SX Projects Pty Ltd (in liq) v V Battaglia & Ors

Insolvent trading claims

1. The Plaintiffs plead, and the Defendants deny, that SX Projects was not solvent by about February 2014 by reason of its continuing indebtedness to the Australian Taxation Office ("ATO") in respect of outstanding income tax, general interest charges, GST and penalties; its indebtedness to trade creditors outside the terms of payment, including in respect of liabilities arising in 2014 and prior thereto; the occurrence of the Security Account withdrawals commencing on 3 February 2014; its failure to lodge its income tax return and PAYG payment summary for the financial year ended 30 June 2015 and its business activity statement for the quarter ended 31 December 2015; unsupported asset entries in its accounts in respect of issued and paid up capital and property, plant and equipment and construction work-in-progress and in respect of a suspense account; its assumption of debts and liabilities of SX2 and its inability to, or failure to discharge those debts and liabilities; and other matters (APC [25], APD [25]). The Plaintiffs also claim, and the Defendants deny, that SX Projects was insolvent from time to time during the 12 months ending on the Relation-Back Day (as defined) and it is presumed that it was insolvent throughout the period beginning at that time and ending on the Relation-Back Day under s 588E of the Act (APC [26], APD [26]).
2. The Plaintiffs plead, in respect of the insolvent trading claim, that SX Projects incurred the debts set out in Schedule F to the Points of Claim which, as amended in the course of the hearing, totalled $6,021,262.28, subject to a further correction to which I refer below. The Defendants admitted that SX Projects incurred those debts, previously quantified in a slightly larger amount (APC [58], APD [58]), but did not specifically admit the dates on which those debts were incurred. The Plaintiffs plead that SX Projects was insolvent or became insolvent by incurring those debts; that, at the time the debts were incurred, there were reasonable grounds for suspecting that SX Projects was insolvent or would become insolvent by incurring them; that Mr Battaglia failed to prevent SX Projects from incurring the debts in circumstances where he was aware there were grounds for suspecting that SX Projects were insolvent, or a reasonable person in his position and in SX Projects' circumstances would have been aware of that matter; and that persons to whom those debts are owed have suffered loss or damage, in that the debts have not been paid; and those debts were wholly or partly unsecured, and have been so at all material times (APC [58]-[63]). The Defendants deny those matters, other than that they admit that the debts are wholly or partly unsecured (APD [58]-[63]). The Plaintiffs seek, under s 588M of the Act, an order that Mr Battaglia pay the amount of the loss and damage suffered by the persons to whom those debts were due and the Defendants deny that the Plaintiffs are entitled to that relief (APC [64], APD [64]).
3. In order to establish liability for insolvent trading on the part of Mr Battaglia under s 588G of the Corporations Act, the Plaintiffs must establish, relevantly, that (1) as is common ground, he was a director of SX Projects at the time it incurred a debt; (2) SX Projects was insolvent at the time the debt was incurred, or became insolvent by incurring the debt; (3) at the time the debt was incurred, there were reasonable grounds to suspect that SX Projects was insolvent or may become insolvent by incurring the debt; (4) and Mr Battaglia was aware that there were reasonable grounds to suspect insolvency or a reasonable person would have been aware of that matter. I proceed on the basis that an insolvent trading claim must be established having regard to the standard of proof recognised in the general law in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362 and under s 140 of the Evidence Act 1995 (NSW), which similarly provides that, in a civil proceeding, the Court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities and that, without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account the nature of the cause of action or defence, the nature of the subject-matter of the proceeding and the gravity of the matters alleged.
4. The question whether SX Projects was insolvent, in fact, at the time the relevant debts were incurred, or became insolvent by incurring those debts, is to be determined by reference to s 95A(1) of the Corporations Act. That section provides that a company is solvent if, and only if, it is able to pay all its debts, as and when they become due and payable. Section 95A(2) of the Corporations Act has effect that a person who is not solvent is insolvent. That definition adopts a "cash flow test" of insolvency which turns upon the income sources available to the company and the expenditure obligations that it has to meet, although a balance sheet test can provide context for the application of the cash flow test: Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 39 ACSR 305; Australian Securities and Investments Commission v Plymin (No 1) [2003] VSC 123; (2003) 46 ACSR 126 at [370]ff, aff'd Elliott v Australian Securities and Investments Commission [2004] VSCA 54; (2004) 10 VR 369; and see Re Swan Services Pty Limited (in liq) [2016] NSWSC 1724 at [136]ff, on which I have drawn for this summary of the applicable principles.
5. Whether a company is able to pay its debts as and when they fall due and payable is a question of fact to be determined objectively and without hindsight in all the circumstances, including the nature of its assets and business, and the Court will have regard to commercial realities in that regard: Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation above at [54]; White Constructions (ACT) Pty Ltd (in liq) v White [2004] NSWSC 71; (2004) 49 ACSR 220 at [289]; Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran [2005] NSWCA 243; (2005) 54 ACSR 410 at [103]; Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd [2011] NSWSC 186; (2011) 248 FLR 384 at [48]-[49]. Matters which may support a finding of insolvency include those referred to in Australian Securities and Investments Commission v Plymin (No 1) above at [386], where Mandie J identified several indicia of insolvency including: continuing losses; liquidity ratios below one; overdue Commonwealth and State taxes; a poor relationship with the lenders, including any inability to borrow further funds; no access to alternative finance; inability to raise further equity capital; suppliers placing a company on cash on delivery arrangements or otherwise demanding special payments before resuming supply; creditors unpaid outside trading terms; the issuing of postdated cheques; dishonoured cheques; special arrangements with selected creditors; solicitors' letters, summonses, judgments or warrants issued against a company; payments to creditors of rounded sums not reconcilable to specific invoices; and inability to produce timely and accurate financial information to display a company's trading performance and financial position, and make reliable forecasts; see also Morris v Danoz Directions Pty Ltd (in liq) (No 2) [2010] FCA 836 at [13]. In determining a company's solvency, the Court may also have regard to the likelihood that it will have funds available to it from sources with which it has no formalised agreement or understanding, including loans from its directors or from third parties, at least if they are not repayable in the short term, and the company's ability to borrow funds can also be taken into account: Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran above at [109]-[112]; International Cat Manufacturing (in liq) v Rodrick [2013] QCA 372; (2013) 97 ACSR 200; First Strategic Development Corporation Ltd (in liq) v Chan [2014] QSC 60 at [67]-[69].
