Christopher Michael Williamson as Liquidator of Merlino Construction Services Pty Ltd (in Liq) v Hawkwood Holdings Pty Ltd
[2002] WASC 137
CHRISTOPHER MICHAEL WILLIAMSON as Liquidator of MERLINO CONSTRUCTION SERVICES PTY LTD (IN LIQ) -v- HAWKWOOD HOLDINGS PTY LTD [2002] WASC 137
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2002] WASC 137 | |
| Case No: | COR:233/2001 | 21 MAY 2002 | |
| Coram: | MASTER SANDERSON | 31/05/02 | |
| 16 | Judgment Part: | 1 of 1 | |
| Result: | Application dismissed | ||
| B | |||
| PDF Version |
| Parties: | CHRISTOPHER MICHAEL WILLIAMSON as Liquidator of MERLINO CONSTRUCTION SERVICES PTY LTD (IN LIQ) (ACN 080 182 994) HAWKWOOD HOLDINGS PTY LTD (ACN 009 356 503) |
Catchwords: | Corporations Act Application by liquidator to recover payments allegedly unfair preference or uncommercial transaction Turns on own facts |
Legislation: | Corporations Act, s 95A, s 513A, s 588FA, s 588FB, s 588FC, s 588FE, s 588FF, s 588FG |
Case References: | Tosich Construction Pty Ltd (In Liq) & Anor v Tosich (1997) 15 ACLC 1402 Williamson v Hawkwood Holdings Pty Ltd [2002] WASC 25 Brooks v Heritage Hotel Adelaide Pty Ltd (1996) 20 ACSR 61 Calzaturificio Zenith Pty Ltd (In Liq) v NSW Leather & Trading Co Pty Ltd [1970] VR 605 Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535 Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 Levi v Guerlini (1997) 24 ACSR 159 Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 13 ACLC 823 Minister for Transport v Francis & Woodings [2000] WASCA 149 Olifent v Australian Wine Industry Pty Ltd (1996) 19 ACSR 285 Olsson v Dyson (1969) 120 CLR 365 Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 Ramsay v Watson (1961) 108 CLR 642 Re The Walker Group Pty Ltd (1995) 13 ACLC 434 Rothmans Export Pty Ltd v Mistmorn Pty Ltd (In Liq) (1994) 15 ACSR 139 Sands & McDougall (Wholesale) Pty Ltd (In Liq) v FCT (1996) 22 ACSR 383 Smith v DCT (1997) 23 ACSR 611 Switz Pty Ltd v Globind Pty Ltd (2000) 18 ACLC 343 Taylor v ANZ Banking Group Ltd (1988) 6 ACLC 808 Toikan International Insurance Broking Pty Ltd v Plasteel Windows Australia Pty Ltd (1988) 15 NSWLR 641 Tourprint v Bott [1999] NSWSC 581 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
HAWKWOOD HOLDINGS PTY LTD (ACN 009 356 503)
Defendant
Catchwords:
Corporations Act - Application by liquidator to recover payments allegedly unfair preference or uncommercial transaction - Turns on own facts
Legislation:
Corporations Act, s 95A, s 513A, s 588FA, s 588FB, s 588FC, s 588FE, s 588FF, s 588FG
(Page 2)
Result:
Application dismissed
Category: B
Representation:
Counsel:
Plaintiff : Mr K L Christensen
Defendant : Mr M C Hotchkin
Solicitors:
Plaintiff : Tottle Christensen
Defendant : Hotchkin Hanly
Case(s) referred to in judgment(s):
Tosich Construction Pty Ltd (In Liq) & Anor v Tosich (1997) 15 ACLC 1402
Williamson v Hawkwood Holdings Pty Ltd [2002] WASC 25
Case(s) also cited:
Brooks v Heritage Hotel Adelaide Pty Ltd (1996) 20 ACSR 61
Calzaturificio Zenith Pty Ltd (In Liq) v NSW Leather & Trading Co Pty Ltd [1970] VR 605
Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535
Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459
Levi v Guerlini (1997) 24 ACSR 159
Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 13 ACLC 823
Minister for Transport v Francis & Woodings [2000] WASCA 149
Olifent v Australian Wine Industry Pty Ltd (1996) 19 ACSR 285
Olsson v Dyson (1969) 120 CLR 365
Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266
Ramsay v Watson (1961) 108 CLR 642
Re The Walker Group Pty Ltd (1995) 13 ACLC 434
Rothmans Export Pty Ltd v Mistmorn Pty Ltd (In Liq) (1994) 15 ACSR 139
(Page 3)
Sands & McDougall (Wholesale) Pty Ltd (In Liq) v FCT (1996) 22 ACSR 383
Smith v DCT (1997) 23 ACSR 611
Switz Pty Ltd v Globind Pty Ltd (2000) 18 ACLC 343
Taylor v ANZ Banking Group Ltd (1988) 6 ACLC 808
Toikan International Insurance Broking Pty Ltd v Plasteel Windows Australia Pty Ltd (1988) 15 NSWLR 641
Tourprint v Bott [1999] NSWSC 581
