Rathner in his capacity as Official Liquidator of Kalimand Pty Ltd (in liq) v Hawthorn

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 105 of 2014

BETWEEN: GIDEON ISAAC RATHNER IN HIS CAPACITY AS OFFICIAL LIQUIDATOR OF KALIMAND PTY LTD (IN LIQUIDATION) (ACN 060 251 827)

KALIMAND PTY LTD (IN LIQUIDATION) (ACN 060 251 827)

AND: PETER JOHN GEORGE HAWTHORN (ALSO KNOWN AS PETER HAWTHORN AND PETER HAWTHORNE)

JUDGE: GORDON J DATE: 8 OCTOBER 2014 PLACE: MELBOURNE

INTRODUCTION 1 Kalimand Pty Ltd (in liquidation) (ACN 060 251 827) (Kalimand), the second applicant, was ordered to be wound up in insolvency on 1 February 2012. Mr Gideon Isaac Rathner, the first applicant, was appointed official liquidator of Kalimand (the Liquidator). 2 The first respondent (Mr Hawthorn) was the sole director of Kalimand from 25 October 2001 until at least 17 January 2011. An extract from the Australian Securities and Investments Commission's (ASIC) database dated 1 September 2014 records that Mr Hawthorn was the sole director (and shareholder) of High Country Meats (Vic) Pty Ltd, the second respondent (HCMV), from 10 January 2008 until 17 July 2014. It appears that HCMV did not have a director on the record from 17 July 2014. 3 On 26 August 2014, a sequestration order was made against the estate of Mr Hawthorn. As a result, the Applicants' were unable to take any fresh step in this proceeding against Mr Hawthorn: s 58(3) of the Bankruptcy Act 1966 (Cth). When the proceeding came on for hearing on 1 September 2014, Mr Andrew Sarraf of Pasha Legal appeared as "amicus" to ensure the Court was aware that Mr Hawthorn was bankrupt and therefore HCMV no longer had a director. That second submission proceeded on the false assumption that Mr Hawthorn was still a director when he was made bankrupt. The evidence did not support this. 4 The trustees of the bankrupt estate of Mr Hawthorn were informed of the proceeding and the hearing. The trustees in bankruptcy stated they had no objection to the applicants proceeding with the claim against HCMV. HCMV was unrepresented and did not appear: Federal Court Rules 2011 (Cth) r 4.01. 5 The applicants sought to proceed with, and prove, three claims against HCMV. The first was to recover $60,000 alleged to be a voidable transaction under s 588FE of the Corporations Act 2001 (Cth) (Corporations Act) (the Transfer). The second and third claims concerned what was defined as the Assets, namely stock in the sum of $1,090,400 and trade debtors in the sum of $959,079 that Kalimand held at the end of the 2011 financial year. In relation to those Assets, the applicants sought the following orders: 1. A declaration that HCMV holds the Assets on trust for Kalimand; 2. Further, an order that HCMV pay to Kalimand those monies held on trust by HCMV for Kalimand; 3. Further, or in the alternative, an order that HCMV pay to Kalimand an amount equal to the Assets; 4. Alternatively, an order that HCMV pay to Kalimand an amount representing the benefit obtained by it as a result of the transfer of Assets. 6 In addition, the applicants alleged that the transfer of the Assets was a voidable transaction under s 588FE of the Corporations Act. 7 In supplementary submissions filed on behalf of the applicants after the hearing, the applicants sought an order against HCMV for $2,505,053. The sum was described in those submissions as the sales for Kalimand from June to November 2011 as recorded in Kalimand's business activity statements (BAS). The statement of claim did not identify or particularise any claim which sought to recover that amount. The claim for $2,505,053, referred to for the first time in the applicants' supplementary submissions, whatever its nature, must be put to one side. The statement of claim did seek to recover $692,838 from Mr Hawthorn, described as payments Kalimand made to him between 30 June 2010 and 30 June 2011 and defined as the Transactions. However, as counsel for the applicants properly conceded at the hearing, that claim was not able to be pursued. 8 These reasons for judgment will consider the facts, the statutory framework and then consider each claim.

