CONSIDERATION
26 It is alleged in the statement of claim that:
(a) Mr Roths was a director of Roths Holdings between 13 November 2020 and 1 July 2021;
(b) Mr Roths was a director of AXL from 10 September 2019 and prior to that, at all relevant times, he was a director of AXL in that he acted in the position of a director of AXL and/or the directors of AXL were accustomed to act in accordance with his instructions or wishes; and
(c) as at 1 July 2019, Roths Holdings held 300 of the 500 ordinary shares issued in AXL and Mr Roths held 100 of the 210 ordinary shares issued in Roths Holdings.
27 By reason of the matters alleged at [10] of the statement of claim, as summarised at [26] above, the plaintiffs plead that as at 1 July 2019, (a) AXL was a subsidiary of Roths Holdings pursuant to s 46 of the Act, (b) AXL was a related body corporate of Roths Holdings pursuant to s 50 of the Act, and (c) both Roths Holdings and Mr Roths were related entities of AXL.
28 Further, the plaintiffs contend in the statement of claim that Roths Holdings never received the purported consideration of $100,000 stated in the Transfer of Mortgage or any other consideration or benefit.
29 The following causes of action are advanced in the statement of claim.
30 First, the plaintiffs contend that the Transfer of Mortgage was an uncommercial transaction within the meaning of s 588FB of the Act.
31 Section 588FB provides:
Uncommercial transactions
(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.
32 I am satisfied that the allegations in the statement of claim justify a finding that a reasonable person in the circumstances of AXL would not have entered into the Transfer of Mortgage. The transfer of AXL's interest in the Second Mortgage to the defendants deprived AXL of a valuable asset for no benefit and conferred on the defendants a valuable asset for no consideration.
33 Second, the plaintiffs contend that the Transfer of Mortgage was an insolvent transaction within the meaning of s 588FC of the Act.
34 Section 588FC provides:
Insolvent transactions
A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and:
(a) any of the following happens at a time when the company is insolvent:
(i) the transaction is entered into; or
(ii) an act is done, or an omission is made, for the purpose of giving effect to the transaction; or
(b) the company becomes insolvent because of, or because of matters including:
(i) entering into the transaction; or
(ii) a person doing an act, or making an omission, for the purpose of giving effect to the transaction.
35 I am satisfied that the allegations in the statement of claim justify findings that the Transfer of Mortgage was entered into by AXL or that an act was done or an omission was made for the purpose of giving effect to the Transfer of Mortgage at a time when AXL was insolvent.
36 I am satisfied that the factual allegations, set out in the statement of claim and in the affidavit of Mr Tang affirmed on 7 November 2022, are sufficient to justify a finding that AXL failed to maintain the books and records that it was required to maintain pursuant to s 286 of the Act for the period between its incorporation and winding up. By reason of s 588E(4) of the Act, a company that has failed to keep the books and records, required by s 286 of the Act, is presumed to be insolvent. I am, therefore, satisfied that by reason of its failure to keep the books and records, AXL was insolvent at all times between its incorporation and winding up. As explained by Mr Tang's affidavit evidence, the liquidators have sought access to the books and records of the money lending business carried on by AXL from Mr Roths. The liquidators, however, have only received (a) unreconciled management accounts maintained in MYOB, (b) miscellaneous records for various related entities, (c) bank statements for AXL's National Australia Bank account for the period from 5 February 2016 to 3 October 2019, and (d) bank statements for AXL's Macquarie Bank Limited account for the period from 30 June 2020 to 11 January 2021.
37 Third, the plaintiffs contend that the Transfer of Mortgage was an unreasonable director-related transaction within the meaning of s 588FDA of the Act.
38 Section 588FDA relevantly provides:
Unreasonable director-related transactions
(1) A transaction of a company is an unreasonable director-related transaction of the company if, and only if:
(a) the transaction is:
(i) a payment made by the company; or
(ii) a conveyance, transfer or other disposition by the company of property of the company; or
(iii) the issue of securities by the company; or
(iv) the incurring by the company of an obligation to make such a payment, disposition or issue; and
(b) the payment, disposition or issue is, or is to be, made to:
(i) a director of the company; or
(ii) a close associate of a director of the company; or
(iii) a person on behalf of, or for the benefit of, a person mention in subparagraph (i) or (ii); and
(c) it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to:
(i) the benefits (if any) to the company of entering into the transaction; and
(ii) the detriment to the company of entering into the transaction; and
(iii) the respective benefits to other parties to the transaction of entering into it; and
(iv) any other relevant matter.
