Alora Davies Developments 104 Pty Ltd (in liq) v Raphael

[2024] NSWSC 547

Supreme Court

New South Wales

Medium Neutral Citation:

Alora Davies Developments 104 Pty Ltd (in liq) & Ors v Raphael & Anor [2024] NSWSC 547

Hearing dates:

20-22 March 2024, 9-10, 23 April 2024

Date of orders:

10 May 2024

Decision date:

10 May 2024

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Declarations and orders in respect of directors’ duties and under Part 5.7B of the Corporations Act 2001 (Cth) made against the Defendants.

Catchwords:

CORPORATIONS – Directors and officers – Whether Second Defendant was a de facto or shadow director of the company.

CORPORATIONS – Directors and officers – Breach of duties under ss 180–182 of the Corporations Act 2001 (Cth) – Breach of fiduciary duties – Whether directors caused company to enter uncommercial transactions – Whether directors caused funds to be transferred to related entity absent any benefit to the company – Whether directors procured loan to the company while it was insolvent.

CORPORATIONS – Whether transactions amount to unfair preferences, uncommercial transactions, unreasonable-director related transactions and insolvent transactions under Part 5.7B of the Corporations Act 2001 (Cth).

Legislation Cited:

- Civil Procedure Act 2005 (NSW) ss 100, 101

- Corporations Act 2001 (Cth) ss 9, 95A, 180-183, 588FA, 588FB, 588FC, 588FDA, 588FE, 588FF, 588G, 588M, 1317H

- Evidence Act 1995 (NSW) ss 136, 140

- Environmental Planning and Assessment Act 1979 (NSW) s 7.6

Cases Cited:

- Armagas Ltd v Mundogas SA [1985] 1 Ll R 1

- Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209; [2016] FCA 1023

- Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126; [2003] VSC 123

- Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504; (2019) 133 ALR 1; (2019) 18 ACSR 459; [1995] FCA 1663

- Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd (2011) 248 FLR 384; [2011] NSWSC 186

- Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34

- Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 238 FLR 384; (2010) 77 ACSR 410; [2010] NSWSC 233

- Buzzle Operations Pty Ltd v Apple Computers Australia Pty Ltd (2011) 250 FLR 242; (2011) 82 ACSR 703; [2011] NSWCA 109

- Capital Finance Australia Ltd v Tolcher (2007) 164 FCR 83; (2007) 64 ACSR 705; [2007] FCAFC 185

- Cassimatis v Australian Securities and Investments Commission (2020) 376 ALR 261; (2020) 144 ACSR 107; [2020] FCAFC 52

- Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36

- Canstruct Pty Ltd v Project Sea Dragon Pty Ltd (subject to DOCA) (No 4) [2024] FCA 112

- Coope v LCM Litigation Fund Pty Ltd (2016) 333 ALR 524; [2016] NSWCA 37

- Crowe-Maxwell v Frost (2016) 91 NSWLR 414; 111 ACSR 583; [2016] NSWCA 46

- Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565 at 570; (1998) 16 ACLC 1555

- Edenden v Bignell [2007] NSWSC 1122

- Electrical Enterprises Retail Pty Ltd v Rodgers (1988) 15 NSWLR 473

- Elliott v Australian Securities and Investments Commission (2004) 10 VR 369; [2004] VSCA 54

- Emanuel Management Pty Ltd v Foster's Brewing Group Ltd (2003) 178 FLR 1; [2003] QSC 205

- ET-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24

- First Strategic Development Corporation Ltd (in liq) v Chan [2014] QSC 060

- Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd (in liq) [2022] NSWSC 394

- Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6

- Huntlee Pty Ltd v Sweetwater Action Group Inc [2011] NSWCA 378

- International Cat Manufacturing Pty Ltd (in liq) v Rodrick [2013] QSC 91

- K&A Laird (N.S.W.) Pty Ltd (in liq) v Aidzan Pty Ltd (in liq) [2023] NSWSC 603

- Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 54 ACSR 410; [2005] NSWCA 243

- Mistmorn Pty Ltd (in liq) v Yasseen (1996) 21 ACSR 173; (1996) 14 ACLC 1387

- Mudgee Dolomite & Lime Pty Ltd v Murdoch [2020] NSWSC 1510

- Natcomp Technology Australia Pty Ltd v Graiche (2001) 19 ACLC 1117; [2001] NSWCA 120

- New Cap Reinsurance Corporation Ltd (in liq) v Renaissance Reinsurance Ltd (2002) 192 ALR 601; (2002) 43 ACSR 65; [2002] NSWSC 856

- No 1 Victoria Dragons Pty Ltd v AEN Developments Pty Ltd [2022] NSWSC 1345

- Re ACN 092 745 330 [2017] NSWSC 241

- Re Ahmed & Associates (Aust) Pty Ltd [2021] NSWSC 499

- Re Atlas Advisors Australia Pty Ltd (2022) 162 ACSR 509; [2022] NSWSC 705

- Re Central Management (NSW) Pty Ltd [2017] NSWSC 1258

- Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789

- Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281; (1997) 24 ACSR 292

- Re Employ (No 96) Pty Limited (in liq) (2013) 93 ACSR 48; [2013] NSWSC 61

- Re FAL Healthy Beverages Pty Ltd [2017] NSWSC 476

- Re Humur Pty Ltd [2020] NSWSC 1759

- Re IW4U Pty Ltd (in liq) (2021) 150 ACSR 146; [2021] NSWSC 40

- Re RMATA Cutelli Pty Ltd (in liq) [2018] NSWSC 382

- Re Swan Services Pty Ltd (in liq) [2016] NSWSC 1724

- Smith (in his capacity as liquidator of Action Paint Ball Games Pty Ltd) v Starke (No 2) (2015) 109 ACSR 145; [2015] FCA 1119

- Smithton Ltd v Naggar [2015] 1 WLR 189; [2014] EWCA Civ 939

- Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 39 ACSR 305; [2001] NSWSC 621

- Varma v Varma [2010] NSWSC 786

- Vasudevan v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14

- V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd (2013) 296 ALR 418; 93 ACSR 76; [2013] FCAFC 16

- VL Finance Pty Ltd v Legudi (2003) 54 ATR 221; [2003] VSC 57

- Vrisakis v Australian Securities Commission (1993) 9 WAR 39; (1993) 11 ACSR 162

- Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18

- Watson v Foxman (1995) 49 NSWLR 315

- Weaver v Harburn (2014) 103 ACSR 416; [2014] WASCA 227

- White in his capacity as joint and several liquidator of Port Village Accommodation Pty Ltd (in liq) v ACN 153 152 731 Pty Ltd (in liq) (2018) 53 WAR 234; (2018) 129 ACSR 182; [2018] WASCA 119

- White Constructions (ACT) Pty Ltd (in liq) v White (2004) 49 ACSR 220; [2004] NSWSC 71

Category:

Principal judgment

Parties:

Alora Davies Developments 104 Pty Ltd (in liq) (First Plaintiff)
Henry McKenna in his capacity as liquidator of Alora Davies Developments 104 Pty Ltd (in liq) (Second Plaintiff)
David John Raphael (First Defendant)
Priscilla Elizabeth Raphael (Second Defendant)
Alora Property Group Pty Ltd (Third Defendant)

Representation:

Counsel:
M Davis (Plaintiffs)
I King (First and Second Defendants)

Solicitors:
Pinsent Masons (Plaintiffs)
Wilshire Webb Staunton Beattie Lawyers (First and Second Defendants)

File Number(s):

2023/105260

Judgment

Nature of the proceedings

1. By Originating Process filed on 31 March 2023, the Plaintiffs, Alora Davies Developments 104 Pty Ltd (in liq) (“Company”) and its liquidator Mr McKenna (“Liquidator”) seek a range of relief against the First and Second Defendants, Mr Raphael and Mrs Raphael. The Third Defendant, Alora Property Group Pty Ltd (“APG”) was recently placed in voluntary liquidation and the Plaintiffs sought and obtained leave to continue the proceedings against it. The matter proceeded on pleadings and the Plaintiffs ultimately relied on their Further Amended Statement of Claim filed 15 April 2024 (“FASC”), to which the Defendants responded by a Second Further Amended Defence filed on 19 April 2024, which would more properly have been described as their Defence to the FASC (“Defence”).

2. By way of background, Mr Raphael was a director of the Company between 11 January 2018 to 11 March 2020 and the husband of Mrs Raphael (FASC [3], admitted Defence [3]). Mrs Raphael was a director of the Company between 20 April 2017 and 11 January 2018; the Plaintiffs contend that she was also a de facto and/or shadow director of the Company between 12 January 2018 to 6 May 2020; and she is Mr Raphael’s wife (FASC [4]). APG was incorporated on 20 March 2014; its directors were, relevantly, Mrs Raphael between 3 March 2014 and 11 January 2018 and Mr Raphael from 11 January 2018; and its shareholders were Green Gecko Investments Pty Ltd (“Green Gecko”), in which Mr and Mrs Raphael were directors and shareholders; The Zebra Mark Pty Ltd (“Zebra Mark”), which is associated with Ms Larsen, who is Mrs Raphael’s daughter; and Jade Vale Pty Ltd (“Jade Vale”), which is associated with Ms Thackeray, who is also Mrs Raphael’s daughter (FASC [5]-[11]). The Plaintiffs have settled their claims against the Fourth Defendant, Mr Drew Davies, who gave evidence for them in the proceedings. Mr Davies was a director of the Company from 15 January 2019.

Chronology

3. I now set out a chronology of events, which I have drawn from the parties’ chronology, the pleadings and affidavit evidence and cross-examination, which I will address below. The parties opened on the basis that there is limited contest as to that chronology and the underlying facts.

4. In January 2017, the parties identified an opportunity to acquire and develop land (“Land”) located in Tahmoor in New South Wales (Raphael [25]). In April 2017, the Company was incorporated and the Alora Davies Developments 104 Pty Ltd Unit Trust was established with the Company as trustee and Alora Developments Pty Ltd (“ADPL”) and Davies Property Developments Pty Ltd (“DPD”) as unit holders (Ex D7, 54).

5. Between May 2017 and June 2019, the Company entered loan agreements and received loans from several parties in respect of the development project (FASC [17]). On or about 10 May 2017, the Company entered into a loan agreement with Mr Hammond by which he agreed to advance a loan to the Company in the amount of $300,000 (“Hammond loan”) (FASC [17], [31]; admitted Defence [31]; McKenna 31.3.23 [45]; Raphael [144]). The deed of loan for the Hammond loan (Ex P4, 92) records that the advance was made on 17 May 2017 and the term of the loan was to the earlier of 24 months after the date of the advance and 14 days after “Completion of the Project”, then defined as “the date the call option agreement over the [Land] has been assigned, novated or on-sold and payment has been received”. The term “Project” was in turn there defined as “acquiring a call option over the Site, applying for and pur[su]ing development approval for the Site and assigning the benefits of the call option to a third party”. Clause 2 provided for the borrower’s agreement to repay the loan, with an uplift by a specified percentage amount by way of interest, and additional interest calculated at 2.2% per month from the date being 16 months after the date the loan was advanced. There is, of course, no inconsistency between that provision and the due date for repayment of the loan, since that provision contemplated the payment of additional interest if the term of the loan extended between 16 months and its due date for repayment in 24 months. I note, for completeness, that Ms King draws attention to the fact that Mr Hammond’s proof of debt was directed to an amount of $300,000 and did not include interest on his loan. That seems to provide little assistance as to the terms of the loan and likely suggests that Mr Hammond misunderstood the information that should be included in a proof of debt.

