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 2023Date 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…
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- AGLC
- Aquisite Pty Ltd v Moss [2023] FCA 410
- Case
- [2023] FCA 410
- Decision Date
CaseChat Overview and Summary
Aquisite Pty Ltd brought an action against Moss and others, seeking recovery of losses suffered by Amici Food Manufacturer Pty Ltd (in liquidation) under various sections of the Corporations Act 2001 (Cth). The central issue was whether Moss acted as a de facto director of Amici, thereby rendering him liable for the insolvent trading and other breaches committed by the company. Amici was a food manufacturing company that operated from May 2016 until its liquidation in May 2017. The plaintiff, Aquisite, claimed that Moss and Gigliotti were effectively in control of Amici's operations and that Moss should be held liable as a de facto director for the company's debts and liabilities.
The court had to determine whether Moss was a de facto director of Amici and, if so, whether he was liable for the company's insolvent trading and other breaches. This involved examining the extent of Moss's involvement in Amici's operations, the control he exercised, and whether his actions met the criteria for being considered a de facto director under the Corporations Act. The court also had to assess the claims for unfair preferences, unreasonable director-related transactions, and breaches of fiduciary duty against Moss.
The court found that Moss did not act as a de facto director of Amici. While Moss was involved in some aspects of Amici's operations, the court concluded that his role did not amount to acting in the position of a director. The evidence showed that Gigliotti was the sole director and that Moss's involvement was more that of an advisor or consultant rather than a controlling director. The court rejected the plaintiff's claims for insolvent trading, unfair preferences, and breaches of fiduciary duty against Moss. However, the court did find that Moss was liable for a transaction that constituted an unfair preference under section 588FA of the Corporations Act.
The court ordered that the proceedings against the second and fourth defendants be dismissed. The parties were directed to file short submissions to give effect to the court's reasons, including any further applications for interest, costs, or other relief, within 14 days of the publication of the reasons. Additionally, the Registrar of the Court was instructed to provide a copy of the reasons to ASIC for consideration of whether there should be an investigation into the circumstances leading to Amici's liquidation.
The court had to determine whether Moss was a de facto director of Amici and, if so, whether he was liable for the company's insolvent trading and other breaches. This involved examining the extent of Moss's involvement in Amici's operations, the control he exercised, and whether his actions met the criteria for being considered a de facto director under the Corporations Act. The court also had to assess the claims for unfair preferences, unreasonable director-related transactions, and breaches of fiduciary duty against Moss.
The court found that Moss did not act as a de facto director of Amici. While Moss was involved in some aspects of Amici's operations, the court concluded that his role did not amount to acting in the position of a director. The evidence showed that Gigliotti was the sole director and that Moss's involvement was more that of an advisor or consultant rather than a controlling director. The court rejected the plaintiff's claims for insolvent trading, unfair preferences, and breaches of fiduciary duty against Moss. However, the court did find that Moss was liable for a transaction that constituted an unfair preference under section 588FA of the Corporations Act.
The court ordered that the proceedings against the second and fourth defendants be dismissed. The parties were directed to file short submissions to give effect to the court's reasons, including any further applications for interest, costs, or other relief, within 14 days of the publication of the reasons. Additionally, the Registrar of the Court was instructed to provide a copy of the reasons to ASIC for consideration of whether there should be an investigation into the circumstances leading to Amici's liquidation.
Orders
Orders of the court
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.
Background
Background to the litigation
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 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. 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. 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.
Evidence
Evidence Before The Court
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 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. 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. 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
Decision
Reasons for decision
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 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).
Ratio Decidendi
Legal Principle Established
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