The obligation referred to in subparagraph (a)(iv) may be a contingent obligation.
Note: Subparagraph (a)(iv) - This would include, for example, granting options over shares in the company.
39 I am satisfied that the allegations set out in the statement of claim justify findings that the Transfer of Mortgage (a) was a transaction that constituted a transfer of property of AXL to a director and associate of a director of AXL, and (b) as explained above at [32], a reasonable person in the circumstances of AXL would not have entered into the Transfer of Mortgage, given the absence of any benefit to AXL and the respective benefits conferred on Roths Holdings and Mr Roths.
40 I am satisfied that the allegations in the statement of claim justify findings that the plaintiffs contend that the Transfer of Mortgage was a voidable transaction by reason of s 588FE(4) of the Act.
41 Sub-section 588FE(4) provides:
(4) the transaction is voidable if:
(a) it is an insolvent transaction of the company; and
(b) a related entity of the company is a party to it; and
(c) it was entered into, or an act was done for the purpose of giving effect to it, during the 4 years ending on the relation-back day.
42 The allegations in the statement of claim justify findings that (a) AXL was insolvent at the date that the Transfer of Mortgage was entered into, (b) the defendants were parties to the Transfer of Mortgage and were related parties to AXL, and (c) the Transfer of Mortgage was entered into on 1 July 2019, being a date that fell within the 4 years ending on the relation-back day.
43 I am also satisfied that the allegations in the statement of claim justify findings that the Transfer of Mortgage was a voidable transaction by reason of s 588FE(5) of the Act.
44 Sub-section 588FE(5) provides:
(5) the transaction is voidable if:
(a) it is an insolvent transaction of the company; and
(b) the company became a party to the transaction for the purpose, or for purposes including the purpose, of defeating, delaying, or interfering with, the rights of any or all of its creditors on a winding up of the company; and
(c) the transaction was entered into, or an act done was for the purpose of giving effect to the transaction during the 10 years ending on the relation-back day.
45 The allegations in the statement of claim and the evidence given by Mr Tang in his affidavit justify the following findings.
46 First, AXL was insolvent at the date that the Transfer of Mortgage was executed.
47 Second, AXL became a party to the transaction for purposes that included the purpose of defeating the rights of all of the creditors of AXL on the winding up of the company, given (a) AXL ceased trading on the day before the Transfer of Mortgage was executed, (b) the Transfer of Mortgage falsely stated that $100,000 consideration was received by AXL, (c) the Transfer of Mortgage was not recorded in the books and records of AXL, (d) Mr Roths was a shadow director of AXL as at the date the Transfer of Mortgage was executed, and (e) the defendants were related entities of AXL.
48 Third, the Transfer of Mortgage was entered into on 1 July 2019, being a date that fell within the 10 years ending on the relation-back day.
49 Further, I am also satisfied that the allegations in the statement of claim justify findings that the Transfer of Mortgage was a voidable transaction by reason of s 588FE(6A) of the Act.
50 Section 588FE(6A) provides:
(6A) The transaction is voidable if:
(a) it is an unreasonable director-related transaction of the company; and
(b) it was entered into, or an act was done for the purposes of giving effect to it:
(i) during the 4 years ending on the relation-back day; or
(ii) after that day but on or before the day when the winding up began.
51 The allegations in the statement of claim and the evidence given by Mr Tang in his affidavit justify findings that (a) the Transfer of Mortgage was a director-related transaction of AXL for the reasons identified at [37] to [39] above, and (b) the Transfer of Mortgage was entered into on 1 July 2019 being a date that was less than four years prior to the relation-back day.
52 By reason of the matters identified at [40] to [51] above, I am satisfied that the Transfer of Mortgage was a transaction that is voidable by reason of s 588FE and the Court should make a declaration pursuant to s 588FF(1)(h) that the Transfer of Mortgage is unenforceable. Given that conclusion, it is not necessary to make a declaration that the Transfer of Mortgage was void ab initio. In any event, a declaration to that effect would need to be accompanied by an order addressed to the Registrar of Land Titles to correct the Register: see Haslam v Money For Living (No 2) [2007] FCA 1981. The Registrar, however, is not a party to the proceedings and no such relief has been sought by the plaintiffs.
53 As the Second Mortgage has already been discharged, the only remaining substantive matter to address is the question of to whom the funds paid into Court should be paid. Given my conclusion that a declaration should be made that the Transfer of Mortgage is unenforceable, it follows that the proceeds received on the discharge of the Second Mortgage that have been paid into Court, together with accrued interest, should be paid to the plaintiffs.