6. On or around 6 June 2017 and 7 July 2017, the Company and the owners of the Land (“Landowners”) entered into call option agreements in respect of the Land (FASC [67], admitted Defence [67]; Ex P3, 185-282, 283-360). On 18 July 2017, the Company, DPD and ADPL entered into a shareholder agreement (“Shareholder Agreement”) (Ex P3, 361-376; Ex D7,1). Mr and Mrs Raphael contend (Defence [15]) that the Company entered into an oral contract with APG to manage the Company’s development business on or about 18 July 2017. Where Mr Raphael did not give evidence and I cannot accept Mrs Raphael’s evidence for the reasons noted below, I do not accept that such a contract was formed, although persons associated with APG, including Mr and Mrs Raphael, Ms Larsen and Ms Thackeray performed work for the Company which I will address below.

7. The Company then entered another loan agreement with I&S Davies Superannuation Fund in the amount of $200,000 on or about 31 July 2017 and a loan agreement with Jeremy Scott Pty Ltd ATF M&E Superannuation Fund in the amount of $130,000 on or about 8 August 2017 (FASC [17]; McKenna 31.3.23 [45]; Raphael [153], [161]; Ex P4, 98, 104).

8. On 26 September 2017, the Company lodged its development application in respect of the Land (FASC [18], admitted Defence [18]; McKenna 31.3.23 [51]; Raphael [61]).

9. On 15 November 2017, Menangle Park 1 Pty Ltd (“MP1”) was incorporated and Ms Thackeray was appointed as its director and, on 24 November 2017, MP1 entered into call option agreements in relation to properties at Menangle Park (Raphael [166]-[167]).

10. On 11 January 2018, the Australian Securities and Investment Commission (“ASIC”) register relating to the Company was updated to show the removal of Mrs Raphael as its director (Ex P3, 7, 33) and Mr Raphael’s appointment as a director of the Company. The Plaintiffs did not take any point that a change in that register was not, without more, effective to bring about that resignation or appointment and I will assume, without deciding, that that resignation and appointment were effective where the parties conducted the case on that basis.

11. On about 4 June 2018, the Company executed a voluntary planning agreement (“VPA”) (Ex D7, 309) with the Minister for Planning and Public Spaces and the Landowners in respect of the development project (FASC [68], admitted Defence [68]; McKenna 31.3.23 [50]; Ex P3, 385-415; Raphael [62]). I will address the terms of the VPA below, in addressing the Plaintiffs’ challenge to later transactions concerning it.

12. On 30 June 2018, adjusting entries made to move expenses of the Company into an asset account named “Deposits on Property/Development Site” and the balance of a liability account named 'Loans and Finance' was moved to an equity account named 'Settlement' (McKenna 31.3.23 [86(a)-(b)]; Ex P3, 457-458).

13. On 27 July 2018, the Company entered into a deed of variation with the Landowners (Raphael [63]). On 2 August 2018, the Company received development consent from the New South Wales Land & Environment Court in relation to the development (Raphael [64]) and, in September 2018, the Company received development approval from Wollondilly Shire Council (McKenna 31.3.23 [51]).

14. On 24 November 2018, a valuer, Egans Valuers, provided an “as-is” valuation of $7.6 million (Raphael [71]). Obviously enough, the Company could not access that value unless it could first fund the acquisition of the Land. Also in November 2018, the Company obtained an extension for compliance with the call option agreements between the Company and the Landowners (FASC [19], admitted Defence [19]).

15. In January 2019, Mrs Raphael executed a fee agreement for geotechnical and civil design works for the Company, there describing herself as an “authorised representative” of the Company and holding herself out as acting in the role of “CEO” (or, possibly, “CFO”) (implicitly, chief executive officer or chief financial officer) of the Company (Ex P5, 11).

16. On 1 February 2019   , the Company entered into a second deed of variation with the Landowners to extend the settlement period from 42 to 56 days (Raphael [65]). It is common ground that a meeting took place between Mr Raphael, Mrs Raphael, Mr Drew Davies and Mr Ivor Davies (Mr Drew Davies’ father) on 5 February 2019 and, on 6 February 2019 (Ex P5, 74), Mrs Raphael instructed Surry Partners to exercise both options over the Land, and advised the solicitor that finance approval would be “formal”; the solicitor in turn advised her that the sale needed to settle simultaneously so that the purchase would need to be a cash purchase and all funding would need to be in place prior to exchange. Finance approval was plainly not then a formality given the highly conditional character of the finance documentation to which I will refer below. On 6 February 2019, the Company exercised its option to acquire the Land and a contract of sale was executed (McKenna 31.3.23 [42], [52]; Ex P3, 416-422; Raphael [66]).

17. By email dated 12 February 2019 (Ex D4), Mr Davies wrote to Ms Larsen, Mrs Raphael and Ms Thackeray noting that:

“(a)   We need to know before this Thursday lunchtime when we meet with [Mr Hammond] what we can offer him if he leaves some or part of his money in. Obviously we can offer him units and security but we need to know what return we say? (We discussed a per annum amount plus an equity stake, it would be good to know potentially what that equity stake would be based on current feaso [sic] as any investor will ask that question)

(b)   On the back of [Mr Hammond] letting us know if he wants some or all of his money out we can then work out the exact amount we have to raise for Tahmoor via units – for this we will need a Tahmoor Unit IM, we have a bunch of people waiting for this, realise we need [Mr Hammond’s] answer before we can finalise but once we do would like the Tahmoor Unit IM pretty quickly.”

I should note that the parties used the term “investor” to refer to individuals and entities that made unsecured loans to the Company, and were in fact unsecured lenders to it, and I will use the same term for consistency.

18. The Company entered another loan agreement with Ms Gulliver in the amount of $170,000    on or about 14 February 2019 (FASC [17]; McKenna 31.3.23 [45]; Ex P4, 110). The Deed of Loan relating to this loan contained an amended definition of the “Project”, which contemplated that the Project might extend beyond an assignment of the call option over the Land, and was now defined as “acquiring a call option over the [Land], applying for and p[u]rsuing development approval for the Site and assigning the benefit of the call option to a third party/or civil construction of the land subdivision to completion of registered land lots”.

19. On 6 March 2019, the Company entered into an agency agreement with Response Real Estate Kellyville Pty Ltd trading as Response Real Estate (“Response”) in respect of the Land (Davies 3.11.23 [23]; Ex P1, 135-141; Raphael [67]; Ex D7, 368-374).

20. Mrs Raphael’s evidence is that, on 21 March 2019, the Company signed a “letter of offer” with a senior funder for the project (Raphael [68]).

21. It is common ground that the contract for the purchase of the Land was due to complete on 3 April 2019 and, on 4 April 2019, the Landowners served a notice to complete on the Company requiring completion of the contract by 24 April 2019 (Raphael [69]).

22. On 5 April 2019, Mrs Raphael emailed a finance broker (Ex P5, 32) a signed “formal letter of offer” from a financier, Trilogy Funds Management Ltd (“Trilogy”), from which she has crossed out guarantees in cl 24. That document was not an offer, in any substantive sense, because any commitment of Trilogy was expressly limited to a “best endeavours” basis, was subject to the satisfaction of terms and conditions, stated that the approval was “not unconditional” until the making of an advance, and that the advance may be delayed or not occur at all unless all of Trilogy’s requirements were satisfied promptly. That letter indicated no more than the fact that, if Trilogy’s requirements were in future satisfied and it chose to do so, it might make a loan to the Company. The attached terms and conditions precedent to an initial advance included a valuation of the mortgaged property by Trilogy’s panel valuer “to the satisfaction of [Trilogy] in all respects” and Trilogy reserved the right to review the terms of the “loan offer” (which was not an offer) on formal review of the valuation; Trilogy considering development and building approvals were acceptable to it, its solicitor or quantity surveyor or panel engineer in all respects; and confirmation from the Company’s accountant as to several financial matters; and that Trilogy was “satisfied with the financial statements” provided by the Company. There were also further conditions precedent to a first drawdown for development funding for an undrawn balance and for subsequent development advances for an undrawn balance. In case there was any doubt as to the lack of any binding character of the agreement, it provided that a letter of offer could be withdrawn by Trilogy “[i]f circumstances or facts arise or come to [Trilogy’s] notice which in [Trilogy’s] opinion is detrimental to [Trilogy’s] interests” and for other reasons.

18. The finance broker in turn advised Trilogy on 5 April 2019 (Ex P5, 31) that the Company’s drawdown of the loan facility was “conditional upon being able to effect settlement of the Land in the available time period which will require either Bridging or Vendor finance for the shortfall amount to be obtained”. It was implicit in that email that that funding had not then been obtained.

19. By a further email dated 5 April 2019 (Ex P5, 47) to Mr Drew Davies, Mr Ivor Davies, Mr Raphael, Ms Larsen and Ms Thackeray, Mrs Raphael advised:

“All moving forward – just waiting to hear on the Bridging from Trilogy and I will follow up with [the finance broker] shortly in regards to his proposal for other bridging finance contacts and vendor finance.”

25. On 15 April 2019, the Company engaged Land Mark White to provide a further valuation (Raphael [73]) and Mrs Raphael was in correspondence with Matrix Property and a law firm acting for the Company, Surry Partners Pty Ltd (“Surry Partners”) with respect to obtaining a further loan (Ex P1, 147-149). Mrs Raphael’s evidence is that, on 18 April 2019, the Company received an “as-is” valuation from Land Mark White of $5.8 million, although she there annexes emails concerning a valuation rather than any valuation document issued by Land Mark White (Raphael [74]; Ex D7, 375-394).

26. On 18 April 2019, the Company sought a 7 day extension of time to settle the purchase of the Land, which was then due to settle on 24 April 2019, to 1 May 2019 (Raphael [75]). On 24 April 2019, the Landowners agreed to extend the date for completion of the purchase of the Land to 1 May 2019 (Raphael [76]). Mrs Raphael’s evidence is that she attended a meeting with Land Mark White (Raphael [77]) which, on 26 April 2019, revised its valuation to $6.7 million (Raphael [78]), although she again annexes emails concerning a valuation rather than the valuation document. Mrs Raphael was also involved in seeking mezzanine funding at least from that date (Raphael [80]).

27. By email dated 30 April 2019 (Ex P5, 49), Surry Partners advised the Landowners that its lenders had commissioned an updated valuation of the development site and that:

“Unfortunately due to the recent downturn in the market, the latest valuation has resulted in a significantly lower valuation impacting the funds that will be released at settlement to complete the purchase under the Primary facility.

This in turn has impacted on the availability of the Secondary bridging loan facility.

The current projected shortfall of funds for settlement is expected to be $825,000 for each adjoining property based on this valuation.”

While that email referred to the Company’s commitment to completing the acquisition of the Land at the agreed purchase price, it made clear that the Company did not have funds to do so, and advanced a proposal for vendor finance by the Landowners. On 1 May 2019 (Ex P5, 51) the solicitors for one of the Landowners issued a notice to complete in respect of the property. Mrs Raphael’s evidence is that she sought to address the funding difficulties in the subsequent days (Raphael [81]-[84], Ex D7, 384, 387, 391).

