ACN 103 220 766 Pty Ltd (Formerly ispONE Pty Ltd) (In Liquidation)
[2016] VSC 275
•31 May 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COPORATIONS LIST
S CI 2014 06224
IN THE MATTER of an application under section 588FF of the Corporations Act 2001 (Cth)
IN THE MATTER OF ACN 103 220 766 PTY LTD (FORMERLY ISPONE PTY LTD) (IN LIQUIDATION) (ACN 103 220 766)
BETWEEN:
| JOHN ROSS LINDHOLM AND STEWART ALEXANDER McCALLUM AS JOINT AND SEVERAL LIQUIDATORS OF ACN 103 220 766 PTY LTD (IN LIQUIDATION) (ACN 103 220 766) AND OTHERS | Plaintiffs |
| v | |
| ZAC SWINDELLS | Defendant |
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JUDGE: | GARDINER AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 23 February 2016 |
DATE OF JUDGMENT: | 31 May 2016 |
CASE MAY BE CITED AS: | ACN 103 220 766 Pty Ltd (Formerly ispONE Pty Ltd) (In Liquidation) |
MEDIUM NEUTRAL CITATION: | [2016] VSC 275 First Revision: 2 June 2016 |
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CORPORATIONS – Claim by liquidator against director of corporation for recovery of loans made to him – Alternative claims that payment to director were unreasonable director related transactions pursuant to s 588FDA of the Corporations Act 2001 (Cth) (‘the Act’) or that failure to repay payments was a breach of his duties as director pursuant to ss 181 or 182 of the Act – Defendant ordered to repay to the company all payments save for payments which were barred by limitation on application of principle in Ogilvie v Adams [1981] VR 1041 – Claim that payments in 2007 were unreasonable director related transactions not available to plaintiffs as transactions took place more than four years before the relation back day in the winding up and were therefore outside the period mentioned in s 588FE(6A) of the Act – Insufficient evidence to support finding that 2007 advances were made in breach of ss 181 and 182 of the Act.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D McAloon | Clayton Utz |
| For the Defendant | In person |
HIS HONOUR:
Introduction
The plaintiffs, ACN 103 220 766 Pty Ltd (formerly ispONE Pty Ltd) (In Liquidation) (‘the company’) and its liquidators have brought this proceeding against the defendant, Mr Swindells, to recover payments totalling $504,567.20 (‘the payments’) made by the company to him or at his direction to other persons in the period 2007 to December 2012.
Mr Swindells has been a director of the company since 30 January 2003 and its sole director since 1 July 2013. The company was a wholesaler of telecommunication services which it provided to retailers throughout Australia. The company went into voluntary administration on 19 August 2013. At a creditors’ meeting on 23 September 2013, the company was placed into voluntary liquidation by resolution of its creditors.
The plaintiffs put their claim against Mr Swindells in several ways. First, they say that the payments were loans made by the company to Mr Swindells, are characterised as such in the books and records of the company and that Mr Swindells is obliged to repay them.
Secondly, in the alternative, the plaintiffs say that the payments are voidable as unreasonable director related transactions pursuant to s 588FDA of the Corporations Act 2001 (Cth) (‘the Act’).
Thirdly, the plaintiffs contend, again in the alternative, that the payments were made by Mr Swindells, or at his direction in contravention of the duties he owed to the company as a director under s 181 or s 182 of the Act, and that he is liable to pay the company damages in the amount of such payments pursuant to s 1317H of the Act.
The plaintiffs rely on four affidavits of one of the liquidators, Mr McCallum, dated 21 November 2014 (‘first affidavit’), 2 July 2015 (‘second affidavit’), 18 January 2016 (‘third affidavit’) and 8 February 2016 (‘fourth affidavit’). In addition, they rely on affidavits of Mark Klose dated 7 August 2015 and 15 January 2016 and Justin Geri dated 18 January 2016. Mr McCallum was cross-examined by Mr Swindells.
Mr Swindells relies on his affidavits of 24 July 2015 and 12 August 2015 and an affidavit of Martin Cheeseman sworn 21 October 2015. Mr Swindells was cross-examined by counsel for the plaintiffs, Mr McAloon. Mr Cheeseman was not available for cross-examination at the trial but the plaintiffs did not oppose the reception into evidence of his affidavit.
The payments appear as loan account balances owing by Mr Swindells in the company’s books and records for the following financial years:
(a) 30 June 2007 $80,191.70;
(b) 30 June 2010 $78,178.10;
(c) 30 June 2011 $47,929.58; and
(d) 30 June 2012 $298,267.82.
At the trial of this proceeding, Mr Swindells admitted that the payments had been made but contended that rather than being loan advances, the payments were bonuses or dividends paid to him by the company or a related entity.
