Burness, In the matter of Research Investments Pty Ltd (ACN 089 605 863) (In Liq)
[2009] FCA 1041
•16 SEPTEMBER 2009
FEDERAL COURT OF AUSTRALIA
Burness, In the matter of Research Investments Pty Ltd (ACN 089 605 863) (In Liq) [2009] FCA 1041
PAUL ANDREW BURNESS AND MORGAN GERARD JAMES LANE AS TRUSTEES OF THE BANKRUPT ESTATE OF ILIAS LYMBERATOS v ADRIAN LAWRENCE BROWN
VID 492 of 2009
GORDON J
16 SEPTEMBER 2009
MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VID 492 of 2009
GENERAL DIVISION
IN THE MATTER OF RESEARCH INVESTMENTS PTY LTD (ACN 089 605 863) (IN LIQUIDATION)
BETWEEN: PAUL ANDREW BURNESS AND MORGAN GERARD JAMES LANE AS TRUSTEES OF THE BANKRUPT ESTATE OF ILIAS LYMBERATOS
PlaintiffsAND: ADRIAN LAWRENCE BROWN
Defendant
JUDGE:
GORDON J
DATE OF ORDER:
16 SEPTEMBER 2009
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.The application is dismissed.
2.The Plaintiffs pay the Defendant’s costs of and incidental to the application, such costs to be taxed in default of agreement.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
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IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VID 492 of 2009
GENERAL DIVISION
IN THE MATTER OF RESEARCH INVESTMENTS PTY LTD (ACN 089 605 863) (IN LIQUIDATION)
BETWEEN: PAUL ANDREW BURNESS AND MORGAN GERARD JAMES LANE AS TRUSTEES OF THE BANKRUPT ESTATE OF ILIAS LYMBERATOS
PlaintiffsAND: ADRIAN LAWRENCE BROWN
Defendant
JUDGE:
GORDON J
DATE:
16 SEPTEMBER 2009
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
INTRODUCTION
By application filed on 1 July 2009 under s 1321 of the Corporations Act 2001 (Cth) (“the Act”), the Plaintiffs (the trustees of the bankrupt estate of Ilias Lymberatos) (“the Plaintiffs”) appealed the decision of Adrian Lawrence Brown (“the Liquidator”), as liquidator of Research Investments Pty Ltd (ACN 089 605 863) (in liquidation) (“the Company”), rejecting a proof of debt lodged by the Plaintiffs.
For the reasons that follow, I would dismiss the appeal and order the Plaintiffs to pay the Defendant’s costs.
BACKGROUND
The Liquidator was appointed liquidator of the Company on 8 February 2006. The Plaintiffs were appointed trustees of the bankrupt estate of Ilias Lymberatos on 16 January 2007. Mr Lymberatos had a number of roles in the Company. He was appointed sole director and company secretary on 17 September 1999. He ceased being a director of the Company on 6 May 2004 and ceased being the company secretary on 16 January 2007. He was the sole shareholder of the Company.
On 6 March 2009, the Plaintiffs lodged a formal proof of debt which particularised the debt as:
Date
Consideration
Amount
Remarks
4/5/2004
As per previous statement of affairs
Outstanding loan
$255,000.00
Refer attached statement of affairs extract
An amended proof of debt was lodged on 28 April 2009 which particularised the debt as:
Date
Consideration
Amount
Remarks
30 June 2003
Director Loan
$255,710.00
As per prepared financial statements as at 30 June 2003
On 11 May 2009, the Liquidator served the Plaintiffs with formal notice of his rejection of the amended proof of debt on the grounds that:
You have failed to provide sufficient evidence to support your claim. In this regard, there is insufficient evidence to show that the amount claimed remained outstanding as at the date of my appointment. The financial statements relied upon are as at a date which is some considerable time before my appointment. Further, the Report as to Affairs of the Company as at 8 February 2006, prepared by Mr Ilias Lymberatos, does not disclose any amounts due to Mr Lymberatos.