28. In early May 2019, discussions took place between Mr Davies, Mrs Raphael, Ms Thackeray and Ms Larsen as to the possible offer of equity positions in the projects to obtain larger “investors” and people who were not already known to Mr Drew Davies and Mr Ivor Davies or possibly Mr and Mrs Raphael, and Mr Davies referred to an information memorandum indicating what would be offered (Ex D5). By email dated 7 May 2019 (Ex D5), Mr Davies advised Mrs Raphael and others that they were continuing to try to find new “investors” (who were regrettably there described as “fresh meat”) and noted that this was “getting trick[i]er as we approach the end of our friends/contact lists”; expressed confidence that they could get a few more “investors” on board over the next week and noted that:

“We are very aware that we need close to around $1 million for Tahmoor to get the money that’s required asap plus buying ou[t] [Mr Hammond] plus some paybacks for all of us.”

29. On 17 May 2019 (Ex P5, 75), Mrs Raphael gave instructions to Surry Partners concerning negotiations for the extension of the settlement period and, on the same date, she also gave instructions to Surry Partners (Ex P5, 76) concerning correspondence with the solicitor for one of the Landowners and advised Surry Partners that, with a new lender, the Company would be looking at a settlement period of a further four weeks not three months; ultimately, that was not the case. On that date, the Company sought another extension to complete the purchase of the Land to 28 June 2019. Also on that date, the Hammond loan in the amount of $479,400 fell due for repayment by the Company on its written terms, and the Liquidator contends that the Company was insolvent from this date. From 18 May 2019, the Company sought to raise finance through a new finance broker, Mr Seeto of GM Capital Solutions (Raphael [85]).

30. On 24 May 2019, Mrs Raphael contacted a third valuer, Preston Rowe Paterson, to obtain a valuation (Raphael [90]) and her evidence is that, on 1 June 2019, it provided an “as-is” valuation of the Land of $7.1 million (Raphael [91]; Ex D7, 404). As I noted above, the Company could not access that value unless it could first fund the acquisition of the Land.

31. On 1 June 2019, the Company executed a term sheet with Austar Fund Management Pty Ltd (“Austar”) (Raphael [89]; Ex D7, 395), with a facility limit up to 65% of the market value of the Land “subject to the updated valuation” and expressly provided that the facility amount would be confirmed once an acceptable valuation report was provided. The purpose of that facility was expressed as assisting the settlement of the purchase of the Land, but the loan term was only six months from the date of the first drawdown, and the facility would only be made available under a facility agreement and other documentation as determined by the lender. The document was also not executed by Austar so as to bind Austar, and a covering letter by Austar made clear that it required the Company’s execution of the term sheet before submitting a credit proposal to its credit committee for final approval.

32. An email dated 4 June 2019 (Ex D6) from Mr Davies to Ms Larsen and Mrs Raphael referred to a possible information memorandum for the issue of units, noting that the amount required may be closer to $1.5 million with “Jeremy Scott” out, including making the unfortunate suggestion that an investment risk disclosure be removed or otherwise put in small text on the “disclaimer” pages of that information memorandum.

33. On or about 11 June 2019, the Company entered a further loan agreement (“Keshian loan”) with Keshian Pty Ltd (“Keshian”) as trustee for S Hayward and A Woolf Superannuation Fund (FASC [17]; McKenna 31.3.23 [45], [53]-[54]; Ex P3, 425-431; Raphael [148]; Ex D7, 474). The Liquidator contends that the Company was insolvent at the time it incurred this debt, by reason of its inability then to repay the Hammond Loan.

34. On 20 June 2019, Austar’s credit committee approved the facility to purchase the Land (Davies 3.11.23 [29]; Ex P1, 170; Raphael [92]; Ex D7, 402), although that did not occur until after the Company had incurred the liability under the Keshian loan (“Keshian Debt”); even if the loan had in fact been made by Austar, it would not have provided sufficient funding for the Company to acquire the Land; and the Company ultimately did not draw down that loan.

35. By email dated 27 June 2019 (Ex P1, 183) Mrs Raphael advised Surry Partners of several matters to be communicated to the Landowners, seeking partial vendor finance for the purchase of the Land, and stating that:

“The current market decline and the location of the properties have made it very difficult to obtaining funding; as many funders are not willing to take the risk to fund a development site that is considered outside of Sydney in the current declined market.

We have now had 3 valuations on the property over the past months with no result in achieving a higher valuation due to:

●   The location of the properties

●   Sale pricing and low sales rates within the area

●   and the current market decline

lack of services to the East Tahmoor precinct has made it impossible to gain any interest from other developers to:

●   either on-sell the properties (even at the same price that we paid!) or

●   to enter into a Joint Venture partnership to develop the site.

●   We have been trying both these options now for well over 12 months. Many of the surrounding developers have also been trying to on-sell their properties with no success; due to the issues in this East Tahmoor precinct.”

That email also referred to the need for water service to the site at a cost of $500,000 to install a temporary sewer solution on the properties and the necessity for large payments to adjoining land owners to obtain easements to drain storm water. I bear in mind the possibility that aspects of this email involved advocacy in the Company’s dealings with the Landowners, but there is no reason to doubt that these problems existed and that there had been significant difficulties for the development of the Land. I do not accept Mrs Raphael’s evidence that sought to minimise these difficulties or claim that they had been solved in cross-examination, in each case without reference to the fact that the Company did not then have the funds necessary to implement any suggested solution. Surry Partners then sent substantially the same email to the Landowners’ solicitors (Raphael [94]; Ex D7, 406).

36. Presumably in the hope that other funds could be found, the Company signed the finance documentation with Austar that would partly finance a purchase of the Land on 28 June 2019 (Davies 3.11.23 [32]). However, where the Company had not secured sufficient funding to settle the purchase of the Land and had not settled, the Landowners terminated the sale contract on that date (McKenna 31.3.23 [35(g)], [43], [56]; Raphael [98]-[99]; Davies 3.11.23 [33]). The Company emailed a further offer to the Landowners on that date which was rejected (Raphael [95]).

37. On 2 July 2019, Mrs Raphael sent an email (Raphael [103]; Ex D7, 414; Ex P5, 65) to the real estate agent making substantially the same points as had been made in her draft email dated 27 June 2019 to the Landowners’ solicitors and suggesting that “we are concerned that the [Landowners] made a decision to terminate without having a full understanding as to how detrimental the issues are to their properties going forward”. On the same date, she exchanged whatsapp messages with Messrs Seeto and Hounsell of GM Capital Solutions (Raphael [106]-[107]; Ex D7, 416) and she continued discussions with the real estate agent after that date (Raphael [109]; Ex D7, 419).

38. By an email dated 3 July 2019 (Ex D7, 445), Mrs Raphael provided a plainly false explanation to Austar as to the circumstances in which the purchase of the Land had not completed, to the effect that the Company had not proceeded to completion because a construction certificate was imminent and the Company wished to obtain construction funding on more favourable terms rather than land funding. The proposition was plainly false, as Mrs Raphael accepted in cross-examination, because the Company had not proceeded to settlement on that date because it did not have the funds to complete the purchase, either with or without partial financing by Austar.

39. Also from 3 July 2019, Mrs Raphael exchanged text messages with the finance broker (Ex D7, 417-418) in which she expressed confidence (which was ultimately misplaced) in the Company’s ability to “get this deal going again” with the Landowners. She sought advice as to the next steps with funding, but the finance broker immediately rejected that approach, pointing out that the Company first needed to have a contract with the Landowners in place; that the financiers “don’t even know if the project will work until we have confirmation from [a quantity surveyor] after a draft civil contract is in place”; that the valuers would need to affirm the value of the Land; and suggesting that the Company seek a settlement date of at least three months with an option to extend to a worst case of five to six months. There is no suggestion that the Landowners would or did accept that approach.

40. On 8 July 2019, after the Company had lost the right to acquire the Land, it received a draft quantity surveyor’s pre-construction budget report prepared by Property & Building Assessments (Raphael [110]; Ex D7, 420).

41. On 11 July 2019, the Company paid $202,000 to APG, and the Plaintiffs bring a claim for that amount, less amounts repaid to the Company or paid out on its behalf. I will address the evidence as to that transaction in dealing with that claim below.

42. By an email dated 18 July 2019 (Ex P5, 71), Mrs Raphael advised Surry Partners that:

“Tahmoor has definitely fallen over with no chances of recovering the asset. However, we are working on some solutions to take care of outstanding invoices.”

She requested time for payment of the solicitor’s invoices and a reduction in the total invoices owing; it appears that those invoices, or some of them, were ultimately not paid, as the solicitor proved in the liquidation. Mrs Raphael’s evidence in cross-examination was that the position she took in that email was false, because she believed the Landowners would change their position. On the balance of probabilities, I find that that statement accurately reflected her then understanding of the Company’s position, where the Landowners had previously provided multiple extensions to complete and the Company still did not have sufficient funding to complete. Had I reached the contrary view, I would have also found that Mrs Raphael had falsely represented the Company’s then position in order to advance her perceived commercial interests.

43. Mrs Raphael continued her correspondence with the finance broker into late July and early August 2019 (Raphael [112]-[113]; Ex D7, 447, 496); Mr Davies also had discussions with potential mezzanine funders at that time (Raphael [104]), apparently without success; and Mrs Raphael had discussions with the finance brokers regarding mezzanine funders (Raphael [114]).

44. On 21 August 2019, a meeting took place between Mr and Mrs Raphael, Ms Larsen, Ms Thackeray and Mr Drew Davies and Mr Ivor Davies (Raphael [119]; Ex D7, 450). Mrs Raphael’s evidence is that, until 21 August 2019, she believed that the Company had access to finance and was solvent and, implicitly, she no longer held that belief from that date (Raphael [136]). If Mrs Raphael held that belief, it plainly was not a reasonable one given the objective facts since at least May 2019.

45. The Plaintiffs also plead claims in respect of payment to MP1 in July and August 2019; and in respect of APG’s entry into a deed of undertaking (“Deed of Undertaking”) with the new purchaser of the Land (“REW 21”), Response and a director of REW 21, Mr McCrudden; a deed of novation of the VPA (“Novation Deed”) to which the Company was party; and a payment of $271,840 by REW 21 to APG in respect of that transaction (“VPA Transaction”). I address the evidence as to those matters in dealing with those claims below.

46. The sale of the two properties by their Landowners to REW 21 settled on 19 and 20 November 2019 respectively. By an email dated 20 November 2019 copied, inter alia, to Mr Raphael (Ex P5, 77), Mrs Raphael advised Mr Drew Davies and Mr Ivor Davies of advice given by another solicitor which she summarised as having the effect that there was “little to no chance of recovering our deposits” and stated that:

“The best thing is to resolve outstanding issues; (Novation, Bills); and we also need to discuss regarding the investors; and think about closing the Company down; obviously a big concern is to protect yourself and David along with any personal assets.”

47. Mrs Raphael then requested Mr Drew Davies and Mr Ivor Davies to put funds into the Company to “finalise the balance outstanding invoices”, without disclosing aspects of the VPA Transaction which I address below. Some steps were also taken about this time, which may or may not have been genuine, towards a settlement of the loss suffered by the lenders in respect of the Keshian loan and amounts due to other creditors (Raphael [122], [152]; Ex D7, 451, 569), although it is not apparent how those amounts could have been repaid without funding by APG, Mr and Mrs Raphael or the Messrs Davies, which was not provided.

48. On 6 May 2020, the Company was placed in liquidation and Mr McKenna was appointed as its liquidator (Raphael [19]; Ex P3, 71-73).

