whether the treatment of the triple storey structure was directed to creating an impression to the Australian Formula One Grand Prix that was inconsistent with the purported sale of that asset by PEH to Phire.
- I do not need to determine PPI's submission that the sale to Phire of that structure on 1 July 2015 for $4,115,569.51 was a sham. PEH's failure to maintain true and fair financial records in this respect is established because that sale did not complete when Phire was placed into voluntary administration in September 2015 and PEH retained that asset, but the associated record of a loan to Phire was not then reversed on PEH's books and that loan was asserted in Phire's voluntary administration (Bateman Ex P11, [8k], [44], [275],[280]-[281], Appendix 4, [477]-[479]). This matter again amounts to a material failure to keep true and fair accounts in respect of PEH.
- PPI also submits that the loan of $2,731,879 recorded in PEH's financial statements for the 2018 and 2019 years as owed by PPI is false. Paragraphs 205-208 of the Fifth Further Amended Statement of Claim in turn plead that a false financial transaction was recorded in the books of PEH, namely that PEH's financial statement for the year ended 30 June 2017 purports to record that PEH had previously made a loan (or loans) to PPI of $2,731,879; PEH's general ledger purports to show a transfer from the PEH/Sales trading account to PPI of $2,731,878.99 on 30 June 2017; and no such loan or transfer from PEH was ever received by PPI. Ms Bateman expresses the view in her 4 June 2020 report (Ex P11, [40]) that the entry "other debtors - PPIL" in the financial statements of $2,731,879 for 2019 and the comparative information for 2018, relating to a loan to PPI, is not a true liability of PPI and that these loans and transactions should be reversed in the accounts of PEH, Sales and PPI. This observation appears to be based on Ms Bateman's evidence that she has not seen supporting documentation for that loan, which is not sufficient to establish its non-existence, although it is hardly consistent with appropriate financial recording for a purported loan of this size.
- Mr Boros responds to this issue, in his response to PPI's Revised Schedule, as follows:
"After a detailed audit of cash movements and the appropriate allocation of those payments the sum of $2,731,879 was left in the accounts as owed by PPI due to my replacement and the proceedings brought by PPI.
The $2,731,879 remains as a debt to PEH. Please refer to bank statements in [Ex J1] 3669 - 4682."
- I am not satisfied that this amount, or at least some part of it, is not a liability of PPI, because it is plain that significant funds were paid by PEH and Sales to Mrs Page, and the evidence does not establish whether those funds were paid as dividends, or an advance on dividends, or shareholder loans or, as may be most likely, without any adequate consideration of the nature of the payments. However, I am comfortably satisfied that the accounting treatment of these multiple payments in a single large figure in the accounts, without a proper analysis of its character, represents a significant failure to keep true and fair accounts. I address this question further in dealing with Mr Boros' reliance on this "loan" in answer to the claim against him below.
- PPI also submits that the 2015 financial statements of Phire and PEH contain inconsistent entries for a loan from Phire to PEH of $4,269,085 which is not recorded in the financial statements of PEH, so that one or both are incorrect and the proper financial position of at least one of the companies cannot be derived. PPI also submits that, in the years 2008 to 2014, Phire and PEH both disclosed that loan correctly, as an asset of and loan made by Phire and a liability of and loan made to PEH, and that loan disappeared in the 30 June 2015 balance sheet for PEH. Ms Bateman notes a new 'Contributed Equity' account (to which I have referred above) appeared in the equity portion of PEH's balance sheet with a balance of $3,068,070 at 30 June 2015, but that balance is $1,201,015 less than the PHC loan as at that date and there is no documentation or explanation as to that difference (Bateman P11, [50], [540]-[541]).
- Mr Boros responds to this issue, in his response to PPI's Revised Schedule, as follows:
"The 2015 financial statements of Phire had to be corrected after the V[oluntary] A[dministration] and the financial statements of Phire ought to have been corrected by the then CFO. I am sure they were eventually corrected otherwise from 2016 onwards the intercompany balances between [Sales] and PEH would not have matched.
