BACKGROUND
17 The plaintiff's primary business is the provision of debtor finance to borrowers (whom it calls clients). In providing this finance, the plaintiff requires its clients to: assign to it particular debts which are due and payable to the client by the client's own debtors (whom the plaintiff calls customers); grant security to the plaintiff; and procure personal guarantees to be given by the directors of the client and, sometimes, associated entities. The plaintiff then advances to the client amounts which are subject to facility limits. The plaintiff seeks payment directly from the customers based on the value of the debts that have been assigned (as shown on applicable invoices). Payment is made by the customers into a bank account which the plaintiff controls.
18 The plaintiff's ability to recover amounts that the client has invoiced to its customers is a key aspect of the plaintiff's debtor finance agreement with the client. In this connection, the plaintiff's usual practice is to obtain and rely on warranties given by the client about the recoverability of the amounts that the client has invoiced to the relevant customers; to periodically check that the invoices are due and payable following the client's supply of goods or services to the customers; and to rely on information obtained as a result of the checking process, to determine whether to make further funding available to the client.
19 On 11 December 2019, the plaintiff entered into a debtor finance facility agreement with the fifth defendant, Penny World Pty Ltd. The facility was guaranteed by three guarantors: the first defendant, Shadi Qaqour; the second defendant, Wizly Pty Ltd; and Penny Panel Machine Pty Ltd.
20 The first defendant is the sole director, secretary, and shareholder of the fifth defendant and the second defendant. He was also the sole director and shareholder of Penny Panel Machine Pty Ltd, but that company has now been deregistered. Previously, the third defendant, Mark Maximos (who is said to be the first defendant's business partner and best friend), and the first defendant's ex-wife, Nisrin Jebril, were directors of Penny Panel Machine Pty Ltd.
21 The fifth defendant's debtor finance facility with the plaintiff is in default. The fifth defendant owes the plaintiff $3,120,489.85. The plaintiff advanced this amount to the fifth defendant based on invoices that now appear to have been fabricated.
22 The sums advanced by the plaintiff were deposited by it in a bank account maintained by the fifth defendant with the CBA. These funds were then transferred, apparently by the first defendant, from that account into an account maintained by the second defendant, also with the CBA. I say "apparently by the first defendant" because the first defendant is the only signatory for the fifth defendant's CBA account.
23 The fifth defendant's CBA account now has a nil balance. At the present time, it is not known whether, and if so what, funds transferred from the fifth defendant's CBA account, and sourced from the advances made by the plaintiff, remain in the second defendant's CBA account.
24 At the time it entered into the debtor finance facility, the fifth defendant represented that its business was "wholesale building materials". The facility limit was, originally, $800,000. The facility limit varied from time to time. On 21 June 2021, the facility limit was increased to $5,000,000.
25 Under the terms and conditions of the facility, the fifth defendant warranted that:
(a) the details given to the plaintiff of the account, the related rights, the customer, the invoice, the agreement, and the goods or services, are true and correct;
(b) any copy invoice given to the plaintiff is exactly the same as the invoice given to the customer or, if the invoice is a recipient created tax invoice, is exactly the same as the invoice given by the customer;
(c) the fifth defendant has performed all obligations required for the enforcement of the account;
(d) the account is an existing, legal, valid, binding, undisputed, and enforceable payment obligation for its net value as evidenced by an invoice, is payable in full by the customer by no later than the recourse date, and is capable of being transferred by the fifth defendant to the plaintiff; and
(e) the fifth defendant will immediately give the plaintiff any information that it obtains in relation to the validity of an account, the creditworthiness of the fifth defendant's customer, any dispute or possible dispute about the account, the related rights, the agreement, or the goods and services, and anything else that might affect the collection of the account.
26 The plaintiff has two types of funding limits. The first is a limit on the total amount which the client will be permitted to owe the plaintiff at any given time. The second is a limit on the amount which the plaintiff will advance having regard to the client's debtor concentration.