Affidavit evidence and cross-examination

49. I now turn to the affidavit evidence and cross-examination. In addressing that evidence, I have regard to the fallibility of human memory which increases with the passage of time, particularly where disputes or litigation intervene: Watson v Foxman (1995) 49 NSWLR 315 at 318–319; Varma v Varma [2010] NSWSC 786 at [424]–[425]. I also have regard to the fact that objective evidence, where available, is likely to be the most reliable basis for determining matters of credit that arise as to the affidavit evidence: Armagas Ltd v Mundogas SA [1985] 1 Ll R 1 at 57; Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789 (“Colorado”) at [10]. In considering the documentary evidence that is available in this case, I have recognised that, rightly or wrongly, proprietary companies, their directors and shareholders often conduct their affairs with a degree of informality: Electrical Enterprises Retail Pty Ltd v Rodgers (1988) 15 NSWLR 473 at 489; VL Finance Pty Ltd v Legudi (2003) 54 ATR 221 at 226-227; [2003] VSC 57.

50. I also bear in mind the observations of Bell P (as the Chief Justice then was, with whom Bathurst CJ agreed) in ET-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24 at [27]-[28]:

“Whilst the quality and accuracy of oral recollection of actual conversations should be treated with care and caution given the fallibility of human memory (of which there has been a growing appreciation within the judiciary in recent decades), oral testimony may still be of value and importance, as was recognised in the nuanced observations of Leggatt J (as his Lordship then was) in Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC (Comm) 3560 at [22] (Gestmin):

“the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth.” [emphasis added]

Documents and events have to be understood in their context, and evidence of context will often be furnished by witnesses in their oral evidence. Documents, moreover, will not always present a complete picture of events. Indeed it would be rare that they do. Nor do contemporaneous documents necessarily or invariably convey or record the background or context in which events took place. That background or context will be familiar to the actors at the time of those events but may not always emerge from documents.”

51. I have here drawn on my summary of the applicable principles in Re Atlas Advisors Australia Pty Ltd (2022) 162 ACSR 509 at [5]; [2022] NSWSC 705, No 1 Victoria Dragons Pty Ltd v AEN Developments Pty Ltd [2022] NSWSC 1345 at [53]ff and K&A Laird (N.S.W.) Pty Ltd (in liq) v Aidzan Pty Ltd (in liq) [2023] NSWSC 603 at [40]ff.

52. The Plaintiffs rely on the affidavit dated 31 March 2023 of the Liquidator, Mr McKenna. Significant parts of that affidavit were admitted subject to limitations under s 136 of the Evidence Act 1995 (NSW) (“Evidence Act”) as Mr McKenna’s opinion or submission. Mr McKenna there set out the result of his investigations into the Company’s affairs and part of his evidence in that regard was admitted subject to that limitation, although other parts of that evidence was admitted without qualification where there was no genuine dispute as to the relevant matters.

53. Mr McKenna referred (McKenna 31.3.23 [45]) to several loans taken out by the Company to facilitate the development of the Land, to which I have referred above. No objection was taken to that evidence and no limitation was placed upon it, and it establishes that the due date for repayment of the Hammond loan of $300,000 was 17 May 2019; the due date for repayment of the loan from I and S Davies Superannuation Fund of $200,000 was 3 August 2019; the due date for repayment of the loan from Jeremy Scott Pty Ltd of $130,000 was 20 July 2019; the repayment date for Ms Gulliver’s loan of $170,000 was 14 February 2021 and the due date for repayment of the Keshian loan of $300,000 was 45 days after completion of the development project. These matters are in any event established by the relevant loan agreements. Mr Raphael and Mrs Raphael do not admit the Hammond loan fell due on the date specified in it, although they also expressly do not advance, and Ms King who appears for them accepts that they could not advance, an affirmative case that that loan fell due at a later date. In effect, they postulate the possibility that Mr Hammond may have extended that loan without advancing any affirmative case that he did so. Mr McKenna also refers (McKenna 31.3.23 [53]-[54], [58]), in evidence also admitted without objection and without limitation, to the $300,000 lent by Keshian under the deed of loan dated 11 June 2019; to the purpose to which those loan funds were to be applied; to the Company’s failure to apply those funds for that purpose and to its transfer of those funds to APG.

54. Mr McKenna also refers to services provided by Surry Partners to the Company in relation to legal issues concerning the development of the Land and notes that the Company provided funds to APG for the preparation of various documents in relation to the development including the VPA. Mr McKenna addresses the execution of the VPA and the Company’s receipt of development consent in respect of the Land. He also refers to the Company’s exercise of its option to acquire the Land and the execution of contracts of sale on 6 February 2019, although I find that the Company never had funds available to it to pay the balance of purchase price due to complete the purchase of the Land under the contracts of sale.

55. Mr McKenna’s evidence (McKenna 31.3.23 [55]–[57]), all of which was read without objection and admitted without limitation, was that:

“The settlement of the contract for sale of the Land was initially scheduled for mid-May 2019, however, the Company required further time to secure the appropriate funding and paid the [Landowners] under the terms of the contracts for sale for a further extension to the date of settlement being until 28 June 2019.

On the rescheduled day of settlement, the Company had been unable to secure sufficient funding to complete the purchase of the Land, resulting in the vendor’s terminating the contract for sale.

The joint venture subsequently failed, the Company was insolvent, ceased trading and was unable to develop the Lots in respect of the Land as it intended or alternatively sell the packaged land together with certified development and construction documentation to another developer for subsequent development.”

56. Mr McKenna outlines the circumstances of subsequent transfers of funds from the Company to APG and refers to APG’s involvement in the subsequent sale of the Land to a third party and APG’s entry into the Deed of Undertaking with REW 21 and to APG’s receipt of $275,000 inclusive of GST. Mr McKenna also refers (McKenna 31.3.23 [69])ff to the circumstances of the payments to MP1 which I address below.

57. Mr McKenna gives evidence seeking to establish a failure to keep proper books and records by the Company (McKenna 31.3.23 [80])ff, parts of which were admitted subject to limitation orders. It is not necessary to reach a finding as to that matter, on which the Plaintiffs ultimately did not rely to establish a presumption of insolvency, where I will find below the Plaintiffs have established the Company’s insolvency at relevant times as a matter of fact. Mr McKenna also addresses the receipt of a statutory demand by the Company on or about 11 March 2020 (McKenna 31.3.23 [93]), the Company’s financial performance in the financial years ended 30 June 2018 and following (McKenna 31.3.23 [96])ff, its liquidity, its net asset deficiency and the absence of access to alternative finance for equity capital to allow it to complete the purchase of the Land or complete the development. Much of that evidence was admitted as submission but is amply supported by the documentary evidence. Mrs Raphael repeatedly contended to the contrary in cross-examination, in evidence largely unsupported by documents, and I do not accept her evidence to the contrary for the reasons noted below.

58. By a second affidavit dated 31 October 2023, Mr McKenna led further evidence as to the extent of the Company’s books and records and as to the proofs of debt which had been received from creditors in the Company’s liquidation. Mr McKenna was also cross-examined, although I rejected some aspects of that cross-examination for lack of relevance.

59. The Plaintiffs also read the affidavit dated 3 November 2023 of Mr Drew Davies which referred to the history of the Company and the development project. Mr Davies’ evidence (Davies 3.11.23 [12]-[13]) referred to his and his father’s role in obtaining potential “investors” for the project. He also gave evidence (Davies 3.11.23 [14]), admitted with a limiting order under s 136 of the Evidence Act as submission, as to Mrs Raphael’s responsibility for managing “all other aspects” of the project, other than raising finance from individual investors (as distinct from institutional lenders) for which Mr Davies was predominately responsible, including engaging and instructing Surry Partners on behalf of the Company, applying for finance with banks and other lenders on behalf of the Company, engaging with real estate agents on behalf of the Company and all matters in relation to applying for and obtaining development consents. I have referred above to documentary evidence which indicates Mrs Raphael’s involvement in these matters. Mr Davies’ evidence (Davies 3.11.23 [15]) was that he would only find out about the progress of the project by being forwarded emails from Mrs Raphael by way of updates from her and face-to-face meetings. Mr Davies also referred to his role as a director of the Company, including his involvement in authorising transactions from the Company’s bank account and gave evidence (Davies 3.11.23 [22]), admitted without objection, that:

“Even after [Mr Raphael] [and I] became the registered directors of the Company, [Mrs Raphael] continued to conduct the Company’s affairs and be involved in the management of the Company in the same way she had prior to our appointment. I would often be given directions by [Mrs Raphael] to undertake certain task [sic]. For example, those tasks included signing documents (such [as] engagement letters with financiers) and authorising payments. [Mrs Raphael] would sometimes also ask me to attend meeting[s] with the Company’s solicitor which she had arranged.”

60. Mr Davies’ evidence, also admitted without objection and without limitation, was that Mrs Raphael was the main contact between the Company and real estate agents and he referred to communications between Mrs Raphael and the real estate agent engaged in respect of the Land, the Company’s solicitors and the Company’s accountant and finance brokers in that regard. He referred to an email dated 31 May 2019 (Ex P1, 160) where Mrs Raphael advised him, his father and Mr Raphael that:

“I am signing the added Junior and senior construction [finance] today; the senior construction will replace the Senior Land Banking. ([Y]ou will note the fees will be replaced).”

Those finance facilities were not signed, but it is notable that that email records a statement by Mrs Raphael as to what she would do, rather than a consultation as to that matter. Mr Davies’ evidence (Davies 3.11.23 [28]), also admitted without objection and without limitation, was that Mrs Raphael was the “main driver and key contact for decisions made by the Company”, and he referred to further correspondence between Mrs Raphael and the Company’s solicitors, particularly at the time of the Company’s inability to complete the purchase of the Land in June 2019, in that respect.

61. Mr Davies also referred (Davies 3.11.23 [35])ff to what he was told about the potential assignment of the VPA and to having been told by both Mrs Raphael and Ms Larsen that no money would be exchanged for the VPA. His evidence was that he had been repeatedly told that the VPA was a liability to the Company, and that he had not been aware, prior to receiving an email on 4 December 2019, that Mrs Raphael had made an offer relating to access to the Company’s consultants and construction certificate documents for a payment of $165,000 to the Company (Davies 3.11.23 [43]). I address the Plaintiffs’ claim in respect of the VPA Transaction below.

62. Mr Davies also refers to circumstance in which, about July 2019, conversations took place as to the transfer of the Company’s then available funds to APG, with a view to “quarantining money” purportedly in the interests of “investors” in the Company. That characterisation of the transaction was plainly incorrect, where the payment of those funds to APG deprived the Company and its creditors of those funds and placed APG in a position to retain those funds. I also address the Plaintiffs’ claim in respect of that transaction below.

63. Mr Davies was cross-examined. His evidence was that he, Mr and Mrs Raphael and APG had been involved with previous companies in respect of property development prior to the Company, and that those previous companies had raised funds by unsecured loans from family, family friends and friends (T51). Mr Davies accepted that his role within the Company was to source potential “investors” (or more precisely lenders) for the Company, ordinarily from family and friends (T56). He approached Mr Hammond to make the Hammond loan, although APG prepared the information memorandum and deed of loan and there was a “team discussion” as to the interest rates that could be offered to lenders to the Company (T56). Mr Davies also organised loans from the I&S Davies Superannuation Fund, in which his parents had an interest, and from Jeremy Scott (or, more precisely, a company associated with him) (T62). Mr Davies also dealt with Mr Wolfe and Ms Hayward, initially through a family member, in respect of the Keshian loan which was made through their investment vehicle (T62). Mr Davies accepted in cross-examination that several lots in the subdivision had been “sold” at the time of the Keshian loan in May 2019 (T64), although such a sale must have had a preliminary character, where the Company had not completed the purchase of the Land and did not then or later have the funds necessary to do so, and still less to complete a subdivision of the Land into individual lots.