The composition of the payments for each of the years is set out in the table which appears below. Under the heading ‘Description’ is the notation which appears in the company’s books and records in relation to that payment. In the years from 2007 to 2012 (inclusive), the company made advances to Mr Swindells totalling $504,567.20 as follows:
Year Amount Transactions Date Amount Description 2007 $80,191.70 2010 $78,178.10 2011 $47,929.58 1 July 2010 $1,400.00 Tax payments directors 1 July 2010 $2,000.00 Zac tax payment 30 July 2010 $3,400.00 Tax inst Zac & Chris 2 September 2010 $2,000.00 Tax payments Chris & Zac 2 September 2010 $1,400.00 Tax payments Chris & Zac 1 October 2010 $3,400.00 Tax payments 2 November 2010 $3,400.00 Tax instalments 9 November 2010 $7,000.00 Directors loan 30 November 2010 $3,400.00 Tax payments Chris & Zac 1 January 2011 $3,400.00 Tax repayments 1 February 2011 $3,400.00 Tax payments 1 March 2011 $3,400.00 Loans 29 April 2011 $3,400.00 Tax loan payments 1 May 2011 $3,400.00 Tax directors 2 June 2011 $3,529.58 Loans 2012 $298,267.82 1 July 2011 $2,000.00 Tax repayments 1 August 2011 $3,464.82 Zac tax & Chris tax 2 August 2011 $70,393.00 Dividend Chris & Zac 21 December 2011 $20,000.00 Purchase; One Mobile 31 January 2012 $100,010.00 Loan Zac 8 May 2012 $100,000.00 Zac Loan 080512 1 December 2012 $2,400.00 AMEX stat 19 Dec
The individual payments made to Mr Swindells during the 2011 and 2012 financial years which are listed above have been traced by the liquidators using the company’s MYOB records, the company’s bank statements recording the payments from the company’s bank account and other records evidencing the receipt of the 2011 and 2012 payments. The only exception to this is that the $7,000 payment on 9 November 2010, described as a director’s loan to Mr Swindells in the company’s books, cannot be identified in the company’s bank statements. In the company’s MYOB system, all of the payments are designated ‘Shareholders loan ZAC’ and identified by the year 2011 or 2012 as the case may be. It has not been possible for the liquidators to carry out the tracing exercise in respect of the 2007 and 2010 loan balances.
Mr Martin Cheeseman, the company secretary and commercial manager, was the person primarily responsible for the MYOB entries from 2004 until his retirement in February 2012. He would typically consult the company’s external accountants, Deloitte Private, for advice and guidance in relation to the accounting entries as he was not a qualified accountant. They would give him specific instructions as to how all of the entries in respect of loans, director’s fees and the like should be processed.
The greater number of the 2011 and 2012 payments were paid by means of BPAY to the account of the Australian Taxation Office in discharge of Mr Swindells’ personal taxation liabilities. In his affidavit of 24 July 2015, Mr Swindells denied that each of the payments which have now been traced into his ATO account were made, however, at the trial of this proceeding, Mr Swindells’ position in regard to those payments was that he was unaware that the company was making them on his behalf.
The remainder of the payments are comprised of the following:
(a) On 9 November 2010, $7,000 was advanced to Mr Swindells and it is characterised as a director’s loan in the books of the company. An identical advance was made to Mr Monching, the other director at the time. Mr Swindells contends that the payment was for director’s fees for his directorship of the company but the MYOB records describes this transaction as ‘Shareholders loan ZAC 2011’. The books reveal that there was a payment on 2 November 2010 of $7,000 to Mr Swindells for what is described as director’s fees, but the liquidators state that this is a different transaction and that they have not claimed the 2 November 2010 payment or any other amount described as director’s fees in the books of the company.
(b) $70,393.00 was paid from the company’s bank account on 29 July 2011 into a bank account in Mr Swindells’ name and was recorded in the company’s MYOB records as ‘Shareholders loan Zac 2012’. Mr Swindells has acknowledged receipt of this payment but asserted in his evidence that it was a dividend payment from another entity, ONEtelecom. In this regard the liquidators say that the subject payment was made to Mr Swindells from the funds of the company, not ONEtelecom and that in any case, Mr Swindells has never been a shareholder of ONEtelecom and would not have been entitled to receive any dividends from it. In addition, the liquidators say there is no evidence in the company’s books and records that there was any dividend distribution to any shareholders of the company.
(c) $20,000.00 was paid from the company’s bank account on 20 December 2011 into a bank account in Mr Swindells’ name. Mr Swindells has acknowledged receipt of this payment but has asserted in his 24 July 2015 affidavit that it was an employee bonus payment to him from the company.
The plaintiffs say Mr Swindells’ contentions as to these payments are not supported by any documentary evidence and are inconsistent with the characterisation of those payments in the company’s books and records. Pay slips issued by the company suggest that Mr Swindells was paid an annual salary in excess of $200,000 and director’s fees of approximately $45,000 per year. The payments in respect of salary appear in the books of the company but they are not claimed by the liquidators in this proceeding. Mr Swindells’ wife was recorded as an employee of the company and she received an identical salary to Mr Swindells, $200,712 per annum, but again no claim is made in respect of the payments of salary to Mrs Swindells.
$100,010.00 was paid from the company’s bank account on 31 January 2012 by way of a bank cheque for $100,000 in favour of Bennison MacKinnon, a Melbourne real estate agent. This payment was recorded in the company’s MYOB records as ‘Shareholders loan Zac 2012’. Mr Swindells acknowledges receipt of this payment but in his evidence he states that this was an employee bonus from ONEtelecom.
$100,000 was paid from the company’s bank account on 8 May 2012 (with the narration ‘Zac loan’) to a bank account in the name of Mr Swindells’ wife, Tamara Swindells, and recorded in the company’s MYOB records as ‘Shareholders loan Zac 2012’. Mr Swindells acknowledges receipt of this payment but in his evidence he describes it as the second payment of an employee bonus from ONEtelecom.
