ABA encounters significant cashflow difficulties
114 The matters identified above had the consequence that, as at around late September 2014, ABA experienced significant cashflow difficulties. It did not have funds to meet debts which were becoming due. In particular, it did not have available cash to pay suppliers and creditors in relation to the work being done on the QPS vessel and the "Reef Cat". In the absence of funds to complete these vessels, ABA would not be able to secure any further progress payments and, in particular, the final payments. Although, as has been referred to above, Mr Price was reluctant to accept that he was aware that the circumstances had these consequences, he ultimately admitted as much. He accepted that ABA required a loan of $200,000 to meet the creditor's claims so that the QPS vessel and the Reef Cat could be completed and payments received. On this topic Mr Whitewood's evidence is to be preferred to that of Mr Price where inconsistency arises, and it should be accepted that Mr Whitewood told Mr Price that certain suppliers needed to be paid in order to allow the QPS vessel and the Reef Cat to be completed. It should also be accepted that Mr Price was told that ABA needed to use a portion of the loan to meet payroll and WorkCover expenses.
115 At around the end of September 2014, JMD Park was concerned to consider ABA's cashflows in some detail, and Ms Whitewood sent draft cashflows to Ms Cook. Although Mr Price and Ms Cook did not accept that either sought them, that is not probable. JMD Park was intending to lend ABA some $200,000, and the circumstances suggest that it would seek to ascertain when ABA would receive money to repay it and what might be competing debts. It is not likely that ABA would prepare and send cashflows to JMD Park if they had not been requested. At around this time the employee of ABA who had previously prepared its cashflows had departed and Ms Whitewood was attempting to perform that task, although she had little experience in doing so. It is unlikely that, at a time when the business was struggling, she would expend time and effort attempting to prepare these documents for no apparent reason.
116 The sum of $200,000 was transferred to ABA by JMD Park on 30 September 2014, being the day on which it seems Mr Price agreed to extend that finance. The next day, on 1 October 2014, the email referred to above was sent to Mr Price and Ms Cook attaching a further cashflow and two additional sheets. Ms Whitewood wrote in the email that she had "tried to cull this as best I can". The documents attached showed the suppliers which required pre-payment and the amounts to be paid, which totalled approximately $115,000, as well as "Aged Creditors" in the amount of about $78,000. These amounts seem to relate to the use to which the $200,000 loan would be put. The identified aged creditors had associated dates which, on any reasonable reading, were the dates on which the payments were due. Those dates revealed that some payments had been due in April, May and June of that year.
117 The two sheets of listed creditors or suppliers were important in the circumstances. They disclosed that ABA had not paid a significant number of other creditors for a substantial period of time and was not able to do so without the loan from JMD Park. The statement that the list had been "culled" strongly suggested that there existed other aged creditors, but that Ms Whitewood was prioritising the most important. It is relevant that the list of aged creditors did not include JMD Park or MHB when, at that time, ABA owed JMD Park approximately $150,000 in relation to the outstanding invoices, most of which were well outside the trading terms, and was also indebted to MHB for about $60,000, which was also overdue.
118 Although Mr Price said that he did not open the attachments to Ms Whitewood's email, it is difficult to accept that evidence, in the sense that it is inherently unlikely. He had, the previous day, caused JMD Park to advance $200,000 to ABA without security, and it is not likely that a person in his position and with his understanding of ABA's business would not consider the list of identified creditors which ABA intended to pay. Moreover, Mr Price's evidence was that he was told that the loan was to be used for "essential suppliers that [ABA] needed to pay in order to allow certain critical work to be completed", but the lists attached to Ms Whitewood's email included an aged creditors list which had been "culled". That would suggest the loan was being used to pay outstanding creditors rather than suppliers in relation to the vessels which were nearly complete. If the agreement as to the use to which the loan was to be put was as Mr Price asserted, it is passing strange that he would not then consider the list of suppliers and creditors whose debts were to be discharged by use of the loan money.
119 Similarly, it is unlikely that he would not have opened and considered the DCF which was sent to him. He said in relation to the cashflow:
I don't do Excel, and I don't do anything having to do with that. It's not in my realm. Nor is it something that I'm capable of.
120 Later, when told that he would be asked questions about the DCF he said:
---Sir, you're welcome to ask my any questions. I'm sitting here, willing to answer. But I do not understand that type of a document.
Okay?---So I can regurgitate - if you draw me to a particular cell, I can tell you what it means, but I can't tell you anything else.
