Ross, in the matter of Print Mail Logistics (International) Pty Ltd (in liq) v Elias

LUIS GARCIA Second Defendant

JOHN WILLIAM WOODS (and another named in the Schedule) Third Defendant

order made by: REEVES J DATE OF ORDER: 23 April 2021

1. The plaintiffs' originating application filed on 10 April 2019 is dismissed.
2. The plaintiffs pay the defendants' costs of the proceeding to be taxed failing agreement. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

INTRODUCTION 1 Mr David Ross and Mr Blair Pleash, the first plaintiffs, are the Liquidators of the second plaintiff, Print Mail Logistics (International) Pty Ltd (PMLI or the company). In this proceeding, they have sought relief under various provisions of the Corporations Act 2001 (Cth) (the Act) against present and past directors of PMLI. Their claim for this relief revolves around two loan transactions: the Armstrong Unsecured Loan Agreement (the Armstrong Agreement) which was allegedly made on or about 14 July 2015; and the Wellington Secured Loan Agreement (the Wellington Agreement) which was made about two weeks later. 2 The Liquidators allege that, under the Wellington Agreement, PMLI took responsibility for the personal debts of Mr Nigel Elias, the first defendant, including a debt of $100,000 allegedly due under the Armstrong Agreement and that it became insolvent by entering into that agreement. With respect to the former, that is, the transfer of personal liabilities allegation, the Liquidators allege in their fourth further amended statement of claim (4FASC) that the defendants, as directors of PMLI, entered into an unreasonable director-related transaction (s 588FDA of the Act) and in the process breached their duties as directors of PMLI (ss 180, 181 and 182 of the Act). With respect to the latter, that is, the insolvency allegation, they alleged that the defendants entered into an insolvent transaction in breach of s 588G of the Act and entered into an uncommercial transaction (s 588FB of the Act). Consequently, they claimed that the defendants were liable to pay PMLI compensation under ss 588FF(1)(a), 588M(2) and/or 1317H(1) of the Act. 3 Prior to closing submissions at the trial, the parties agreed that there were three closely interconnected factual issues in dispute. The first related to the existence of the Armstrong Agreement and the other two related to the effect of the Wellington Agreement. The Liquidators bear the onus on all three issues. For the reasons that follow, I do not consider the evidence that they adduced at trial was sufficient to discharge their onus on any of those issues. Their originating application will therefore be dismissed with costs. 4 PMLI was registered on 19 February 2010. It was then known as PML Media Pty Ltd. Mr Elias was a director of the company from the outset and remains so. The other three defendants served as directors of the company from time to time. They were: Mr Luis Garcia (the second defendant) from 3 March 2014 to 4 August 2017; Mr John Woods (the third defendant) from 24 March 2010 to 1 December 2016; and Mr Adrian Pereira (the fourth defendant) from 19 February 2010 to 24 June 2016. 5 PMLI was a subsidiary of Print Mail Logistics Limited (PML) and a part of the PML group of companies. PML was also incorporated on 19 February 2010. It was, at all relevant times, a public company listed on the National Stock Exchange (NSX). It operated a printing and mailing business which it conducted from an address at Dowsing Point in Tasmania. 6 There are three other companies that are not parties to this proceeding but which have nonetheless figured in the events to which it relates. They are: (a) Wellington Capital Pty Ltd (Wellington), which has since changed its name to Southland Stokers Pty Ltd (Southland Stokers); (b) Armstrong Registry Services Limited (Armstrong) which is now deregistered; and (c) Babylon Nominees Pty Ltd (Babylon). During the period pertinent to this proceeding, all of these companies were controlled by Ms Jennifer Hutson. In these reasons, they will generally be referred to collectively as "the Hutson entities". 7 Armstrong provided advisory services to PML and this formed the basis of the relationship that developed between Armstrong and the PML Group. Consequently, at least up until the end of 2015, there was a good relationship between the principals of each group of companies, Ms Hutson and Mr Elias; so much so that each of Wellington, Armstrong and Babylon, from time to time, advanced funds to the PML group and/or Mr Elias to assist them to conduct their business activities. 8 As a part of that process, on 21 December 2011, Armstrong loaned the sum of $50,000 to Mr Elias pursuant to a secured loan agreement which was signed and dated on that date. It is not in dispute that that sum was loaned to Mr Elias in his personal capacity and that the amount of interest that was outstanding on that loan as at 29 July 2015 was $11,980.01. 9 In 2012, PMLI purchased some vacant land at an address in Cambridge, Tasmania (the property). The intention was that the whole of PML's printing and mailing business would move to that site. The property was purchased in two tranches and was valued in PMLI's books at $922,517.61. The purchase was financed, in part, with loan funds obtained from the Maitland Mutual Building Society, which loan was secured against the property. Since PMLI did not trade, its principal source of income to meet its financial obligations, including its loan repayments to the Maitland Mutual Building Society, was the financial support provided to it by PML. For this purpose, PMLI and PML maintained a running inter-company loan account. 10 At about the time the property was purchased, there was also the prospect of PMLI being able to purchase a third adjoining block of vacant land. However, that purchase became the subject of litigation between PMLI and the vendor. That litigation was settled in late 2015. As a result, the vendor repaid PMLI the $10,000 deposit it had paid, together with a further sum of $40,000. The adjoining block was never purchased. 11 As mentioned at the outset, the Armstrong Agreement was allegedly made on or about 14 July 2015. Under that agreement, Armstrong was alleged to have loaned a further sum of $100,000 to Mr Elias at an interest rate of 8% per annum and to be repaid on or before the termination date of 14 August 2015. 12 As also mentioned at the outset, on or about 29 July 2015, PMLI entered into the Wellington Agreement. There is no dispute in this proceeding that, under that agreement, Wellington loaned $420,000 to PMLI. The agreement was in writing and was comprised of: (a) a secured loan agreement between PMLI and Wellington dated 29 July 2015; (b) a fixed and floating charge over the assets of PMLI dated 29 July 2015 and registered on the Personal Property Security Register (PPSR) on 13 August 2015; and (c) a second mortgage over the property dated 4 August 2015 and registered on 11 September 2015. 13 On the same date, Wellington, PMLI and PML also entered into a deed whereby PML guaranteed to pay to Wellington any monies due and payable in the event of a default by PMLI under the Wellington Agreement. 14 To complete the chronology, the original repayment date for the loan made under the Wellington Agreement was 31 January 2016. It was not paid by that date. Subsequently, however, on 29 February 2016, PMLI and Wellington agreed on an extension of the repayment date to 1 July 2017. At the same time, in return for a payment of $1,000, Wellington agreed to release PML from its guarantee obligations mentioned above with respect to any default by PMLI under the Wellington Agreement. 15 On 2 October 2018, PMLI was placed in voluntary administration. By resolution passed at its second meeting of creditors on 5 November 2018, it was placed in liquidation and the Liquidators were appointed.

THE ISSUES 16 As already mentioned, prior to closing submissions at the trial, counsel for the parties agreed that the following three factual issues fell to be determined in this matter: [Issue 1] Did Mr Elias and Armstrong enter into [the Armstrong Agreement] on or about 14 July 2015 in respect of an advance of $100,000 to Mr Elias? [Issue 2] On 29 July 2015, did PMLI become liable for debts of Mr Elias owing to Armstrong at that time, being (a) [a] debt of $100,000 [alleged] by the plaintiffs to be owing pursuant to [the Armstrong Agreement]; and (b) a debt of $11,980.01 [agreed] to be owing as interest by Mr Elias [to Armstrong] on [the] personal loan [advanced in December 2011 (see at [8] above)]. [Issue 3] [Did] PMLI [become] insolvent on 29 July 2015 by virtue of its entry into the [Wellington Agreement]?

ISSUE 1 - DID MR ELIAS AND ARMSTRONG ENTER INTO THE ARMSTRONG AGREEMENT?

Introduction 17 To establish that Mr Elias entered into the Armstrong Agreement, the Liquidators relied on the following records and documents: (a) first, the PML ledger for the period 1 July 2015 to 31 July 2015 which records a credit of $100,000 on 14 July 2015, together with the notation "funds received from Nigel Elias"; (b) secondly, the Australia and New Zealand Banking Group Limited (ANZ Bank) bank statement relating to PML's bank account which shows a credit of $100,000 on the same date; (c) thirdly, a document, of which there are at least three copies, entitled "Unsecured Loan Agreement", namely the Armstrong Agreement, apparently signed by Mr Elias and witnessed by Ms Greaves.

The evidence 18 It is convenient to begin with the two records described at [17(a)] and [17(b)] above. They are recorded in the evidence as exhibits D31 and P20, respectively, as follows: (a) The PML ledger (Emphasis added) (b) The ANZ Bank statement (Emphasis added) 19 In respect of these records, Mr Elias said in his outline of evidence: … 62. I am … aware that there is a record of me paying $100,000 to PML on or about 14 July 2015. I do not recall where these funds came from. Regardless, this payment is between PML and myself, and Armstrong is evidently not a party to it. 63. I have never transferred any personal obligation of my own to PML or to PMLI. … 20 In cross-examination at the trial, Mr Elias said, among other things, that he had "no idea" what the ledger entry related to. He claimed he had no responsibility for that entry. He also stated that the funds concerned did not come from him and he had no knowledge as to where they came from. When asked whether he had investigated the source of the funds, he said: I found that the proposition that I had somehow paid in $100,000 into PML's account or PMLI's account or any other account, was unadulterated nonsense. I went to the ANZ bank, and I asked them to produce whatever they could produce in respect of this $100,000 that appeared in PML's account. And a lady at the ANZ bank in Hobart, produced a piece of paper which - I'm really stretching my memory now, basically said that this money came from Armstrong into PML's account. And there was reference in that to - the reference was Elias. 21 He added that he was told by the ANZ Bank that the reference to "Elias" was information provided by Armstrong. This evidence was supported by an email dated 13 August 2019 (Exh P7) that Mr Elias received from Ms Jennie Fox, Assistant Manager, Retail, at the Hobart branch of the ANZ Bank. In that email, Ms Fox stated: 22 When pressed about these answers on the footing that PML was "strapped for cash, in July 2015 [and therefore he] would have been aware of [the] receipt of $100,000", Mr Elias said: I can't recall that I would - I assume that I would know about the receipt of $100,000 from whichever source. And I would've assumed - I don't take any exception to the proposition that Armstrong paid PML, Print Mail Logistics Limited, $100,000. I take considerably [sic] exception and know nothing about the insertion of the word, Elias, into that. 23 Mr Pereira, who is a Chartered Accountant and was in 2015 PML's Chief Financial Officer, gave the following evidence about this transaction. First, in his affidavit filed 13 June 2019, he said that (at [37(b)]: … I know nothing about a loan of $100,000.00 to [Mr Elias] from Armstrong on 14 July 2015. Further no loan of that amount was recorded in the records of PML as received at that time or, so far as l am aware, thereafter. However, PML did in fact owe Armstrong such a sum as at 30 June 2015, and up to 29 July 2015, as the then capital balance of a running loan which had existed since May 2014, details of which, on the capital side, are as follows: Advance Repayment (i) 14 May 2014 $10,000.00 (ii) 05 June 2014 $90,000.00 (iii) 30 June 2014 $30,000.00 (iv) 01 August 2014 $25,000.00 (v) 21 August 2014 $55,000.00

All of these amounts are recorded in the financial records of PML and are evidenced in PML's bank statements. … 24 Secondly, by the time Mr Pereira made his written outline of evidence in this proceeding in May 2020, he had attended a public examination conducted by the Liquidators in August 2019. Having, through that process, obtained some further information about the transaction, he gave the following evidence in that outline: 62. On 14 July 2015, PML received $100,000.00 from Armstrong. This amount was recorded in the books and records of PML as a loan from Elias to PML. 63. In my affidavit sworn on 11 June 2019 and filed with the Court on 14 June 2019, I swore at paragraph 37 (b) that I knew nothing about a loan of $100,000.00 to Elias from Armstrong. 64. In the days leading up to my public examination on 19 August 2019, I was made aware of the fact that PML had received the sum of $100,000.00 from Armstrong on or about 14 July 2015 and I was provided a copy of PML's bank statement evidencing the receipt of $100,000.00 on that day. I disclosed that fact and provided a copy of the relevant bank statement at the public examination of 19 August 2019. 65. Regardless of the fact that PML received $100,000.00 from Armstrong on 14 July 2015, PML did not repay that actual sum to Armstrong on behalf of Elias on 29 July 2015 from the proceeds of the [Wellington Agreement]. 66. On 29 July 2015, PML repaid to Armstrong the $100,000.00 that it already owed in cash advances and repayments (i.e. the running loan account) between 14 May 2014 and 21 August 2014 as described at paragraph 37 (b) of my affidavit sworn on 11 June 2019 and filed with the Court on 14 June 2019. 67. The Liquidators claim that on 29 July 2015, PMLI paid a personal liability of $100,000.00 owing by Elias to Armstrong. I consider this allegation to be untrue and not supported by the evidence. Firstly, PMLI did not make any payment to Armstrong on behalf of Elias. Secondly, while PML did make a payment to Armstrong that included the sum of $100,000, it was in repayment of the running loan account between it (PML) and Armstrong and was unrelated to any liability of Elias to Armstrong. 68. The Liquidators allege that Elias entered into a loan agreement with Armstrong on or about 14 July 2015 in the sum of $100,000.00. I am aware that Elias strongly disputes that allegation. 69. The running loan account between PML and Armstrong comprised the following: Advance Repayment (i) 14 May 2014 $10,000.00 (ii) 05 June 2014 $90,000.00 (iii) 30 June 2014 $30,000.00 (iv) 01 August 2014 $25,000.00 (v) 21 August 2014 $55,000.00

