Hall v Poolman - [2007] NSWSC 1330

No judgment structure available for this case.

CITATION: Hall & Ors v Poolman & Ors [2007] NSWSC 1330
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 31 January, 1, 2, 5-19 and 26-28 February 2007, and written Outlines of Closing Submissions received from the Plaintiffs on 23.02.07, 27.02.07, 28.02.07, 31.05.07, 08.06.07 and 15.06.07, from Mr Irving on 23.02.07, 25.05.07, 28.05.07 and 26.06.07, from Mr Martini on 23.02.07, from the ATO on 23.02.07 and from Ms Yates on 23.02.07

JUDGMENT DATE :
23 November 2007

JURISDICTION: Equity DIvision

JUDGMENT OF: Palmer J

DECISION: See paragraphs 557 to 564.

CATCHWORDS: INSOLVENCY – Related companies – whether companies insolvent – whether solvency of company A independent of solvency of company B – whether disputed tax debt “due and payable” – whether companies insolvent because of trade debts. - INSOLVENT TRADING – Directors’ liability – whether reasonable grounds to suspect insolvency – whether director aware of reasonable ground for suspecting insolvency. - INSOLVENT TRADING – DEFENCES – whether reasonable grounds to expect solvency – discretionary defences under s.1317S(2) and s.1318(1) Corporations Act 2001 (Cth) – whether s.1318 applies for contraventions of Corporations Act – whether director acted “honestly” – whether lack of Directors and Officers Insurance relevant to discretion – liquidator enters litigation funding agreement – liquidator knows almost all of proceeds will go to liquidator and litigation funder with negligible return to creditors – whether return to creditors relevant to discretionary defences – control by Courts of abuse of litigation funding – costs under s.98 Civil Procedure Act – liquidators’ duty to seek direction of Court. - INSOLVENT TRADING – UNFAIR PREFERENCES – Where payments by ATO were unfair preferences – whether ATO entitled to indemnity from directors – whether directors entitled to indemnity and set off. - EQUITY – Cross claims between directors – whether directors entitled to equitable contribution to their common liability for insolvent trading. - FRAUD – Director transferred share in company to his wife – whether alienation of property with intent to defraud creditors – ambit of s.37A Conveyancing Act 1919 (NSW) – meaning of “alienation” – whether acts of person other than debtor can be avoided.

LEGISLATION CITED: - Administrative Appeals Tribunal Act 1975 (Cth) – s.43(6)
- Bankruptcy Act 1966 (Cth) – s.58(3), s.82(2), s.86
- Civil Procedure Act 2005 (NSW) – s.21, s.56, s.60, s.98
- Conveyancing Act 1919 (NSW) – s.37A
- Corporations Act 2001 (Cth) – s.95A, s.296(1), s.459E, s.459H, s.459J, s.511, s.536, s.553(1), s.553C, s.588FC, s.588FE, s.588FF, s.588FG, s.588FGA, s.588FGB, s.588G, s.588H, s.588J, s.588K, s.588M, s.588U, s.1317S, s.1318
- Income Tax Assessment Act 1936 (Cth) – s.177, s.204(1), s.208, s.209
- Taxation Administration Act 1953 (Cth) – Pt IVC, s.14ZZM, s.14ZZR; and Schedule 1 Pt 4.15, 255-5, 255-10

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- Battenberg v Union Club (2005) 53 ACSR 263
- Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 48 NSWLR 1
- Bialkower v Acohs Pty Ltd (1998) 83 FCR 1
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- Buiscex Ltd v Panfida Foods Ltd (in liq) (1998) 28 ACSR 357
- Burke v LFOT Pty Ltd (2002) 209 CLR 282
- Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd (2006) 80 ALJR 1441
- Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 15 ACSR 682
- Clyne v Deputy Commissioner of Taxation (NSW) (No 3) (1983) 57 ALJR 673
- Collector of Customs v Gaylor Pty Ltd & Dahlia Mining Co Ltd (1995) 35 NSWLR 649
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- Companies Act, Re; Ex parte Watson (1888) 21 QBD 301
- Coventry v Charter Pacific Corporation Ltd (2005) 80 ALJR 132
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- Cywinski v Deputy Federal Commissioner of Taxation (Vic) [1990] VR 193
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- Deputy Commissioner of Taxation v Van Phu Ho (1996) 131 FLR 188
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- Federal Commissioner of Taxation v Clarke (1927) 40 CLR 246
- Federal Commissioner of Taxation v Myer Emporium Ltd (No 1) (1986) 160 CLR 220
- Fermoyle Pty Ltd (in liq), Re; Commonwealth of Australia v Brown (1982) 62 FLR 413
- Fortuna Holdings Pty Ltd v Deputy Commissioner of Taxation of the Commonwealth of Australia [1978] VR 83
- Gye v McIntyre (1991) 171 CLR 609
- Hoare Bros Pty Ltd v Deputy Federal Commissioner of Taxation (1995) 16 ACSR 213
- Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1996) 19 ACSR 125
- Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (No 2) (1996) 21 ACSR 449
- Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1996) 62 FCR 302
- Houvardas v Zaravinos (2003) 202 ALR 535
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- Hymix Concrete Pty Ltd v Garritty (1977) 2 ACLR 559
- Imobridge Pty Ltd (in liq) (No 2), Re [2000] 2 Qd R 280
- Industrial Equity Ltd v Blackburn (1977) 137 CLR 567
- Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191
- Kenna & Brown Pty Ltd v Kenna (1999) 32 ACSR 430
- AP & PJ King Pty Ltd (in liq), Re [2006] NSWSC 315
- Koadlow v Deputy Commissioner of Taxation (1985) 85 ATC 4147
- Langdon v Gruber [2001] NSWSC 276
- Lewis v Doran (2004) 50 ACSR 175
- Love, Re (2003) 44 ACSR 367
- McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579
- MacIntosh v Lobel (1993) 30 NSWLR 441
- Manpac Industries Pty Ltd v Ceccattini (2002) 20 ACLC 1304
- Moutere Pty Ltd v Deputy Commissioner of Taxation (2000) 34 ACSR 533
- Movitor Pty Ltd (in liq) v Sims (1996) 64 FCR 380
- Newark Pty Ltd (in liq), Re; Taylor v Carroll (1991) 6 ACSR 255
- Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434
- Noxequin Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87
- Oates v Federal Commissioner of Taxation (1990) 27 FCR 289
- Official Trustee in Bankruptcy v Mateo (2003) 202 ALR 571
- Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation (2006) 94 SASR 269
- Palmer v Commissioner of Taxation [2006] NSWSC 1253
- Pollack, Re; ex parte Deputy Federal Commissioner of Taxation (1991) 32 FCR 40
- Powell v Fryer (2001) 37 ACSR 589
- Public Prosecutions, Director of v Ashley [1955] Crim LR 565
- Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266
- Reynell v Sprye (1852) 42 ER 710
- Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378
- Sarina, Re (1980) 32 ALR 596
- Scope Data Systems Pty Ltd v BDO Nelson Parkhill (2003) 199 ALR 56
- Scott v Williams [2002] SASC 424
- Sheahan v Hertz Australia Pty Ltd (1995) 16 ACSR 765
- Silvera v Slavic (1999) 46 NSWLR 124
- Smallcombe v Olivier (1844) 13 M&W 77
- Snow v Deputy Federal Commissioner of Taxation (WA) (1987) 14 FCR 119
- Softex Industries v Commissioner of Taxation (2001) 187 ALR 448
- Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213
- Spika Trading Pty Ltd v Harrison (1990) 19 NSWLR 211
- Stanilite Pacific Ltd (in liq) v Seaton (2005) 55 ACSR 460
- Stewart, re Newtronics Pty Ltd [2007] FCA 1375.
- Street & Halls v Retravision (NSW) Ltd (1995) 56 FCR 588
- Sycotex Pty Ltd v Baseler (No 2) (1994) 13 ACSR 766 [(1994) 51 FCR 425 ?]
- Taylor v Australia & New Zealand Banking Group Ltd (1988) 13 ACLR 780
- Taylor v Carroll (1991) 6 ACSR 255
- Tosich Construction Pty Ltd, Re (1997) 73 FCR 219
- Tourprint International Pty Ltd (in liq) v Bott (1999) 32 ACSR 201
- Uysal v Deputy Commissioner of Taxation (2003) 54 ATR 214
- Vines v Australian Securities & Investments Commission (2007) 62 ACSR 1
- Walker v Wimborne (1976) 137 CLR 1
- West End Networks Ltd (in liq), Re [2004] 2 AC 506
- Wilde v Australian Trade Equipment Co Pty Ltd (1981) 145 CLR 590
- Willemse Family Company Pty Ltd v Deputy Commissioner of Taxation [2003] 2 Qd R 334
- Wobelea Pty Ltd v Deputy Commissioner of Taxation (1996) 20 ACSR 436

PARTIES: Gregory Winfield Hall – First Plaintiff (2032/04, 2685/04)
Philip Patrick Carter – 1st Plaintiff (2032/04), 2nd Plaintiff (2685/04)
Reynolds Wines Ltd (R&M Appointed) (in liq) – 2nd Plaintiff (2032/04), 2nd Respondent (2685/04), 1st Plaintiff (4870/05)
Reynolds Vineyards Pty Ltd (R&M App) (In liq) – 3rd Plaintiff (2032/04), 2nd Plaintiff (4870/05)
Peter Renwick Poolman – 1st Defendant (2032/04), 1st Respondent (2685/04)
Malcolm Geoffrey Irving – 2nd Defendant/Cross Claimant (2032/04), 2nd Respondent/Applicant (2685/04)
Constance Helen Poolman – 3rd Defendant (2032/04), Defendant (4870/05)
Kalivise Pty Ltd – 4th Defendant (2032/04)
Sennabeau Pty Ltd – 5th Defendant (2032/04)
Morecraft Kitchens & Joinery Pty Ltd – 6th Defendant (2032/04)
John Giske Martini – 1st Cross Defendant/Cross Claimant (2032/04), 3rd Respondent (2685/04)
Rupert Clifton-Bligh – 2nd Cross Defendant (2032/04), 1st Respondent (2685/04)
Sandra Lee Yates – 1st Cross Defendant (2032/04), 4th Respondent (2032/04)
Commissioner of Taxation – Defendant/Applicant (2685/04)

FILE NUMBER(S): SC 2032/04; 2685/04; 4870/05

COUNSEL: M.J. Slattery QC, P.W. Flynn – Plaintiffs (2032/04, 2685/04, 4870/05), 2nd Respondent (2685/04)
I.M. Jackman SC, J. Shepard – M.G. Irving (2032/04, 2685/04)
J. Stoljar – J.G. Martini (2032/04, 2685/04)
J.M. White – R. Clifton-Bligh (2032/04, 2685/04)
P.G.Cutler – Ms S.L. Yates (2032/04, 2685/04)
M.R. Aldridge SC, P.D. Rodionoff – Defendant/Applicant (2685/04)

SOLICITORS: Blake Dawson Waldron – Plaintiffs (2032/04, 2685/04, 4870/05), 2nd Respondent (2685/04)
Addisons – M.G. Irving (2032/04, 2685/04)
SBA Lawyers – J.G. Martini (2032/04, 2685/04)
Kemp Strang – R. Clifton-Bligh (2032/04, 2685/04)
Deacons – Ms S.L. Yates (2032/04, 2685/04)
Australian Government Solicitor – Defendant/Applicant (2685/04)
PMF Legal – 1st & 3rd to 6th Defendants (2032/04), Defendant (4870/05)

PALMER J.