[Sales] took over all the assets and liabilities of Phire from 2016 onwards including DOCA liability and this would include balances owed to and from related companies."
Mr Boros' response does not answer Mr Bateman's observations as to these matters, and I am satisfied that these matters also amount to a significant failure to keep true and fair accounts in PEH.
- PPI submits that no general ledger or trial balance for PEH for the periods to 29 June 2015 have been produced; no general journals and associated work papers for PEH that support the financial statements have been produced; no working papers including reconciliations that explain the financial accounts for the years 2010 to date have been produced; no work papers or support have been provided for an apparent write-down or write-off of plant, equipment and motor vehicles in 2019 by $8.8 million; and that it should be inferred that these financial documents have not been kept (Bateman, Ex P11, 32-(c), [45]). Mr Boros responds by reference to the accounts function in the Pages Group and an assertion that all PEH's records since 2015 "are in EXO [an accounting software] and have been available all along", although he has not sought to tender those records in the proceedings. I am satisfied that the inference that these financial documents have not been kept is properly drawn and this is also a significant failure to keep true and fair accounts of PEH.
- PPI also submits that, when Mr Boros caused PPI's debt with ANZ to be increased by $1,658,931.43 and the proceeds to be used to reduce the PEH loans with ANZ, the new debt owed to PPI should have been recorded in PEH's balance sheet, but it is not (Bateman Ex P11, [126]; Schedule 4). There is evidence that debt was previously recognised, but I am satisfied that the present failure to do so is also a significant failure to keep true and fair accounts of PEH.
- Turning now to Phire, PPI pleads (5FASC [212]-[213]) that a false financial transaction was recorded in the books of Phire and repeats the allegations as to the transfer of Phire's business to Sales, as pleaded in paragraphs 162-163 and 184-191 of the Fifth Further Amended Statement of Claim which I have addressed above. PPI also submits that the sale of the "triple storey structure" was also not properly recorded or processed in Phire's accounts (Bateman Ex P11, [8k], [273]-[279], Appendix 4, [463]-[476]. Mr Boros responds by contending that this transaction was "covered appropriately" and that explanations and clarifications are offered in his affidavits. I have addressed this issue above and I am also satisfied that this is a significant failure to keep true and fair accounts in Phire.
- PPI also submits that two inconsistent audited financial statements were prepared for Phire for the 2014 year and that this suggested alteration of the original to support underreported income for tax purposes (Ex J1, 5331-5350, 5755-5763, 6387-6404; T264-T280). Mr Boros denied that any inconsistency was directed to achieve a tax result and, in his response to PPI's Revised Schedule, denied that there were two sets of signed accounts notwithstanding that two inconsistent versions of the signed accounts were tendered. The inconsistency in these financial statements is sufficient to amount to a significant failure to keep true and fair accounts and it is not necessary for me to reach the serious additional finding that it was directed to underreporting of Phire's income to the Australian Taxation Office.
- PPI also submits that Phire's audited financial statements for the years 2007 to 2015 are inconsistent with the tax returns produced, with an apparent under-reporting of income for tax purpose of $13,264,897 and, if the tax returns were not lodged there has been a material failure to prepare required financial records (Bateman, Ex P11, [542]-[545]). Ms Bateman there refers to significant differences between the tax returns produced in respect of Phire, in the form produced to her which she recognises may not have been lodged with the Australian Taxation Office, and the audited financial statements for Phire. Ms Bateman expresses the opinion, which I accept, that this difference is not due to the treatment of WIP, as suggested in Mr Boros' affidavit evidence and submissions. These matters also amount to a substantial failure to keep true and fair financial records in respect of Phire.