121 Subsequently the following exchange occurred:
Would you accept that, on the face of it, that particular schedule [the DCF] sets out or purports to set out information concerning some aspect of the financial affairs of ABA?---No. I cannot say that. I have no understanding of what it's about.
122 This evidence is most difficult to accept. The cashflow document is simple enough and not of any complexity. It is not likely that Mr Price could have succeeded in business in the manner in which he has without having some exposure to documents of that nature. It may well be that he did not have the ability to create a cashflow, however, I do not accept that he would not understand the simple matters which can be gleaned from one. It is apparent that JMD Park and MHB operated substantial businesses and that Mr Park, by his own assertions, is involved in multi-million dollar deals. A person in his position would have the bare minimum of financial literacy necessary to understand a cashflow. Moreover, when taken to the document, it was apparent that he understood it well enough, and later in his evidence he volunteered that the cash inflows appeared to have omitted revenue received from the Navy. If he was able to ascertain that such was the case, his evidence about his inability to understand it was not credible. Ultimately, I consider that he denied any ability to understand a DCF because he perceived that it would advance JMD Park's case if that were so.
123 Mr Price presented as a confident and articulate witness, but one who was aware of the nature of JMD Park's defence, which he sought to promote where he could. Whilst initially his evidence appeared to have a degree of credibility, when it is considered in the context of the surrounding documentary evidence, its lack of veracity is revealed. By comparison, Mr Whitewood presented as a person more uncertain of his recollection in some respects, which he was prepared to acknowledge, but his evidence on the whole was more credible and it was clear that he attempted to truthfully respond to the questions asked of him.
124 The concern as to the accuracy of Mr Price's evidence is heightened when the evidence relating to the meeting on 2 October 2014 is analysed. At 7.04 am on that day, Ms Cook sent ABA an email which invited Ms Whitewood and Mr Whitewood to meet with her and Mr Price to "walk through" the "budget", the latter being a reference to the DCF. That email is a piece of contemporaneous evidence which illuminates what probably occurred at the meeting which followed, even though the evidence of Mr and Ms Whitewood about it is vague. Mr Price said that the meeting was to allow him to consider what "Mr Whitewood and Ms Whitewood had to say at the meeting about their funding requirements". That is not consistent with the purpose of the meeting as identified in the email. Somewhat unusually, Mr Price makes no statement as to what was actually said at the meeting about that topic, and nor did he indicate why he does not address it. Ms Cook also said in her affidavit that the short term funding requirements of ABA were discussed, but does not identify the content of that discussion. She said in her affidavit that the DCF was only a small part of the discussion. In her oral evidence she acknowledged that the DCF was discussed at the meeting.
125 In the circumstances where JMD Park had probably requested the production of the DCF, as I have found, and a meeting was called to discuss it with Mr Price, it is somewhat implausible that the discussion did not occur. The email of 7.04 am sought the meeting at 8.45 am, and it is not likely that anything altered the purpose of the meeting in the interim. Certainly, there was no suggestion from any witness that anything occurred to alter the meeting's agendum.
126 Mr Price said in his evidence that, if there were discussion at the meeting on 2 October 2014 about the DCF, it was not a conversation to which he was a party, even if he were in attendance. Again, this seems unlikely. If Mr Price had no capacity to read and understand cashflows, one wonders why Ms Cook arranged a meeting whereby the Whitewoods and he could go through it with him. Although Mr and Ms Whitewood were not able to give any real evidence as to the content of the meeting, it is not likely that the DCF was not discussed and considered.
127 The DCF disclosed, at the very least, that ABA was in a difficult financial situation. Significantly, it disclosed that ABA was on a payment plan in relation to its indebtedness to the Australian Taxation Office, pursuant to which it was required to pay $22,500 each Friday. That would identify to any reasonable business person that ABA had, at some earlier point in time, been unable to meet its taxation obligations such that it was required to reach an arrangement whereby it would discharge that indebtedness by part payments. In Mr Price's cross-examination on this topic, the following exchange occurred:
And is that - objectively again looking at the document, is that suggestive to you that there are regular payments anticipated as being made to the ATO in respect of some sort of arrangement on a weekly basis from forecast on or about 3 October?---I can't confirm that because I simply don't understand the - what the term "arrangement" means. I - to my best endeavours, I don't understand what the Australian Taxation Office allows you to do or doesn't allow you to do. So I can't confirm that or deny that. I have no idea.
