Dalmain Holdings Pty Ltd (In liq) v Rechichi - [2010] WASC 376

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: DALMAIN HOLDINGS PTY LTD (In liq) -v- RECHICHI [2010] WASC 376

CORAM: MASTER SANDERSON

HEARD: 24 NOVEMBER 2010

DELIVERED : 13 DECEMBER 2010

FILE NO/S: COR 75 of 2010

BETWEEN: DALMAIN HOLDINGS PTY LTD (In liq)
Plaintiff
AND
ANTHONY RECHICHI
GIOVANNA RECHICHI
DOMENICO RECHICHI
First Defendants
FINETUNE HOLDINGS PTY LTD
Second Defendant

Catchwords:

Corporation law - Liquidator seeking payment for assets transferred to new company - Directors personally liable based on breach of duty - Turns on own facts

Legislation:

Nil

Result:

Director liable for payment

Category: B

Representation:

Counsel:

Plaintiff:    Mr A F Carles
First-named First Defendant     :        In person
Second-named First Defendant :    No appearance
Third-named First Defendant   :    No appearance
Second Defendant          :    No appearance

Solicitors:

Plaintiff:    Carles Solicitors
First-named First Defendant     :        In person
Second-named First Defendant :    No appearance
Third-named First Defendant   :    No appearance
Second Defendant          :    No appearance

Case(s) referred to in judgment(s):