All of these amounts are recorded in the financial records of PML and are evidenced in PML's bank statements … 25 Mr Pereira gave similar evidence during his cross-examination at the trial of this matter. In particular, he said about the "genesis of that transaction" that: Yes. So what I then knew was that by receiving a copy of PMLs ANZ bank account statement for that time, that $100,000 did turn up, and then - and inquiry had been made by [Mr Elias] to understand through the ANZ what that $100,000 was, and then that the remittance detail provided to the ANZ show the remitter as being Armstrong registry, and a reference to [Mr Elias] as well. (Errors in original) 26 The Armstrong Agreement mentioned at [17(c)] above is the third record or document relied upon by the Liquidators in respect of this issue. As already mentioned, there are at least three copies of that agreement in evidence. They are all annexed to the affidavit of Ms Greaves, the person who allegedly witnessed Mr Elias' signature on the agreement. While the details of the differences between the three copies of the agreement are set out in Ms Greaves' evidence below (see at [39]), the broad differences are as follows. 27 The first page of the first copy of the Agreement bears the notations "Not dated Not signed by Armstrong" and "safe custody Armstrong. Box 1/2015 Packet #3". It also contains a bar code on the top right hand corner below which appears the letters and number "GEM.0083.0002.0001". On the subsequent pages, the last number of the bar code increases sequentially 2, 3, etc up to 6. 28 Each page of that copy of the agreement bears an initial in the bottom right hand corner as follows: 29 On the bottom left hand corner of the Table of Contents page of that copy (the second page), there appears the symbol and number "#13442". Consistent with the notation on the first page, there is a blank beside the words "Agreement" and "Dated" on the third page of that copy. 30 Finally, the execution page of that copy of the agreement is in the following form: 31 Except that the second copy of the Armstrong Agreement bears no notations on the first page and the bar code on the top right hand corner is: "GEM.0083.0002.0007"; and, on the subsequent pages, the last number increases sequentially (8, 9, etc up to 12), that copy is in essentially the same form as the first copy of the Agreement described above. 32 The third copy of the Agreement is, however, quite different in several respects. First, it bears no notations or bar codes at all. Secondly, beside the words "Agreement" and "Dated" on the third page of that copy, there appears the handwritten date "14 July 2015". As already noted, this part of the other two copies is blank. Thirdly, and perhaps most importantly, the execution page of that copy is in the following form: 33 With respect to the Armstrong Agreement, Mr Elias said in his outline of evidence that: I am aware that the plaintiffs allege that Armstrong lent me $100,000 in a separate unsecured loan. I have seen the loan document upon which they make that allegation. I have no recollection of that document. The signature on the document appears to be mine, but I do not recollect signing it. 34 In his oral evidence he reiterated his agreement that the signature on the execution page of each copy of that agreement looked "very similar to my signature". Despite this acknowledgement, he gave the following reasons why he did not believe he actually signed that agreement: … First of all, I have absolutely no recollection of signing this document. Secondly, it's axiomatic that I therefore have no recollection of Mary-Anne Greaves' signature witnessing a signature that I can't recall. Thirdly, I would have total recall, absolutely 100 per cent recall in the event that I executed a document for which I was personal [sic] liable for $100,000. Fourthly, there is no direction to pay at all that has been tendered by nobody to my knowledge, because it doesn't exist, in respect of $100,000 and fifthly, there is no $100,000 that appears in any bank account of mine. (Errors in original) Further, when he was asked later in his cross-examination whether it was possible he had signed it, he said: "[i]t is not possible". 35 During his cross-examination, Mr Elias was taken to the execution page of the third copy of the agreement (see at [32] above) and it was put to him that "this document was executed on about 14 July 2015". He replied "It may have been executed by them - by whoever, but I have no recollection, I repeat, of executing any document of this nature, whichever version you're referring to … on or around 14 July. Or any other date for that matter" . He added that "[t]he only thing I can add to that is that the handwriting for the date is - I would, from my dealings with her, would know it was Jennifer Hutson's handwriting for the date. That's all" . Given that the other two copies of the agreement are not dated, I infer that this evidence refers to the handwritten date on the third copy as mentioned above at [32]. 36 Mr Elias agreed in cross-examination that he attended a meeting with Ms Greaves in Sydney on or about 13 July 2015. However, he denied signing the Armstrong Agreement on that date. With respect to that meeting, he said "There was no documentation executed other than the documentation that was presented to me by the young lawyer, whose name I have forgotten, who was sitting in and - in the board - one of the boardrooms of McCullough Robertson in Sydney". He then denied that documentation related to the affairs of PML. 37 As already mentioned, Ms Greaves was the person who, on the face of each copy of the Armstrong Agreement, witnessed Mr Elias' signature. She was called as a witness by the defendants. Ms Greaves holds a Master of Laws degree and was admitted as a solicitor in Queensland in 2004. By the time she gave her evidence at the trial, she had held a practising certificate for 16 years. She joined Wellington in 2005 and left it in 2016. Initially her role with Wellington was as a Compliance Officer. Thereafter she variously served as Assistant Company Secretary, as Company Secretary, as a Company Director and as the company's General Counsel. She also served as the Company Secretary of Armstrong. She said in her evidence that throughout the period of her employment with Wellington she acted on the instructions of Ms Jennifer Hutson who, as already mentioned (see at [6]), was the principal of the Hutson entities. 38 Ms Greaves' evidence-in-chief was confined to adopting her outline of evidence and advancing a further reason why she doubted the authenticity of at least the third copy of the Armstrong Agreement. She did that by answering the following question in the negative: "[D]o you ever write your name with a hyphen between the word 'Anne' and the word 'Greaves'?". This evidence refers to her name as it is written below her signature where it first appears on the third copy of the agreement (see at [32] above). 39 In her written outline of evidence, Ms Greaves gave the following evidence with respect to the three copies of the Armstrong Agreement: (a) First copy [see at [27] above] 7. This document has the words "safe custody Armstrong. Box 1/2015 Packet#" written on the first page. 8. I understand that the [Liquidators have] referred to this document as a counterpart. 9. This document purports to bear my signature as witness to Nigel Elias' signature. 10. I dispute that this is my signature for the following reasons: a. in my career as a solicitor I would always use my stamp to verify my name. If I did not have my stamp with me at the time, I would write my full name in my own handwriting. On this document I note there is simply a signature and nothing else. I consider that that is highly unusual. b. I believe that quite possibly this an electronic signature; c. I have no recollection of witnessing an undated Loan Agreement between [Armstrong]and Mr Elias. 11. Further I note the Table of Contents page bears document number #13442. 12. I recall that [Armstrong]would always have the document numbering on all pages of the documents except for the cover page. which would follow through on every page of a document created by [Armstrong]. It strikes me as highly unusual that the document numbering only appears on the Table of Contents page. This causes me to question the authenticity of this document. (Errors in original) (b) Second copy [see at [31] above] 13. When reviewing this document it is apparent that the signature (purporting to belong to Mr Elias) on the bottom right hand corner of the page with the word "Agreement" at the top left hand corner is different to the signature in the same position on "MG1". It is apparent that there is a loop at the commencement of the signature on "MG1" that is not found at the commencement of the signature on "MG2". 14. When reviewing this document it is apparent that the signature (purporting to belong to Mr Elias) at the bottom right hand corner of page "2" is different to the signature in the same position on "MG1". Again there appears to be a loop at the commencement of the signature on "MG2" that is not found on "MG1". Further it is apparent that there are other clearly noticeable differences which indicate that it is not the same signature. 15. When reviewing this document it is apparent that the signature (purporting to belong to Mr Elias) at the bottom right hand corner of page "3" is different to the signature in the same position on "MG1". There are clearly noticeable differences which indicate that they are not the same signature. 16. When reviewing this document it is apparent that my signature on the last page as "witness" is different between the two documents. I note that "MG2" contains what appears to be a full stop and the other document does not. 17. My signature on "MG1" is further away from the words 'Signature of Witness' below the line than in "MG2". (c) Third copy [see at [32] above] 18. When reviewing this document I note that in the signing clauses my signature when allegedly witnessing Mr Elias' signature is different to that of my signature when allegedly signing in my capacity as Director/Secretary of [Armstrong]. 19. I note that in my signature witnessing Mr Elias the G for "Greaves" appears to show under the line and the other signature on this document does not go below the line. This seems very unusual to me. 20. Further I note that my name is hand written on both signing clauses. 21. As I stated earlier in this witness statement and also at the public examination held on 19 August 2019 that in my experience as a solicitor I always applied my stamp as opposed to writing my name. 22. Further, I am very familiar with Jennifer Hutson's hand writing and the hand written words stating "MARY-ANNE-GREAVES" and 'MARY-ANNE GREAVES" appear to be Ms Hutson's hand writing. 23. I have no recollection of witnessing this document. 24. I recall that my recollection or otherwise of allegedly witnessing Mr Elias' signature on 14 July 2015 was raised at the public examination and I denied witnessing Mr Elias' signature in that regard. 25. I recall that I left the employment of [Armstrong]and Jennifer Hutson in general on or about the 7 July 2016. I commenced work as Company Secretary at Michael Hill on 11 July 2016. 26. I recall that at some date in or about July 2016 Jennifer Hutson requested and arranged to meet me at the coffee shop near my office and asked me to sign a number of documents. I do not recall what documents they were now and she effectively placed them before me and demanded that I sign. Regrettably I did affix my signature to a number of documents without first enquiring as to their purpose. I believe that there is a possibility that if my original signature is shown to be on any of the documents as "MG1", "MG2" or "MG3" then quite possibly they were procured this way. 40 In cross-examination, Ms Greaves said that she first met Mr Elias in 2009. At about that time, she said Mr Elias would, from time to time, borrow money from Wellington or Armstrong on behalf of PML. She said that, so far as she was aware, Ms Hutson and Mr Elias had a "good working relationship, at least up until about 2015". While she did not specifically recall this happening, she accepted that, on occasions, she would "formalise loan documents, after advances had been made". When taken to the copies of the Wellington Agreement annexed to her outline of evidence, she agreed that she had signed that agreement on behalf of Wellington. However, she said she did not recall doing that. Nonetheless, she said that she recalled drawing the agreement at the request of Ms Hutson. She also said that, because the transaction concerned was quite involved, she remembered discussing it with Ms Hutson. 41 Ms Greaves said that she could not remember a loan of $100,000 being made by Armstrong to Mr Elias some 14 days before the Wellington Agreement. She said she did, however, recall one instance where Mr Elias borrowed money for the purposes of making a payroll tax payment, but she did not "believe it was for that amount, that high, no". She said that, if such an advance were made, Mr Ted Savage, the company's Finance Controller, would have been involved in processing it. She also said that, if a person had borrowed monies from Armstrong or Wellington and directed that those monies be paid to a third party, she personally would not have been willing to accept such a direction because "under anti-money laundering, you shouldn't pay it to a third party". 42 Ms Greaves was cross-examined at some length with respect to her claims about the discrepancies in the three copies of the Armstrong Agreement set out above (see at [39]). To begin with, she agreed that she had no expertise as a handwriting expert. Next, she confirmed that she had no recollection of signing any of the three copies of that agreement. Then she was asked about her statement at [26] in her outline of evidence set out above at [39]. 43 With respect to this statement, she reiterated that she could remember signing documents at the meeting in July 2016, but she did not know what those documents were. She agreed it was possible that those documents were the various copies of the Armstrong Agreement. Ms Greaves said she "usually … tried to" be quite careful about witnessing documents of this kind. She was then asked a series of questions on that subject as follows: And you would have understood, as a solicitor practicing in compliance, the importance of properly witnessing documents?---Yes. And you would have understood that it would have been a breach of your ethical obligations if you were to witness a document not in the presence of the deponent or the person executing it. That's correct?---Yes. And can I suggest to you that that's something that you would not have been likely to do?---You can suggest it, but at the time when Jenny came to meet me in 2016, I was very vulnerable and in a very bad way. So it was possible I did do something like that. Can I suggest to you that it's not likely? Can I suggest to you - - -?---Yes, yes. Can I suggest to you that the more likely scenario is that you actually did the right thing, as a prudent lawyer, and when a document was witnessed it was witnessed in the presence of the witness. Here, Mr Elias?---Yes, you can suggest that. Do you agree with that?---Yes, you can suggest that. Yes. I know I can suggest it, but what I'm asking is do you agree with me that that is the more likely scenario? That you witnessed the document?---Yes, yes. So when I go to the first document, can I suggest to you that the most likely scenario is that you did, in fact, witness Mr Elias' signature?---Yes. 44 And further: Okay. And in terms of witnessing Mr Elias' signature, what I'm putting to you is that the most likely scenario is that you did witness Mr Elias' signature?---Yes. And that you wouldn't have written your name in the witness section later on at a later date, because you would have understood that was a breach of your obligations?---Yes, I just don't understand why I would have witnessed his signature and not written my name. Okay. But putting that aside, you wouldn't have witnessed a signature after the event. You would have only done that in the presence of the person?---Yes, in 99.9 per cent of cases, yes. 45 When asked about her signature above the words "Director/Secretary" on the execution page of the third copy of the agreement (see at [32] above), she said: … So can I suggest to you that the most likely scenario is that you did execute that document?---I don't recall executing that document, and I always write - stamp my name. If I don't have my stamp, I write it, and I didn't write my name or use my stamp. Yes, I think in your evidence, you thought it might have been Ms Hutson that filled in your name?---Correct. Yes. But can I ask you about the execution. What I'm putting to you is that the most likely scenario is that you did, in fact, execute that document yourself?---I can't agree with that. You can't agree, or you don't remember?---I don't remember. 46 With respect to the notations and bar codes appearing on the top right hand corner of the first copy of the agreement (see at [27] above), she gave the following evidence: Does that mean anything to you? Could you explain that to me please?---I wrote Safe Custody Armstrong, so it normally goes into - goes to somebody else who looks after our Safe Custody. Okay, so is that when you get the document back signed, and it goes away into archives to be stored and looked after the original? Is that right?---Yes, for - yes, for safe-keeping - yes. Okay, so does box 1/2015 - does that mean that it would have gone into Safe Custody in - when - 2015?---I would have thought so. Okay, so doesn't that weigh against the suggestion that it might have been in about July 2016 that you attested the document?---Sorry, can you just repeat that? Doesn't that weigh against the likelihood that it was in 2016 that you completed the execution of the document?---Well, no - it wasn't signed by Armstrong at that point. Well, I'm suggesting that before you put it in Safe Custody, wouldn't you have ensured that it was executed by all parties?---Not necessarily. The person who does Safe Custody should have arranged that. But that's your writing there - Safe Custody Armstrong - that's correct?---Yes. The rest of it's not my writing. But you wouldn't write that on the document until the document was complete - would you - in the usual course?---In the usual course - yes. 47 Ms Greaves said she could recall having lunch with Mr Elias in Sydney in June/July 2015. She said the purpose of that lunch was "[j]ust to catch up on what [PML] was doing … what they were doing". She said she did not recall taking any documents to that meeting. She also said that she had other meetings with Mr Elias in Sydney at the offices of McCullough Robertson Lawyers. However, she said she did not recall witnessing any documents at any of those meetings. 48 Finally, Ms Greaves confirmed that she gave evidence in the Magistrates Court at Brisbane when a copy of the Armstrong Agreement was shown to her. However, she said she did not know whether, or not, the copy that she was shown was the original of that agreement. 49 Before concluding this review of the evidence in respect of this first issue, it is important to record the following matters. First, as already noted, despite the fact that she was a former officer of two of the Hutson entities, Ms Greaves was called by the defendants at the trial of this proceeding. Secondly, in his oral evidence, Mr Pleash, one of the Liquidators, revealed that the liquidation, and therefore this proceeding, was being funded by a secured creditor of PMLI, called Southland Stokers. As already noted, Southland Stokers is Wellington's current name (see [6(a)] above. Thirdly, despite this connection with the plaintiffs, Ms Hutson did not give evidence at the trial. In this respect, Mr Elias gave evidence that, so far as he was aware, Ms Hutson was alive and living somewhere in Brisbane. Fourthly, the plaintiffs did not call any other former officer or employee of Armstrong to give evidence about its document record system, including the significance of the bar codes that appear on the top of the first and second copies of the Armstrong Agreement.