64. Mr Davies acknowledged in cross-examination that the effect of the Shareholder Agreement was that APG was nominated to manage the development process (T65). His evidence was that Ms Larsen and Ms Thackeray also worked for APG and that Ms Thackeray would typically ask him to approve banking transactions for the Company and that he and Ms Thackeray had the banking tokens that were necessary to approve electronic funds transactions for the Company (T66–67). He accepted that, by late 2019, after he and his father discovered the transaction with VPA, the relationship between them and Mr and Mrs Raphael was very poor and the Messrs Davies had instructed solicitors to act on their behalf (T67). Mr Davies denied in cross-examination that the Company’s solicitor sought instructions from him or Mr Raphael, and his evidence was that there were times that Mrs Raphael had conversations with the solicitor before he was aware of them (T69). I accept his evidence in that regard. Mr Davies was also cross-examined as to the meeting at 11 July 2019 when Mrs Raphael proposed transferring the Company’s funds to APG and I address his evidence of that meeting in dealing with that transaction below.

65. Mr Davies’ attention was drawn, in cross-examination, to communications in respect of the Keshian loan in May 2019 and he accepted that he believed that, if he continued to obtain new “investors”, the Company was going to be solvent (T71). It is not necessary to determine whether Mr Davies genuinely held that belief, where it would plainly not reflect an adequate understanding of the nature of solvency, which depends on the Company’s ability to meet its debts to existing and new creditors, as and when they fell due. Solvency is not established by a company taking a further loan which it is also unable to repay when due: Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 54 ACSR 410; [2005] NSWCA 243 (“Doran Constructions”); Canstruct Pty Ltd v Project Sea Dragon Pty Ltd (subject to DOCA) (No 4) [2024] FCA 112 at [142], [162].

66. Mr Davies accepted in cross-examination that, as at November 2019, there was “no hope” that the Company would be able to settle and acquire the Land (T79). His evidence was that he sought to persuade APG that the Keshian loan should then be repaid because of its proximity to the Company’s loss of control of the Land and that APG at one point prepared a deed of release in relation to that repayment but it was not made (T80). Mr Davies accepted in cross-examination that he understood that that engagement with real estate agents was part of APG’s job in relation to project management of the development (T84-85); that characterisation does not, however, displace the possibility that Mrs Raphael’s involvement in that matter could, together with other matters, amount to her acting as a director of the Company. I address the Plaintiffs’ claim in that regard below.

67. I recognise that aspects of Mr Davies’ correspondence, while the project was under way, suggest that he was content to seek to minimise the disclosure of the risks of the project to lenders to the Company, and that is plainly not a matter that is to his credit. However, having observed Mr Davies in cross-examination and assessed his evidence by reference to the documents to which I have referred and the objective probabilities, I accept that he was doing his best to give truthful evidence to the Court in his cross-examination. I accept his evidence, and do not accept Mrs Raphael’s evidence to the extent that it was to the contrary.

68. The Company also relied on the expert report dated 30 October 2023 of Mr Gleeson, an experienced insolvency practitioner. Mr Gleeson identified the documents to which he had referred in preparing his report and summarised the Company’s history and background, and the assumptions that he made in that regard are consistent with the evidence to which I have referred above. He adopted an orthodox definition of solvency, by reference to s 95A of the Act and referred to several of the leading cases, including Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126; [2003] VSC 123 (“ASIC v Plymin”) and the well-known indicators of insolvency identified in that case. He referred to the presence of several of those indicators of insolvency here, including the Company’s continuing losses over the relevant period and the fact that the Company had a current liquidity ratio of less than one over the whole of the period, suggesting that it did not have sufficient current assets to meet its short-term liabilities and was unable to meet those liabilities from at least 30 June 2019.

69. Mr Gleeson fairly acknowledged that, if the Company had access to alternative finance or fresh capital, it may have been able to progress the purchase of the Land; and, if it could complete the purchase of the Land and had sufficient working capital, it may have been solvent. The evidence indicates that the Company did not have the capacity to raise alternative finance at any time, at least in a manner that would not itself involve incurring another debt while insolvent, and did not have such working capital. Ms King cross-examined Mr Gleeson as to his evidence in this respect and sought to establish the availability of finance to the Company. That cross-examination did not establish that matter, because the financing documents which were put to Mr Gleeson were highly conditional and did not indicate the then availability of finance to the Company, and because Mr Gleeson in any event pointed out that they were too late to allow the repayment of the Hammond loan on its due date in accordance with its terms.

70. Mr Gleeson also noted that he had not been provided with a cashflow analysis and did not have sufficient information to undertake such an analysis himself, but undertook a balance sheet analysis which showed significant deficiencies in the Company’s net asset position, for the year ended 30 June 2018 (by reference to adjustments made by the Liquidator) and the financial years ended 30 June 2019 and 6 May 2020 (whether or not such adjustments were made). Mr Gleeson concluded, by reference to the Company’s failure to repay the Hammond loan when due, that the Company was insolvent from 17 May 2019 and noted that other indicators of insolvency supported a conclusion that the Company was insolvent from at least 30 June 2019. I accept Mr Gleeson’s evidence in that respect and I am comfortably satisfied that the assumptions which he had made were established.

71. In cross-examination, Mr Gleeson was asked whether his conclusion as to the Company’s insolvency would be affected if he also assumed that the Company had received a term sheet from a commercial lender proposing to fund 65% of the purchase of the Land on 1 June 2019. His evidence was that that would not affect his conclusion, because that funding would not provide sufficient working capital to clear the Hammond loan which was due and payable on 17 May 2019 (T90). In any event, as I noted above, the term sheet dated 1 June 2019 was so highly conditional that it fell well short of any commitment by the funder partly to fund the purchase of the Land. Mr Gleeson was also asked whether his conclusion that the Company was insolvent from 17 May 2019 would be affected if no demand had been made by Mr Hammond in relation to the Hammond loan and he indicated that that would not affect that conclusion (T90).

72. Mr and Mrs Raphael rely on a lengthy affidavit dated 14 December 2023 of Mrs Raphael. Mrs Raphael made significant changes to that affidavit at the commencement of her oral evidence, seeking to replace a number of references to ADPL in that affidavit with references to APG, with the apparent intention of indicating that services were provided to the Company by APG and bolstering her claim that she was providing those services as an employee of APG rather than as a de facto director of the Company or by reason of her involvement in ADPL as a shareholder in the Company. I do not accept her evidence that she was confused as to the multiple previous references to ADPL in her affidavit, at the time she completed that affidavit, and I refer below to the manifest inconsistency between her claimed lack of recollection of these matters in an earlier liquidator’s examination and her affidavit evidence, either in its original form or as amended at the commencement of her oral evidence.

61. Mrs Raphael provided a detailed account of the Company’s affairs in her affidavit, by reference to documents and, with the amendments made at the commencement of her oral evidence, attributed much of the work done in respect of the Company to APG. She referred, in evidence largely not admissible and admitted with a limiting order under s 136 of the Evidence Act either as submission only or as evidence of her belief and not proof of the fact, to her confidence that the Landowners would proceed with the sale of the Land to the Company, even after they had terminated the relevant contracts after the Company failed to complete them following several extensions of time to do so. Mrs Raphael there sought to rely on the value of the Land to support the Company’s solvency, but that proposition had the obvious difficulty that the Company never had access to the value of the land, because it never had sufficient funds to pay the purchase price due under the contracts to acquire the Land. Mrs Raphael also referred to dealings with potential funders. I have pointed above that the finance documents that are in evidence are highly conditional, and it is apparent that the Company never had committed funding to allow it to complete the purchase of the Land.

62. Parts of Mrs Raphael’s evidence sought to establish reasonable reliance on Mr Davies or an accountant in respect of the Company’s solvency, but that evidence could not assist in meeting the fundamental difficulty that the Company did not have, in the period immediately before the entry into the Keshian loan, any basis for expecting that it would be able to repay that loan, beyond a bare hope that committed financing, which it had not yet been able to obtain, would materialise so as to allow it to acquire the Land, and further financing would materialise to allow it to proceed with a subdivision of the Land. Mrs Raphael also addressed aspects of the dealings with MP1 which are in issue in the proceedings.

63. Mrs Raphael was cross-examined at some length. As I noted above, at the commencement of her cross-examination, Mrs Raphael amended several paragraphs of her affidavit to replace references to ADPL as the project manager with references to APG (T116)ff. I am unable to accept that Mrs Raphael could have been confused when she gave her affidavit evidence, as she claimed, between ADPL on the one hand and APG on the other, given the detail of her affidavit and the extent to which it referred to and relied on documentary evidence. Mrs Raphael repeatedly emphasised in cross-examination that any step that she took also involved others at APG (for example T120, 123). She was reluctant to disclose any recollection she had of events, unless she was first shown documents relating to the matter (for example T120). She claimed that steps which she had taken were taken by the Company rather than by her personally (T121).

64. Mrs Raphael’s evidence in cross-examination was that, prior to February 2019, there was “senior funding in place” (T123); she then reversed that evidence to indicate that she was mistaken in that regard; then retreated to the position that she did not remember dates (T124); and then returned to the proposition that finance had been arranged before February 2019, but it was not suitable, so the Company changed the brokers, although she did not remember the dates (T126) and did not remember the identity of the funder (T127). Mrs Raphael was cross-examined, at some length, as to occasions on which she had given instructions to Surry Partners, as documented by the solicitors’ file notes. She then returned to the topic of funding, indicating that the senior funder was Trilogy (T130), after she was shown a document which referred to discussions with that entity, and claimed that the Company was in discussions with a funder so that it was “very obvious that we were going to get senior funding” (T131). I do not accept that evidence, where the documentary evidence indicates all of the proposed arrangements were highly conditional and not binding on the funders, and it was far from obvious that their conditions could be satisfied by the Company. Mrs Raphael also claimed in cross-examination that the Company also had mezzanine funding in place for the development (T133-137). I also do not accept that evidence, given the conditionality of the funding documentation and correspondence to which I have referred above.

65. Mrs Raphael frequently claimed not to understand straightforward questions, where an answer had the potential to be adverse to her interests; for example, she claimed that she did not understand a question whether her interest in the project extended “well beyond” an involvement in working for or with or as the project development manager (T143-144). While Mrs Raphael provided a detailed explanation of the role of ADPL, then amended to APG, as project manager in her affidavit evidence, she had previously claimed to have no understanding and no recollection of the Company’s and APG’s roles in the development in a statutory liquidator’s examination (T144-145). Mrs Raphael was not prepared to accept, in any straightforward way, the apparent falsity of the information that she provided to Austar as to the failure to settle (Ex D7, 445), claiming that she did not know (T166). I am satisfied that it was apparent to Mrs Raphael, when she was cross-examined, that the information provided to Austar was false and her answers in cross-examination were also false. In cross-examination, Mrs Raphael also denied that her email dated 18 July 2019 to Surry Partners, to which I referred above, that had indicated that the project had “definitely fallen over” was correct. She claimed that the Company was still working with a real estate agent and there was still hope at that point; that the email to the real estate agent was overstated and that “we absolutely believed that we could get those properties back and we were still working on negotiating with the [Landowners] through the real estate agent” (T169-170). I do not accept that Mrs Raphael had any reasonable basis for such a belief at that time.

66. Mr Davis, who appears for the Plaintiffs, submits in closing that:

“Mrs Raphael should not be accepted as a witness of truth on any fact in issue, unless her evidence on that issue is against her interest or corroborated by independent documentary evidence.

Mrs Raphael’s answers were often non-responsive or evasive (T146/27-T147/26, T148/9-12, T167/44-T168/21, T170/50-T171/32, T165/48-T166/48).

