Ford, in the matter of Fastline Logistics Pty Ltd (in liq) v Lay
[2025] FCA 346
•10 April 2025
FEDERAL COURT OF AUSTRALIA
Ford, in the matter of Fastline Logistics Pty Ltd (in liq) v Lay [2025] FCA 346
File number(s): VID 753 of 2021 Judgment of: ANDERSON J Date of judgment: 10 April 2025 Catchwords: BANKRUPTCY AND INSOLVENCY – application made alleging double illegal phoenix activity – where company entered into loan agreement with related entity and provided part of business as security – where company was experiencing cash flow issues at the time of entering into loan agreements – claims brought for breaches of directors’ duties, knowing involvement, uncommercial transactions, breaches of fiduciary duties, and unfair preferences – found that entry into loan agreement was not in breach of duty – found that company was not insolvent at time of entry into loan agreement – found that long-term accountants did not owe fiduciary obligations to company – found that subsequent exercise of security by related entities was valid – found that unfair preferences paid to accountants during relation-back period – orders made under s 588FF of the Corporations Act 2001 (Cth) in respect of unfair preferences – application otherwise dismissed. Legislation: Corporations Act 2001 (Cth) Cases cited: ASIC v Adler (2002) 168 FLR 253; [2002] NSWSC 171
ASIC v GetSwift Limited (Liability Hearing) [2021] FCA 1384
Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 39 WAR 1; [2008] WASC 239
Beveridge v Whitton [2001] NSWCA 6
Birtchnell v Equity Trustees Executors & Agency Co Ltd (1929) 42 CLR 384
BTI 2014 LLC v Sequana SA [2023] 2 All ER 303
Cassimatis v ASIC (2020) 275 FCR 533; [2020] FCAFC 52
Clay v Clay (2001) 202 CLR 410
Doyle v ASIC (2005) 227 CLR 18; [2005] HCA 78
Forkserve Pty Ltd v Jack (2001) 19 ACLC 299; [2000] NSWSC 1064
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6
Hewett v Court (1983) 149 CLR 639
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Kalls v Balaglow (2007) 63 ACSR 557
Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722
Pavan v Ratnam (1996) 23 ACSR 214
Permanent Building Society (in liq) v Wheeler (1994) 14 ACSR 109
Queensland Phosphate Pty Ltd v Korda [No 2] [2019] VSCA 215
Re Universal Distributing (in liq) (1933) 48 CLR 171
Sliteris v Ljubic [2014] NSWSC 1632
Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) NSWLR 213
Streetscape Projects Australia Pty Ltd v City of Sydney (2013) 295 ALR 760; [2013] NSWCA 2
Termite Resources NL (in liq) v Meadows, in the matter of Termite Resources NL (in liq) (No 2) (2019) 370 ALR 191; [2019] FCA 354
VR Dye & Co v Peninsula Hotels [1999] 3 VR 201
Vrisakis v Australian Securities Commission (1993) 9 WAR 395
Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 458 Date of hearing: 22 July 2024 – 24 July 2024, 26 July 2024 Counsel for the Plaintiffs: Mr H Austin KC and Ms V Bell Solicitor for the Plaintiffs: King & Wood Mallesons Counsel for the First, Second, Sixth and Ninth Defendants: Mr J Evans KC and Mr A Purton Solicitor for the First, Second, Sixth and Ninth Defendants: Moray & Agnew Counsel for the Third Defendant: Mr B Carew Solicitor for the Third Defendant: Caleandro Guastalegname & Co ORDERS
VID 753 of 2021 IN THE MATTER OF FASTLINE LOGISTICS PTY LTD (IN LIQUIDATION) ACN 072 064 950
BETWEEN: MARTIN FRANCIS FORD AND ROBERT SCOTT DITRICH AS JOINT AND SEVERAL LIQUIDATORS OF FASTLINE LOGISTICS PTY LTD (IN LIQUIDATION) ACN 072 064 950
First Plaintiff
FASTLINE LOGISTICS PTY LTD (IN LIQUIDATION) (ACN 072 064 950)
Second Plaintiff
AND: KENNY LAY
First Defendant
SHAUNA LAY
Second Defendant
TAXTEK PTY LTD (ACN 006 516 196) (and others named in the Schedule)
Third Defendant
ORDER MADE BY:
ANDERSON J
DATE OF ORDER:
10 APRIL 2025
THE COURT DECLARES THAT:
1.The following transactions between the Second Plaintiff and the Third Defendant during the period 20 June 2018 to 20 December 2018 constituted unfair preferences given by the Second Plaintiff to the Third Defendant, within the meaning of section 588FA of the Corporations Act 2001 (Cth):
(a)the payment of $100,000 from the Second Plaintiff to the Third Defendant on 20 October 2018; and
(b)pursuant to s 588FA(3), the $13,000 reduction in the Second Plaintiff’s net indebtedness to the Third Defendant from 20 June 2018 to 20 December 2018.
THE COURT ORDERS THAT:
2.Pursuant to s 588FF(1)(a) of the Corporations Act, the Third Defendant pay to the Second Plaintiff the amount of $113,000.
3.The Further Amended Originating Process dated 1 March 2024 otherwise be dismissed.
4.Within 14 days of these orders, the parties are to file and serve written submissions (of no more than five pages) as to costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
ANDERSON J:
1 Introduction
[1]
2 Relevant people and companies
[5]
2.1 Individuals
[6]
2.2 Companies
[13]
2.3 The Fastline Group
[16]
3 Chronology
[18]
4 Evidence
[67]
4.1 Liquidators’ evidence
[67]
4.2 Evidence of the Lay-Chia parties
[71]
4.3 Evidence of Tramontana Accountants
[78]
5 Entry into the Loan Agreement
[81]
5.1 Claims arising from entry into the Loan Agreement
[81]
5.2 Findings regarding the Loan Agreement
[82]
5.2.1 Circumstances surrounding Fastline’s entry into the Loan Agreement
[82]
5.2.2 Terms of the Loan Agreement
[91]
5.2.3 Payments under the Loan Agreement
[94]
5.2.4 Value of security provided under the Loan Agreement
[142]
5.2.5 Sale of Boundary Road
[161]
5.2.6 When did Fastline become insolvent?
[165]
5.3 Consideration of claims arising from entry into Loan Agreement
[187]
5.3.1 Claims against Kenny Lay
[187]
5.3.2 Claims against Tramontana Accountants
[240]
5.3.3 Claims against Tony and Liza Chia
[298]
6 Transfer of the Non-Target business to GFS
[307]
6.1 Claims arising from the transfer of the Non-Target business to GFS
[307]
6.2 Background regarding the transfer of the Non-Target business
[309]
6.3 Consideration of claims arising from transfer of Non-Target business
[330]
6.3.1 Claims against Shauna Lay
[330]
6.3.2 Claims against Tramontana Accountants
[346]
6.3.3 Claims against Liza Chia
[357]
7 Security deposit contribution
[359]
7.1 Findings regarding the security deposit contribution
[359]
7.2 Claims against Shauna Lay regarding the security deposit contribution
[373]
8 Payments made to Tramontana Accountants prior to liquidation
[387]
8.1 Findings regarding the payments made to Tramontana Accountants
[389]
8.2 Legal principles
[401]
8.3 Consideration of unfair preference claims
[406]
9 Transfer of business from GFS to Click 3PL
[438]
9.1 Background to transfer of business from GFS to Click 3PL
[438]
9.2 Claims arising from transfer of business from GFS to Click 3PL
[450]
9.2.1 Claim against Click 3PL
[450]
9.2.2 Claim against Kenny Lay
[454]
10 Disposition
[457]
1. Introduction
The first plaintiffs (Liquidators) are joint and several liquidators of the second plaintiff, Fastline Logistics Pty Ltd (in liquidation). Fastline was incorporated in 1995. It was operated by members of the Lay family and conducted a warehousing and distribution services business.
The Liquidators allege that the defendants have engaged in illegal phoenix activity twice, involving the transfer of a business between entities controlled by the defendants without the payment of true or market value, leaving the insolvent companies behind with substantial debts including taxes and employees’ entitlements. The Liquidators allege that the defendants, by entering into various transactions, or otherwise being involved in various transactions, have breached directors’ duties, breached fiduciary duties, and otherwise contravened provisions of the CorporationsAct 2001 (Cth) which entitles the Liquidators to various declarations, equitable compensation and damages.
The Liquidators’ claims against the defendants arise out of five particular events. Each of the five events, and the claims arising therefrom, are considered in turn:
(1)Fastline entering into a loan agreement dated 1 June 2016, with the fifth and sixth defendants, Tony Chia and Liza Chia respectively, as lenders, where the loan was secured by what is later defined in these reasons as the “Non-Target business”;
(2)The transfer of the Non-Target business to the seventh defendant, Global Fashion Service Pty Ltd, on 14 June 2017 due to Fastline’s failure to repay amounts lent pursuant to the loan agreement;
(3)The transfer to GFS of a security deposit contribution paid by Fastline in relation to the premises from which the Non-Target business was operated pursuant to a deed of variation dated 21 December 2018;
(4)Payments made from Fastline to its accountant, the third defendant, Taxtex Pty Ltd (Tramontana Accountants), during the second-half of 2018; and
(5)The subsequent transfer of what the Liquidators allege is the Non-Target business from GFS to the ninth defendant, Click 3PL Pty Ltd, at some time between mid-2021 and mid-2022.
Ultimately, having considered the evidence before me, while a number of the transactions were odd or unsatisfactorily explained, the Liquidators have only been able to establish the unfair preference claims brought in relation to the payments made to Tramontana Accounts in the second-half of 2018.
2. Relevant people and companies
Before turning in detail to the Liquidators’ specific claims and the evidence, it is useful to identify the people and the companies relevant to the claims and to identify their association with one another.
2.1 Individuals
Kenny Lay, the first defendant, established what would become the Fastline group of companies in 1979. Kenny Lay was the sole director of Fastline until 13 April 2017, when he resigned as director.
Shauna Lay, the second defendant, is Kenny Lay’s daughter. On 13 April 2017, she replaced Kenny Lay as the sole director of Fastline. Prior to her appointment as director, Shauna Lay worked at Fastline as a payroll officer.
The third defendant, Tramontana Accountants, were Fastline’s long standing external accountant. The nature of Tramontana Accountants’ relationship with Fastline is the subject of some consideration later in these reasons.
The fourth defendant, Because We Care Pty Ltd, was a company which was owned indirectly by Kenny Lay, and of which Kenny Lay was the sole director. All claims against BWC were dropped by the Liquidators.
The fifth defendant, Tony Chia, is Kenny Lay’s brother-in-law. Tony Chia was involved in the Fastline group until the mid-1990’s when he moved to New South Wales and started his own warehouse and logistics business, GFS, in the fashion industry. Tony Chia was declared bankrupt on 1 April 2024. Leave was granted to the Liquidators to proceed against Tony Chia under s 58(3) of the Bankruptcy Act 1966 (Cth).