Facts 9 Kalimand was wound up in insolvency by an order of the Supreme Court of Victoria on 1 February 2012 and the Liquidator was appointed. 10 On 3 February 2012, the Liquidator wrote to the Australian Taxation Office (ATO) informing the ATO of his appointment as Liquidator and requested a copy of Kalimand's tax returns and BAS for the past three years. The ATO provided the requested documents on 26 March 2012. The BAS disclosed substantial sales and purchases from 1 July 2009 up to and including 30 November 2011. A schedule of those sales and purchases extracted from the BAS is Annexure A. 11 On 8 February 2012, the Liquidator wrote to Brown Baldwin, Accountants, who had acted for Kalimand and, pursuant to ss 474(1), 483(1) and 488 and 530B of the Corporations Act, requested any books and records, financial statements and working papers of Kalimand held by that firm. On 23 February 2012, Brown Baldwin responded by providing, amongst other things: 1. A copy of eight bank statements for a Business Classic account in the name of Kalimand (account number ***-*75, ****-***16), held with the Cobram branch of the Australian and New Zealand Banking Group Limited (ANZ) (the ANZ Bank Account) for the period from 21 June 2011 to 29 February 2012; 2. A Reconciliation Report for Kalimand dated 17 December 2011 for the ANZ Bank Account in respect of a statement dated 30 November 2011; 3. Financial statements for Kalimand for the financial years ended 30 June 2009 and 30 June 2011; 4. A copy of a Form 484 (Change to company details) lodged with ASIC in November 2011 recording that Mr Hawthorn ceased to be a director of Kalimand on 17 January 2011; 5. A copy of a Form 309 (Notification of details of a charge) notifying ASIC that, on 29 August 2011, Kalimand had created a fixed and floating charge over all of its undertaking and assets (both present and future) in favour of ANZ. That form was signed by Mr Hawthorn, as "director" on 29 August 2011. A copy of the mortgage debenture was attached. It was again dated 29 August 2011 and executed by Mr Hawthorn in his capacity as "Sole Director & Sole Company Secretary" of Kalimand. 12 It will be necessary to return to consider these documents. Bank statement no 4 for the ANZ Bank Account for the period 30 September to 31 October 2011 (part of item 1 above), recorded the following entries: Date Transaction Details Withdrawals ($) Deposits ($) Balance ($) 2011 … 21 OCT TRANSFER $60,071.90 $60,571.90 FROM ATO … 27 OCT TRANSFER $60,000.00 $559.10