The contentions 50 While the Liquidators accepted that Mr Pereira "presented as a credible and helpful witness at all times", they contended that Mr Elias' explanations for the first two records above (at [17(a)] and [17(b)] was "unlikely". In support of the latter contention, they claimed that Mr Elias "denied being aware that such a significant sum had being [sic] received at the time and denied that he had arranged the advance. Notwithstanding this, the monies were utilised immediately by PML and at a time when it was in financial difficulty". Additionally, they contended that Mr Elias' claim that he had no knowledge of the $100,000 transfer was "not credible in circumstances where the whole of the $100,000 was used on 15 July 2015 to meet the majority of the $110,097.70 payroll payment the day after its receipt". They also contended that Mr Elias was evasive when cross-examined about these issues and that his claim to have no recollection of signing the Armstrong Agreement "was convenient to him". Further, they contended he was "guarded when it suited him and less than candid" and that "his evidence should be weighed accordingly". 51 Relying on the New South Wales Court of Appeal judgment in Manly Council v Byrne [2004] NSWCA 123 (Manly Council), the Liquidators contended that the rule in Jones v Dunkel did not apply to allow an inference to be drawn with respect to Ms Hutson's absence as a witness at the trial because her evidence was "relevant to" the case advanced by the defendants and that she was equally available to be called by both parties. However, they contended that an inference should be drawn against the defendants arising from their failure to adduce evidence from the other directors of PMLI, Mr Woods and Mr Garcia. 52 In summary, the Liquidators contended that this Court should find that Mr Elias and Armstrong entered into the Armstrong Agreement on or about 14 July 2015 based upon inferences being drawn from some, or all, of the following matters: (a) the denial of Mr Elias in relation to all 4 intonations of the Unsecured Loan Agreement includes the copy of the original certified as such by Senior Registrar Mahoney of the Magistrates Court, which the Court should accept was an original signed by Mr Elias and Ms Greaves in circumstances where Mr Elias and Ms Greaves accept that the signature looks like their respective signature, it is submitted that it is right for the Court to conclude that it is on the basis that a certified original has been provided; (b) Mr Elias and Ms Greaves were together in Sydney on 13 July 2015, and it is probable, despite their lack of recollection that this is when Mr Elias signed in the presence of Ms Greaves as witness; (c) $100,000 was deposited in PMLI's account by Armstrong on 14 July 2015 with a notation that it related to Mr Elias; (d) the accounts of PML prepared by the finance team supervised by CFO Mr Pereira record and account for this $100,000 as "Funds received from Nigel Elias"; (e) the $100,000 has never been disputed or queried by Mr Elias or returned to Armstrong and the accounting records of PML which is a public company have not been adjusted nor has the money been returned following enquiries made by both Mr Elias and Mr Pereira about this $100,000 that confirmed the remitter was Armstrong; (f) the evidence of Mr Elias at paragraph 62 of his statement where he says "this payment is between PML and myself and Armstrong is evidently not a part of it" is false on his own evidence. Finally, the Liquidators sought to emphasise Ms Greaves' evidence in cross-examination (set out at [43]-[45] above) that the most likely scenario was that she did actually witness Mr Elias signing the Armstrong Agreement. 53 In response, first, with respect to the first two records above (at [17(a)] and [17(b)]), the defendants contended that there was no evidence that Mr Elias had ever personally received $100,000 from Armstrong and they pointed to Mr Elias' denial that he had any association with the transaction to which those two records related. Further, they contended that there was no evidence that Mr Elias knew about that transaction until August 2019 when he received the information set out earlier from Ms Fox at the ANZ Bank in Hobart (see at [21] above). 54 They also contended that, as a Director of Armstrong, Ms Hutson was in a position to give evidence about that transaction and since she had not done so, a Jones v Dunkel inference should be drawn that her evidence would not have assisted the plaintiffs. In this respect, they contended that "Ms Hutson is well-known to the plaintiffs as she is funding the liquidation of PMLI". With respect to the plaintiffs' assertion that the $100,000 deposit was immediately used by PML to pay its payroll tax, the defendants pointed to the fact that both Mr Elias and Mr Pereira had denied this. Furthermore, they contended that there was no evidence from anyone "with contemporary knowledge of PML's financial position in July 2015" that it was in financial distress at that time. 55 With respect to the Armstrong Agreement, they contended that, because of the following factors, "the only safe conclusion … to draw" was that Mr Elias did not sign it: (a) Mr Elias' evidence that he did not sign the document; (b) Ms Greaves' evidence that she does not recall signing the document; (c) the peculiar features of the similarities between [the second copy] (only partly signed) and [the third copy] (dated and fully signed), which might suggest that [the second copy] was later changed by Ms Hutson in order to create [the third copy]; (d) the physical evidence that Ms Greaves' name is mis-spelled; (e) the failure to make the original of [the third copy] available for inspection; and (f) the Jones v Dunkel inference to be drawn from the plaintiff's failure to lead evidence from Ms Hutson,

The relevant principles 56 Both parties have relied extensively on inferences to prove their case. For instance, the Liquidators have sought to draw inferences from the contents of the accounting and banking records at [17(a)] and [17(b)] above and the presence of the signatures of both Mr Elias, as the borrower, and Ms Greaves, as the witness, on all three copies of the Armstrong Agreement. For their part, the defendants have sought to rely on the rule in Jones v Dunkel to draw inferences from the failure of Ms Hutson to give evidence at the trial of this matter. It is therefore appropriate to begin by reviewing the relevant principles bearing on the drawing of inferences. 57 The process of drawing an inference was described by Brennan and McHugh JJ in G v H (1994) 181 CLR 387 at 390 in the following terms: An inference is a tentative or final assent to the existence of a fact which the drawer of the inference bases on the existence of some other fact or facts. The drawing of an inference is an exercise of the ordinary powers of human reason in the light of human experience; it is not affected directly by any rule of law. 58 The manner in which a party may rely upon an inference to prove an aspect of their case was outlined by Gageler J (dissenting on the outcome) in Henderson v State of Queensland (2014) 255 CLR 1; [2014] HCA 52 (Henderson) as follows (at [89]): Generally speaking, and subject always to statutory modification, a party who bears the legal burden of proving the happening of an event or the existence of a state of affairs on the balance of probabilities can discharge that burden by adducing evidence of some fact the existence of which, in the absence of further evidence, is sufficient to justify the drawing of an inference that it is more likely than not that the event occurred or that the state of affairs exists. The threshold requirement for the party bearing the burden of proof to adduce evidence at least to establish some fact which provides the basis for such a further inference was explained by Kitto J in Jones v Dunkel: "One does not pass from the realm of conjecture into the realm of inference until some fact is found which positively suggests, that is to say provides a reason, special to the particular case under consideration, for thinking it likely that in that actual case a specific event happened or a specific state of affairs existed." (Footnote omitted) 59 And further (at [91]): The process of inferential reasoning involved in drawing inferences from facts proved by evidence adduced in a civil proceeding cannot be reduced to a formula. The process when undertaken judicially is nevertheless informed by principles of long standing which reflect systemic values and experience. One such principle, forming "a fundamental precept of the adversarial system of justice", is that "all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted". Another such principle, "reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct", is that "a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct". The reluctance of a court to infer fraudulent or criminal conduct is ordinarily somewhat stronger in respect of a person who is not a party to litigation and who is for that reason denied an opportunity to explain and justify his or her conduct as consistent with the conventional perception. (Footnotes omitted) It is to be noted that his Honour cited, among other authorities, Blatch v Archer (1774) 98 ER 969 (Blatch) at 970 for the first principle above (at [91] of Henderson) and Briginshaw v Briginshaw (1938) 60 CLR 336 at 362 for the second. 60 In Chetcuti v Minister for Immigration and Border Protection (2019) 270 FCR 335; [2019] FCAFC 112 (Chetcuti), the majority of the Full Court (Murphy and Rangiah JJ) identified the connection between the rule in Jones v Dunkel and Blatch in the following terms (at [89]): The rule in Jones v Dunkel has been described as an application of the principle in Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970 that, "All evidence is to be weighed according to the proof which was in the power of one side to have produced, and in the power of the other to have contradicted". It was entirely within the knowledge of the Minister and his advisors as to when he began his consideration of the material, and it was within his power to produce direct evidence as to that matter. See also the discussion in Fair Work Ombudsman v Hu (2019) 289 IR 240; [2019] FCAFC 133 at [50]-[52] per Flick and Reeves JJ. 61 In Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11, the plurality explained the context of the rule in the following terms (at [63]-[64]): The rule in Jones v Dunkel is that the unexplained failure by a party to call a witness may in appropriate circumstances support an inference that the uncalled evidence would not have assisted the party's case. That is particularly so where it is the party which is the uncalled witness. The failure to call a witness may also permit the court to draw, with greater confidence, any inference unfavourable to the party that failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn … The rule in Jones v Dunkel permits an inference, not that evidence not called by a party would have been adverse to the party, but that it would not have assisted the party. (Citations omitted.) 62 However, in Chetcuti, their Honours did identify two limits to the application of the rule. The first was that "although the rule allows the Court to draw with greater confidence an inference unfavourable to the party that failed to call the witness, it cannot be used to fill evidentiary gaps or convert conjecture into inference" (at [91]). The second was that "the facts proved must give rise to a reasonable and definite inference, not merely to conflicting inferences of equal degree of probability so that the choice between them is a mere matter of conjecture" (at [95]). See also Lithgow City Council v Jackson (2011) 244 CLR 352; [2011] HCA 36 at [94] per Crennan J; Ashby v Slipper (2014) 219 FCR 322; [2014] FCAFC 15 at [71]-[73] per Mansfield and Gilmour JJ and Kumar v Minister for Immigration and Border Protection (2020) 274 FCR 646; [2020] FCAFC 16 at [123]-[124] per Derrington and Thawley JJ. 63 A number of other limits were identified in the judgment of Manly Council which was relied upon by the Liquidators. In that judgment, Campbell J (with whom Beazley JA and Pearlman AJA agreed) identified the following limits: (a) there must first be direct evidence of facts from which the inference is open to be drawn (at [54]); (b) the inference may not be drawn where the evidence adduced is already sufficient to prove the case for the party who failed to call the witness (at [55]); (c) the rule does not require a party to call "comparatively unimportant", or "merely cumulative", or "inferior" evidence which has been dispensed "on general grounds of expense and inconvenience", although this does not justify a party deliberately choosing to call less favourable witnesses (at [61], [64] and [65]); and (d) where the witness is equally available to both parties, however, that may still not be sufficient to avoid an inference being drawn against either or both parties (at [71]).