The two payments were apparently paid in connection with Mr Swindells’ purchase of a property in Malvern. The plaintiffs say Mr Swindells’ contention that these payments were employee bonuses from ONEtelecom is not supported by any documentary evidence. They were paid from the company’s bank account and his contention is inconsistent with the characterisation of those payments in the company’s books and records. The plaintiffs submit that there is no evidence that Mr Swindells has paid any income tax on these amounts as would have been the expectation if his characterisation was to be accepted.
The final amount claimed, of $2,400 and described as ‘AMEX Stat 19 Dec’, is also characterised in the books of the company as ‘Shareholders Loan Zac 2012’ and has been traced by the liquidators as part of a BPAY payment to American Express. The MYOB general journal records a total payment of $33,558.98 to American Express on 1 December 2012. The journal then identifies the composition of that payment by reference to the various categories of the company’s expenses they fall into, including advertising, car expenses, travel, office supplies and the like, but specifically describes one entry as ‘Shareholders loan Zac 2012 $2,400’. Mr Swindells states in this affidavit of 24 July 2015 that ‘transactions on company AMEX were all for the normal case of day to day business’, but, in the light of the very specific identification of the transaction in the journal as a shareholders loan, Mr Swindells does not in my view rebut the prima facie presumption provided by s 1305 of the Act.
As has been mentioned, the plaintiffs put their claim in several ways, but their primary position is that each of the payments was made by the company by way of a loan to Mr Swindells or at his direction to other parties and have not been repaid. In this regard the plaintiffs rely on the following evidence in Mr McCallum’s affidavit and which was obtained from the company’s books and records:
(a) the Special Purpose Financial Report prepared for the Company for the year ended 30 June 2010 and signed by Mr Swindells and his then co-director Mr Monching on 28 February 2011 recorded, as ‘Receivables’, a 2007 loan to Mr Swindells in the amount of $80,192 and a 2010 loan to Mr Swindells in the amount of $78,178.[1] The plaintiffs submit that pursuant to section 1305 of the Act, the company’s accounts signed by Mr Swindells are prima facie evidence of the transactions recorded and explained in them.
[1]Mr McAloon submitted that a company’s accounts signed by a director as being true and correct are prima facie evidence of the transactions recorded and explained in them. The Hancock Family Memorial Foundation Ltd v Porteous (1999) 32 ACSR 124, [49]; Lotteries Pty Ltd v Umbrella Enterprises Pty Ltd (in liq) [2014] VSC 605, [188].
(b) the unsigned Financial Report for the year ended 30 June 2011 prepared for the company recorded the following as ‘Receivables’:
(i) ‘Loans to Directors 2007’ (in the amount of $151,345);
(ii) ‘Loans to Directors 2010’ (in the amount of $136,149); and
(iii) ‘Loans to Directors 2011’ (in the amount of $103,234).[2]
[2]Tab 8 of ‘SAM-10’ to the Third Affidavit of Stewart McCallum (at page 5 of ‘Notes to the Financial Statements for the Year Ended 30 June 2011’).
(c) the unsigned Financial Report for the year ended 30 June 2012 prepared for the company recorded the following as ‘Receivables’:
(i) ‘Loans to Directors 2007’ (in the amount of $121,013);
(ii) ‘Loans to Directors 2010’ (in the amount of $136,149);
(iii) ‘Loans to Directors 2011’ (in the amount of $103,234);[3] and
[3]No claim is made for the 2011 year in this proceeding.
(iv)‘Loans to Directors 2012’ (in the amount of $397,409).
(d) the company’s taxation return for the 2011 financial year, which was signed by Mr Swindells on 21 June 2012 and accompanied by a declaration by him that any schedules were ‘true and correct’, specified identical details for ‘loan(s) to directors’ in respect of the 2007, 2010 and 2011 years as the Financial Report for the year ended 30 June 2012.
(e) the asset listing annexed to the company’s taxation return for the 2011 financial year included the following entries:
(i) ‘Unsec loan Zac Swindells 2007’ in the amount of $80,191.70;
(ii) ‘Shareholder loan Acct Zac 2010’ in the amount of $78,178.10;
(iii) ‘Shareholders loan Zac 2011’ in the amount of $47,929.58; and
(iv)‘Shareholders loan Zac 2012’ in the amount of $295,867.82.
(f) In March 2013, the Company’s then solicitors (K&L Gates), acting on instructions from and with the knowledge of Mr Swindells, characterised the director’s loans recorded in the above financial records as being repayable by Mr Swindells and the company’s (by then) former director, Mr Monching and served a series of demands upon Mr Monching for repayment of those of the loans referable to Mr Monching. Mr Mark Klose, the commercial director of the company corresponded with Mr Chris Nikou, a partner of K&L Gates in regard to such demands. On 30 January 2013, Mr Nikou emailed Mr Klose (copying in Mr Swindells) with a copy of a letter Mr Nikou had sent to Mr Monching.
(g) On 19 March 2013, Mr Nikou wrote to Mr Klose. Parts of that letter are redacted but the relevant segment of it says as follows:
Chris Monching
As previously advised, in contemplating the proposed strategy of ISPONE in reducing the shareholding of Chris Monching, consideration needs to be given as to whether its actions amount to oppressive conduct. We note that part of the sum advance (sic) to Chris was done so as a joint loan to Chris and Zach. In this regard, can you please confirm if Zach has repaid his portion of the loan or if a request for payment has been made by ISPONE.