The bank statement included a hand written annotation against the entry for 27 October which read "to HCM (VIC) P/L". The evidence did not disclose the identity of the person who made the annotation. The Reconciliation Report (item 2 above) contained two relevant entries. It recorded a cleared deposit transfer from the ATO to Kalimand on 21 October 2011 of $60,071.90 and a cleared cheque transfer to "HCM (VIC) P/L" on 21 October 2011 of $60,000.00 (the Transfer). The Transfer was confirmed by ANZ - it went into HCMV's account. After the Transfer, the balance of the ANZ Bank Account was $559.10. The Transfer occurred no earlier than 21 October 2011 and no later than 27 October 2011, within 6 months of the winding up of Kalimand on 1 February 2012: see [1] above. 13 The financial statements of Kalimand for the financial year ended 30 June 2011 provided by Brown Baldwin (part of item 3 above and also produced by Brown Baldwin in response to a subpoena issued by this Court) recorded: 1. Sales of $15,035,994; 2. Closing stock of $1,090,400; 3. Trading profit of $2,588,452; 4. Retained profit of $594,433 (comprised of $30,097 net profit and $564,336 in retained profits); 5. Total assets of $2,811,118 comprising fixed assets of $642,964 (including plant and equipment at cost of $533,820) and current assets of $2,167,454. The depreciation provision for plant and equipment was $337,482. The depreciation provision for fixtures and fittings was $194,184. The current assets of $2,167,454 included trade debtors of $959,079 and stock on hand at cost at $1,090,400; 6. A surplus of assets over liabilities of $594,435. The only non-current liability was a director's loan which had decreased from $952,795 at the end of the 2010 financial year to $259,947 as at 30 June 2011. The financial statements were unsigned but dated 4 May 2012. 14 On 20 March 2012, the Liquidator arranged for Kalimand's mail to be redirected from nine addresses where it conducted business to the Liquidator's offices. Those redirections produced two account statements. Each account statement recorded sales to, and payments by, account holders (a cafÉ and a soccer club) in respect of invoices issued by Kalimand and was issued in the name of Kalimand (with Kalimand's ABN). Each account statement was dated 10 February 2012. Towards the bottom of each account statement the following appeared in a darkened box: PLEASE DIRECT DEPOSIT INTO THE FOLLOWING ACCOUNT: BANK: ANZ ACC NAME: HIGH COUNTRY MEATS (VIC) P/L BSB: ***-*75 ACC: ****-***35 FAX REMITTANCE TO (03) 5871 **** 15 Public examinations under Pt 5.9 Div 1 of the Corporations Act were conducted in July 2012. Mr Hawthorn was examined. The applicants sought to tender parts of the transcript of the examination of Mr Hawthorn as evidence against Kalimand pursuant to s 597(14) of the Corporations Act. A company cannot be summoned to give evidence under ss 596A or 596B of the Corporations Act: Re Chircan Holdings [2002] NSWSC 988 at [11]-[15]. However, officers as individuals can be examined and, subject to certain limitations which are presently irrelevant, any transcript of an examination of the person that is authenticated as provided by the rules may be used in evidence in any legal proceedings against the person: s 597(14). Here, although the claim against Mr Hawthorn is stayed, the applicants seek to tender parts of the transcript of Mr Hawthorn's examination as evidence against HCMV. Counsel for the applicants identified specific passages on nine pages of the transcript. Those passages contained the entries extracted in Annexure B. 16 Are those extracts from the transcript admissible as evidence against HCMV and, if so, on what basis? It is not admissible under the Corporations Act: s 597(14) of the Corporations Act, Fodare Pty Ltd v Shearn [2010] NSWSC 737 at [39] and Southern Equities Corp Ltd (in liq) v Bond (2001) 78 SASR 554 at [132]-[133]. Is it admissible on some other basis? Section 63(2) of the Evidence Act 1995 (Cth) (the Evidence Act) provides that the hearsay rule does not apply to (a) oral evidence of a representation given by a person who perceived the representation being made or (b) documentary evidence so far as a document contains the representation. "Representation" is defined broadly in the Evidence Act and includes an express or implied representation (whether oral or in writing). It is not the transcript that is admitted but the statements in the transcript: see Wily v Lo Presti [1997] NSWSC 588. That is what is sought to be done here: see [15] above. 17 Section 67 of the Evidence Act provides that s 63(2) does not apply to that evidence unless the party seeking to adduce it (here, the applicants) has given reasonable notice in writing to other parties of their intention to adduce the evidence. In the present case, a form of notice was given in June 2014 when the applicants' solicitors filed and served a bundle of the documents that the applicants intended to tender at the hearing. The transcript was in that bundle. That form of notice did not however comply with s 67(2) and (3) of the Evidence Act. That is not necessarily fatal. Even if notice is not given, the Court may on the application of a party direct that s 63(2) applies despite the applicants' failure to give that notice: s 67(4). That raises the next question - should the Court grant leave under s 67(4)? Section 192 of the Evidence Act provides that, in considering that question, the Court is to consider the amount of time that would be saved or wasted if leave were not given, fairness to the parties and witness, the importance of the evidence, the nature of the proceeding and whether it is possible to grant an adjournment or make another order or give a direction in relation to the evidence. 18 In the present case, the evidence is not peripheral. It comprises statements made under a public examination by Mr Hawthorn. Arguably HCMV did not have an opportunity to participate in the examination and the form of the questions would not be admissible if asked in that form in these proceedings. I say arguably because Mr Hawthorn was for at least part of the relevant period the sole director of HCMV and answered questions in that capacity. However, as Barrett J said in Wily, "when the evidence gets close to the core of the case, ... the Court has to decide if that sort of statement is unfair to the defendant and whether the unfairness outweighs the other factors". Given the nature of these proceedings and of the examinations, the nature, form, content and importance of the representations, the manner in which the public examination was conducted, the issue of fairness to both parties and to the witness, the impact of granting leave on the length of the hearing, and other courses I could take, I direct that s 63(2) applies to the representations set out at [15] above. The unfairness to HCMV does not outweigh the other factors. The representations are admissible against HCMV. It will be necessary to return to consider these "admissions". 19 On 8 February 2013, the Liquidator sent the First Report to Creditors (Report) with a Notice of Creditors' Meeting. The report described Kalimand in these terms: [Kalimand] operated butchers shops in the Australian Capital Territory and traded under the name "High Country Meats". It was one of a number of companies associated with Mr Peter Hawthorn. At least 3 of the other companies associated with Mr Hawthorn had liquidators appointed to them in 2012. These include: - High Country Meats Pty Ltd - High Country Transport Pty Ltd - Peter Hawthorn Investments Pty Ltd … 20 The Liquidator concluded that Kalimand operated a substantial business which had significant assets as at 30 June 2011, and these assets had not been properly accounted for. The trading history was summarised as follows: Year ended Sales Gross Profit Profit (Loss) 30 June 2009 $17,987,252 $3,269,128 $68,400 30 June 2010 $16,203,749 $3,016,270 $59,203 30 June 2011 $15,035,994 $2,588,452 $30,097

Year ended Stock Trade debtors Directors Loan Account 30 June 2009 $994,270 $734,955 ($946,354) 30 June 2010 $1,249,200 $729,054 ($952,795) 30 June 2011 $1,090,400 $959,079 ($259,957)

21 The Report recorded that, despite notifying Mr Hawthorn and the person recorded as the sole director of Kalimand, a Mr Guthrie, of their obligation to prepare and produce a report as to the affairs of Kalimand, he received no response, and did not receive any cooperation from either individual. Further, despite requests, the Liquidator did not receive all the books and records from Brown Baldwin. As a result, the Liquidator proceeded to issue summons for production and examination against Mr Chris Baldwin, the senior partner of Brown Baldwin, Mr Guthrie, Mr Peter Hawthorn, Mr Robert Hawthorn (the son of Mr Peter Hawthorn) and ANZ. The examination of Mr Hawthorn, addressed at [15]-[18] above, predates these steps. 22 As noted earlier, Mr Baldwin of Brown Baldwin was also served with a subpoena to produce documents in this proceeding. As well as Kalimand's financial statements for the financial years ended 30 June 2011 and 30 June 2010, Brown Baldwin also produced a copy of Kalimand's company tax returns for the financial years ended 30 June 2010 and 30 June 2009, and invoices Brown Baldwin issued to Kalimand. The invoices issued to Kalimand were issued regularly. The invoices record that Brown Baldwin prepared and lodged Kalimand's BAS and prepared the financial statements for the year ended 30 June 2011. The invoice issued to Kalimand dated 14 April 2011 for work for the period ended 12 April 2011 recorded the following narrations "[a]dvice regarding company structures", "[d]iscussions with Westpac and supply of financial information", and "[d]iscussions with Commonwealth Bank and supply of financial information".