LEGAL PRINCIPLES
The relevant legal principles were not in dispute. First, where as here a creditor claims that a liquidator has wrongly refused to admit his debt, the creditor has the onus of proving it: see Westpac Banking Corporation v Totterdell (1997) 142 FLR 137.
Secondly, the standards to be applied are no less than the standards of proof before a judge. The debt must be legally enforceable. The principles to be applied in determining enforceability of the debt are the same as the principles applied in an action brought by the creditor directly against the company: see Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 at 338-339.
ISSUE 1 – WAS THE COMPANY INDEBTED TO MR LYMBERATOS IN JUNE 2003?
As the amended proof of debt records (see [5] above), Mr Lymberatos alleged that “the Company [was] justly and truly indebted to [him] in the sum of $255,710 being the amount of a shareholder’s loan as at 30 June 2003 that [had] not been repaid and [was] still outstanding”.
Counsel for the Defendant submitted that the Plaintiffs (on behalf of Mr Lymberatos) adduced no evidence (whether documentary or otherwise) of the origin, purpose or ongoing existence of the alleged loan.
One of the documents adduced by the Plaintiffs was the balance sheet of the Company for the year ended 30 June 2003. An entry entitled “shareholder loan” in the balance sheet appeared in the books of account of the Company in the year ended 30 June 2003. In the previous three years’ financial statements of the Company, there was no such entry. “Loans” were recorded as “non-current liabilities” and were identified as follows:
Year Ended
Entry Label
Amount
30.06.2000
“Loans”
281,035
30.06.2001
“Loans”
289,237
30.06.2002
“Loans”
313,083
In fact, the 2002 balance sheet recorded as a “current receivable” a “shareholder loan” in the sum of $10,200 up from $7,505 in the previous year. None of the other books and records of the Company referred to or supported the existence of a loan having been made by Mr Lymberatos to the Company.
Evan Gill was the Company’s accountant in 2003. He was not the Company’s accountant in 2002. In about January 2003, he prepared the Company’s financial statements for the financial years ended 30 June 2000, 2001 and 2002. Attached to the set of financial statements for each year, Mr Gill stated in the compilation report that:
On the basis of information provided by the directors, we have compiled in accordance with APS 9 “Statement on Compilation of Financial Reports” the special purpose financial report of the company for the period ended 30th June 2000 as set out in the financial statements …
The directors are solely responsible for the information contained in the special purpose financial report …
Our procedures use accounting expertise to collect, classify and summarise the financial information, which the directors provided, into a financial report. Our procedures do not include verification or validation procedures. No audit or review has been performed and accordingly no assurance is expressed.
Mr Gill prepared the Company’s financial statements for the financial year ended 30 June 2003 and the Company’s 2003 income tax return. The financial statements were prepared in July 2003 (and furnished to the Company in December 2003) and the compilation report attached to the financial statements was in the same terms as previous years. In the 2003 income tax return, Mr Gill declared that the return had been prepared “in accordance with information supplied by the taxpayer, that the taxpayer ha[d] given [him] a declaration stating that the information provided to [him] was true and correct”.
The Plaintiffs filed two affidavits sworn by Mr Gill. Mr Gill was not cross examined. In para [5] of his first affidavit, Mr Gill stated:
To the best of my knowledge and belief:
(a) During the 2002 financial year Mr. Lymberatos loaned approximately $350,000 to $400,000 to the Company;
(b) Thereafter during that year the Company paid personal expenses of Mr. Lymberatos which reduced its indebtedness to $313,000, being the amount shown in the Financial Statements as at 30 June 2002; and
(c) During the 2003 financial year the Company paid further personal expenses of Mr. Lymberatos which reduced the balance on his shareholder loan account to $255,710.