The requirement that only Chris repay his portion of the loan could be seen as being unfairly prejudicial and discriminatory against Chris. This action could constitute a breach of the Corporations Act 2001 (Cth). We can provide advice on the consequences of such action if required.
As such, prior to serving the Notice of Default, we recommend that ISPONE also requests that Zach repay the sums which were advanced to him. Any indulgence offered to Zach should also be given to Chris to ensure that the conduct taken against Chris is not deemed to be discriminatory.
(h) On 21 March 2013, Mr Klose wrote to Mr Nikou (but not copied to Mr Swindells) stating as follows:
Subject: Re: Master wholesale agreement and Chris Monching
Chris, confirming ISPONE has requested Zach [Mr Swindells] repay the Mondells’ loan and he has put steps in place to repay 50% by the end of March and the balance over a period of time.
Please lodge the default notice tomorrow, Friday. I will send you Chris’ latest email to me.
(i) On 22 March 2013, Mr Nikou again wrote to Mr Klose and stated:
Further to our email dated 15 March, the default notice must be signed by a director of ispONE Pty Ltd or a person with the requisite authority to bind the company.
In the current circumstances, in order to avoid a perceived conflict of interest, we recommend that Zach does not sign the default notice.
We have updated the default notice (ie interest has now accrued up to 22 March and the date for compliance is now 2 April).
Attached is a current version of the notice.
Please arrange for the document to be signed and returned to us and we will proceed to serve it on Chris.
(j) On 25 March 2013, Mr Klose wrote back to Mr Nikou (copied to Mr Swindells) stating:
Chris, you’ll have the signed originals in today’s mail from Martin Cheeseman – the Company Secretary.
Amongst the company’s records is a copy of the default notice dated 22 March 2013 addressed to Mr Monching, together with the other shareholders in the company including Mr Swindells. The recitals to the default notice state that Mr Monching has received the total of $264,148.26 and demands the total sum of $271,831.93 (which includes interest and costs). The principal sum is comprised as follows:
(a) $40,821.52 during 2007;
(b) $57,971.22 during 2010;
(c) $55,303.53 during 2011;
(d) $95,661.57 during 2012; and
(e) $49,500 during 2012.
These amounts align (not exactly but approximately) with the amounts mentioned in the company’s books and records as being the loans to directors for the years mentioned if Mr Swindells’ balance is taken into account.
The claims against Mr Monching have been compromised by a payment by him of $85,000.
The plaintiffs also rely upon a document found amongst the company’s books and records recording a director’s resolution purportedly passed on 25 July 2013, approximately a month before the company went into administration and at a time when Mr Swindells was the sole director of the company. The document recorded that the company resolved to ‘forgive the debts owed by Nick Terrell, Sajeewa Warnakulasuriya, Dean Manners and Zac Swindells’. Mr Swindells contends that Mr Klose took it upon himself to actuate that process and that he took no part in it. The relevant part of the text of the document stated as follows:
Minutes of a Directors Meeting of ISPONE Pty Ltd ACN 103 220 766 held on 25 July 2013 at 11am Board Room, level 15, 520 Collins Street, Melbourne
Present: Zach Swindells (Chairman), Martin Cheeseman (Secretary)
Previous Business: The Minutes of the previous meeting of the directors were confirmed.
It was resolved to forgive the debts owed by Nick Terrell, Sajeewa Warnakulasuriya, Dean Manners and Zach Swindells.
…
Chairman
In the company’s books and records, more particularly the MYOB journals, there is a document extracted from the general journal dated 30 June 2013 ‘Memo-loans forgiven’ containing entries whereby the payments the subject of the plaintiff’s claim are forgiven as well as those to the other persons identified in the resolution.[4]
[4]Annexure B to letter exhibited as ‘SAM-6’ to first McCallum affidavit.
The documents relating to the 25 July 2013 resolution form part of the books and records of the company and I consider that they and the circumstances of their creation are of considerable significance as they are evidence that those directing the company considered that the payments were liabilities in the nature of loans and it is to be inferred, in the absence of any cogent explanation from Mr Swindells, that he had some part in its creation as the sole director of the Company. As such, it is appropriate to detail the plaintiff’s evidence concerning the creation of the document together with Mr Swindells’ response.
In an affidavit of Mark Klose of 7 August 2015, he states that he started working for the company in February 2012 in the position of what he describes as its commercial director and remained in that role until the company went into administration in August 2013. It seems that he assumed that position after Mr Cheeseman’s retirement. He states that in that role he had the responsibility for keeping the books and records of the company, was the primary person who entered information into the MYOB accounting software system and that he had been issued with an electronic security token to enable him to do this. He was not employed by the company during the period that the earlier payments occurred, as he did not commence his employment until February 2012 (when Mr Cheeseman, who was responsible for the MYOB entries, retired). He states that in early 2012 he was aware that Mr Swindells and his wife had recently purchased a property in Malvern. In early May 2012, he had a discussion with Mr Swindells during which Mr Swindells stated words to the effect of ‘I am borrowing another $100,000 for the house, can you process that?’ In May 2012, Mr Klose entered the transaction on the MYOB system with the notation ‘Zac loan 080512’ in the amount of $100,000. He cannot recall who authorised the transfer with the Bank.
Mr Swindells’ evidence is that he told Mr Klose on that occasion, in response to the question from Mr Klose ‘are you going to pay it back?’, ‘No, the advance was part of his bonus.’
Mr Klose states that by mid-2013 it was apparent to him that the financial position of the company was not healthy and he had a number of discussions with Mr Swindells at around this time about its future and the best way for it and its related companies to be structured.