(Page 4)
1 MASTER SANDERSON: By amended originating process the plaintiff seeks the following orders:
"1. a declaration that the payments totalling $500,688.00 made to the defendant between 5 December 1997 and 15 May 1998 are unfair preferences, or alternatively uncommercial transactions, and are void as against the plaintiff;
2. an order that the defendant pay the sum of $500,688.00 to the plaintiff, together with interest on that sum at the rate of 6% per annum pursuant to section 32 of the Supreme Court Act 1935 (as amended) from 4 February 1999 until payment or judgment herein, whichever is the earlier;
3. an order that the defendant do pay the plaintiff's costs of the originating process to be taxed."
2 This application relies upon a number of interrelated provisions of the Corporations Act. The starting point is s 588FF. That section reads as follows:
"588FF (1) [Orders court empowered to make] Where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:
(a) an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction;
(b) an order directing a person to transfer to the company property that the company has transferred under the transaction;
(c) an order requiring a person to pay to the company an amount that, in the court's opinion, fairly represents some or all of the benefits that the person has received because of the transaction;
(d) an order requiring a person to transfer to the company property that, in the court's opinion, fairly represents the application of either or both of the following:
(Page 5)
- (i) money that the company has paid under the transaction;
(ii) proceeds of property that the company has transferred under the transaction;
- (e) an order releasing or discharging, wholly or partly, a debt incurred, or a security or guarantee given, by the company under or in connection with the transaction;
(f) if the transaction is an unfair loan and such a debt, security or guarantee has been assigned - an order directing a person to indemnify the company in respect of some or all of its liability to the assignee;
(g) an order providing for the extent to which, and the terms on which, a debt that arose under, or was released or discharged to any extent by or under, the transaction may be proved in a winding up of the company;
(h) an order declaring an agreement constituting, forming part of, or relating to, the transaction, or specified provisions of such an agreement, to have been void at and after the time when the agreement was made, or at and after a specified later time;
(i) an order varying such an agreement as specified in the order and, if the Court thinks fit, declaring the agreement to have had effect, as so varied, at and after the time when the agreement was made, or at and after a specified later time;
(j) an order declaring such an agreement, or specified provisions of such an agreement, to be unenforceable."
588FF (2) [Generally not limited] Nothing in subsection (1) limits the generality of anything else in it.
588FF (3) [Time limit on application under subs (1)] An application under subsection (1) may only be made:
(a) within 3 years after the relation-back day; or
(Page 6)
- (b) within such longer period as the Court orders on an application under this paragraph by the liquidator within those 3 years."
3 An application under this section must be brought by the company's liquidator within three years after the relation-back day or within such longer period as the Court orders: see s 588FF(1) and (3). Merlino Construction Services Pty Ltd ("Merlino") was wound up in insolvency on 2 September 1998: see annexure "CMW2" of the affidavit of the plaintiff sworn 6 July 2001. The relation-back day, as defined in s 9 and s 513A - s 513C of the Corporations Act is 17 July 1998. Accordingly, the time for bringing any application under s 588FF expired on 16 July 2001. This application was brought on 10 July 2001 and thus was brought within time. The defendant did not seek to argue otherwise.