Consideration 64 With these principles in mind, I turn to consider the inferences upon which the Liquidators sought to rely to prove that Mr Elias and Armstrong entered into the Armstrong Agreement on or about 14 July 2015. Dealing first with the accounting and banking records at [17(a)] and [17(b)] above, two things are clear on the face of those records (see at [18] above). First, that $100,000 was paid into PML's bank account on 14 July 2015. Secondly, that PML's ledger entitled "At Call - Loan Nigel Elias" shows a credit entry for 14 July 2015 of $100,000 with the notation "Funds Received From Nigel Elias - 14/07/2015". Given the identical dates and amounts recorded in these two records, it can be readily inferred that they both relate to the same transaction. However, the critical question on this issue is whether it can be further inferred that that transaction was connected with the Armstrong Agreement whereby Armstrong allegedly loaned $100,000 to Mr Elias. 65 The first difficulty with drawing that inference is that the accounting record, namely the ledger entry at [17(a)] above, records funds being received by PML from Mr Elias. Even assuming the fact that entry appears in Mr Elias' "At Call - Loan" ledger and therefore may evidence a loan, the receipt of the funds by PML from Mr Elias can only, by itself, (see further below) support the inference that the loan concerned was one made by Mr Elias to PML. Conversely, on that assumption, that ledger entry does not provide a basis for inferring that a loan in that amount was made by Armstrong to Mr Elias. It follows that the payment recorded by that entry is, as Mr Elias said in his outline of evidence, "between PML and myself, and Armstrong is evidently not a party to it". For these reasons, I reject the Liquidators' contentions at [52(d)] and [52(f)] above with respect to this ledger entry and the falsity of Mr Elias' evidence concerning it. 66 The second difficulty with drawing that inference is that the banking record, namely the 14 July transfer shown on the ANZ Bank statement at [17(b)] above, relates to a payment that was made by Armstrong to PML. That fact is established by the contents of the email from the ANZ Bank dated 13 August 2019 (set out at [21] above). That email also records the payment details as "LOAN FROM NELIAS". Putting aside a direction by Mr Elias to Armstrong to pay those monies to PML, that payment does not therefore evidence a loan payment by Armstrong to Mr Elias. The possibility that the payment was made by direction can also be put aside for a number of reasons. First, no such direction was pleaded by the Liquidators in their 4FASC. Secondly, and in any event, Mr Elias denied any such direction existed (see at [34] above). Thirdly, and most importantly, the Liquidators have not adduced any evidence that any such direction was ever given. For these reasons, assuming the Liquidators' contention at [52(c)] above was intended to refer to PML, rather than PMLI, I also reject that submission. 67 The third difficulty with drawing that inference concerns Ms Hutson's absence as a witness at the trial of this proceeding. On this aspect, I reject the Liquidators' submission that no Jones v Dunkel inference should be drawn as a result of their failure to call Ms Hutson as a witness (see at [51] above). I do so for the following reasons. To begin with, as already noted, through the current manifestation of Wellington, namely Southland Stokers, Ms Hutson is funding the Liquidators in their pursuit of this proceeding. In my view, that state of affairs places her firmly in the same camp as the Liquidators (see Claremont Petroleum NL v Cummings (1992) 110 ALR 239 at 259 per Wilcox J and Australian Securities and Investments Commission v Australian Lending Centre Pty Ltd (No 3) (2012) 213 FCR 380; [2012] FCA 43 at [153] per Perram J). Furthermore, as the principal of Armstrong in July 2015, Ms Hutson was very likely to be able to explain why Armstrong transferred $100,000 to PML on 14 July 2015 such that it could be inferred that the records described above were connected with that transaction and, therefore, the loan Armstrong allegedly made to Mr Elias as reflected by the Armstrong Agreement. Put differently and expressed in Blatch terminology, that evidence was peculiarly within Ms Hutson's power to produce and it was plainly pertinent to the question whether the Armstrong Agreement was made as the Liquidators allege and the defendants deny. 68 Having regard to the principles relating to the rule in Jones v Dunkel outlined earlier, I therefore consider that two things follow from Ms Hutson's absence as a witness at the trial of this matter. First, I infer that her evidence would not have assisted the Liquidators' case on the matters mentioned above. Secondly, in the absence of her evidence on those matters, I am not willing to draw the inference advanced by the Liquidators to connect the 14 July 2015 transfer with the Armstrong Agreement loan. 69 These conclusions also affect the inferences that the Liquidators seek to have drawn in respect of the third document upon which they rely, namely the Armstrong Agreement. First, with respect to their contention at [52(a)] above, so far as I can ascertain, the certification of the Senior Registrar of the Magistrates Court was not tendered in evidence at the trial of this matter. Even if it were, without further information as to the circumstances of the hearing before the Magistrates Court, I do not see how it can be inferred that the document produced under subpoena from that Court is the original copy of the Armstrong Agreement. This is supported by the fact that, in her evidence, Ms Greaves was not able to say whether or not the copy of that document shown to her during the Magistrates Court hearing was the original copy of that agreement (see at [48] above). 70 Secondly, and in any event, the crucial version of the Armstrong Agreement, for the purposes of inferring that Armstrong and Mr Elias entered into that agreement, is the third copy. That is so because only that copy purportedly bears the date of the agreement and the duly witnessed signatures of all the parties to the agreement, namely Mr Elias on his own behalf and Ms Hutson and Ms Greaves on behalf of Armstrong. It therefore contains the essential evidence from which an inference may be drawn that an agreement in the terms of that document was reached between those parties on that date. On the other hand, since the first and second copies do not contain all that essential evidence, they do not, in my view, permit of that inference. However, for the following reasons, I do not consider the third copy of that agreement provides evidence of the requisite facts upon which that inference could be drawn. The first concern relates to the handwritten date "14 July 2015" which appears beside the words "Agreement made" on the third page of that copy of the document and none of the other copies (see at [32] above). The evidence of Mr Elias, which I accept, is that that handwriting is Ms Hutson's. That being so, if she had given evidence at the trial, Ms Hutson should have been able to confirm that she wrote that date on the document on or about 14 July 2015 and she should have been able to describe the circumstances in which she came to do that. In her absence, I infer that her evidence on these matters would not have assisted the Liquidators' case. 71 The second concern relates to the discrepancies in that copy of the agreement highlighted by Ms Greaves in her evidence (see at [39] above). They include the absence of her personal stamp verifying her signature and the fact that her name is instead written on that copy in Ms Hutson's handwriting. In this respect, I should add that I reject the proposition inferentially raised during Ms Greaves' cross-examination that she had to have some expertise as a handwriting expert to identify those deficiencies. Accordingly, if she had given evidence at the trial, Ms Hutson should have been able to explain some, or all, of these discrepancies. That includes the circumstances in which she came to sign that third copy of the agreement. Again, in her absence, I infer that her evidence on these matters would not have assisted the Liquidators' case. Conversely, in Ms Hutson's absence as a witness at the trial of this matter, I am not willing to draw an inference in the Liquidators' favour that the Armstrong Agreement was duly executed and made by all of the relevant parties on or about 14 July 2015 as may be reflected by that copy. 72 The third concern arises from Mr Elias' denials that he entered into the Armstrong Agreement on or about 14 July 2015, or at all. The first thing to be said about those denials is that they are plainly self-serving and that they need to be weighed accordingly. That said, for the following reasons, I do not consider there is a reliable basis for accepting the Liquidators' submissions that I should reject those denials because Mr Elias' evidence is variously false, lacking in credibility or evasive. First, the Liquidators have not produced any contemporaneous record which directly contradicts Mr Elias' evidence. Secondly, there is the fact that Mr Elias elected to give evidence at the trial of this matter and thereby subjected himself to cross-examination by the Liquidators' counsel. Thirdly, based on my observations of Mr Elias' demeanour in the witness box, I consider he withstood that cross-examination reasonably well and that he was generally endeavouring to give his evidence truthfully. Accordingly, I do not accept the Liquidators' submissions at [50] above that I should reject Mr Elias' denials concerning the Armstrong Agreement. 73 Finally, having regard to these conclusions and the fact that the Liquidators submitted that Mr Pereira should be accepted as a credible and reliable witness (see at [50] above), which submissions I accept, I therefore also accept the defendants' contentions on two other matters. First, I consider that both Mr Elias and Mr Pereira should be accepted on their evidence that they did not become aware of the 14 July 2015 transfer into PML's bank account until at or about the time of the public examination into the affairs of PMLI, when Mr Elias made the inquiry of the ANZ Bank described earlier (at [21] above), that is in August 2019. Secondly, I also consider that Mr Pereira should be accepted on his evidence that PML was not in financial distress in or about July 2015 and that it did not require the sum of $100,000 to meet its payroll tax liabilities. For these reasons, and conversely, I reject the Liquidators' contentions at [50] and [52(a)] above. 74 That leaves the Liquidators' contentions at [52(b)] and [52(e)] above. I reject those contentions for the following reasons: (a) As to [52(b)], first, as already mentioned, Mr Elias denied ever having signed the Armstrong Agreement and he gave reasons to support that denial (see at [36] above). He also particularly denied signing that agreement during his meeting with Ms Greaves in Sydney in July 2015. For her part, Ms Greaves did not recall witnessing any documents at her meetings with Mr Elias in June/July 2015 (see at [47] above). She also said she did not believe she witnessed Mr Elias' signature on the Armstrong Agreement (see at [39(c)], point 23, above). To counter this evidence, the Liquidators have pointed to the concession that Ms Greaves made in cross-examination that the most likely scenario was that she did actually witness Mr Elias' signature on that document (see at [43]-[45] above). In this respect, I note that, from my observations of her evidence, Ms Greaves was ambivalent in her acceptance of this proposition (see at [44] above). The Liquidators also relied upon Mr Elias' acceptance that the signature on all copies of the Armstrong Agreement looked like his (see at [33] above). Nonetheless, weighing these competing pieces of evidence, I am not persuaded to draw the inference advanced by the Liquidators. That is to say, I am not persuaded it is more likely than not that the event concerning the signing of the Armstrong Agreement occurred as described in [52(b)] above. (b) As to [52(e)], insofar as Mr Elias is concerned, at least until about August 2019, his failure to investigate the 14 July 2015 transfer is explained by the conclusion I have already reached above (at [73]) that both he and Mr Pereira first became aware of that transfer to PML at about that time. In those circumstances, given Mr Elias' denials that he entered into the Armstrong Agreement, it is unsurprising that he has not personally paid the sum of $100,000 to Armstrong. Further, given Armstrong was the source of the information about that transfer and that information is contentious in this proceeding, it is difficult to see why PML needed to adjust its records to reflect it. On this aspect, it is also worth noting that, despite the loan under the alleged Armstrong Agreement falling due for repayment on or before 14 August 2015, there is no evidence of Armstrong having taken any action to recover it. I therefore reject the Liquidators' contentions at [52(e)] above. 75 Finally, since Mr Elias and Mr Pereira were the defendants most directly involved in the issues in this proceeding and there is nothing to suggest that either of Mr Garcia or Mr Woods was directly involved in any of the relevant events, I consider their evidence falls into the "merely cumulative" category identified in the Manly Council decision (see at [63(c)] above). This conclusion is reinforced by the fact that the Liquidators did not identify, even in general terms, the evidence that either Mr Garcia or Mr Woods could have given nor the issue to which that evidence may have related. I therefore reject the Liquidators' contention that any Jones v Dunkel inference should be drawn as a result of their failure to give evidence at the trial of this proceeding.

Conclusion 76 For these reasons, the Liquidators have failed to adduce the evidence necessary to establish facts sufficient to justify the drawing of the inferences necessary to discharge their onus to prove on the balance of probabilities that Mr Elias and Armstrong entered into the Armstrong Agreement on or about 14 July 2015 pursuant to which Armstrong allegedly loaned $100,000 to Mr Elias.

ISSUE 2 - ON 29 JULY 2015, DID PMLI BECOME LIABLE FOR THE SPECIFIED DEBTS OF MR ELIAS OWING, OR ALLEGED TO BE OWING, TO ARMSTRONG?

Introduction 77 This is the first of two issues which concern the effect of the Wellington Agreement. By this issue, the Liquidators contend that, as a consequence of the Wellington Agreement, the existence of which is not in dispute, the defendants caused PMLI to accept liability for two debts owed personally by Mr Elias to Armstrong: (a) a debt of $100,000 allegedly owing pursuant to the Armstrong Agreement; and (b) a debt of $11,980.01 acknowledged to be owing as interest on the loan of $50,000 that Armstrong made to Mr Elias in December 2011. 78 For the reasons set out above, the Liquidators have failed to establish that the Armstrong Agreement was entered into and, therefore, that the debt referred to in (a) above existed. Even if that were not so, for the reasons provided later (see at [87] and [93] below), there is a separate cogent explanation for the sum of $100,000 which was included in the transactions associated with the Wellington Agreement. On both of these footings, the Liquidators have failed to prove their case on (a) above. That being so, this issue essentially reduces to the question whether, under the Wellington Agreement, PMLI accepted liability for Mr Elias' acknowledged interest debt of $11,980.01.

The evidence 79 As already noted, the Wellington Agreement was dated 29 July 2015 and executed by Mr Elias and Mr Pereira for PMLI and Ms Hutson and Ms Greaves for Wellington. Under its terms, Wellington loaned $420,000 to PMLI at an interest rate of 8% per annum to be repaid on the termination date of 31 January 2016. 80 In his outline of evidence, Mr Elias described the background to the Wellington Agreement in the following terms: 38. The background to this transaction was as follows: a. PMLI had a loan from PML of a little over $427,000, which had been used to fund the purchase of the Property. This loan was unsecured and at call. PML was not pressing PMLI for payment. b. PML had various loans from Hutson-related entities (Armstrong, Babylon and Wellington), totalling a little under $420,000. These had initially been unsecured, but Hutson had arranged a form of security … being shareholdings in PML's subsidiary PMLI. She now wished that form of security to be replaced. 39. Hutson proposed that Wellington lend $420,000 to PMLI, which would enable PMLI to pay out its loan from PML in that amount. This in turn would provide $420,000 to PML, which it would use to pay out its loans from Hutson-related entities. There would be a small surplus left in PML, as these loans were less than $420,000. 40. That is what happened. Wellington lent $420,000 to PMLI, secured as set out in the [Wellington Agreement] and guaranteed by PML, and due for repayment on 31 January 2016. PMLI on-paid those funds to PML in almost complete discharge of its loan from PML. PML then used the $420,000 it received from PMLI to make the following payments: a. $165,242.19 to Armstrong in repayment of various loans; b. $13,500 to Wellington in repayment of its loan; c. $225,000 to Babylon in repayment of its loan; and d. the sum of $16,257.81 thereby remaining was then paid as to $11,980.01 to me in reduction of a loan from me to PML, and the balance of $4,277.80 was retained by PML. 81 In his oral evidence, Mr Elias insisted that the Wellington Agreement was Ms Hutson's idea and he emphatically denied it was his. He also said that, in early June 2015, Ms Hutson sent him a series of letters in which she sought various payments from him, or PML, as follows: (a) payment of a $100,000 loan from Armstrong to PML plus interest owing of $7,725.07; (b) payment of a $40,000 loan from Armstrong to PML; (c) payment of an amount totalling $236,000 as consideration for a number of holdings of PML's shares held by Wellington and a Hutson entity called Babylon; (d) payment of a $50,000 loan from Armstrong to Mr Elias plus interest owing of $11,980.01. 82 On 1 and 11 June 2015, Mr Elias sent two emails to Ms Hutson and Ms Greaves (the former copied to others) in which he confirmed his understanding as to how the transactions associated with the Wellington Agreement were to proceed. The second of those emails (11 June 2015) was in the following form: Dear Jenny, This email shall serve to confirm the understandings reached during our recent meeting at the offices of [Wellington]. 1. Wellington or its nominee ("Wellington") will advance $420,000-00 to [PMLI]. This advance will be secured by way of (i) a second ranking charge over the assets and undertaking of PMLI (ii) a second ranking mortgage over real property owned by PMLI and (iii) the guarantee of [PML]. The advance shall be repayable no later than January 31, 2016 and bear interest at 8% per annum provided however that if the advance is repaid in full on or prior to January 31, 2016 then the interest rate shall be 2% per annum. 2. PMLI will issue Wellington a direction to pay to pay [sic] the proceeds of the advance to PML in settlement of part or all of the indebtedness of PMLI to PML. 3. PML will issue PMLI a direction to pay the proceeds of the funds which it will receive to such Wellington related entities as PML may be indebted to (note: this shall specifically include the acquisition by PML of PMLI shares owned by Wellington related entities) 4. Contemporaneously with #1-#3 above PML will provide an undertaking to Wellington or its nominee to ensure that $50,000-00 anticipated to be released in consequence of the changes in the security requirements of the premises of PML will be directed to discharge the residual indebtedness of PML to Wellington. Kindest regards, Nigel 83 On 19 June 2015, Ms Greaves sent an email to Mr Elias attaching a Funding Table which detailed the various transactions that were to be undertaken. That table was as follows: 84 Mr Elias said in his oral evidence that the transactions associated with the Wellington Agreement happened as described in this Funding Table. However, he added that there was "one unusual feature" involving, what he described as, "cyber cheques" as follows: Could you now tell us what actually happened in that transaction?---What happened was exactly what was proposed, with one unusual feature. And I've never seen this before, but Hutson was quite insistence [sic] on it. And rather than actual monies moving around, as contemplated, she produced and requested that the PML Group produce cheques, and that we would swap these as cyber cheques. And except for a very small amount, there was no money that was going to change hands. 85 Pursuant to this "swap … [of] cyber cheques", three sets of cheques were drawn on 28 July 2015, all of which were either for the sum of $420,000, or totalled that amount. They were as follows: (a) Wellington drew a cheque in favour of PMLI in the sum of $420,000; (b) PMLI drew a cheque in favour of PML in the sum of $420,000; (c) PML drew three cheques totalling $420,000 in favour of three Hutson entities as follows: (i) Wellington - the sum of $13,500; (ii) Babylon - the sum of $225,000; and (iii) Armstrong - the sum of $181,500. 86 The last three cheques (described in (c) above) corresponded to the 11 items in the Funding Table in [83] above, two of which related to Babylon, two of which related to Wellington and seven of which related to Armstrong, as follows: (a) Wellington (i) 11,000 shares held by [Wellington] $11,000.00 (ii) Expenses $2,500.00 TOTAL $13,500.00