2032/04 Hall & Ors v Poolman & Ors
2685/04 Hall & Ors v Commissioner of Taxation
4870/05 Reynolds Wines Ltd (R&M App) (In liq) & Anor v Poolman

INTRODUCTION

The proceedings

1 The Reynolds Group of companies owned vineyards and a winery near Orange in New South Wales. The Group went into voluntary administration in August 2003 and into liquidation in November 2003, owing secured and unsecured creditors a total of approximately $130M.

2 Three separate but related proceedings are before the Court. In proceedings 2032 of 2004 (“the Main Proceedings”), the Plaintiffs are the liquidators, and the receivers and managers of Reynolds Wines Limited (“Wines”) and its subsidiary, Reynolds Vineyards Pty Ltd (“Vineyards”). The active Plaintiffs, however, have been the liquidators, Messrs Gregory Hall (“Mr Hall”) and Phillip Carter (“Mr Carter”) (“the Liquidators”).

3 Between 1 October 2002 and 4 August 2003 (“the Period”), the First Defendant, Peter Renwick Poolman (“Mr Poolman”) was the Deputy Chairman of directors of Wines and a director of Vineyards. The Second Defendant, Malcolm Geoffrey Irving (“Mr Irving”) was the Chairman of Directors of Wines and Vineyards.

4 In the Main Proceedings, the Plaintiffs claim:

a) against Mr Poolman and Mr Irving, loss and damage suffered by creditors as a result of Wines and Vineyards trading while insolvent in the Period, pursuant to CA s.588M of the Corporations Act 2001 (Cth) (“CA”): “the Insolvent Trading Claim”;

Conveyancing Act 1919

5 Mr Poolman and Mrs Poolman are undischarged bankrupts. Mr Poolman, Mrs Poolman, Kalivise and the Fifth Defendant, Sennabeau Pty Ltd (of which Mr Poolman was the sole director and shareholder) (“Sennabeau”), have not taken an active part in these proceedings. On 7 June 2006 the Federal Court granted leave to the Plaintiffs to rely on documentary evidence to prove their case against Mr Poolman in the Section 37A Claim. Mr Poolman’s trustee in bankruptcy neither consents to nor opposes the orders sought by the Plaintiffs and will submit to any order the Court may make, save as to costs.

6 The Plaintiffs also sought declarations and orders against the Sixth Defendant, Morecraft Kitchens & Joinery Pty Ltd (“Morecraft”). Mrs Poolman was the sole director and sole shareholder of Morecraft. However, Morecraft is in liquidation and the Plaintiffs do not now press for relief against Morecraft.

7 Cross claims have been made in the Main Proceedings between various directors of Wines and Vineyards:

i) if Mr Irving is found to have contravened CA s.588G(2) and is liable to pay any sums as a result, then Mr Irving claims equitable contribution from directors of Wines and Vineyards, namely John Giske Martini (“Mr Martini”) and Rupert Clifton-Bligh (“Mr Clifton-Bligh”). Mr Martini was a director and CEO of both Wines and Vineyards throughout the Period;

8 On 30 May 2005, the Court directed that the Main Proceedings be heard together with proceedings 2685 of 2004 (“the Unfair Preference Proceedings”), with evidence in one being evidence in the other.

9 In the Unfair Preference Proceedings, pursuant to CA s.588FF, the Liquidators claim recovery of payments totalling $582,934 made by Wines to the Commissioner of Taxation (“the Commissioner”) as unfair preferences. The Commissioner admits that the payments were unfair preferences and does not oppose the orders sought by the Liquidators.

10 The Commissioner has, however, claimed an indemnity for any amounts which he is ordered to pay to the Liquidators. Pursuant to CA s.588FGA(2), the Commissioner claims the sum of $537,100 from each of Mr Irving, Mr Poolman and Mr Martini, and the sum of $311,916 from Ms Yates. They have been granted leave to appear in, and to defend, the Liquidators’ claim against the Commissioner notwithstanding the Commissioner’s admission of liability to the Liquidators. Mr Poolman’s trustee has not defended the Commissioner’s claim.

11 In relation to any liability which may be established on the part of Mr Irving to the Commissioner in the Unfair Preference Proceedings, Mr Irving claims indemnity against Wines, pursuant to an Indemnity and Access Deed dated 5 September 2001 and under Clause 38.1 of Wines Constitution. He says that the amount to which he would be entitled by way of indemnity against Wines should be set off against the amount, if any, which he is ordered to pay to the Liquidators of Wines in respect of their claim under s.588M for insolvent trading.

12 The claims by Mr Irving and Mr Martini for contribution or indemnity against Mr Clifton-Bligh in the Unfair Preference Proceedings were settled by consent orders during the trial. As noted, Mr Poolman is an undischarged bankrupt. The Commissioner has not obtained leave to proceed against him and has discontinued his claim against Mr Poolman.

13 Also before the Court is proceeding 4870 of 2005 (“the Caveat Proceedings”) brought by the receivers and managers of Wines and Vineyards against Mrs Poolman. The receivers and managers seek to maintain a caveat over property currently owned by Mrs Poolman. As a result of arrangements between the parties reflected in previous orders made in the Caveat Proceedings, the outcome of the Section 37A Claim will govern the outcome of the Caveat Proceedings.

The beneficiaries of this litigation

14 The collapse of the Reynolds Group resulted in a shortfall of over $30M to secured creditors. Thus, there were no assets available for unsecured creditors, whose claims amount to just under $99M, and insufficient funds even to pay the costs of the voluntary administration and the winding up. The only potential assets to be realised were recoveries of voidable preference payments to the Australian Taxation Office (“ATO”) and the present claims against directors of the Group for insolvent trading. The Liquidators had no funds to pursue these claims. In 2004, they entered into a funding agreement with a litigation funder.

15 The total amount which the Liquidators seek to recover in these proceedings from the directors and from the ATO is approximately $9.6M, including interest and costs. As noted, the value of unpaid creditors’ claims exceeds $130M. When the trial commenced, the Court was informed that, even if the Liquidators recovered the full amount of their claims, including costs and interest, after payment of the litigation funder’s costs and “success fee” and the costs of the Liquidators and their solicitors, unsecured creditors would receive no more than a fraction of a cent in the dollar of their claims: T127.7-.11.

16 I expressed concern that such huge costs could be incurred in prosecuting claims by liquidators when virtually every cent of the proceeds of the claims, even if wholly successful, would go to a litigation funder and to the costs and disbursements of the professionals engaged in conducting the litigation. Near the close of the trial, I was informed that the Liquidators had renegotiated their agreement with the litigation funder. Even so, it is impossible to ascertain whether the renegotiated agreement will result in the creditors actually receiving any more than under the original agreement.

17 The true beneficiaries of this huge piece of litigation are a litigation funder, the Liquidators and their lawyers, not the creditors. The Defendants say that this circumstance, coupled with the fact that they have acted honestly, should defeat the Liquidators’ claims: they say that the Court should exercise its discretionary powers under CA s.1317S(2) and s.1318 to relieve them from any liability which they might otherwise have. I will return to this disquieting aspect of the litigation later in the judgment.

Background of the Reynolds Group

18 The following account is taken largely from the Administrators’ Report to Creditors dated 15 September 2003.

19 During the Period the Reynolds Group comprised Wines and the following wholly owned subsidiaries: Vineyards, CH Finance Pty Ltd (CHF”), Cabonne Cellars Exports Pty Ltd, CHM Capital Pty Ltd, Cabonne Cellars Pty Ltd, and The Reynolds Wine Company Pty Ltd. Also included in the Group, according to Mr Spicer, the Chief Financial Officer, were the entities CHM Unit Trust and CHM Wirrilla Trust. Messrs Irving, Poolman and Martini were directors of all companies in the Group and Mr Spicer was the Chief Financial Officer and Company Secretary.

20 The principal business of Wines was operating a vineyard, managing investment schemes and acting as a holding company. The principal business of Vineyards was operating a winery, and marketing and selling wine. CH Finance and CH Capital provided finance and managed investments arising out of grape growing projects.

21 According to Mr Spicer’s undisputed evidence, the Reynolds Group:

“… operated as one business with consolidated accounts. Each separate member was treated as a cost centre for accounting and statutory purposes, with the income derived from the various members being used by all the members collectively. The Group had one central source of credit, a facility with (ANZ Bank), which was cross-collateralised by the members of the Group”:

22 Wines, formerly Cabonne Ltd, was incorporated in 1993. Its business was originally to act as manager of four prescribed interest schemes which were promoted in the mid-1990s. Three of the schemes were conducted on a property situated at Molong near Orange, called Little Boomie. Wines acquired a 50% interest in another property south of Orange, called Angullong, as tenant in common with Angullong Pty Ltd. It also owned an interest in a property called Warilla, near Gundagai.

23 Wines earned revenue from development and management of vineyards on behalf of persons described in the documentation as “Farmers”. It entered into a contract to supply grapes to Southcorp Wines on behalf of Farmers.