4 Before making an order under s 588FF, the Court must be satisfied that the transaction is voidable under the provisions of s 588FE. Relevantly, that section reads as follows:
"588FE (1) [Which transactions voidable] Where a company is being wound up, a transaction of the company that was entered into on or after 23 June 1993 may be voidable because of any one or more of the following subsections.
588FE (2) [Insolvent transaction; time scale] The transaction is voidable if:
(a) it is an insolvent transaction of the company; and
(b) it was entered into, or an act was done for the purpose of giving effect to it:
(i) during the 6 months ending on the relation-back day; or
(ii) after that day but on or before the day when the winding up began.
588FE (3) [Insolvent and uncommercial transaction; time scale] The transaction is voidable if:
(a) it is an insolvent transaction, and also an uncommercial transaction, of the company; and
(Page 7)
- (b) it was entered into, or an act was done for the purpose of giving effect to it, during the 2 years ending on the relation-back day."
5 The term "insolvent transactions" is defined by s 588FC. That section reads as follows:
"588FC A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and:
(a) any of the following happens at a time when the company is insolvent:
(i) the transaction is entered into; or
(ii) an act is done, or an omission is made, for the purpose of giving effect to the transaction; or
(b) the company becomes insolvent because of, or because of matters including:
(i) entering into the transaction; or
(ii) a person doing an act, or making an omission, for the purpose of giving effect to the transaction."
"588FB (1) ['uncommercial transaction'] 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
(Page 8)
- (c) the respective benefits to other parties to the transaction of entering into; and
(d) any other relevant matter.
588FB (2) [Matters not affecting characterisation of transaction] 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."
7 The term "unfair preferences" is defined by s 588FA. That section reads as follows:
"588FA (1) ['unfair preference'] A transaction is an unfair preference given by a company to a creditor of the company if, and only if:
(a) the company and the creditor are parties to the transaction (even if someone else is also a party); and
(b) the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company;
even if the transaction is entered into, 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.
588FA (2) [Unsecured debt] For the purposes of subsection (1), a secured debt is taken to be unsecured to the extent of so much of it (if any) as is not reflected in the value of the security.
588FA (3) [Transaction part of continuing business relationship] Where:
(Page 9)
- (a) a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including such a relationship to which other persons are parties); and
(b) in the course of the relationship, the level of the company's net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship;
then:
(c) subsection (1) applies in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and
(d) the transaction referred to in paragraph (a) may only be taken to be an unfair preference given by the company to the creditor if, because of subsection (1) as applying because of paragraph (c) of this subsection, the single transaction referred to in the last-mentioned paragraph is taken to be such an unfair preference."
8 So far as the defendant is concerned it is provided with a defence by s 588FG(2). That subsection reads as follows:
"588FG (2) [Transaction not an unfair loan] A court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company and it is proved that:
(a) the person became a party to the transaction in good faith; and
(b) at the time when the person became such a party:
(i) the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in apragraph 588FC(b); and
(ii) a reasonable person in the person's circumstances would have had no such grounds for so suspecting; and
(Page 10)
- (c) the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction."
9 It is against that rather complex legislative background that this application was argued. (Prior to the hearing of the application each of the parties took objection to certain parts of the other parties' affidavits filed in relation to the application. Because these objections were seen as significant in the ultimate determination of the application, I considered the strike-out applications separately. On 21 February 2002 I published reasons and I made certain orders in relation to the affidavits: see Williamson v Hawkwood Holdings Pty Ltd [2002] WASC 25. The application proceeded on the basis of the admissible evidence contained in the various affidavits. No application was made by either party to cross-examine deponents.)