(b) Babylon (i) 80,000 shares held by [Babylon] $100,000.00 (ii) 100,000 shares held by [Babylon] $125,000.00 TOTAL $225,000.00

(c) Armstrong (i) Loan from [Armstrong] $40,000.00 (ii) Loan from [Armstrong] $100,000.00 (iii) Invoice from [Armstrong] (No. 2013-190, 2013-226, 2014-005) $2,517.12 (iv) Interest on Loan from [Armstrong] ($50,000) $11,980.01 (v) Interest on Loan from [Armstrong] ($100,000) $7,725.07 (vi) Loan from [Armstrong] (30.06.15) $15,000.00 (vii) Cash Advance $4,277.80 TOTAL $181,500.00

87 This issue relates to items [86(c)(ii)] and [86(c)(iv)] above. With respect to item (c)(ii), the separate cogent explanation alluded to above is contained in the evidence of Mr Pereira. He described how the sum of $100,000 came to be owing by PML to Armstrong. He said it was "the then capital balance of a running loan which had existed since May 2014". He also said that "[a]ll of these amounts are recorded in the financial records of PML and are evidenced in PML's bank statements" (see his affidavit of 13 June 2019 set out at [23] above and his outline of evidence of May 2020 outlined at [24(66)] and [24(69)] above). 88 As for item (c)(iv) above, in his outline of evidence, Mr Elias described how that item was treated. He said: In relation to PML's reduction in its loan balance to me by $11,980.01, I directed PML to pay that amount directly to Armstrong, in reduction of a loan balance between myself and Armstrong. In other words, this was not an assumption by PML of my personal obligation to Armstrong, but rather it was a payment between PML and myself made according to the manner of my direction, and had the effect of reducing PML's indebtedness to me. 89 Finally, it is appropriate to record two events that occurred after the Wellington Agreement was executed on 29 July 2015. The first was the extension to the termination date in that agreement from 31 January 2016 to 1 July 2017. Mr Elias described the circumstances of that event in his outline of evidence in the following terms: 43. On or about 29 February 2016, Wellington and PMLI agreed by letter to extend the due date for repayment of the Wellington Secured Loan to 1 July 2017 for consideration of $1000. … 45. At the same time, by letter dated 29 February 2016 Wellington released PML from its obligation under the guarantee, for consideration of $1000. 90 The second event occurred in early 2016. At that time, Mr Elias met Ms Hutson in Brisbane and Ms Hutson told him that she had written off the loans from Wellington to PMLI. That event is recorded in Mr Elias' outline of evidence in the following terms: 47. On a date I cannot now recall in early 2016, possibly as late as April 2016, I met with Hutson at a coffee shop on Ann Street near her offices in Brisbane. During that meeting, we talked about the loans from Wellington to PMLI and to me, amongst other things. We had a conversation to the following effect: ME: What about the loans Wellington has extended to PMLI and myself? HUTSON: Forget about them - I've written them off. My concerns now revolve around ASIC. 48. At the time, I was aware from Hutson that she was being investigated by ASIC in relation to dealings she had had with and through a number of companies unrelated to PMLI. 49. Hutson was the managing director of Wellington, and it was clear to me that she had the authority to treat the $420,000 loan from Wellington as being written off. If the loan was written off, or would otherwise not be enforced, then there was no need for PML to guarantee PMLI's obligations under it. 50. It was my understanding from the above events that: a. Wellington did not intend to enforce the [Wellington Agreement]; b. Wellington would not seek repayment of the $420,000 it had lent to PMLI; and c. Wellington did not require PML to guarantee that loan (consistent with its intention not to enforce the loan and its release of PML from the written guarantee).

The contentions 91 The Liquidators' submissions on this issue focused on the two items in the Funding Table identified above (at [87]). For the reasons already given, I reject their contentions with respect to item (c)(ii). With respect to item (c)(iv), they made the curious contention that that "transaction was in fact a ruse in the sense that the monies were never actually advanced to PMLI and then onforwarded to PML. In fact, nothing was advanced to PMLI excepted [sic] for the sum of $4277.80". They contended that the result of the series of transactions associated with the Wellington Agreement was that PMLI became indebted to Wellington for the sum of $420,000, which included the $11,980.01 interest that Mr Elias owed to Armstrong. Further, they contended that Mr Elias provided no consideration to PMLI to take on this personal liability of his. 92 In summary, the defendants contended that all of the pertinent payments were, in fact, made by PML and none was made by PMLI. Further, they contended that the $100,000 loan payment related to a debt that was in fact due by PML to Armstrong, as recorded in PML's accounts. Finally, they contended that the $11,980.01 interest payment was a partial reduction of PML's indebtedness to Mr Elias on its running loan account with him and it did not involve PMLI accepting responsibility for Mr Elias' personal debts.

Consideration 93 This second issue can be disposed of relatively briefly. First, to reiterate, I accept Mr Pereira's evidence (see at [87] above) that the $100,000 loan mentioned in the Funding Table was a loan that PML owed to Armstrong dating from May 2014, as recorded in PML's books of account. Accordingly, even if the Armstrong Agreement was made between Armstrong and Mr Elias and, as a result, Mr Elias owed $100,000 to Armstrong, that loan is not the loan mentioned in the first item of the Funding Table. It necessarily follows that, as a result of the transactions associated with the Wellington Agreement, PMLI did not accept Mr Elias' personal liability for that loan, even assuming it existed. 94 Secondly, as for the amount of $11,980.01 of interest owing on the $50,000 loan that Mr Elias acknowledged he owed to Armstrong, for the following reasons I reject the Liquidators' contentions that, under the Wellington Agreement, PMLI accepted liability for that personal debt of Mr Elias. First, as the defendants have correctly observed, in the course of the transactions associated with the Wellington Agreement, PMLI did not actually pay anything to Armstrong. Instead, it paid all of the $420,000 sum it received from Wellington to PML. Secondly, as between Mr Elias and PML, I accept his evidence and the defendants' contentions that the sum of $11,980.01 was applied in reduction of the balance of the running loan account between PML and him.

Conclusion 95 For these reasons, the Liquidators have failed to prove, on the balance of probabilities, that, on 29 July 2015, PMLI became liable for the personal debts either allegedly owed (the $100,000 loan), or admitted to be owed (the $11,980.01 interest), by Mr Elias to Armstrong.

ISSUE 3 - DID PMLI BECOME INSOLVENT ON 29 JULY 2015 BY VIRTUE OF ITS ENTRY INTO THE WELLINGTON AGREEMENT?

The insolvency allegation as pleaded 96 This issue concerns the insolvency allegation which is pleaded at [41] of the Liquidators' 4FASC. There, the Liquidators allege that: At the time of entering into the [Wellington Agreement], the [Mr Elias, Mr Garcia, Mr Woods and Mr Pereira] knew or ought to have known that [PMLI] was insolvent and would become so by entering into the [Wellington Agreement]. Particulars (a) The Defendants knew, or a reasonable person in their position would have known that [PMLI] was insolvent or would become so by entering into the [Wellington Agreement], because at all material times: i. [Mr Elias], [Mr Garcia] and [Mr Woods] were Directors of [PMLI] and its parent company, PML; ii. [Mr Pereira] was a Director of [PMLI] and a Company Secretary of PML; (b) and were aware, or ought to have been aware, of the matters particularised at paragraph 21 above and in particular that; i. PML was financially unable to advance or make available funds to the Company when the [Wellington Agreement] fell due; ii. Apart from the financial support of PML (which as identified immediately above was not available at the time), [PMLI] had no other source of income and no other access to financial accommodation to enable it to meet its obligation to [Wellington] as and when they fell due on 1 July 2017. 97 The matters particularised at [21] of the 4FASC, as referred to at [41(b)] of the 4FASC above, were as follows: From on or about 29 July 2015, [PMLI] was unable to pay its debts as and when they fell due and was therefore insolvent as defined in section 95A of the Act. Particulars of insolvency as and from 29 July 2015 (a) [PMLI] has been and has remained insolvent since at least 29 July 2015: i. On 29 July 2015, [PMLI] entered into the [Wellington Agreement]; ii. In or about 29 February 2016, [PMLI] negotiated an extension of the date for payment of the [Wellington Agreement] from 31 January 2016 to 1 July 2017; iii. As at 29 July 2015, [PMLI] had a pre-existing secured debt of $428,121 owing to Maitland Mutual Building Society Ltd (Maitland) (which was subsequently assigned to Warratah Investments Pty Ltd on about 21 September 2017); iv. Between 29 July 2015 and 2 October 2018, the available assets of [PMLI] were limited to unallocated cash at bank of $1,000 or less and [the property] which had a maximum realisable value of $502,000 during this period on 21 October 2017; v. Also between 29 July 2015 and 2 October 2018, [PMLI] relied on the financial support of [PML] to meet its obligations as and when they fell due but PML was not able to financially support PMLI other than discharging mortgage payments (to Maitland) and other obligations owing by PMLI on the Property because PML had an asset deficiency position and recorded net trading loss for the financial years ended 30 June 2016, 30 June 2017 and 30 June 2018 such that it could not financially support PMLI to any greater extent than meeting its payments on the Property and mortgage payments to Maitland; vi. In the premises, [PMLI] was insolvent as and from 29 July 2015 when it entered into the [Wellington Agreement] in circumstances where: 1. PML was financially unable to advance or make available funds to [PMLI] when the [Wellington Agreement] fell due; 2. [PMLI] had no other source of income and no other access to financial accommodation to enable it to meet its obligation to [Wellington] as and when it fell due; vii. [PMLI] traded at a loss for the financial years ending 30 June 2017 and 30 June 2018; viii. [PMLI] was trading at a loss as at 2 October 2018; ix. [PMLI] had a negative net asset position as at 30 June 2017, 30 June 2018 and 2 October 2018; x. [PMLI] had insufficient working capital to meet its liabilities as and when they fell due as at 30 June 2017, 30 June 2018 and 2 October 2018; xi. [PMLI] had a current ratio equivalent to nil as at 30 June 2017, 30 June 2018 and 2 October 2018. (Emphasis removed) 98 As well, the Liquidators alleged that PMLI's entering into the Wellington Agreement constituted an uncommercial transaction within the terms of s 588FB of the Act because there was no benefit, but rather a detriment, to PMLI by doing so. The lack of benefit for, and detriment to, PMLI was pleaded at [43] of the 4FASC as follows: (a) [PMLI] entered into a transaction that made [PMLI] insolvent or at a time when [PMLI] was insolvent in circumstances where there was no benefit to [PMLI] by entering into the transaction; and (b) [PMLI] suffered a detriment by entering into the [Wellington Agreement] because neither it nor [PML] could repay the monies owing under that agreement and incurred the detriment of the interest payable under that loan; (c) [PMLI] suffered detriment by entering the [Wellington Agreement] because it bound [PMLI] to debts that it did not incur, but were the debts of [Mr] Elias. 99 In their defences, the defendants denied all of these allegations and pleaded that PMLI "could and did rely upon the financial support of PML to meet its financial obligations". 100 At this point, it is convenient to note several things about this pleading. First, while the reference to "was insolvent" in [41] of the 4FASC above suggests otherwise, at the trial the Liquidators did not contend that PMLI was insolvent prior to entering into the Wellington Agreement on 29 July 2015. Indeed, the evidence of their expert witness, Ms Kelly Trenfield, a Chartered Accountant and registered liquidator, was that the company was solvent during that period. Secondly, the Liquidators also did not pursue the alternative allegation in [21A] of the 4FASC that PMLI was insolvent as at 1 July 2017. Thirdly, it is to be noted that entering into an uncommercial transaction is the last of the seven actions specified in s 588G(1A). Under that provision, the debt concerned is taken to have been incurred when the Wellington Agreement transaction was entered into. Fourthly, in their defences, the defendants did not appear to raise a defence under s 588H(2) of the Act.