24 In 1999, Wines raised $35M through a public offering and listed on the Australian Stock Exchange. The capital raised was used to establish a winery to process Farmers’ grapes into wine, develop additional vineyards, develop brands and establish domestic and export wine markets. The Southcorp Wines contract was terminated and Wines entered into contracts to acquire grapes from Farmers in order to produce wine on its own behalf. At the same time, Wines also issued $7.5M in Redeemable Converting Preference Shares (“RCPS”) which were due for redemption in November 2002.

25 A winery was established at Orange for a cost of $17M, with an annual capacity to convert 10,000 tonnes of grapes into wine, and a storage capacity of 7.4M litres. A bottling plant was purchased but was never installed or commissioned.

26 In December 2000, an alliance was established with Trinchero Family Estates (“TFE”), which is a large wine distributor in the United States and Canada.

27 In mid-2002, Wines raised $8M in capital through a renounceable rights issue. The funds were to be applied in capital expenditure and in providing additional working capital. Around the same time, Wines raised $12.5M by way of Cumulative Converting Preference Shares (“CCPS”), secured by a charge. These funds were to provide further working capital to assist in expansion and for the repayment of $3M in short term funding. However, the $20.5M raised in mid-2002 was not in fact employed in funding capital expenditure but, rather, was used to pay outstanding creditors.

28 Throughout its history the Reynolds Group has been in dispute with the ATO relating to the original structure of the prescribed investment schemes, deductions claimed by Farmers, income received by the Reynolds Group, and the Group’s claims for tax deductions, partially offsetting this income. The ATO issued tax assessments, some dating back to 1998, against the Group in amounts totalling $14.8M. The Group disputed that liability. By 30 June 2002, the tax liability, including accrued penalties and interest, was claimed by the ATO to amount to $17.4M.

29 The Reynolds Group endeavoured to negotiate with the ATO to reduce or extinguish its liability under the tax assessments. The liability for tax claimed by the ATO severely inhibited the Group from raising further capital. On 31 July 2003, the ATO formally advised the Group that it had rejected the Group’s offer of compromise of the tax liability. The directors resolved to appoint voluntary administrators to the Group on 4 August 2003. Wines and Vineyards were placed in liquidation on 25 November 2003.

30 As at the date of appointment of the voluntary administrators the Group had two secured creditors: the ANZ Bank held a first charge over the assets of all Group companies supported by cross guarantees and first registered mortgages over all real property. The debt secured to the ANZ was in the order of $30M plus accruing interest and costs. On 7 August 2003, the ANZ appointed receivers and managers to the Group.

31 IWC Nominees Pty Ltd held a second ranking charge as trustee on behalf of the holders of the CCPS, which were issued for $12.5M in mid-2002.

Mr Malcolm Irving

32 Mr Irving was appointed a non-executive director of Wines and Vineyards on 10 September 1999. He was Chairman of the Boards of both companies until the appointment of the administrators on 4 August 2003.

33 Mr Irving holds a Bachelor of Commerce degree and commenced his professional life as an accountant. He has had a long and highly distinguished career as a director of many substantial companies. He has been Chairman of companies such as Australian Industry Development Corporation, Australian Medical Insurance Ltd, FAI Life Ltd, Willis Australia Ltd Group, Anxiom Funds Management Corporation and David Jones Superannuation Fund Pty Ltd. He has been Managing Director of CIBC Australia Ltd and a director of companies such as Caltex Australia Ltd and Telstra Corporation. He has been a member of many government and non-government advisory boards. He has been awarded the Australia Medal.

34 Mr Irving was undoubtedly the most highly experienced director on the Boards of Wines and Vineyards. There can be no doubt that the other directors accorded him respect and authority as Chairman. While the Liquidators and the ATO call into question in these proceedings Mr Irving’s judgment in what he did or failed to do in respect of the Group’s continued trading from October 2002 to August 2003, there is no issue as to his integrity.

Mr Peter Poolman

35 Mr Poolman was a director of Wines from 13 September 1993 and a director of Vineyards from 26 August 1998. He was also the Chief Executive Officer of Wines until April 2002. Upon his resignation as Chief Executive Officer, he was appointed a non-executive director and Deputy Chairman of the board of directors of Wines.

36 Up until 30 November 2003 and about December 2003, Mr Poolman was the sole director and sole shareholder of Kalivise. In early December 2003, Mrs Poolman became the sole director and shareholder of Kalivise. Mrs Poolman was also the sole director and shareholder of Sennebeau and Morecraft. Since 1999, Kalivise and Sennabeau were joint proprietors of a property known as “Bowan Downs” at Cargo Road, Orange. This property has been sold and nett proceeds are held in trust account pending determination of these proceedings.

37 Mr and Mrs Poolman were declared bankrupt on 26 July and 9 June 2005 respectively. Leave to proceed with the Insolvent Trading Claim against Mr Poolman has been obtained by the Liquidators under s.58(3)(b) of the Bankruptcy Act 1966 (Cth). Leave to proceed against Mrs Poolman in respect of the claim under s.37A Conveyancing Act 1919 (NSW) is not necessary because the claim against her is not in respect of a debt provable in her bankrupt estate: S.58(3)(b) Bankruptcy Act.

Mr John Martini

38 On 23 September 2002, Mr Martini was appointed as Chief Executive Officer of Wines, and a director of Wines and its subsidiaries.

39 Mr Martini has had extensive experience in large wine businesses in the United States. His experience includes managing sales, marketing, distribution, merchandising, pricing, spending, strategic development and public relations. Before his appointment to the Boards of Wines and Vineyards, he had never been a company director, nor did he have experience with corporate governance or the management of legal or tax affairs in Australia.

40 Immediately prior to his employment by the Reynolds Group, Mr Martini was a senior adviser for TFE in the United States. During 2000, Mr Martini formed the view that TFE should become involved with the Australian wine industry. He was introduced to Mr Poolman in California in about May or June 2000. A joint venture between Reynolds Wines and TFE was established in March 2002. In April 2002, Mr Poolman resigned as Chief Executive Officer of the Reynolds Group. After discussions between Mr Martini and the other directors of the Reynolds Group, Mr Martini agreed to replace Mr Poolman and moved from California to Australia in September 2002.

Ms Sandra Yates

41 Ms Yates was appointed as a director of Wines and Vineyards on 20 March 2001 and resigned as a director of each of those companies on 30 June 2003.

42 Ms Yates has experience in international sales and marketing. She attended board meetings and monthly sales and marketing meetings in which she provided advice on a broad range of marketing issues.

Mr Simon Spicer

43 Mr Spicer has been a chartered accountant since 1986 and holds a Bachelor of Economics (Accounting & Business Taxation/Law). Prior to joining the Reynolds Group, he was a senior manager in the Melbourne insolvency group of Price Waterhouse (as it was then) from 1987 to 1995, a principal of Financial and Business Consulting from 1995 to 1996, the Group Business & Finance Manager of the Estée Lauder Group from 1996 to 1999 and the Chief Financial Officer of the Dymocks Group from 2000 to 2002.

44 Mr Spicer commenced his employment with the Reynolds Group on 18 November 2002 as its Chief Financial Officer and Company Secretary. His main responsibilities included the overall management of the Group’s financial affairs, which included the management and payment of its trade creditors and financiers such as ANZ Bank, the financial reporting of the Group, compliance with the ASX Listing Rules and the Corporations Act 2001 and liaising with external auditors.

45 Mr Spicer worked closely with Mr Martini in managing all aspects of the business of the Reynolds Group. According to Mr Spicer’s evidence, from January 2003 he also supervised the Financial Controller of the Group, Ms Deborah Carroll, who was responsible for the maintenance of records relating to the accounts payable of the Reynolds Group.

Mr Roan Fryer

46 Mr Fryer has been a taxation accountant for over twenty years and is a partner of Deloitte Touche Tohmatsu chartered accountants (“Deloitte”), and a director of Deloitte Touche Tohmatsu Ltd (“DTT Ltd”).

47 At all material times, Deloitte acted as auditors and of the Reynolds Group and DTT Ltd provided tax advice to the Reynolds Group.

Mr Alan Jessup

48 Mr Jessup was the solicitor for the Reynolds Group from approximately 1996 until the Group was placed in administration. For most of that time, he was a partner of Hunt & Hunt. In February 2003, he became a partner of Piper Alderman. He has specialised in the field of taxation for about twenty years.

Mr John Evans

49 Mr Evans is a solicitor and an Assistant Commissioner of Taxation. Mr Evans engaged in settlement negotiations on behalf of the ATO with the Reynolds Group prior to and during the Period.

Mr Cameron Jeffs

50 Mr Jeffs is a director of the GST Business Line within the Australian Taxation Office.

51 In 2001, he was the audit team leader in the review of Reynolds Wines’ Central Highlands Wine Grapes scheme. Later, he was involved in the settlement negotiations with the Reynolds Group.

ISSUES

Insolvent trading claims

52 The issues to be decided arise out of the provisions of the Corporations Act imposing liability and affording defences. CA s.588G relevantly provides:

“ Director’s duty to prevent insolvent trading by company

(1) This section applies if:

(a) a person is a director of a company at the time when the company incurs a debt; and

(b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and

(c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be;

…

(2) By failing to prevent the company from incurring the debt, the person contravenes this section if:

(a) the person is aware at that time that there are such grounds for so suspecting; or

(b) a reasonable person in a like position in a company in the company’s circumstances would be so aware.”

“ Defences

(1) This section has effect for the purposes of proceedings for a contravention of subsection 588G(2) in relation to the incurring of a debt (including proceedings under section 588M in relation to the incurring of the debt).

(2) It is a defence if it is proved that, at the time when the debt was incurred, the person had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.

(3) Without limiting the generality of subsection (2), it is a defence if it is proved that, at the time when the debt was incurred, the person:

(a) had reasonable grounds to believe, and did believe:
(i) that a competent and reliable person (the other person) was responsible for providing to the first-mentioned person adequate information about whether the company was solvent; and

(ii) that the other person was fulfilling that responsibility; and

(b) expected, on the basis of information provided to the first-mentioned person by the other person, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.