In cross examination, Mrs Raphael often gave answers which sought to downplay her involvement in the Tahmoor Project and qualify her answers/evidence by saying that tasks were carried out by the “team” including in relation to matters that in her affidavit, she had expressly given evidence that she alone had carried out (see T120/33-37, T125/46-T126/2, T130/23-26).

Rather than accepting the simple proposition that [the Company] did not have funding for the purchase of the Tahmoor Properties in place prior to 6 February 2019, Mrs Raphael started out by saying, that funding had been approved (T123-T124/1), she then concede that she was mistaken about senior funding having been in place as 6 February 2019 (T124/30-32), she later went on to say that she did recall that there was finance in place before 6 February (T126/33-50), she later concede that the funding that she had in mind when giving that evidence was the offer from Trilogy that was provided in late March 2019 but would still not accept the simple proposition that [the Company] did not have funding in place prior to 6 February 2019 (T130/38-T131/48) …

Mrs Raphael was unable to provide a cogent explanation for the requirement to orally make amendments to her affidavit changing the reference from [ADPL] being the ‘project manager’ to APG, notwithstanding that she accepts she was aware of the distinction between the two companies, nor was she able to provide a cogent explanation of how [ADPL] nominated APG to perform the role of ‘project manager’ (T147/40-T151/43).”

79. I cannot accept Ms Raphael’s evidence other than to the extent that it is corroborated by documents or is against her interest, for several reasons. First, Mrs Raphael had, in the liquidator’s examination, repeatedly asserted her lack of recollection of even the most basis features of the relevant transactions, including the nature of the relationship between the corporate entities involved in them. In the liquidator’s examination, Mrs Raphael’s evidence was that she did not remember the role of APG in respect of the transaction because it was “so long ago” (Ex P6, 9), in stark contrast to her evidence in these proceedings that the work she did on the project was undertaken for ADPL (later amended to APG) and as an employee of APG and that APG had been appointed to manage the Company’s development business; her evidence in the liquidator’s examination was that she did not then recall that the Company had failed and the development did not proceed (Ex P6, 9); and that she again did not recall APG’s role with respect to the development (Ex P6, 36). Mrs Raphael’s asserted lack of recollection in the liquidator’s examination was false, if her affidavit evidence of these matters has any basis in recollection, or otherwise the evidence given in her affidavit is no more than reconstruction. It seems to me that the position is likely that the evidence given in Mrs Raphael’s affidavit is largely reconstruction from the documents to which she refers and advocacy for her position, but she had a significantly greater recollection of events than she had admitted in the liquidator’s examination. Mrs Raphael’s willingness to give false evidence of her lack of recollection of these matters, on oath or affirmation in a statutory liquidator’s examination, supports an inference, which I draw, that she would also give false evidence in these proceedings if she perceived that it would advance her interests.

80. Second, Mrs Raphael plainly understood the issues in the proceedings, and particularly the risk that she might be found to be a de facto or shadow director of the Company. She took every opportunity in evidence to assert that all decisions were made and all correspondence was sent following meetings of multiple people who had reached consensus as to what was to be done. That proposition is entirely implausible, and verged on the absurd, in respect of correspondence which was plainly sent by Mrs Raphael in circumstances of urgency, and positions expressed by Mrs Raphael and instructions given by her in telephone communications with, for example, Surry Partners, often also in circumstances of urgency. Third, Mrs Raphael was evasive in her cross-examination, either by retreating to the lack of recollection which she had previously claimed in the liquidator’s examination or claiming that she could not understand apparently straightforward questions, when faced with matters which might give rise to difficulty for her account of events. All of these matters have the consequence that her evidence should not be accepted unless, as I noted above, it is corroborated by documents or is adverse to her interests. In particular, her uncorroborated evidence to the extent of her consultation with other parties, before communicating decisions and giving instructions on behalf of the Company, cannot be accepted.

81. Mr Raphael did not give evidence and I infer that his evidence would not have assisted him in his defence of the proceedings.

The Plaintiffs’ claim that Mrs Raphael was a de facto and shadow director of the Company

82. The Plaintiffs contend (FASC [13]) that, between 12 January 2018 to 11 March 2020, Mrs Raphael gave instructions to Mr Raphael (the statutory director of the Company during that period) on how to act in relation to the Company, and (FASC [15]) Mr Raphael acted in accordance with those instructions and was accustomed to act in accordance with them as the director of the Company. The Plaintiffs also contend (FASC [14]) that, between 15 January 2020 and 6 May 2020, Mrs Raphael gave instructions to Mr Davies (being the statutory director of the Company during that period) on how to act in relation to the Company and (FASC [15]) Mr Davies also acted in accordance with those instructions and was accustomed to act in accordance with them as a director of the Company.

83. The Plaintiffs rely on several activities of Mrs Raphael to support this claim, namely that between July 2017 and June 2018, she caused or procured the documentation required for the Company to carry out the development project on the Land, including the VPA (FASC [16]); between May 2017 and June 2019, she caused or procured funding on behalf of the Company to carry out the development project in 2019 (FASC [17]); on or about 26 September 2017, she caused or procured approval of the Company’s Development Application in respect of the Land (FASC [18]); in November 2018, she caused or procured an extension for compliance with the call option agreement between the Company and the Landowners (FASC [19]); between 2017 and 2019, she caused or procured advice from solicitors on behalf of the Company and APG and the real estate agents retained by the Company in respect of the development project (FASC [20]); between late 2018 and into 2019, she caused or procured negotiations on behalf of the Company to either on-sell the Land or to enter into a joint venture partnership to develop the site (FASC [21]); prior to June 2019, she caused or procured valuations of the Land (FASC [22]); in about October 2019, she caused or procured the documentation in respect of the arrangements between APG and the new purchaser of the Land, REW 21, for the transfer of the VPA with respect to the Land to REW 21 in consideration of $275,000 (including GST) paid to APG, in order to bring about the sale of the Land (FASC [23]). The Plaintiffs plead that, by reason of these matters, Mrs Raphael performed top-level management functions in respect of the Company (FASC [24]); between 12 January 2018 and 6 May 2020, other persons in the Company considered Mrs Raphael to be a director of the Company (FASC [25]); and between 12 January 2018 and 6 May 2020, Mrs Raphael held herself out to be the director of the Company and other persons outside of the Company and APG considered Mrs Raphael to be the director of the Company (FASC [26]-[27]); and, between 12 January 2018 and 6 May 2020, Mrs Raphael was, within the meaning of s 9 of the Act, a director of the Company (FASC [28]-[29]).

84. I now set out the applicable principles in respect of this claim, as to which I have drawn on my summary in Re Swan Services Pty Ltd (in liq) [2016] NSWSC 1724 (“Swan Services”), before turning to the factual basis of the Plaintiffs’ claim. The definition of the term “director” in s 9 of the Act extends, in paragraph (b)(i) (unless the contrary intention appears), to a person who is not validly appointed as a director but who is acting in the position of director. A person may be a "de facto" director if he or she is engaged in the affairs of a company generally, as distinct from performing specific functions as a consultant: Mistmorn Pty Ltd (in liq) v Yasseen (1996) 21 ACSR 173 at 183; 14 ACLC 1387 (“Mistmorn”). In Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565; 16 ACLC 1555 (“Austin”), Madgwick J observed (at 570) that whether a person acts as a director:

“will often be a question of degree, and requires a consideration of the duties performed by that person in the context of the operations and circumstances of the particular company concerned.”

His Honour also observed (at 569) that, in order to establish that a person was "acting in the position of a director" so as to fall within the definition of "director" in the former s 60 of the Corporations Law, it would be necessary to show that he or she "exercises what might be called the actual (and statutorily extended) top level of management functions". His Honour noted (at 570) that a conclusion that a person acted in the position of a director could well be justified, if he or she acted in relation to matters of great importance for a small company, other than as an arm's length expert engaged for a limited purpose.

85. In Natcomp Technology Australia Pty Ltd v Graiche (2001) 19 ACLC 1117; [2001] NSWCA 120, Stein JA (with whom Spigelman CJ and Heydon JA agreed) applied the approach in Austin above and noted (at [13]) that issues relevant to whether a person acted as a de facto director would include how outsiders who dealt with the company would have reasonably perceived that person and whether that person held himself or herself out as director. In International Cat Manufacturing Pty Ltd (in liq) v Rodrick [2013] QSC 91 (at [189]), McMurdo J in turn identified several factors, on the facts of that case, relevant to whether the defendant had become a de facto director of the relevant company.

86. In Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 (“Grimaldi”), the Full Court of the Federal Court observed (at [66]), quoting the Court of Appeal of the New South Wales Supreme Court in Austin, that whether the roles and functions performed by a person are such as to constitute that person a director for the purposes of s 9 of the Act will often be a question of degree having regard to the “nature of the functions or powers which are exercised and the extent of their exercise”; and the relationship of a person with a company may evolve over time into that of a de facto director (at [67]). The Full Court also noted (at [68]) that:

“Whether a person has acted in the position of a director is a question of substance and not simply of how that person has been denominated in, or by, the company: see s 9 “director” (a). The fact that a person has been designated a “consultant” for the performance of functions for a company will not as of course mean that person cannot be found to be a director. Whether or not he or she will be a director will turn on the nature and extent of the functions to be performed (both in and beyond the consultancy) and on the constraints imposed thereon. A limited and specific consultancy is unlikely on its own to be caught by the s 9 definition. Not so, a general and unconstrained one which permitted taking an active part in directing the affairs of the company even if not necessarily on a full-time basis: compare Mistmorn at 183 ... Though we do not consider that the question actually requires determination in this case and thus we do not need to express a concluded view on it, we consider that if a consultant is a corporation and what it does through its own directors or officers results in “acting in the position of a director”, then, and consistently with the policy of s 201B (which requires a director to be a natural person), it will be a question of fact as to which director (or officer) in the consultant company is (or are) the de facto director(s) of the corporation.”

87. The Full Court also there observed (at [74]) that:

“That a company has an active director or directors apart from the alleged de facto director, or has a properly constituted and apparently “functioning” board (whatever that might mean in a given setting), does not preclude a finding that the person in question was a director: see for example Mistmorn (one active director); Austin (functioning board); International Cat (one de jure director). That person’s activities may, for example, have simply been accepted as of course or acquiesced in by the de jure director(s) whatever their formal powers may have been to disavow them. Or they may be acting together “on an equal footing … in directing the affairs of the company”: Re Richborough Furniture Ltd [1996] 1 BCLC 507 at 524 (Re Richborough); [Revenue and Customs Commissioners v] Holland [[2010] 1 WLR 2793; [2011] 1 All ER 430 ; [2010] UKSC 51] at [91]; by for example, sharing (formally or otherwise) responsibilities for the company’s affairs…”

“The effect of this rather elaborate scheme is that the Land Owner’s obligations run with the land by virtue of registration of the 2010 Agreement. This comes about because the Agreement specifically provides for registration under s 93H of the EPA Act. The Land Owner is not automatically released from its obligations if it transfers the land (or a portion exceeding 10 hectares) since s 93H makes no such provision. However, the Land Owner will be released from its future obligations if, before it transfers the land (or any portion exceeding 10 hectares), it complies with Sch 1, para 6. This can only happen if the transferee satisfies the Minister that it is capable of financially complying with the “Required Obligations” and the transferee signs the Novation Deed. The release operates in relation to the land that is transferred, but the obligations otherwise remain in place. If the transferee subsequently transfers the land, the subsequent transferee will be bound by the obligations created by the 2010 Agreement (EPA Act. s 93H(3)).”