ASIC v Somerville [2009] NSWSC 934

MASTER SANDERSON: By originating process filed 20 May 2010 and amended with leave on 24 November the plaintiff seeks orders for compensation against the defendants for breaches of directors' duties. In support of the application the plaintiff relied on an affidavit of its liquidator, Jennifer Elizabeth Low, sworn 16 April 2010. The defendants relied on an affidavit of the first‑named first defendant sworn 5 August 2010 and an affidavit of Giuseppe Gangemi sworn 25 October 2010. The first‑named first defendant appeared at the hearing representing all three‑named first defendants. He sought to rely on two affidavits of the second and third‑named first defendants one sworn 5 August 2010 and the second undated but filed 22 November 2010. At a directions hearing I ordered any deponent whose affidavit was to be relied upon should be available for cross‑examination. As the second and third‑named first defendants were not available at the hearing for cross‑examination their affidavits were excluded.
There was no serious dispute between the parties as to the relevant facts. The first‑named first defendant is an architect who operated his practice through the entity Dalmain Holdings Pty Ltd. It traded as Anthony Rechichi & Associates. It is now in liquidation. The directors of the plaintiff company were the first defendants. The second and third‑named first defendants are the elderly parents of the first‑named first defendant.
The second defendant, Finetune Holdings Pty Ltd, was incorporated on 4 March 2005 and eleven days later on 15 March 2005 the first‑named first defendant acting as director of the plaintiff resolved to transfer the business of his architecture practice from the plaintiff company to the second defendant. A copy of the resolution to that effect appears as attachment 'E' to Ms Low's affidavit. The body of the resolution reads as follows:
It was resolved to sell the following assets to Finetune Holdings Pty Ltd at the following carrying values effective from 30 June 2005:
Work in progress $75,000.00
Plant & Equipment (at written
Down values)
Office refurbishment (at written
down values)
The parties are agreed the amounts payable for plant and equipment and office refurbishment were $9,622.80 and $1,865.13. Effectively, this is the depreciated value of these assets as at 30 June 2005. Any ambiguity in the resolution as to the proper meaning of 'written down values' is eliminated by this agreement.
In the first‑named first defendant's affidavit at par 3(f) he asserts that the amount payable by the second defendant for work in progress (WIP) should be the 'actual value of $50,344.67'. He says this despite the fact there is no qualification in the resolution as to the value of the WIP as at the date of the resolution.
By par 3(i) and by reference to the schedules in his affidavit the first‑named first defendant asserts the second defendant has paid part of the consideration due to the plaintiff. As to $15,471.38 he says this amount was due to the second defendant from clients but was banked into the plaintiff's account. He also says that a further $39,727.13 has been paid by the second defendant. This is calculated by reference to $79,134.13 having been paid by the second defendant on behalf of the plaintiff, less an amount of $39,407 due to the plaintiff, being banked by the second defendant.
On the defendants' case then there is a shortfall of $6,634.16 due by the second defendant to the plaintiff. This amount is admitted by the defendants. It is all they say they owe to the plaintiff.
This matter first came on for directions on 29 June 2010 and on 17 August 2010 I made the following order:
The defendants are to give discovery within 21 days of documents evidencing any consideration said to have been provided by the second defendant to the plaintiff for the business.
The defendants have failed to comply with that order. The matter came on again before Acting Master Chapman on 28 September 2010. The defendants were again ordered to give discovery - this time on or before 26 October 2010. Again no discovery was provided.
The failure on the part of the defendants to provide discovery implies there are no documents which support the defendants' position. Certainly there are no documents annexed to any of the affidavits relied on by the defendants which supports their claim. In par 3(f) of the first‑named first defendant's affidavit he asserts he arrived at the figure of $50,344.67 after he 'reviewed the actual contracts'. It emerged during cross‑examination that evidence was simply wrong. He had not reviewed any contracts. The tenor of his evidence under cross‑examination was he arrived at the figure based upon subjective recollections and nothing more.
The nub of the plaintiff's case is to be found in par 13 of the written submissions. Because it so succinctly summarises the position I will quote it in full:
The plaintiff submits that, having resolved on behalf of both vendor and purchaser to sell the work in progress for a fixed price of $75,000, it is not open to Rechichi to now assert that this was an estimated value only … Rechichi as an architect must have full knowledge of matters such as fixed price contracts and price variations in contracts. The $75,000 should be construed as a binding purchase price.
In my view, that is precisely the position. If, as at the date the resolution was made, the first‑named first defendant was unsure of the value of WIP he could have introduced a qualification in one form or another similar to the qualification relating to plant and equipment and office refurbishment. Given a specific amount is set out in the resolution there is no warrant now for backing away from that figure. It is clear prior to signing the resolution the first‑named first defendant took advice from his accountant, Mr Gangemi. Mr Gangemi advised him the sale had to take place at a fair and reasonable value. Armed with that advice and doubtless mindful when transferring assets out of the plaintiff he could not disadvantage existing creditors, an amount of $75,000 was settled upon. In my view, that is the end of the matter. There is no warrant for adjusting the value of WIP as the first‑named first defendant has sought to do.
The alleged payment of $15,471.38 towards the purchase price is said to be comprised of client payments from one Vertannes of $11,071.38 and one Berchicci of $4,400. These two amounts were said to be due to the second defendant but banked in the plaintiff's account. These matters are dealt with in attachment 1 to the first‑named first defendant's affidavit.
Ms Low deals with both of these amounts in her affidavit. The Vertannes' amount is made up of two invoices for $7,976.99 dated 4 March 2005 and $3,104.39 dated 6 May 2005. The first of these invoices pre‑dates the resolution of 15 March 2005 for the sale of the practice and cannot be said to be an amount due to the second defendant. The second invoice pre‑dates the effective settlement date of 30 June 2005 for the sale of the practice. It to cannot be said to be an amount due to the second defendant. The same is true of the Berchicci invoice. It is dated 22 March 2005. Again it pre‑dates the settlement date.
This approach requires that effect be given to the words 'effective 30 June 2005' in the resolution. In my view, the resolution can be read in no other way. The agreement had been reached as at the date the resolution was signed but it was not to be carried into effect until 30 June 2005. Nothing to the contrary was put by the first‑named first defendant.
The second component of the alleged payment of consideration is said to be expenses allegedly paid by the second defendant on behalf of the plaintiff. While there is a list of expenses allegedly paid in the general ledger there is no evidence that those expenses were in fact expenses of the plaintiff or that those payments were actually made by the second defendant. I am not prepared to accept that an amount of $79,727.13 has been paid for the plaintiff's benefit without supporting documentation. That is particularly so when the defendants have failed to comply with two discovery orders directed at this very issue.
During cross‑examination the first‑named first defendant was queried as to why the sale of his practice was undertaken. It would seem at the time the plaintiff was under some financial pressure. The precise circumstances are not relevant. It seems to have related to an arbitration then in progress and the possibility there would be an adverse finding against the plaintiff which would threaten its financial viability. Lest that should occur, the first‑named first defendant resolved to transfer assets out of the company. The whole transaction has more than a whiff of the Phoenix company about it.
In his submissions counsel for the plaintiff referred to ASIC v Somerville [2009] NSWSC 934. In that case, based on legal advice, companies in financial difficulties ceased to trade and disposed of their assets to newly incorporated companies. The consideration was the issue of shares in the new company which carried rights to dividend with no dividends actually being paid. The court had no difficulty finding the directors had breached their duties and had breached s 181, s 182 and s 183 of the Companies Act. In my view, that is the case here.
As the first‑named first defendant was the sole director of the second defendant it must follow that the second defendant took the business assets with full knowledge of the breach of duty and must also be liable by virtue of s 79.
In summary, then, I am satisfied the plaintiff is entitled to the orders it seeks. I will hear the parties as to the precise form of orders and as to costs.