(4) If the person was a director of the company at the time when the debt was incurred, it is a defence if it is proved that, because of illness or for some other good reason, he or she did not take part at that time in the management of the company.

(5) It is a defence if it is proved that the person took all reasonable steps to prevent the company from incurring the debt.

(6) In determining whether a defence under subsection (5) has been proved, the matters to which regard is to be had include, but are not limited to:

(a) any action the person took with a view to appointing an administrator of the company; and

(b) when that action was taken; and

(c) the results of that action.”

“ Recovery of compensation for loss resulting from insolvent trading

(1) This section applies where:

(a) a person (in this section called the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and

(b) the person (in this section called the creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company’s insolvency; and

(c) the debt was wholly or partly unsecured when the loss or damage was suffered; and

(d) the company is being wound up;

whether or not:

(e) the director has been convicted of an offence in relation to the contravention; or

(f) a civil penalty order has been made against the director in relation to the contravention.

(2) The company’s liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage.”

53 The issues to be determined in the Liquidators’ claims against Mr Irving for insolvent trading may be summarised thus:

i) whether Wines or Vineyards was insolvent at any time in the Period when it incurred a debt which remains unpaid;

ii) whether there were reasonable grounds for suspecting that Wines or Vineyards was insolvent at such time;

iii) if so, whether Mr Irving was aware at the relevant time of reasonable grounds for suspecting that Wines or Vineyards was insolvent;

iv) whether a reasonable person in a like position would have been so aware;

v) whether at the time any relevant debt was incurred, Mr Irving had reasonable grounds to expect, and did expect, that Wines and Vineyards were solvent, so that a defence under CA s.588H(2) is made out;

vi) as a sub-issue in such defence, whether Mr Irving actually believed, and had reasonable grounds to believe, that competent and reliable persons were responsible for providing to him adequate information about Wines’ and Vineyards’ solvency and that those persons were fulfilling their responsibility;

54 If Mr Irving’s defence under CA s.588H fails, the issues are:

i) whether, having regard to all the circumstances of the case, pursuant to CA s.1317S(2) or s.1318(1) Mr Irving ought fairly to be excused from any default, contravention or breach of duty established;

55 If these issues are resolved against Mr Irving, the Court must determine:

i) the quantum of damages for which Mr Irving is liable. This will involve the determination of the quantum of debts incurred by Wines and Vineyards in the Period, or such part of it as is relevant on the findings made, and the amount of loss, if any, suffered by unpaid creditors;

56 With respect to Mr Irving’s cross claim in the Main Proceedings against Mr Martini, the issues are:

i) whether Mr Irving is entitled, as a matter of law, to allege that Mr Martini contravened CA s.588G(2) and to file a cross claim against Mr Martini in the Main Proceedings;

ii) if Mr Irving is so entitled, whether Mr Martini has also contravened CA s.588G(2);

iii) whether Mr Martini, in accordance with CA s.588H(2), had reasonable grounds to expect and did expect that Wines and Vineyards were solvent and would remain solvent in the Period;

iv) as a sub-issue of the foregoing, whether Mr Martini, in accordance with CA s.588H(3), had reasonable grounds to believe, and did believe, that competent and reliable persons were responsible for providing him with adequate information about the solvency of Wines and Vineyards;

v) if Mr Martini’s defences fail, whether the failure of such defences is a consequence of Mr Irving’s alleged breach of his duty to inform the Board of Wines of the true financial position and performance of Wines;

vi) if Mr Irving has not breached the above duty, whether, having regard to all the circumstances of the case, pursuant to CA s.1317S(2) or s.1318(1), Mr Martini ought fairly to be excused from any default, contravention or breach of duty established;

vii) whether it is otherwise appropriate for the Court to exercise its discretion to relieve Mr Martini wholly or partly from a liability to which he would otherwise be subject;

viii) if Mr Irving is held liable to the Liquidators, whether Mr Martini shares with Mr Irving a co-ordinate liability or common obligation to Wines and Vineyards so as to make good the loss or damage suffered by the creditors of Wines and Vineyards to attract the doctrine of equitable contribution;

ix) in the event that Mr Irving’s cross claim is successful, what is the quantum of damages for which Mr Martini is liable;

57 The issues arising in Mr Irving’s cross claim against Mr Martini arise also in Mr Martini’s cross claim against Ms Yates, subject to minor adjustments of detail.

Unfair Preference Proceedings

58 The issues arising from the defences of Messrs Irving and Martini and Mrs Yates to the Commissioner’s claim for indemnity against them are:

i) whether Wines was insolvent at any time in the Period;

ii) whether the payments made by Wines to the Commissioner, identified by the Liquidators in paragraph 7 of their Statement of Claim, were insolvent transactions within the meaning of CA s.588FC;

iii) whether any of the payments are voidable as against the Commissioner pursuant to CA s.588FE and thus not repayable by the Commissioner;

iv) whether Mr Irving and Mr Martini can establish that the Commissioner is entitled to resist the Liquidators’ claim under CA s.588FG. This in turn raises the following issues:

v) whether the Commissioner became a party to the alleged transactions in good faith;

vi) whether the Commissioner had reasonable grounds to suspect that Wines was insolvent at the time of making payments;

vii) whether a reasonable person in the Commissioner’s circumstances would have had no such grounds for suspicion;

viii) whether the Messrs Irving and Martini and Mrs Yates can rely on the defences available under CA s.588FGB(3) and (4) as to reasonable expectation as to solvency and reasonable reliance on others for adequate information as to solvency;

ix) whether Messrs Irving and Martini and Ms Yates are entitled to seek relief under CA s.1318 and if so, whether they ought to be relieved of liability pursuant to that section;

59 If the Commissioner succeeds in his claim for indemnity against Mr Irving, the principal issues between Mr Irving and Wines are:

i) whether the Commissioner’s claim against Mr Irving is a claim falling within Clause 2.1 of the Indemnity and Access Deed dated 5 September 2002 between Wines and Mr Irving;

Section 37A Claim

60 Since the Plaintiffs’ Section 37A Claim is not contested, the only issues to be determined are:

– whether the evidence establishes that the transfer of Mr Poolman’s interest in Kalivise to Mrs Poolman in December 2003 was done with the intention to defraud creditors;

Conveyancing Act

WHETHER WINES AND VINEYARDS INSOLVENT

Whether solvency of Wines independent of solvency of Vineyards

61 A preliminary issue between the parties is whether the solvency of Wines and Vineyards can be determined by looking at the position of the Reynolds Group on a consolidated basis, as the Liquidators and Commissioner contend.

62 Mr Jackman SC, who appears with Ms J. Shepard of Counsel for Mr Irving, submits:

“… the plaintiffs seek to combine the position of [Wines] and [Vineyards], together with various other subsidiary or sibling companies, in an attempt to show that the “Reynolds group of companies” was insolvent. This is wrong in principle, and contrary to the express language of sections 588G and 95A. While it is permissible in ascertaining the solvency of one of the group companies to look at the assets held by the other group companies, given the ready ability of companies within a group to lend money to others in the group, there is no justification for aggregating the liabilities of group companies and attributing them to each company in the group. Each company is a separate legal entity:

(1976) 137 CLR 1 at 6 (Mason J, with whom Barwick CJ agreed);

(1977) 137 CLR 567 at 577 (Mason J, with whom Stephen, Jacobs, Murphy and Aickin JJ agreed).”

63 I do not think that Mr Jackman’s formulation of the Liquidators’ position is accurate. Further, it really does not address the proper issue in the present case. The Liquidators do not say that the debts of all Reynolds Group companies are to be treated as the debts of Wines. They say that in order to assess the solvency of Wines one cannot have regard to assets of other Group companies which may be available as resources to Wines without having regard to the liabilities of those other companies.

64 It is trite that the test of solvency of a company under CA s.95A is, first and last, a question of fact and that the Court approaches that question as a matter of commercial reality. If one member of a group of companies has, as a matter of commercial reality, ready recourse to the assets of another member of the group for payment of the first company’s debts as they fall due, and that recourse will not result in the insolvency of the second company or in merely delaying the insolvency of the first, then the Court may have regard to that fact in assessing whether the first company is able to pay its debts as they fall due: Lewis v Doran (2004) 50 ACSR 175 at [116].

65 It is beyond question in the present case that whatever cash and asset resources were available to Wines were regarded by the Boards of Wines and Vineyards as available to Vineyards for the payment of its debts, and vice versa. Even Mr Irving, in his submissions, takes the same approach. In Exhibit 2D1, which are hypothetical worked examples put forward by Mr Irving in an endeavour to show that Wines and Vineyards had sufficient asset resources to meet their respective liabilities as they fell due, assets such as the Quandong property, bulk wine sales and debt finance are treated as producing cash for both companies, regardless of which company actually owned the particular asset.

66 If commercial reality requires the Court, in assessing the solvency of company A in a group, to have regard to the assets of assets in company B in the group, commercial reality will also require the Court to look at the liabilities of company B. Company B’s liabilities may be such that it cannot use its assets to assist company A without becoming insolvent itself. In such a case, company B’s assets cannot be regarded as available to pay company A’s debts: the law does not condone robbing Peter to pay Paul.

67 The uncontested evidence is that the Reynolds Group operated as one business with consolidated accounts. The income derived from the individual members was used by all members collectively and there were regular transfers of funds between the bank accounts of Wines and Vineyards, whenever required for operational purposes. The Group had a loan facility of $30M with the ANZ Bank which was secured under cross-collateralised fixed and floating charges given by all members of the Group. The Bank was the major creditor of each company in the Group. IWC Nominees Pty Ltd, as trustee on behalf of the holders of CCPS issued by Wines, held a second-ranking charge given by all Group companies.

68 There were extensive loans between companies in the Group. As at the end of the Period, Vineyards owed Wines $33.9M which was almost the whole of the nett assets of Wines of $34.9M disclosed by the Directors in the Report as to Affairs of Wines. Vineyards was shown as having a nett asset deficiency at book value of $4.5M, so that it could not have fully repaid the loan from Wines.

69 These circumstances demonstrate that in assessing whether Wines or Vineyards was able to pay its own debts as they fell due it is not justifiable to have regard to its own assets and to the assets of other companies in the Group as possible sources of cash in isolation from the financial position of the Group as a whole.

