Aquisite Pty Ltd v Moss

[2023] FCA 410

FEDERAL COURT OF AUSTRALIA

Aquisite Pty Ltd v Moss [2023] FCA 410

File number(s):

VID 1401 of 2019

Judgment of:

MCELWAINE J

Date of judgment:

5 May 2023

Catchwords:

CORPORATIONS – application by assignee of liquidator – voidable transactions – insolvent trading – unfair preferences – unreasonable director-related transactions – uncommercial transactions – breach of fiduciary duty – whether first defendant is shadow or de factor director – claim succeeds in part

Legislation:

Corporations Act 2001 (Cth) pt 5.7B, ss 95A, 286, 588DA, 588E, 588FA, 588FDA, 588FB, 588M, 596A, 597

Insolvency Practice Schedule (Corporations), Sch 2 to the Corporations Act 2001 (Cth) cl 100-5

Evidence Act 1995 (Cth) s 46

Federal Court of Australia Act 1976 (Cth) s 37M

Federal Court Rules 2011 (Cth) rr 16.03, 16.07

Cases cited:

Anderson v Canaccord Genuity Financial Ltd (2022) 161 ACSR 1; [2022] NSWSC 58

Airservices Australia v Ferrier (1996) 185 CLR 483

Australian Securities and Investments Commission v Dunner (2013) 303 ALR 98; [2013] FCA 872

Barnes v Addy (1874) LR 9 Ch App 244

Briginshaw v Briginshaw (1938) 60 CLR 336

Browne v Dunn (1893) 6 R 67

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

Capital Finance Australia Ltd v Tolcher (2007) 164 FCR 83; [2007] FCAFC 182

Fryer v Powell (2001) 159 FLR 433; [2001] SASC 59

Federal Commissioner of Taxation v Kassem (2012) 205 FCR 156; [2012] FCAFC 124

Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in liquidation) (1916) 22 CLR 490

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

Lewis v Doran (2004) 184 FLR 454; [2004] NSWSC 608

Mann v Sangria Pty Ltd (2001) 38 ACSR 307; [2001] NSWSC 172

MG Corrosion Consultants Pty Ltd v Gilmour (2012) 202 FCR 354; [2012] FCA 383

Quin v Vlahos (2021) 64 VR 319; [2021] VSCA 205

Re Akron Roads Pty Ltd (in liq) (2016) 348 ALR 704; [2016] VSC 657

Re Pacific Steelfixing Pty Ltd [2021] NSWSC 655

UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd [1997] 1 VR 667

Division:

General Division

Registry:

Victoria

National Practice Area:

Commercial and Corporations

Sub-area:

Corporations and Corporate Insolvency

Number of paragraphs:

254

Date of last submissions:

Defendants: 9 February 2023
Plaintiff: 17 February 2023

Date of hearing:

17, 19-21 October 2022, 6-7 February 2023  

Counsel for the Plaintiff:

Mr J Petras

Solicitor for the Plaintiff:

Aitken Partners

Solicitor for the Defendants:

Ms H Mastos of Bancroft Lawyers

ORDERS

VID 1401 of 2019

BETWEEN:

AQUISITE PTY LTD

Plaintiff

AND:

PAUL RONALD MOSS

First Defendant

PRM INVESTMENTS PTY LTD (ACN 066 434 115)

Second Defendant

SARAH ELIZABETH MOSS (and another named in the Schedule)

Third Defendant

ORDER MADE BY:	MCELWAINE J
DATE OF ORDER:	5 MAY 2023

THE COURT ORDERS THAT:

1.The proceedings against the second and fourth defendants are dismissed.

2.The parties are to file short submissions, of no more than three pages, to give effect to these reasons including any further applications for interest, costs or other relief, within 14 days of the publication of these reasons.

3.Subject to any further order of the Court, all further orders will be made on the papers.

4.The Registrar of the Court is to provide a copy of these reasons to ASIC for consideration whether there should be an investigation of the circumstances which led to the liquidation of Amici Food Manufacturer Pty Ltd (in liq).

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MCELWAINE J:

1. This proceeding is concerned with the financial consequences of the collapse of a company that was in the business of manufacturing frozen pizzas.  Fortunately it is unnecessary to describe the manufacturing process in any detail as to do so would likely cause many consumers to purchase only fresh produce to make their own pizzas at home.

2. In the Italian language, an amici is a friend.  The principal players Mr Pascual Gigliotti and Mr Paul Ronald Moss cannot be so described.  In this case Amici Food Manufacturer Pty Ltd (Amici) is an insolvent corporation that was placed into liquidation on 31 May 2017 pursuant to a creditors’ voluntary winding up.  It traded for a relatively short period between March 2016 and May 2017.  It manufactured frozen pizzas from 14 Westwood Drive, Ravenshall, Victoria (the premises).  It sold its product to a food distribution company, which in turn sold the product to another wholesaler for ultimate sale to supermarkets under generic brand names.  Despite the relatively short trading period, Amici accumulated debts owing to unsecured creditors of approximately $600,000.  It has no assets of any value.

3. The plaintiff, Aquisite Pty Ltd, is the assignee of various causes of action that the liquidator of Amici has or may have against persons who were directors of Amici pursuant to the Corporations Act 2001 (Cth) (Act), at law or in equity. The assignment of “rights to sue” means any right of the liquidator on his own behalf or on behalf of Amici to litigate claims arising out of the liquidation including any breach of duty by any director, including a shadow or de facto director, for common law or statutory liability, including liability for insolvent trading and voidable transactions pursuant to pt 5.7B of the Act.

4. Taking the assignment literally, the plaintiff asserts against four defendants various claims for breach of fiduciary duty by a person said to be a director in fact, unreasonable director-related transactions, uncommercial transactions, claims for constructive trust pursuant to Barnes v Addy (1874) LR 9 Ch App 244, voidable preference payments and liability for insolvent trading.

5. As ultimately resolved, the plaintiff seeks the following orders:

   1.The Court declares that the First Defendant was at all material times from 2 March 2016 a director of Amici Food Manufacturer Pty Ltd (in liquidation) (ACN 611 078 865) within the meaning of s 9 of the Corporations Act 2001 (Cth).

   2.        The First Defendant pay the Plaintiff the sum of:

   a.$618,465.87 pursuant to s 588J and/or 588M of the Act; and

   b.$27,666.00 pursuant to s 588FF of the Act.

   3.The Second Defendant pay the Plaintiff the sum of $44,000 pursuant to s 588FF of the Act.

   4.The Third Defendant pay the Plaintiff the sum of $13,992 pursuant to s 588FF of the Act.

   5.The Second and Fourth Defendant pay the Plaintiff the sum of $227,719.30 pursuant to s 588FF of the Act.

   [Alternative to 2(b) and 3]

   6.        The First Defendant pay the Plaintiff damages in the sum of $27,666.00.

   7.        The Second Defendant pay the Plaintiff damages in the sum of $44,000.00.

   [Alternative to 5 insofar as the Second Defendant is concerned]

   8.        The Second Defendant pay the Plaintiff damages in the sum of $113,859.65.

   9.The Defendants pay the Plaintiffs [sic] costs of the proceeding (including reserved costs).

6. For the reasons that follow, I have concluded that the claim succeeds in part against Mr Moss and Ms Sarah Moss and fails against the other defendants.

   Dramatis Personae

7. There are numerous individuals and corporations that feature in the evidence.  It is convenient at the outset to identify the principal players, briefly describe their roles and assign convenient abbreviations.

Name	Role	Abbreviation
Amici Food Company Pty Ltd (ACN 607 338 009)	Sole shareholder of Amici.  Mr Gilgiotti is the director and a 50% shareholder.  The other shareholder is Bup.	Amici Food
Amici Food Manufacturer Pty Ltd (ACN 611 078 865)	Until liquidated, a manufacturer of frozen pizzas of which Mr Gigliotti is the director.  The plaintiff contends that Mr Moss acted as a shadow director.	Amici
Andrew Dunner	A former liquidator, banned from acting as such by this Court:  Australian Securities and Investments Commission v Dunner (2013) 303 ALR 98; [2013] FCA 872. Despite being banned, Mr Dunner appears to have practiced as an insolvency adviser. A person known to Mr Moss.	Mr Dunner
Andrew Poulter	A registered liquidator, liquidator of Amici.	Mr Poulter
Anthony Long	An accountant to Amici.	Mr Long
Aquisite Pty Ltd (ACN 609 239 198)	The plaintiff as assignee of claims from Mr Poulter.	Aquisite
Chevalier (company details unknown)	A food wholesaler and the principal customer of Stones Bakery.	Chevalier
David Luckin	A director and shareholder of Orthosurgical Pty Ltd which was a part owner with PRM Investments Pty Ltd of the premises occupied by Amici.	Mr Luckin
Della Rosa Fresh Foods	A food wholesaler, and the principal customer of Amici.	Della Rosa
Emilio de Lorso	A director of Della Rosa and a friend of Mr Gigliotti.	Emilio
Jessica Kirkman	An accounts clerk employed by Stones Bakery and later by Amici.	Ms Kirkman
John Fuller	An accountant and employee of the firm of Mr Poulter.	Mr Fuller
Khai Quang To	Also known as Bup.  A person often mentioned in the evidence but not called as a witness.  At one point employed by Amici and a 50% shareholder in Amici Food.	Bup
Michael Pastras	A person appointed as the director of Amici with effect from 16 February 2017 and of whom little is claimed to be known by Mr Moss or Mr Gigliotti.	Mr Pastras
Orthosurgical Pty Ltd (ACN 071 444 749)	The fourth defendant.  A part owner with PRM Investments Pty Ltd of premises occupied by Amici at 14 Westwood Drive, Ravenhall, Victoria.  Mr Luckin is the director and a 50% shareholder along with Mary Luckin.	Orthosurgical
Pascual Gigliotti	A director of Amici between 2 March 2016 and 16 February 2017, the sole director and a 50% shareholder of TCK along with his wife, Delmy.	Mr Gigliotti
Paul Moss	The first defendant and a person claimed to have been a shadow director of Amici.	Mr Moss
PRM Investments Pty Ltd (ACN 066 434 115)	The second defendant.  A company controlled by Mr Moss as the sole director and shareholder and which was a part owner with Orthosurgical of premises occupied by Amici at 14 Westwood Drive, Ravenhall, Victoria.	PRM
Sarah Moss	The third defendant.  A human resources consultant and wife of Mr Moss.	Ms Moss
SB Food Company Pty Ltd (ACN 601 435 778)	A corporation often mentioned in evidence, the sole director of which is Mr Peter Reed.  The controlling shareholder is SJJC Pty Ltd, which company is controlled by Mr Moss.  It was a manufacturer of pizzas from the premises.	SB Food
Stones Bakery Pty Ltd (ACN 127 151 222)	A company of which Mr Moss was a director, but not a shareholder.  The majority shareholder is J & J M Investments Pty Ltd a company of which Mr Moss is the director and a shareholder.	Stones Bakery
TCK Effective Solutions Pty Ltd (ACN 158 396 279)	A labour hire company of which Mr Gigliotti is the director and a 50% shareholder along with his wife Delmy Gilgiotti.	TCK

1. On the trial, Mr Petras of counsel appeared for the plaintiff and Ms Mastos appeared for each defendant in her capacity as solicitor.

   THE BACKGROUND FACTS IN BROAD COMPASS

2. Mr Gigliotti was born in Argentina and immigrated to Australia in 1979.  He has worked, for more than 30 years, in the food production industry in Australia.  He is very skilled and knowledgeable in all aspects of mass food production.  In approximately 1997, he was employed by Emilio as the production manager at Don Emilio Pizza Bases.  Emilio and Mr Gigliotti have been friends since they first met.  Mr Gigliotti met Mr Moss in or about 2005, at which time he changed employment and worked for Mr Moss at a vegetable processing plant at the premises.  It is unclear from the material before me the precise name of that company, so I shall refer to it as “Fresh Pac Foods” in these reasons.  When Fresh Pac Foods was sold, Mr Gigliotti worked for the purchaser in Broadmeadows.  Stones Bakery and later SB Food became the occupier of the premises in approximately 2012, at which time Mr Gigliotti was employed (by which entity is unclear) as the production manager for a pizza topping line.  In approximately 2016, Mr Gigliotti was instrumental in securing a valuable contract for SB Food with Della Rosa by reason of his friendship with Emilio.