The sixth defendant, Liza Chia, is Tony Chia’s wife.
Two further individuals who are not parties to the proceeding are also relevant to note. Wilma Lay is Kenny Lay’s wife (and Tony Chia’s sister), and was actively involved in running Fastline’s business. Suzie Ha was another sister of Tony Chia, whose role in the proceeding is discussed in further detail when considering the amounts advanced to Fastline under the loan agreement.
2.2 Companies
The seventh defendant, GFS, was incorporated on 27 September 1995, and was the entity through which Tony Chia conducted his warehouse and logistics business in NSW. Tony Chia was the sole director of GFS, although the company was owned indirectly by his wife, Liza Chia who held the shares on trust for the Chia T Family Trust. On 27 June 2022, GFS was placed into liquidation. Leave was granted to allow the Liquidators to proceed against GFS pursuant to s 500(2) of the Corporations Act.
The eighth defendant, Automated Logistics Technology Pty Ltd provided IT services to Fastline. ALT was deregistered on 21 January 2024. The Liquidators did not seek to press any claims in respect of ALT at trial.
The ninth defendant, Click 3PL, was incorporated on 19 July 2021. The company is owned indirectly by Kenny Lay who is also the company’s sole director.
2.3 The Fastline Group
The warehousing and logistics business controlled by Kenny Lay was operated through a group of companies which comprised primarily of the following, which I will refer to collectively as the Fastline Group or the Group:
(1)Fastline, incorporated on 6 December 1995, conducted a business of providing warehousing and goods distribution services, originally predominantly in the fashion industry. As noted above, Kenny Lay was the sole director of the company until 13 April 2017 when Shauna Lay took over. Fastline was owned indirectly by Kenny and Wilma Lay. Fastline was the main trading entity operating within the Fastline Group. By July 2015, Fastline had three distinct areas of operation:
(a)It was the tenant of Warehouse C, Saintly Drive, Truganina, pursuant to a lease dated 29 July 2013, and the sub-tenant (or occupier) of Warehouse B, Saintly Drive, Truganina (together referred to as Saintly Drive). At the warehouses at Saintly Drive, Fastline conducted that part of its business dealing with warehousing and fulfilment of online orders by Target Australia Ltd customers (Target Online business). The Target Online business was conducted by Fastline using a sophisticated picking machine manufactured by the German company, Knapp AG, and installed in the warehouses (Knapp 1). Fastline also occupied premises at 8 Foundation Drive, Laverton North (Foundation Drive) at which Fastline also conducted the Target Online business as a sub-tenant of Interlogic (discussed below) since 2007. However, the operations at Foundation Drive were transferred exclusively to Saintly Drive by March 2016;
(b)From about 2005, Fastline was the sub-tenant (or occupier) of the property at 50 William Angliss Drive, Laverton North (William Angliss Drive). At the warehouse at William Angliss Drive, Fastline exclusively conducted that part of its business dealing with warehousing and distribution of goods for Target’s “bricks and mortar” stores (Target DC business);
(c)Fastline was also, from about 2000, the sub-tenant (or occupier) of the property known as 309 Fitzgerald Road, Derrimut (Fitzgerald Road) from which it conducted a warehousing and goods distribution business, for customers other than Target (Non-Target business);
(2)On 17 October 1979, Syndrom Holdings Pty Ltd was incorporated. Syndrom operated as a holding company, purchasing land and equipment which it made available for use by related entities in the Group. Syndrom did not have formal contracts in place with related entities for its services but sought to recover operating expenses at cost. Syndrom was the registered proprietor of the following properties:
(a)Fitzgerald Road, which it owned until it was sold to the Trust Company of Australia Ltd in its capacity as the trustee of the Charter Hall Core Plus Industrial Fund (Charter Hall) around 21 November 2007; and
(b)678 Boundary Road, Truganina (Boundary Road) which was sold in August 2016. The sale of Boundary Road is subject to further discussion later in these reasons.
Syndrom was also the formal tenant of Warehouse B at Saintly Drive under a lease dated 21 January 2015.
(3)Interlogic Pty Ltd (formerly known as Fastline International Pty Ltd) was incorporated on 6 July 1989. Interlogic was a non-trading entity. It was, however, the tenant of Fitzgerald Road under terms of a lease originally between Syndrom (as landlord) and Interlogic (as tenant) dated 14 November 2007. Interlogic was also the formal tenant of William Angliss Drive, under a lease of that property from a third party for a 12-year period from 1 November 2005 to 31 October 2017. Interlogic was also the formal tenant of Foundation Drive under a lease from Dexus Wholesale Mgmt Ltd dated 1 December 2007, for a 10 year period ending 30 November 2017.
To summarise the above, around July 2015, the Fastline Group operated from the following premises:
Fitzgerald Road Saintly Drive Foundation Drive William Angliss Business Non-Target business Target Online business Target Online business Target DC business Landlord Charter Hall Charter Hall Dexus Charter Hall Tenant Interlogic Fastline (warehouse C) / Syndrom (warehouse B) Interlogic Interlogic End of term 13 Nov 2027 31 Dec 2027 / 20 Jan 2027 30 Nov 2016 1 Nov 2017 3. Chronology
A broad chronology setting out the relevant events is outlined below.
By 2014, the Fastline Group’s business had grown significantly. In FY14, the Fastline Group generated revenue of $45 million and EBITDA of $5.5 million. In FY15, the group generated revenue of $49 million and EBITDA of just under $8 million. In 2015, the group employed around 189 full time employees across its four sites.
As referred to above, the Fastline Group’s business comprised of three distinct areas:
(1)the Target DC business, under which Fastline operated the distribution centre solution for Target. In FY15, $18.7 million (approximately 38.1%) of Fastline’s revenue was generated through the Target DC business;
(2)the Target Online business, under which Fastline fulfilled orders from Target’s online store. In FY15, $14.5 million (approximately 29.6%) of Fastline’s revenue was generated through the Target Online business;
(3)the Non-Target business where Fastline provided distribution centre and online fulfilment services to other smaller customers.
As the above numbers indicate, Fastline’s business was heavily concentrated and reliant on its major customer, Target, which accounted for approximately 67.7% of Fastline’s total revenue in FY15.
In FY14, Fastline purchased Knapp 1, which became operational in FY15. Knapp 1 was a sophisticated picking machine which was installed at the Saintly Drive warehouse and used by Fastline in the Target Online business.
At some time during 2015, Target gave formal notification to Fastline that it would be terminating the contract for the Target DC business from 31 October 2015. As William Angliss Drive (leased by Interlogic until 1 Nov 2017) was used exclusively by the Group for the Target DC business, it was understood that the Group would seek to sublease the property. However, by 1 December 2015, Interlogic owed Charter Hall $753,728 in outstanding rent in relation to William Angliss Drive.
At the same time in 2015, the Target Online business was experiencing strong growth. The business had experienced year-on-year growth since the Group commenced providing the service in FY13, and both Fastline and Target expected strong growth to continue over the coming financial years.
On 15 April 2015, in the expectation that the Target Online business would continue to grow, Syndrom entered into an agreement with Knapp AG to purchase a second Knapp system (Knapp 2). This system was intended to be added to the existing Knapp system, Knapp 1, at the Saintly Drive warehouses, and to become operational in FY17.
The contracted price for Knapp 2 was €9.65 million (excluding GST), which, at the exchange rate on 15 April 2015, reflected a contract price of $13.5 million. It was subsequently noted in the Grant Thornton report prepared in late 2015 (discussed below) that as the Group had not hedged against currency movement, the contract price as at 18 September 2015 included an additional $1.8 million.
On 1 July 2015, Fastline and Target entered into a services agreement in relation to the Target Online business. The services agreement was prepared with specific regard to the acquisition by the Fastline Group of Knapp 2. The agreement was for a three-year period, with renewal options of two further terms of 12 months each. The agreement could be terminated by Target without cause with 90 days’ notice.
In order to fund the purchase of Knapp 2, the Fastline Group approached Bankwest. On 26 August 2015, Grant Thornton was engaged by Bankwest to undertake an independent review of the Fastline Group to assist Bankwest in deciding whether it would provide funding to support the purchase of Knapp 2.
On 6 November 2015, the Grant Thornton independent business review was provided to Bankwest (GT IBR). It set out Grant Thornton’s analysis of the financial position of the Fastline Group at that time, and its independent forecasts of group financial performance to the end of FY17.
The GT IBR made a number of key findings in relation to the Group. Relevantly, the report noted that the Group’s management forecasted significant improvement in the financial performance of the Group, particularly in FY17 with the forecasted efficiency savings from Knapp 2. However, Grant Thornton considered that there were two material errors in the forecasts, and overall noted that management’s forecasts were optimistic and unlikely to be achievable. The matters particularly noted by Grant Thornton included that:
(a)the Group’s forecast included a reduction in revenue in relation to the Target DC business, but did not incorporate the loss of the business from November 2015;
(b)the Group’s forecasts for volume in the Target Online business for FY16 were higher than Target’s forecasts;
(c)while the Group forecasted a reduction of 82 staff over FY16 and FY17, Grant Thornton considered the number to be optimistic. Additionally, Grant Thorton considered that Knapp 2 might not be capable of achieving the forecasted Target Online business volumes, in which case, additional labour would be required, increasing costs; and
(d)there was a risk that the Group would need to carry the costs of the William Angliss Drive lease to conclusion.
Grant Thornton forecasted that the Group’s EBITDA in FY16 and FY17 would not be sufficient to meet the Group’s cash commitments and would result in a total net cash outflow between $6 million to $11 million.
The GT IBR also noted the Group’s high-level plan for the repayment of bank debt, which included the sale of the Boundary Road property, the release of term deposit funds which supported bank guarantees on the exit of leased premises (Foundation Road and William Angliss Drive), and the potential release of excess funds held in term deposits.
On 17 December 2015, Grant Thornton produced a supplementary independent business review for Bankwest (GT Supplementary IBR). The GT Supplementary IBR considered updated FY16 and FY17 forecasts that had been provided by the Group’s management.
After receiving the reports from Grant Thornton, Bankwest declined to provide additional financial support for the Fastline Group to purchase Knapp 2. Bankwest requested the Fastline Group to seek alternative finance however, continued to provide credit in the form of existing overdraft accounts until 31 August 2016.
Following the closure of the Target DC business, the Fastline Group’s revenue fell significantly while the Group continued to pay rent for William Angliss Drive until November 2017. In FY16, year-on-year revenue dropped from $45.5 million to $36.5 million. Fastline recorded a trading loss of $459,000 in FY16.
It is not controversial between the parties that Fastline started experiencing cash flow difficulties in the first half of 2016.