The relevant principles 101 There was general agreement in the written submissions of the parties as to the relevant principles bearing on this issue. The following is a brief summary of the main principles: (a) whether a company is solvent is a question of fact to be ascertained from a consideration of its financial position taken as a whole and having regard to commercial realities (see Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; [2001] NSWSC 621 at [54] per Palmer J and First Equilibrium Pty Ltd v Bluestone Property Services Pty Ltd (in liq) (2013) 95 ACSR 654; [2013] FCAFC 108 at [33]) per Gordon, Griffiths and Farrell JJ; (b) in considering the commercial realities, the Court can consider whether resources other than cash are realisable by sale or borrowing with or without security and the availability of funds provided by other companies in a group of companies (see Lewis v Doran (2004) 184 FLR 454; [2004] NSWSC 608 (Lewis v Doran PJ) at [116] per Palmer J and [118] and Lewis v Doran (2005) 219 ALR 555; [2005] NSWCA 243 (Lewis v Doran CA) at [109]) per Giles JA; (c) when a company is relying on financial support from a third party to enable it to pay its debts, it must have a "degree of assuredness" of that support. That degree of assuredness is more certain where the third party is compelled to provide the financial support, for example, where it has provided a guarantee in respect of its obligation (see Chan & Ors v First Strategic Development Corporation Limited (in liq) & Anor [2015] QCA 28 at [43]-[44] per Morrison JA); (d) solvency for the purposes of s 588G of the Act must be determined at the relevant time without the intrusion of hindsight. However, where retrospective insolvency is in issue, that is where the issue is a company's solvency as at a date prior to the winding up, for example, whether an insolvent transaction has occurred under s 588FB, the Court can take into account what actually happened after the alleged date of insolvency (see Lewis v Doran PJ at [107] and [112]-[116] per Palmer J, Lewis v Doran CA at [103] per Giles JA; Treloar Constructions Pty Limited v McMillan (2017) 318 FLR 58; [2017] NSWCA 72 at [77] per Beazley P, Gleeson JA and Emmett AJA and Clifton (Liquidator) v Kerry J Investment Pty Ltd trading as Clenergy (2020) 379 ALR 593; [2020] FCAFC 5 at [215] and [224] per Besanko, Markovic and Banks-Smith JJ); and (e) the onus of establishing the elements prescribed by s 588G of the Act lies on the person seeking to make the director liable. The standard of proof is the balance of probabilities. Further, in assessing whether a party has discharged that onus, the principles in Briginshaw v Briginshaw (1938) 60 CLR 336 and s 140 of the Evidence Act 1995 (Cth) require a state of satisfaction commensurate with the seriousness of the allegation and the gravity of the consequences to be taken into account (see Austin RP, Ramsay IM, Ford, Austin and Ramsay's Principles of Corporations Law (17th ed, 2018) p 1301 and the cases there cited).