6. In his affidavit dated 10 September 2018, Mr Goyal expresses the view that SX Projects was insolvent from as early as February 2014 and continuing from that date until Mr Reidy was appointed as administrator of SX Projects in January 2016 (Goyal 10.9.18 [107]). Mr Goyal refers to multiple demands for payment issued to SX Projects by its creditors in the period from May 2013 until late 2015. He also refers to evidence of outstanding tax debts due to the ATO as at November 2013 and to SX Projects' failure to meet taxation obligations from early 2014, and to the fact that the ATO ultimately proved for a debt of $2,089,806 in respect of SX Projects' running balance account in the liquidation. Mr Goyal also refers to claims by creditors against SX Projects in excess of $40 million, although these include claims which may not yet have been adjudicated in the liquidation. Mr Goyal also refers, in support for his view that SX Projects was insolvent throughout the period, to the withdrawals from the Security Account maintained under the arrangements with AssetInsure commencing in February 2014, with total withdrawals of $3,624,748.33 from that account between February 2014 and December 2014 (Goyal 10.9.18 [125]). Mr Goyal also refers to his assessment that the value attributed to property, plant and equipment in SX Projects' balance sheet and to construction work-in-progress in that balance sheet was overstated (Goyal 10.9.18 [132]-[134]). As I have noted above, Mr Battaglia withdrew from the hearing after the first day of the hearing and Mrs Battaglia and the corporate Defendants did not appear, and they made no attempt to lead evidence in response to Mr Goyal's evidence of these matters or to cross-examine Mr Goyal as to the correctness of the views that he had expressed.
7. Ms Tran gave evidence of the substantial volume of calls that she received from subcontractors and suppliers complaining of late payment by SX Projects. She also set out the practice adopted in SX Projects for payment of invoices, and her evidence was that there was never sufficient funds in SX Projects' trading accounts to pay outstanding invoices; SX Projects usually paid invoices about 45-90 days after they were issued to it; Mr Battaglia would direct which invoices were to be paid and when; and invoices were only paid when a payment was received from a developer, and there were generally insufficient funds to pay outstanding invoices and new invoices received each month. Ms Tran also outlined the process by which decisions were made as to which creditors were paid, including by reference to whether the particular creditor had threatened to put SX Projects' trading account with it on hold, was threatening legal proceedings or supplies were required from it to ensure that works continued on project sites. Ms Wilson also describes a process that was adopted by SX Projects for the preparation of "dummy" cheques which were not provided to creditors at the time they were drawn and some payments were later made by electronic funds transfer. She also sets out the process which was adopted to move funds into and out of the Security Account and to correspondence between SX Projects and AssetInsure in relation to the balance of that Security Account.
8. Mr Wilson's evidence was also relevant to SX Projects' solvency and to Mr Battaglia's knowledge of its financial position. Mr Wilson's evidence was that Mr Battaglia would direct Ms Tran to pay particular creditors, and Mr Wilson also expressed the view that the several projects undertaken by SX Projects were not profitable, because they were carrying losses from SX2, and that SX Projects had commenced operations with a net asset deficiency in the order of $4-5 million (Wilson 19.9.17 [15]). Mr Wilson referred to the inclusion in work-in-progress accounts of costs that could not be billed to a client and should have been written off, so that those work-in-progress accounts were overstated (Wilson 19.9.17 [16]-[17]), and to difficulties arising because SX Projects operated two separate database files, where the database used for SX2 had not been migrated to SX Projects, and it was necessary to reconcile both database files to obtain the true financial position of SX Projects (Wilson 19.9.17 [22]). Mr Wilson also referred to his knowledge of cash flow issues facing SX Projects, from the commencement of his employment, and to the practice of drawing cheques that were not sent to creditors, to creditors' demands for payments and the receipt of statutory demands and letters from creditors' legal representatives; to suppliers withdrawing supply or placing accounts on a cash on delivery basis; and to late payment of superannuation payments for employees (Wilson 19.9.17 [24]). Mr Wilson also referred to SX Projects' failure to comply with payment plans agreed between it and the ATO and Office of State Revenue respectively (Wilson 19.9.17 [24]).
9. Mr Wilson also referred to a practice by which project managers gave Ms Tran instructions as to which creditors should be paid (Wilson 19.9.17 [30]). Mr Wilson also set out the process for preparation of management accounts, with a "suspense account" being used to balance those accounts, and he expressed the view that that ledger was "entirely fictional" and gave evidence that it was used to "park" losses from unprofitable projects (Wilson 19.9.17 [33]). Mr Wilson's evidence was that, in those circumstances, the recoverable receivables and revenue contained in SX Projects' monthly management accounts were grossly overstated and there were inconsistencies in the reconciliation of aged creditors because of the notional drawing of cheques. Where Mr Battaglia withdrew from the proceedings after the first day, and Mrs Battaglia and the Defendant companies did not appear, no evidence was led to respond to Mr Wilson's evidence and he was not cross-examined.
10. Ms O'Connell's evidence is that, particularly in 2015, she provided guidance to Ms Tran as to which creditors of SX Projects should be paid and prepared a "payment forecast" which allocated available funds to those creditors that were most pressing or urgently needed to be paid, which were creditors which had threatened legal proceedings or had stopped work on projects or had threatened to enforce their debts against Mr Battaglia personally (O'Connell 10.5.18 [27]). Ms O'Connell's evidence was that SX Projects was constantly pursued by creditors during her dealings with the company and those creditors typically telephoned Ms Tran and sometimes telephoned Ms O'Connell directly (O'Connell 10.5.18 [30]). Ms O'Connell also refers to circumstances in which creditors attended SX Projects' office to demand payment and to occasions on which threats were made by creditors claiming such payment (O'Connell 10.5.18 [31]). Ms O'Connell's evidence is that the position in respect of creditors further deteriorated between the start of her involvement with SX Projects in 2013 and early 2015 (O'Connell 10.5.18 [32]-[34]). Ms O'Connell also set out the process by which decisions were made to pay particular creditors, and her evidence was that she showed Mr Battaglia the creditor list on an ad hoc basis, usually when he was under pressure for payment from a particular creditor (O'Connell 10.5.18 [43]), and had discussions with Mr Battaglia as to how creditors would be paid. She also referred to occasions on which Mr Battaglia insisted that a payment be made to a creditor outside of the usual payment cycle (O'Connell 10.5.18 [44]-[46]).