The Plaintiffs relied upon these statements as further evidence of the existence of the loan. I reject that contention for a number of reasons:
1.Mr Gill was not employed by the Company in the 2002 financial year;
2.Mr Gill does not identify the source of his “knowledge and belief”;
3.at no time has Mr Lymberatos asserted that he loaned the Company $350,000 to $400,000 in the 2002 financial year;
4.the financial records of the Company do not record such a loan;
5.the total credits to the Company bank account in the 2002 financial year totalled only $16,233.31;
6.the only additional major asset acquired by the Company in the 2002 financial year was a property in Coburg (recorded in the balance sheet at $291,010) financed by a loan recorded in the balance sheet as at 30 June 2002 as a new liability of $282,942;
7.the balance sheet as at 30 June 2002 in fact discloses an increase in “shareholder loans – shareholder No.1” (being a loan from the Company to Mr Lymberatos) as an asset (increased from $7,505 to $10,200); and
8.the financial statements are unable to be reconciled with the Company’s bank statements. For example, the cash at bank figures recorded in the Company’s financial statements for the 2001, 2002 and 2003 years are not supported by the bank statements.
A further affidavit sworn by Mr Gill on 4 September in my view does not assist. It is general and at times vague and to some extent internally inconsistent as well as inconsistent with his statements in the compilation report. In particular, after asserting without detail that “[his] association with … Mr Lymberatos and his various entities goes back to approximately 1997”, Mr Gill goes on to assert that “apart from the amounts shown in the Company’s financial statements as owing in respect of mortgage debts, [Mr] Lymberatos, and at a later stage his company Optic Developments Pty Ltd (for the amount of $130,261 set out in the 2003 balance sheet), were the only sources of funds from which the Company could have and did acquire the [three] properties [recorded in the Company’s financial statements].” To take just the Coburg property as one example, the statement just identified contradicts earlier statements in the same affidavit that:
In the 2002 financial year the Company acquired a further property as is reflected in its balance sheet for that year. The identity of this further property, in Coburg, is set out in note 5 to the financial statements for that year.
In each instance the properties are shown at cost and the amount outstanding in respect of any mortgage debt is also recorded.
If that statement is correct, then the Coburg property was acquired in 2002 for $291,010 with a mortgage debt of $282,942. Those facts do not evidence a loan from Mr Lymberatos to the Company of $255,000.
The Plaintiffs also relied upon two affidavits sworn by Mr Lymberatos. Mr Lymberatos was cross examined. Except where corroborated by independent contemporaneous evidence, I do not accept Mr Lymberatos’ evidence. He is, in my view, an unreliable witness. In fact, Mr Lymberatos admitted his recollection of events was limited. He sought to explain his limited recollection was due to traumatic events which occurred over the last five years. That may or may not be the case. The fact remains that the Plaintiffs had the burden of establishing the existence of the disputed debt and Mr Lymberatos’ evidence was of limited assistance. In particular, I do not accept Mr Lymberatos’ evidence that “the Company [was] justly and truly indebted to [him] in the sum of $255,710 being the amount of a shareholder’s loan as at 30 June 2003 that has not been repaid and is still outstanding”. Mr Lymberatos was the source of the information in the financial statements of the Company and, as explained earlier, those financial statements are unreliable: cf s 542(1) of the Act and Senes v Empress Electric (Sydney) Pty Ltd (1966) 114 CLR 622 at 627. Further, not only did Mr Lymberatos purport to sell assets of the Company after the appointment of the Liquidator, he pleaded guilty to engaging in conduct that resulted in the fraudulent concealment or removal of property of the Company and for failing to deliver to the Liquidator all books in his possession that related to the Company.
I do not accept that the Statements of Affairs completed by Mr Lymberatos on 4 May 2004 and 31 July 2009 assist in the resolution of these issues. The second statement was prepared after these proceedings were commenced. The first, completed on 4 May 2004, does record an amount of $255,000 as being owed to Mr Lymberatos by the Company. However, that document suffers from the same problems – it does not explain the source or origin of the alleged loan. In that context, Mr Lymberatos admitted he does not and cannot produce any documents (such as bank statements) demonstrating the source of such funds and the use of such funds in support of his contention that he advanced funds to the Company in the period from 2000. That is not a difficult task.