Mr Klose states that in or about July 2013, Mr Swindells instructed him to seek advice from the company’s accounting and legal advisors, Grant Thornton and K&L Gates, about the best way to structure the company and its related entities. He was the main point of contact at the company for those advisors. He states that on 15 July 2013 he had a meeting with Mr Scheiber of Grant Thornton, Mr Watson of K&L Gates and Mr Lindholm of Ferrier Hodgson. Mr Swindells states in his evidence that he was also present at the meeting and took photos of the screen discussion. There was a discussion about a number of options for how the company and its related entities could be structured including potential voluntary administration.
On the following day Mr Klose had a telephone conversation with Mr Scheiber about the future of the company. They discussed a number of matters including the possibility of forgiving debts owed to the company by certain persons, including Mr Swindells. On the day after that, 17 July 2013, he received an email from Mr Scheiber that set out advice about how debts could be forgiven by a company and issues which should be considered. Mr Scheiber stated:
Hi Mark,
Further to our meeting on Monday and telephone discussion yesterday, I note the following points in relation to forgiveness of debts:
·A debt is typically forgiven when:
oA deed of release is executed relieving the borrower from the obligation to pay the liability;
oThe debt is forgiven because the borrower became a bankrupt; or
oThe lendor is barred under the law from enforcing the liability;
·Other evidence that could demonstrate that a debt has been forgiven could include:
oWhere the lendor has written to the borrower confirming their intention not to seek repayment of the debt; and/or
oA minute of directors meeting resolving to forgive a debt.
The memorandum then sets out the taxation and other consequences of the forgiveness of the debt by a company. Mr Klose states that he forwarded the email to Ms Lyons, Mr Klose’s assistant, and copied it to Mr Swindells on the same day. He stated:
Deb, can you please action this re. the MYOB entries once we have the minutes from the Directors Meeting.
Zach, Martin mentioned he is visiting in the next week, as we will need a directors meeting to minute the debt forgiveness.
MK
Mr Klose states that on 17 July 2013 he sent a further email to Mr Swindells which forwarded both the emails that referred to the advice from Mr Scheiber, which noted the necessity for evidence of the debt being forgiven and a recommendation for a minute of directors meeting noting the forgiveness, and the email he had sent to Ms Lyons directing her to make the receiving entries in the MYOB records. He stated in his email:
Zach, Also what about Dean/Sarge/Nick loans.
…also what about Dean/Sarge/Nick loans, do you want to debt forgiveness for them as well? Chris Monching (I assume not)????
Each of those persons referred to were current and former employees to which he understood, based on his review of the Company’s MYOB records, that the Company had granted loans to, being Dean Manners, Sajeewa Warnakulasriya, Nick Terrell and Chris Monching.
On 25 July 2013 Mr Cheeseman, the Company Secretary, emailed Mr Klose under the subject heading ‘Re. ISPONE: Debt Forgiveness Board Minutes Attachments: Directors Meeting 25 July 2013.doc’:
Thanks Mark, the Board Minutes are attached. Could you save to the Board Minutes folder please.
Kind regards,
Martin.
Mr Monching had, by that time, fallen out with Mr Swindells and the company and indeed, as outlined above, he was being pursued for payment of his outstanding loan balances, hence the reference to the assumption that Mr Monching was not to be the subject of the debt forgiveness resolution. Mr Swindells replied by email stating ‘Agreed to all of the below’. Mr Klose states that he understood this to mean that Mr Swindells agreed to the forgiveness of the loans for himself and the persons mentioned, save Mr Monching, and that he agreed to have a directors meeting to minute the forgiveness of the loans.
On 19 July 2013, Mr Klose sent an email to Mr Cheeseman which was copied to Mr Swindells. He stated:
Can you confirm when you are coming into town, you mentioned you were coming in recently. Zac needs a directors meeting to minute some actions we are taking.
Later that day Mr Cheeseman replied that he would be coming in the following Thursday, by which Mr Klose took Mr Cheeseman to mean 25 July 2015. Again, the emails to which I have referred are exhibited to Mr Klose’s affidavit.
Mr Klose states that on 25 July 2015 Mr Cheeseman attended the company’s office and that he and Mr Swindells met in Mr Swindells’ office during the course of the morning. Mr Cheeseman emailed Mr Klose that day and stated ‘the board minutes are attached. Could you save to the Board Minutes folder please’. Mr Klose deposes that later that day he saw a copy of the minutes of that meeting signed by Mr Swindells and Mr Cheeseman. He states that the minutes looked substantially identical to the minutes which are exhibited to Mr McCallum’s affidavit, however he did not prepare them.
The forgiveness of the loans was documented in the company’s general journal in accordance with Mr Klose’s direction to Ms Lyons on 17 July 2013, but the date of the transaction was noted as being 30 June 2013. In cross-examination of Mr McCallum by Mr Swindells, Mr McCallum stated that the MYOB accounting system was ‘left open’. The effect of this was that 30 June 2013 was automatically recorded as the date of the transaction. This is typically done by accountants and bookkeepers to enable entries to be made for a financial year ending 30 June after that date and explains how the forgiveness of the loans was recorded as having taken place in the 30 June 2013 financial year and not the date of the resolution, 25 July 2013.