11. There is evidence of creditor's statutory demands received by SX Projects throughout the period, from at least June 2013 onwards (for example, Ex P4, tab 81), garnishee orders (for example Ex P4, tab 106), letters of demand from creditors and their solicitors (for example, Ex P4, tabs 119, 318), communications from the ATO in respect of outstanding taxation debts (for example, Ex P4, tabs 122, 228); and delays in payment of staff superannuation (for example, Ex P4, tab 291, referring to SX Projects being two months behind in payment of staff superannuation, with over $100,000 unpaid).
12. In his expert report, Mr Melluish rightly proceeded on the basis that s 95A of the Corporations Act requires an assessment primarily by reference to the cash flow test and also on a balance sheet basis, and that insolvency is a matter of commercial reality in the light of all of the circumstances with a focus on solvency rather than liquidity. Mr Melluish noted the circumstances in which SX Projects was established and took up assets and construction projects from SX2. He undertook an analysis of SX Projects' balance sheet, including cash, debtors, work-in-progress, property plant and equipment and trade creditors and share capital over the period, and noted that SX Projects' net asset position relied on a large balance of work-in-progress to maintain a positive balance, but that it was not likely to have had a positive work-in-progress balance at any point after it took over projects from SX2. Mr Melluish concluded that SX Projects was likely to have been balance sheet insolvent from at least 1 July 2013, with negative net assets at each of 30 June 2013, 30 June 2014 and 30 June 2015. After excluding work-in-progress which Mr Melluish considered should have been valued at zero, he concluded that SX Projects suffered significant losses in each of the financial years ended 30 June 2013, 30 June 2014 and 30 June 2015, which are consistent with the shortfall that existed when SX Projects was placed in liquidation. He considered that SX Projects had a shortfall of current assets as against current liabilities, with the position deteriorating in January 2014 and further worsening from 30 April 2014, such that it had a working capital shortfall of nearly $8 million from April 2014 and up to $20 million in March 2015 and December 2015. He also considers the prospects of further borrowings, sale of assets and equity to restore SX Projects' solvency and expressed the view that SX Projects was not in a position to obtain additional funding from external parties.
13. Mr Melluish also compared creditors due and payable with SX Projects' cash at bank for the period February 2013 to April 2014, and then from April 2014 to January 2016, and noted SX Projects' non-compliance with payment plans agreed with the ATO and multiple demands for payment received from creditors throughout the period. He concludes that SX Projects was insolvent from 30 April 2014 (or, perhaps more correctly, at least from 30 April 2014) having regard to the debts that were then due and payable; the amount of its cash resources; the absence of assets that could be realised within a short period of time to meet the shortfall in cash resources against claims; the period that it was taking to meet its liabilities; and the fact that it was balance sheet insolvent and loss-making. Mr Melluish also refers to the indicators of insolvency noted in Australian Securities and Investments Commission v Plymin (No 1) above and observed that each of those indicators of insolvency were present during the relevant period. Mr Melluish also observed that SX Projects could possibly have been insolvent from 1 July 2013, and that the evidence of its insolvency was "irrefutable" as at 30 April 2014 as all of the indicia of insolvency were met from that time. He expressed the view that SX Projects was insolvent from that date, irrespective of whether the shortfall of the amount held in the Security Account was then due and payable to Swiss Re. I find below that, having regard to the affidavit and documentary evidence led in these proceedings, SX Projects was insolvent from earlier than the April 2014 date from which Mr Melluish considers its insolvency to be irrefutable.
14. By his further affidavit dated 2 October 2018, Mr Melluish referred to a further letter of instruction and updated chronology and annexed a supplementary report dated 28 September 2018. Mr Melluish there disregards information previously contained in an affidavit of the former liquidator, Mr Reidy, and relies on Mr Goyal's affidavit dated 10 September 2018 and its exhibits, to which I have referred above, and confirmed the views expressed in his earlier report dated 25 November 2016.
15. Mr Cook submits that there are multiple indicia of SX Projects' insolvency from at least February 2014. Mr Cook submits, and the evidence to which I have referred above establishes, that SX Projects lacked sufficient money to pay its debts when due to its creditors throughout the relevant period, and only paid some of its creditors, on a selective basis, when it received payments from developers in respect of the projects it was working on. Mr Cook also points out that creditors were not paid on time, and there were multiple occasions on which they ceased supply or insisted on cash on delivery arrangements, and were regularly issuing creditor's statutory demands and correspondence regarding unpaid debts, and also points to the late superannuation payments to which I referred above. Mr Cook submits that the reasons for SX Projects' financial difficulty, at the point at which it commenced trading in mid-2013, was that it had taken on liability for at least some of the debts of SX2, and that Mr Battaglia had not subscribed the equity capital recorded in SX Projects' accounts, either because there was no subscription or it reflected a journal entry where that amount was offset against Mr Battaglia's loan account. It is not necessary to determine why SX Projects was in financial difficulty, in order to find that it was unable to pay its debts as and when they fell due and was insolvent, for the reasons set out above, although the matters to which Mr Cook refers provide a possible explanation of SX Projects' insolvency.
16. Mr Cook also points to Mr Melluish's conclusion that SX Projects was insolvent regardless of whether the amounts in the Security Account were available to it. Mr Cook also submits, and I accept, that SX Projects' conduct in respect of the Security Account is itself an indicator of insolvency, where SX Projects would likely not have undertaken that conduct, placing its ability to obtain further security bonds from Swiss Re at risk, unless it had no alternative to do so. Mr Cook submits, and I also accept, that there is no evidence that Mr Battaglia was willing or able to support SX Projects by injecting further capital and the evidence is, as I will find below, that monies were paid out of SX Projects during the relevant period to Mr Battaglia and associated entities.
17. It is apparent, from the evidence to which I have referred, that SX Projects did not and could not pay its debts as and when they fell due from at least February 20`4. It had substantial overdue taxes and an apparent inability to borrow further funds or access alternative finance or further equity capital; its creditors were paid outside trading terms and were issuing letters of demand and creditors statutory demands or stopping supply; it was making selective payments to creditors; and its conduct in respect of the Security Account was also indicative of its inability to pay its creditors from its financial resources. I find that SX Projects was insolvent throughout the relevant period, and at least from February 2014 until Mr Reidy was appointed as voluntary administrator of SX Projects in January 2016.