- PPI submits that the general ledgers of Phire recording material balances, including 'goodwill' of $971,362 are incorrect (Bateman, Ex P10, [49], [78]-[79], [181]). Ms Bateman's evidence in this regard appears to be directed to the position in Sales' rather than Phire's general ledgers and I do not reach this finding. PPI also submits that Phire's financial statements for 2015 and Sales' financial statements for 2016 and 2017 are inaccurate because of a practice of charging Sales for Phire's expenses, causing incorrect tax deductions by Sales to which Phire was entitled. PPI also points out that no accounting or financial data was prepared for the period 1 July 2015 to 8 September 2015, when Phire went into voluntary administration (Bateman, Ex P10, 8(h), [81]). PPI also points out that, in the 2015 financial statements of Phire and PEH, there are inconsistent entries for the loan from Phire to PEH of $4,269,085 which is not recorded in the financial statements of PEH, so that one or both are incorrect and the proper financial position of at least one of them cannot be derived (Bateman, Ex P11, [540]-[541]). These are also significant failures to keep true and fair accounts in Phire. PPI submits that no general ledger or trial balance for Phire for the periods through to the voluntary administration in September 2015 or beyond have been produced; no general journals and associated work papers for Phire that support the financial statements have been produced; no working papers including reconciliations that explain the financial accounts for the years 2010 to date have been produced (Bateman, Ex P11, [63(a)-(c)]); and it should be inferred that these documents have not been kept. I am also satisfied that that inference should be drawn.
- I note, for completeness, that Mr Boros makes several comments as to the activities of Phire and the accounting process of the Pages Group in his response to PPI's Revised Schedule, which are not cross-referenced to, his affidavit evidence or the documents tendered. I have taken those comments into account as submissions in reaching the findings set out above.
PPI's claim as to financial records for Sales
- PPI pleads (5FASC [203]) that, from 21 November 2014 onwards, Sales failed to keep the written financial records required by s 286 of the Act, particularised as the records listed in paragraph 56 of Ms Bateman's second report and Appendix 7 of her report dated 4 June 2020. PPI also pleads (5FASC [209]-[211] that a third false financial transaction was recorded in the books of Sales, namely that:
"On 30 November 2016, the day after these proceedings were commenced and the day after [Mr Boros] had been compelled to hand over PPI's books …, the purported 'rent in advance' amount of $4,436,878.99 recorded in Pages Sales' books as having been paid to PPI in respect of the Second Lease was reversed by journal entry in Pages Sales' books and then transferred partly to 'Goodwill' and the remainder to the PEH/Pages Sales Trading account."
- In PPI's Revised Summary, it contends that ledgers purporting to record transactions underlying a loan $4,436,879 by Sales to PPI are false, and an entry for a payment of the $320,000 to the Phire DOCA which was not an obligation of Sales and a "rent in advance" account did not meet applicable accounting standards (Bateman Ex P10, [103]-[104]; Bateman Ex P11, [27]-[29], [109], [198],[306]-[315], [348]-[349]; Ex J1, 7296-7300; T331-354). Ms Bateman also notes that the entry for "rent in advance" is not supported by documentation and notes its relationship with Mr Boros' reliance on the suggested loans to Mrs Page, which I address below.
- Mr Boros' evidence (Boros 17.4.20 [185]) as to the entry described as "rent in advance" is that:
"Following Phire ceasing to trade, I decided that the amounts paid for and on behalf of PPI, including the Top-Up Payments and the Direct Tess Payments needed to recorded in [Sales]. Amounts paid by PEH, Phire or [Sales] on behalf of PPI were recorded as "Rent in Advance" for a time until we could determine how to properly describe them."
This evidence does not acknowledge the connection between this entry and the commencement of these proceedings, which is obvious from its timing, and I find that this entry was made to seek to establish the basis of a claim against PPI for this amount after PPI had commenced these proceedings.
- Mr Boros' evidence (Boros [187]), by way of submission, is also that the amount of $4,436,378.99 referred to in Sales' general ledger "approximates" the amount of $4,430,879.65 referred to in the summary at page 1 of the folder he prepared documenting payments to Mrs Page, although those amounts are plainly not coincident. I am not able to determine, given the deficiencies in the evidence, whether the relevant amounts or the part of them which were plainly paid to Mrs Page, had the character of dividends, advance payments against dividends, shareholder loans or were paid without any determination of their proper character. In any event, Mr Boros' evidence implicitly acknowledges, and it is plain enough, that those payments did not constitute "rent in advance" and that establishes another significant failure to keep true and fair financial records in respect of Sales.