Statutory Framework 23 A transaction will be voidable under Pt 5.7B of the Corporations Act if it is, amongst other things, an uncommercial transaction which is also an insolvent transaction. A "transaction" must be identified. A "transaction" in Pt 5.7B in relation to a body corporate or Pt 5.7 body is defined in s 9, relevantly, to mean: [A] transaction to which the body is a party, for example (but without limitation): (a) a conveyance, transfer or other disposition by the body of property of the body; and … (d) a payment made by the body; … and includes such a transaction that has been completed or given effect to, or that has terminated. By providing examples, the section typifies the forms of conduct or dealing that will be characterised as a transaction for the purposes of Pt 5.7B: a common characteristic is that there is a transaction to which the company is a party where the conduct or dealing engaged in by that company effects a change in that company's rights, liabilities or property: Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 at 288. 24 A transaction is an "uncommercial transaction" 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 the benefits (if any) to the company of entering into the transaction, the detriment to the company of entering into the transaction, the respective benefits to other parties to the transaction of entering into it and any other relevant matter: s 588FB(1). Significantly, a transaction may be an uncommercial transaction of a company within the meaning of s 588FB(1) whether or not a creditor of the company is a party to the transaction: s 588FB(2)(a) of the Corporations Act. 25 The purpose of the section is evident - to prevent a company disposing of its assets or other resources through transactions that result in the recipient receiving a gift or obtaining a bargain or advantage of such commercial magnitude that it could not be explained by normal commercial practice: Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd [2002] NSWSC 239 at [14]-[15]. Whether a transaction is an uncommercial transaction is determined objectively: Tosich Construction Pty Ltd (in liq) v Tosich (1997) 23 ACSR 466 and McDonald v Hanselmann [1998] NSWSC 171. 26 A transaction which is an uncommercial transaction under s 588FB is voidable if it was an "insolvent transaction" and it took place during the 2 years ending on the relation-back day or, if a related entity was the other party to the transaction, during the 4 years ending on the relation-back day: s 588FE(3)-(4) of the Corporations Act. 27 Section 588FC relevantly provides that a transaction is an insolvent transaction of the company if, and only if, it is an uncommercial transaction and: (a) any of the following happens at a time when the company is insolvent: (i) the transaction is entered into; or (ii) an act is done, or an omission is made, for the purpose of giving effect to the transaction; or (b) the company becomes insolvent because of, or because of matters including: (i) entering into the transaction; or (ii) a person doing an act, or making an omission, for the purpose of giving effect to the transaction. (Emphasis added.) Sub paragraphs (a) and (b) are alternatives. 28 The expression "because of" in s 588FC(b) requires that the transaction, or the giving effect to it, causes or is one of the matters that causes the company's insolvency: Australian Corporation Law Principles & Practice (LexisNexis Australia, subscription service) at [5.7B.0215] (update 192). The purpose to which that question of causality is directed is relevant: Allianz Australia Insurance Ltd v GSF Australia Pty Ltd (2005) 221 CLR 568 at [42] and [96]. In the context of an uncommercial transaction, an expansive notion of causation is not consistent with the purpose of these avoidance provisions: Lewis (as liq of Doran Constructions Pty Ltd (in liq)) v Doran [2005] NSWCA 243 at [138]. As Giles JA said in Lewis at [138], the insolvency "should be quite closely related to the entry into or giving effect to the transaction; if it were not so, the provisions would not guide conduct towards validity, but would avoid transactions because of the turn of later events". Notwithstanding what might be described as adopting a "common sense" approach to causation (March v E & MH Stramere Pty Ltd (1991) 171 CLR 506 at 515), an applicant must present clear evidence as to how a transaction affects a company's solvency: Australian Corporation Law Principles & Practice (LexisNexis Australia, subscription service) at [5.7B.0215] (update 192). 29 The task of the applicants in this matter is to prove facts justifying a conclusion that Kalimand became party to a "transaction" that was an uncommercial transaction (s 588FB) and an insolvent transaction (s 588FC) and, in addition, satisfy the elements in s 588FE (it took place during the 2 years ending on the relation-back day). That necessarily requires the applicants to identify, with some precision, the "transaction" in issue. If each necessary element is proved, then s 588FF enables the Court to make various orders including an order for payment of money and an order declaring an agreement constituting or relating to the relevant transaction to be void.