Mr Battaglia's knowledge of SX Projects' insolvency

1. The next question is whether, during the period in which SX Projects was insolvent, there were reasonable grounds to suspect it was insolvent or would become insolvent as a consequence of incurring a relevant debt (s 588G(1)) and Mr Battaglia was aware of that matter (s 588G(2)(a)) or a reasonable person in a like position in a company in SX Projects' circumstances would be so aware (s 588G(2)(b)). This requirement may be satisfied either by proof that a director had a subjective awareness of grounds that constitute reasonable grounds for suspecting insolvency, or that a reasonable person in the position of the director would have been aware of the existence of such grounds: Australian Securities and Investments Commission v Plymin (No 1) above at [426]. This requirement adopts a lower threshold of the existence of reasonable grounds for "suspecting" that the company was insolvent or would become insolvent as a result of the transaction, rather than of an expectation that the company was insolvent or would become insolvent as a result of a transaction. In Hall v Poolman [2007] NSWSC 1330; (2007) 65 ACSR 123 at [234], Palmer J noted that the standard of "suspicion" of insolvency: "falls somewhere between a belief that insolvency exists, on the one hand, and a mere wondering whether it exists, on the other. Suspicion is a positive feeling of apprehension, an admittedly tentative belief, without sufficient evidence to form a concluded and supportable opinion."
2. In Powell v Fryer [2001] SASC 59; (2001) 37 ACSR 589 at [76]-[77], Olsson J (with whom Duggan and Williams JJ agreed) observed that: "The test to be applied in relation to s 588G(1)(c) is objective: Metropolitan Fire Systems Pty Ltd v Miller (1997) 23 ACSR 699 at 702-3. As Duggan J pointed out in Group Four Industries Pty Ltd v Brosnan (1991) 56 SASR 234 at 238; 5 ACSR 649, the state of knowledge of a particular director and any assessment which he may have made as to the ability of the company to pay its debts is irrelevant. The court must make its own judgment on the basis of facts as they existed at the relevant time and without the benefit of hindsight."
3. The question whether such reasonable grounds to suspect insolvency existed is to be determined by reference to the position of a director of reasonable competence and diligence, who performed his or her duties imposed by law, and reached a reasonably informed opinion as to the financial capacity of SX Projects: Smith v Bone [2015] FCA 319; (2015) 104 ACSR 528 at [367]; and see also Re Swan Services Pty Limited (in liq) above at [178]ff on which I have drawn for this summary of the applicable principles.
4. The matters to which I have referred above, which led to the finding that SX Projects was insolvent from at least February 2014, also support the finding that there were reasonable grounds to suspect the insolvency of SX Projects from that time. Those matters were known to Mr Battaglia, or would have been known to a reasonable person performing the duties of a director of SX Projects. The evidence of Ms Tran, Mr Wilson and Ms O'Connell establishes that Mr Battaglia knew of SX Projects' inability to pay its debts as and when they fell due and consequently of its insolvency. As I noted above, Ms Tran's evidence was that Mr Battaglia would direct which invoices were to be paid and when. She also refers to occasions on which Mr Battaglia directed that particular payments be made, including in respect of legal fees. As I noted above, Mr Wilson's evidence was also that Mr Battaglia would direct Ms Tran to pay particular creditors, and that he discussed his concerns as to the level of SX Projects' unpaid creditors with both Ms O'Connell and Mr Battaglia (Wilson 19.9.17 [27]). Mr Wilson's evidence was also that Mr Battaglia had instructed him not to write off debts that were not recoverable, where that would show a loss and impact on the balance sheet; and he referred to conversations with Mr Battaglia concerning the inflation of the work-in-progress figure, where Mr Battaglia acknowledged that matter but instructed Mr Wilson not to correct the work-in-progress balance where that would show losses and negative equity and impact on SX Projects' ability to obtain home owners warranty insurance (Wilson 19.9.17 [37]).
5. Ms O'Connell's evidence was that she had conversations with Mr Battaglia in which she responded, to his inquiries why a particular creditor had not been paid, that "we don't have any money" (O'Connell 10.5.18 [35]). As I noted above, Ms O'Connell's evidence was also that she showed Mr Battaglia the creditor list on an ad hoc basis, usually when he was under pressure from a particular creditor (O'Connell 10.5.18 [43]) and she referred to discussions with Mr Battaglia as to how creditors would be paid and to occasions on which Mr Battaglia insisted that a payment be made to a creditor outside of the usual payment cycle (O'Connell 10.5.18 [44]-[46]). Again, where Mr Battaglia withdrew from the proceedings after the first day, and Mrs Battaglia and the Defendant companies did not appear, no evidence was led to respond to Ms Tran's, Mr Wilson's or Mr O'Connell's evidence and they were not cross-examined or challenged as to these matters.
6. Mr Cook also submits, and I accept, that a director of reasonable competence in Mr Battaglia's position, performing his duties in accordance with the Act, would have had reasonable grounds to suspect insolvency throughout the period of insolvency, from at least February 2014. It was at least apparent to Mr Battaglia, and would have been apparent to a director of reasonable competence in his position, that SX Projects could not meet all its debts as and when they fell due from available funds, which necessitated the steps that were taken to choose which creditors would be paid in particular months; there was a consistent pattern of late payments and demands for payments which was, as I noted above, indicative of the failure to pay SX Projects' debts when they were due; the volume of creditors' statutory demands, demands for payment by creditors, and failures to meet arrangements in place with the ATO was indicative of an inability to meet SX Project's debts as and when they fell due; and the steps which were being taken to remove money from the Security Account, without AssetInsure's consent, were also indicative of that inability. The conclusion that these matters were known to Mr Battaglia follows from the evidence to which I have referred above and, in particular, Ms O'Connell's advice to him as to SX Projects' inability to pay its creditors and his involvement in giving directions as to which creditors were to be paid, and directing Mr Wilson that SX Projects' accounts were not to be revised to establish its true financial position. Even if he did not know of any of those matters, a director of reasonable skill and competence in his position would have known those matters.
7. These matters are sufficient to establish both Mr Battaglia's actual knowledge, and that a reasonable person in a like position in a company in SX Projects' circumstances would know, that there were reasonable grounds for suspecting that SX Projects was insolvent in the relevant period, from at least February 2014 until Mr Reidy was appointed as voluntary administrator of SX Projects.