10 Before detailing the facts it is necessary to identify certain individuals who played a leading role in the events as they transpired. At all material times Marco Luigi Taddei ("Taddei") was a director of the defendant. (The defendant traded as Hawk Developments and is referred to by this name throughout the correspondence. Nothing turns on this point - it is acknowledged that the relevant party is the defendant.) At all relevant times Paolo Pietro Antonelli ("Antonelli") was a director of Merlino. He was also a director of Innovative Precast Systems Pty Ltd ("IPS"). Dirk Patrick Baumgartel ("Baumgartel") was at all material times the director of Penta Construction Services Pty Ltd ("Penta"). Penta traded as "Meridian Concrete Structures". As the name suggests it was involved in the business of building concrete structures. IPS carried on the business of manufacturing and supplying formwork and precast concrete. The defendant was engaged in the business of the supply and installation of structural steel components of concrete works. In other words, the three companies, although separate and distinct, could, and from time to time, did, work together on construction projects involving the use of concrete.
11 In July 1997, Broad Construction Services Pty Ltd ("Broad") invited IPS to tender for works associated with new car park decks at a Coles/Kmart complex in Kalgoorlie. Taddei says in his affidavit sworn 31 August 2001 that he was asked by Antonelli "if I was prepared to do a joint venture with him" in relation to the carpark development: see par 3. Although Taddei does not say as much in his affidavit it is clear he reached some form of agreement with Antonelli. A tender was submitted by Antonelli, was accepted by Broad and work commenced. The
(Page 11)
- evidence suggests Broad knew that there were a number of parties who would work with IPS on the contract but Broad wanted to contract with only one party. Taddei says that Antonelli was in his office when discussions took place with one Trevor Tucker ("Tucker") of Broad in relation to the contract. In his affidavit Taddei says (par 6):
"In my presence, he (Antonelli) spoke to Trevor Tucker and told him that the quote was made on behalf of a joint venture with various parties. I heard Tucker say to Antonelli that Broad did not want three different contracts, but wanted to contract with one party on behalf of all three. It was on that basis that the quote was made by IPS."
13 Prior to supplying its quote to Broad IPS, through Antonelli, had sought a quote from Penta in relation to its carrying out the concrete works component of the project. Subsequent to the IPS quote, discussions took place between Tucker of Broad and Antonelli and Baumgartel. Apparently Broad were concerned that in the past IPS had run into difficulties with building unions. Broad regarded Penta as "union friendly". Broad therefore wished to award the contract to Penta. That is in fact what was done. The subcontract agreement which appears as annexure "DPB2" to the affidavit of Baumgartel sworn 11 July 2001 is between Broad and Meridian Concrete Structures - that is Penta. In his evidence Baumgartel says that he and Antonelli agreed that pursuant to this arrangement Broad would pay Penta and in turn Penta would make payment to IPS and the defendant. There is no suggestion that anyone bothered to tell Taddei or any other representative of the defendant about this arrangement. There is no evidence that Taddei ever saw a copy of the subcontract agreement. He says that he assumed the contract was between Broad and IPS. His evidence on this point is uncontradicted.
14 In August-September 1997 Antonelli and Baumgartel discussed the possibility of integrating Penta's and IPS's businesses. They also held
(Page 12)
- discussions with a representative of Carlino Concreting Pty Ltd. Eventually it was decided to merge the businesses of these three entities. In September 1997 Majestic Constructions Services Pty Ltd was incorporated. This company then acquired the businesses of Penta and Carlino Concreting Pty Ltd. This was done pursuant to a Contract for Sale and Purchase of Business which is to be found as annexure "DPB3" to Baumgartel's affidavit. On 14 November 1997 Majestic Constructions Services Pty Ltd changed its name to Merlino. Thereafter it was Merlino which dealt with Broad and the issues relating to the subcontract agreement.
15 It is common ground between the parties that between 8 February and 15 May 1998 Merlino made payments to the defendant totalling $500,688. It is also common ground that these payments were made for work undertaken by the defendant in relation to the Kalgoorlie project. It is these payments that the plaintiff is now seeking to recover.