3. Della Rosa then became the principal customer of SB Food.  In early 2016, Mr Gigliotti became dissatisfied with the salary that he was being paid as the production manager.  The annual payment was approximately $90,000.  He approached Mr Moss for a pay rise.  What was said is in dispute, but what is not is that instead of a pay rise, Mr Gigliotti agreed to the incorporation of Amici, his appointment as its sole director and the issue of shares to Amici Food of which Mr Gigliotti and Bup are equal shareholders.  The purpose of this arrangement was that Mr Gigliotti would become responsible for the production of frozen pizzas at the premises and by using all of the extant plant and equipment.  Amici would sell the product to SB Food and SB Food would supply to Della Rosa under the existing contract.  Mr Gigliotti was a willing participant in this enterprise because he “saw the opportunity to make money, more over that I was earning as – as a worker”.  That evidence is to be understood in the knowledge, later disclosed, that Mr Gigliotti was at that time the sole director and a 50% shareholder of TCK which conducted business as a labour hire company, primarily supplying labour to SB Food.  To 30 June 2015, when that arrangement was in place, TCK recorded gross income of $579,541.79, expenses of $534,598.38 and a profit before income tax of $44,943.41.

4. I pause at this juncture to mention the matter that I return to in greater detail in these reasons.  Mr Gigliotti and Emilio were friends.  But they did not become contracting parties.  The proposal that Mr Gigliotti was keen to participate in, maintained SB Food as the intermediary between Amici and Della Rosa.  Mr Poulter’s evidence is that this arrangement was artificial and lacked a proper commercial purpose.  By interposing SB Food between the manufacturer and the wholesaler, the profit margin of the manufacturer is self-evidently less than it might have been if the manufacturer sold to the wholesaler directly.

5. SB Food occupied the premises as the lessee of PRM and Orthosurgical pursuant to an agreement for lease of a three-year term to conclude at the end of September 2017.  No written lease agreement was produced in evidence, but I accept the evidence of Mr Luckin that there was such a lease.  The monthly rental including GST was $20,507.  Amici did not enter into a new lease with PRM and Orthosurgical.  The date of first occupation of the premises by Amici is unclear, as is the date that it first commenced production.  Amici opened three bank accounts with the ANZ bank on 7 April 2016 all with a zero balance.  The only operative account was the account ending xx43 (the ANZ account).  The first deposit to the ANZ account of $25,500 was made on 9 May 2016 from SB Food’s account.  The MYOB records obtained by Mr Poulter, being the bank register of Amici, discloses that the first withdrawal from the ANZ account occurred on 30 May 2016 when a payment of $120,000 was made to SB Food.  This caused the ANZ account to be overdrawn.  A second payment was made on that day, again to SB Food, in the amount of $128,283.  There were further withdrawals on that day, and then substantial sums were deposited from SB Food in the respective amounts of $18,000, $115,000 and $140,000.  The end position as at 1 June 2016 is that the ANZ account was overdrawn $27,022.  I return to the various explanations for these payments later in these reasons.  These records did not align with the ANZ bank statements which commence with entries on 9 May 2016 and for that reason I exercise caution in making findings of fact solely on the MYOB records.

6. Mr Luckin was responsible for sending tax invoices on behalf of PRM and Orthosurgical.  He did not become aware that Amici was the occupier of the premises until 2 February 2017, when Ms Kirkman advised him of that fact.  Within the period 12 August 2015 (the earliest invoice produced in evidence) to 26 January 2017, Mr Luckin addressed and delivered each monthly tax invoice for rental to SB Food.  The joint bank account of PRM and Orthosurgical records various deposits from Amici commencing 4 July 2016 and in irregular sums.  On 2 February 2017, Ms Kirkman emailed Mr Luckin and provided him with the name of Amici and its ABN.  Thereupon, Mr Luckin reissued each tax invoice for the period July 2016 to January 2017 in Amici’s name and provided those invoices to Ms Kirkman.

7. As noted earlier, an aspect of the arrangements which excites curiosity is that despite the friendship between Mr Gigliotti and Emilio, Amici did not directly supply its pizza product to Della Rosa.  Rather, SB Food maintained its contract with Della Rosa, Amici produced pizzas and sold them to SB Food which in turn sold to Della Rosa.  Della Rosa then sold the pizzas to large supermarkets, primarily Coles.  This arrangement continued until December 2016, when the contract between SB Food and Della Rosa ended.  This had a severe and adverse effect on Amici’s business.  The loss of its major customer ultimately resulted in Amici’s demise.

8. Mr Gigliotti ceased to be the director of Amici on 16 February 2017 and a Mr Pastras was appointed that day.  Little is known of Mr Pastras.  The ASIC records state that his address is 374 Albion Street Brunswick, Victoria and his date of birth is 21 October 1970.  Mr Moss denies any knowledge of Mr Pastras.  Mr Gigliotti gave evidence that Mr Moss informed him that Mr Pastras was “some old man from somewhere on [sic] living in…Carramar Park”, and that Mr Dunner had identified him as a person suitable to assume the office of director of Amici.  Mr Gigliotti also gave evidence that Mr Moss told him that Mr Dunner was “a friendly liquidator” who, with a new accountant, would “fiddle with the numbers or whatever”.

9. The evidence of Mr Poulter is that Mr Pastras did not take any active role in the management of Amici, was not a signatory to any of its bank accounts and did not have any involvement with the company other than to cause it to be placed into liquidation.  Mr Poulter was appointed as liquidator of Amici on 31 May 2017 pursuant to a creditors’ voluntary winding up.

10. Mr Pastras signed a report as to affairs of Amici on 31 May 2017.  Some insight as to how this occurred is revealed in correspondence dated 26 May 2017 from Mr Poulter to Mr Pastras, which commences with the sentence:  “Thank you for allowing this firm to be of assistance to you in the proposed winding up of the abovenamed company.”  Mr Poulter enclosed his consent to act as the liquidator and gave detailed advice as to the initial resolution required by Mr Pastras, the notice which was then required to be given to the members, the convening of the meeting of the members and the steps which would then follow.  Returning to the report as to affairs, Mr Pastras was able to state the assets and liabilities of Amici in some detail which contrasts markedly with the evidence of Mr Poulter that he did not have any active role in the management of the company.  Also on 31 May 2017, Mr Pastras filled in a standard form questionnaire for company officers.  Amongst other things, he recorded that he did not deal with Amici’s suppliers, met the previous director “only a short time before agreeing to me acquiring the company” and in answer to the question when the previous director relinquished control answered:  “transferred the company to me for my future use for a new business.”  No evidence was given about that apparent transaction by Mr Gigliotti or Mr Moss.  These facts raise a serious concern about whether Mr Pastras was inserted as a dummy director as part of a dishonest scheme.  That issue is not before me for decision.  It is a matter that in my view should be referred to the Australian Securities and Investments Commission.

1. On 14 August 2018, Aquisite, Amici and Mr Poulter entered into a deed of assignment (Assignment) pursuant to which for consideration of $50, and a promise to pay a proportion of any “Resolution Sum”, Mr Poulter and Amici assigned to Aquisite all of their right, title and interest in every “Right to Sue”, defined as all rights to litigate a claim at common law, in equity or pursuant to statute arising out of the liquidation of Amici including, but not limited to, a breach of duty by a director, a voidable transaction under pt 5.7B of the Act and claims for insolvent trading. A term of the Assignment obliged Mr Poulter to apply for and conduct public examinations, funded by Aquisite. The “Resolution Sum” is defined as the gross amount recovered by Aquisite in relation to any legal proceeding in exercise of the right to sue.  Any Resolution Sum recovered is to be applied first in reimbursement of the public examination costs, second in reimbursement of the legal costs of any proceeding and the balance is to be equally divided between Aquisite and Mr Poulter, in his capacity as liquidator of Amici.

2. It was at one time doubted whether it was open to a liquidator to assign statutory causes of action vested in the liquidator and not otherwise assignable to a third party: see, for example UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd [1997] 1 VR 667, per Hansen J; MG Corrosion Consultants Pty Ltd v Gilmour (2012) 202 FCR 354; [2012] FCA 383, per Barker J and Anderson v Canaccord Genuity Financial Ltd (2022) 161 ACSR 1; [2022] NSWSC 58 at [1271]-[1287] per Ward CJ in Eq. Clause 100-5(1) of the Insolvency Practice Schedule (Corporations) being Sch 2 to the Act now provides that an external administrator may assign any right to sue that is conferred by the Act. The defendants admitted the Assignment and did not contend that it was ineffective. I proceed on that basis.

3. According to Mr Poulter, the plaintiff occupies a niche place in the litigation funding marketplace as a lower tier operator prepared to engage in litigation where the anticipated recovery is low.

   THE CONDUCT OF THE CASE

4. I mention a number of unsatisfactory aspects of the conduct of this proceeding, which inevitably have made my task more difficult.  The first is the pleadings.  The plaintiff’s statement of claim is crisply pleaded in 70 paragraphs covering 21 pages.  This is despite the fact that seven primary causes of action are maintained, on the ground that Mr Moss at all times was a shadow director of Amici.  In summary, the separate causes of action range across breach of fiduciary duty as a director, unreasonable director-related transactions and uncommercial transactions (pleaded differently against each of the four defendants), a Barnes v Addy constructive trust claim against each of the four defendants, a voidable preference claim and the liability of Mr Moss for insolvent trading for the entire trading period of Amici. Mathematically 25 separate claims are pleaded, 13 against Mr Moss and four each against Ms Moss, PRM and Orthosurgical. The vast majority of claims are pleaded as cascading alternatives with no apparent attention having been paid to the overarching purpose to resolve this claim as efficiently as possible: s 37M of the Federal Court of Australia Act 1976 (Cth). Pleading multiple alternate claims when one will suffice is to be deprecated.

5. A further difficulty with the statement of claim is that the pleading is redolent of conclusions, with scant reference to the material facts contended to support the conclusions.  By way of illustration, a claim is made against PRM and Orthosurgical for rent paid by Amici between 25 May 2016 and 18 May 2017 in the amount of $224,719.30.  The date of each payment and its amount is pleaded.  However, by way of bland conclusion it is said that Mr Moss “obtained, directed or procured” the rental payments and that Amici “obtained no benefits, alternatively there were no benefits referable to the respective amounts of the payments” and Amici “suffered a detriment in that it was deprived of the amount of the payments”.  By way of brief particulars it is pleaded that the rental payments “were purportedly in respect of rent and outgoings for use of the [premises]” in circumstances where Amici did not have a lease for the  use and occupation of the premises and did not receive tax invoices for the rental.  No attempt is made to plead what benefit Amici received by reason of its occupation of the premises and its use of the plant and equipment therein, in order to produce the pizzas for sale to SB Food.  And that is so, despite the fact that the plaintiff procured from the liquidator the internal management financial statements of Amici and had the benefit of a public examination of Mr Moss and the liquidator’s Insolvency Report dated 4 February 2021 (Insolvency Report).  The latter report reconstructed the financial records of Amici which disclosed that gross income was $1,045,729 to 30 June 2016 and $2,708,667 to 31 March 2017.  No attention was paid in the pleading as to how that revenue might have been generated if it was the case that Amici derived no benefit, or no benefit referable to the quantum of the rent, through occupation of the premises.

6. For reasons that were not explained, despite representation by the same lawyer, each defendant relied upon a separate defence, subsequently amended in the case of the second, third and fourth defendants. None of the defences are illuminating. Each defence is replete with denials, non-admissions (despite r 16.07 of the Federal Court Rules 2011 (Cth) (the Rules)) and very few positive assertions of fact are made.  In multiple paragraphs it is pleaded to the effect that the defendant denies a matter but “further particulars will be provided after the completion of discovery”.  Such particulars were neither sought nor delivered.