Quantum of compensation recoverable for insolvent trading

1. As I noted above, the Plaintiffs claim compensation against Mr Battaglia under s 588M of the Corporations Act. That section relevantly provides for the recovery of compensation for loss resulting from insolvent trading. Mr Cook refers to the observations of Barrett J in Edenden v Bignell [2007] NSWSC 1122 at [30] that: "[Section 588M] does not allow recovery of the amount of the creditor's debt as such. Rather, it is a provision allowing recovery of compensation measured by reference to loss or damage suffered by the creditor in relation to the debt because of the debtor's insolvency. In some cases - perhaps most cases - this will be the equivalent of the amount of the debt: see, for example, Powell v Fryer (2001) 37 ACSR 589. In others - for example where a proof of debt is admitted and a substantial payment is made to all creditors rateably - the relevant loss or damage may be less than the amount of the debt. There may perhaps be circumstances in which the amount of the loss or damage exceeds the amount of the debt. The separateness of the debt, on the one hand, and the loss and damage, on the other, is emphasised by the statement in s 588M(3) that an amount equal to the loss or damage may be recovered "as a debt due to the creditor".
2. The Plaintiffs rely on numerous affidavits of creditors to establish that debts claimed in the insolvent trading case were incurred during the relevant period. An affidavit dated 24 November 2016 of Mr George Bromwich, a director of a plumbing company, refers to that company's provision of plumbing and related services to SX Projects at several locations and to invoices issued for work completed after February 2014, certain of which included claims for retention amounts for works carried out between October 2012 and October 2014. The Plaintiffs have since amended their claim for compensation for insolvent trading to exclude the amounts of retention amounts referable to earlier periods. An affidavit dated 24 November 2016 of Mr David Postle, the managing director of a glass and glazing company, refers to invoices issued by that company to SX Projects in relation to several projects between December 2014 and January 2016, relating to work completed between April 2014 and January 2016. A second affidavit dated 8 December 2016 of Mr Postle refers to services provided to SX Projects between May and December 2014 in respect of two projects, and to a debt of $240,550.78 owed by SX Projects to that company.
3. An affidavit dated 24 November 2016 of Mr Michael Ryan, a director of a landscaping company, refers to invoices issued by that company to SX Projects between August 2015 and November 2015, relating to services completed on a development between June and November 2015, and the debt owing by SX Projects to that company is $138,974. An affidavit dated 25 November 2016 of Mr Ali Obaidi, the director of a joinery company, refers to invoices issued by that company to SX Projects between August 2014 and January 2015, in respect of services provided in relation to several projects between February 2014 and November 2015 and the debt owing by SX Projects to that company is $550,585.28. An affidavit dated 24 November 2016 of Mr Brendan Doyle, the director of a carpentry labour hire company, refers to invoices issued to SX Projects for goods and services provided between October 2014 and December 2015, for work performed in that period and the debt owing by SX Projects to that company is $170,897.12. An affidavit dated 25 November 2016 of Mr Gregory Stockbridge, a director of a company which installs shower screens, refers to invoices issued between July 2014 and January 2015 in respect of three projects, relating to work completed between July 2014 and January 2015 and the debt owing by SX Projects to that company is $182,082.17. An affidavit dated 25 November 2016 of Nira Kanthan, the financial manager of a company which supplies reinforced steel, refers to invoices issued between September 2015 and December 2015 in respect of several projects, relating to goods delivered between those months and the debt owing by SX Projects to that company is $116,089.62.
4. An affidavit dated 25 November 2016 of Dian Jones, the office manager of a company which conducts a marketing and promotions business, refers to invoices for goods provided to SX Projects between November 2014 and December 2015 and the debt owing by SX Projects to that company is $5,114.88. An affidavit dated 25 November 2016 of Mr Alberto Mastronardo, a director of a company which conducts a bricklaying business, refers to services provided to SX Projects between March 2014 and December 2015 and the debt owing by SX Projects to that company is $399,975.10. An affidavit dated 25 November 2016 of Mr Agostino Papa, a director of a company which provides electrical contracting services, refers to invoices issued in the period from September 2014 to November 2015 in respect of several projects, for goods used and services provided between September 2014 and December 2015 and the debt owing by SX Projects to that company in respect of relevant invoices is $424,019.01. An affidavit dated 2 December 2016 of Mr Andrew Hemer, the financial controller of a company that manufactures wall systems, refers to services provided to SX Projects between March 2015 and November 2015 in respect of several projects and the debt owing by SX Projects to that company is $90.474.75 in respect of specified unpaid progress claims. An affidavit dated 5 December 2016 of Mr Issam Azzi, the general manager of a company that provides excavation and earthmoving services, refers to invoices issued between October and November 2015 in relation to work undertaken for SX Projects and the debt owing by SX Projects to the company is $283,438.82 in respect of specified invoices. I infer that work was undertaken in the relevant period, where a letter of intent between the parties is dated September 2015. An affidavit dated 9 December 2018 of Andrea Rabe, the general manager of a company that provides flooring services, refers to services provided between February 2014 and May 2015 in respect of one project, and between April and May 2015 in respect of a second project, and to a debt of $51,005.50 owing by SX Projects to that company in respect of specified projects. An affidavit dated 9 December 2016 of Martino Giuanta, an accountant at a company that conducts a formwork business, refers to services provided to SX Projects between August 2015 and January 2016 at a particular project and to the amount of $204,999.85 owing by SX Projects to that company.
5. The Plaintiffs also prepared a schedule which cross-referenced their Amended Schedule F to the Amended Points of Claim, which set out those debts and the dates they were incurred, to affidavit evidence and documentary evidence supporting each of the debts claimed. It emerged from that schedule that there was no supporting affidavit or documentary evidence in respect of item numbers 15, 27, 37, 401, 467, 471 and 489, which total $287,042.30. The amount that SX Projects is entitled to recover in respect of the insolvent trading claim should be reduced to exclude that amount.
6. Mr Cook submits that the debts in the Amended Schedule F are all liquidated amounts, being debts owed to trade creditors, and that those debts were relevantly incurred when agreements were entered into or when invoices were issued. Mr Cook points to the admission by the Defendants, in their Defence, that debts were incurred as recorded in Schedule F, although he fairly accepted, in oral submissions, that the Defendants had not squarely admitted that the debts were incurred on the dates claimed in the relevant period for the insolvent trading claim. Mr Cook refers to my judgment in Re Swan Services Pty Ltd (in liq) above at [197] where I observed that a liquidator's evidentiary onus to establish that a debt arose in the relevant period can be discharged by the tender of an invoice issued for the provision of the service in that period and, to the extent that a defendant contends that the debt did not arise in that period, as a matter of fact, it has an evidentiary onus to establish that matter. Mr Battaglia has not sought to discharge that onus and it seems to me that the affidavit evidence and voluminous documentary evidence to which I have referred above establishes that the debts now claimed in the Amended Schedule F to the Amended Points of Claim, other than those debts which are not supported by affidavit or documentary evidence, were incurred in the relevant period.
7. Mr Cook also submits that the loss or damage suffered by SX Projects' creditors is equivalent to the debts incurred during the period of insolvency, where creditors' debts remain unpaid and there is a substantial deficiency in the winding up. Mr Cook refers to evidence that no dividend will be payable to creditors, absent this claim succeeding, to reduce the extent of their loss or damage (Goyal 10.9.18 [168]). However, this approach does not take into account any recovery which may be achieved from the voidable transaction claims brought in these proceedings.
8. The balance of authority indicates that a liquidator must, in proving loss or damage for the purpose of s 588M, bring to account any anticipated or estimated return to creditors in the relevant insolvency, which will here include the result of the voidable transaction claims noted below. I reviewed the case law in Re Swan Services Pty Ltd (in liq) above and concluded at [216] that: "The concept of "loss and damage" adopted in [s 588M] seems to require that account be taken of matters that will reduce the amount of that loss or damage, including recoveries by the liquidator that will allow a distribution to creditors, and that result is consistent with fairness so far as it does not result in the defendant, in a claim under s 588M of the Corporations Act, being required to compensate for loss and damage which will not be suffered once other recoveries are made. While the process of establishing loss or damage taking into account future recoveries may be challenging in a particular case, it is by no means impossible. That approach seems to me necessary to establish the amount of "loss or damage" that a creditor will in fact incur and should avoid or limit the risk that judgments are given under s 588M of the Corporations Act for more than the amount of that loss or damage." Mr Cook did not seek to contest that approach and it will be necessary for the Plaintiffs to address that issue, in formulating orders, after I have determined the voidable transaction claims that I address below.