The evidence 102 To establish that PMLI became insolvent by entering into the Wellington Agreement, the plaintiffs relied upon the expert evidence of Ms Trenfield already mentioned above. Ms Trenfield's opinions on this issue were summarised in two documents included in the evidence: in her original report and in the joint experts' report. The former is an extensive and detailed document. Despite this, the main focus of the parties was on the opinions Ms Trenfield expressed at 5.4.2 to 5.4.5 as follows: 5.4.2.Effect of the [Wellington Agreement] on PMLI's solvency Substituting $420,000 of the loan owing to PML with a new loan owing to Wellington did not make a difference to the net asset position of PMLI as at 29 July 2015, being a deficiency of approximately $178,050.69 (using the adjusted balance sheet as at 30 June 2015). However, it did have a significant effect on PMLI's solvency as: - While the PML debt was "at call" it was unlikely to be demanded; - The FY16 adjusted profit and loss statement for PMLI shows it would incur a much larger loss ($79,715.65) after inclusion of the interest payable on the Wellington Loan at 8% (I have no evidence to suggest interest was payable on the PML loan account); and - The Wellington Loan was due and payable in full plus interest on 31 January 2016. PMLI's conceivable options to deal with the debt due and payable on 31 January 2016 were to: a) Sell assets to repay the Wellington Loan; PMLI's only asset of substance was the Property, which based on the 2013 valuation of $675,000, was insufficient to discharge debts secured by the Property totalling $852,595.46: - The Maitland loan, the balance of which was $432,595.46 as at 30 June 2015; plus - The Wellington Loan, the balance owing being $420,000 plus accrued interest. I note the evidence I have received does not indicate PMLI took any steps to try and sell the Property prior to 31 January 2016. b) Refinance the Wellington loan; Given the significant shortfall on the value of the property compared to loans secured against it, and that it had no other assets of substance, PMLI would have not been able to refinance the Wellington loan based on its own financial credentials. c) Seek an extension of the Wellington loan due date; or Based on the evidence I have received, a reasonable person in PMLI's position as at 29 July 2015 would not have expected this option to be available given on 4 June 2015, Ms Hutson, Wellington and Armstrong demanded repayment of their debts from PML and [Mr] Elias. There was an expectation the consolidated loans (now formalised and consolidated into the Wellington Loan with security) would be repaid sooner rather than later. Although on 29 February 2016 PMLI did ultimately obtain an extension of the due date of the loan to 1 July 2017, I do not believe this bears weight on the outlook of a reasonable person at 29 July 2015 as on 4 February 2016 Wellington wrote to PMLI noting the loan was in default and the balance plus interest was payable. This indicates that as at 4 February 2016 Wellington still wanted the loan to be repaid. That Wellington extended the loan due date without any interest or principal being paid (as evidenced by the proof of debt lodged by Wellington dated 8 October 2018) and released PML from its guarantee for consideration of $2,000. This release lacks commerciality on the basis of the evidence I have received. I understand some other factors may however have contributed to this decision, including: - Mr Elias advised at paragraph 29 in the 2018 Elias Affidavit Ms Hutson was being investigated by ASIC and he was interviewed by ASIC and provided statements to them in May and August 2016 [sic]; - At paragraph 32 of the 2018 Elias Affidavit, Mr Elias advises his relationship with Ms Hutson rapidly and significantly deteriorated after he provided information to ASIC [sic]; - There appeared to be a significant security shortfall on the Property at the time and PML lacked sufficient assets to pay the Wellington Loan; and - As discussed later in the report, the value of a guarantee from PML was questionable given it appears to have had financial difficulties of its own. d) Obtain funds from PML to pay amount due under the Wellington Loan. As discussed later in this report, the evidence in my possession suggests PML did not have the financial capacity to pay the $420,000 plus interest by 31 January 2016 and a reasonable person in the position of the Directors of PM LI, many of whom were also Directors of PML, would have been aware of the financial circumstances of PML preventing it from doing so. 5.4.3.Cash Flow Test as at 29 July 2015 Given PMLI primarily held the Property asset and did not trade, the Directors of PMLI should have known when entering into the [Wellington Agreement] on 29 July 2015 that PMLI's financial position would not change significantly between then and 31 January 2016. As such, I consider the Wellington Loan due on 31 January 2016 should be considered when assessing the solvency of PMLI as at 29 July 2015. PMLI would not be expected to have the financial capacity to pay the $420,000 plus interest on 31 January 2016 as: - PMLI had negligible assets; - PMLI had no ongoing revenue and predictable expenses; - PMLI incurred a net loss of $8,915.65 in FY16 including the settlement recovery; and - Even if the Property were sold, based on the most recent valuation, there would have been a shortfall and PMLI held insufficient assets to pay the shortfall. Therefore based on the cash flow test, I consider PMLI became insolvent on 29 July 2015 upon entering into the [Wellington Agreement]. 5.4.4.Balance Sheet Test at 29 July 2015 The adjusted net asset position for PMLI as at 30 June 2015 indicates it was solvent on the balance sheet test because the PML loan would not likely be called upon in full. When the PML loan was substituted with the Wellington Loan to the extent of $420,000, this assessment changed given a repayment date of 31 January 2016. Additionally, Wellington demanded the loan be repaid in full. Ms Hutson, Wellington and Armstrong had even demanded the precursor loans be repaid in full prior to 29 July 2015. PMLI would therefore be considered insolvent using the balance sheet test as at 29 July 2015 after entering into the [Wellington Agreement]. 5.4.5.lndicia of Insolvency as at 29 July 2015 I note most of the usual indicia of insolvency are not applicable to PMLI as an asset-holding entity which did not trade. The primary indicia of insolvency to consider for PMLI as at 29 July 2015 was whether it could rely on PML to provide the financial support required to assist in paying the Wellington Loan when it became due on 31 January 2016. PMLI was dependent on PML for any financial support for the following reasons: I. PMLI did not generate any significant income in its own right and it historically relied upon ongoing financial support from PML; II. Although PMLI had a number of different shareholders, from the evidence I have received it appears any capital raised was through PML; and III. Based on the current shareholder register for PMLI, the largest shareholding after PML was for 75,000 shares, being a 14% shareholding in the Company. In my opinion, other shareholders would not have had any significant incentive to sustain the solvency of the Company, given any such benefit they could have provided would have largely flowed through to PML as the largest shareholder. In my opinion, on and after 29 July 2015, PMLI could not expect to receive financial support from PML to pay the Wellington Loan when due as PML had significant financial difficulties of its own and PML did not expect to have sufficient cash and cash equivalents by 31 January 2016 to repay the Wellington Loan. This is consistent with my opinion that PMLI was insolvent on 29 July 2015 under the cash flow and balance sheet tests of solvency. I discuss PML's financial circumstances below. (Footnotes omitted) 103 At the direction of the Court, the two expert witnesses called by the parties - Ms Trenfield and Mr Cotter - consulted and produced a joint experts' report in which they outlined their areas of agreement and disagreement. Ms Trenfield summarised her opinions at [15]-[26] of that report. While there is an amount of repetition of the opinions in her original report above, it is appropriate in the circumstances to set those paragraphs out in full as follows: 15 In Mrs [sic] Trenfield's opinion, PMLI became insolvent on 29 July 2015 upon entering into the [Wellington Agreement] and associated transactions whereby all of the loan proceeds were transferred to PML. 16 The terms of the [Wellington Agreement] provided that PMLI was required to pay $420,000 plus interest by 31 January 2016. Given each of Ms Hutson, Wellington and Armstrong had earlier issued demand for payment in relation to debts owing by PML and Mr Elias, in Ms Trenfield's opinion it was evident the loan was expected to be repaid on time. Prior to the Wellington Loan due date being extended, Wellington issued a demand for the overdue debt. 17 Ms Trenfield is of the opinion based on the available evidence, the directors of PMLI at 29 July 2015 should not have considered it likely the Wellington Loan due date would be extended and therefore the fact it happened to later be extended after 31 January 2016 is of no relevance to the assessment of insolvency at 29 July 2015. 18 Ms Trenfield is of the opinion PML's guarantee of the Wellington and Maitland Loans to be of little relevance to its intention (or lack thereof) to provide funding to PMLI to repay the Wellington Loan. 19 Ms Trenfield notes PMLI was entirely dependent upon PML for ongoing financial support and PMLI's only asset of material value was the Property. The evidence suggests the market value of the Property at 29 July 2015 was significantly less than the loans secured by mortgages over the Property and the adjusted net asset position for PMLI shows it had a shortfall of approximately $178,050.69. 20 Ms Trenfield notes the evidence indicates no steps were taken by PMLI to sell the Property. Ms Trenfield is of the opinion PMLI may have faced difficulty selling the Property given prevalent market conditions and PMLI may not have been able to secure a release of Wellington's mortgage to facilitate any sale. Ms Trenfield considers PML may have been unwilling or unable to provide the necessary funds to secure the release of the Wellington mortgage. 21 Ms Trenfield notes there was considerable overlap of directors between PMLI and PML and therefore the Directors of PMLI can be expected to have significant knowledge of the financial circumstances of PML Group and its financial capacity to support PMLI. 22 Ms Trenfield notes financial forecasts prepared by PML Group do not indicate the Wellington Loan was to be repaid. In Ms Trenfield's opinion, the forecasts indicate PML Group did not project having available cash resources to repay the Wellington Loan. Ms Trenfield notes the progressive forecasts indicate a deteriorating financial performance and financial position for PML Group. 23 Ms Trenfield notes the financials indicate PML and PML Group had significant current liabilities due within the same period as the Wellington Loan and they had insufficient assets and profits to discharge these. In Ms Trenfield's opinion, if PML were to divert funds to repay the Wellington Loan, it may have jeopardised its own solvency. 24 Ms Trenfield is of the opinion PML Group had limited ability to raise additional funding and the evidence indicates the funds that were raised appears [sic] to have been used to discharge existing liabilities. 25 Ms Trenfield notes the evidence received indicates PML Group strongly displayed a number of indicators of insolvency. Further, it suggests PML Group did not have the financial capacity, and possibly the intention, to pay the Wellington Loan when due or to cover any shortfall upon any sale of the Property (noting it does not appear steps were taken by PMLI to sell the property). 26 Ms Trenfield is of the opinion that PMLI's Directors, or a reasonable person in their circumstances, should have been aware that by entering into the [Wellington Agreement] on 29 July 2015: a PMLI became insolvent; b PMLI could not repay the Wellington Loan on 31 January 2016; and c PML would not be able to provide financial support required to repay the Wellington Loan. (Errors in original) 104 In cross-examination, Ms Trenfield said that she adopted a staged approach to the application of the cash flow and balance sheet tests mentioned in these opinions. In particular, she said that she first determined whether or not PMLI was insolvent by reference to those tests and only then looked to whether it had other resources available to address that insolvency, in particular the support of PML. 105 As alluded to above, the defendants relied upon expert evidence from Mr William Cotter, a Chartered Accountant and a registered liquidator. In his original report, Mr Cotter summarised his opinion about the solvency of PMLI as at 29 July 2015 in the following terms: 4.1 Opinion 1 - Was PMLI solvent as at the date it entered into the [Wellington Agreement]? Based on my analysis, I do not consider that PMLI was insolvent at the date it entered into the [Wellington Agreement] on 29 July 2015, nor did it become insolvent by entry into the [Wellington Agreement]. Key reasons for this opinion include: • At 29 July 2015 PMLI accounts record positive net assets, that is, it appeared [PMLI] could have realised its assets within a reasonable period and paid out all of its debts in full if required to do so, particularly having regard to the likely due date of each of its liabilities; • The primary asset of PMLI was the [property]. Being real property, it was capable of being realised on the open real estate market in the usual means, by private treaty or auction. In my view, a realistic time frame for realisation of most commercial real property assets may be considered to be in the order of 3 - 6 months; • The Wellington Loan at inception was guaranteed by PML, a publicly listed entity with substantial assets and activities; • PMLI had the support of its parent entity PML. That support was real and in-fact occurred, as evidenced by a loan account existing between PML and PMLI, with a loan balance of $427,441.49 having been advanced by PML as at 30 June 2015 per the accounts, and transactions continuing post that date up to the date of the appointment of Administrators, as reflected in the loan ledger at Annexure V of the Pleash Solvency Report; • The ongoing support of PML was sustainable having regard to the circumstances of PML as set out at section 15 of this Report; • Even if a reduced realisable value of the [property] at the July 2015 date of entry into the Wellington Loan is utilised, a substantial portion of [PMLI's] known liabilities could have been paid from PMLI's own resources, before requiring to call upon support of it's [sic] parent company, PML to meet any shortfall. As at 29 July 2015 it is clear that [PMLI] had available assets of its own from which to fully or partially satisfy its debts as and when they fell due. Further, it was able to reasonably rely on the support of its parent entity, PML, to meet any potential shortfall on its debts, if any. On this basis, [PMLI] was not insolvent as at the 29 July 2015 being the date it entered into the [Wellington Agreement]. 4.2 Opinion 2 - Could, as is alleged by the liquidators, the directors of PMLI have formed a reasonably held opinion that PML (the parent company) was not in a position to meet PMLI's obligations under the [Wellington Agreement]? From my analysis, I do not consider that the directors of PMLI could have formed a reasonably held opinion that PML (the parent company) was not in a position to meet PMLI's obligations under the [Wellington Agreement]. Key reasons for this opinion include: • PMLI had actual real and ongoing support from PML. As identified in the Pleash Solvency Report, "most of the liabilities discussed above in section 7.2.3 (Liabilities associated with the Property) and 7.2.4 (The Warratah Loan) were directly discharged by the parent company, PML" and "loans provided by PML to [PMLI] from 22 July 2013 to 20 September 2018 were in the sum of $595,429." (Pleash Solvency Report - 7.2.6); • As at 30 June 2015 PML had consistently provided support to PMLI up to that balance date, as reflected in the loan account balance recorded in the financial accounts outstanding to PML of $427,441.49 at that date and support continued post that date and up to the date of the appointment of Administrators, as reflected in the loan ledger at Annexure V of the Pleash Solvency Report; • PML had in fact guaranteed the PMLI obligation under the Wellington Loan as at 29 July 2015; • PML in fact, paid the fee of $1,000 on or about 29 February 2016 securing the extension of the term of the Wellington Loan for an additional period of some 18 months; • PML was a listed public company with substantial revenue and assets and access to a range of debt and equity financing facilities; • As addressed elsewhere in this Report, PMLI at first instance had recourse to the sale of the [property] to satisfy its debts firstly to Maitland and secondly to Wellington. Subject to the property valuation assessments available at various dates, that potential shortfall which PML may have been called upon to meet, ranged from Nil (if the historical cost values are relied upon) to approximately $138,000 (if the October 2013 valuation of $675,000 is relied upon) to $311,000 (if the later October 2017 valuation of $502,000 is relied upon). In all of these scenarios, it appears reasonable for the Directors of PMLI to have reasonably expected that PML could be so relied upon. (Emphasis in original) 106 In the joint experts' report, Mr Cotter provided a further summary of his opinions about PMLI's solvency. As with Ms Trenfield, while there is a significant degree of repetition of the opinions above, it is still appropriate to set that summary out in full as follows: 8 Mr Cotter makes the following comments and summarises his opinions with respect to the issues set out in his instructions as follows: a The entry into the Wellington Loan and the related transactions whereby Loan funds were required to be used to repay other related borrowings, did not in fact alter the total debts owing by PMLI or PML as at 29 July 2015, although did alter repayment time periods and security arrangements on the outstanding debts; b At the time of entry into the Wellington Loan on 29 July 2015 the [property] was available to be sold on the open market by private treaty or auction. Mr Cotter considers a realistic time frame for realisation of most commercial property assets to be in the order of 3-6 months; c Albeit the Property value is recorded in the financial accounts of PMLI and audited consolidated accounts of PML at its historical cost of $922,792, after adjusting the value of the Property to the independent valuation figure then being available, of $675,000, a shortfall of net assets in the balance sheet of PMLI existed on 29 July 2015 in the amount of $178,050.69; d Recognised case law on the subject of determination of Solvency clearly indicates that provision of related party financial support is relevant to the assessment of an entity's solvency or otherwise; e The only basis on which PMLI may be considered to have been insolvent at the time of entry into the Wellington Loan on 29 July 2015 was if there was no reasonable basis to consider that support of PML would be available to PMLI to assist it to repay the Wellington Loan or any shortfall thereon; f PML had guaranteed the repayment of the Wellington Loan as at 29 July 2015 by entry into the Deed of Guarantee with Wellington. PML at that time was a publicly listed entity with substantial assets and activities; g PML did in fact meet payment of all ongoing Property holding costs and other expenses of PMLI throughout the period PMLI held the Property. Per the Pleash Solvency Report PMLI debts were directly discharged by PML via an inter company loan account which from 22 July 2013 to 20 September 2018 provided funds amounting to some $595,429; h As at the date of entry into the Wellington Loan on 29 July 2015 the following factors are considered to have been relevant and within the reasonable knowledge of the Directors of PMLI regarding the likelihood that the support of PML would be available to meet repayment of the Wellington Loan principle [sic - principal] and/ or any shortfall thereon, on its due date of 31 January 2016, and that such expectation was reasonable: i PML had in fact provided a guarantee of repayment of the debt by virtue of the formal Deed of Guarantee dated 29 July 2015; ii Wellington, Hutson and related parties had in fact received the bulk of the Wellington Loan funds immediately (on or about 29 July 2015) back in repayment of other debts then owing and due by PML thereby improving the financial position of PML at that date; iii The forecast accounting data available to the Directors reflect that there was cash resources expected to be available to PML to assist it to meet any shortfall amount as at the due date for repayment of the Wellington Loan on 31 January 2016. The relevant available forecast accounting data being that attached to the email of 4 March 2015 to PML's external auditor, which highlights an expected surplus cash balance at 31 January 2016 of $224,000 being available, prior to relevant adjustments which in my view increased that expected available cash resource to $274,000; iv Analysis of the available forecast accounting data combined with the expectation of sale of the Property and payout of the first mortgage indicates that sufficient funds (estimated to be in the order of $517,000) would have been available at 31 January 2016 to repay the Wellington Loan together with costs and interest; v The accounting forecasts for the consolidated PML Group available to the directors at 29 July 2015 include a forecast EBITDA (earnings before interest, tax and depreciation) for the 12 month reporting period of $753,000 and an EBDA (earnings before depreciation) of $525,000; vi There was a reasonable expectation of recovery of funds by PMLI from a dispute with a neighbour, such that cash payments of some $50,667.35 were in fact received by it, in a series of monthly payments commencing on 27 August 2015 and concluding on 10 December 2015; vii PML had in fact engaged in a program of acquisition of new equipment during 2014 and 2015 and held substantial relevant equipment to efficiently carry out its business; viii There was a willingness and actual capacity, evidenced by historical dealings, of parties related to PML, including particularly Mr Nigel Elias, to provide substantial and regular loans to PML for working capital. By way of example, loans were in fact advanced to PML in the relevant 2016 financial year by related parties, totalling $1,284,053 (source Note 27 2016 FY Accounts). ix At least some of the reported current trade creditor debt of PML identified in or about March 2015 was not in fact considered properly due and payable at that time due to it being subject of a dispute, these being amounts recorded as owing to Fuji Xerox Australia Pty Ltd totalling some $463,000 as at 4 March 2015; x There was numerous potential opportunities available to PML to raise funding via securing finance against certain of its printing assets, as set out in the 4 March 2015 email to the External Auditor, this included the HP indigo machine (potential finance raising of $50,000 to $100,000), Pitney Bowes MSE #2 (potential finance raising of $250,000), and Platemaker (potential finance raising of $100,000); xi A third party financier to the PML Group, being the Commonwealth Bank, had granted a temporary extension to the Groups overdraft facility, and was in discussions with Directors regarding a permanent extension to same, with such extension being ultimately approved in September 2015 following provision and review of relevant accounting data and forecasts; xii The independent external auditor of the PML Group did in fact sign off on the audits of the PML Group consolidated financial accounts for the relevant 2015 and 2016 financial years on a going concern basis; xiii PML has in fact survived to date and has not failed or entered into any formal external insolvency administration, despite any concerns or allegations raised regarding its solvency and financial position as at 29 July 2015. 107 At this point, it is convenient to interpolate that, in determining this issue, I have not had regard to the report in evidence prepared by Mr Pleash, one of the Liquidators. That is so because that report does not meet the requirements of the Federal Court Rules 2011 (Cth) relating to expert evidence. Moreover, it is essentially self-serving (see Asden Developments Pty Ltd (in liq) v Dinoris (No 3) (2016) 114 ACSR 347; [2016] FCA 788 at [118]). 108 Both Mr Elias and Mr Pereira gave evidence of their views as Directors of PMLI in respect of PMLI's solvency as a result of it entering into the Wellington Agreement. Both acknowledged that PMLI was entirely dependent upon PML to meet its financial obligations, but both expressed the opinion that it was reasonable for PMLI to hold the expectation that PML's support would continue to be provided. In his outline of evidence, Mr Elias expressed his views on this question in the following terms: 52. Although PMLI held assets (being the Property, and some intangible assets and cash at bank), PMLI did not generate income and was always reliant on its parent company, PML, to meet its financial obligations. There was always a significant overlap in the directorship of PML and PMLI, and as such both companies were always aware of each other's financial circumstances and intentions. 53. PML itself had numerous sources of income. It generated income through its business activities; it held assets which it could borrow against, and it had a pool of investors who could be relied upon to provide short-term unsecured funding (for example, to support cash flow) and longer-term funding on a secured or unsecured basis. … 56. In short, PML was able to raise capital quickly and reliably. PMLI through its directors (who overlapped significantly with PML's directors) were aware of this and could rely on PML for support to meet PMLI's financial obligations. 109 To support his statement in [53] above about the "pool of investors" who could be relied upon to provide short term unsecured funding to PML, Mr Elias listed 16 people who were shareholders of PML and/or PMLI. He said the majority of those people had provided such short term financial support in the past. In his oral evidence, Mr Elias provided further details in respect of each of those persons and summarised why it was that he was confident they would continue to provide such short term support. He said this confidence existed because: In all instances that I can remember, these people had advanced monies on an as-requested basis. Most of the time, interest free. Most of the time, with no security, and most of the time, advanced purely because of their personal relationship with me, and all of that still stood, and in all instances, there was - let me just check before I come out with this statement - in all instances that I could see, there were, with a couple of exceptions - what is the correct terminology - I had looked after their best interests - nothing to do with PML. 110 Mr Elias was also asked whether he had any concerns about PML guaranteeing PMLI's obligations to Wellington and he made the following response: No … [b]ecause I've referred already, to the cyclical nature of the cashflow of PML, and if PML was required to meet the obligation in full, then it could have done so on any one of the nominated sequential months. In addition to that, I would have not anticipated that PML would be required, under its guarantee, to pay for the full amount. I would have thought that the land would have been disposed of and effectively, PML would be up for the shortfall. And then, if it all went pear shaped, we have a list of people who - I would hesitate to say any one of them could have come up with $400,000 on 48 hours' notice. But it would have been perfectly practical to assume that, you know, 400 thousand-odd dollars could be produced within two or three weeks. 111 Mr Pereira gave similar evidence. He was asked what his expectation was as at 29 July 2015 in respect of PML's ability to meet its guarantee of PMLI's obligations to Wellington. He said: … So my expectation was at that date that PMLI would have sold the land, so that would have met the substantial portion so firstly, to the Maitland, and then secondly a substantial - or the overwhelming portion of the 420 that was due to [Wellington]. Unfortunately it didn't after that date as the matters that I've just described, but if PML was then called on, it then had the appropriate [means] to meet the liability or the shortfall due to [Wellington] from its own cashflows. We had prepared very details [sic] cashflows for auditors, for bankers that showed that there was going to be sufficient cash available at January of 2016 to meet an estimated shortfall. Otherwise there was opportunity to finance equipment which I've just mentioned just previously. And then thirdly, there was also opportunity for [Mr Elias] to go to his potential funders, either on a secured or unsecured basis to raise the money that was going to be required to pay out [Wellington].