Mr Klose stated that at some point in the following month he noticed that the signed minutes of the meeting of 25 July 2013 had been misplaced. He recalls asking Mr Cheeseman to send him a copy of the minutes and Mr Cheeseman sent him a Word version of them. At the date of swearing his first affidavit, he had not been able to locate a copy of that email but he recalls that the minutes attached to the email were substantially identical to the copy of the minutes of resolution which are exhibited to Mr McCallum’s affidavit.
In a subsequent affidavit of 15 January 2016, Mr Klose states that he had been provided with emails by the liquidators from the company’s server which had recently come to light. One of those emails was sent on 25 July 2013 to Mr Cheeseman which attached a copy of minutes of a meeting of the company’s directors that took place in October 2012. He explains that he provided Mr Cheeseman with a template from which Mr Cheeseman could compose the minutes of the 25 July 2013 meeting. Shortly afterwards, on the same day he forwarded Mr Cheeseman the email chain which is referred to in his first affidavit and shortly after that Mr Cheeseman sent him an email in reply attaching a copy of the minutes of the 25 July 2013 meeting.
In an affidavit of Justin Anthony Deri of 18 January 2016, Mr Deri deposes that he was an employee of the liquidators and is a senior manager in the forensic IT department of Ferrier Hodgson. He states that on 10 August 2015 he undertook an examination of the forensic image of the company’s server taken on 22 August 2013 at approximately 2.18pm. He had been instructed by the liquidators to review a Word document titled ‘Directors meeting 25 July 2013.doc’. He found the file on the server image at the folder location ‘\documents\finance\boardmeetingnotes\’. Mr Deri transferred the file to the hard drive of a computer at Ferrier Hodgson in order to conduct a review of the internal document metadata. In the course of that exercise he examined the files creation date and time, the date it was last modified, the date and time it was last printed and the identity of the account that last saved the document. That examination revealed that the file was created on 25 July 2013 at 1.35pm and it was last modified and printed on that date and at that time.
On 15 January 2016 the liquidators requested that he examine an email apparently sent from Mr Cheeseman to Mr Klose on 25 July 2013. The email included an attached document ‘Directors meeting 25 July 2013.doc’. The examination revealed that the date and time of the document’s creation was 25 July 2013 at 12.50pm. The date and time of its last modification was 1.28pm that day. It was noted that the last time it was printed was 29 January 2007 at 1.09pm. Mr Geri explains that when the ‘Save As’ function of Microsoft word is used to create a copy of a document, some metadata fields are carried over to the new document. The ‘Document Printed’ metadata field is an example of this and explains why the ‘Document Printed’ date on the 25 July email is prior to the File Created date.
Mr Swindells deposes that he gave no instructions to actuate that process for the director’s resolution resolving the forgiveness or call a board meeting and that Mr Klose actioned it ‘on his own doing’ without consulting him. He states that there was no board meeting on that day, nor did he sign any minutes.
I consider that the balance of the evidence is that steps were put in place by Mr Klose, with the involvement of Mr Swindells, to investigate the position in regard to the forgiveness of the loans. There is no doubt that there was a meeting with the lawyers and the accountants on 15 July 2013 at which Mr Swindells was present and at which the forgiveness of debt issue was at least raised, if not being the predominant issue for discussion. Shortly afterwards, advice was received from Mr Scheiber, which included a recommendation that there be a minute of a director’s meeting resolving to forgive the debts. Mr Klose copied that advice to Mr Swindells on the same day. In a further email, Mr Swindells was consulted as to whether other parties should also be the subject of debt forgiveness, to which the response was in the affirmative. Mr Klose then deposes plausibly to the process of how the resolution was composed by Mr Cheeseman and this is confirmed by Mr Deri’s technical evidence.
I do not think it greatly matters whether or not the minutes were signed. What is most significant is that the company actuated a process with the knowledge of Mr Swindells to obtain advice regarding forgiveness of the loans. The relevance of this in the present instance is the implicit acceptance of the existence of liabilities in the form of loans on Mr Swindells’ part, which required forgiveness. This is completely at odds with what he contends to be the position in regard to the payments, that is, that they were either bonuses or dividends. I do not accept Mr Swindells’ evidence that he had no part in the process and that Mr Klose had taken it upon himself to put the process in motion to resolve to forgive the loans. Mr Klose was not cross-examined on his affidavit, his evidence is inherently plausible and is supported by contemporaneously generated documentation.
I consider that the advances which are the subject of the plaintiffs’ claim were in the nature of loans. The evidence detailed above to my mind is compelling in that regard. The treatment of the transactions in the books of the company over a period of years describes them as loans and I do not consider that Mr Swindells has displaced the prima facie presumption provided by s 1305 of the Act that the transactions recorded as loans were loans to him.
Mr Swindells has signed the Special Purpose Financial Report for the company for the year ending 30 June 2010. That report refers to the 2007 and 2010 advances. The financial reports for the years that follow that one in evidence are unsigned, but it was not suggested by Mr Swindells that the contents of those unsigned reports were not authentic or were inaccurate. The company’s taxation return for the 2011 financial year, which was signed by Mr Swindells and declared to be true and correct by him, confirmed the details for the loans to directors in respect of the 2007, 2010 and 2011 years as appeared in the financial report for the year ending 30 June 2012. An asset listing annexed to that taxation return also confirmed the amounts and described them as ‘shareholders loans Zac’ for the year in question. The circumstances surrounding the pursuit of Mr Monching for repayment of his loans by solicitors engaged by the company, presumably on the instructions of Mr Swindells or at least with his knowledge, confirms the nature of the advances. Finally, the evidence concerning the director’s resolution documentation confirms the nature of the advances as being loans and the forgiveness of the loans appeared in the company’s general journal.