$60,000 Transfer 30 The applicants established a transfer of $60,000 from the ANZ Bank Account to HCMV on or around 21 October 2011: see [12] above. That transfer was a "transaction" for the purposes of s 588FB(1). It was a payment made by Kalimand to HCMV: see sub-section (d) of the definition of transaction extracted at [23] above.

Uncommercial transaction? 31 Was that transaction uncommercial under s 588FB? The answer is yes. It was a transaction which a hypothetical reasonable person in the circumstances of Kalimand would not have entered into. Kalimand received no benefit from the payment. The payment only benefitted HCMV. HCMV was not a creditor of Kalimand: the Liquidator gave evidence that he had not identified any evidence that HCMV was ever a creditor of Kalimand. Viewed objectively, Kalimand disposed of an asset (cash at bank) through a transfer of funds that resulted in HCMV obtaining a bargain, advantage or benefit of such commercial magnitude that it could not be explained by normal commercial practice. A reasonable person in Kalimand's circumstances would not have entered into that transaction. That conclusion is fortified by the evidence given by Mr Hawthorn in his examination: see [15] above.

Insolvent transaction? 32 Was that uncommercial transaction also an insolvent transaction under s 588FC? Kalimand was wound up by order of the Supreme Court of Victoria on 1 February 2012. At the earliest, the Transfer took place on 21 October 2011. 33 The first limb of s 588FC(a) requires evidence that when the Transfer was entered into (or an act was done, or an omission was made, for the purpose of giving effect to the Transfer), Kalimand was insolvent. The applicants did not adduce any evidence of either of those matters. No presumption of insolvency arose here: s 588E(3). 34 As noted earlier, an applicant must present clear evidence as to how a transaction affects a company's solvency. Here, no evidence was adduced by the applicants as to the insolvency of Kalimand as at 21 October 2011. No attempt was made to place before the Court evidence about Kalimand's financial position in its entirety at that time or to show that as at October 2011, Kalimand was suffering from more than a temporary lack of liquidity. At the hearing on 2 September 2014, Counsel for the applicants was reminded of the need for the applicants to prove that Kalimand was either insolvent at the time the Transfer occurred or it became insolvent because of it. Counsel was given a further opportunity to file a detailed additional submission, cross referenced to the evidence, outlining the applicants' case, particularly in relation to insolvency. A further written submissions was filed on behalf of the applicants on 9 September 2014. Under the heading, Insolvency of Kalimand, the applicants stated (numbering updated): [1] Kalimand was wound up in insolvency pursuant to an order of the Supreme Court dated 1 February 2012, on application of Ridders Fresh Pty Ltd A.C.N 087 998 945. [2] Kalimand had significant assets as at 30 June 2011. [3] The [Liquidator's] investigations reveal that Kalimand ceased to trade between 30 June 2011 and October 2011. [4] The BAS records of Kalimand demonstrate that it was a business that had significant sales until the period involving the transfer of the assets to HCMV. … [5] The [Liquidator's] investigations of the trading history of Kalimand demonstrate a profit as at 30 June 2011. [6] At 30 June 2011, Kalimand has debtors of approximately $960,000 and stock on hand at cost of approximately $1,0900.00 (sic). [7] The ANZ Bank held a fixed a floating charge over the assets of Kalimand. Kalimand does not appear to have any borrowings with the ANZ. The ANZ claim that the security supports a guarantee held for loans to related entities of Peter Hawthorn. There is no direct indebtedness between Kalimand and the ANZ Bank. [8] The bank account records of Kalimand demonstrate that the level of income shown in previous trading years and submitted shown by the BAS statements is not received post June 2011. [9] The minutes of creditors meeting dated 25 February 2013 show: (a) claimed creditors who provided proxies of approximately $265,654.45 Which excludes the petitioning creditor Ridders Fresh Pty Ltd debt of $25,351.40, proceeding number SCI 6414 of 2011; and (b) … [L]iquidator's estimates in his report to creditors dated 8 February 2013 unsecured creditors of $1,500,000 to $2,000,000. [10] Although the balance sheet as at 30 June 2011 indicates fixed assets in the approximate value of $642,964, at the date of the [Liquidator's] appointment there were minimal assets of Kalimand able to be sold. Despite an asset register indicating numerous vehicles in the name of Kalimand, the [Liquidator] was only able to locate two vehicles. There have been minimal recoveries in respect to the assets of Kalimand. [11] According to the BAS, sales in the period of June 2011 to November 2011, total $2,505,053. Kalimand during the period of June 2011 and February 2012 received only the following deposits into its bank accounts: Date Period Amount Source 19 July 2011 $500.00 Unknown 18 October [2011] $36.50 Unknown 21 October 2011 $60,071.90 ATO 25 January 2012 $1,583.47 Unknown 6 February 2012 $34,502.54 ATO