Sometime following Bankwest’s engagement of Grant Thornton, Bankwest engaged a second firm, PPB Advisory to conduct an independent business review of Fastline. Only a draft copy of PPB’s business review, dated 6 May 2016, was produced. The report was designed to provide Bankwest with an assessment of the Fastline Group’s immediate cash requirements, short term cash flow forecasts, and its ability to meet its current arrears.
PPB’s draft report noted a number of matters including that Kenny Lay was seeking to obtain approximately $2 million in external funds via loans from family sources. It was expected that the funds would be provided in July and August 2016. The report also noted Kenny Lay’s intention to sell the Boundary Road property in September 2016 as he “understood the Bank’s position and want[ed] to reduce the Bank’s debt in a timely manner”.
The report identified that, around the time of the report, the Group had arrears of $13.6 million owed to Knapp AG in respect of Knapp 2, $550,000 to the ATO, and rental arrears of approximately $1.9 million. The report stated that Fastline was seeking a letter of comfort from Knapp AG that it would not seek recovery action against Fastline. The report also stated that Fastline was making regular weekly payments to reduce its rental arrears, and that while no formal correspondence was in place, PPB had been advised that Charter Hall remained comfortable with that arrangement.
The defendants claim that at some point prior to 1 June 2016, Mr Lay asked Mr Chia for a $1 million loan. On 1 June 2016, Fastline entered into a written loan agreement with Tony Chia and Liza Chia (the Loan Agreement). The Loan Agreement was drafted by Mr Joseph Tramontana of Tramontana Accountants.
The terms of the Loan Agreement are extracted later in these reasons. At a high level, the Loan Agreement provided that the loan amount was to be between $1 million and $1.7 million, and that the loan was payable by 1 June 2017. The Loan Agreement also provided as security, albeit imprecisely, the “Business”, defined as “309 Fitzgerald Road Derrimut Victoria Australia. Includes all plant, equipment parts, incidental materials, supplies and goodwill”. It is common ground between the parties that the security provided under the Loan Agreement was, in effect, the Non-Target business. The security was valued under the Loan Agreement at $1 million. It is also common ground that no valuation of the relevant business was obtained prior to entry into the Loan Agreement.
There is a dispute between the parties regarding the extent to which payments were made to Fastline pursuant to the Loan Agreement. The Liquidators allege that Fastline only received a single payment of $350,000 under the Loan Agreement, which was received on 18 May 2016. The defendants on the other hand claim that at least $1.69 million was paid under the Loan Agreement. The amount advanced pursuant to the Loan Agreement is, naturally, a key issue in the proceeding, and is the subject of discussion later in these reasons.
On 26 August 2016, Syndrom entered into an agreement to sell the Boundary Road property for $14.46m (plus GST), with settlement taking place on 31 August 2016. At settlement, $15.67 million was received as the settlement proceeds which were used, in part, to pay out Bankwest’s facilities.
Around 1 September 2016, the ownership of Knapp 1 was transferred from Syndrom to Fastline. The transfer was accounted for by way of balance sheet adjustments of both Syndrom and Fastline. Around the same time, the rights in respect of Knapp 2 (which had not yet been delivered by Knapp AG) were also transferred from Syndrom to Fastline.
2017 saw the Group continue its downwards trajectory. Fastline’s financial reports identified that revenue fell from $36.5 million in FY16 to $22.5 million in FY17. Fastline recorded a trading loss of $4.246 million for FY17.
In February 2017, the Group was served with notices of default in connection with its failure to pay rent on the Saintly Drive warehouses. Both leases were subsequently terminated on 10 March 2017. However, on 14 March 2017, the landlord granted Fastline and Syndrom short-term licences to occupy Warehouse C and B respectively on a month-to-month basis.
On 13 April 2017, Kenny Lay resigned as director of Fastline and went to Timor-Leste. His daughter, Shauna Lay, was appointed as the sole director of the company.
On 14 June 2017, just over a year after entry into the Loan Agreement, Tony and Liza Chia issued a notice of default to Fastline (the Notice of Default). The Notice of Default identified the amount of $1.69 million having been advanced to Fastline, and declared that the “business” was now the property of the lender. Under the terms of the notice, the “business” was leased back to Fastline for $2,700 per week.
Also on 14 June 2017, Tony and Liza Chia gave a notice to Fastline that all rights, title and interests in respect of the money due and payable by Fastline and the operating of the business at Fitzgerald Road were now controlled and administered by GFS (the Assignment of Rights).
The Notice of Default and Assignment of Rights were signed by Shauna Lay. Both documents were drafted by Mr Tramontana.
On 31 March 2018, Target gave notice that it was not renewing the contract for the Target Online business, and therefore, the contract would expire on 30 June 2018.
On 6 June 2018, Target entered into an agreement to purchase Knapp 1 from Fastline for $4.25 million. The sale was conditional on Target negotiating acceptable terms for a new lease for Saintly Drive with the landlord of the premises.
On 8 June 2018, Tony and Liza Chia issued a notice to vacate to Fastline requiring Fastline to vacate the business at Fitzgerald Road within 3 months (the Notice to Vacate). The Notice to Vacate was also signed by Shauna Lay and drafted by Tramontana Accountants.
On 23 July 2018, Target notified Fastline that it had failed to agree a lease of Saintly Drive on terms that were acceptable to it with the landlord. Accordingly, Target notified Fastline that it would terminate the agreement to purchase Knapp 1.
On 25 July 2018, the owner of Warehouse C at Saintly Drive terminated Fastline’s licence to occupy the warehouse.
On the same day, Nicholas Giasoumi and Roger Grant were appointed as joint and several administrators of Syndrom.
Around 1 August 2018, Fastline vacated the Non-Target business pursuant to the Notice to Vacate issued by Tony and Liza Chia.
On 9 October 2018, Fastline and Catchoftheday.com.au Pty Ltd (Catch) entered into an asset sale agreement pursuant to which Catch purchased Knapp 1 for $875,128 (excl GST).
On 14 October 2018, Mr Giasoumi and Mr Grant were appointed as voluntary administrators of Interlogic.
On 20 December 2018, Mr Giasoumi and Mr Grant were appointed as liquidators of Fastline by resolution.
On 30 January 2019, Mr Giasoumi and Mr Grant provided a report to creditors of Fastline (Grant and Giasoumi Report). The report noted that the valuation of the security in the Loan Agreement could enliven voidable transaction provisions if the valuation of Fastline’s assets ($1 million) was too little.
Mr Grant engaged Michael Bent of Michael J Bent Auctioneers to appraise assets situated at the Fitzgerald Road property. Mr Bent provided a draft valuation of the plant and equipment at Fitzgerald Road on 12 February 2019 (the Bent Valuation). He valued the items on two bases: “fair market” value of $1,364,945 and an “auction realisation” value of $445,560.
On 18 February 2019, at a meeting of Fastline’s creditors, the creditors resolved to replace Mr Grant and Mr Giasoumi with the Liquidators.
In March 2020, the landlord of Fitzgerald Road drew down $910,904 of the security deposit held by it in respect of the lease, following default of the lease by GFS.
In July 2021, GFS abandoned Fitzgerald Road and on 23 July 2021, the new landlord of Fitzgerald Road drew down the balance of the security deposit.
On 22 December 2021, GFS ceased to trade, and was placed into liquidation on 27 June 2022. Craig Bolwell was appointed as liquidator of GFS.
4. Evidence
4.1 Liquidators’ evidence
The Liquidators tendered affidavits made by Martin Francis Ford on 17 December 2021, 31 May 2022, 26 April 2023, 18 October 2023 and 13 December 2023, together with annexures.
The key piece of Mr Ford’s evidence is a solvency report of Fastline prepared by the Liquidators dated May 2022 (the Solvency Report). In the report, Mr Ford outlines the basis for his opinion that:
(a)Fastline was insolvent from at least 30 April 2016;
(b)Fastline remained insolvent from 30 April 2016 until the appointment of the former liquidators on 20 December 2018; and
(c)Fastline should be presumed to have been insolvent from at least 30 April 2016 for the purposes of s 588E(4) of the Corporations Act.
Mr Ford was cross-examined primarily in relation to the basis of his opinion that Fastline was insolvent from at least 30 April 2016. Mr Ford was also cross-examined regarding the basis on which the Liquidators had valued the Non-Target business. Mr Ford’s evidence is discussed in further detail below when considering when Fastline became insolvent, and when considering the value of the security provided under the Loan Agreement.
Mr Ford was, in my assessment, a careful and considered witness who, during the course of cross-examination, made appropriate concessions. Mr Ford was an honest and reliable witness whose evidence I accept, save for where in these reasons I have stated to the contrary.
4.2 Evidence of the Lay-Chia parties
Kenny Lay, Shauna Lay, Liza Chia, and Click 3PL (the Lay-Chia parties) tendered affidavit evidence of Kenny Lay (sworn 3 August 2023), Shauna Lay (sworn 28 July 2023), Tony Chia (sworn 2 August 2023), and Liza Chia (sworn on 8 August 2023), together with their annexures.
As a general observation, the evidence given by the Lay-Chia parties was wholly unsatisfactory. Indeed, senior counsel for the Lay-Chia parties candidly accepted, in the course of closing submissions, that the evidence given by the Lay-Chia parties was unlikely to be of any assistance and that primacy should be given to what could be established by reference to contemporaneous documents.
The evidence of Kenny Lay and Shauna Lay was hard to follow and was difficult to reconcile with the detailed evidence in their affidavits.
Kenny Lay stated in his affidavit that his ability to read and write in English is limited, and that his affidavit was prepared with the help of his daughters. However, his inability to recall events during cross-examination was in stark contrast to the detail that appears in his affidavit. While I accept that the relevant events took place some time ago, and that Kenny Lay has had a number of health issues, I have formed the view that Kenny Lay’s affidavit was prepared for him without regard to his actual knowledge or recollections. Kenny Lay’s repeated denials of any knowledge or memory meant that his evidence was unreliable and that, on the whole, he was an unsatisfactory witness. For these reasons, I have not placed any reliance on his evidence, save for the admissions he has made, and I have relied upon the contemporaneous documents for the findings which I have made in these reasons.
Shauna Lay repeatedly denied knowledge or having a memory of events during the relevant period in which she was the director of Fastline. Shauna Lay’s answers in cross-examination gave me the impression that she was either genuinely ignorant of the events which had taken place while she was a director of Fastline, or that she was simply not interested. The evidence she gave in answer to questions in cross-examination lacked any knowledge of the detail of the transactions, in contrast to the detail of her affidavit. I formed the view that Shauna Lay’s affidavit had been prepared for her without regard to her actual knowledge or recollections. Shauna Lay’s repeated denials of any knowledge or memory resulted in Shauna Lay being an unsatisfactory and unreliable witness. I do not place any reliance on her evidence, save for admissions she made, and have made the findings that I have made by reference to the contemporaneous documents.