27 On 3 May 2022, the fifth defendant sought an increase in respect of the second limit for some of its customers. When the plaintiff reviewed this request, it noted some anomalies in respect of some invoices which the fifth defendant had presented. For example, there were no references in the invoices and delivery documents to addresses for construction sites. Some customers appeared to be retail and grocery convenience stores, not customers involved in the building or construction industry in which the fifth defendant said it was engaged. There were other matters relating to the customers which raised the plaintiff's concerns. As a result, the plaintiff decided to make further enquiries.
28 In the course of undertaking these enquiries, the plaintiff discovered that a large number of the fifth defendant's customers had websites that were registered by the third defendant or by the fourth defendant, Omar Eddine. Further, the plaintiff noted that there appeared to be associations between the guarantors under the facility and some of the fifth defendant's supposed customers. When the plaintiff attempted to contact customers by telephone, it was met with automated messages, or the telephone line was disconnected.
29 The plaintiff investigated the bank account it maintained with Australia and New Zealand Banking Group Ltd (ANZ) into which the fifth defendant's customers were required to make payments. When it traced the source of funds represented as having been deposited into the account by some of the fifth defendant's customers, the plaintiff discovered that, on 11 out of 19 occasions, the deposit had been made by Constructions AU Pty Ltd, now the sixth defendant. The third defendant is the sole director, secretary, and shareholder of the six defendant. He was the signatory for the sixth defendant's bank account with the Bank of Queensland. On five occasions, the deposit had been made by AndConstruction Pty Ltd, now the seventh defendant. The fourth defendant is the sole director, secretary, and shareholder of the seventh defendant. He was the signatory for the seventh defendant's bank account with the Bank of Queensland.
30 The fourth defendant is also the sole director, secretary, and shareholder, of CCS 136 Castlereagh Pty Ltd, now the eighth defendant. The eighth defendant was listed as one of the fifth defendant's customers. It conducts a convenience store in Sydney's Central Business District. It does not appear to have any business connection with the building and construction industry. The evidence indicates that it did not receive the invoice that the fifth defendant had presented to the plaintiff as one of the invoices that supported the plaintiff's financing.
31 On 18 May 2022, the first defendant had a meeting with the plaintiff's General Manager for NSW/ACT, Mr Doczy. The meeting was held at the first defendant's request in the foyer of the building in which the plaintiff's office is located. The meeting was also attended by other employees of the plaintiff. In an affidavit made 14 June 2022, Mr Doczy deposed to the following conversation:
DOCZY: Thanks for meeting, it would have been better to meet at your premises.
QAQOUR: I'm too busy.
DOCZY: We could also have met up in our office.
QAQOUR: No, I know how you guys operate - I'm busy and don't have long.
DOCZY: Ok - as you know after attempting to verify and approve your new invoicing - it has not met our approval requirements and as such has been disapproved. We also re-conducted this process on all other active invoices and the result was the same. This has resulted in your account being overdrawn by more than three million dollars and this amount is due and payable to Scotpac - when can you repay that?
QAQOUR: I need you to give me 60 days to refinance your facility - but I need you to fund my invoices in the meantime.
DOCZY: We cannot fund invoices that don't meet approval. What additional security can you offer us to be able to agree to a period to secure refinance?
QAQOUR: I don't have any assets.
DOCZY: What about the other ledger you have - the invoices you don't give to Scotpac?
QAQOUR: Oh, they're all the same - to debtors that are developers - they just pay me when they get paid.
DOCZY: You are obliged to send all invoicing to Scotpac.
QAQOUR: Look, you have to give me time to refinance your facility otherwise we will find ourselves in a very dark place.
DOCZY: Is that a threat?
QAQOUR: No, I mean a dark place financially.
JURJEVIC: Are any of the invoices collectable?
QAQOUR: You already know the answer to that.
DOCZY: We will be issuing you with a breach letter and demand.
QAQOUR: No, you can't do that as it might affect my refinance - you can't discuss this with other financiers either.
DOCZY: Have you got a current offer?
QAQOUR: From a long time ago.
[As Qaqour said that, I saw him make a scrolling motion on his mobile telephone, and the conversation continued].