Claims in respect of Fellmane Payments

1. The Plaintiffs seek relief in respect of certain payments made to Fellmane as pleaded in paragraphs 65-72 of the APC ("Fellmane Payments"), including declarations that those payments constituted unfair preferences to the extent that they occurred after 19 July 2015 within the meaning of s 588FA of the Corporations Act; that they constituted uncommercial transactions within the meaning of s 588FB of the Act; that they constituted insolvent transactions within the meaning of s 588FC of the Act; that they constituted unreasonable director-related transactions within the meaning of s 588FDA of the Act; and that they are voidable transactions under s 588FE of the Act. The Plaintiffs seek orders under s 588FF of the Act, including an order that Mr Battaglia and Mrs Battaglia are liable to pay SX Projects an amount equal to the Fellmane Payments or an amount that fairly represents the benefits that they have received because of those transactions.
2. Turning now to the particular transactions, Mr Battaglia was the sole director and secretary of Fellmane from June 1996 to March 2000; Mrs Battaglia was appointed as an additional director of that company in March 2000; Mr Battaglia is Fellmane's sole shareholder; and Fellmane is the corporate trustee of the Battaglia Family Trust (APC [8]-[9], APD [8]-[9]). The Defendants admit that the Fellmane Payments were made, but say that at least one of them was paid to Fellmane as trustee of the Landmark Construction Superannuation Fund (APC [33], APD [33]). No evidence was led to establish the latter proposition. The Plaintiffs plead that the Fellmane Payments were made with Mr Battaglia's knowledge and consent and the Defendants admit that some of those payments were made with his knowledge and consent or in circumstances that he had knowledge of an alleged contractual obligation to make the payments (APC [34], APD [34]). The Defendants led no evidence to establish any such obligation.
3. In his affidavit, Mr Goyal points out that two substantial payments from SX Projects to Fellmane were made at about the time the latter acquired a property at Gerroa in New South Wales from Mrs Battaglia's father, and his evidence is that he has been unable to find any basis for the payments made by SX Projects from his review of its records (Goyal 10.9.18 [98]). Mr Goyal also refers to an operating lease agreement between SX Projects and Fellmane dated 20 February 2014, which appears to relate to the lease of a vehicle to SX Projects. However, Mr Goyal points out that although some records of payments to Fellmane refer to storage or that vehicle, they do not correspond to the amounts that would be payable under that operating lease agreement (Goyal 10.9.18 [104]). Mr Goyal also responds to evidence of Mr Battaglia, which was not led, contending that the payments to Fellmane were repayments of loans provided by Mrs Battaglia and Fellmane to SX Projects. That matter was not established by evidence.
4. The Plaintiffs plead, and the Defendants deny, that the Fellmane Payments constituted uncommercial transactions within the meaning of s 588FB of the Act. That section provides that a transaction is an uncommercial transaction if it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to the benefit or detriment to the company in entering the transaction, the benefit to other parties to the transaction and any other relevant matter. Whether a reasonable person in the company's circumstances would not have entered into the relevant transaction is determined by an objective inquiry, by reference to the factors specified in s 588FB(1), namely any benefits to the company of entering into the transaction, the detriment to the company of entering into the transaction, the respective benefits to other parties to the transaction of entering into it and any other relevant matter. In Demondrille Nominees Pty Ltd v Shirlaw [1997] FCA 1220; (1997) 25 ACSR 535 at 548, Foster, Lindgren and Madgwick JJ observed that a transaction is uncommercial for the purposes of this section where there is a bargain "of such magnitude that it could not be explained by normal commercial practice". That formulation was also adopted in Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd [2002] NSWSC 239; (2002) 41 ACSR 369 at [14]-[15] and in Capital Finance Australia Ltd v Tolcher [2007] FCAFC 185; (2007) 164 FCR 83; 64 ACSR 705 at [129], where Gordon J also noted that the standard to be applied is an objective one, to be assessed by reference to the company's circumstances, including the knowledge of those who were directing the company, such as its controlling director; and that a transaction will be "uncommercial" where the consideration lacks a commercial quality.
5. In Cussen v Sultan [2009] NSWSC 1114; (2009) 74 ACSR 496, Nicholas J in turn observed (at [22]-[23]) that, in determining whether a transaction of a company is an uncommercial transaction: "The question to be asked is whether it was one which it may be expected that a reasonable person in the company's circumstances would not have entered into, having regard to the matters specified under this provision. The matter must be looked at from the point of view of the company (Tosich Construction Pty Ltd (in liq) v Tosich (1997) 23 ACSR 466 at 473). In Welcome Homes Real Estate Pty Ltd v Ziade Investments Pty Ltd [2007] NSWCA 167 Hodgson JA (Spigelman CJ, Santow JA agreeing) held that the test was not so high as to require that the transaction be so unreasonable that no reasonable person would enter into it. He said: The statutory language is that "it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction". The word "may" is weaker than "must" or even "would"; and in my opinion one reason why something "may be expected" is that it is what normally happens. That is, it is not essential that it would always or necessarily happen. For that reason, what is normal commercial practice, while not decisive, is relevant to the question. Accordingly, the court will look at the totality of the business relationship between the parties, and to what the parties under their relationship intended to effect, and how their intention was effected, in part or in whole, by the impugned transaction …."
6. In Super Art Australia Pty Ltd v Foden [2014] FCA 1168 at [44], Davies J summarised the applicable principles as follows (omitting citations to authority): "The principles to be applied under s 588FB were not in controversy and may be summarised as follows: a It is an objective standard to determine whether a transaction is uncommercial for the purposes of s 588FB … b Four criteria are to be considered, being the four factors listed in s 588FB: (1) the benefits enjoyed by the company; (2) the detriment to the company; (3) the respective benefits others received; and (4) any other relevant matter; c The objective criteria are not considered in some vacuum but by reference to "the company's circumstances", which must include the state of knowledge of those who were the directing mind of the company, such as its controlling director or directors … d For a transaction to be "uncommercial" for the purposes of s 588FB, the transaction must result in "a bargain of such magnitude that it could not be explained by normal commercial practice" … e The fact that a transaction is entered into when a company is insolvent "is not of itself sufficient to make the transaction an uncommercial transaction within the meaning of s 588FB" …" I have drawn on my judgment in Gordon in his capacity as liquidator of Lyon Form Pty Ltd (in liq) v Leon Plant Hire Pty Ltd (in liq) [2015] NSWSC 397 for the summary of the principles that appears above.
7. Mr Cook submits that, absent evidence of any pre-existing loan from Fellmane to SX Projects, the Fellmane Payments were of no benefit to SX Projects and a reasonable person in the Company's circumstances would not have made those payments. As Mr Cook points out, that submission is reinforced by the fact that, at the time those payments were made to Fellmane, SX Projects was withdrawing funds from the Security Account, placing itself in breach of its contractual obligations to AssetInsure and placing its ability to obtain security bonds for construction work at risk, and benefiting Fellmane to the detriment of AssetInsure and SX Projects' other creditors. I am satisfied that, where SX Projects was in a poor financial position and had substantial unsatisfied obligations to other creditors, and derived no apparent benefit from the Fellmane Payments, a reasonable person in its circumstances would not have made those payments and they constituted uncommercial transactions within the meaning of s 588FB of the Act.
8. The Plaintiffs also plead and the Defendants deny, that the Fellmane Payments were insolvent transactions within the meaning of s 588FC of the Act. The findings that I have reached above in respect of SX Projects' insolvency have the consequence that those payments were insolvent transactions under s 588FC of the Corporations Act, in that SX Projects was insolvent at the time the payments were made.
9. The Plaintiffs plead, and the Defendants deny, that the Fellmane Payments were also unreasonable director-related transactions within the meaning of s 588FDA of the Act. This section applies in respect of, inter alia, a payment made by a company (s 588FDA(1)(a)) to a director of the company, a close associate of a director (as defined in s 9 of the Act to include a relative of the director) or a person on behalf of or "for the benefit of" a director or his or her close associate (s 588FDA(1)(b)). Although earlier authority took a narrower view of the scope of the section, a wider view was taken in Vasudevan v Becon Constructions (Aust) Pty Ltd [2014] VSCA 14; (2014) 97 ACSR 627, where the Court of Appeal of the Supreme Court of Victoria observed (at [26]) that a disposition may be "for the benefit of" a director where it "legally or financially advantages the director in question regardless of whether it is paid or directed to a close associate of the director" and (at [28]) that the purpose of the section is "to catch director-related transactions of kinds not otherwise liable to avoidance as unfair preferences, uncommercial transactions or unfair loans".
10. Whether a reasonable person in the company's circumstances would not have entered into a transaction, for the purposes of s 588FDA, is determined having regard to any benefits to the company of entering into it; the detriment to the company of entering into it; the respective benefits to other parties to the transaction of entering into it; and any other relevant matter: s 588FDA(1)(c). The test whether such a transaction is unreasonable is objective in character, directed to what a reasonable person in the company's circumstances may be expected not to do: Weaver v Harburn [2014] WASCA 227; (2014) 103 ACSR 416 at [91]; Kijurina (as Liquidator of ET Family Pty Ltd) v Taouk [2015] FCA 424; (2015) 105 ACSR 686; Smith v Starke Re Action Paintball Games Pty Ltd (in Liq) (No 2) [2015] FCA 1119; (2015) 109 ACSR 145.
11. Mr Cook also refers to the Court of Appeal's summary of the elements of an claim under s 588FDA of the Act in Crowe-Maxwell v Frost [2016] NSWCA 46; (2016) 91 NSWLR 414 at [59]-[88], and, in written submissions, summarises the essential features of such a claim as follows: "[1] the evaluative assessment mandated by s 588FDA(1)(c) involves an objective enquiry; [2] the enquiry is to be conducted by reference to the company's circumstances taking into account all relevant matters; [3] even though proof of insolvency is not required to make out a claim under s 588FDA, nevertheless the company's financial position at the time of the payments is a relevant consideration; [4] the fact that the transaction discharged an antecedent obligation of the company may be a relevant matter to consider, but is not determinative of whether the transaction was unreasonable within the meaning of s 588FDA(1)(c); and [5] although the liquidator bears the onus of proof of establishing that the transaction is within the terms of s 588FDA(1)(c), if the surrounding circumstances show that it involves the departure from normal commercial practice then the Court may readily infer (absent cogent evidence to the contrary) that the transaction was unreasonable."
12. I am satisfied that the Fellmane Payments were made for the benefit of Mr Battaglia, and were within the scope of s 588FDA(1)(b) of the Act, adopting the wider view of that section taken in Vasudevan v Becon Constructions (Aust) Pty Ltd above, where he is the sole director and sole shareholder of Fellmane and Fellmane is the corporate trustee of the Battaglia Family Trust. I am also satisfied that a reasonable person in SX Projects' circumstances would not have made the Fellmane Payments having regard to the lack of benefit to SX Projects of making them, the detriment to it and its creditors of paying out funds in its then circumstances and the benefits to Fellmane and Mr Battaglia from receiving that payment.
13. I am also satisfied that the Fellmane Payments are voidable transactions under s 588FE of the Act and that, where the payments to Fellmane were for the economic benefit of Mr Battaglia and Mrs Battaglia as the controllers of Fellmane and for the benefit of the Battaglia Family Trust, I should make orders under s 588FF of the Act that each of them is liable to pay SX Projects an amount equal to the Fellmane Payments. For completeness, the Plaintiffs also plead and the Defendants deny that the Fellmane Payments were unfair preferences within the meaning of s 588FA of the Act. It is not necessary to address this claim given the other findings that I have reached above.