Tony Chia was cross-examined about the content of his affidavit. By his answers, he also professed to have no knowledge or recollection of most of what was put to him in cross-examination including matters which were in his affidavit. The affidavit was written in English notwithstanding that he stated in evidence that he was not able to read English at all. Tony Chia sought to attribute his lack of recollection of events to health issues which he had been suffering at the time. Notwithstanding, I find his evidence to be not reliable and find him to be an unsatisfactory witness. For these reasons, I place no reliance on his evidence, save for admissions he made, and rely upon the contemporaneous documents in making the findings that I have made in these reasons.
Liza Chia was also cross-examined regarding the content of her affidavit. As with Tony Chia, Liza Chia professed to have little to no recollection of the matters put to her in cross-examination, including the matters in her affidavit. As with the other witnesses of the Lay-Chia parties, I find Liza Chia to be an unsatisfactory witness. I place no reliance on her evidence, save for the admissions she made and rely upon the contemporaneous documents in making the findings that I have made in these reasons.
4.3 Evidence of Tramontana Accountants
Tramontana Accountants, the third defendant, relied on the affidavit of Joseph Tramontana, sworn on 2 August 2023, together with an annexure.
In his affidavit, Mr Tramontana deposes to his role in preparing the Loan Agreement, Notice of Default, the Assignment of Rights, and the Notice to Vacate. Mr Tramontana also deposes to the context in which a number of payments were made to Tramontana Accountants, which form part of the subject of this proceeding.
Mr Tramontana impressed me as a truthful and reliable witness who, during cross examination, was prepared to make admissions when necessary. I accept his evidence save for where in these reasons I have stated to the contrary.
5. Entry into the Loan Agreement
5.1 Claims arising from entry into the Loan Agreement
As noted above, the first set of claims brought by the Liquidators relate to Fastline’s entry into the Loan Agreement. The Liquidators bring the following claims in relation to Fastline’s entry into the Loan Agreement:
(a)Kenny Lay: Breaches of directors’ duties. The Liquidators claim that, in his capacity as sole director of Fastline, Kenny Lay caused Fastline to enter into the Loan Agreement in circumstances where the Loan Agreement was not in the best interests of Fastline. The Liquidators allege that Kenny Lay’s conduct regarding Fastline’s entry into the Loan Agreement constituted a breach of his duty of care and diligence, his duty to act in good faith and in the best interests of the company, and his duty to not improperly use his position.
(b)Tramontana Accountants: Knowing involvement, breach of fiduciary duty, and breach of duty of care. The Liquidators allege that due to Mr Tramontana’s knowledge of the matters surrounding Fastline’s entry into the Loan Agreement, and his involvement in drafting the Loan Agreement, Tramontana Accountants were knowingly involved in the breaches of Kenny Lay’s duties. The Liquidators also allege that due to the longstanding relationship between Fastline and Tramontana Accountants, and the heavy reliance which Fastline placed on Tramontana Accountants, a fiduciary duty was owed by Tramontana Accountants to Fastline. The Liquidators allege that in drafting the Loan Agreement, Tramontana Accountants acted for both Fastline, on one hand, and Tony and Liza Chia, on the other hand, who had conflicting interests such that Tramontana Accountants breached its fiduciary duty to avoid conflicts. Additionally, the Liquidators also allege that Tramontana Accountants’ role in preparing the Loan Agreement amounted to a breach its duty of care owed to Fastline.
(c)Tony and Liza Chia: Knowing involvement and uncommercial transaction. The Liquidators allege that Tony and Liza Chia were knowingly involved in the breaches of Kenny Lay’s duties. The Liquidators also allege that the Loan Agreement was an uncommercial transaction that was entered into when Fastline was insolvent, and therefore, is a voidable transaction under s 588E(4) of the Corporations Act.
5.2 Findings regarding the Loan Agreement
5.2.1Circumstances surrounding Fastline’s entry into the Loan Agreement
It is clear that by early 2016, Fastline was experiencing cash flow difficulties as a consequence of Target having terminated its contract with Fastline for the Target DC business from 31 October 2015.
I note that there were little, if any, documents produced evidencing the communications between the Lay-Chia parties during the relevant events. Given the unsatisfactory nature of the evidence given by the Lay-Chia parties, this, naturally, creates a difficulty in making particular factual findings regarding the relevant events that took place in 2016-17, including around Fastline’s entry into the Loan Agreement, and the subsequent payments made pursuant to the agreement.
I accept that, Fastline having failed to obtain financing through Bankwest, Kenny Lay approached Tony Chia sometime before 1 June 2016 (the particular time being unknown) about borrowing $1 million. The loan was to be for a period of 12 months and security for the loan was to be the Non-Target business.
I accept the evidence of Mr Tramontana that in about May 2016, Kenny Lay called him and said he wanted to meet as he was borrowing money from Tony Chia and wanted to document the loan. Shortly afterwards, Joseph Tramontana attended Kenny Lay’s house where Kenny Lay and Tony Chia were both present. Joseph Tramontana was advised that Tony Chia was going to loan $1 million to Fastline for a period of 12 months. Security for the loan was to be the Non-Target business.
Joseph Tramontana prepared the Loan Agreement to give effect to his understanding of Kenny Lay and Tony Chia’s intentions.
On 1 June 2016, Fastline entered into the Loan Agreement with Tony Chia and Liza Chia as lenders.
The Loan Agreement was executed on behalf of Fastline by Kenny Lay, and executed by Tony and Liza Chia as lenders. Under cross-examination, Kenny Lay claimed that he had read the agreement when signing it. However, this contrasts against the evidence he gave in a prior public examination conducted on 19 December 2019 during which he admitted that he hadn’t read it.
Tony Chia could not recall having read the Loan Agreement or having had someone read the terms of the agreement for him (given his difficulties with English).
It is important to note that the authenticity of the Loan Agreement was not in question. The Liquidators did not seek to raise any allegation that Fastline did not enter into the Loan Agreement on 1 June 2016, or that there was no such agreement in place between the parties as at 1 June 2016, or that the relevant security was not offered on the terms contained in the Loan Agreement.
5.2.2Terms of the Loan Agreement
The Loan Agreement is a relatively short four-page agreement. Although its terms are not clearly expressed, the relevant parts of the agreement provide as follows (reflected as in the original):
Borrower
Fastline Logistics Pty Ltd 41611904541
Guarantors;
Syndrom Holdings Pty Ltd abn 75838709651
Fastline International Pty Ltd a.b.n 38 007 275 345
Kenny LAY…
Lender:
Tony and Liza CHIA…
Date of loan:
1st June 2016
Loan
(a)A minimum of one million dollars $1m and a maximum of one million seven hundred thousand $1.7m…
Date loan payable: 1st June 2017
The Business:
309 Fitzgerald Road Derrimut Victoria Australia. Includes all plant, equipment parts, incidental materials, supplies and goodwill.
Loan Purpose:
To provide working capital for the trading entities “Fastline Logistics Pty Ltd and Syndrom Holdings Pty Ltd.
Interest:
At the Bankwest domestic housing lending rates plus 1.5% per annum or such rate the parties agree. Late payment at the option of the lender shall incur 2% interest above the established rate until rectified.
…
A. Recital and agreement:
a) The borrower has solicited the loan from the lender for commercial purposes.
b)Loan advances from associated entities of the lender shall be deemed made by the lender under the terms of this agreement and secured as made by lender and the borrower shall not dispute the loan advance(s).
…
d)For transparency, the borrower has provided the lender financial statements and has explained the cash flow difficulties caused from the unexpected closure of the Target Cross Docking at 50 William Angliss Drive which claimed loss in revenue in excess of $15m and lease payments for 2 years on the vacant warehouse costing more then $3.5m.
e)The guarantors are associated and consent to the loan guarantee and the lender has agreed to advance the loan on such a condition.
f)the Borrower operates an additional logistic services business from 8 and 28 Saintly Drive Truganina Victoria. This is not included as the security.
g)The lender is aware the lease on the business premises is held by Fastline International Pty Ltd. Fastline International Pty Ltd “FI”.
h)The borrowers to provide skilled staff capable to continue the business operations should the lender call up the security for default.
i)Loan advances at the direction of the lender maybe paid into a nominated third party for approval and audit of payee.
j)The borrower not to dispute loan instalments by lender. Lender and borrower accountants to certify loan amounts if dispute arises.
…
B. Rent Bond:
(1)The rent bond as security for the business premises is provided my Wilma Lay and held under a bank guarantee provided by Bankwest.
(2)The borrowers have advised the business property rent and outgoings are above market value to about $800,000 and the lease has 11 years left. This equate to more than $8.8m extra rent and outgoing and the rent bond to be used until termination of the lease and thereafter the bond shall be returned to Wilma LAY.
C. Default and Lender Option:
(a)In the event borrower defaults the lender may exercise its power to take possession of the business without dispute.
(b)The business to be considered to be valued one million dollars ($1m) or such lesser amount the lender accountants declare. Loan amount exceeding $1m to be considered unsecured.
(c)“FI” to do all things possible and requests y the lender to effectively transfer the lease and shall remain lessee until the lease is effectively transferred.
(d)The Lender may nominate a third party to take possession of the business transfer.
(e)The rent bond to remain as lease security for the term of the lease or until such time the lender advises. The parties declare they are all aware the business property rental is in excess of market value and the lender deems the bond additional security for the loan.
D. Notice to take Possession:
The lender to give notice in writing of any default and its intention to take possession of business if default not rectified within 7 days. Notices to be addressed to the accountants of the borrowers or electronically.
E. Common advisers and Consultants:
The lender has requested the services of the borrower advisers and consultants to attend to relevant documentation to denote the loan and agrees not to dispute this agreement on the grounds of adviser and consultant conflict.
…
G. Borrowers Declaration::
The borrowers to do all things possible to accommodate the lenders rights within this agreement and make all attempts to mitigate costs and losses.
The Borrowers authorises the lender to rectify and attend to any matter to ensure this agreement if in force.
H. Lender Request for new agreement:
The lender may within 3 months of this agreement and at its absolute discretion request its lawyers to draft a new agreement to clarify terms and conditions expressed in the agreement.
E. Errors, Interpretation, Disputes:
The agreement is to be read in accordance to the commercial intentions of the parties and error or omission to be remedied by consent or by referring the matter to the lender’s accountants as to the intentions and or arbitration under Victorian laws.
Execution:
The parties execute this agreement with full knowledge and understanding of its terms and conditions and declare they have been given the opportunity to seek independent advice before signing.
It is common ground between the Parties that the relevant security provided under the Loan Agreement related to Fastline’s Non-Target business, being the business conducted at Fitzgerald Road, and that under the Loan Agreement, the Non-Target business was assigned a value of $1 million. The more material question for the purposes of this proceeding is determining what was actually captured as part of the Non-Target business and what the value of the business was at the time. It is uncontroversial that no actual valuation of the business was undertaken when the Loan Agreement was entered into.