The Commissioner’s tax debts

70 The debts of Wines relevant to the issue of its solvency during the Period fall into two categories: debts said to be owing to the Commissioner by virtue of tax assessments and trade debts owing to unsecured creditors.

71 The relevant assessments against Wines are made in:

– a Notice of Assessment issued on 2 March 2001 in respect of the financial year ended 30 June 1998 for an amount of $4,252,915. The assessment results from the denial by the Commissioner of a loss transfer. The Notice of Assessment states that the amount assessed “is due … on 4 April 2001” and “is … payable by the date previously advised” ;

“is due on 11 April 2001”

72 In short, the Notices of Assessment purported to make the sum of $4,252,915 due and payable by Wines on 4 April 2001, and the sum of $1,316,336 due and payable on 11 April 2001.

73 There is no issue that on 18 June 2001 Wines delivered timely objections to both assessments, the effect of which was to deny any liability for tax. Likewise, there is no issue that the disputes which Wines raised as to the assessments were genuine. Wines had had the advice of Mr Jessup, who had in turn briefed Mr R.F. Edmonds SC (as his Honour then was). On 13 June 2002, Mr Jessup provided lengthy written submissions to the Commissioner in support of Wines’ objections. Mr Fryer of Deloitte submitted to the Commissioner in a letter dated 15 November 2002 that Wines’ case was at least “reasonably arguable”. Neither the Liquidators nor the Commissioner in these proceedings have attacked the genuineness of the opinions expressed by Mr Jessup and by Mr Fryer, nor has there been any submission that those opinions are not reasonably arguable.

74 The Commissioner did not actually decide to disallow Wines’ objections to the Notices of Assessment until after 4 August 2003. As at the date of trial, Wines’ objections to the assessments were still awaiting determination by the Administrative Appeals Tribunal.

75 The Liquidators say that the tax debts, even though disputed, were nevertheless payable at all times during the Period and that Wines was unable to pay them so that it was insolvent. Mr Irving concedes that if the tax debts were payable, for the purposes of CA s.95A, at any time during the Period then Wines could not have paid them, either from its cash resources or from realisation of its assets. The result would be that Wines was insolvent; there would be no necessity to enquire whether it could have paid its trade creditors by recourse to its available assets, as Mr Irving contends Wines could have done.

76 If Wines was insolvent by reason of the tax assessments and had been placed in liquidation during the Period, it would have followed that Vineyards would also have been insolvent and would have been wound up: see the discussion at paragraphs 21, 65-69. Wines’ liquidator would have called upon Vineyards to repay the $33.9M debt, which Vineyards could not have done in full. There would have also been an event of default under the Group’s credit facility with ANZ Bank, which would have called upon Vineyards to repay the $30M facility. It would have been inevitable in such circumstances that Vineyards would have become insolvent and would have to be placed in liquidation. Mr Jackman SC frankly conceded that this was the reality: T172.3-173.26; T1072.47-.52. No other defendant disagreed.

77 Mr Jackman’s contention was, however, that Wines was not insolvent because of the tax assessments. Vineyards was not insolvent during the Period because Wines had not called upon it to pay the $33.9M debt. Wines and Vineyards could, as a matter of commercial reality, pay their due and payable debts out of their own resources. The same contention was adopted by the other defendants.

78 Mr Jackman says that the Commissioner’s assessments were not debts payable by Wines, within the meaning of CA s.95A, at any time during the Period, broadly for two reasons:

– first, the assessments were genuinely disputed as to the whole of the amounts and, further, if Wines is entitled to approximately $14M in tax refunds, which it has claimed in respect of the 1998 and 1999 tax years, the Commissioner’s debts are wholly extinguished;

Mr Irving’s submission:
genuinely disputed tax assessments are not payable

79 There are four arguments which Mr Irving advances in support of the proposition that the disputed assessments should not be treated as liabilities of Wines which were “due and payable” for the purposes of the solvency test prescribed by CA s.95A. Each of the arguments is said to be based on the underlying proposition that “the question (of solvency) must be approached by focussing attention on the perspective of someone operating in a practical business environment”: Written Submissions, 23 February 2007, para 53. The authority cited in support of this proposition, said to be applicable in the present context, is Sycotex Pty Ltd v Baseler (No 2) (1994) 13 ACSR 766, at 775 per Gummow J. Also said to be fundamental to the four arguments is the proposition that the issue of solvency is a question of fact to be decided as a matter of commercial reality: Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213, at paras [48]-[49], [54]; Lewis v Doran (supra) at [106].

80 The first argument is that where a corporation genuinely disputes a certain liability – including a liability said to arise under a tax assessment – and there has not yet been a determination on the merits of the disputed liability, that liability is not to be taken into account in assessing whether the corporation is solvent. The authority cited for that proposition is Taylor v Carroll (1991) 6 ACSR 255, at 255 and 258. Mr Jackman says that this proposition applies a fortiori where, as here, the Court hearing a claim founded upon insolvency does not have jurisdiction to determine a dispute as to tax liability. Accordingly, Mr Jackman says, the tax debt claimed by the Commissioner must be regarded as a contingent liability because it will not be ascertained that Wines is indeed indebted to the Commissioner under the tax assessments unless and until the objections which Wines has raised are decided adversely to it in the AAT.

81 The argument, in summary, proceeds along the following lines:

– because one has to deal with the issue of solvency as a matter of commercial reality, one must look at how the disputed tax liability was required to be treated in Wines’ financial accounts as at 30 June 2002 and 31 December 2002;

– AASB 1044 forbids the recognition of “contingent liabilities” in a company’s statement of financial position (AASB 1044, para 7.1) and the liability under the disputed assessments was contingent;

– AASB 1044 has statutory force under the Corporation Act : CA s.296(1); Stanilite Pacific Ltd (in liq) v Seaton (2005) 55 ACSR 460, at para [62];

The Commissioner’s submission:
genuinely disputed tax assessments are immediately payable

82 The Commissioner and the Liquidators submit that even if there is a genuine dispute as to liability under a tax assessment – in the sense that the taxpayer has at least an arguable case in support of its objections to the assessment – and even if that dispute is awaiting determination by the AAT or by the Courts, nevertheless the effect of the income tax legislation is to make the tax assessment a debt due and payable to the Commonwealth on the date stated in the Notice of Assessment. The Liquidators and the Commissioner say that a dispute as to liability under a tax assessment – while it may be regarded as genuine by the AAT or the Federal Court for the purpose of review proceedings under Pt IVC of the Taxation Administration Act 1953 (Cth) (“TAA”) – is not classified as a “genuine dispute” for the purposes of determining solvency of a corporation under the Corporations Act.

83 The Liquidators and the Commissioner rely on a number of provisions of the Income Tax Assessment Act 1936 (Cth) (“ITAA”) and the TAA. It should be noted that s.204 ITAA was amended with effect from 1 July 2000 but the amendment was not applicable to tax payable for the years of income the subject of the Notices of Assessment against Wines. Similarly, s.208 and s.209 ITAA were repealed with effect from 14 September 2006 but not so as to affect tax assessments made prior to that date. Part 4-15 of Schedule 1 of the TAA governs the recovery of tax liabilities becoming due and payable on or after 1 July 2000, so that it is applicable to the Notices of Assessment in the present case.

84 Section 204(1) Income Tax Assessment Act 1936 (Cth) provided:

“

When tax payable

(1) Subject to the provisions of this Part, any income tax assessed shall be due and payable by the person liable to pay the tax on the date specified in the notice as the date upon which tax is due and payable, not being less than 30 days after the service of the notice, or, if no date is so specified, on the thirtieth day after the service of the notice.”

“

Tax a debt due to the Commonwealth

(1) Income tax when it becomes due and payable shall be a debt due to the Commonwealth, and payable to the Commissioner in the manner and at the place prescribed.”

“

Recovery of tax

(1) Any tax unpaid may be used for and recovered in any Court of competent jurisdiction by the Commissioner or a Deputy Commissioner suing in his official name.”

255-5 of Schedule 1 TAA is to the same effect as s.208(6) and s.209(1) ITAA.

“(1) The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.”

“

Pending review not to affect implementation of taxation decisions

The fact that a review is pending in relation to a taxation decision does not in the meantime interfere with, or affect, the decision and any tax, additional tax or other amount may be recovered as if no review were pending.”

“

Pending appeal not to affect implementation of taxation decisions

The fact that an appeal is pending in relation to a taxation decision does not in the meantime interfere with, or affect, the decision and any tax, additional tax or other amount may be recovered as if no appeal were pending.”

When is a disputed tax assessment payable

85 The following propositions are now, I think, established by authority:

i) the scheme of the tax legislation – s.177, s.204(1) ITAA and s.14ZZM and s.14ZZR TAA – is that the issue and service of a Notice of Assessment creates, upon expiry of the prescribed period for payment, a debt which is immediately due and payable to the Commonwealth: Batagol v Federal Commissioner of Taxation (1963) 109 CLR 243, at 251-252; Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168, at 191-192, 195; Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1996) 62 FCR 302;

ii) the correctness of the assessment and the amount of the debt can be challenged in the review procedures provided by Pt IVC TAA, but not in proceedings wherein the Commissioner seeks to enforce payment of the debt created by the assessment, whether directly, as in proceedings to obtain or execute a judgment, or indirectly, such as by the service of a statutory demand under CA 459E: Batagol (supra) at 252; F.J. Bloemen Pty Ltd v Commissioner of Taxation (Cth) (1981) 147 CLR 360, at 376; Deputy Commissioner of Taxation v Richard Walter Pty Ltd (supra) at 187; Uysal v Deputy Commissioner of Taxation (2003) 54 ATR 214 .

iii) the fact that objection has been taken to an assessment and a review of the assessment is pending under Pt IVC TAA does not, in itself, demonstrate the existence of a “genuine dispute” for the purposes of CA s.459H(1)(a): Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (supra) 62 FCR 302, at 685; Wobelea Pty Ltd v Deputy Commissioner of Taxation (1996) 20 ACSR 436.