DOCZY: Who have you been speaking to?
QAQOUR: Matthew Erwin and others." [I understood the reference to Matthew Erwin to be to another invoice financier, of Cashman Consulting].
DOCZY: Who are the others?
QAQOUR: I can't remember. I can't find the emails. Do not send the breach and demand
DOCZY: It is required - it does not show on public record but it will be sent and you will need to respond.
VEERANI: Can you please update us on the progress of refinance facility with debtor finance providers?
QAQOUR: Yes, I will let you know.
32 Mr Doczy heard nothing further from the first defendant.
33 On 19 May 2022, the plaintiff issued notices of default under the debtor financing facility to the fifth defendant, and to the first defendant and the second defendant as guarantors.
34 On 23 May 2022, the plaintiff appointed receivers and managers (Grahame Ward and Domenic Calabretta of Mackay Goodwin) (the receivers) to the fifth defendant.
35 The receivers' investigations have uncovered the following facts.
36 The fifth defendant's registered office is given as Unit 24, 809 Pacific Highway, Chatswood. When Mr Ward attended the address on 24 May 2022 (a commercial high-rise), he was informed by the female occupant of the premises that: she conducted a business called Wealthpool; she had occupied the premises for several years; and that she had never heard of Penny World.
37 The invoices issued by the fifth defendant record its address as Suite 903, Level 9, 10 Help Street, Chatswood. When Mr Ward attended the address on 24 May 2022 (also a commercial high-rise), he observed that Suite 903 had signage which showed the occupant as WHG Oceania Pty Ltd. The premises were unattended. Mr Ward saw nothing that would suggest that the premises had anything to do with the fifth defendant.
38 A property search conducted against the second defendant revealed that it is the tenant of premises at 3/7 Exell Street, Banksmeadow. This is a large industrial unit. When Mr Ward attended the premises on 24 May 2022 he observed a sign recording the name Penny World or Penny Panel (Mr Ward could not recall the exact name) on the front entrance window. The premises had an upstairs office space with a sign showing the name Penny World. The premises contained large machinery primarily used for packaging and manufacturing (such as for boxing and labelling), but not building materials. Mr Ward observed items associated with the packaging and sale of tobacco-related products. He did not observe any activity consistent with the premises being used for the supply of building or construction materials. Amongst the items he found at the premises was a cheque book for the account name Opal International Pty Ltd. The fifth defendant represented this company as one of its customers.
39 The receivers' investigations revealed that many of the premises of the fifth defendant's customers are, in fact, convenience stores. Some of the premises had closed. A number of the premises were not connected with the customer said to have been operating from the premises. The occupants of the premises that were visited had never heard of Penny World and had not received the invoices from the fifth defendant, on the faith of which the plaintiff had made the advances.
40 The fifth defendant's bank statements, in relation to its CBA account, for the period 25 March 2022 to 31 May 2022, show large deposits by the plaintiff in that period (29 March; 1, 6, 12, 14, 20, 26, and 28 April; and 3, 4, 9, and 13 May) in respect of the advances it had made, in most cases followed by what appears to have been the almost immediate withdrawals of funds in round figures corresponding to the deposited amounts. None of the withdrawals have a clear and obvious relationship with the fifth defendant's represented business.
41 Overwhelmingly, the withdrawals appear to have been for personal expenditure (apparently, the first defendant's personal expenditure), including overseas travel. In this latter regard, the bank statements show what is obviously the purchase of an airline ticket with Emirates, international ATM withdrawal fees, international transaction fees, in-flight service fees, hotel accommodation in Jordan, and expenditure in Dubai, to name just a few entries. The entries include a transfer to RTGS Constructions, which is meant to be one of the fifth defendant's customers. The entries also include a transfer to "Omar". This appears to be a reference to the fourth defendant.
42 The receivers' investigations revealed that the third defendant is, or was, a director of many of the entities represented as being the fifth defendant's customers. As I have noted, the fourth defendant is the sole director of the eighth defendant (one of the represented customers). He replaced the third defendant in that role.