The following can be noted regarding the terms of the Loan Agreement:
(a)The Loan Agreement expressly provided that amounts advanced by “associated entities” of Tony and Liza Chia would be deemed to be made by Tony and Liza Chia for the purposes of the Loan Agreement.
(b)The Loan Agreement acknowledged the cash flow difficulties that Fastline was experiencing at the time, resulting from the loss of its Target DC business.
(c)In my view, the intended meaning of recital A(i) is to make clear that advances under the Loan Agreement may be paid to nominated third parties. I accept the Lay-Chia parties’ submission that for the recital to make sense, the reference to “lender” should be construed as a reference to “borrower” given that it is the borrower, not the lender, who gives directions as to where advances should be paid. In any case, I also accept the Lay-Chia parties’ submission that it is a matter of ordinary commercial practice that a loan may be advanced to a borrower by paying money to a third party at the borrower’s direction.
(d)On default, the lender had the power to take possession of the Non-Target business. The business was to be valued at $1 million, and loan advances over $1 million were considered unsecured.
(e)The parties acknowledged that Tramontana Accountants was acting on behalf of parties on both sides of the Loan Agreement, and acknowledged that they were given the opportunity to seek independent advice.
5.2.3Payments under the Loan Agreement
A key issue in the current proceeding is determining what amounts were actually paid to (or for the benefit of) Fastline under the Loan Agreement.
The following table summarises the payments which the Lay-Chia parties claim to have been made pursuant to the Loan Agreement.
Date Amount Paid by Paid to Default Notice 1 Apr 2016 $300,000 Liza Chia Charter Hall Referenced 18 May 2016 $350,000 Tony and Liza Chia Fastline Referenced 16 Jun 2016 $194,648 Suzie Ha Privitelli Solicitors Not referenced 15 Jul 2016 $844,677 Suzie Ha Privitelli Solicitors Referenced 17 Aug 2016 $348,000 Liza Chia Privitelli Solicitors Partly referenced Total claimed $2,037,325
Of the above payments, the Liquidators accept that the payment of $350,000 on 18 May 2016 was made pursuant to the Loan Agreement. However, the Liquidators argue that the remainder of the payments claimed by the Lay-Chia parties cannot be understood to have been paid pursuant to the Loan Agreement. The fact that the relevant payments were made is not in dispute; the relevant question is determining which of the payments should be properly understood to have been made under the Loan Agreement.
I consider each of the payments in turn below. Again, as noted above, there was no contemporaneous material regarding communications between the parties at the relevant times which may have otherwise shed light on the intention of the parties for particular amounts advanced to be captured under the Loan Agreement. The material that is available is largely contemporaneous records of the transfers themselves, with little context around why the transfers were made.
The first payment of $300,000 was made on 1 April 2016, prior to the Loan Agreement being executed. The evidence shows that the payment was made directly by Liza Chia to Charter Hall, in respect of rent for William Angliss Drive.
The Liquidators do not accept that this payment was made pursuant to the Loan Agreement. The Liquidators argue that the payment was made prior to the Loan Agreement being entered into, and further argue that the payment was made for the benefit of Interlogic (being the contracted tenant of the relevant properties) who was not a borrower under the Loan Agreement.
While the advance was made prior to the execution of the Loan Agreement, I am satisfied that the advance was covered by the Loan Agreement.
The evidence shows that the Loan Agreement was drafted to record the oral agreement which had been reached between Kenny Lay and Tony Chia. The fact that the Loan Agreement was not formally entered into until a later time does not support a finding that the advance was not intended to be captured by the Loan Agreement. Indeed, the Liquidators accept that the second payment of $350,000 on 18 May 2016, which was advanced prior to the Loan Agreement, is captured by the Loan Agreement.
The Liquidators also contend that the payment was for the benefit of Interlogic, given it was the contracted tenant of the property, and at the time of the payment, Fastline was no longer conducting the Target DC business from William Angliss Drive. Interlogic is not a borrower under the Loan Agreement, and is not referred to in the “Loan Purpose”. In my view however, the payment needs to be viewed in its broader context.
The terms of the Loan Agreement, as discussed above, allow for payments to be made to third parties, such as Charter Hall. The payments are not required to be made directly to Fastline in order to be captured under the Loan Agreement. As noted above, this is ordinary commercial practice.
Further, Fastline was the main trading entity within the Group. Interlogic was a non-trading entity. It was Fastline who operated the Non-Target business in Fitzgerald Road, and who had operated the Target DC business in William Angliss Drive. Fastline had been the entity that obtained the underlying benefit of the lease, and the entity that appeared, in practice, to pay rent for the leased properties.
It is also relevant to note that the GT IBR, in November 2015, made a number of observations regarding the manner in which the Fastline Group operated. The GT IBR observed that Fastline acted as the Group’s “bank”, and that funds were transferred between entities in the Group to satisfy any liabilities that fell due. The report noted that there were no formal arrangements within the Group for the loans and that cash was viewed on a consolidated basis. In my view, the payment of funds directly to Charter Hall in respect of rent owed by Interlogic, is consistent with a payment pursuant to the Loan Agreement, when considering how the Group operated in practice.
It follows that, in my view, given the terms of the Loan Agreement and the manner in which the Group operated, the initial advance of $300,000 by Liza Chia on 1 April 2016 is to be understood as forming part of the financial support which Tony Chia had agreed to provide the Fastline Group.
Further, it is unclear on the Liquidators’ version of events, why an amount of $300,000 would be advanced by Liza Chia to pay for rent owed by the Group.
The second advance was an amount of $350,000 paid by Tony and Liza Chia to Fastline on 18 May 2016. The amount was received in Fastline’s Bankwest account with the notation “Global Fashion Service Loan”, and was then used to make a part payment to Knapp AG in respect of the Knapp 2 contract. This is the only payment which the Liquidators accept was made pursuant to the Loan Agreement.
The third advance was an amount of $194,648 on 16 June 2016. The advance was made by Suzie Ha to Privitelli Solicitors in a trust account maintained in the name of Syndrom. There is no reference to this amount being advanced pursuant to the Loan Agreement in the Default Notice.
According to the trust ledger maintained by Privitelli Solicitors, Suzie Ha’s payment increased the trust account balance from $13 to $194,661. The following day, on 17 June 2016, $190,000 of the monies held on trust were paid to Charter Hall for outstanding rent.
It is somewhat unnecessary to determine whether this amount was intended to be captured under the Loan Agreement. As the advance was not referred to in the Default Notice, it was not the subject of detailed submissions by the parties. However, it follows from my observations regarding the fourth advance below that I would not accept that the $194,648 advanced by Suzie Ha was advanced pursuant to the Loan Agreement.
The fourth advance claimed to have been made under the Loan Agreement is an amount of $844,677 paid by Suzie Ha to Syndrom’s trust account with Privitelli Solicitors on 15 July 2016.
The evidence shows that Suzie Ha and her husband were offered a Business Mortgage Loan of $850,000 from ANZ on 7 July 2016. ANZ sought a first registered mortgage over their property in Mount Vernon, NSW as security for the loan. Suzie Ha drew down $850,000 of the loan on 13 July 2016, and transferred the balance of $844,677 to Privitelli Solicitors on 15 July 2016.
The $844,677 was recorded as being received in Syndrom’s trust account with Privitelli Solicitors on 15 July 2016. The trust account records shows that the funds received from Suzie Ha were subsequently disbursed on 20 July 2016 to Charter Hall ($340,000), Dexus ($150,000), and Knapp AG ($350,000). The disbursements align with an Authority to Pay signed by Kenny Lay dated 15 July 2016.
The Default Notice refers to a payment of $850,000 being advanced under the Loan Agreement on 7 July 2016. I accept that this is intended to refer to the advance received from Suzie Ha (despite the difference in amount and date), given there is no other explanation for the reference.
The Lay-Chia parties claim that the advance by Suzie Ha must be understood as having been made under the Loan Agreement given it is referred to in the Default Notice, the Loan Agreement specifically envisions associates of Tony and Liza Chia advancing money under the Loan Agreement, and that the advances do not need to be made to Fastline itself. I accept the submissions made by the Lay-Chia parties that the Privitelli trust ledger indicates that Syndrom’s trust account was used more generally for Group purposes, noting that it records rental payments being made to both Charter Hall and Dexus.
The Liquidators, on the other hand, refer to a letter from Privitelli Solicitors dated 25 October 2018 regarding Interlogic’s administration.
As noted above, Interlogic was placed into voluntary administration on 14 October 2018. This was two months before Fastline entered into liquidation. Messrs Giasoumi and Grant were appointed as voluntary administrators of Interlogic.
The letter from Privitelli Solicitors was sent to Mr Giasoumi in relation to Interlogic’s administration. The letter states the following:
We have been informed that you are the Administrator of Interlogic… and that you seek confirmation of funds paid by M. & S. Ha into the Privitelli Trust Account (“the trust account”) for the company. We confirm that the amount of $844,677 was paid by M. & S. Ha into the trust account on 15 July 2016 as loan monies for the company.
The loan had been arranged between Suzi Ha and Kenny Lay, the director of the company. The loan monies were subsequently disbursed from the trust account on instructions from Kenny Lay for the company and for the payment of rental arrears owed by the company and other payments. Kenny Lay is the brother in law of Suzi Ha and he requested that the loan monies be paid to the trust account for transparency and to record the disbursement of the loan monies.
We were informed that because to the family relationship, the loan between M. & S. Ha and the company was recorded between the parties themselves and the loan was to be unsecured. We did not act for M. & S. Ha and were not instructed to prepare any loan agreement for the parties.
In a subsequent report to creditors prepared by the administrators on 29 October 2018, Suzie Ha was listed as an unsecured creditor of Interlogic in the amount of $844,677.
The Lay-Chia parties argue that the letter from Privitelli Solicitors was sent without instructions from Shauna Lay and that it is inconsistent with Mr Privitelli’s own trust statement. They also argue that it postdates the date of the Default Notice, which is the date for assessing what payments had been made under the Loan Agreement.
I do not accept that the amounts advanced by Suzie Ha were advanced pursuant to the Loan Agreement. The letter from Privitelli Solicitors clearly indicates that a direct loan was arranged between Suzie Ha and Kenny Lay. The letter correctly identifies that the amounts advanced by Suzie Ha were disbursed by Kenny Lay for the payment of rental arrears and other payments.
The letter makes no reference to the amounts advanced by Suzie Ha as forming part of a broader loan arrangement between Fastline and Tony and Liza Chia. Rather, the letter indicates the opposite, being that the amounts advanced by Suzie Ha were pursuant to a separate, undocumented loan arrangement with Suzie Ha directly.