iv) a company served with a statutory demand founded upon a Notice of Assessment may demonstrate a “genuine dispute” as to the existence of the debt for the purposes of CA s.459H(1)(a) only if it demonstrates that one or other of the prerequisites for the creation of liability under the Notice of Assessment has not been met, namely, the Commissioner has not actually assessed the amount of taxable income and the tax payable there, or notice of the assessment has not been served on the taxpayer, or the prescribed period for payment of the tax assessment has not expired: Hoare Bros Pty Ltd v Deputy Federal Commissioner of Taxation (1995) 16 ACSR 213, at 223; approved on appeal, Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1996) 19 ACSR 125, at 135-136; see also Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (No 2) (1996) 21 ACSR 449, at 451ff; Moutere Pty Ltd v Deputy Commissioner of Taxation (2000) 34 ACSR 533, at paras [45]-[49];

v) the scheme of the tax legislation does not preclude the taxpayer company from seeking to have set aside a statutory demand founded upon a Notice of Assessment, otherwise validly issued, on the ground that the taxpayer has a genuine offsetting claim, within the meaning of CA s.459H(1)(b) and (v): Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation (2006) 94 SASR 269, at paras [74]-[76], [81]; Fortuna Holdings Pty Ltd v Deputy Commissioner of Taxation of the Commonwealth of Australia [1978] VR 83, at 102;

vi) a statutory demand founded on a Notice of Assessment may be set aside in the Court’s discretion under CA s.459J(1)(b), notwithstanding that the company cannot demonstrate a “genuine dispute” as to the existence of the tax debt for the purposes of CA s.459H(1)(a), if the company can show that there is “some other reason” why the statutory demand should be set aside, for example, the Commissioner’s reliance upon the statutory demand is oppressive and would cause substantial injustice: Softex Industries v Commissioner of Taxation (2001) 187 ALR 448; Moutere (supra); Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 15 ACSR 682, at 695.

vii) a Court may, in the exercise of its inherent discretion to control and protect its processes, refuse an application for summary judgment, or may stay execution of a judgment, founded upon the issue and service of a Notice of Assessment which is still subject to review under Pt IVC TAA. Such discretion, which is open-ended in terms of the factors which may be taken into account, is, however, only exercised in very unusual and clear circumstances, such as where it appears that recovery proceedings are an abuse of process or will cause extreme personal hardship to the taxpayer. The exercise of the discretion may take account of the taxpayer’s prospects of success in the review proceedings – especially if it is clear that the taxpayer’s objections are frivolous – but the Court must give considerable weight to the policy evident in s.204(1) ITAA and s.14ZZM and s.14ZZR TAA that the Commissioner is entitled to recover the debt created by a Notice of Assessment even though it is still subject to review or appeal under Pt IVC TAA: Australian Machinery & Investment Co Pty Ltd v Deputy Commissioner of Taxation (No 2) (1945) 20 ALJR 326; Clyne v Deputy Commissioner of Taxation (NSW) (No 3) (1983) 57 ALJR 673, at 674; Deputy Commissioner of Taxation v Mackey (1982) 13 ATR 547, at 550, 551-552; Snow v Deputy Federal Commissioner of Taxation (WA) (1987) 14 FCR 119, at 139; Koadlow v Deputy Commissioner of Taxation (1985) 85 ATC 4147, at 4151; Cywinski v Deputy Federal Commissioner of Taxation (Vic) [1990] VR 193; Deputy Commissioner of Taxation v Van Phu Ho (1996) 131 FLR 188;

viii) the probability that the taxpayer will be forced into liquidation or bankruptcy by recovery of a tax assessment which is still under review under Pt IVC TAA may constitute “extreme personal hardship” warranting the refusal of summary judgment, or a stay of execution, or may constitute a reason to set aside a statutory demand under CA s.459J(1)(b): Deputy Commissioner of Taxation v Stjepovic (1991) 91 ATC 4,715 at 4,728; Federal Commissioner of Taxation v Myer Emporium Ltd (No 1) (1986) 160 CLR 220, at 222-223; Moutere v Deputy Commissioner of Taxation (supra, at 543)); Softex Industries v Commissioner of Taxation (2001) 187 ALR 448; Willemse Family Company Pty Ltd v Deputy Commissioner of Taxation [2003] 2 Qd R 334, at paras [38]-[43];

Re Pollack; Ex parte Deputy Federal Commissioner of Taxation

Re Hughes; Ex parte Westpac Banking Corporation

Scope Data Systems Pty Ltd v BDO Nelson Parkhill

Australian Beverage Distributors Pty Ltd v Evans & Tait Premium Wines Pty Ltd

86 In the present case, no Defendant has submitted that the Notices of Assessment against Wines were not validly issued and served and that the times stipulated for their payment had not expired by the commencement of the Period. No Defendant has taken the point that the conclusiveness of the Notices of Assessment provided by s.177(1) ITAA cannot be relied upon now because the originals or signed copies have not been produced to the Court. Photocopies are in Exhibit TB 1-24 and they were admitted without objection.

Commercial reality and the scheme of the tax legislation

87 Mr Jackman invokes the proposition that solvency has to be determined with regard to the commercial realities of the company’s financial position: he cites authorities such as Taylor v Australia & New Zealand Banking Group Ltd (1988) 13 ACLR 780, at 784; Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (supra) at paras 54-59; Lewis v Doran (supra) at para 106. Certainly, in Southern Cross one of the questions discussed was whether the commercial reality that creditors will normally allow some latitude in time for the payment of their debts warrants the conclusion that the debts are not payable at the times contractually stipulated: para 54(iv).

88 Mr Jackman submits that as a matter of commercial reality the Commissioner’s debts founded on the Notices of Assessment were not payable by Wines at the times stipulated – or, at least, did not have to be taken into account for the purposes of the cash flow solvency test prescribed by CA s.95A – because if the Commissioner had served a statutory demand on Wines, Wines could have had that demand set aside under CA s.459J(1)(b) and if the Commissioner had moved to obtain and enforce a judgment, Wines could have had the judgment stayed until the review processes under Pt IVC TAA had been completed.

89 The fact is, however, that the remedies which Wines might have invoked are discretionary and whether Wines would have been successful in setting aside a statutory demand, or in obtaining a stay of judgment founded upon the Notices of Assessment, is now a matter of speculation: no action was taken by the Commissioner during the Period which occasioned any application to the Courts by Wines. Speculation today as to what Wines may have been able to achieve gives no reliable guide to what was commercial reality five years ago.

90 The view expressed by Mr Jessup to Mr Fryer and Mr Irving in an e-mail dated 7 November 2002 gives no comfort to the speculative submission that Wines would have been able to set aside a statutory demand founded upon the Notices of Assessment. The e-mail says:

“The [Australian Government Solicitor’s office] are not convinced that the ATO’s position is protected and are not withdrawing the Summonses at this stage and have engaged a financial expert to look at the matter. John Evans and Cameron Jeffs will not intervene. They are still taking the view that the liability and settlement side is their job and recoveries have a separate job to recover the debt.

The law is pretty clear that it is highly unlikely we would get a stay of the Summonses. The only cases where a stay has been granted is where there were decisions on the tax pending in the AAT or the Court .

If (?) they are not going to withdraw the Summonses at this stage then we are of the view that we should try to get an long adjournment which may take us beyond a settlement date. This does not help your position with the ANZ. However at the moment the ATO are not budging on the Summonses and will not withdraw.”

91 However, the decisive answer to the Defendants’ appeal to “commercial reality” in their submission that the Commissioner’s debt was not payable during the Period is that the tax legislation clearly and unequivocally made that debt payable. If the legislature clearly says that a tax debt is payable at a certain time, neither the Court nor a company director can disregard that statutory imperative by an appeal to commercial reality. Absent an agreement by the Commissioner to defer payment, it is not commercial reality to treat a present liability, statutorily imposed, as if it does not exist.

Is a disputed tax assessment a contingent liability?

92 Finally, I am unable to accept Mr Jackman’s submission that Wines’ liability under the Notices of Assessment was, by reason of the currency of review proceedings under Pt IVC TAA, merely a contingent liability and was properly treated as such by Wines and its auditors in Wines’ June and December 2002 financial accounts in accordance with the requirements of AASB 1044, para 7.1.

93 Contingent liability is defined in AASB 1044 para 16.1 as follows:

“(a) a possible liability that arises from past events the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or

(b) a liability that is not recognised because:

(i) it is not probable that a future sacrifice of economic benefits will be required; or

(ii) the amount of the liability cannot be measured reliably”

94 The liability imposed on Wines under the Notices of Assessment does not fall within this definition. In my opinion, it is not correct to describe the immediate liability for tax imposed by the Notices of Assessment as a “possible liability … which will be confirmed … by the occurrence or non-occurrence of … [an] uncertain future event…” within subparagraph (a) of the definition. It is true that the immediate liability which the legislative scheme imposes by service of a Notice of Assessment will disappear if the taxpayer is ultimately successful in review proceedings under Pt IVC TAA. But, unless and until that possibility occurs, the tax liability is actual, not contingent.

95 In the present case, it was not legitimate for Wines’ directors to regard the tax liabilities as falling within the definition of contingent liability in AASB 1044 para 16.1(b). For good reason, neither Wines’ solicitors nor its auditors advised that it was “not probable” that payment of the assessments would not be required, as will be seen from the evidence to be discussed shortly: see paragraphs 219 and 240-247. The liability, which was a present liability, could not be said to be incapable of reliable measurement. It was stated precisely in the Notices of Assessment and, by virtue of s.177(1) ITAA, that amount was correct for all purposes save in the review process under Pt IVC TAA: see Batagol (supra) at 76; Richard Walter (supra) at 191-192.

96 In short, what Wines and its auditors have done in their accounting for the liability arising under the Notices of Assessment is to treat a liability which is presently payable but which may possibly in the future cease to be payable as a liability which is not presently payable but is possibly payable in the future. I can certainly see the argument and its attraction and convenience when a company’s accounts will be scrutinised by the financial market, its creditors and shareholders: disclosing in published financial accounts a present liability which the company cannot pay will set alarm bells ringing very loudly and may create an event of default under the company’s lines of credit. However, I do not think that inverting the true legal position, as Wines and its auditors did, is permissible, however convenient it may be.