[12] According to the BAS, during the period June 2011 to November 2011 non-capital purchases total $3,481,036. [13] This indicates a trading loss of $975,983. [14] In the period 21 June 2011 to 4 November 2011, HCMV received into its accounts $2,514,371.14. 35 It is necessary to consider the totality of this evidence. Each of the matters listed in paragraphs [2], [3], [5], [7], [9(b)] and the last sentence of [10] were sought to be proved by reference to the Liquidator's Report: see [19]-[21] above. That Report is evidence of the fact that the Report was made and what it contained. It is not evidence of the truth of its contents: see ss 48(1)(b) and 59 of the Evidence Act. 36 The BAS records referred to in paragraph [4] of the submissions extracted at [34] above were in evidence and are summarised in Annexure A. The BAS records identified sales and capital and non-capital purchases. Given the nature of the business operated by Kalimand (sale of meat products), it is unlikely the non-capital assets had a long shelf life. Paragraph [4] of the submissions referred to "significant sales until the period involving the transfer of the assets to HCMV". The BAS did not demonstrate significant capital purchases. The BAS records did not demonstrate the transfer of assets to HCMV. No evidence was adduced which identified the specific assets of Kalimand which had been allegedly transferred to HCMV and when those assets were likely to have been transferred. 37 Paragraph [6] of the submissions referred to the fact that as at 30 June 2011, Kalimand had debtors of approximately $960,000 and stock on hand at cost of approximately $1,090,400. The evidence relied upon by the applicants were the financial statements of Kalimand produced by its accountants in response to the Liquidator's request and s 530B notice: see [11] and [13] above. Those financial statements provided a snap shot of the asset position of Kalimand as at 30 June 2011: see [13] above. The Transfer occurred some four months later and the Liquidator was appointed another four months after that. Again, no evidence was adduced that identified which of the debtors and assets were still in existence as at the date of the Transfer or, if not, what had happened to them. 38 Paragraphs [8], [11], [12] and [13] of the submissions refer to the fact that for the period from June 2011 to November 2011, although the BAS statements for that same period recorded significant sales ($2,505,053) and significant non-capital purchases ($3,481,036), there were only a few deposits into the ANZ Bank Account after June 2011 despite the fact that in previous years there had been a correlation between sales and the level of bank deposits. It is in this context, that the applicants submit that there was "a trading loss of $975,983". In contrast, for the period from 21 June to 4 November 2011, HCMV received $2,514,371.14 into its bank account (see [14] of the submissions). The applicants established this by reference to bank statements that had been produced by ANZ in response to a summons: see [21] above. 39 Where does this get us to? The Court can only proceed on the evidence available to it. In my view, the applicants have not established that Kalimand was insolvent at the time the Transfer occurred. 40 That, however, is not the end of the matter. The next question is whether Kalimand became insolvent because of, or because of matters including the Transfer: s 588FC(b). That is an easier task. The insolvency of Kalimand was closely related to the entry into and the giving effect to the Transfer. After the Transfer, the balance of the ANZ Bank Account was $559.10. In the period between the Transfer and the appointment of the Liquidator on 1 February 2012, $36.80 in bank fees and charges were deducted from the ANZ Bank Account. Only one deposit of $1,583.47 was received: see paragraph [11] of the submissions extracted at [34]. As at the date of the appointment of the Liquidator, unsecured creditors of Kalimand asserted that they were owed in excess of $1 million. There is clear evidence that Kalimand became insolvent because of matters including entering into the transaction (that is, making the Transfer).

Voidable transaction? 41 There are sufficient facts to justify the conclusion that Kalimand was a party to a transaction (the Transfer) which was both uncommercial and insolvent. The next task for the Liquidator is to satisfy the elements in s 588FE(3), that the Transfer took place during the 2 years ending on the relation-back day. Here, the transaction is identified with sufficient precision and took place during the two years ending on the relation-back day: see [12] above. Accordingly, s 588FF enables the Court to make an order for payment of $60,000 from HCMV to Kalimand. There will be an order in those terms. 42 Those conclusions mean that it is unnecessary to address the alternate basis on which the applicants contended that the Transfer was voidable - that it was an unfair preference under s 588FA. An essential element of s 588FA is that there is a transaction between the company and one of its creditors. Here, the applicants not only failed to prove that HCMV was a creditor of Kalimand, the applicants relied on the fact that HCMV was not a creditor of Kalimand in support of their contention that the Transfer, as has been found, was uncommercial: see [31] above.