16 It is convenient at this point, and against the background of these limited facts, to consider whether the payments fall within the definition of unfair preference transactions as that phrase is defined in s 588FA of the Corporations Act. It is accepted by both parties that for the payments to be so characterised there must have existed a debtor/creditor relationship between Merlino and the defendant. For its part the defendant says that no such relationship did exist or could have existed. It was submitted that on any view of the facts the defendant entered into an agreement with IPS. This relationship might properly be characterised as a debtor/creditor relationship. Either there was a joint venture between IPS and the defendant so that when IPS was paid by Broad, it was obliged to pass the defendant's share of that payment on, or the defendant was a subcontractor to IPS. But at no time was Merlino involved. The company was not even incorporated when the defendant and IPS reached agreement. It was submitted that no agreement between Merlino, IPS, Penta or any other party could affect the relationship between the defendant and IPS. In other words, IPS could not assign to any other party its liability to the defendant.
17 In my view, this submission is unanswerable. It was argued on behalf of the plaintiff that in some way there was a novation of the contractual arrangement between the defendant and IPS, such that the defendant and IPS were the parties to the agreement reached at the time of, or just before the tender to Broad. In my view there is nothing in the evidence which could lead to that conclusion. Counsel for the plaintiff spent some time examining the correspondence which passed between the
(Page 13)
- defendant, IPS and Merlino in an attempt to establish that the defendant had in some way consented to Merlino taking over the contractual position of IPS. But as counsel for the defendant pointed out, what was required was a novation of the contract. The evidence falls far short of establishing such a novation.
18 There is then, in my view, no basis upon which it can be said there was a debtor/creditor relationship between the defendant and Merlino. Accordingly, the transactions cannot be characterised as unfair preference transactions under the provisions of s 588FA.
19 The second question then is whether the payments made by Merlino to the defendants were uncommercial transactions within the meaning of s 588FB(1). This is an objective test which requires an examination of the entire circumstances of the company - see Tosich Construction Pty Ltd (In Liq) & Anor v Tosich (1997) 15 ACLC 1402. Before dealing in detail with this aspect of the claim, it is necessary to say something more about the facts.
20 As early as September 1997 the defendant was made aware that IPS was experiencing cash flow difficulties. Taddei says that in early September 1997 he was contacted by Antonelli who explained these difficulties and asked for financial accommodation. The defendant loaned IPS $30,800. Later that same month it leant to IPS a further $65,000. These loans were made at a time when the defendant had invoiced IPS for $18,000 for work done on the project.
21 By mid-November 1997 IPS owed the defendant just over $82,000 (leaving aside the loans made in September). Taddei approached Antonelli who advised him that IPS still had cash flow difficulties. Antonelli offered to pay the defendant 50% of the outstanding amount by mid-December. When that payment was made it was made by Merlino. Taddei says in his first affidavit that he believed that Merlino was "just a subsidiary or other related company of IPS".
22 A meeting took place on 16 February 1998 and present, among others, were Antonelli, Baumgartel and Taddei. Payment of the defendant's outstanding claims was discussed. Antonelli indicated a repayment schedule would be prepared and submitted to the defendant for consideration. Subsequently two cheques drawn on Merlino's account were provided to the defendant. These cheques were post-dated to March and when presented were dishonoured.
(Page 14)
23 It is clear from the correspondence that the defendant was becoming increasingly frustrated about its unpaid invoices. By letter dated 10 March 1998 (annexure "DPB11" to Baumgartel's affidavit) the defendant threatened legal proceedings if its outstanding invoices were not paid. By 24 March 1998 the defendant had advised IPS that it would undertake no more work on the project until it was paid: see annexure "MLT8A" to Taddei's first affidavit. Eventually this impasse appears to have been resolved when Antonelli provided a personal guarantee of the IPS indebtedness to the defendant.