7. The second matter relates to the detailed case management orders made on 13 November 2020 for, inter alia, witness outlines of the evidence intended to be adduced orally at the trial.  The outlines were required to state in brief the evidence to be given by the witness, clearly identify topics and the substance of the evidence including each important conversation.  The plaintiff complied with that requirement.  The defendants did not.  The outline of evidence of the defendant’s principal witness Mr Moss is a mere 24 single sentence paragraphs.  Very little detail is contained therein.  The outline stands in stark contrast to the detailed evidence adduced orally from Mr Moss in his examination–in-chief.  He provided a history of the relevant corporate entities, the operation of the business of Amici and, most importantly of all, of critical discussions that he had with Mr Gigliotti.  Surprisingly, counsel for the plaintiff did not object to this evidence.  Nor was his apparent case put to Mr Gigliotti in cross-examination.  At the conclusion of the examination-in-chief of Mr Moss, I invited him to step outside the court room and I raised with counsel my concern that the evidence had been led by surprise and was not fairly put to Mr Gigliotti which I considered to be a serious breach of the rule in Browne v Dunn (1893) 6 R 67. I drew the attention of counsel to s 46 of the Evidence Act 1995 (Cth). Initially, counsel for the plaintiff did not apply for leave to recall Mr Gigliotti or Ms Kirkman. I expressed surprise at that tactical decision and noted that conducting the trial in that way was hardly of assistance to me in making relevant findings of fact. Eventually, counsel applied to recall each of those witnesses, which application I granted. They were recalled.

8. Compounding that difficulty is the fact that the defendants failed to comply with another procedural order which required the filing of a written outline of facts and contentions of law in advance of the trial.  That document was not received until the third day of the trial.  It was not illuminating in that it largely recited the claims of the plaintiff and the denials of each defendant.

9. The combined effect of these failures was that the contentions of the defendants in answer to the claims were not revealed with any clarity until part way through the trial.  In one respect that counts heavily against acceptance of the evidence of Mr Moss as to a discussion claimed to have been held with Mr Gigliotti and Ms Kirkman prior to Amici’s incorporation by reference to detailed spreadsheets relevant to the intended business proposal.  For the reasons that I give below, I reject that evidence of Mr Moss and it undermines his credibility as a witness on other contested facts in this proceeding.

10. The third matter concerns how the trial was conducted, despite the definition of issues on the pleadings. Positive defences that clearly took the plaintiff’s counsel by surprise (contrary to r 16.03 of the Rules) were led as part of the unnotified evidence of Mr Moss, which resulted in a lengthy adjournment so that Ms Kirkman and Mr Gigliotti could be recalled in an attempt to ameliorate the serious breach of the rule in Browne v Dunn by the solicitor for the defendants, who also assumed carriage of the trial.

11. The plaintiff did not plead a case that Mr Moss caused or induced Mr Gigliotti to participate in the formation of Amici as part of a wholly uncommercial arrangement, whereby Amici was “set up to fail”, which was the evidence of Mr Poulter and has been his overall case theory for a considerable period of time.  However, in cross-examination this topic was considerably probed and expanded upon.  That is one of many examples of evidence adduced through questions that ordinarily would not be asked if a case is conducted in accordance with the pleadings.

12. In these circumstances I have concluded that a significant number of the real issues in contention between the parties are not adequately disclosed on the pleadings, but as the parties permitted evidence to be led and tested on un-pleaded matters, overall fairness requires that I do not take a strict view of the scope of the issues defined by the pleadings.  Rather, save for the preference claims, I will address the substance of the case that each party seeks to make out where the evidence so permits as “…pleadings are only a means to an end…”: Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in liquidation) (1916) 22 CLR 490 at 517 per Isaacs and Rich JJ. The preference claims, as I explain, give rise to particular issues of pleading and proof where I have concluded that it would be unfair and prejudicial to permit the plaintiff to rely on a case that is not fairly pleaded nor supported by direct evidence.

13. The final matter by way of introductory observation regards the court book of agreed documents.  The court book contained a large number of documents, many of which neither of the parties referred to during the conduct of the proceedings.  This included documents 46 to 50 which appear to be an affidavit and exhibits of Mr Michael Herman, the director of the plaintiff, relating to an entirely different proceedings in this Court against a different, unrelated defendant.  This was despite Ms Mastos assuring me at the commencement of the trial that the court book documents were agreed.

14. The court book also included transcripts of public examinations of Mr Gigliotti and Mr Moss conducted in February and April 2019 pursuant to s 596A of the Act. Neither record of examination included the authentication required by s 597(14) in order to be admissible in this proceeding, despite the fact that Mr Moss claimed privilege in answer to a large number of questions pursuant to s 597(12A). When I raised this at the commencement of the trial, I was informed by Mr Petras and Ms Mastos that each was content that the transcripts be received in evidence in this proceeding.

    THE ISSUES TO BE RESOLVED

15. At the outset, the two primary issues concern whether: (1) Mr Moss, although not appointed as a director of Amici, nonetheless was by operation of the definition of director at s 9 of the Act; and (2) whether Amici was insolvent and if so from when. The answers then inform and determine the balance of the plaintiff’s claims for breach of fiduciary duty, unreasonable director-related transactions, uncommercial transactions, knowing receipt of funds paid out by Mr Moss in breach of duty and liability for insolvent trading. Separately, there are voidable preference claims.

16. There is a large amount of conflicting evidence and factual dispute between the parties.  Some of my findings turn on my assessment of the credit of the witnesses and it is convenient to record at the outset my credit findings based on my observation of each witness and reconciliation with the contemporaneous documents, such that they exist.

    Witnesses and witness credibility

17. The plaintiff relies on the oral evidence of Mr Poulter, Ms Kirkmann and Mr Gigliotti.  The defendants rely on oral evidence from Mr Moss, Ms Moss and Mr Luckin.

18. The plaintiff’s claims are serious and if established have severe consequences for, in particular, Mr Moss.  I approach my fact-finding in accordance with Briginshaw v Briginshaw (1938) 60 CLR 336 at 362-263, per Dixon J.

    Mr Poulter

19. Mr Poulter has been a registered liquidator since 3 December 2007 and is a principal of his firm, IRT Advisory.  He was approached by Mr Dunner in May 2017 with a view to accepting an appointment as liquidator in a creditors’ voluntary winding up.  He stated that Mr Dunner operated as a registered liquidator for many years, but his registration was subsequently cancelled.  He did not say why.  Mr Dunner explained that Mr Pastras had recently acquired the shares in Amici, but shortly thereafter discovered the extent of its liabilities and decided to liquidate it.  Unsurprisingly, Mr Poulter was sceptical of that information, but nonetheless agreed to be appointed if so resolved which occurred on 31 May 2017.  Following his appointment, he commenced investigating the affairs of the company.  He delivered requests to Mr Pastras and Mr Gigliotti for the production of books and records.  He received some incomplete records and made further requests.  Those requests were not answered.  Eventually he made a request of Mr Long, a person who had been engaged by Amici as its accountant.  He received some information from Mr Long which enabled him to obtain internal accounting records from MYOB.  Under his direction, an employee of his office, Mr Fuller, prepared the Insolvency Report.  Mr Poulter adopted the reasoning, analysis and conclusions of that report.  In short, Amici was insolvent on and from 1 July 2016.

20. That Insolvency Report concludes with the following (and this evidence was not objected to by Ms Mastos):

    Based on investigations undertaken, meetings with Jessica Kirkman and Pascual Gigliotti and evidence forthcoming from public examinations of Pascual Gigliotti and Paul Moss, it is the liquidator’s contention that the Company was set up by Paul Moss (with Gigliotti installed as a puppet director) to quarantine taxation and trading liabilities in the Company where otherwise those liabilities would ultimately be imposed on an entity controlled by Moss and for which the avoidance of payment would have been much more difficult.

    It is therefore not surprising that the Company appears to have been insolvent from shortly after it commenced to trade.  The intention appears to have been that the Company would fail, owing substantial sums to the ATO and trade suppliers, while wealth accrued to related entities controlled by Moss in the form of rent, consulting payments and commercial product margins that were denied to the Company.

21. That opinion is controversial in this case.

22. Mr Poulter gave his evidence clearly and largely persuasively.  I do, however, have one reservation.  Mr Poulter was at pains to repeatedly emphasise his case theory:  that Amici was set up to fail, the arrangement was uncommercial and it follows therefore that all amounts in issue as received by the defendants must be repaid.  When pressed by Ms Mastos as to the basis for that opinion, Mr Poulter gave several reasons including two which cannot be reconciled with other evidence, and one of which he subsequently withdrew.  In cross-examination he said that Amici “was essentially a labour hire company” which should not have been paying rent for its occupation of the premises.  When pressed about that evidence, he said that Amici “has certain characteristics of a labour hire company”.  When it was pointed out to him that this could not be so because, for example, Amici purchased stock from SB Food, manufactured product, used plant and equipment and had employees, Mr Poulter withdrew this evidence.  He was then challenged in his evidence that Amici should not have been paying rent.  He was questioned as to what, if any, investigations he undertook in order to determine whether the rental was fair market rent for the premises.  He answered as follows:

    No, I didn’t, but I had no reason to think that it wasn’t fair market rent, but that wasn’t the issue.  I wasn’t concerned about whether the rent was at market.  I was concerned about whether Amici should have been paying it.

    Why shouldn’t Amici have been paying?…  Because it wasn’t making enough money due to the contrived arrangement regarding the sale of the product.  It couldn’t afford it.

23. This evidence causes me to be cautious about some aspects of the evidence of Mr Poulter, and in particular his overall case theory.  It is clear from the Insolvency Report that Amici was not a labour hire company.  It had significant income in the form of sales revenue in 2016 and to March 2017, it purchased significant amounts of materials in order to produce product in each of those years and it sold the manufactured product to SB Food.  It is difficult for me to accept how Mr Poulter, as a registered liquidator, believed that Amici was no more than a labour hire company.  Further, on the rental recovery claims pleaded by the plaintiff the allegation is that Amici obtained no benefit or no benefit referable to the quantum of the rental payment.  One would have thought that Mr Poulter would have made at least some form of inquiry in order to be satisfied that this pleading was reasonably based in fact.

24. I stress that these reservations do not infect my overall impression of Mr Poulter as an honest and credible witness and I accept his evidence, particularly on matters relevant to his function, being the question of Amici’s solvency, its financial accounts, the analysis of those accounts and in the evidence that he gave about the unprofitable gross margins of the business.  I return to these matters in greater detail in the balance of these reasons.

    Jessica Kirkman

25. Ms Kirkman is currently employed as a payroll officer with Della Rosa, a position that she has held since September 2017.  Ms Kirkman was first employed by Mr Moss in approximately 2006.  She remained in the employment of Mr Moss (or more particularly of various corporations with which he was involved) until 2011, when she worked for other unrelated businesses until returning to work with Mr Moss in 2014.  In approximately 2015, she accepted a position at Stones Bakery (and subsequently it would seem SB Food and Amici) and she remained in that position until she took maternity leave in April 2017.  When she returned to visit during her maternity leave she was informed that Amici had ceased to trade.

26. When working for Stones Bakery, Ms Kirkman performed general administration and accounts duties such as attending to accounts payable and receivable and the placement of orders.  She worked in the office section of the business, with Mr Moss.  She did not notice any change in the office practices or procedures following Amici’s incorporation.  Shortly prior to commencement of her maternity leave, she noticed an increase in creditor demands for payment.  Her evidence is principally concerned with the person or persons who were responsible for the day-to-day operations of the company and the financial affairs and higher level decision-making within Amici.

1. Ms Kirkman presented as an honest and straightforward witness, though her recollection of specific events was relatively vague.  I have no hesitation in accepting her as a credible witness who genuinely gave evidence of her actual recollection, rather than a reconstruction based on documents or other evidence.

   Pascual Gigliotti

2. English is not the first language of Mr Gigliotti, which partly explains why at times his evidence was somewhat discursive, difficult to follow and non-responsive to direct questions.  His evidence is important though not determinative of whether Mr Moss was a de facto or shadow director of Amici.  He is the plaintiff’s primary witness.  He is an expert on the process of manufacturing frozen pizzas, so much so that he developed a computer programme (referred to in evidence as the Master Schedule) to precisely calculate the amount of each ingredient and the method of application to match a required recipe.  He is very proud of this work.  He set up TCK as a vehicle to exploit his software, but this was not financially successful.  Later, TCK was employed for another purpose - it became a labour hire company initially to Stones Bakery and SB Food and then to Amici.