The nub of the Plaintiffs’ submissions was that the Court was somehow to use “common sense” and draw an inference that Mr Lymberatos had advanced the disputed loan funds to the Company because he was the only likely source of its operating capital. Common sense in the law is important and useful. Unfortunately for the Plaintiffs, adopting a “common sense” approach does not assist in the resolution of the issue in these proceedings in their favour. It is not common sense to assume the existence of a loan of some hundreds of thousands of dollars that cannot be substantiated where the existence of the loan is disputed. If the Plaintiffs’ submission were accepted, the entire scheme of proving debts in a winding up of a company would, at best, be uncertain and, at worse, unworkable. Inferences are not at large. As Kitto J said in Jones v Dunkel (1959) 101 CLR 298 at 305:
One does not pass from the realm of conjecture into the realm of inference until some fact is found which positively suggests, that is to say provides a reason, special to the particular case under consideration, for thinking it likely that in that actual case a specific event happened or a specific state of affairs existed.
Without the facts to substantiate such a contention (and indeed, a large number of facts that weigh against it), the Plaintiffs failed to discharge the onus that they bear: see [7] and [8] above.
In my view, for the reasons stated, there is no evidence to support a finding that the Company was indebted to Mr Lymberatos in the sum of $255,710 or any other sum as at 30 June 2003.
ISSUE 2 – WAS THE COMPANY INDEBTED TO MR LYMBERATOS AS AT THE DATE OF THE WINDING UP?
As noted earlier, Mr Lymberatos’ evidence was that “the Company [was] justly and truly indebted to [him] in the sum of $255,710 being the amount of a shareholder’s loan as at 30 June 2003 that has not been repaid and is still outstanding”.
In addition to the reasons for rejecting the contention that the Company was truly indebted to Mr Lymberatos “in the sum of $255,710 being the amount of a shareholder’s loan as at 30 June 2003” (see Issue 1 above), there are additional reasons for rejecting the contention that the amount “[had] not been repaid and [was] still outstanding” as at the date of the winding up. On 10 February 2006, in response to a direct question from the Liquidator to Mr Lymberatos as to whether he or his wife was a creditor of the Company, the Liquidator’s evidence is that he replied “No”. Evidence of the contents of that conversation were adduced in the form of a contemporaneous file note and sworn evidence by both the Liquidator and one of his staff members who was a party to the conversation. Mr Lymberatos does not dispute the conversation took place but he denies that he said that he was not a creditor of the Company. I reject his evidence. The file note provides direct and contemporaneous evidence that he was asked that question and responded substantively in the manner deposed to by the Liquidator and his member of staff.
Finally, his subsequent conduct was consistent with the contents of the conversation on 10 February 2006. During the course of cross examination, Mr Lymberatos admitted that on 14 February 2006, he told the Liquidator there were only three creditors – the NAB, Melbourne Tippers and the Australian Taxation Office. Secondly, during the course of that meeting on 14 February, Mr Lymberatos completed a Report as to Affairs (“RATA”). Two unsecured creditors were listed in the RATA - Melbourne Tippers and the Australian Taxation Office. During cross examination, Mr Lymberatos admitted that at the time he completed the RATA he understood that a creditor was a third party to whom the Company owed money. The RATA did not list any loan from him to the Company. Later, Mr Lymberatos attempted to explain the omission of any reference to the “loan” was due to his lack of understanding about what was a creditor of the Company. I reject that explanation as recent invention. That explanation was not raised by Mr Lymberatos in either of his two affidavits previously filed in these proceedings.
CONCLUSION
For those reasons, the Plaintiffs’ application is dismissed.
The Plaintiffs were out of time for filing an appeal against the Notice of Rejection of the proof of debt. However, given the views that I have formed and the conduct of the proceedings, I would extend the time for appealing the Notice of Rejection: Corporations Regulations 2001 (Cth), rr 5.6.54(1)(i) and 5.6.54(2) and r 14.1(2) of the Federal Court (Corporations) Rules 2000 (Cth).
The Plaintiffs should pay the Defendant’s costs of and incidental to the application.
I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon. Associate:
Dated: 16 September 2009
Counsel for the Plaintiffs: S Rosenzweig Solicitor for the Plaintiffs: Charles Fice Counsel for the Defendant: SR Grahame Solicitor for the Defendant: Henderson & Ball
Date of Hearing: 11 September 2009 Date of Judgment: 16 September 2009
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