The Assets - stock of $1,090,400 and trade debtors of $959,079 that Kalimand allegedly held at the end of the 2011 financial year. 43 This claim fails at the first hurdle. It fails because the applicants did not identify with precision the stock or the trade debtors of Kalimand that were allegedly transferred to HCMV for nil consideration. Additionally, the applicants did not identify the transactions by which the stock or debtors were transferred to HCMV. That is unfortunate. The Court can only proceed on the evidence available to it. 44 So, for example, in relation to the trade debtors of Kalimand there was no attempt by the applicants to identify the payment of invoices that should have come to Kalimand that in fact went to HCMV. There was no attempt to identify the invoices issued by Kalimand by date, number and amount and then seek to identify receipt of that invoiced payment in HCMV's account. Taken at its highest, there is evidence that during the period June to November 2011, Kalimand had significant sales but only limited deposits into its account while HCMV received into its account $2,514,371.14. Those limited facts do not establish any nexus between Kalimand and the receipts into HCMV's account. It is suspicious. However, without the source documents and, for example, a matching of the invoices issued by Kalimand and evidence of payment by the payees of that invoice into HCMV's account, it is not possible to conclude that the payments into HCMV's account in fact belonged to Kalimand. It is only by proving these basic facts, that the applicants' contention that the debtors were transferred to HCMV for no consideration can be considered. The evidence of Mr Hawthorn during his examination (see Annexure B) raised serious questions which provided a basis for the Liquidator to investigate these issues further but does not establish the necessary factual foundation for the claim. 45 The two account statements adduced in evidence which record a direction given to deposit payments owed to Kalimand into HCMV's account demonstrate that the direction was given in relation to those two accounts and no more: see [14] above. What is not established is that the direction applied to all invoices and, no less significantly, that the payment was actually made into HCMV's account and the identity of the specific invoices by name of creditor, date of invoice and date of payment. 46 The only other evidence adduced by the applicants is that the Salvation Army, a known debtor of Kalimand, made deposits into HCMV's account. The invoices issued to the Salvation Army and that were tendered in this proceeding are unable to be reconciled to the payments made by the Salvation Army that were recorded in HCMV's account. That is unsurprising. The first invoice dated 6 September 2011, which was issued to the Salvation Army by Kalimand, preceded the first date on which the Salvation Army appears to have been directed to make payments to HCMV, as a Salvation Army form recording the change of bank details indicates that it was authorised on 6 October 2011. The other invoice issued to the Salvation Army is dated 27 March 2012 and was issued by HCMV after Kalimand was wound up. These invoices do not assist. 47 The claim in relation to the stock suffers similar problems. The claim related to the stock (supplies of meat) that existed as at 30 June 2011. What happened to it was not established. The stock certainly did not exist when the Liquidator was appointed. It might have been sold. It is not open to the Court to guess or surmise. It is of course possible for inferences to be drawn from proved facts. Here, there are no facts which establish, or from which it can be inferred, that stock of a particular kind and value owned by Kalimand was "gifted" to HCMV or provided for nil consideration. 48 The applicants have failed to identify each relevant "transaction" they seek to void under Pt 5.7B of the Corporations Act in relation to the Assets. 49 As noted earlier, the applicants sought to recover the Assets on alternate bases: see [5] above. The failure of the applicants to identify with precision the Assets which they seek to recover infects each of those claims equally. I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.

Associate: Dated: 8 October 2014. ANNEXURE A KALIMAND SALES AND PURCHASES EXTRACTED FROM MONTHLY BAS MONTH TOTAL SALES ($) NON-CAPITAL PURCHASES ($) CAPITAL PURCHASES ($) July 2009 $1,371,431 $1,151,992 $0 August 2009 $1,292,887 $288,379 $0 September 2009 $1,331,147 $361,840 $2,400 October 2009 $1,261,536 $331,448 $0 November 2009 $1,383,397 $1,383,243 $0 December 2009 $1,466,520 $1,476,248 $0 January 2010 $1,154,284 $1,019,791 $472 February 2010 $643,565 $1,218,731 $0 March 2010 $2,090,028 $4,893,093 $0 April 2010 $1,236,967 $1,345,103 $0 May 2010 $1,420,623 $1,629,086 $0 June 2010 $1,415,050 $1,349,120 $0 July 2010* $1,442,065 $1,317,118 $0 $1,420,109 $1,371,754 $0 August 2010 $1,300,108 $1,352,539 $0 September 2010** $1,252,091 $1,302,617 $0 October 2010 $1,242,205 $1,181,444 $0 November 2010 $1,399,957 $1,618,612 $0 December 2010 $1,356,956 $1,136,720 $0 January 2011 $1,084,145 $883,574 $0 February 2011 $1,005,114 $840,413 $0 March 2011 $1,188,349 $1,220,443 $0 April 2011 $1,061,030 $1,259,876 $0 May 2011 $1,197,113 $1,466,009 $0 June 2011 $113,101 $119,955 $0 July 2011 $98,493 $114,018 $758 August 2011 $1,018,735 $1,260,396 $0 September 2011 $966,146 $1,021,289 $0 October 2011 $158,281 $164,300 $0 November 2011 $60,277 $800,320 $0