97 The scheme imposed by the tax legislation of making tax debts immediately payable even though still subject to the review process under the TAA reflects a deliberate policy of the legislature “which may make life uncomfortable both for the taxpayer and perhaps others who owe money to the taxpayer”: per Mason and Wilson JJ in F.J. Bloemen Pty Ltd v Commissioner of Taxation (supra) at 375. “Uncomfortable” may be much too mild a description for the position of a company faced with a large tax debt which it cannot pay and genuinely disputes. However, the legislative policy applies just as much to such a company as to a temporising tax evader.

98 The legislature trusts the Commissioner not to abuse the enforcement policy of the tax legislation: Bloemen (ibid); Federal Commissioner of Taxation v Clarke (1927) 40 CLR 246, at 276. If the Commissioner abuses that trust, the taxpayer’s remedy lies in the Courts. The taxpayer may not avoid the possibly ruinous consequences of having to account for a present liability imposed by a genuinely contested tax assessment by the expedient of ascribing to that liability a character which it does not truly have in law.

99 To characterise a contested tax liability as “contingent” for the purposes of AASB 1044 para 7.1 is not to be frank – to the financial market, to creditors or to shareholders. Further, directors who resort to such an expedient are not being frank with themselves; they risk making errors of judgment as to the future viability of the company because they blind themselves to the company’s financial position as it really is.

Whether solvency concept excludes “technical considerations”

100 Mr Jackman’s second major submission (Written Submissions 23 February 2007, para 58ff) may be summarised thus:

i) the solvency concept excludes the intervention of technical considerations which are not sympathetic to the purpose behind the concept: Taylor v Carroll (supra) at 266.5 per Derrington J, with whom Moynihan J agreed;

ii) s.177 ITAA is an evidentiary provision benefiting the Commissioner and is applicable only in enforcement proceedings brought by the Commissioner against the taxpayer. It has no application in proceedings brought by a liquidator against a former director, particularly as the director has no standing to invoke the review procedures of Pt IVC TAA;

Sycotex

101 I am unable to accept these submissions, for the following reasons.

102 As to (i): for the reasons I have given above, the issue and service of a valid Notice of Assessment creates, on the expiry of the time stipulated for payment, an immediately payable debt which is given full recognition by the law. Enforcement of the debt may be stayed in certain cases on discretionary grounds but the debt exists in fact and in law unless and until the review procedure sets aside the Notice of Assessment. I am unable to accept that the effect which the scheme of the tax legislation gives to the Notice of Assessment, even while it is subject to review, is a “technical consideration” within the context discussed by Derrington J in Taylor v Carroll.

103 In that case, his Honour agreed with Thomas J who said (at 259) that whether a company was unable to pay its debts as they fell due from its own money was a question of fact to be decided as a matter of commercial reality in the light of all of the circumstances “not merely by looking at the accounts and making a mechanical comparison of assets and liabilities”. Derrington J agreed with the reasons of Thomas J and added his own remarks by way of emphasis.

104 Derrington J drew attention to the concept of insolvency as a practical one, its purpose being primarily to protect creditors although “it must not be wrongly used to liquidate a company and affect a variety of transactions when that remedy is not called for”: at 266.5. His Honour proceeded “this approach excludes the intervention of technical considerations which are not sympathetic to the purpose behind the concept”. By way of example, he said that it was necessary to have regard to matters of futurity when considering solvency at a particular time; that temporary lack of liquidity was not the same as an endemic shortage of working capital and that the pattern of behaviour of creditors in requiring payment in accordance with terms of credit was also relevant.

105 Clearly, his Honour was concerned to underline the statement of Thomas J to the effect that insolvency was not identified by some mechanical comparison of financial figures but was ascertained as a matter of commercial practicality and realism. However, Derrington J did not suggest – and his words taken in context cannot suggest – that in having regard to commercial practicality and realism one is entitled to ignore the existence of a debt which statute says is immediately payable.

106 As to (ii): for the reasons I have given above, I am unable to accept that the scheme of the tax legislation operates only in the context of direct enforcement proceedings as between the Commissioner and the taxpayer. If the taxpayer is a corporation, its directors must face the legal and commercial reality that the company is indebted to the Commissioner unless and until the Notice of Assessment is set aside in the review process. How they deal with that reality may have consequences for them if the company becomes insolvent.

107 As to (iii): in my opinion, it is unnecessary and undesirable to make general pronouncements about what the law expects of a director who is advised that a tax assessment against the company may be set aside or compromised. Each case of insolvent trading will depend on its own facts.

108 However, as I have explained above, directors and their advisers have to accept the legal and commercial reality that the scheme of the tax legislation imposes a present liability on a company upon expiry of the time for payment imposed by a validly issued and served Notice of Assessment. This reality is an “uncomfortable” one – as recognised in Bloemen above – and it is particularly uncomfortable if the company is unable to pay the tax debt but has arguments as to why the assessment should be set aside. The debt is, in law and in fact, presently payable and must be acknowledged as such in the company’s financial accounts unless something has been done effectively to defer payment of the debt until the review process under Pt IVC TAA has been completed.

Q. So your concern in resigning was, it was simply the fact that you didn't know when the ATO proceedings were going to resolve?
A. That's right.

Q. But merely not knowing when the ATO proceedings were going to resolve wouldn't in itself be a reason to resign, would it?

A. It would be true to say I was in a heightened state of awareness of insolvency issues because of Terra Planet. I did not believe Reynolds to be insolvent at the time but I knew that the longer that it was deferred that that moment must inevitably come and, given my experience with Terra Planet, I lost my nerve.”

495 As I have noted, the evidence does not enable me to say exactly when in February 2003 Ms Yates learned from Mr Irving that a decision from the ATO was months away. Her curiosity as to the result of Mr Irving’s meeting with Mr Evans on 5 February must have been aroused when she read statements in the Board papers of 17 February and in Mr Martini’s letter of 27 February that the dispute with the ATO was still continuing. To my observation, Ms Yates is a capable, energetic and forthright person. From late 2002 onwards she was anxious about her own possible liability for insolvent trading as a director of the Reynolds Group. I do not doubt that she would have made it her business to enquire directly from Mr Irving what had been the result of his meeting with Mr Evans. I infer that she obtained Mr Irving’s answer by the end of February 2003, at the very latest.

496 Ms Yates was in no doubt that a favourable settlement with the ATO was by no means assured. At T923.57-T924.30 she said:

“Q. You were very well aware of the consequences that could flow from a non payment of tax?
A. Yes.

Q. And in business you don't know, in any sort of negotiation, what the other side are going to do, do you?
A. No.

Q. It is speculation, isn't it?
A. When Mr Irving reported to the board that the ATO wished to settle the matter, I didn't regard that as speculation.

Q. But the terms of any settlement were entire speculation, weren't they?
A. They were, although the board had provided an outline to Mr Irving of the sort of framework in which they thought a settlement would occur.

Q. But that depended on the ATO, didn't it?
A. Pardon?

Q. That depended on the ATO?
A. Well, it seemed to me there were two parties to the dispute; there were issues that remained unresolved; and we believed that there might be ground for some – I hesitate to use the word – ‘settlement’, but there were issues in dispute and we believed that we might be successful.

Q. Well, it just might be, mightn't it?

A. There was no certainty.”

497 For the reasons which I have explained in relation to Mr Irving’s and Mr Martini’s discretionary defences, I conclude that, from 1 March 2003 onwards, Ms Yates could not justifiably hold the view that Wines and Vineyards could pay the debts which they had incurred, and which they were about to incur, in anything like the time frame, or with anything like the degree of probability, that creditors would have allowed when they supplied goods and services. If Ms Yates had been sued by the Liquidators together with Mr Irving under CA s.588M(2) she would have had a good discretionary defence under CA s.1317S and s.1318 for debts incurred up to 28 February 2003, but not for the period from 1 March 2003 to 30 June 2003. Ms Yates and Mr Martini therefore have a common liability for debts incurred for that period. I conclude that the doctrine of equitable contribution requires that, as between Mr Martini and Ms Yates, Ms Yates is liable to contribute fifty percent of the amount for which Mr Martini is liable to Mr Irving in respect of debts incurred from 1 March 2003 to 30 June 2003.

UNFAIR PREFERENCE PROCEEDINGS

Findings

498 The Liquidators have proved all the elements of their claim against the Commissioner for the unfair preference payments alleged in paragraphs 7 and 14 of the Statement of Claim. The issues arising from the defences of Mr Irving, Mr Martini and Ms Yates (“the Directors”) to the Commissioner’s claim for indemnity CA s.588FGA(2) may be dealt with summarily because of the findings I have previously made.

499 The Directors fail in their defences that:

– the Liquidators have not proved Wines’ insolvency at any time in the Period;

500 The Commissioner has conceded that he has no defence to the Liquidators’ claims under s.588FG(1). The Directors have adduced no evidence which could support the contention that, had the Commissioner sought to maintain any such defence, it would have succeeded.

Defences to the Commissioner’s indemnity claim

501 In defence of the Commissioner’s claim under s.588FGA(2) the Directors seek to raise defences under s.588FGB(3) and (4). Those defences rely upon exactly the same facts and circumstances as the Directors’ defences, or putative defences, under s.588H(2) and (3) to an insolvent trading claim brought by the Liquidators. For the reasons which I have given earlier in relation to those defences, the Directors’ defences under s.588FGB(2) and (4) also fail.

502 In further defence of the Commissioner’s claim, the Directors rely upon the exoneration provisions of CA s.1317S and s.1318B. Mr Stoljar of Counsel very properly draws attention to the recent decision of White J in Palmer v Commissioner of Taxation [2006] NSWSC 1253 in which his Honour held that no order under s.1318 could be made in respect of a claim by the Commissioner against a director under s.588FGA because the Commissioner’s proceedings were not brought for “negligence, default, breach of trust or breach of duty” within the meaning of s.1318 but, rather, arose from the fact that the directors held office at the relevant time and could not establish defences under s.588FGB.

503 Mr Stoljar submits that I should not follow the decision in Palmer and he advances a learned argument in support of his submission.

504 I have resisted the temptation to add a dozen or so unnecessary pages to this judgment. Even if a defence under s.1318 were available in law, it would have failed. For the reasons I have given, by the time of the first preferential payment to the Commissioner on 3 March 2003, the exoneration from liability which I would have afforded the Directors under s.1317S and s.1318 for insolvent trading had come to an end.