While I accept that the Loan Agreement provides that amounts advanced by associates of Tony and Liza Chia will be deemed to be advances made by the Lender, that only relates to the proper construction of the Loan Agreement. It does not, by itself, provide evidence that the advances from Suzie Ha were actually intended to be captured under the Loan Agreement, so as to be deemed to be advanced made by Tony and Liza Chia.
Other than the Default Notice itself, the only evidence that Suzie Ha’s advances were intended to be captured by the Loan Agreement was the affidavit and oral evidence of Tony and Liza Chia that Tony Chia borrowed money from Suzie Ha in order to lend money to Fastline. No light was shed on how much money the Chias sought to borrow, when the amounts were borrowed, or other such details. Tony Chia’s affidavit simply states: “I also borrowed money from my sister, Suzie Ha. She did not ask for security.”
There was no evidence from Suzie Ha herself.
As I noted earlier in these reasons, Tony and Liza Chia were both wholly unsatisfactory witnesses. Both professed to have little to no recollection of the matters which were put to them in cross-examination.
Given the matters addressed above, I am not satisfied that a separate loan arrangement existed between Suzie Ha and Tony Chia, such that the advances made by Suzie Ha should be taken to have been made pursuant to the Loan Agreement. Such a finding would be inconsistent with the letter from Privitelli Solicitors which expressly states the contrary.
While Shauna Lay gave evidence in re-examination that she did not give instructions for Privitelli Solicitors to send the October 2018 letter, as I noted in relation to Tony and Liza Chia, I found Shauna Lay’s evidence to be wholly unsatisfactory, and I consider her to be an unreliable witness. I give no weight to her evidence that she did not give instructions to Privitelli Solicitors in relation to the letter.
I also do not accept the Lay-Chia parties’ submission that the letter is inconsistent with the Privitelli trust ledger. It is not precisely clear what relevant inconsistency the Lay-Chia parties are claiming. While the trust ledger is in the name of Syndrom, as I’ve accepted above, the ledger indicates that the trust account was used more generally for Group purposes. I do not consider that the ledger record is inconsistent with the Privitelli Solicitors’ letter.
It also follows that I do not accept that the earlier advance of $194,648 by Suzie Ha on 16 June 2016 should be understood as having been advanced under the Loan Agreement. While the Privitelli Solicitors’ letter only refers to the $844,677 advanced by Suzie Ha (and therefore does not capture the earlier amount advanced of $194,648), I do not accept the evidence of Tony and Liza Chia that a separate loan was arranged between Tony Chia and Suzie Ha. This also appears to be consistent with the application form by which Suzie Ha transferred the $194,648 to Privitelli Solicitors which notes the purpose of the funds transfer as “LOAN TO KENNY LAY”.
The fifth payment the Lay-Chia parties claim to have been made under the Loan Agreement is an amount of $348,000 advanced on 17 August 2016 to Syndrom’s trust account with Privitelli Solicitors.
Privitelli Solicitors’ trust record indicates that the $348,000 was received in the trust account on 17 August 2016 from Liza Chia. The amounts were subsequently disbursed on 22 August 2016 to Dexus ($152,563.64), Syndrom ($190,000), and to Privitelli Solicitors ($1,650) pursuant to an Authority to Pay signed by Kenny Lay. The Default Notice appears to refer only to the $190,000 disbursed to Syndrom. The Lay-Chia parties nevertheless claim that the entire $348,000 was advanced pursuant to the Loan Agreement.
The Liquidators argue that the $190,000 referred to in the Default Notice was paid by Suzie Ha, as part of the larger $348,000. The Liquidators raise the same argument as applies in relation to the advance of the $844,677, which is that there is insufficient evidence to find that the payments made by Suzie Ha were intended to be subject to the Loan Agreement.
It is unclear to me on what basis the Liquidators claim that the payment was made by Suzie Ha. The Further Amended Defence filed by the Lay-Chia parties refers to the payment having been made by Liza Chia. Additionally, this is also consistent with Privitelli Solicitors’ trust account record which records the amount as having been received from Liza Chia, and the Authority to Pay signed by Kenny Lay which notes that the Authority to Pay relates to funds received from Liza Chia paid on 17 August 2016. Although the Lay-Chia parties have failed to produce a bank statement, or similar document, showing that the payment was made by Liza Chia (akin to the material provided regarding Suzie Ha’s advance of $844,677), there appears little if any basis to conclude that the payment was made by Suzie Ha. On the basis of the evidence, I am satisfied that the advance of $348,000 was made by Liza Chia to Privitelli Solicitors’ trust account.
For the same reasons as provided in relation to the first advance of $300,000 on 1 April 2016, I am satisfied that the entire amount of $348,000 was advanced under the Loan Agreement, notwithstanding that the Default Notice only refers to $190,000 of the total payment.
On this issue, it is convenient to address a further aspect of the evidence given by Tony and Liza Chia. In their affidavit evidence, both Liza and Tony Chia referred to having to borrow money from ANZ in order to lend to Fastline. Tony and Liza Chia allegedly borrowed $1 million from ANZ that was secured against a property owned by Liza Chia.
Bank statements were produced showing that a $1 million loan was drawn down by Liza Chia on 15 August 2016. However, Tony and Liza Chia have failed to produce evidence identifying how any of that $1 million was subsequently used after drawdown, or identifying any advances received by the Group other than the advances discussed above. In those circumstances, I am not satisfied that, other than the amounts identified above, any further amounts were advanced pursuant to the Loan Agreement.
It follows from the above that a total amount of $998,000 was advanced by Tony and Liza Chia pursuant to the Loan Agreement.
Date Paid by Amount 1 Apr 2016 Liza Chia $300,000 18 May 2016 Tony and Liza Chia $350,000 17 Aug 2016 Liza Chia $348,000 Total $998,000
One additional point is also worth noting. In their submissions, the Liquidators make complaints regarding the manner in which the loan advances were applied. For example, in relation to the first payment of $300,000, the Liquidators complain that the funds were used for the benefit of Interlogic, being a company that had significant leasehold liabilities and no assets to meet its obligations. Additionally, in relation to the advance of $350,000, the Liquidators complain that the funds were used on behalf of Syndrom to pay Knapp AG, in circumstances where Syndrom had failed to obtain funding to complete the contract, and where there was no prospect that funding to complete the contract would be obtained, or that the payment would benefit Fastline.
To the extent that such arguments are directed to whether particular advances should be understood to have been made under the Loan Agreement (which cannot, in any case, apply to the advance of the $350,000 which is admitted by the Liquidators), this is dealt with above. However, the question of whether particular advances should be understood to have been paid under the Loan Agreement is quite distinct from whether the manner in which the advances were applied was appropriate. To the extent that the Liquidators seek to impugn the conduct of Kenny Lay or other defendants by reference to the manner in which the loan advances were applied, that is not the case which was pleaded or that the defendants were required to answer.
5.2.4Value of security provided under the Loan Agreement
As noted above, it is common ground between the parties that the relevant security provided under the Loan Agreement was the Non-Target business, and that at the time, no valuation of the business was conducted.
The terms of the Loan Agreement provided that:
(a)in the event Fastline defaulted on the loan, Tony and Liza Chia could exercise the security to take possession of the Non-Target business;
(b)the Non-Target business was to be considered valued at $1 million, with loan amounts exceeding $1 million considered unsecured; and
(c)if the security was called upon, Fastline would provide skilled staff capable of continuing the business operations.
The value of the security provided under the Loan Agreement is a key issue relevant to the directors’ duties claims brought against Kenny Lay, and thereby, the claims against Tramontana Accountants and Tony and Liza Chia as to involvement in Kenny Lay’s breaches.
The Liquidators’ position is that the best evidence of the value of the Non-Target business is the value carried on Fastline’s balance sheet as at 30 June 2016. As at 30 June 2016, Fastline’s balance sheet reflected a cost less depreciation value of its plant and equipment of $1.224 million. Before June 2017, the cost less depreciation value of Fastline’s plant and equipment was recorded as $1.245 million.
As the Liquidators accept that a cost less depreciation value may be different from market value in many instances, the Liquidators also rely on the Bent Valuation. As was outlined earlier, the original liquidators of Fastline noted in their report dated 30 January 2019 that the valuation of the security in the Loan Agreement could enliven voidable transaction provisions if the valuation of Fastline’s assets was too little. The liquidators then engaged Michael J Bent Auctioneers to appraise the assets situated at Fitzgerald Road. Mr Bent provided a draft valuation of the plant and equipment at Fitzgerald Road on 12 February 2019, in which he valued the items on two bases. Mr Bent assigned the items a fair market value of $1,364,945 and an auction realisation value of $445,560. The Liquidators argue, by reference to the Bent Valuation, that it was likely that, in any case, the cost less depreciation value of Fastline’s plant and equipment was likely to be lower than the market value of the items.
The Liquidators also argue that the plant and equipment valued in Fastline’s balance sheet was the plant and equipment situated at Fitzgerald Road. Fastline’s MYOB data indicates that the entire value of plant and equipment of $1.245 million was removed from Fastline’s balance sheet as at 1 June 2017 (noting the Notice of Default and Assignment of Rights were signed on 14 June 2017), and that a journal entry on the same date was made which stated “Assets sold to Global Fashions Service under loan agreement”.
It is clear that no part of the Liquidators’ case involves an allegation that tangible assets of Fastline, other than items of plant and equipment used in the conduct of the Non-Target business, were transferred to GFS. The Liquidators’ pleaded case is limited to the value of the plant and equipment used in the Non-Target business.
Mr Ford also accepted during cross-examination that the Liquidators have not sought to allege that any intangible assets, such as goodwill in the Non-Target business, were transferred to GFS. The Liquidators have not sought to plead or otherwise prove the existence of any such goodwill in the Non-Target business. Indeed, this appears consistent with the evidence which indicates that the Non-Target business may have been loss-making in the hands of Fastline, and subsequently remained loss-making in the hands of GFS.
As noted above, the Liquidators allege that the entire value of plant and equipment on Fastline’s balance sheet is referable to the Non-Target business. The basis on which the Liquidators make this allegation is the MYOB entry which removed the entirety of Fastline’s plant and equipment as at 1 June 2017. Mr Ford stated that the adjustment to remove Fastline’s plant and equipment was made in September 2018, and backdated to June 2017.
I am not satisfied, on the state of the evidence before me, that the value of the Non-Target business can be determined by reference to the entirety of plant and equipment in Fastline’s balance sheet.
The balance sheets for Fastline for FY14 to FY16 do not disclose any reduction in plant and equipment, despite Fastline having ceased the Target DC business by October 2015. Mr Ford confirmed during cross-examination that the Liquidators did not have an asset register for Fastline, and that the Liquidators were otherwise unable to confirm whether any particular items of plant and equipment recorded in the balance sheet for FY16 or FY17 were located at Fitzgerald Road (and which may have formed part of the Non-Target business), or at Saintly Drive (which would not have formed part of the Non-Target business).