3. There are aspects of the evidence of Mr Gigliotti which caused me to have serious doubts about his truthfulness and overall credibility.  He gave evidence that he agreed to establish Amici because he was greedy: he saw an opportunity to make more money than he was earning as an employee.  I asked Mr Gigliotti whether he had ever been a director of a company before the formation of Amici.  He answered that he had.  He described it as “a very small business”.  That business was TCK.  He described that it was Mr Moss who considered that TCK should act as a labour hire company.  He described that there was “nothing” in that deal because Mr Moss would simply transfer the precise amount required to pay the employees.  Mr Gigliotti said that he agreed to this proposal nonetheless “[b]ecause I thought it was going to be benefit [sic]”.  That benefit, on his evidence, did not materialise in that if TCK paid $1,000 in wages, it received only that sum from Mr Moss or an entity controlled by him.  Very directly, Mr Gigliotti said that he derived “[n]o benefit to me whatsoever” from the business of TCK.

4. That evidence cannot be reconciled with the annual accounts for TCK to 30 June 2016 which also record the financial position as at 30 June 2015.  These accounts are signed by Mr Gigliotti and dated 15 March 2017 as, inter alia, stating a true and fair view of the financial position of TCK.  TCK was by no means a very small business.  It derived revenue in 2015 of $579,541.79 and in 2016 of $771,361.13.  It respectively paid directors fees of $30,000 and $89,885.32 in each of those years.  The profit before income tax was respectively $44,943.41 and $81,194.19.  In each of those years it paid wages to employees of approximately $430,000.  This analysis also demonstrates that it did substantially benefit from the labour hire arrangement by reason of the profits derived and Mr Gigliotti and his wife directly benefited from the directors fees.

5. Following Amici’s financial collapse, Mr Gigliotti lodged a claim on behalf of his wife for unpaid wages and annual leave in an amount of $3,309.24.  In cross-examination he admitted that his wife had never been an employee of Amici and that this claim was false.  In an apparent attempt at justification, he said that he did this because Mr Moss owed him money, which he had not paid.  He was unable to explain how much he was owed and why he did not make a claim for unpaid wages as an employee, save for disclosing that “honestly, at that point, actually, I didn’t care.  It was in control [sic] of the friendly liquidator”, which does not explain why he knowingly made a false statement.

6. His evidence about whether he received wages as an employee was most confusing.  Initially, he said that he had worked for the same wage for over three years for an amount “around” $90,000 per annum.  He was aggrieved, and approached Mr Moss to request a pay rise.  In his evidence Mr Moss said that he could not afford a pay rise, but had a “very good opportunity for you” being the formation of Amici with the intention that it would take over the production of pizzas from SB Food.  Later, in cross-examination he denied that he had received a wage of approximately $150,000 per annum as Amici’s production manager.  He could not explain, however, whether he was paid by Amici or Fresh Pac Foods or some other entity.  His attention was drawn to a list of transactions between Amici and TCK between 5 December 2016 and 25 May 2017.  This document was exhibited as an annexure to an affidavit of Mr Poulter made on 23 August 2018, which the plaintiff did not read into evidence.  In that affidavit, Mr Poulter described the list as a printout of transactions between Amici and TCK as recorded in Amici’s bank statements.  The list discloses payments of largely irregular sums on irregular days within that six month period totalling $151,471.95.  Mr Gigliotti was asked whether the list was an accurate description of the money that TCK received from Amici.  Mr Gigliotti was unable to answer that question.  He denied that the amounts comprised his salary paid through TCK.  He maintained that his salary was paid separately.  He could not recall which entity was responsible for paying his salary.

7. Mr Gigliotti was next taken to a tax invoice from TCK to SB Food dated 23 May 2016 for casual labour hire for the week ending 20 May 2016.  The invoice is itemised.  The respective amounts are $11,436 for casual labour, $496.90 for work cover charges, $275 for support fees and $2,481 for administration fees.  Mr Gigliotti was unable to explain why this invoice was addressed to SB Food as it postdates the formation of Amici on 2 March 2016, apart from stating that his wife was responsible for preparing the document.  Eventually Mr Gigliotti conceded that the administration fee was his wage for each week.  If that is correct, the annual wage was approximately $129,000 which amount Mr Gigliotti said was agreed with Mr Moss.

8. No explanation was provided in the evidence, and in particular in re-examination, as to why this apparently artificial arrangement was entered into for the provision of personal services by Mr Gigliotti to either Amici or SB Food.  Copies of Mr Gigliotti’s personal tax returns were included in the court book and record TCK as his sole source of income, declaring a taxable income of $43,152 for 2016 and $55,548 for 2017.  This amount is notably less than the wage Mr Gigliotti said that he had been receiving in his evidence, nor does it correspond to the administration fees paid by Amici, or directors fees paid by TCK.  No attention was paid in the course of the trial to this discrepancy.

9. Mr Gigliotti was unable to recall when Amici assumed the responsibility of producing the pizzas, despite his hands-on role as the person responsible for production of the pizzas by Amici.  He could not recall whether pizzas were being made at the premises before Amici was incorporated, despite having been shown the TCK annual accounts to 30 June 2015 which disclose gross revenue from labour hire of $579,541.79.  This is one example, of many, when Mr Gigliotti resorted to the well-known answer “I don’t recall” when confronted with difficult evidence inconsistent with the version of events that he would wish me to accept.

10. Mr Gigliotti was further pressed as to his apparent lack of knowledge of the financial affairs of TCK and its relationship with SB Food.  Mr Gigliotti signed the director’s report of TCK for the financial year 30 June 2016.  He was questioned as to why an amount of $737,100.66 is recorded in the profit and loss statement for fees received when Amici was not incorporated until 2 March 2016.  He offered no useful explanation.  He was taken to the expenditure section of the profit and loss statement.  He could not explain whether he received directors fees of $89,885.32 stating “I don’t recall ever getting that amount of money”.  When invited to state whether the financial accounts were false, he inferred that they may have been adjusted by some other person with access to the computer records.  He failed to explain how that could be so when the accounts referred to had been signed by him on 15 March 2017.  I invited Mr Gigliotti to consider why in the profit and loss statement directors fees were recorded at $30,000 to 30 June 2015 when gross revenue was $579,541, but then significantly increased the following financial year.  I asked him whether anything had happened in the business to justify such a significant increase in directors fees.  Mr Gigliotti was unable to answer my question.

11. Next Mr Gigliotti was taken to the transcript of his public examination before a judicial registrar of this Court on 9 April 2019 where he gave sworn evidence.  He accepted that he had given evidence on that occasion to the effect that he knew that Mr Moss was receiving payment as a consultant to attend to Amici’s accounts and to develop the business.  On that occasion his evidence was that he would be responsible for running the production side of the business and Mr Moss “was going to run everything else.  He was going to deal with the customers and he was going to come two or three times a week to do the accounts”.  He claimed however that he was not aware that the monthly fee for this work paid to PRM was $4,000, until he became “suspicious something was happening”.  He denied knowledge of the receipt of monthly invoices for the consultancy fee.  He claimed that the extent of the verbal agreement with Mr Moss was that if Amici made money that he was going to receive “some”.  In my view it strains credulity to accept that Mr Gigliotti as the director of Amici was aware that Mr Moss would perform work for the company and would be paid a consulting fee, but was unconcerned as to the quantum of that fee.

12. Mr Gigliotti was then reminded about evidence previously given to the effect that he did not find out about the quantum of the rental payment until “towards the end” of the Amici business.  He accepted that he knew that rental was being paid.  According to that evidence when he became aware that the rental was $25,000 per month, he suggested to Mr Moss that the business be shifted to another site, smaller in area, to reduce the rental liability.  In answer to my question why, as a director, he was aware that rent was being paid by Amici to a company associated with Mr Moss, but had no idea as to the amount of the payment, he provided no satisfactory answer, despite claiming to be aware that he knew what it means to be a director of a corporation.  Ms Mastos then directed the attention of Mr Gigliotti to other evidence that he had given in the course of his public examination.  On that occasion he accepted that he was aware from Amici’s commencement that it was paying rent and outgoings of approximately $28,000 per month.  He then explained that approximately one month after Amici commenced its business he had a discussion with Mr Moss who complained that he did not have money to pay creditors.  To that Mr Gigliotti responded: “I went and I told him I said why are you paying yourself over $20,000 for this premises, the walls are falling apart, don’t you think maybe that would be one thing you should pay, you know.”  When pressed as to when this discussion occurred he answered approximately three months after the incorporation date.

13. Unsurprisingly, it was then directly put to Mr Gigliotti that he was well aware of the quantum of the rent from an early stage of the Amici business, which he initially accepted, but then prevaricated in his evidence.  When asked to explain whether his sworn evidence before me that he did not become aware of the rental amount until much later was correct, he resorted to “I don’t remember”.  Nor did he satisfactorily explain which version of his sworn evidence should be accepted.

14. Finally, on questions of credit, Mr Gigliotti was taken to other evidence given during his public examination to the effect that Mr Moss was the decision-maker as to how many people would be employed in the manufacture of the pizzas, and how much they would receive for wages.  Mr Gigliotti was reminded that all of the employees on the production side of the business were engaged by TCK as the labour hire company and that he had earlier stated that they were paid wages in accordance with a relevant award.  He confirmed that he was the person who controlled the labour, which is clearly so given that he was the production manager, which is quite inconsistent with the sworn evidence that he gave during his public examination.

15. My overall conclusion, reinforced by the detailed findings of fact that I make later in these reasons, is that Mr Gigliotti was more than an unsophisticated production manager in the business of Amici.  In my view he has sought to downplay his role in the conduct of the business in order to shift blame for its commercial demise to Mr Moss.  I do not find that he is a witness totally without credit and that I cannot rely on the truthfulness of any of his evidence.  However, the matters that I have set out in addition to my careful observation of his demeanour in the witness box cause me to hesitate as to whether I should accept his evidence in relation to material findings of fact that the plaintiff asserts in this proceeding.  He is clearly a person who was prepared to make knowingly false statements to the liquidator of Amici and he gave inconsistent and at times incredulous evidence before me, some of which was demonstrated to be false by reference to contemporaneous documents.

16. I deal next with the witnesses for the defendants.

    Mr Luckin

17. Mr Luckin is a director of Orthosurgical, a part owner of the premises with PRM.  His primary role in this proceeding was to invoice SB Food, and later Amici, for rental and outgoings for the occupation of the premises.  Although he initially continued to invoice SB Food, despite occupation of the premises by Amici, when that fact was pointed out to him he corrected and reissued the invoices.  Amici did not have a written agreement for lease.  He gave evidence as to how the rent was determined.  Amici was charged the same monthly amount as SB Food.  That amount was $18,643 plus GST.  He explained that the rental was calculated partly based on the cost per square metre and partly on a similar rental that had been charged to an earlier arm’s-length tenant.  Although no valuation opinion was obtained, the amount per square metre equated to the same amount for other factories in the general area of the premises.  That amount was then adjusted for the fact that the premises was not “just [a] simple warehouse”, but a purpose-built food premises.  The rental was adjusted by the CPI annually.

18. Despite the fact that Mr Luckin was challenged in cross-examination to the effect that there was no formal lease agreement, that challenge overlooks that there was at least a lease in equity evidenced by occupation and part performance.  No other aspect of the evidence of Mr Luckin was effectively challenged.

19. I have no hesitation in accepting Mr Luckin as a credible and honest witness.  In closing submissions, Mr Petras abandoned claims made against Orthosurgical relating to the receipt of rent, framed as the Barnes v Addy constructive trust claim, but maintains its claims for uncommercial transactions, unfair preferences and unfair director-related transactions.  This is despite leading no evidence whatsoever on whether the rent paid was market rate or cross-examining Mr Luckin on his evidence that it was.

    Sarah Moss

20. Ms Moss gave evidence that she was “employed” by SB Food and then later by Amici to provide high level HR advice.  Her evidence was not very satisfactory as to what advice she provided and when, but none of that detracts from my conclusion that she honestly gave evidence before me as a credible witness.

    Paul Moss

21. According to an ASIC extract of 5 March 2019, Mr Moss was then a director of seven companies and a former director of five.  He has also held multiple concurrent roles as secretary of each.  Despite his apparent experience he had difficulty in evidence in understanding the separate corporate personalities of SB Food and Stones Bakery, at one point asserting that the former was simply a change of name of the latter.