- Mr Boros' evidence is that, after Pages Group's external accountant pointed out that the amount was recorded as owing to Sales, and that the relevant payments were allegedly also made by PEH (a matter which amounted to a further failure to maintain true and fair accounts in Sales), this entry was reversed and amounts of $1,705,000 and $2,731,878.99 were then added to PPI's trading account with each of Sales and PEH respectively (Boros [189]). Mr Boros does not explain how those amounts were derived. Mr Boros' evidence is also that the "mechanics" of those matters were left to Pages Group's external accountant and the account staff (Boros [190]); given the size of the amounts, and the way in which they were treated, that involves a significant failure in respect of the maintenance of those accounts. Mr Boros' evidence in cross-examination that the amount of $4,436,878 related to "top up" payments and was "never asserted" as a loan to PPI, and that Mr Gulwadi, the Pages Group's accountant, had pointed out that the entry for a loan in that amount in the financial accounts was not appropriate (T342). It was put to Mr Boros in cross-examination that the figure of $4,436,878 was debited as though it was a loan owed by PPI, on the day after these proceedings were commenced, in anticipation that it "might be of use" in the litigation; Mr Boros responded that the accounting of advances or top-up payments made to PPI or Mrs Page had started earlier, about the time of his removal, and those payments were "logged in" in relation to some of the allegations made by PPI (T347). Mr Boros denied that the accounts were created to "invent" an obligation on PPI, which could be used against it in the proceedings (T350). Mr Boros denied (T353) that the amount of $4,436,878 had been put as a loan owed by PPI, and contended that the amount paid in advance was $2.7 million (T353).
- In his reply to PPI's Revised Schedule, Mr Boros blandly submits that Sales' 2017 financial accounts do not record a loan to PPI, but does not address the several transactions to which I have referred above. I am satisfied that, irrespective of the status of payments made to PPI and Mrs Page, the record of these transactions does not provide a true and fair view of the transaction.
- PPI also pleads (5FASC [214]-[215]) the use of Sales' assets to pay a debt of Mr Boros in respect of the administration of Phire, to which I have referred above. It is not apparent that these amounts give rise to a separate contravention in respect of Phire's accounts, beyond the issues arising from the substantive transactions. In PPI's Revised Schedule, it contends that the financial statements for Sales for 2019 record a "capital reserve" account of $1,683,647 which is unsupported by any records and is not a proper capital reserve account (Bateman, Ex P10, [80]; Bateman, Ex P11, [112]; Ex J1, 7299) and there is a further entry in Sales' "capital reserve" account of $1,705,000 which is not reflected in the financial statements of Sales and is an incorrect accounting entry (Bateman, Ex P11, [115]). Mr Boros speculates, in his reply to PPI's Revised Schedule, that the "[c]apital reserve account may have come up because of [Sales] taking over all the assets and liabilities of Phire in 2016 and that would be the difference between them which had to be in the nature of capital" and submits that "[t]here is no entry left of $1,705,000 in the accounts - that would have been reversed." It is not necessary to address this issue given the conclusions that I reach on other grounds.
- PPI also submits, and I accept, that there are different versions of Sales' financial statements for the years 2017-2019 which are inconsistent and from which it is impossible to derive a true and fair view of its financial position (Bateman, Ex P10, [46]-[50], [76]-[77], Schedules 7 and 8), and Mr Boros was cross-examined as to inconsistencies between a profit recorded in the 2017 financial statement for Sales and a loss recorded in the tax return for Sales for 2017 (T306). PPI also submits that Phire's financial statements for 2015 and Sales' financial statements for 2016 and 2017 are inaccurate because of a practice of charging Sales for the expenses of Phire, causing incorrect tax deductions by Sales to which Phire was entitled. That issue also amounts to a failure to maintain true and fair accounts. PPI also addresses several transactions between Sales and Austructures which I will address below in respect of the claim concerning Austructures.