Claims in respect of Bianca Payments

1. The Plaintiffs seek relief in respect of certain payments made to Bianca (NSW) Pty Ltd pleaded in paragraphs 73-80 of the APC ("Bianca Payments") that broadly corresponds to the relief sought in respect of the Fellmane Payments. Mr Battaglia was the sole director and secretary of Bianca from May 1995 and owns 50% of its shares and Mrs Battaglia owns the remaining 50% of its shares (APC [8], APD [8]). The Plaintiffs plead, and the Defendants admit, that SX Projects made the Bianca Payments totalling $70,000 to Bianca (APC [36], APD [36]). The Plaintiffs also plead, and the Defendants deny, that those payments were made with Mr Battaglia's knowledge and consent (APC [37], APD [37]). The Defendants admit that Bianca was a related entity of SX Projects at the time of the payments and that the transactions were transactions with a related entity of SX Projects for the purpose of s 588FE(4) of the Act.
2. Mr Goyal refers, in his affidavit evidence, to the payments made by SX Projects to Bianca totalling $70,000 and to two petty cash forms that purportedly support those payments, one of which refers to a payment by Bianca to another entity in the sum of $50,000 on 29 May 2015 and the other of which refers to a payment of $20,000 by Bianca to that entity on 10 August 2015 (Goyal 10.9.18 [99]-[100]). Those two petty cash vouchers were dated well before the relevant payments were made to Bianca in December 2015 and do not, in themselves, establish either that the payments for which reimbursement was claimed were made by Bianca or that they were made to the stated entity or for the stated purpose and do not establish a basis for the payment made by SX Projects to Bianca.
3. I have set out the applicable legal principles above. I am satisfied that, where (as I noted above) SX Projects was in a poor financial position and had substantial unsatisfied obligations to other creditors, and no entitlement of Bianca was established to the Bianca Payments, a reasonable person in its circumstances would not have made those payments and they constituted uncommercial transactions within the meaning of s 588FB of the Act. The findings that I have reached above in respect of SX Projects' insolvency have the consequence that those payments were insolvent transactions under s 588FC of the Corporations Act. The Bianca Payments were also unreasonable director-related transactions within the scope of s 588FDA of the Corporations Act, adopting the wider view of that section's operation taken in Vasudevan v Becon Constructions (Aust) Pty Ltd above, where they were made to a company of which Mr Battaglia, and Mrs Battaglia as his close associate (for the purposes of s 588FDA(1)(b)), were the shareholders. A reasonable person in SX Projects' circumstances would not have made those payments having regard to the lack of benefit to SX Projects of making them; the detriment to it of paying out funds in its then circumstances; and the benefits to Bianca, and Mr Battaglia and Mrs Battaglia as its shareholders, from receiving that payment.
4. I am satisfied that the Bianca Payments are voidable transactions under s 588FE of the Act and that, where the payments to Bianca were for the economic benefit of Mr Battaglia and Mrs Battaglia as its shareholders, I should make orders under s 588FF of the Act that each of them is liable to pay SX Projects an amount equal to the Bianca Payments. For completeness, the Plaintiffs also plead, and the Defendants deny that the Bianca Payments were unfair preferences within the meaning of s 588FA of the Act. It is not necessary to address this claim given the other findings that I have reached above.