His Honour also noted (at [138]) that a landowner’s obligation in respect of development contributions run with the land until the obligation is discharged. That proposition does not assist Mr and Mrs Raphael where the Company here never acquired the Land and never became subject to obligations as a landowner.

183. I have referred above to the express “rights” conferred on the Company by the VPA and the express provision for the assignment or novation of those rights. REW 21 acquired these rights by the Novation Deed; the fact that it attributed real value to those rights, and possibly also to avoiding any uncertainty in that respect, is evidenced by its entry into the Novation Deed and the fact that it was prepared to pay $275,000 (including GST) which was only to be released to APG after the acquisition of those rights, and that is what occurred. Even if Ms King were correct in submitting that a voluntary planning agreement, or aspects of it, could not be an asset of the Company, it does not follow that the specific contractual rights under the VPA which operated for the Company’s benefit, irrespective of whether it owned the Land, were not assets of the Company that were transferred to REW 21 by the Novation Deed, as contemplated by the process set out in the Deed of Undertaking. For completeness, Ms King’s contention that the VPA Transaction secured the release of the Company’s obligations under the VPA is also plainly too wide, where the Novation Deed expressly preserved the Company’s liabilities arising before the Effective Time, and the effect of the Novation Deed was only to avoid such obligations that arose after the interest in the Land was transferred to REW 21.

184. It seems to me that evidence to which I have referred above establishes that the payment of $275,000 (including GST) made by REW 21 to Response was referable to the Company’s entry into the Novation Deed. That proposition is consistent with at least one version of Mr Raphael’s explanation of the transaction; with the description of the transaction given by Response in its sale ledger; and with Mr McCrudden’s later statement that REW 21 had paid that amount for that purpose. By a connected transaction, Response then paid $271,840 to APG which it characterised as a 50% split of commission with APG or Ms Thackeray, and it is not necessary to decide whether APG had any legal entitlement as against Response to receive that payment, where there is no suggestion that the Company had any obligation to pay commission to APG.

185. On that basis, it is plain that the VPA Transaction was an uncommercial transaction, because REW 21 paid the amount of $275,000 (including GST) to Response to acquire the rights under the VPA pursuant to the Novation Deed in an arm’s length transaction, and that transaction establishes the value of those rights; those rights could not be transferred to REW 21 unless the Company executed the Novation Deed; in a connected transaction, Response dispersed the funds received, after payment of marketing expenses, to APG, treating them as a payment of sales commission, which was not payable by the Company; and a reasonable person in the Company’s circumstances would not have undertaken the VPA Transaction on that basis. Instead, a reasonable person in the Company’s position would require that it be paid all or the substantial part of the monies that REW 21 would pay in consideration for the rights under the VPA, where only it could deliver those rights, and irrespective of the fact that it would also receive the benefit of a discharge of future liabilities and repayment of the security deposit as a result of the transaction; and it would leave Response to meet any claim to sales commission by APG or Ms Thackeray, which the Company had no liability to meet, from monies other than those payable to the Company on that basis. It is not to the point that, as against Response, APG or Ms Thackeray had, or Response thought that APG or Ms Thackeray had, a claim to a sales commission, where it had no such right as against the Company, and there was no reason for the Company to agree that funds paid by REW 21 for the novation of its rights under the VPA should not be paid to the Company and should instead be paid to Response and be applied to discharge any obligation of Response to APG or Ms Thackeray in respect of that commission.

186. I am satisfied that each of the elements necessary to find that the VPA Transaction was an uncommercial transaction is established. The VPA Transaction, comprising the Deed of Undertaking, the Novation Deed and the payment by REW 21, through several steps, to APG at least affected a change in the Company’s rights, so far as it surrendered and REW 21 acquired, by novation, the several contractual rights conferred on it under the VPA. I am satisfied that a reasonable person in a company’s circumstances would not have entered into the transaction, having regard to the benefit and detriment to the Company in entering the transaction, the benefit to other parties to the transaction and any other relevant matter. While I accept that that Company avoided liabilities arising after the Effective Date by entry into the VPA Transaction, a reasonable person in the Company’s circumstances would not have done so for no payment for the reasons noted above, and particularly where the novation of rights under the VPA could not occur without the Company’s agreement, and a reasonable person in the Company’s position would consider it should not provide that agreement without receiving all or a substantial part of the monies that would otherwise be paid by REW 21 to Response and then by Response to APG.

187. That analysis set out above also determines the value of the property transferred by the Company under the VPA Transaction, namely its contractual rights under the VPA, which is the amount of $275,000 (including GST) that REW 21, an arms’ length purchaser, was prepared pay for the benefit of the Novation Deed and those rights. That value is not reduced by the fact that Response subsequently paid out the large part of that amount to APG, by reference to a “sales commission” which was not the Company’s liability. However, as I noted below, the Plaintiffs claim the lesser amount of $271,840 paid by Response to APG in respect of the VPA Transaction.

188. The Plaintiffs then plead (FASC [94]) that the VPA Transaction was an insolvent transaction within the meaning of s 588FC of the Act and (FASC [95]) that the transaction was a voidable transactions by the Company within the meaning of, relevantly, ss 588FE(3) or 588FE(4) of the Act. In response, Mr Raphael and Mrs Raphael repeat their contention (Defence [94]-[95]) that the VPA Transaction benefited the Company as it involved the release of $20,000 security to the Company, and the release of the Company’s obligations under the VPA. I have addressed that contention above. The Plaintiffs have established these matters on the findings I have reached above.

189. The Plaintiffs also claim that Mr Raphael, Mrs Raphael and APG are liable to pay the Company the amount of $271,840 pursuant to, relevantly, ss 588FB, 588FE(3), 588FE(4), and 588FF of the Act. Ms King submits, and I accept, that the Plaintiffs would not be entitled to relief under s 588FF(1)(a) against Mr and Mrs Raphael in respect of the VPA Transaction, because there was no payment by the Company in respect of that transaction. She also submits and I accept that the Plaintiffs would not be entitled to relief under s 588FF(1)(c) in respect of the VPA Transaction. I am not persuaded that I should make an order against Mr Raphael or Mrs Raphael under s 588FF of the Act in respect of the VPA Transaction, for the same reason that I did not make such an order against them in respect of the APG 11 July Payment. Again, little turns upon that matter, where the Company also brings a claim for breach of directors’ duties against Mr Raphael and Mrs Raphael in respect of the VPA Transaction and the Court plainly has power to make a compensation order against a director in respect of a breach of directors’ duties. I will shortly turn to the relief which is sought by the Company against Mr Raphael and Mrs Raphael in that regard.

190. An order should be made under s 588FF(1)(d)(ii) of the Act against APG as the recipient of proceeds of the property (being the contractual rights under the VPA) that the Company novated to REW 21 under the VPA Transaction, in the amount of $271,840 claimed by the Plaintiffs, although that debt will ultimately be provable in APG’s liquidation.

Directors’ duties claim in respect of the VPA Transaction

191. The Plaintiffs also plead a claim for breach of directors’ duties in respect of the novation of the “VPA Novation in the circumstances of the VPA Transaction”. They plead (FASC [100]-[101]) that each of Mr Raphael and Mrs Raphael was a director of the Company when that transaction occurred. The first of those matters is again common ground and I have held that Mrs Raphael was a director of the Company within s 9(b)(i) of the Act at the time for the reasons set out above. They again plead Mr Raphael’s and Mr Davies’ access to the Company’s bank accounts at the relevant time, but that allegation is not necessary to this claim. They also plead the Company’s insolvency, which is established on my findings above.

192. The Plaintiffs again plead (FASC [103]-[112]) that Mr and Mrs Raphael breached their statutory and general law duties by “allowing” the Company to undertake the novation of the VPA in the circumstances of the VPA Transaction or by their involvement in those dealings and that the Company has suffered loss and damage from Mr and Mrs Raphael’s breaches of those duties. In response, Mr Raphael and Mrs Raphael repeat their contention (Defence [108]) that the VPA Transaction benefited the Company as it involved the release of $20,000 security to the Company, and the release of the Company’s obligations under the VPA. I find that Ms Raphael knew of the nature of the VPA Transaction and the payment to APG as an aspect of the VPA Transaction, where both of her accounts of that transaction in her affidavit evidence, to which I referred above, depend on her having had that knowledge. I can properly infer that Mr Raphael also knew that of the nature of the VPA Transaction and of that payment in the proper performance of his duties as a director of the Company and, where he does not give evidence, he does not deny having had that knowledge. I am satisfied by the evidence to which I have referred above that Mr Raphael and Mrs Raphael at least “allowed” the VPA Transaction to occur, although that again understates their involvement which extended to actively persuading Mr Davies to execute the Novation Deed without disclosing that APG rather than the Company would receive a substantial payment in respect of the transaction.

193. Mr Davis submits that, by their involvement in the VPA Transaction, each of Mr Raphael and Mrs Raphael contravened the pleaded directors’ duties. I have referred above to my findings as to Mr and Mrs Raphael’s knowledge of the transaction and the payment to APG; to Mr Raphael’s involvement in the transaction, by signing the Deed of Undertaking for APG; and to Mrs Raphael’s involvement in persuading Mr Davis to execute the Novation Deed on the false basis that no consideration would be received for the transaction, where APG (through Response) would in fact receive a substantial payment from REW 21. I recognise that, in supplementary and oral submissions, Ms King advances a number of criticisms of the Plaintiffs’ pleaded claim for breach of directors’ duties in respect of the VPA transaction. However, it is plain enough that that pleading provided sufficient notice to the First and Second Defendants of the case they had to meet, where the claim for breach of directors’ duties is largely based on the same matters as the claim that the VPA Transaction was an uncommercial transaction, and the comprehensive evidence led by the parties and comprehensive submissions indicate that all understood the matters in issue.

194. Each of Mr Raphael and Mrs Raphael participated in the VPA Transaction, where Mr Raphael executed the Deed of Undertaking and Mrs Raphael urged Mr Davies to execute the Novation Deed without disclosing the payment to be received by APG in respect of the transaction. I am comfortably satisfied that a director acting with the requisite care and diligence would not have so acted in the relevant circumstances and a contravention of s 180 of the Act and the corresponding general law duty is established on that basis. Instead, consistent with the findings that I reached above in determining the uncommercial transaction claim, a director of the Company acting with proper care and diligence would have caused the Company to require that it be paid all or the substantial part of the monies that REW 21 was prepared to pay in consideration for the rights under the VPA, where only it could deliver those rights, and irrespective of the fact that it would also receive the benefit of a discharge of future liabilities and repayment of the security deposit as a result of the transaction, and would not have left Response to make any claim to “sales commission” by APG or Ms Thackeray, which the Company had no liability to meet, from monies other than those payable to the Company on that basis.

195. I also accept that each of Mr Raphael’s and Mrs Raphael’s respective conduct in respect of the VPA Transaction amounts to a breach of a director’s duties to act in good faith and in the Company’s best interests under s 181 of the Act, where the VPA Transaction disposed of rights of the Company for no consideration which an arm’s length party was prepared to pay, and did pay, $275,000 (including GST) to acquire, by allowing APG to take the benefit of that payment. Mr and Mrs Raphael’s conduct in respect of the VPA Transaction also amounted to a contravention of s 182 of the Act so far as it conferred an advantage on APG at the expense of the Company and its creditors. It is not necessary to decide whether those transactions also gave rise to a breach of s 183 of the Act or the fiduciary duties owed by Mr Raphael and Mrs Raphael to APG, where that would add nothing to a finding of breach of ss 181 and 182 of the Act.