24 Against this background the plaintiff says that there was no benefit to Merlino in entering into the transactions. Rather, it is said, they were a detriment to Merlino because $500,688 became unavailable to Merlino and its unsecured creditors and there was no prospect of these payments being recovered from IPS. The defendant says that there was a very real benefit to Merlino in making these payments. First, pursuant to the agreement between Penta and Merlino, Merlino was obliged to make payment to the defendant. In other words, in making the payments, Merlino was complying with its contractual requirements. It was therefore protecting itself against any action which may have arisen from breach of its contract with Penta. Secondly, and perhaps more importantly, the only way that Merlino could obtain payment of any amount from Broad was to continue work on the project. The defendant had made it plain that it would not continue work on the project unless it was paid. Accordingly, by making the payments it did, Merlino was ensuring the defendant would work on the project which in turn meant that Broad would make payments for the work done. In other words, rather than being any detriment to Merlino, making payment to the defendant was the only way to ensure it had cash flow.
25 That being the case, it was submitted, it could not be said that the payments made by Merlino to the defendant were uncommercial transactions, having regard to the criteria set out in s 588FB(1)(a) and (b).
26 As I have indicated above, in making the payments, Merlino was acting not only to benefit its position but to benefit the position of IRS and perhaps Penta. IRS carried the primary liability to the defendant and Penta, being the party which contracted with Broad, would have had an obligation in equity to make payments to the defendant from the proceeds of its contract with Broad. It may be open to doubt whether either IRS or Penta are then "parties to the transaction" as that phrase is used in s 588FB(1)(c). They are in the sense that they were part of the IRS group along with Merlino. It might be said that they had some input into
(Page 15)
- whether or not payment was made to the defendant. To that extent, at least, they derived a benefit from the payment by Merlino and it is difficult to see that they suffered any detriment.
27 Taking all of these matters into account, I am satisfied that the payments by Merlino to the defendant were not uncommercial transactions within s 588FB. The payments conveyed a real benefit to Merlino which outweighed any detriment it suffered. To the extent Penta and IPS were parties to the transactions, they benefited and that, in turn was of some benefit to Merlino. There appear to be no other relevant matters.
28 Having reached these conclusions with respect to s 588FA and s 588FB it is strictly speaking not necessary for me to determine whether, at the time the transactions were entered into, Merlino was insolvent. It is also not necessary for me to consider the defendant has a defence to the application under s 588FG. However, as both these matters were fully argued, I will deal with each briefly.
29 In my view there is little doubt that Merlino was insolvent at the time these payments were made. Appearing as annexure "CMW4" to the affidavit of the plaintiff sworn 6 July 2001 is a balance sheet for Merlino. It shows Merlino's position as at the end of the six months November 1997 through to April 1998. Without going through the balance sheet in detail it shows that from November to February 1998 there was an excess of liability over assets. From March and April 1998 the balance sheet shows a slight excess of assets over-liabilities. However, between December 1997 and April 1998 "Debtors (IPS)" is shown to have grown from $10,181 to $258,660.46. Given the history of cash flow difficulties experienced by Merlino, it is difficult to see that these debtors were a realisable asset of the company. Furthermore, the test of solvency set out in s 95A of the Corporations Act is what is sometimes said to be "the going concern" test. That is to say, is the corporation able to pay its debts as and when they fall due? All the evidence indicates that Merlino was not in a position to do so.
30 In my view, even the most cursory examination of Merlino's accounts indicates that as at the date the payments were made, the company was insolvent.
31 The further question is whether or not a reasonable person in the position of the defendant would have known that the company was insolvent. It is clear that Taddei, on behalf of the defendant, had no actual
(Page 16)
- knowledge of Merlino's precarious financial position. As I have said, there is no evidence that he ever saw a balance sheet for Merlino. But the evidence does show that there were a series of meetings and correspondence passing between various parties which indicated that the IPS group was experiencing cash flow difficulties. In such a situation Taddei must have suspected that Merlino was insolvent. If asked, he may not actually have put the position precisely that way. In his evidence he points out that he was not particularly interested in the wellbeing of Merlino as he believed that his contractual relationship was with IPS. But the evidence shows that almost from the date the contract with Broad was concluded, IPS and the IPS group was under extreme financial pressure. The chain of events would have, in my opinion, led a reasonable person to conclude that at the time these payments were made, Merlino was insolvent.
32 For reasons which I have set out above I am satisfied that the originating process ought be dismissed. I will hear the parties as to the precise form of orders and as to costs.
0
19
0