Mr McAloon, counsel for the plaintiffs, conceded that the 2007 advance for $80,191.70 was probably barred by limitation before the issuing of the originating process on 24 November 2013.
In the absence of any stipulation as to the date for repayment, it must be taken that the loan advanced by the company to Mr Swindells during 2007 (and at the latest 30 June 2007) was repayable on demand. It follows that time began to run as of 30 June 2007 at the latest and expired six years later, on 30 June 2013.
Nettle J had to consider this principle in the matter of VL Finance Pty Ltd v Legudi,[5] referring to the decision of Fullagar J in Ogilvie v Adams,[6] where Fullagar J stated:
The common law has always regarded the fact of indebtedness as a continuing detention by the debtor of the creditors money, and this whether the creditor brought an action of debt or an action indebitatis assumpsit. Therefore if A lends money to B then suddenly B is detaining A’s money. In order to prevent a cause of action for recovery arising in A instantaneously on paying the money, the parties must expressly contract out of that situation by words clearly inconsistent with that situation.
[5][2003] VSC 57.
[6][1981] VR 1041 at 1043.
In VL Finance Nettle J held that Ogilvie v Adams was still good law in this State.[7] His Honour then went on to consider whether subsequently created documentation, in that case an annual return, constituted an acknowledgement which caused time to start running again. At paragraph [60] Nettle J stated (citations omitted):
[7]At [44].
[60]The question of what amounts to an acknowledgment is a question of construction, and there is high authority that the decided cases are of little value as precedents. It is plain, however, that an acknowledgment needs to be in writing and it needs to be signed by the debtor or his agent and it needs to be “given to the creditor”. On the other hand, it need not specify the amount of the debt precisely, provided it is ascertainable from extrinsic evidence and, as with the Statute of Frauds, it is permissible to combine a number of instruments in order to make up the one acknowledgment.
…
[63]The reasoning throughout these cases is hardly constant and some of the earlier decisions may now be doubted in light of later decisions. It is probably also fair to say that the trend of authority is in favour of a relaxation of the requirements of an acknowledgment and therefore of treating as acknowledgments an increasing array of documents signed by or on behalf of a debtor. But while there is now high authority in Australia that a debtor need not intend to communicate an acknowledgment to the creditor or his agent (it is enough that the acknowledgment is actually communicated to the creditor), it remains the position in Australia as it is in England that a document does not constitute an acknowledgment unless it is in substance expressive of the debtor’s intention to admit the debt and to have the document produced and used for that purpose.
[64]VL Finance Pty Ltd argued that in as much as a company’s balance sheet may be regarded as an acknowledgment of the debts of the company shown in the balance sheet, an annual return signed by one director of the company should be regarded as an acknowledgment of the debts owed by the director to the company which are shown in the return. It was also submitted that the return should be treated as an acknowledgment by the other directors of the debts shown as owed by those directors to the company, on the basis that the directors as a whole were under an obligation to lodge the annual return and because the one director who signed the return should be regarded as impliedly authorised by each of the other directors to make the acknowledgment on his behalf. It followed, it was submitted, that the 1994 Annual Return which was signed and lodged by Anthony Legudi qualifies as an acknowledgment of the debt owed to Properties by Anthony Legudi and also of the debt owed to Properties by Frank Legudi.
[65]The 1994 Annual Return does not refer specifically to the debt to Properties owed by Anthony Legudi or the debt to Properties owed by Frank Legudi. Relevantly, it refers only to the total of member loans in an amount of $2,876,883 (being the total as at 30 June 1993 to which I made reference earlier in these reasons). But it was said that the 1993 accounts are admissible as extrinsic evidence to show that the amount of $2,876,883 included the debt of $170,768 owed by Anthony Legudi as at 30 June 1993, and the debt of $341,555 owed by Frank Legudi as at 30 June 1993, and that by parity of reasoning with the decisions in Read v Price and Jones v Belgrove Properties Ltd, it is to be concluded that the return was an acknowledgment of those individual debts.
[66]Finally, it was submitted, the acknowledgment should not be thought to be confined to the amounts of the directors’ indebtedness as at 30 June 1993, because although the 1994 annual return referred only to the total of $2,876,883 (which was the total indebtedness as at 30 June 1993) it was permissible to have regard to the extrinsic evidence constituted of the 1994 Annual General Ledger and draft balance sheet and to treat the figure shown in the return as having been misstated because of error. On that basis, it was said, it should be treated as if it were an acknowledgment of total member indebtedness of $3,096,083 and, within that, of a debt owed by Anthony Legudi in the amount of $735,321 and of a debt owed by Frank Legudi in an amount of $367,660.
[67]I do not accept those submissions. In my opinion an annual return is not capable of constituting an acknowledgment by the directors of the company of debts which they owe to the company. It may perhaps be an acknowledgment by the company (in the same way that a balance sheet may be an acknowledgment by the company), because it may be supposed that the return is intended for use by the company’s creditors. But I do not consider that it is an acknowledgment by the directors, because in my view it cannot be supposed that the return is made out to be used by the directors’ creditors. The return is not made to the company. It is made by the company. Nor is the return prepared for the use and consideration of the company. It is designed and prepared for the use of others. Moreover, even if all the directors of the company are under a personal obligation to ensure that the return is made out and filed, I do not consider that the return is expressive of an intention on the part of the directors to admit such of their debts to the company as are shown in the return and to have the return produced by the company and used for that purpose. Therefore, regardless of whether the return comes to the attention of the company, I am unable to see that it is an acknowledgment made to the company.