• There were two BAS statements for July 2010 in evidence. ** There were two BAS statements for September 2010 in evidence. Both statements showed the same amounts for sales and purchases. ANNEXURE B EXTRACTS FROM TRANSCRIPT OF EXAMINATION OF FIRST RESPONDENT … Are you at present involved in the operation of any business? Er, look, at the moment, High Country Meats is a dormant company - High Country Meats (Vic) Pty Ltd is - we'd say is a dormant company sitting there doing nothing and other than that, no, I'm not operating [anything]… … Let me ask you this question. Why was the changeover effected? Why did High Country (Vic) become the new recipient of funds coming in and sales? Because I couldn't sit down there and see what was happening with the company because there was just too many companies in the group and become, to me, I just couldn't put it together. All right? Brown Baldwin's had full control of the accounts, above the accounts, and I couldn't follow it. And so it was your decision to let customers know that money should be paid to High Country (Vic's) ANZ account and not any other account they had been paying into previously? Well, there was new invoices and everything done up for that. Yes but I want you to answer my question? Go on. Was it your decision for people to let customers know that they should thereafter, from that point in time, pay money into the High Country (Vic) ANZ account rather than the accounts they'd been paying money into previously? Yes, I would say that, yes. And your decision alone, wasn't it? No, it was in consultation with Michelle to find out the best way and that's what we decided to do… But as the director, or as the person running the show, you were happy with that? As a director of who? High Country Meats (Vic)? Yes. Yes? Yes. In that whole changeover period where High Country Meats (Vic) took over the business, for wont of a better phrase, the meat sale business, did it purchase any assets or goodwill from Kalimand? No. Did it enter into any negotiations or agreements with Kalimand in respect of the business which it took over? No. Why not? Why should I? I owned both companies so why should I? It's my - I owned the companies and I still own the Kalimand company, I'm the shareholder of Kalimand to this day. So the stock that was sold by Kalimand, where did the proceeds of sale go? Well, you'd have to ask Brown Baldwin. That's where it went to, but the- - - No. I want to ask you because you're the one who said you authorised the changeover and to let customers know where they should - - - ? Yeah, that - that's correct, but you didn't ask me the other question. That's two separate questions you - OK. So - no, thank you. No. You're being very helpful at the moment, must I say? I'll answer the question best I can. … Did you know where that money was going at all? It would have, as far as I can say, it would have gone to High Country Meats (Vic). Why would it have gone there? Well, this account has been closed down and they're paying for meat that's delivered near them. … Listen to the question please. Why then was Kalimand's money going out on 23 November to High Country Meats? I don't know if the invoice was written out to Kalimand. Let me finish the question please. They needed direction from Kalimand as to where to deposit the money, didn't they, those trade debtors. You gave them that direction. When I say you, I mean Kalimand. Is that right? No, that could have been a High Country Meats invoice paid into Kalimand. I don't know. So are you suggesting seriously that these people, having received a Kalimand invoice, would have paid High Country Meats (Vic)? I didn't say that. I said they had a High Country Meats invoice and could have paid Kalimand. That's what I said. But the High Country Meats invoice would have had the High Country Meats (Vic) bank details on it? Yeah. So why would they have paid into - - -? Well, you ask them that. I can't honestly answer that. Well, that's really what I'm getting at. You don't know? No, I don't. I don't know why. You tell the people to pay and they don't pay properly. I can't tell you. … Did High Country Meats (Vic) Pty Ltd purchase anything from Kalimand in the second half of the 2011 calendar year? No, not as far as I know. … What was the point of sending 60 grand to some other person or entity? The money comes in from the ATO and then it goes out again six days later. What was the point of it going out? Could have been - I don't know. I bet it wouldn't have been six days ago. The point is, it's probably gone to the trading account, to High Country Meats (Vic) and - what day was it? 27th - - - Is that because High Country Meats (Vic) was taking over the operations and running the business and so it needed the funds? M'mm. And you were aware, weren't you, that it was the new trading entity and it was taking over at this time? M'mm. And it needed capital, didn't it, to run its business? Is that why it went over? We're - we're not using the Kalimand. We - we stopped using Kalimand accounts. All right. But it's not the case that Kalimand owed money to High Country (Vic). This was money being given to High Country (Vic) to run the new meat sale business. Is that correct? Could have been. I honestly don't know. Don't know. What else would it have been if not that? Well, we weren't using Kalimand accounts so I just think Michelle would have transferred it over. That's what I would have thought. But she couldn't transfer if she wasn't a signatory? Well, I - she would have put - signed - asked me to sign a cheque. All right. And thinking back, now we've got that far, then I just want to understand the purpose for which it was done. It was done to - you tell me. I don't want to put words in your mouth but is it possible that it wasn't paying a debt because you adopted a group approach to all these entities, did you? I did. So it was providing working capital to the new trading entity. Is that - - -? Possible. What else could it have been? Don't know. That's the only real explanation for it, isn't it? Possibly, yeah. Well, what other possibilities are there in the range of possibilities? I don't know, you pay people that you owe money to, you pay people.