A depreciation schedule was attached to Fastline’s FY17 balance sheet, which specifically identified the individual items of plant and equipment in Fastline’s balance sheet. Again, Mr Ford confirmed that the Liquidators were unable to confirm whether any of the particular items of plant and equipment listed in the depreciation schedule were located in Fitzgerald Road. It is not possible to identify, from the depreciation schedule alone, which items may have been used in the conduct of the Non-Target business, and which assets may have been used in the Target Online business.
The Liquidators also refer to the Bent Valuation. The Bent Valuation, dated 12 February 2019, involved an inspection of Fitzgerald Road and identifies the specific items of plant and equipment located at the premises.
Under cross-examination, Mr Ford stated that the Liquidators had undertaken some form of comparison between the depreciation schedule and the Bent Valuation. However, Mr Ford was unable to give any evidence regarding the correspondence between the two.
The Bent Valuation itself, having been conducted in February 2019, took place 30 months after the Loan Agreement was entered into by Fastline. Without any reference to which assets may have formed part of the Non-Target business at the time the Loan Agreement was entered into, it is difficult to assume the assets identified in the Bent Valuation formed part of the Non-Target business at the time the Loan Agreement was entered into, or even when the Non-Target business was transferred to GFS.
For the reasons provided above, I am not satisfied, on the state of the evidence before me, that the Non-Target business should be valued at the cost less depreciation value of Fastline’s plant and equipment reflected in Fastline’s balance sheet ($1.224 million as at 30 June 2016, $1.245 million as at 14 June 2017). I accept that market value may differ from a cost less depreciation value. However, on the material before me, I do not consider that it is possible to identify a specific value of the security offered under the Loan Agreement.
One further point should be made for completeness. The Liquidators refer to the figure of $1,245,000, being the value of plant and equipment as at 14 June 2017 recorded in the Liquidators’ adjusted balance sheet in the Solvency Report. Mr Ford noted the following in the report:
AASB 116 – Property Plant and Equipment (paragraph 30) states that after recognition of an asset, an item of PP&E shall be carried at cost less any accumulated depreciation and impairment losses. It does not appear that Fastline was accumulating depreciation each month (e.g. figures reported at June 2016 are continued through FY17). The Liquidators have not made an adjustment for this in previous reported periods, nor when adding the plant and equipment assets back until July 2018. Such an adjustment would, if made, reduce Fastline’s assets.
While Mr Ford’s statement is correct, in that Fastline did not appear to be accumulating depreciation each month, as noted above, a version of the FY17 financial reports included a depreciation schedule which included figures depreciating each item of plant and equipment for FY17. Mr Ford’s adoption of the figure of $1.245 million expressly excluded the depreciation that would have properly applied to the items at the end of FY17.
I accept the Lay-Chia parties’ submission that the depreciation that would have applied at the end of FY17 to the plant and equipment in Fastline’s accounts should be taken into account, which reduces the balance sheet value of Fastline’s plant and equipment as at 30 June 2017 from $1,245,000 to $1,022,060. Again, this does not assist in identifying which of Fastline’s plant and equipment are referable specifically to the Non-Target business.
5.2.5Sale of Boundary Road
Following entry into the Loan Agreement (and the payments made thereunder), the next key event was the sale of Boundary Road. As was noted above, both Grant Thornton and PPB, in the reports prepared for Bankwest, noted Kenny Lay’s intention of selling Boundary Road for the repayment of bank debt.
On 26 August 2016, Syndrom entered into an agreement to sell Boundary Road to a third party for $14.46 million plus GST, with settlement taking place on 31 August 2016. A letter from Bankwest to Fastline dated 31 August 2016 records that at settlement, $15,674,077.09 was paid to Bankwest who dispersed the funds as follows:
Payments Amount Limit removed [on Fastline’s] Business Bonus 111-031510-7 $725,178.37 Payout and close Equipment loan AGAA000308001 $60,483.74 Payout and close Equipment loan in the name of Syndrom Holdings Pty Ltd atft KTP Property Trust $9,670,714.77 Surplus proceeds to Business High Interest Tran in the name of ATFT K. Lay Family Trust $2,795,391.00 Surplus proceeds to [Fastline’s] Business Bonus 111-031510-7 $2,422,309.21 Total $15,674,077.09
The material indicates that on 30 August 2016, the intercompany loan account between Fastline and Syndrom was credited $3,147,487.58 in respect of “proceeds from sale boundary rd” thereby reducing the intercompany loan balance owed by Syndrom to Fastline.
The surplus funds from the sale of the Boundary Road property were applied to Fastline’s bank account ending in 510-7. This eliminated the overdraft on Fastline’s account with Bankwest and provided a cash surplus of $2,422,309.21.
5.2.6When did Fastline become insolvent?
The question of solvency is strictly only relevant to the uncommercial transaction allegation against Tony and Liza Chia in respect of the Loan Agreement, and the unfair preference claims against Tramontana Accountants. The unfair preference claims are discussed later in these reasons but relate to the period from June 2018 to December 2018. The question of solvency can, however, also impact upon the considerations of whether Kenny Lay’s conduct constituted a breach of his directors’ duties.
Gibbs CJ, Murphy and Deane JJ (Wilson and Dawson JJ dissenting) held that the purchaser had an equitable lien over the house for the amount of the purchase money paid. The court therefore found that the purchaser’s acquisition of the unfinished house was not a preference.
Gibbs CJ, discussing the concept of an equitable lien, stated (at 645):
Equitable lien does not depend either upon contract or upon possession. It arises by operation of law, under a doctrine of equity “as part of a scheme of equitable adjustment of mutual rights and obligations”… A vendor's lien for unpaid purchase money has been said to be founded on the principle that "a person, having got the estate of another, shall not, as between them, keep it, and not pay the consideration"… The lien of a purchaser for the purchase money that he has paid to the vendor on a sale that has gone off through no fault of the purchaser may perhaps rest on the converse principle that he who has agreed to convey property in return for a purchase price will not be allowed to keep the price if he fails to make the conveyance… In each of these cases the vendor or the purchaser, as the case may be, is treated as a secured creditor… the lien is the security for the money which is justly due.
Deane J, considering the circumstances in which an equitable lien may be said to arise, stated at 668:
It is adequate for present purposes that I identify what I consider to be the circumstances which are sufficient for the implication, independently of agreement, of an equitable lien between parties in a contractual relationship… They are: (i) that there be an actual or potential indebtedness on the part of the party who is the owner of the property to the other party arising from a payment or promise of payment either of consideration in relation to the acquisition of the property or of an expense incurred in relation to it… (ii) that that property (or arguably property including that property…) be specifically identified and appropriated to the performance of the contract… and (iii) that the relationship between the actual or potential indebtedness and the identified and appropriated property be such that the owner would be acting unconscientiously or unfairly if he were to dispose of the property (or, if it be appropriate, more than a particular portion thereof) to a stranger without the consent of the other party or without the actual or potential liability having been discharged.
Tramontana Accountants also refer to Re Universal Distributing (in liq) (1933) 48 CLR 171. The case concerned priority to a fund which had been realised. In that case, it was recognised that a secured creditor would rank in priority behind a person who had incurred expenses in the care, preservation and realisation of property. Tramontana Accountants refer to Dixon J’s statement at 174:
If a creditor whose debt is secured over the assets of the company come in and have his rights decided in the winding up, he is entitled to be paid principal and interest out of the fund produced by the assets encumbered by his debt after the deduction of the costs, charges and expenses incidental to the realization of such assets… The security is paramount to the general costs and expenses of the liquidation, but the expenses attendant upon the realization of the fund affected by the security must be borne by it... The debenture-holders are creditors who have a specific right to the property for the purpose of paying their debts. But if it is realized in the winding up, a proceeding to which they are thus parties, the proceeds must bear the cost of the realization just as if they had begun the suit for its realization or had themselves realized it without suit…
(Citations omitted.)
Dixon J further stated, at 174-175:
In applying this principle, only those expenses appear to have been thrown against the fund belonging to the debenture-holders which have been reasonably incurred in the care, preservation and realization of the property. In the present case the liquidator has employed a material part of his time and energies in recovering moneys, both uncalled capital and debts, which enure for the debenture-holder, and in so far as these services increase the remuneration which he receives, I see no reason why the burden should not be thrown upon the proceeds. The question is not whether moneys available for unsecured creditors should be relieved at the expense of the security. In such a case it may be said that the service of collecting enough to discharge the debenture must in any event be performed in order that a surplus may then arise in which the unsecured creditors may participate. The question in the present case is whether the liquidator can charge against the fund passing through his hands as between himself and the person to whom it is payable, so much of the remuneration fixed for work done in the winding up as is referable to the calling in and conversion of the assets producing the fund. I see no reason why remuneration for work done for the exclusive purpose of raising the fund should not be charged upon it.
I am not satisfied that Tramontana Accountants had an equitable lien, such that Fastline’s commission payment was in relation to a secured debt.
It is unclear how Tramontana Accountants seek to rely on the authorities discussed above. The circumstances discussed in Hewett regarding a purchaser’s lien have little application to the facts before me.
The Liquidators do not dispute that Tramontana Accountants carried out work to facilitate and effect the sale of Knapp 1 to Catch, or that there was an agreement between Fastline and Tramontana Accountants for the payment of the commission on Knapp 1’s successful sale. However, Tramontana Accountants appear to argue that, largely due to the fact that such an agreement was in place, and that the work was conducted in relation to an identified asset, it would be unconscientious if Fastline completed the sale and failed to pay Tramontana Accountants the agreed commission.
I am not satisfied that the circumstances of the case are such to give rise to an equitable lien (presumably in the proceeds from the sale of Knapp 1, although Tramontana Accountants have failed to clearly specify this). While Tramontana Accountants carried out work to effect the sale of Knapp 1, there is no clearly articulated reason as to why an equitable lien would be necessary or appropriate to protect Tramontana Accountants’ right to receive the relevant commission from the proceeds of the sale. It is also relevant to note that the commission payment was a “global success fee”, rather than an amount paid for specific expenses that were reasonably incurred in realising Fastline’s assets. Tramontana Accountants have also failed to identify any authority which provides support to the finding that they seek to be made in the circumstances of this case.
It follows that the payment of the commission was a transaction in respect of an unsecured debt. I am also satisfied that it resulted in Tramontana Accountants receiving more from Fastline than it would receive if the payment of the commission were set aside and Tramontana Accountants required to prove for the debt in a winding up of Fastline. The payment of the commission fee therefore constitutes an unfair preference under s 588FA. As it was entered into at a time when Fastline was insolvent, it constitutes an insolvent transaction under s 588FC.
It follows that the $100,000 commission payment to Tramontana Accountants is voidable pursuant to s 588FE(2). It is appropriate to make orders pursuant to s 588FF directing Tramontana Accountants to pay the sum of $100,000 to Fastline, reflecting the commission payment it received.