- PPI submits that no general journals and associated work papers for Sales that support the financial statements have ever been produced; no working papers including reconciliations that explain the financial accounts for the years 2010 to date have been produced (Bateman, Ex P11, [100(a)-(b)]) and it should be inferred that they have not been kept. I draw that inference. While this criticism can only apply to the period after Sales was incorporated in 2015, it also amounts to a serious failure to maintain true and fair accounts for the period since 2015.
- In his reply to PPI's Revised Schedule, Mr Boros contends, again without reference to evidence, that:
"There is only one version of financials for [Sales] for the years since it started. Admittedly, in the beginning of 2016 with the conversion from MYOB to EXO, the CFO did struggle to balance the intercompany, debtors and creditors but eventually I believe the balance sheet was sorted out and the 2019 financials in EXO reflect true and correct picture of our balances."
He also submits that "[r]econciliation between profits as per financials and tax returns is being consistently done and can be supported with rationale", without identifying such a rationale or evidence to support it. This submission does not displace the findings I have reached above.
Submissions and findings
- In closing submissions, PPI submits that:
"The totality of the evidence in these proceedings demonstrates the cavalier disregard Mr Boros has toward his duties as a director generally and the chaotic state of the books and records of the companies (to the extent that they have been produced). These are not trivial oversights of a few dollars, but multi-million dollar discrepancies in the accounts and substantial sums that appear not to have been properly declared to the ATO.
The conduct of the various company's affairs when looked at as a whole has been oppressive and has led to a justifiable loss of trust and confidence between PPI as a substantial shareholder in those companies, and the interests of Mr Boros in those companies held jointly with Mrs Boros through Hun Enterprises.
In relation to PEH, [Sales] and Phire, Mr Boros and Mr Thatcher apparently formed the view that those companies were insolvent, or likely to become insolvent at some future time, because they appointed voluntary administrators to each of them on 3 July 2020 pursuant to s 436A of the Act.
In those circumstances there could be no doubt that it is just and equitable that an order be made for the winding of those companies, with the provisional liquidators appointed by the Court on 24 July 2020 appointed as liquidators."
- In a separate judgment (Re Pages Equipment Holdings Pty Ltd (admin apptd) [2020] NSWSC 959) I held that provisional liquidators should be appointed to each of PEH, Phire and Sales. I am satisfied that several matters which I have addressed above, on which PPI relies to support the winding up orders sought, amount to oppression of PPI and also support a winding up of the companies on the just and equitable ground, although not all of those matters amounted to a breach of any duty owed by Mr Boros to PPI (as distinct from other companies) or supported a claim for compensation by PPI (as distinct from other companies) against him. Those matters are PPI's claims in respect of the additional borrowing by PPI for the benefit of PEH; the transfer of Phire's business to Sales in 2015, to the detriment of at least the Australian Taxation Office, and the issue of a smaller shareholding interest in Sales to PPI, so far as that transaction involved the conflict of duty and interest on the part of Mr Boros to which I referred above; and the transfer of PEH's shares in HHA to Mrs Boros, so far as it diluted PPI's interest in that company and its economic interest in Austructures, to which assets were subsequently transferred from the Pages Group; and the failure to maintain true and fair financial records for the companies, which I have addressed above. The use of Sales' funds to pay an amount payable by Mr Boros personally under the DOCA concerning Phire and the dealings between PEH and Phire in respect of the triple storey structure, which at least caused detriment to Phire's creditors, by creating a competing claim by PEH in its voluntary administration, also support that relief.
- I am also satisfied that the deficiencies in the financial records of PEH, Phire and Sales to which I have referred above, which involve repeated failures to maintain true and fair accounts in respect of substantial transactions, are such that it is just and equitable that each of those companies be wound up. I am satisfied that these matters establish a lack of confidence in the conduct and management of each company's affairs and a significant failure to comply with the requirements of the Corporations Act with respect to financial records and reports, such that that order should be made.