Claims in respect of Contact Constructions

1. The Plaintiffs seek relief in respect of certain payments made to Contact Constructions pleaded in paragraphs 81-87 of the APC ("Contact Constructions Payments") that broadly correspond to the relief sought in respect of the Fellmane Payments and the Bianca Payments. Mr Battaglia was a director of Contact Constructions from November 1996 to April 1999 (APC [8], APD [8]), Fellmane was the sole shareholder in Contact Constructions and the Plaintiffs do not contend that Contact Constructions was a related entity of SX Projects. The Plaintiffs plead, and the Defendants admit, that SX Projects made the Contract Constructions Payments totalling $241,355.40 to Contact Constructions between 19 December 2014 and 23 December 2015 (APC [38], APD [38]). The Plaintiffs plead, and the Defendants deny, that those payments were made with Mr Battaglia's consent (APC [40], APD [40]).
2. Mr Goyal refers to a petty cash form dated 22 March 2015 referring to a payment from Contact Constructions to a third party for machine hire in the amount of $41,018.40. That petty cash form does not, in itself, establish that payment was made to that party for that purpose and, as Mr Goyal points out, there is in any event no evidence of any building project carried on by SX Projects in the relevant location to support a characterisation of that payment as a proper business expense (Goyal 10.9.18 [101]).
3. I am satisfied that, where (as I noted above) SX Projects was in a poor financial position and had substantial unsatisfied obligations to other creditors, and Contract Constructions entitlement to the Contact Constructions Payments has not been established, a reasonable person in SX Projects' circumstances would not have made those payments and they constituted uncommercial transactions within the meaning of s 588FB of the Act. The findings that I have reached above in respect of SX Projects' insolvency have the consequence that those payments were insolvent transactions under s 588FC of the Corporations Act.
4. I am also satisfied that the Contact Constructions Payments were unreasonable director-related transactions within the scope of s 588FDA(1)(b) of the Corporations Act, adopting the wider view of that section's operation taken in Vasudevan v Becon Constructions (Aust) Pty Ltd above, on the basis that those payments were for the benefit of its sole shareholder, Fellmane, of which Mrs Battaglia is sole shareholder and which is the corporate trustee of the Battaglia family trust, and thereby for the benefit of both Mr Battaglia and Mrs Battaglia, who was a close associate of Mr Battaglia for the purposes of s 588FDA(1)(b)(ii)-(iii). I am also satisfied that a reasonable person in SX Projects' circumstances would not have made those payments having regard to the lack of benefit to SX Projects of making them; the detriment to it of paying out funds in its then circumstances and the benefits to Contact Constructions and Mrs Battaglia as its shareholder from receiving that payment.
5. I am satisfied that the Contact Constructions Payments are voidable transactions under s 588FE of the Act and that, where the payments to Contact Constructions were for the economic benefit of Mrs Battaglia as its shareholder, I should make orders under s 588FF of the Act that she is liable to pay SX Projects an amount equal to the Contact Constructions Payments. No benefit to Mr Battaglia has been established in respect of the Contact Constructions Payments and such an order should not be made against him in respect of those payments. For completeness, the Plaintiffs also plead and the Defendants deny that the Contact Constructions Payments were unfair preferences within the meaning of s 588FA of the Act. It is not necessary to address this claim given the other findings that I have reached above.

Claims in respect of Mrs Battaglia and Mr Battaglia

1. The Plaintiffs seek relief in respect of certain payments made to Mrs Battaglia pleaded in paragraphs 88 - 95 of the APC. The Plaintiffs plead, and the Defendants admit, that SX Projects made payments totalling $111,125.91 to Mrs Battaglia between 5 December 2014 and 23 December 2015 (APC [41], APD [41]). The Plaintiffs plead that those payments were made with Mr Battaglia's knowledge and consent, and the Defendants admit that some of those payments were made where Mr Battaglia had knowledge of alleged contractual obligations to make the payments (APC [42], APD [42]). The Defendants did not lead evidence to seek to establish the fact of those obligations.
2. The Plaintiffs also seek relief in respect of certain payments made to Mr Battaglia pleaded in paragraphs 96-103 of the APC. The Plaintiffs plead, and the Defendants deny, that Mr Battaglia caused SX Projects to make payments totalling $851,222.82 to himself between 19 July 2013 and 24 December 2015 (APC [44], APD [44]). The Plaintiffs plead that those payments were made with Mr Battaglia's knowledge and consent; the Defendants repeat their denial of those payments but contend that, to the extent that such payments were made, some of them were made with Mr Battaglia's actual knowledge and consent or with knowledge and consent of an alleged contractual obligation to make them (APC [46], APD [46]). The Defendants did not seek to lead evidence to establish that underlying obligation.
3. The Plaintiffs plead similar claims in respect of payments to Mrs Battaglia and Mr Battaglia as are pleaded in respect of payments to the Defendant companies and the Defendants plead similar responses. There is no evidence to suggest that the payments to Mr Battaglia or Mrs Battaglia were for any identified benefit of SX Projects, and Mr Cook points to evidence that payments were made by SX Projects for personal expenses of Battaglia family members. Again, Mr and Mrs Battaglia led no evidence and made no submissions that sought to justify the particular payments. I am satisfied that those payments also constituted uncommercial transactions and unreasonable director-related transactions. I am satisfied that those payments are voidable transactions under s 588FE of the Act and that, where those payments were for the economic benefit of Mrs Battaglia and Mr Battaglia respectively, I should make orders under s 588FF of the Act that each of them is respectively liable to pay SX Projects an amount equal to the payments they received.

Orders

1. The Plaintiffs will need to address the question as to the quantification of the insolvent trading claim which I have noted above and I will allow them an opportunity to do so and otherwise to bring in orders to give effect to this judgment, including as to costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 December 2018