22. I have formed a very adverse view about the honesty and credibility of Mr Moss, not simply on the basis of his demeanour as a witness.  His evidence is riddled with inconsistencies, incredulous assertions and is infected with a determination to limit his involvement with the business affairs of Amici to the very minimum in order to avoid a finding that he was a director in fact despite not being appointed as such.  I explain in some detail in my analysis of the entirety of the evidence where I repeatedly reject his oral evidence on critical issues as false, inconsistent with contrary credible evidence, incredulous or implausible.

23. In summary, I base my findings on the following.  Ms Kirkman gave clear evidence to the effect that Mr Moss was responsible for determining which of Amici’s creditors would be paid, when and in what amounts.  She then made the payments as directed by him.  Mr Gigliotti gave evidence to the same effect, though on occasions he forced Mr Moss to make payments to demanding creditors.  Mr Moss insisted that Ms Kirkman was the decision-maker for all outstanding creditors.  When confronted with apparently contradictory evidence given during his public examination, he changed course and sought to draw distinction between the payment of creditors on a Monday or a Tuesday, which was his decision based on his knowledge of the cash flow, though he continued to insist that he worked off a creditor filing system implemented by Ms Kirkman who was responsible for higher level decision-making by identifying the creditors who would be paid.  I reject the evidence of Mr Moss, not only as inconsistent with that of Ms Kirkman, but as inherently implausible.  Ms Kirkman was employed as an accounts clerk, who took direction as to the discharge of her duties from Mr Gigliotti and Mr Moss.  When Amici was in financial difficulty, it is incredulous that she was responsible for deciding who would be paid and when.

24. Mr Moss also gave evidence that Ms Kirkman was responsible for determining as between Amici and SB Food, the quantum of stock manufactured and delivered because she was independent of each business, Mr Gigliotti and Mr Moss.  That was not put to Ms Kirkman in cross-examination, either initially or upon her recall for the purpose of putting to her the inconsistent evidence of Mr Moss.  The contention that Ms Kirkman was responsible for stock levels cannot be reconciled with the evidence of Mr Gigliotti that he was solely responsible for the production side of the business.  It is also implausible that an accounts clerk would have that function.

25. Without any prior notice, either in the pleadings or the witness outline, Mr Moss gave evidence-in-chief as to a meeting attended by Ms Kirkman, Bup, Mr Gigliotti and himself at which the proposal to establish Amici was discussed in detail, including by reference to spreadsheets that Mr Moss had prepared.  Mr Moss claimed that copies of the spreadsheets were given to each participant and that Ms Kirkman would have made notes of the discussion.  Neither Ms Kirkman nor Mr Gigliotti gave evidence-in-chief to that effect, and it was not put to them in cross-examination that this meeting occurred.  When recalled, Ms Kirkman stated that she did not attend a meeting where those matters were discussed and denied that she had taken notes as asserted by Mr Moss.  Mr Gigliotti, when recalled, said there was only one meeting limited to himself and Mr Moss at which Mr Moss stated that Amici would be incorporated, and that Mr Gigliotti would be the director because Mr Moss “had too many companies”.  He denied attendance at a more detailed meeting with other participants.  I have concluded that this evidence was a false recent invention by Mr Moss.

1. Evidence was consistently given by Ms Kirkman, Mr Gigliotti and Mr Moss, that in December 2016, Della Rosa advised that it would no longer acquire manufactured pizzas from SB Food, because it had established its own production facility.  The Della Rosa business comprised approximately 90% of the entire business of Amici.  In the Insolvency Report, Mr Poulter summarises Amici’s gross revenue between May 2016 and May 2017.  Up to and including November 2016, the monthly income was approximately $500,000, although in September 2016, it was approximately $380,000.  The monthly income dramatically fell in December 2016 to less than $100,000, was approximately $200,000 in January of that year but thereafter was less than $50,000 until cessation of the business.  Despite this dramatic decline in revenue, a consulting fee of $4,000 per month continued to be paid by Amici to PRM purportedly for business advice provided by Mr Moss.  Mr Moss was certainly aware of the perilous financial state of Amici’s business from December 2016.  On his evidence, he advised Mr Gigliotti to consider closing the business.  He insists that Mr Gigliotti refused to accept his advice and that in consequence, he contacted Mr Dunner and arranged for him to meet with Mr Gigliotti.  He claims to have had no knowledge at the time that Mr Gigliotti apparently resigned as a director and was replaced by Mr Pastras on 16 February 2017.  Mr Moss insists that he had nothing further to do with Mr Dunner and that he first learned that Amici had been placed into liquidation when he received written notice to that effect from Mr Poulter.  None of this evidence is plausible.  Mr Moss failed to explain what consulting services he provided during the period of dramatic business decline of Amici and his knowledge of the financial difficulty then faced by the company cannot be reconciled with the fact that he considered himself entitled to receive the monthly consulting fee.  It strains credulity to accept that, as a consultant to the business of Amici, Mr Moss was not made aware of the change of directors or the intention to appoint a liquidator.

2. No invoices were provided by PRM to Amici for the monthly consulting fee of $4,000.  Mr Moss claimed that this was not done because the amount was fixed and agreed.  Mr Moss accepted that this arrangement was unusual, but then claimed that a yearly invoice would be provided in consultation with his accountant.  No yearly invoice was produced in evidence.  Mr Moss said that the amount of $4,000 per month was a carryover from the consulting fee that was paid by SB Food before Amici took over the business.  Mr Moss accepts that when SB Food was the manufacturer, he was the hands-on manager and was “fanatical” in his attention to the financial aspects of the business.  No acceptable explanation was provided as to why the fee would continue at $4,000 per month if, on the evidence of Mr Moss, from Amici’s incorporation his role dramatically diminished when Mr Gigliotti became responsible for the management of the business.

3. I raised with Mr Moss a matter that I found troubling upon examination of the financial statements for PRM in its capacity as trustee of the Paul Moss Investment Trust, following his earlier evidence that the consulting fee was paid by SB Food to PRM commencing in August 2014.  The financial statements do not disclose any consulting fee income in 2016.  Initially, Mr Moss explained that this was the fault of the accountant who had included the income in his family trust, rather than the investment trust.  PRM is the trustee of each.  The attention of Mr Moss was then drawn to the financial statements for the Paul Moss Family Trust, for 2016 and 2017, where no amount of revenue for consulting fees is disclosed.  The evidence then given by Mr Moss was inconsistent and implausible in that he initially attempted to blame the accountant, then claimed that the income would be shown in the accounts of another entity J&J Investments, but was unable to explain how that might be so given his consistent evidence that the consulting services were provided through PRM.

4. Commencing 18 April 2016, Mr Luckin prepared and delivered rental tax invoices for use of the premises addressed to SB Food, until February 2017.  Mr Moss gave evidence that this was a mistake, and that Mr Luckin might not have been informed of the change of occupation or that the invoices may have been prepared in advance.  Why a landlord might pre-prepare invoices over such an extended period of time was not explained.  In any event, the greater difficulty that arises from the evidence of Mr Moss is that each tax invoice was sent by email and Mr Moss was included as a recipient.  When questioned as to why he did not advise Mr Luckin of the error, his evidence was that he guessed that he should probably have done so.  I am unable to accept that evidence:  Mr Moss was aware of the takeover date, it was in his financial interest to have the rental invoices correctly addressed and paid.  His claimed lack of attention to detail is implausible.

5. Amici’s internal management accounts, the MYOB accounts, comprises the bank register commence on 30 May 2016.  This record was obtained by Mr Poulter from MYOB.  On that day a total of $248,000 is shown as having been paid, as the first two transactions, to SB Food and $273,000 is recorded in various deposits made by SB Food.  In another document, Amici’s ANZ bank statements, the account is recorded as having opened with a zero balance on 7 April 2016 followed by an initial deposit of $25,500 from SB Food on 9 May 2016.  Each of the other deposits and withdrawals set out in the MYOB accounts are recorded in the bank statement along with additional deposits and withdrawals that do not appear in the MYOB accounts.

6. When questioned as to why Amici had made these relatively large payments to SB Food and why, in turn, it had made greater payments to Amici on 30 May 2016, Mr Moss explained that the Amici payments were to acquire all of the stock from SB Food in consequence of a stocktake that was undertaken.  His evidence was clear that all stock was accounted for, transferred and paid for on that day.  The payments made by SB Food to Amici were in consideration of the delivery of manufactured product, all of which was manufactured on that day.  A little later in his evidence, the attention of Mr Moss was drawn to later entries in the MYOB accounts where other substantial amounts were paid by Amici to SB Food on 7 June and 12 and 23 July amongst others.  Initially, Mr Moss could offer no explanation for these payments.  Then he said that he could not recall what they were for.  Without prompting by further questioning, Mr Moss said that the payments were for the rental of plant and equipment that was owned by SB Food.  Payments for that purpose were not mentioned at any prior point in the evidence of Mr Moss in this proceeding, although it was mentioned in the course of his public examination.  A close examination of Amici’s profit and loss statement to September 2016 reveals an expense item “Hire of plant and equipment” in the amount of $32,064.20.  That would appear to correspond to a payment of approximately $11,000 a month.  It does not explain other significant payments that were made by Amici to SB food.

7. There is some evidence that discloses the purpose of later payments made by Amici to SB Food.  The Insolvency Report mentions loan advances and repayments “by a related entity to meet the most immediate expenses of the business.”  An examination of the ANZ bank records discloses that SB Food made and received the payments.  This may explain some of the subsequent transactions, but does not explain away the series of payments that I drew to the attention of Mr Moss and I do not find the answers that he gave to be credible.

8. Mr Moss explained that the agreement reached with Mr Gigliotti included that Amici would retain the entire profit to be derived from the manufacture and sale of the pizzas to SB Food.  He denied offering a percentage of the profit to Mr Gigliotti.  At no point however did he attempt to explain what price was agreed for the sale of product to SB Food or at what price it onsold the product to Della Rosa.  Mr Gigliotti said that Della Rosa fixed the price payable to SB Food, but he did not know what it was.  His objective was to minimise the cost of the production.  Mr Moss confirmed that the sale price to Della Rosa was not negotiable and was agreed to by him on behalf of SB Food before the formation of Amici.  It is incredulous that Mr Gigliotti would not have reached an agreement with Mr Moss on the price payable by SB Food for the various types of pizza product to be sold to it.  The evidence of Mr Gigliotti that there would be a percentage division of the profits, is far more plausible in that circumstance in that he was content to leave the sales and marketing of the Amici business to Mr Moss.

9. Finally, though not exclusively (there are other matters relevant to the credit of Mr Moss that I address in these reasons) there is the email sent by Mr Moss on 2 January 2017 to Ms Kirkland and Mr Gigliotti which contains a direction to adjust the price of various products to be charged to Della Rosa and that, in turn, it would be necessary for Amici to reduce its cost of production.  The email is redolent of high level decision-making by Mr Moss and is replete with references to “we”.  When confronted with this document as clear evidence of high-level decision-making by Mr Moss, his evidence was unsatisfactory and implausible.

10. The consequence is that I do not accept Mr Moss as a truthful witness on any material fact in this case where his evidence is inconsistent with the contemporaneous documents or the oral evidence of Ms Kirkman.  Because of the view that I have reached as to aspects of the unsatisfactory evidence of Mr Gigliotti, in approaching my fact-finding I have exercised caution before accepting the evidence of Mr Gigliotti in preference to that of Mr Moss.

    THE CENTRAL ISSUES

    Was Mr Moss a director of Amici?

11. The pleading and presentation of the plaintiff’s case lacks precision. The definition of director in subparagraph (b) at s 9 of the Act is conjunctive:

    (b)unless the contrary intention appears, a person who is not validly appointed as a director if:

    (i)they act in the position of a director; or

    (ii)the directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes.

    Subparagraph (b)(ii) does not apply merely because the directors act on advice given by the person in the proper performance of functions attaching to the person’s professional capacity, or the person’s business relationship with the directors or the company or body.

12. Paragraph (i) is generally understood as concerned with de facto directors and (ii) with shadow directors, although the concepts are not mutually exclusive: Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 (Grimaldi) at [61] and [69], per Finn, Stone and Perram JJ.