Contentions 112 A large part of the Liquidators' written submissions on this issue were directed to the second issue above at [98], that is whether or not the directors of PMLI had engaged in unreasonable director-related transactions and/or had breached their duties as directors. Their submissions with respect to this issue were relatively brief, but nonetheless concise. They contended that "it would have been apparent to a reasonable director in the position of the [defendants] at the time that PMLI entered into the [Wellington Agreement], that it was not going to be able to service that debt on 31 January 2016 and nor was PML going to be able to provide the financial support necessary for it do so". They identified the latter as critical and submitted that "the issue of PML's insolvency will therefore be determined by the Court's findings of fact in this regard". In support of these contentions, they relied upon the following list of factors: a. PMLI was not trading at the time and had no means of generating its own income. There was no suggestion that this would change in the foreseeable future; b. PML's [sic - PMLI] only asset, the [property], had been listed at cost-price in the company's books and records, but the true value was much less than this. This was apparent to at least Mr Pereira and ought to have been apparent to the other directors. Its market value or realisable value was obviously the correct means to value the property; c. in these circumstances, the only means by which PMLI was ever going to be able to pay-out the monies owing to Wellington was by way of financial support from PML; d. PML, however, for the reasons outlined above and identified in detail in Ms Trenfield's report, was experiencing its own financial difficulties. It had needed to refinance, by way of the Wellington transaction, the monies that it owed to Armstrong and Wellington in mid-2015 and it also required finance to purchase the shares that were held by Babylon as it was required to do. It had not paid any of these debts, but it simply refinanced them by way of the Wellington transaction with PMLI. Nor, on its books or records, could it have afforded to account for and pay this deb [sic]; e. the best that could be said for PML was that if PMLI was able to quickly realise the market value of the [property], then it would only need to find monies in the order of $175,000.00 to pay out the balance of the Wellington debt. There were two (2) key problems with this: A. the first was that there was no evidence to suggest that PMLI could have marketed and sold the property for this price within six (6) months, and nor did it have any intention to do so on the evidence. If the property was not to be sold or could not be sold within this time period, then it was for PMLI to raise the full amount owing under the [Wellington Agreement] and there was no realistic chance that this could have occurred; B. the second problem for PML, it is not apparent (for the reasons identified by Ms Trenfield), that it could raise the balance of approximately $178,000.00 that was required in the event that PMLI was able to achieve market price for the [property] before 31 January 2016. The only means by which PML may have been able to do this would have been to cease operations and put all of its available resources into the payout of this debt. This was not realistic and was not something, in fact, that PML was willing to do when the time came. 113 In their written submissions, the defendants acknowledged that, because PMLI did not trade and had no source of income, its "ongoing solvency depended on its ability to rely on PML for financial support". They contended that the relevant question was therefore "whether, at 29 July 2015, the directors of PMLI could have reasonably considered they could rely on PML to be able and willing to provide the necessary financial support" (emphasis in original). They then proceeded to identify several reasons why it was reasonable for them to have that expectation. They included that: (a) PML had provided a guarantee in respect of PMLI's debt to Wellington. If PML did not meet that guarantee, the whole PML Group would be at risk and Mr Elias and Mr Pereira gave evidence that they would not have allowed PML to fail; (b) PML had been willing and able to provide PMLI with financial support in the past and there was every expectation it would continue to do so in the future. Further, PMLI had met its debts before July 2015 and continued to do so in the two years up to July 2017 and, similarly, PML has continued to trade and meet its debts up to the present time; (c) PMLI had a reasonable expectation of obtaining funds from the sale of the [property] and from the settlement of its litigation in respect of the sale of the neighbouring block. In fact, from August 2015, PML received, by instalments, the sum of approximately $50,000 from the settlement of that litigation; and (d) To the extent there was any shortfall in the funds available to PMLI, PML had numerous sources of funds to meet that shortfall, including the funds it could reasonably expect to receive from: the reduction in its lease guarantee of $50,000; the increase in its overdraft facility of $70,000; the leasing of its plant and equipment which it owned and was valued at up to $250,000; its ability to use its cash flow from its primary business activities; and its ability to obtain funds from its investors and shareholders as detailed by Mr Elias in his evidence.

Consideration 114 Although trite, it is important to note at the outset that this insolvency issue falls to be determined by reference to the case as pleaded by the Liquidators in their 4FASC (see at [96]-[98] above) and the provisions of the Act upon which they have relied, namely ss 588G and s 588FB. 115 Section 588G relevantly provides: (1) This section applies if: (a) a person is a director of a company at the time when the company incurs a debt; and (b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and (c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and (d) that time is at or after the commencement of this Act. (1A) For the purposes of this section, if a company takes action set out in column 2 of the following table, it incurs a debt at the time set out in column 3. When debts are incurred [operative table] Action of company When debt is incurred … 7 entering into an uncommercial transaction (within the meaning of section 588FB) other than one that a court orders, or a prescribed agency directs, the company to enter into when the transaction is entered into

(2) By failing to prevent the company from incurring the debt, the person contravenes this section if: (a) the person is aware at that time that there are such grounds for so suspecting; or (b) a reasonable person in a like position in a company in the company's circumstances would be so aware. Note: This subsection is a civil penalty provision (see section 1317E). … 116 And s 588FB provides: (1) A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to: (a) the benefits (if any) to the company of entering into the transaction; and (b) the detriment to the company of entering into the transaction; and (c) the respective benefits to other parties to the transaction of entering into it; and (d) any other relevant matter. (2) A transaction may be an uncommercial transaction of a company 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. 117 Accordingly, the pertinent question under s 588G is whether the defendants were aware, or whether a reasonable person in their position in PMLI, in its circumstances, would be so aware, that at the time PMLI incurred the Wellington loan debt there were reasonable grounds for suspecting that PMLI would become insolvent as a consequence. 118 However, that question is, in this matter, significantly affected by the form in which the reasonable grounds for suspecting that outcome were particularised in the Liquidators' 4FASC. Specifically, that PMLI's consequent insolvency stemmed from the fact that PML did not have the ability to provide the financial support that it had historically provided to PMLI and without that support PMLI did not have the income or resources to enable it to pay the Wellington loan debt. 119 In contrast, the pertinent question posed by s 588FB, as pleaded in the 4FASC, focuses more broadly on the Wellington Agreement as a transaction and the benefits and detriments flowing from it, rather than on the Wellington loan debt that was incurred by entering into that agreement. It asks, having regard to those matters, whether a reasonable person in the position of PMLI "may be expected" not to have entered into that transaction. 120 Additionally, s 588FB poses its question retrospectively: "would not have entered into the transaction", rather than prospectively: "at the time" the Wellington loan debt was incurred, as is prescribed by s 588G. As well, s 588FB: is limited to an objective assessment of the benefits and detriments associated with the transaction concerned; in making that assessment it permits regard to be had to the benefits other parties to the transaction concerned may have received; and it also permits regard to be had to "any other relevant matter". 121 However, despite these statutory differences, in their 4FASC the Liquidators have essentially raised the same solvency issue with respect to s 588FB as they have raised with respect to s 588G. That is so because, putting aside the allegation in particular (c) (see at [98] above) which I have determined against the Liquidators above, but with the addition of the relatively minor detriment that is alleged to have arisen from having to pay the interest on the Wellington loan debt (the second part of particular (b), see also at [98] above), the lack of benefit and detriment that are alleged to stem from the Wellington Agreement are essentially founded on the same alleged consequence as that described above, namely that neither PMLI nor PML could repay the monies owing under that agreement. 122 For present purposes, several things follow from this analysis. First, arising from a point made earlier: because their case on this issue is that PMLI became insolvent by entering into the Wellington Agreement, it necessarily follows that its solvency immediately before that event is not in issue. 123 Secondly, s 588G pivots on the debt that was incurred under the Wellington Agreement, namely the Wellington loan debt, and the effect that incurring that debt had on PMLI's solvency. Further, it requires that question to be determined either subjectively or objectively by reference to whether there were reasonable grounds to suspect that outcome "at that time". 124 Thirdly, on the other hand, s 588FB is directed to the transaction concerned namely the Wellington Agreement. It focuses on the benefits and detriments associated with PMLI entering into that transaction and requires an objective and retrospective assessment to be made. 125 Finally, the Liquidators have, in their 4FASC, effectively confined both of these questions to the effect incurring the Wellington loan debt, by entering into the Wellington Agreement transaction, had on the continuing financial support PMLI could expect to obtain from PML and whether PML would be able to provide that support. 126 Whether it is approached subjectively or objectively, or prospectively or retrospectively, for the reasons that follow, I do not consider incurring the Wellington loan debt, and entering into the Wellington Agreement transaction, had the pleaded effect on PMLI's solvency. To begin with, the Wellington loan debt was not an additional debt for PMLI but rather one that replaced the debt that it already owed to PML. Unsurprisingly, therefore, the evidence of Mr Pleash, one of the Liquidators, Mr Pereira, one of the defendants, and both expert witnesses called by the parties was variously to the effect that PMLI owed approximately the same level of debt after it incurred the Wellington loan debt and that there was no material change to its balance sheet. 127 Since PMLI is accepted to have been solvent immediately before the Wellington loan debt was incurred, it necessarily follows from the above that, at the time it was incurred, there was no reasonable ground to suspect that, by incurring it, PMLI would become insolvent. Alternatively, having regard to the events that occurred subsequently, reflected broadly by the fact that both PMLI and PML continued to pay their debts as they fell due for at least two years after PMLI entered into the Wellington Agreement transaction, there is no relevant reason (in the terms of s 588FB) to expect that PMLI should not have entered into that transaction. 128 These conclusions are not affected, in my view, by the facts that Wellington replaced PML as one of PMLI's two major creditors and that the date for repayment of the Wellington loan debt was fixed at 31 January 2016. That is to say, neither of these factors gave rise to the reasonable grounds, or the expectation, upon which the Liquidators have relied in their 4FASC, namely the removal of PMLI's reliance on PML's financial support through PML's inability to provide that support. 129 The former - the removal of PMLI's continuing support from PML - does not follow because it fails to take account of the fact that, concurrently with entering into the Wellington Agreement, PML provided a guarantee to Wellington that it would pay the Wellington loan debt should PMLI fail to do so. This gave a high level of assuredness to PMLI that PML would continue to provide the financial support to it that it had in the past and that it would, in particular, do so in respect of the Wellington loan debt. 130 Furthermore, this level of assuredness was reinforced, if that were necessary, by the commercial realities associated with existential threat that PML's failure to comply with the terms of that guarantee posed for the whole PML group. On this aspect I find as a fact that the defendants, as directors of PMLI, were aware of both of these matters because of the overlapping directorships between PMLI and PML. 131 In reaching these conclusions, I do not consider the February 2016 agreement to set aside that guarantee can be taken into account under s 588G because that event was not in contemplation at the time PMLI incurred the Wellington loan debt. Conversely, however, that event can be factored into the considerations under s 588FB because of the retrospective focus of that provision, as discussed earlier. 132 The latter - PML's inability to continue to provide its historical financial support to PMLI - does not follow, in the circumstances of this matter, for two reasons. First, it confuses the pertinent questions under ss 588G and 588FB reviewed above. In particular, it confuses PMLI's conduct of entering into the WA transaction and incurring the Wellington loan debt with PML's separate and distinct conduct of providing the guarantee to Wellington and/or incurring the contingency of having to pay the Wellington loan debt in the event of PMLI's default. Specifically, the Liquidators' case on this issue as pleaded in their 4FASC and the two statutory provisions upon which they rely, as reviewed above, are solely directed to the former and do not, therefore, engage the latter. 133 Secondly, and in any event, even if PML's ability to provide that support were a relevant issue, I consider that the defendants have adduced ample evidence to demonstrate that PML retained that ability. That evidence, which I accept, came from Mr Elias and Mr Pereira. It was to the effect that, in or about the period from July 2015, including January 2016 and beyond, PML could have reasonably expected funds to become available to it from the following sources: (a) the imminent reduction in its lease guarantee with its lessor of approximately $50,000; (b) the negotiated increase in its overdraft facility with the CBA of approximately $70,000; (c) making use of the periodic cash flow fluctuations available from its business activities, noting Mr Cotter's evidence that in January 2016 that amounted to a sum in excess of $200,000 and that PML had an estimated annual turnover at the time of $753,000 EBITDA and $525,000 EBDA (see at [106(h)(iii)] and [106(h)(v)] above, respectively); (d) securing finance against some or all of the equipment which it owned, noting Mr Cotter's evidence that between $50,000 and $250,000 may be available form this source (see [106(h)(x)] above); and (e) raising short term unsecured loans from the pool of investors and shareholders as outlined by Mr Elias (see at [110] above. 134 Together, these sources of funds and their total likely quantum demonstrate that, if pressed, PML was likely to be able to meet the whole of the Wellington loan debt by 31 January 2016, or within a short period thereafter. However, this conclusion fails to take account of the extent of the financial support that was likely to be required by PMLI. If, as the following demonstrates, PMLI's requirement for support was less than the full amount of the Wellington loan debt, then there is even more reason to conclude that PML was able to provide that support. 135 On this aspect, as Mr Cotter and Ms Trenfield have outlined in their reports, PMLI's main resource was its ability to sell the property and use the proceeds of that sale to reduce the Wellington loan debt. On that footing, while they disagreed as to the timing of that sale, they both agreed that the likely shortfall would be in the vicinity of $178,000. The other resource available to PMLI was the likely settlement of the litigation concerning the adjoining property purchase. It resulted in a payment of approximately $50,000 to PMLI in late 2015 (see Mr Cotter's report at [106(h)(vi) above). These resources therefore put the likely level of financial support required from PML at between $128,000 and $178,000. 136 To sum up, whether the financial support that PMLI required from PML in this period was $128,000, $178,000 or $ 420,000, I consider this evidence shows that PML had the ability to provide it. This conclusion means that PML would have had the capacity to avoid PMLI defaulting on the payment of the Wellington loan debt entirely, or if not, to itself meet any demand under the guarantee, assuming that demand was issued shortly after PMLI's partial default. Finally on this aspect, it is important to reiterate a finding made earlier in these reasons, namely that PML was not in financial distress in this period in 2015 (see at [73]). 137 In reaching these conclusions, I have not found it necessary to rely, to any significant extent, on the evidence of the expert witnesses called by the parties: Ms Trenfield and Mr Cotter. I have not, therefore, conducted a detailed analysis of that evidence. Nonetheless, the following brief observations are appropriate. First, I did not gain assistance from either expert insofar as they purported to express opinions about the performance of the real estate market in Tasmania. I do not consider that subject matter fell within their areas of expertise as elaborated in their reports. 138 Secondly, I did not gain a great deal of assistance from Ms Trenfield's opinions because, among other things, she: (a) disregarded the significance of the guarantee PML provided to Wellington, contrary to the conclusions I have reached above; (b) relied on PML being in financial distress in the apposite period in 2015, again contrary to the conclusions I have reached above; and (c) did not take sufficient account of the range of sources of funds available to PML as outlined above. 139 On the other hand, with the exception of the matters mentioned above, I generally gained greater assistance from Mr Cotter's opinions to the extent that they were relevant to this issue as pleaded by the Liquidators and the statutory provisions upon which their pleadings relied.

Conclusion 140 For these reasons, I do not consider the Liquidators have established their insolvency allegation against the defendants. Specifically, they have not established that the defendants breached s 588G of the Act, as a consequence of PMLI incurring the Wellington loan debt, or that they caused PMLI to enter into an uncommercial transaction as defined in s 588FB. The former all the more so having regard to the fact s 588G is a civil penalty provision and the resultant degree of satisfaction that is required to conclude that it had been breached (see at [101(e)] above). The Liquidators' case on this third issue therefore fails.

CONCLUSION 141 To sum up, for the reasons set out above, I do not consider the Liquidators have adduced the evidence necessary to establish, on the balance of probabilities, affirmative answers to any of the three issues set out above (at [16]). Their originating application filed on 10 April 2019 must therefore be dismissed with costs. Orders will be made accordingly. I certify that the preceding one hundred and forty-one (141) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Reeves.

SCHEDULE OF PARTIES QUD 240 of 2019 Defendants Fourth Defendant: ADRIAN JOSEPH PEREIRA