$13,000 reduction in running balance
As noted above, Tramontana Accountants relied on s 588FA(3) in relation to the remainder of the payments made during the relation back period, arguing that the payments made to Tramontana Accountants were made as part of a continuing business relationship, and that the net effect of the running account was that any preference could only be for the sum of $13,000. The Liquidators have, in turn, limited their claim to the $13,000 reduction in the running balance.
In relation to the $13,000 reduction in the running balance, Tramontana Accountants then seek to rely on the doctrine of ultimate effect. Tramontana Accountants argues, by reference to the reasons in Beveridge, that the doctrine of ultimate effect is not just about the monetary effect of a transaction, but can also extend to matters such as the payment of fees to an accountant. Tramontana Accountants argue that, in this case, the payments made to it were for accounting services that Fastline required in order to trade. Tramontana Accountants argue that the ultimate effect of the payments did not disadvantage other creditors of Fastline, and therefore, there was no unfair preference.
In my view, Tramontana Accountants’ submissions on this point fail to address the key issue which arises in relation to its reliance on the doctrine of ultimate effect. The key issue is not whether the doctrine is sufficiently flexible to account for the payment of accounting fees, where such fees are required for the ongoing operation of a business.
Rather, the issue for Tramontana Accountants is that they rely on the doctrine of ultimate effect in addition to their running account defence under s 588FA(3). Section 588FA(3) already provides that where a company’s net indebtedness to a creditor, in the context of an integral continuing business relationship, increases and reduces from time to time due to a series of transactions forming part of the relationship, then all transactions forming part of the relationship are constituted together as a single transaction for the purposes of determining whether it constitutes an unfair preference.
In this sense, s 588FA(3) already accounts for the ongoing payment of services rendered as part of an integral continuing business relationship. That is why, for the purposes of determining whether there has been an unfair preference, attention is then directed to the ultimate change in the running account by constituting all of the individual transactions together as a single transaction. Section 588FA(3) is, in effect, a codification of the exception to unfair preferences as to running accounts: see VR Dye & Co at [26], [32] (Ormiston JA, Winneke P and Tadgell JA agreeing).
It is illogical to accept that, under s 588FA(3), there was a reduction in the running account during the relation back period of $13,000, and to then seek to apply the doctrine of ultimate effect in relation to that $13,000. The fact that there was a reduction in the running account of $13,000 is representative of the fact that, during the relation back period, Tramontana Accountants was paid $13,000 more than the value of services rendered.
9. Transfer of business from GFS to Click 3PL
9.1 Background to transfer of business from GFS to Click 3PL
Following the transfer of the Non-Target business from Fastline to GFS, and Fastline’s insolvency, GFS ran into its own financial difficulties. In March 2020, the landlord of Fitzgerald Road drew down $910,904 of the security deposit held by it in respect of Fitzgerald Road, following default under the terms of the lease by GFS.
Mr Craig Bolwell, who was appointed as liquidator of GFS on 27 June 2022, noted in his report to GFS’ creditors dated 26 September 2022 that GFS was experiencing difficulties in complying with its rental obligations from around January 2019. GFS was in a dispute with the landlord of Fitzgerald Road. GFS sought to negotiate a rent reduction due to the company’s deteriorating income. While an agreement appeared to have been reached in relation to a rent reduction, the parties remained in dispute regarding the value and nature of the security deposit required to be paid by GFS. Additionally, despite the rent reduction, GFS did not pay the rent and outgoings required under the new arrangement.
Ultimately, the landlord of Fitzgerald Road re-entered the property on 7 February 2021. A notice of re-entry was served on GFS on the basis that GFS had outstanding rent for the period of 1 April 2020 to 1 February 2021 in the amount of $843,478.54. Legal action between the entities progressed, with the landlord claiming over $2 million in outstanding rent and outgoings by August 2021, while GFS filed a counter-claim seeking damages for lost revenue. GFS claimed it had lost a number of customers as a result of being deprived of its possession of Fitzgerald Road.
Ultimately, GFS abandoned Fitzgerald Road around 23 July 2021. GFS subsequently relocated to new premises at 57 Barclay Road, Derrimut in July 2021.
Around the same time, on 19 July 2021, Click 3PL was incorporated. As has been noted above, Click 3PL is indirectly owned by Kenny Lay, who is also the company’s sole director.
The Liquidators allege that, at some time between mid-2021 and mid-2022, while these proceedings were already on foot against GFS, the Non-Target business was again transferred by GFS to Click 3PL.
Ultimately, GFS ceased to trade around 22 December 2021 and was placed into liquidation on 27 June 2022.
There is no material evidencing the transfer of “the business” to Click 3PL – for example, there are no documents evidencing communications between Tony Chia and Kenny Lay regarding the transfer, sale agreements, or other similar material. There is also no evidence to suggest that any consideration was given in turn for the transfer, nor any commercial explanation provided for the transfer. The suggestion raised by the Liquidators is that the transfer was motivated by GFS’ poor financial position, alongside the legal proceedings brought by the landlord of Fitzgerald Road.
In order to establish that what was transferred to Click 3PL was the same “Non-Target business” that was transferred to GFS by Fastline, the Liquidators rely primarily on a section of Kenny Lay’s affidavit sworn on 3 August 2023. In his affidavit, Kenny Lay states the following:
In or around mid-2021, the family made a decision that, due to Tony’s poor health and the fact that the Fastline business was not doing well, GFS would transfer the Fastline business to one of my companies to reduce the stress on Tony and Liza.
The Fastline business has had little to no value since Target pulled out of the agreement.
The “Fastline business” is not defined in Kenny Lay’s affidavit. However, the Liquidators submit that Kenny Lay’s affidavit should, in effect, be understood as an admission that GFS transferred a business to Click 3PL, and that the business was understood to be “the Fastline business”.
During cross-examination, Tony Chia also gave the following oral evidence regarding the transfer:
COUNSEL:I suggest to you, and you can agree or disagree, that the purpose of the transfer to Click 3PL was so that your extended family could retain possession and ownership of the Fastline business. Do you agree or disagree?
TONY CHIA: That time, I ask them to make decision, you know. To pass onto him, to run it.
COUNSEL:So it could remain in the ownership of your extended family, correct?
TONY CHIA: Yes. Think so.
The Liquidators also refer to a number of screenshots taken from Click 3PL’s website which they submit reflects that Click 3PL operates, in effect, the same business previously operated by GFS. In particular, the Liquidators refer to the following pieces of information:
(a)Click 3PL’s place of business is at Barclay Road, which was the same as GFS’ registered principal place of business since 22 June 2021;
(b)Click 3PL’s phone number is the same as that which had been listed on GFS’ website; and
(c)Several of the customers listed on Click 3PL’s website were also said to have been GFS’ customers.
9.2 Claims arising from transfer of business from GFS to Click 3PL
9.2.1Claim against Click 3PL
The Liquidators bring a claim of knowing receipt against Click 3PL. The Liquidators allege that Tony Chia, as director of GFS, transferred the Non-Target business to Click 3PL in breach of his duties to act in good faith and in the best interests of GFS and his duty to not improperly use his position. Click 3PL had knowledge of, was wilfully blind to, wilfully and recklessly failed to make such inquiries as an honest and reasonable person would make regarding, or had knowledge of circumstances which would indicate to an honest and reasonable person of, the fact that the business constituted property transferred in breach of Tony Chia’s duty. On that basis, the Liquidators allege that Click 3PL’s knowing receipt of the business means that it holds the business on constructive trust, and that Fastline would be entitled to trace the business into the hands of Click 3PL and to an account of profits derived by Click 3PL.
I have found that Kenny Lay and Shauna Lay did not breach their duties as directors of Fastline in causing Fastline to enter into the Loan Agreement, offering the Non-Target business as security, or executing the subsequent Default Notice and Assignment of Rights. It follows that any transfer of those assets offered as security after Fastline’s default cannot give rise to equitable claims of knowing assistance or knowing receipt.
Additionally, while I accept that Kenny Lay and Tony Chia’s evidence indicates an intention to transfer what they understood to be the same business, it is not possible to identify with any precision what actually constituted “the business” at that time. The Liquidators have not identified any particular assets or any other particular items which are said to constitute the business transferred to Click 3PL. This was evident by the fact that, during cross-examination, Mr Ford was unable to positively identify a single asset which was once owned by Fastline and said to have been transferred to Click 3PL, or positively confirm a single customer of the Non-Target business that was now a customer of Click 3PL.
Given the relevant deficiencies in the evidence before me, I am not in a position to determine if the Non-Target business continues to meaningfully exist in the same form to connect it to Click 3PL. I am not satisfied that the Liquidators’ claim against Click 3PL has been established.
9.2.2Claim against Kenny Lay
The Liquidators also bring a claim against Kenny Lay, alleging that Kenny Lay knowingly assisted GFS in breaching its duties as a constructive trustee of the Non-Target business, by causing Click 3PL to receive the Non-Target business from GFS. The Liquidators allege that the transfer constituted a dishonest and fraudulent design on Tony Chia’s part as it was intended to defeat the interests of GFS’ creditors.
As noted above, in circumstances where I have found that the Liquidators’ claims against Kenny and Shauna Lay in relation to breaches of directors’ duties owed to Fastline are not made out, it follows that how GFS subsequently disposed of the assets cannot give rise to equitable claims in knowing assistance.
Additionally, in the absence of material before me regarding what actually constituted “the business” at the time of transfer to Click 3PL, I am not satisfied that I am in a position to make findings as to Kenny Lay’s alleged knowing involvement in Tony Chia’s alleged dishonest and fraudulent design to transfer “the business”, or in any case, findings as to any liability that could be attributed to Kenny Lay’s conduct.
10. Disposition
I will make the orders sought by the Liquidators in relation to the unfair preference claims brought against Tramontana Accountants, namely declarations that the relevant transactions constituted unfair preferences within the meaning of s 588FA of the Corporations Act, and an order under s 588FF for the payment of the unfair preferences to Fastline.
The Further Amended Originating Process dated 1 March 2024 will otherwise be dismissed. I will make orders for the parties to file submissions as to costs.
I certify that the preceding four hundred and fifty-eight (458) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Anderson. Associate:
Dated: 10 April 2025
SCHEDULE OF PARTIES
VID 753 of 2021 Defendants
Fourth Defendant:
BECAUSE WE CARE PTY LTD (ACN 124 007 361)
Fifth Defendant:
TONY CHIA
Sixth Defendant:
LIZA CHIA
Seventh Defendant:
GLOBAL FASHION SERVICE PTY LTD (ACN 071 256 089)
Eighth Defendant:
AUTOMATED LOGISTICS TECHNOLOGY PTY LTD (ACN 168 366 381)
Ninth Defendant:
CLICK 3PL PTY LTD (ACN 652 070 258)
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