13. The plaintiff’s statement of claim pleads each limb conjunctively and by way of particulars contends that Mr Gigliotti was accustomed to act in accordance with the instructions or wishes of Mr Moss (without identification of the material facts from which that conclusion might be drawn) and that Mr Moss was a person who acted in the position of director by reference to seven facts, mostly pleaded in very general and unhelpful terms.  In written opening submissions, the contention is that Mr Moss was a director or a shadow director, however in closing written submissions the only reference is to the shadow director contention.  In contrast, in its written reply each limb of the definition is set out in one paragraph, but another focuses only upon the shadow director contention.  In oral closing submissions, Mr Petras failed to make clear the case that is sought to be established: submitting at one point that it was open to me to find that Mr Moss was a shadow director, but also that he was actively performing the duties of a director by acting in that position; then submitted inconsistently that the case rests on the shadow director contention.  Ms Mastos in her closing submission responds to each contention.  In the midst of such confusion, noting that the de facto director pleading was not abandoned, I do not decide this case on the inadvertence of counsel and consistent with my remarks above, I deal with the substance of the plaintiff’s case as resting on each contention.  It is also the correct approach in this case because the evidence does not permit the drawing of a “rigid distinction” between each concept: Grimaldi at [69].

14. The applicable principles are not in dispute.  Commencing with de facto directors, the Full Court in Grimaldi at [62]-[76] comprehensively summarised the leading authorities to distil the principles to be applied. The test is objective. It is not determinative that Mr Moss acted as a consultant or business advisor through the vehicle of PRM. What is required is a fact intensive analysis with focus upon the duties in fact performed by Mr Moss in the context of Amici’s business and the respective roles and functions of Mr Gigliotti and Ms Kirkman. An important consideration in this case is whether there was a division between the production management function of the company and its financial affairs, particularly pricing, budgeting, invoicing, collecting payment and paying creditors. In the business of Amici it is not easy to draw a bright line distinction between higher level executive management functions that would ordinarily be attended to by an appointed director where that person is also the hands-on production manager.

15. A further important consideration in this case is whether Mr Moss took an active part in deciding and directing the financial affairs of Amici and whether Mr Gigliotti was content for him to do so without being ultimately responsible: Grimaldi at [64]. That task requires identification of what one would reasonably expect to be the work of a director in the business of Amici: Grimaldi at [65]. As further explained by the Full Court at [66]:

    The roles and functions so performed will vary with the commercial context, operations and governance structure (to the extent that it is operative) of the company. Their performance by that person may well be at variance with what is permitted by the Corporations act or by the company’s constitution. Nonetheless, whether they suffice in the circumstances to constitute the person a director for the Corporations Act’s purposes 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”.

    (Citations omitted.)

16. It is also relevant to consider the extent to which, if any, Mr Moss exercised power or influence over Mr Gigliotti in his decision-making as the appointed director: Grimaldi at [69]. Amici did not have a board of directors with formal procedures in a hierarchical structure. One cannot conclude therefore that particular functions or powers were the sole or peculiar responsibility of Mr Gigliotti as the director: cf Grimaldi at [70]. The plaintiff does not plead that Mr Moss was an officer of Amici, but he was most certainly an employee in addition to his position as a consultant, and for that reason a finding that he exercised senior management functions is not determinative: Grimaldi at [71].

17. Dealing next with the general principles applicable to a finding that a person acted as a shadow director, Mr Petras and Ms Mastos each rely with different factual emphasis on the summary of Robson J in Re Akron Roads Pty Ltd (in liq) (2016) 348 ALR 704; [2016] VSC 657 at [271], in which his Honour distilled from the decision of White J in Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 77 ACSR 410; [2010] NSWSC 233 and the appeal therefrom: Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 81 NSWLR 47; [2011] NSWCA 109. The summary is:

    In my opinion the following principles flow from this decision that are relevant to this case.

    (a)To establish that a defendant is a shadow director of a company it is necessary to prove:

    (1)who are the directors of the company, whether de facto or de jure;

    (2)that the defendant gave instructions or expressed wishes to those directors on how to act in relation to the company or that he was one of the persons who did so;

    (3)that those directors acted in accordance with such instructions of wishes; and

    (4)that there were accustomed so to act.

    (b)What is needed is first a board of directors claiming and purporting to act as such; and secondly a pattern of behaviour in which the board did not exercise any discretion or judgment of its own, but acted in accordance with the instructions or wishes of others.

    (c)It is not necessary that the instructions or wishes be given over the whole field of corporate activity for which the directors are responsible.

    (d)There is no inconsistency with a person being a shadow director and on the other hand and [sic] the board exercising some discretion or judgment in areas in respect of which the shadow director does not give instructions or express a wish. Rather, the test for a shadow director only requires that when the directors are given instructions or wishes, they are accustomed to act as s 9 requires.

    (e)The directors of the company must be accustomed to act as directors or [sic] the company in accordance with the person’s instructions or wishes as to how they should act. This requires habitual compliance over a period of time.

    (f)The directors who must be accustomed to act need not be all of the directors but should be a governing majority of the board.

    (g)Although it is not necessary to establish that a person is a shadow director that the directors of the company do not exercise any discretion of their own, there must be a causal connection between the instructions or wish of the shadow director and the act taken by the directors.

    (h)The fact that a person has a genuine interest of his or her or its own in giving advice to the board, such as a bank or mortgagee, the mere fact that the board will tend to take that advice to preserve it from the mortgagee’s wrath will not make the mortgagee, et cetera a shadow director.

    (i)Similarly, the fact that the governing majority of the board accepts the views and wishes of another director (who represents and acts for another company) does not by itself make the other company a shadow director. The views or wishes of that director may be sound advice that the governing majority may consider as directors should be adopted as it is in the best interests of the company.

    (j)Similarly, not every person whose advice is in fact heeded as a general rule by the board is to be classed as a de facto or shadow director.

    (k)On the other hand, if the instructions or wishes of the other director (who represented the putative director) were to carry out acts not in the best interests of the company, such as a decision to continue trading while insolvent, that might support the conclusion that the directors deferred to the decision making of the director who represents the putative director and were thus deferring to the decisions of the other company.

    (l)It is not necessary to go so far as to show that the de jure directors were subservient or had surrendered their roles.

    (Footnotes omitted.)

18. I take account of this summary of principles, though mindful that what is required in this case is a fact intensive analysis.

    The evidence and my findings

19. The plaintiff’s case lacks precision in the identification and proof of the material facts relied on to establish that Mr Moss was a director of Amici.  The statement of claim pleads this contention as a conclusion followed by particulars of no real assistance as follows:

    In the period 2 March 2016 until 16 February 2017, the sole director of the Company (according to the records of the Company kept with the Australian Investments and Securities Commission (ASIC)) was Pascual Gigliotti.  He was accustomed to act in accordance with Paul Moss’ instructions or wishes in relation to the affairs of the Company.

    Paul Moss was at all material times a person who acted in the position of a director of the Company in that he:

    (a) was a signatory to the Company’s bank accounts held with the ANZ Bank (ANZ accounts),

    (b) was accustomed to transacting on the ANZ accounts without reference to Pascual Gigliotti,

    (c) paid creditors of the Company without reference to Pascual Gigliotti,

    (d) directed Pascual Gigliotti to send emails,

    (e) directed Jessica Kirkman, the Company’s Finance Manager, to send emails,

    (f) decided the pay rate for the Company’s employees,

    (g) decided who were to be the Company’s suppliers, when the Company was going to pay suppliers and how the Company was going to pay suppliers,

    (h) decided how much the Company would sell its products for,

    (i) decided the Company’s production levels,

    (j) decided, directed and authorized all payments of money by the Company,

    (k) communicated with and gave instructions to the Company’s lawyers and accountants, and

    (l) decided and arranged for the Company to be placed into liquidation.

    Further particulars may be provided after discovery.

1. These facts were not questioned in the cross-examination of Mr Poulter and he maintained his opinion that Amici was insolvent during the entire period of its business operation.  I accept that factual analysis together with the opinions of Mr Poulter.

2. I am satisfied that the plaintiff has established that Amici was insolvent from May 2016 until Mr Poulter was appointed as the liquidator on 31 May 2017.  What is clear from the facts set out in the Insolvency Report is that Amici suffered continuing losses from commencement, its liquidity ratio fell below 1 as at 30 June 2016 and further deteriorated to 0.3% by May 2017.  Within the period of its trading, it did not have the ability to raise further equity capital, trade creditors were not satisfied in full within the usual trade terms of 30 days, taxation obligations were not met in a timely way, accumulated losses significantly increased between June 2016 and March 2017 and there was an overall balance sheet deficiency for the entire period of trading.  Accordingly, I am satisfied that Amici was at all material times insolvent between May 2016 and May 2017 in that it was not able to pay all of its debts as and when they became due and payable, notwithstanding that for a period of time it was able to pay some of its debts, though not in full, with the assistance of loan funds from SB Food between May and June 2016.  This short term financial arrangement assisted Amici in meeting its obligations to trade creditors, but was plainly insufficient to enable it to pay all of its debts when due and payable in that period.

   The PRM Investments payments claim

3. The plaintiff asserts multiple causes of action against Mr Moss and PRM to recover the total amount of $44,000 paid by Amici to PRM between for July 2016 and 18 May 2017 each in the amount of $4,000.  The claims are framed as:

   (1)Unreasonable director-related transactions: s 588FDA of the Act;

   (2)Uncommercial transactions: s 588FB of the Act;

   (3)A breach of fiduciary duty by Mr Moss;

   (4)Knowing receipt by PRM of funds paid in breach of fiduciary duty; and

   (5)Limited to the period from 30 November 2017 (relation-back day), unfair preferences: s 588FA of the Act.

4. Apart from the pleading of broad conclusions, the plaintiff paid very little attention to the elements required to be established to support these claims in its evidence or submissions.  The primary difficulty faced by the plaintiff in relation to claims (1) – (4) is the inherent tension between the plaintiff’s primary claim that Mr Moss in fact acted as a director of Amici, and in that capacity was substantially responsible for the financial management and financial control of the business, and the un-particularised assertion which it pleads at paragraph [24] of the statement of claim that Amici in making these payments (and indeed all of the impugned payments): “obtained no benefits, alternatively there was no benefits referable to the respective amounts of the payments” and that in consequence it “suffered a detriment in that it was deprived of the amount of the payments”.  There is no pleading of any material facts relied upon in support of those contentions beyond several conclusions set out in the form of particulars to the effect that no consultancy services were provided, alternatively no consultancy services to the value of the payments were provided and Amici did not receive any tax invoices from PRM.  The plaintiff did not adduce any evidence as to whether Amici derived any benefit by making the consulting payments to PRM save for cross-examination of Mr Moss as to why he considered it appropriate for Amici to continue to pay Mr Moss the same consulting fee that he claimed to have received whilst managing the business of SB Food, an arrangement that counsel expressed difficulty in understanding.

5. In closing submissions I raised with counsel for the plaintiff whether there was any evidence to support the contention that Amici received no benefit from the consulting fees paid to PRM.  In answer, counsel submitted:

   Similarly, as I addressed your Honour on earlier, it flows entirely from the proposition that Amici was never created for a legitimate commercial [purpose], and that finding will fall over if the commercial purpose finding falls over.

6. I do not accept that the evidence establishes that Amici derived no benefit from the consulting fees paid to PRM. An essential element of the claim pursuant to s 588FDA(1)(c) is that:

   (c)  it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to:

   (i)the benefits (if any) to the company of entering into the transaction; and

   (ii)the detriment to the company of entering into the transaction; and

   (iii)the respective benefits to other parties to the transaction of entering into it; and

   (iv)any other relevant matter.

7. Conformably with my finding that Mr Moss was in fact a director of Amici, it follows that Amici did receive a benefit from the consulting arrangement: primarily, management and oversight of its financial operations.  The plaintiff made no attempt to adduce any factual or expert evidence in support of the alternative pleading that there were no benefits referable to the respective amounts paid for the consultancy services provided by Mr Moss.  At a very minimum, one would have thought that having pleaded that alternative, the plaintiff might have adduced some evidence about whether the services provided by Mr Moss were charged at market rates for corresponding value.  Although the absence of any invoice or tax invoice from PRM to Amici is a relevant matter, of itself it does not outweigh the failure by the plaintiff to adduce necessary evidence in support of this claim.