Well, do you accept that, on the face of the schedule, there is a payment which is being made on a regular basis in respect of something that's described as ATO Arrangement?---I accept the fact that there's a payment being made - I don't even know if the payments are being made. I accept - - -
No. Forecasts have been made - forecast to being made. This - - -?---They have - there's a number on a piece of paper that documents something on a particular day. I'm not trying to be difficult. I just don't understand what it's in reference to.
Despite his exhortations to the contrary, Mr Price was indeed "trying to be difficult", in the sense of seeking to avoid the obvious inference to be derived from the fact that the DCF disclosed the payment plan with the ATO. Although it is not necessary to decide, it is likely that any reasonable businessperson engaged in commerce in Australia would be familiar with the basics of Australian taxation laws.
128 The DCF also disclosed that ABA had entered into other payment plans with five suppliers. These included a plan with "EMS Wayne Beak" which required the making of fortnightly payments of $25,000 from 3 October 2014 through until 10 December 2014, and weekly payments of $10,000 to Australian Recruiting through until 28 November 2014. Again, these suggested that ABA was experiencing substantial cashflow difficulties.
129 In addition, the DCF disclosed that the loan of $200,000 had been or was possibly to be applied to the payment of rent for the demised premises, rather than in payment of the creditors identified in the lists accompanying Ms Whitewood's email of 1 October 2014. It also failed to disclose the repayment of the loan at any time, including in that period after ABA was paid for the QPS vessel and the Reef Cat. The DCF showed a notional bank balance for ABA, but at no time did that take into account the obligation to repay the $200,000 loan.
130 Ms Cook also identified that, at the beginning of the meeting on 2 October 2014, Ms Whitewood advised that the DCF did not include "about three hundred … thousand dollars' worth of trade debtors". Those debtors were not identified nor were the dates on which payments might be made. She also identified that the DCF did not include ABA's rent obligations to MHB in relation to Shed 65 which had accrued and were due and payable.
131 Ms Cook's evidence regarding the DCF was somewhat difficult to follow and she may have been mistaken as to when she first considered the document. In any event, it is clear that she was able to understand it and what it indicated. Aside from identifying the absence of the trade debtors referred to by Ms Whitewood and creditors identified on the accompanying lists, Ms Cook observed that the DCF did not include future insurance payments from CGU that she said were being settled. She considered that this was the most important omission. However, the evidence before the Court is that CGU had not finally agreed to indemnify ABA in relation to the loss arising from the fire and, given that Mr Price was being kept informed of the progress of the insurance claim, that would have been apparent to JMD Park. Additionally, over the course of October 2014, JMD Park would have become aware that no further insurance payments were made by CGU and that at no time did it agree to indemnify. Under cross-examination Mr Whitewood indicated that, by 20 October, they were all aware that CGU was trying to get out of its responsibilities. In other words, CGU's failure to pay had gone beyond mere delay to an indication that it did not regard the policy as responding to the claim. It follows that, by 21 October 2014, JMD Park would have been aware that the inflows in the DCF had been roughly correct (apart from the unidentified trade debtors) and that there existed substantially more creditors than were disclosed. On the basis of Ms Cook's evidence, the other creditors included JMD Park which was then owed $534,547.83 (being the total of the loan and outstanding invoices), and $100,080.90 owed to MHB.
132 Ms Cook further sought to discredit the DCF as a source of financial information on the basis that it did not disclose the existence of payments to be received in relation to the maintenance contract with respect to HMAS Wollongong. Whilst that may have been an omission from the DCF at the date it was created, by lunchtime on the day of the meeting on 2 October, JMD Park was aware that no revenue would be received by ABA in relation to that contract as it had been cancelled by the Navy.
133 Ms Cook, like Mr Price, attempted to diminish the impact of the DCF, and generally sought to advance JMD Park's interests where possible. As JMD Park's CFO one might have expected Ms Price to have paid greater attention to the financial ability of ABA to repay an unsecured loan, and it may be due to some embarrassment on her part that she sought to minimise the effect of the information which she had to hand.
134 Whilst it may be that Ms Cook initially dismissed the DCF due to the absence of income from the contract to do work on HMAS Wollongong and insurance payments, it was not reasonable for her to do so. The document provided substantial information as to ABA's financial position, its difficult cashflow position, the fact that it had been required to enter into payment plans with several creditors and at least some of its future liabilities. It was indicative of ABA's financial position and, with her intimate knowledge of ABA's business, Ms Price could easily have perceived the overall dire financial position. At the very least, by 20 October 2014, with the additional information about the lack of further revenue, that picture would have emerged to Ms Cook.