196. It is not necessary to determine whether, had Mr Raphael and Mrs Raphael not breached ss 180-182 of the Act, the Company could have negotiated the payment to it of all of the amount paid by REW 21 to APG, or would have negotiated a sharing of some part of that amount with APG, where the relief available to the Company under s 1317H of the Act for a breach of a civil penalty provision includes the profit made by a third party, relevantly, APG, by that breach: V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd (2013) 296 ALR 418; 93 ACSR 76; [2013] FCAFC 16 at [54]; Re IW4U Pty Ltd (in liq) (2021) 150 ACSR 146; [2021] NSWSC 40 at [46]ff. The amount of the Company’s loss, or alternatively APG’s profit that is recoverable by the Company, in respect of the VPA Transaction is the full amount that APG received from REW 21, through Response, where Response had no entitlement as against the Company to be paid any “sales commission” properly payable by REW 21 or Response to Mrs Thackeray or, possibly, APG. Ms King did not submit that the amount claimed as to the VPA Transaction was not properly recoverable against each of Mr Raphael and Mrs Raphael on this basis if I reached these findings.

Unreasonable-director related transaction and uncommercial transaction claims in respect of the Menangle Payments

197. The Plaintiffs also plead the circumstances of certain payments to MP1. It is common ground that, between 9 April 2019 and 18 July 2019, MP1 made payments to the Company totalling $137,091.60 to assist with ongoing costs associated with the planning of the development project (“MP Loan”) (FASC [75], admitted Defence [75]; McKenna [70]; Ex P3, 435-437) and that, between 10 July 2019 and 12 August 2019, the Company made payments totalling $137,091 (“Menangle Payments”) to MP1 as repayment of the MP Loan (FASC [76], admitted Defence [76]). On 16 July 2021, the Liquidator and the Company brought proceedings in the District Court of New South Wales claiming (among other things) an unfair preference in respect of the Menangle Payments under s 588FA of the Act (FASC [77], admitted Defence [77]) and, about July 2022, the Liquidator resolved those proceedings with the effect of the settlement being that the Company received $65,000 of the Menangle Payments (“Menangle Settlement”) (FASC [78], not admitted Defence [78]).

198. I should again address the evidence as to this transaction before returning to the Plaintiffs’ pleaded claim and the applicable legal principles. Mr McKenna outlines the position in respect of the Menangle Payments in paragraphs 69-78 of his affidavit dated 31 March 2023. Mr McKenna there refers to the Company’s receipt of unsecured loans from MP1 and to the payments made between 10 July 2019 and 12 August 2019 to MP1 in repayment of the MP Loan. Ms King rightly points out that Mr McKenna’s evidence as to this transaction refers to payments made by the Company to MP1 in respect of the MP Loan and does not indicate that Mr Raphael or Mrs Raphael had any involvement in that matter. She also refers to evidence, including Mr Davies’ evidence on cross-examination (T66-67) that Ms Larsen, who worked in APG, typically asked Mr Davies to approve banking transactions for the Company.

199. Mrs Raphael also refers in her affidavit evidence to the circumstances of the Menangle Park development (Raphael [166]ff). She does not, however, identify the extent of any involvement on her part in the Menangle Payments, and gives evidence (Raphael [181]-[182]) only that:

“I am aware that between 9 April 2019 to 18 July 2019, [MP1] Payments to the Company totalling $137,091.60 to assist with the ongoing costs associated with the Tahmoor Development. That payment was returned.

I am aware that between 10 July 2019 and 12 August 2019, the Company transferred the total amount of $137,091 to [MP1].”

I infer that any more specific evidence that Mrs Raphael could have led as to her involvement in the transaction would not have assisted her, and that any evidence that Mr Raphael could have led would not have assisted him where he did not give evidence in the proceedings. However, that inference does not assist the Plaintiffs in establishing Mr Raphael’s or Mrs Raphael’s involvement in making the relevant payments, where there is no other evidence of that involvement.

200. It is common ground (FASC [80], Defence [80]) that, at all material times during the period that the Menangle Payments were made to MP1 by the Company, Mr Raphael was a director of both the Company and MP1; ADPL as trustee for the Alora Developments Trust was the sole shareholder of MP1; Mrs Raphael was the sole director and secretary of ADPL; and the shareholders of ADPL were Green Gecko, Zebra Mark and Jade Vale. The Plaintiffs also plead that the Menangle Payments were transactions within the meaning of “transaction” in s 9 of the Act (FASC [83], not admitted Defence [83]) and that they constituted a payment and/or disposition of property of the Company to MP1 (FASC [85], admitted Defence [85]); and this “payment” was made during the Relation Back Period (FASC [86], admitted Defence [86]). Each of these matters is established where the Company made the relevant payment to APG and disposed of its property to APG in doing so.

200. The Plaintiffs plead that, when this payment was made, Mr Raphael was a director of the Company (FASC [87(a)], admitted Defence [87(a)]; Mrs Raphael was a de facto and/or shadow director of the Company (FASC [87(b)], denied Defence [87(b)]); Mr Davies had access to the Company’s bank accounts and was capable of authorising electronic transfers jointly with Mr Raphael, payments and effecting cash withdrawals (FASC [87(c)], denied Defence [87(c)] as to Mr Raphael); Mr Raphael and Mrs Raphael instructed Mr Davies to make the payment (FASC [87(d)], denied Defence [87(d)]); and the Company was insolvent (FASC [87(e)], not admitted Defence [87(e)]). The first of these matters is common ground; the second is established by my findings above; the third is not necessary to this claim; the fourth of these matters is not established where there is no evidence as to the extent of any involvement of Mr Davies, Mr Raphael or Mrs Raphael in the transaction, and there is evidence that Ms Larsen and Ms Thackeray also made payments for the Company, although they required Mr Davies’ electronic authorisation to do so; and the fifth is established on the findings that I have reached above.

201. It is again common ground (FASC [88], admitted Defence [88]) that Mrs Raphael, Ms Thackeray and Ms Larsen were close associates of Mr Raphael within the meaning of s 9 of the Act. The Plaintiffs plead (FASC [90], not admitted Defence [90]) that the Menangle Payments were a payment and/or disposition of property to MP1, on behalf of or for the benefit of the shareholders of MP1, whose ultimate shareholders were Mrs Raphael as a shareholder of Green Gecko; Ms Thackeray as a shareholder of Jade Vale; and Ms Larsen as a shareholder of Zebra Mark. That allegation is plainly established, where the payment was made to MP1 whose shareholders received an economic benefit from retaining it.

202. The Plaintiffs then plead (FASC [91], not admitted Defence [91]) that a reasonable person in the Company’s circumstances would not have made the Menangle Payments, having regard to the benefits and detriment to the Company and the respective benefits to the other parties of making those payments. Mr Davis submits that the Menangle Payments were uncommercial transactions where, although they discharged the debt that the Company owed to MP1, they did so by making a preferential payment to that party, to the disadvantage of other creditors, which were not likely to receive payment of their debts on a winding up. This allegation is established where the then financial difficulties of the Company were apparent and a reasonable person would not have made these payments so far as they preferred the interests of MP1 and its shareholders to the interests of the Company’s third party creditors.

203. The Plaintiffs also plead (FASC [92], denied Defence [92]) that the Menangle Payments were unreasonable director-related transactions by the Company within the meaning of s 588FDA of the Act and I have addressed that concept above. Alternatively, the Plaintiffs plead (FASC [93], denied Defence [93]) that the Menangle Payments were uncommercial transactions by the Company within the meaning of section 588FB of the Act which I have also addressed above. They plead (FASC [94-[95]) that the Menangle Payments were insolvent transactions within the meaning of s 588FC of the Act; and that the transactions were voidable transactions by the Company within the meaning of ss 588FE(3) or 588FE(4) or 588FE(6A) of the Act. Each of those matters is established by my findings above and as to the Company’s insolvency at the time of the payment.

204. The Plaintiffs then plead (FASC [97]) that Mr Raphael, Mrs Raphael and APG are liable to pay the Company the sum of $72,091.60, being the difference between the Menangle Payments and the sum paid to the Company by MP1 from the Menangle Settlement, pursuant to ss 588FB, 588FDA, 588FE(3), 588FE(4), 588FE(6A) and 588FF of the Act. No order should be made against Mr Raphael or Mrs Raphael under s 588FF(1) of the Act where there is no evidentiary basis for a finding that Mr Raphael, or Mrs Raphael, or both of them, were involved in making the relevant payments, still less that they instructed Mr Davies to make them.

Directors’ duties claim in respect of the Menangle Payments

206. The Plaintiffs also plead a claim for breach of directors’ duties in respect of the Menangle Payments, to which I referred above. They plead (FASC [100]-[101]) that Mr Raphael and Mrs Raphael was a director of the Company when the Menangle Payments were made. The first of those matters is common ground and I have held that Mrs Raphael was a director of the Company within s 9(b)(i) of the Act at the time for the reasons set out above. They plead Mr Raphael’s and Mr Davies’ access to the Company’s bank accounts at the relevant time, but that allegation is also not necessary to this claim. They plead that Mr Raphael and Mrs Raphael instructed Mr Davies to make the Menangle Payments, but there is no evidence to establish such an instruction. They also plead the Company’s insolvency, which is established on my findings above.

207. The Plaintiffs again plead (FASC [103]-[112]) that Mr and Mrs Raphael breached their statutory and general law duties by “allowing” the Company to make the Menangle Payments or by their involvement in those payments and that the Company has suffered loss and damage from Mr and Mrs Raphael’s breaches of those duties. However, there is no evidentiary basis for a finding that either Mr Raphael or Mrs Raphael or both of them were involved in making the relevant payments. I cannot be satisfied that they “allowed” the payments where there is no evidence they knew they were to be made or that they were involved in making them. On the basis, I also cannot be satisfied that either Mr Raphael or Mrs Raphael were sufficiently involved in these payments to find that they breached their statutory or general law directors’ duties in that regard.

Orders and costs

208. For these reasons, I make some of the orders sought by the Plaintiffs as follows:

Insolvent trading – Keshian Loan

1. Order that the First Defendant, pay the First Plaintiff (“Company”) the amount of the Keshian Debt in the sum of $300,000.

2. Order that the Second Defendant pay the Company the amount of the Keshian Debt in the sum of $300,000.

Relief under s 588FF of the Act - APG 11 July Payment

1. Order that the Third Defendant pay the Company the sum of $75,757.48.

Breach of directors’ duties - APG 11 July Payment

1. Order that the First Defendant pay the Company the amount of $75,757.48 pursuant to s 1317H of the Act.

2. Order that the Second Defendant pay the Company the amount of $75,757.48 pursuant to s 1317H of the Act.

Relief under s 588FF of the Act - VPA Transaction

1. Order that the Third Defendant pay the Company the sum of $271,840.00.

Breach of directors’ duties - VPA Transaction

1. Order that the First Defendant pay the Company the amount of $271,840.00 pursuant to s 1317H of the Act.

2. Order that the Second Defendant pay the Company the amount of $271,840.00 pursuant to s 1317H of the Act.

Other orders

1. In respect of each sum ordered to be paid pursuant to orders 1-8 above, interest up to judgment pursuant to s 100 of the Civil Procedure Act 2005 (NSW) (CPA) and thereafter pursuant to s 101 of the CPA.

   209. The Plaintiffs have substantially succeeded, although they have not succeeded in all of their claims. In the ordinary course, costs will follow the event, but I will hear the parties in that regard.

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