8. For these reasons claim (1) fails.

9. As to claim (2), s 555FB provides:

   (1)A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to:

   (a)  the benefits (if any) to the company of entering into the transaction; and

   (b)  the detriment to the company of entering into the transaction; and

   (c)  the respective benefits to other parties to the transaction of entering into it; and

   (d)  any other relevant matter.

   (2)  A transaction may be an uncommercial transaction of a company because of subsection (1):

   (a)  whether or not a creditor of the company is a party to the transaction; and

   (b)  even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.

10. The relevant elements are identical to those in s 588FDA and this claim fails for the same reason.

11. Claim (3) is pleaded as follows.  A statement of the uncontroversial fiduciary duties of a director is pleaded at paragraph [16] including to act in the exclusive interests of Amici, to avoid conflicts between the company’s interests and any personal interests and not to make profits at the company’s expense (implicitly without fully informed consent).  At paragraph [21] it is said that Mr Moss directed or procured the making of the PRM consultancy payments.  And then at paragraph [37] four broad conclusions are pleaded, without identification of any material facts, namely that Mr Moss breached his fiduciary duty in that he: failed to act in the exclusive interests of Amici, failed to act with absolute and disinterested loyalty to it, failed to avoid conflicts between its interests and his own or those of others and made profits at its expense.  The pleading fails to illuminate how it is said that in making the consulting payments, each of these breaches is established.

12. In any event, resolution of this claim does not turn on a critical analysis of the pleading.  Of greater importance is how the plaintiff puts the breach of fiduciary duty in its closing submissions.  In written submissions, there is no reference to the breach of fiduciary duty case, not even by way of abandonment.  In oral submissions I observed to counsel for the plaintiff that the rolled up fiduciary duty and breach pleadings are not very helpful, and I then invited him to articulate just how the case is put. The following was the exchange:

    HIS HONOUR: - - - I don’t want to be overly critical, but you can see how, at the pointy end of the case, a rolled-up plea is not very helpful.

    MR PETRAS: Yes.

    HIS HONOUR: But let’s pass over that and let’s dissect it. So we have to go back to each of the separate payments that are pleaded commencing at paragraph 17. So there’s the PRM payments. There’s Paul Moss weekly. There’s Sarah Moss weekly, and then there’s the rent.

    MR PETRAS: Yes.

    HIS HONOUR: So breach of fiduciary duty is – how is it put in relation to – let’s  deal with the last one first – rent?

    MR PETRAS: With rent, it’s entirely the same analysis as with respect to the uncommercial and - - - HIS HONOUR: So if I’m against you as to your overarching point - - -

    MR PETRAS: Yes.

    HIS HONOUR: - - - you don’t press that?

    MR PETRAS: Yes.

    HIS HONOUR: So the PRM payments, again, you would say to me, well, no real value, enacted in the interests of PRM rather than the company; that’s your case?  

    MR PETRAS: Yes, yes.

13. In that exchange my reference to the overarching point is to the plaintiff’s contention that there was no real commercial purpose that justified the incorporation of Amici.  I have found against the plaintiff on that point.

14. In any event, counsel at the very end of the case at least made it clear that the breach of fiduciary duty claim turns on the factual assertion that Amici derived no benefit or no benefit proportionate to the quantum of the consulting fees.  On that basis, the breach of fiduciary duty claim fails for the same reasons as the unreasonable director-related transaction and uncommercial transaction claims.

15. Claim (4) as framed in the pleadings contends that PRM received $44,000, being the property of Amici, in circumstances where it knowingly participated in and assisted the breach of fiduciary duty by Mr Moss and thereby knowingly received the money within the meaning of the first limb of Barnes v Addy.  Necessarily, this claim fails because the plaintiff has failed to establish that Mr Moss acted in breach of his fiduciary duty to Amici.

16. Claim (5) is different. The relation-back day as pleaded commenced on 30 November 2016. A curious and unexplained aspect of this case is that the plaintiff did not plead reliance upon the extended relation-back day of four years for related party transactions at s 588FE(4) of the Act. As pleaded consulting fees were paid to PRM from 30 November 2016 to 18 May 2017 totalling $20,000. Each payment is said to be a payment to PRM as an unsecured creditor of Amici and which resulted in it receiving: “in respect of an unsecured debt or debts which [Amici] owed to [it], more than [it] would receive from [Amici] in respect of the debt or debts if the preferences were set aside and [PRM] was to prove for the debt in the winding up of [Amici]…within the meaning of s 588FA of the Act”.

17. Apart from summarising the effect of this pleading in written closing submissions, once again counsel for the plaintiff failed to focus on the essential elements of the statutory claim, particularly whether the evidence establishes that by reason of the consulting payments (the transaction within the meaning of the statutory provision), the result was that PRM received from Amici “in respect of an unsecured debt” that Amici owed to PRM, more than it would receive if the transaction were set aside and it was required to lodge a proof of debt in the winding up.

18. Ms Mastos emphasises in her closing submissions that the plaintiff has failed to adduce any evidence as to whether the consulting fee payments were made in respect of an unsecured debt owed, from time to time, by Amici to PRM.  It is elementary that the recipient of the impugned payment must be a creditor when the transaction is entered into: Mann v Sangria Pty Ltd (2001) 38 ACSR 307; [2001] NSWSC 172 at [32], Bryson J. There is no statutory definition of creditor in the Act. Justice Gordon in Capital Finance Australia Ltd v Tolcher (2007) 164 FCR 83; [2007] FCAFC 182 at [122] observed:

    The Second Deed, in its terms, imposed an obligation on LSE to make certain payments to Capital Finance on specific dates: see [102] and [103] above.  It specified a liquidated sum in money as presently due and owing on a particular date – by LSE to the Capital Companies.  "Creditor" is not defined in the Corporations Act.  Its meaning is flexible and varies according to its context:  see, by way of example, Environmental & Earth Sciences Pty Ltd v Vouris (2006) 152 FCR 510 at [40]- [41] and Dimos v Willetts (2000) 2 VR 170 at [106]- [108]. In the present context, it can be taken to include persons who had existing rights in relation to monetary claims against LSE and who would be entitled to prove in a winding up of LSE under s 553 of the Corporations Act.  The relevant date for ascertaining which persons or entities were creditors who might prove in the winding up was the date the administration commenced: Re Crawford House Press Pty Ltd (1995) 17 ACSR 295 at 298 and Environmental & Earth Sciences at [41].

19. There was no agreement in writing for the provision of the consultancy services by PRM to Amici.  I have found that Mr Moss unilaterally implemented the arrangement at a time when he was acting as a de facto director of Amici.  PRM provided no invoices for the fee.  No questions were put to Mr Moss designed to expose any particular terms of the arrangement.  A simple question might have been one to the effect:  Mr Moss, were the consultancy fees payable in advance or in arrears?  However, despite the plaintiff’s failure to interrogate this issue, I am satisfied that the payments were made in arrears.  Accepting the evidence of Mr Moss, as contrary to his interests, the consulting fee agreement was entered into shortly after Amici was incorporated and at or about the time that it commenced to manufacture pizza product.  The agreed fee was $4,000 per month.  The first payment was made on 4 July 2016.  Thereafter two more payments were made in July, on the 18^th and the 20^th, a payment was made in August, no payment was made September, payments were made in October and November but not in December 2016, two payments were made in January 2017, and one in each of February, April and May 2017.

20. The inference that is open, and which I draw, is that two of the payments in July 2016 are likely to have been for services provided in May and June and the subsequent irregular pattern of payments in 2016 satisfies me that each payment was made to discharge a pre-existing liability. Thus on each occasion, Amici and PRM were in a debtor/creditor relationship when each transaction, being each payment, was entered into. I am satisfied therefore that the first element of s 588FA has been established by the plaintiff. I pause to observe that there is no pleading of and no mention was made of the commercial transactions exemption at s 588FA(3) of the Act.

21. The second requires that, for each transaction, in result PRM must have received from Amici payment in respect of an unsecured debt which is more than it would receive if each transaction was set aside and PRM lodged a proof of debt in the liquidation.  No attention was paid by Mr Petras or Ms Mastos to the question whether the hypothetical transaction analysis is to be undertaken at the time of each transaction said to be a preference (Airservices Australia v Ferrier (1996) 185 CLR 483 at 501) or as at the date of the winding up. The decision of the Full Court in Federal Commissioner of Taxation v Kassem (2012) 205 FCR 156; [2012] FCAFC 124 at [80]-[84] holds that the comparison is between the amount received by the creditor from the impugned transaction and what would probably be received in the actual winding up.

22. The plaintiff did not adduce any evidence from the liquidator as to the likely dividend to unsecured creditors or in particular to PRM in the winding up.  When I raised this with Mr Petras in closing submissions he answered:  “The solvency report indicates there are no dividend creditors [sic].”  The Insolvency Report does not mention a likely dividend to unsecured creditors and nor does it address potential recovery proceedings, likely liquidation costs or recovery scenarios.  When I pressed Mr Petras further to identify evidence which establishes the pleaded dividend conclusion, he could not.

23. There is no report to creditors which calculates or estimates a likely dividend, if any, to unsecured creditors.  There is no expert report from the liquidator or any forensic accountant which expresses an opinion on this issue.  No submission was put to me as to what evidence might be considered to find this fact, even by inference.

24. The Insolvency Report discloses that to 4 February 2021, Mr Poulter estimated the total assets, comprising debtors at $7,000, priority creditors at $34,919, secured creditors at $149,775 and unsecured creditors at $427,788.  Overall, the net deficiency was estimated to be $605,482.  These estimates did not address the liquidator’s fees and charges.  An attachment to the report is a schedule of creditors, which is undated, in the total sum of $585,896.02. No evidence was adduced by the plaintiff about potential recovery proceedings that may result in a surplus in the winding up: Re Pacific Steelfixing Pty Ltd [2021] NSWSC 655 at [93]-[97], per Williams J.

25. In this proceeding, when commenced, the total amount sought to be recovered exceeded $926,000.  The schedule of creditors includes the demonstrably false claim made on behalf of Mrs Gigliotti, a claim by SB Food for “supplies” for $34,200 and another supply claim by TCK for $1,500.  There is no evidence from Mr Poulter as to whether creditor proofs of debt have been called for or assessed.  There is no evidence as to how SB Food or TCK could have valid claims for the provision of supplies to Amici.  The ATO lodged a claim with the liquidator on 13 June 2017 for $159,817.12, attached a dividend expectation advice and requested that the document be completed and returned within 30 days.  There is no evidence that it was.  The profit and loss statement for Amici to March 2017, as prepared by its external accountant, records a payment of management fees of $133,716 and there is no reference to consulting fees.  No explanation was provided as to who received this money, even assuming that some of it was paid to PRM as consulting fees.

26. There is some evidence from Mr Poulter that was adduced in cross-examination to the effect he did not investigate potential recovery proceedings against Mr Gigliotti or TCK.  No evidence was given by him about other potential recovery proceedings that would likely affect a likely dividend to creditors.  When questioned as to whether Mr Gigliotti was treated differently to Mr Moss as the focus of recovery proceedings, Mr Poulter agreed, for the reason that he concluded that Mr Moss was the primary beneficiary of, what he considered to be, the artificial and uncommercial arrangement which had as its centrepiece the incorporation of Amici for the purpose of manufacturing the product.  I have rejected that premise.  The likely dividend to unsecured creditors turns not only on this proceeding but also other potential recovery proceedings which emerge in the documentary evidence, but which have not been mentioned by the plaintiff.  Most notably, large payments were made to SB Food within the relation-back period, including after Amici ceased to manufacture product.

27. Mr Poulter also stated under cross-examination that he entered into the Assignment with the plaintiff because the winding up “was unfunded and I had no other sources of funding available to me to provide for the costs of public examinations and any litigation that might be necessary.”  No evidence was adduced as to those actual or likely costs.

1. The plaintiff did not adduce evidence as to the actual or likely priority payments, including the costs of the winding up, that have priority status pursuant to s 556 of the Act, in the event that recovery is effected in whole or in part by this proceeding, or any other proceeding that may thereafter be commenced by a liquidator with funds. No attempt was made to explain how the Assignment affects the hypothetical dividend calculation where the entitlement of the liquidator is limited to 50% of any Resolution Sum, after deduction of the public examination and liquidation costs. It is not easy to understand why that calculation is affected to the detriment of the defendants by a commercial decision taken by the liquidator to assign the causes of action upon the terms of the Assignment. The failure of the plaintiff to address the likely dividend question under a range of assumptions in order to address the hypothetical calculation that is required by s 588FA(1)(b) has deprived the defendants of the opportunity to interrogate this issue which is unfair and prejudicial.