I consider that, on an application of Nettle J’s reasoning in VL Finance, the loan for the 30 June 2007 year became barred by limitation on 30 June 2013 and has not been the subject of effective acknowledgement in the financial documentation of the company to which reference has been made, including annual accounts and taxation returns.
In their originating process the plaintiffs contend in the alternative that the payments are voidable as unreasonable director-related transactions pursuant to s 588FDA of the Act. Section 588FE(6A) provides as follows:
(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.
Section 9 of the Act defines the ‘relation-back day’, in relation to a winding up of a company or Part 5.7 body, as:
(a) if, because of Division 1A of Part 5.6, the winding up is taken to have begun on the day when an order that the company or body be wound up was made--the day on which the application for the order was filed; or
(b) otherwise--the day on which the winding up is taken because of Division 1A of Part 5.6 to have begun.
The company was in administration when the creditors resolved that it be placed in liquidation. Accordingly, the relation back day in the winding up of the company is, in these circumstances, determined by s 513B of the Act which provides:
Where a company resolves by special resolution that it be wound up voluntarily, the winding up is taken to have begun or commenced:
(a)[not relevant]; or
(b)if, immediately before the resolution was passed, the company was under administration – on the 513C day in relation to the administration; or
(c) [not relevant]; or
(d) [not relevant];
(e) [not relevant].
Section 513C provides:
The section 513C day in relation to the administration of a company is:
(a)if, when the administration began, a winding up of the company was in progress – the day on which the winding up is taken because of this Division 2 have begun; or
(b)otherwise – the day on which the administration began.
The administration of the company began on 19 August 2013 and that date will be the relation back day in the winding up on the company. The 2007 advance occurred more than four years before the relation back day and the loans constituting the 30 June 2007 payments will therefore be outside the period fixed by s 588FE(6A)(b)(i) and are not potentially recoverable under that section. Only those advances occurring after 19 August 2009 are potentially susceptible of being characterised as unreasonable director-related transactions of the company. However, for the reasons I have given above, because I have determined that the payments for 2010, 2011 and 2012 are loans and repayable by Mr Swindells, it is not necessary for me to consider whether they are in the nature of unreasonable director-related transactions.
Mr McAloon submitted if the payments, in particular the 2007 advance, are not repayable by Mr Swindells as loans that they would be recoverable as damages pursuant to s 1317H of the Act on the basis that, by having the company make the payments and having failed to repay them, Mr Swindells breached the duties owed to the company in his capacity as director and the company suffered loss as a consequence. In this regard he submitted that if the payments were not repayable as loans, the making of the payments (a) deprived the company of funds that would otherwise have been available to meet the company’s liabilities; (b) conferred no valuable consideration or commercial benefit upon the company; and (c) were not the subject of accurate contemporaneous documents (including in circumstances where the company’s books and records designated that each of the payments was a loan made by the company to Mr Swindells).
Mr McAloon submitted that Mr Swindells’ conduct, by accepting the payments and receiving a direct personal benefit on account of failing to repay them, is in contravention of the duty owed by Mr Swindells to the company under ss 181, 182 and 183 of the Act.
Section 181 of the Act provides:
(1)A director or other officer of a corporation must exercise their powers and discharge their duties: (a) in good faith in the best interest of the corporation; and (b) for a proper purpose.
(2)A person who is involved in a contravention of sub-s (1) contravenes the sub-section.
Section 182 of the Act provides:
A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation.
Although Mr McAloon stated that the plaintiffs also relied on the provisions of s 183 of the Act, that provision is related to use of information by directors to gain an advantage for themselves or someone else or to cause detriment to the corporation. I do not think it can be suggested that that has occurred in this instance.
The circumstances of the company at the time the advances were made for the 30 June 2007 payments are completely unknown. While the directors of a company are not at liberty to help themselves to the funds of the company, there must be some evidence to support a claim under ss 181 or 182. In my view, it is not uncommon for directors to be loaned funds by companies with which they are directors of and indeed such transactions are contemplated by taxation legislation.[8] It does not suffice for the plaintiffs to merely contend that Mr Swindells has received a direct personal benefit to support claims under ss 181 and 182, and is therefore liable for damages under s 1317H of the Act.
[8]See Part III Division 7A (ss 109B and 1092E) of the Income Tax Assessment Act.
Conclusion
Accordingly, I find that the plaintiffs are entitled to judgment against Mr Swindells for all of the payments (save for the 2007 advances) because they were loans to him from the company and he is obliged to repay them. While I consider that the 2007 payments were also loans, they are barred by limitation on an application of the principle enunciated by Fullagar J in Ogilvie v Adams and they are not recoverable as unreasonable director‑related transactions because they are outside the four year time period prescribed by the Act in s 588FE(6A). In addition, I do not consider that there is evidence to support a finding that Mr Swindells, by accepting the 2007 advances, is, without more, liable under ss 181 or 182 of the Act and therefore susceptible to a finding of damages pursuant to s 1317H of the Act.
There will be judgment for the plaintiffs in the sum of $424,375.50 together with interest and costs including reserved costs if any.
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