2. The plaintiff carries the onus of proof of each of the elements at s 588FA(1)(b) of the Act. I am not satisfied that the onus is discharged where the plaintiff has failed to plead the material facts that it relies on, did not address this issue in the evidence and failed to put any submission as to how this claim is made out. It is not open to me in those circumstances to arrogate to myself the role of forensic accountant or to engage in speculation based on the difference between the net deficiency of assets and the potential dividend that might ultimately be declared. Proceeding in that way is also unfair and prejudicial to Mr Moss.

3. For these reasons this claim fails.

   The Paul Moss weekly payments claim

4. It is not in dispute that Amici made weekly payments to Paul Moss between 30 May 2016 and 30 May 2017 each in the sum of $522 and totalling $27,666.  I have found that this payment was not discussed between Mr Moss and Mr Gigliotti.  The purpose of the payment in accordance with the evidence of Mr Moss, was to ensure that he was recorded on the books of the company is an employee for WorkCover insurance purposes.  These payments were recorded as taxable income in the annual returns of Mr Moss in 2016 and 2017.  I am prepared to accept this evidence of Mr Moss and I find accordingly.

5. Four claims are pleaded by the plaintiff, in reliance of the same causes of action maintained against PRM.  Fortunately, they may be addressed somewhat more briefly.

6. I am not satisfied that the unreasonable director-related transaction or uncommercial transactions claims succeed because the plaintiff has failed to establish that Amici received no benefit from the payments or no benefits preferable to the respective amounts paid.  The evidence is that this separate payment was made in consideration of Mr Moss attending to book keeping tasks.  The plaintiff accepts that he did, indeed this work forms a component of the contention that he was a de facto director.  Accordingly, Amici did receive benefit for these payments and no attempt was made to adduce evidence in support of the contention that the benefits received were not referable to the amounts paid.

7. The breach of fiduciary duty claim fails for the same reason that it fails against PRM: there was a commercial purpose to the establishment and operation of Amici.  Furthermore, the plaintiff failed to articulate any submissions to me as to how it was said in this case that a de facto director who receives a relatively modest weekly wage for bookkeeping, did so in breach of his fiduciary duty to Amici.

8. The Barnes v Addy knowing assistance claim fails because it is misconceived:  self-evidently, Mr Moss could not have engaged in a knowing participation of his own breach of duty.  This highlights the danger of a rolled up plea of multiple claims when insufficient attention is paid to the factual basis for individual claims.

9. Finally in relation to the unfair preference claim, for payments after 30 November 2016, I do not find it necessary to resolve the submission of Ms Mastos, unsupported by reference to any authority, that wages paid to an employee in regular instalments do not give rise to a debtor and creditor relationship, as this claim also fails for the reason that I have given in relation to the PRM consulting payments:  the plaintiff’s case fundamentally fails to address the elements or proof required and it would be distinctly unfair and prejudicial for me to draw the necessary inferences from the paucity of evidence relied on.

   The PRM and Orthosurgical rental payments

10. As pleaded the plaintiff claims all amounts of rent paid by Amici to PRM and Orthosurgical between 25 May 2016 and 18 May 2017, in total $224,719.30.  As fully particularised the claim is:

    Further, in the period 25 May 2016 to 18 May 2017, the Company paid to PRM Investments and Orthosurgical a total of $224,719.30 (PRM and Ortho payments).

    PARTICULARS

Date	Amount
1	25/05/2016	$21,908.06
2	20/06/2016	$17,750
3	3/07/2016	$4,158.06
4	25/07/2016	$6,000
5	28/07/2016	$6,000
6	30/07/2016	$9,908.06
7	23/08/2016	$21,908.06
8	26/09/2016	$1,400.66
9	26/09/2016	$7,000
10	3/10/2016	$7,000
11	10/10/2016	$6,507.40
12	18/10/2016	$6,000
13	7/11/2016	$15,435.80
14	21/11/2016	$6,000
15	28/11/2016	$6,000
16	5/12/2016	$9,435.80
17	17/01/2017	$21,435.80
18	2/02/2017	$928.40
19	16/02/2017	$20,507.40
20	20/03/2017	$928.40
21	20/03/2017	$6,000
22	3/04/2017	$6,000
23	19/04/2017	$8,507.40
24	18/05/2017	$8,000
$224,719.30

1. The now familiar four contentions of unreasonable director-related transaction, uncommercial transaction, breach of fiduciary duty, knowing assistance and unfair preference claims are relied upon.  In closing submissions, however, the plaintiff abandoned the Barnes v Addy claim against Orthosurgical.

2. The unreasonable director-related transaction and uncommercial transaction claims fail for the simple reason that Amici occupied the premises as lessee, in equity at least by reason of occupation and part performance, and received the benefits of occupation.  I have accepted the evidence of Mr Luckin that the rent corresponded with comparable rents for similar facilities in the area of the premises.  I am satisfied that it was a fair market rent.  The plaintiff led no evidence to the contrary.  Hence the plaintiff fails on a central and necessary contention on which it relies for these claims: Amici received no benefit or no benefit proportionate to the amount of the rental paid.

3. For the same reasons, the breach of fiduciary duty claim fails against Mr Moss and PRM as does the separate Barnes v Addy claim against PRM.  I simply cannot be satisfied that Mr Moss breached any of his fiduciary duties by permitting Amici to assume the liability to pay a fair market rent as lessee of the premises.

4. On the unfair preference claim, the plaintiff limits it to the amount of $81,743.20 by reference to the pleaded relation-back day of 30 November 2016.  Ms Mastos submits that I should not be satisfied that PRM and Orthosurgical were creditors of Amici on the date that the rent was paid, in whole or in part, because the plaintiff failed to adduce evidence as to whether the rent was payable in advance or arrears.  I reject that submission.  It is self-evident from the irregular pattern of rental payments, and the evidence of Mr Luckin that rental was frequently in arrears, that Amici, PRM and Orthosurgical were in a debtor and creditor relationship when the payments were made.  The first payment was made on 25 May 2016 in the amount of $21,908.06.  If Amici had complied with an assumed obligation to pay rental in advance, it should have paid a further payment on or about 25 June 2016.  It did not.  On 20 June 2016 it paid $17,750 and on 3 July 2016 $4,158.06.  The payments thereafter adopt an irregular pattern and are in irregular amounts.  After 30 November 2016, the next payment that was made was 5 December 2016 in the amount of $9,435.80.  A simple mathematical analysis demonstrates that by then, Amici was significantly in arrears in paying the agreed monthly amount: on no view was it up-to-date with the payment of rental on and from 30 November 2016.  It is also the case that the rental invoices claim amounts for rental in arrears.

5. However, and for related reasons, the plaintiff’s claim fails for the evidentiary and unfairness reasons that I have set out above.

   Sarah Moss Weekly Payments

6. Ms Moss did not provide any services to Amici despite her apparent status as an employee in receipt of a weekly payment of $264 between 30 May 2016 on 30 May 2017, totalling $13,992. Mr Moss did not inform Mr Gigliotti of this arrangement. On this claim I am satisfied that the payments amounted to at least an uncommercial transaction within the meaning of s 588FB of the Act in that I am satisfied that a reasonable person in the circumstances of Amici would not have entered into the transaction because of the total absence of expected benefit to Amici. Each payment is therefore a voidable transaction within the meaning of s 588FE, engaged in at a time when Amici was insolvent and in consequence the plaintiff is entitled to appropriately formulated orders pursuant to s 588FF.

7. Having reached that conclusion, it is unnecessary that I address the additional claims that the plaintiff relies upon in order to recover payments made to Ms Moss.

   Insolvent trading

8. The plaintiff’s final claim is for insolvent trading on the ground that Mr Moss was a director in fact. In short, Mr Moss breached his duty to prevent insolvent trading contrary to s 588G of the Act and in consequence the plaintiff as the assignee of the liquidator may recover from Mr Moss compensation pursuant to s 588M of the Act. Once again the claim is unhelpfully pleaded as a series of conclusions. The paragraphs provide:

   62.Between 2 March 2016 and 31 May 2017 (the relevant period), the Company incurred debts totalling $618,465.87, as set out in Schedule A.

   63.Paul [Moss] was a director of the Company at all times during the relevant period.

   PARTICULARS

   The plaintiff refers to and repeats the matters in paragraph 4.

   64.Further and in the alternative to the matters in paragraph 13 – 15, the Company became insolvent during the relevant period by incurring some or all of the debts set out in Schedule A.

   65.Paul Moss was aware at all times during the relevant period that the Company was insolvent or alternatively about to become insolvent.

   PARTICULARS

   The plaintiff refers to and repeats the matters in paragraph 4.

   66. Further or in the alternative to the preceding paragraph, a reasonable person in the position of Paul Moss in the Company’s circumstances would be aware that there were grounds for suspecting the matters set out in the preceding 2 paragraphs.

   67.By reasons of the matters set out in the preceding 6 paragraphs, Paul Moss has contravened s 588G(2) of the Act, in relation to the incurring of the debts set out in Schedule A.

   68.Each of the creditors listed in Schedule A has suffered loss and damage because of the Company’s insolvency.

   69.Each of the debts set out in Schedule A was wholly or partly unsecured when the loss and damage was suffered.

   70.By reason of the matters in the preceding 8 paragraphs and paragraphs 2(b), 9 and 10, the plaintiff may recover from Paul Moss, as a debt due to the plaintiff, an amount equal to the loss and damage set out in paragraph 62.

9. The schedule comprises a list of creditors by name and amount. There is no reference to the date that each debt was incurred, or the amount of increase in indebtedness over time. Paragraphs [13] – [15] plead that Amici was insolvent from the date of incorporation. Paragraph [4] is the plaintiff’s pleading that Mr Moss was a director or of Amici in fact from the date of incorporation. Mr Moss does not rely on any statutory defence, on the basis that he might be found to be a director of Amici. In his defence, Mr Moss pleads that he does not admit each and every allegation in these paragraphs, save for paragraph [63] and [70] which he denies. The effect of r 16.07(2) of the Rules is that each paragraph not admitted is taken to be. No application was made at the trial to withdraw these deemed admissions and Ms Mastos made no submission about these claims either in opening or closing. Contrary to the denial of paragraph [63], I have concluded that Mr Moss was a de facto director of Amici at all times between the dates of incorporation and liquidation.

10. It follows that this claim succeeds in consequence of my findings that Mr Moss was a de facto director from the date of incorporation of Amici until its liquidation, that Amici was throughout that period insolvent and by reason of the deemed admission of each of paragraphs [62] and [64] – [69]. The denial of paragraph [70] is of no consequence as it amounts to no more than an assertion of an entitlement to a remedy pursuant to s 588M of the Act.

11. Accordingly, the total amount of loss or damage suffered by each of the creditors listed in the schedule may be recovered in the form of compensation awarded pursuant to s 588M(2) of the Act.

    CONCLUSION AND ORDERS 

12. The plaintiff’s claims succeed against Ms Moss in the amount of $13,922 and against Mr Moss in the amount of $618,465.87.  Each other claim fails.  In the originating application the plaintiff seeks interest.  I did not receive any submissions about interest or the “further or other relief” that the plaintiff seeks in consequence of other orders.  Hence I order as follows:

    1.The proceedings against the second and fourth defendants are dismissed.

    2.The parties are to file short submissions, of no more than three pages, to give effect to these reasons including any further applications for interest, costs or other relief, within 14 days of the publication of these reasons.

    3.Subject to any further order of the Court, all further orders will be made on the papers.

    4.The Registrar of the Court is to provide a copy of these reasons to ASIC for consideration whether there should be an investigation of the circumstances which led to the liquidation of Amici Food Manufacturer Pty Ltd (in liq).

I certify that the preceding two hundred and fifty-four (254) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McElwaine.

Associate:

Dated:       5 May 2023

SCHEDULE OF PARTIES

VID 1401 of 2019
Defendants
Fourth Defendant:	ORTHOSURGICAL PTY LTD (ACN 071 444 749)