Conclusion

505 For these reasons, I conclude that:

– the Liquidators are entitled to judgment against the Commissioner in proceedings 2685 of 2004 in the amount of the preferential payments, together with interest;

506 I will deal with costs on another occasion.

THE CLAIM AGAINST MR POOLMAN

Findings

507 The Liquidators, with leave under s.58(3) Bankruptcy Act, claim against Mr Poolman under CA s.588M(2) for the purpose of proving in his bankrupt estate. Neither Mr Poolman nor his trustee in bankruptcy have contested the Liquidators’ claim. However, Mr Poolman filed a Verified Defence raising the same defences as did Mr Irving. I must be satisfied on the evidence that the Liquidators’ case is proved and that Mr Poolman’s defences do not succeed.

508 The factual findings which I have made in relation to Mr Irving’s defences enable me to deal with the issues summarily.

509 The Liquidators have proved the insolvency of Wines and Vineyards throughout the Period. Mr Poolman, as a director of both companies, participated in Board meetings and received all of the financial information from Mr Martini and Mr Spicer which was sent to Mr Irving and the other Directors. His knowledge of the state of negotiations with the ATO was at least equal to, and probably better than, that of Mr Martini because Mr Poolman had been involved directly in negotiations with the ATO before Mr Irving took over in December 2002.

Conclusions

510 I am satisfied that, because of the actual state of Mr Poolman’s knowledge of the financial position of Wines and Vineyards throughout the Period, his defences under CA s.588H(2) and (3) fail.

511 For the same reasons as apply to Mr Irving, I am satisfied that although Mr Poolman contravened CA s.588G(2) he nevertheless acted honestly, for the purposes of a defence under CA s.1317S and s.1318.

512 There is no direct evidence as to when Mr Poolman learned of Mr Irving’s discussion with Mr Evans on 5 February 2003, and that Mr Irving had then formed the view that a decision could not be expected from the ATO for some months. For the same reasons as I have given above in relation to Ms Yates, I infer that Mr Poolman must have learnt of Mr Irving’s view by the end of February 2003 at the latest. For the reasons given above in relation to Mr Martini and Ms Yates, I would exonerate Mr Poolman for liability for debts incurred by Wines and Vineyards from 1 October 2002 to 28 February 2003. He will be liable for debts incurred on and from 1 March 2003.

SECTION 37A CLAIM

Introduction

513 The Liquidators originally sought declarations pursuant to s.37A Conveyancing Act 1919 (NSW) against Mr Poolman and his wife avoiding three transactions into which they had entered, as having been carried out with the intent of defrauding Mr Poolman’s creditors.

514 Since the commencement of these proceedings Mr and Mrs Poolman have been made bankrupt. The Liquidators now do not seek relief in respect of the second and third transactions. They have obtained leave to continue these proceedings against Mr Poolman for relief in respect of the first transaction. Leave is not required under s.58(3)(b) Bankruptcy Act to proceed against Mrs Poolman in respect of this claim because the claim is not in respect of a debt provable in her bankrupt estate.

515 Nevertheless, Mr and Mrs Poolman and their bankruptcy trustees have been duly notified of the proceedings in case any of them wished to participate in any way. Neither Mr and Mrs Poolman nor their respective trustees have appeared.

516 I am satisfied that it is appropriate to determine the Liquidators’ claim in the absence of Mr and Mrs Poolman and their respective trustees. Although the claim is not contested, I must be satisfied by the evidence that the Liquidators are entitled in law to the relief which they seek.

The facts

517 As at 1 December 2003 Mr Poolman was the sole director of Kalivise Pty Ltd. There was one issued share in Kalivise, which was owned by Mr Poolman. Kalivise was co-owner with Sennabeau Pty Ltd as tenant-in-common in equal shares of a property known as “Bowan Downs”, in Cargo Road, Lidster near Orange. Mrs Poolman was the sole director and sole shareholder of Sennabeau.

518 Bowan Downs was a property of about 700ha and was the residence of Mr and Mrs Poolman. As at December 2003 it had a market value in excess of $3.5M. There was no registered mortgage or other encumbrance over the property.

519 The Liquidators were appointed as Administrators of the Reynolds Group on 4 August 2003. On 18 September 2003 they reported to creditors of the Reynolds Group that, in their preliminary view, there was a strong prima facie case of insolvent trading by the directors of the Group, including Mr Poolman. Litigation to enforce the claim was foreshadowed as possible. Mr Poolman received a copy of that Report at the time of its issue.

520 On 10 November 2003, the Administrators issued a second Report to Creditors. Mr Poolman received a copy. In that report, the Administrators confirmed their opinion that an insolvent trading claim lay against the directors of the Group and advised that, since none of the directors had Directors and Officers Insurance, recovery would be limited to their available personal assets.

521 On 25 November 2003, Wines and Vineyards were placed in liquidation. On 28 November 2003 the Liquidators filed Summonses for the examination of Mr Poolman and other Directors. The Summons was served on Mr Poolman on 3 December 2003.

522 Mr Poolman was examined before the Registrar on 17 December 2003. No question was then asked about ownership of Bowan Downs. The examination of Mr Poolman was stood over, part-heard, to 19 February 2004.

523 Prior to the resumption of Mr Poolman’s examination, the Liquidators discovered that a property, resembling in description Bowan Downs, had been placed on the market for sale in January at a price of about $4.35M. However, the advertisement described the property as “on the Cudal Road”, rather than “in Cargo Road”. Apparently, Cargo Road leads to the township of Cudal.

524 On 5 February 2004, the Liquidators’ solicitors wrote to Mr Poolman’s solicitors, saying that on their instructions a “property in Cudal Road” in which Mr Poolman had an interest had been place on the market for sale. The letter advised that it was the Liquidators’ intention to commence insolvent trading proceedings against Mr Poolman for a sum exceeding $2M. The letter sought an undertaking to provide three days’ notice of an intention to accept an offer for sale of the property, and to provide information relation to the proposed sale.

525 Mr Poolman’s solicitors responded by a letter dated 10 February 2004 as follows:

“1. We are instructed that Mr Poolman does not have an interest, either proprietary, beneficial or commercial in a property in Cudal Road, Orange. Mr Poolman has never resided nor has he ever owned a property in Cudal Road, Orange.

2. Therefore the questions and undertaking requested by you are not applicable to our client.

3. As this information is clearly incorrect, our client requests the source of the information so that he can address this issue to prevent further misinformation in the future.”

526 On resumption of Mr Poolman’s examination on 19 February 2004, Mr Poolman admitted, after some questioning, that the property described at “Cudal Road”, which had been placed on the market, was indeed Bowan Downs. He said that it had been placed on the market in January 2004 by his wife. He denied having an interest in the property. He said that on a date in December 2003, which he could not then remember, he had transferred his share in Kalivise to his wife for one dollar. He said that that consideration was “at full value”.

527 Mr Poolman said that he had not obtained a “formal” valuation of Bowan Downs before making the transfer of the share in Kalivise. However, he said that he had obtained informal valuations in November and December 2003 which placed the market value of the property in the range of $3M to $3.5M. Those valuations were not in writing.

528 Mr Poolman said that, in deciding to effect the transfer, he had obtained advice from his accountant and solicitor (who happened to be Mr Alan Jessup). He said that the transfer of his share in Kalivise was not in performance of any contract with Mrs Poolman.

529 Mr Poolman explained that the value of his share in Kalivise was no more than a dollar because Kalivise owed $1.75M to a company called Centre for Agricultural Management Pty Ltd (“CARM”), the value of Kalivise’s interest in Bowan Downs, about $1.75M according to his “informal valuations”, was reduced to nil by Kalivise’s indebtedness to CARM. CARM was co-owned by Poolmans Pty Ltd, the shareholding of which was owned equally by Mr and Mrs Poolman.

530 Mr Poolman was asked in his examination why he transferred the share in Kalivise to Mrs Poolman if he considered it valueless. He gave this evidence:

“Q. You said to us this morning that you transferred the share at the time that you did – these may not be the exact words – because you wanted to regularise the position in December 2003, at a time when you became aware that the liquidator may be conducting examinations?
A. Privilege. I wanted to regularise the position, I think you are quite right, but I’ll say it in a slightly different way.

Q. How would you say it?
A. I wanted to regularise the position when I realised that I had no further assets to support my borrowings.

Q. Well, that’s why [sic] want to question you, Mr Poolman. Whether you did this transaction or not, that is you transferred the share, your evidence would be, would it not, that your asset position was unchanged other than – well, it was unchanged?
A. Privilege. That’s correct.

Q. Why did you do that transaction at all?
A. Privilege. Exactly the reason that I said. I was holding a share and that share was valueless. I wanted, to use your words, regularise my position. I have also, as you would know and no doubt have seen, resigned all directorships simply seeking to get on with my life.

Q. Why would you bother to transfer a valueless share at that particular time.
A. Privilege. Simply to clarify the actual position.

Q. Well, what advantage by way of clarification did you seek to derive from the transfer? I’m just trying to understand what it was that you say …
A. Privilege. The ownership is seen as the ownership is.

Q. What does that mean?
A. Well, I had no equity in the whole venture.

Q. Well, why didn’t you just leave it in your name?
A. Privilege. I preferred not to.

Q. Why?

A. Privilege. I have no further explanation. I’ve given you every response that I have.”

531 In a later affidavit, Mr Poolman swore that the transfer of his share in Kalivise had been executed on 1 December 2003 and that, simultaneously, Mrs Poolman had been appointed a director and he had resigned as a director. He said that on 17 December 2003 a further share in Kalivise had been issued to Mrs Poolman, although he did not disclose this information in his examination on 19 February 2004.

532 A Notice of Change to Company Details filed with ASIC on 2 December 2003 records Mr Poolman’s resignation as a director of Kalivise, but it does not record the transfer of Mr Poolman’s share to Mrs Poolman.

The Liquidators’ submissions

533 The Liquidators submit that I should conclude that in transferring the share in Kalivise to Mrs Poolman on 1 December 2003, Mr Poolman had an actual intent to remove from the reach of the Liquidators a valuable asset, i.e. a share representing half the value of Bowan Downs. They say that this conclusion is supported by the following facts and circumstances:

– the transfer took place very shortly after Mr Poolman learned that there was a real and imminent prospect that the Liquidators would commence insolvent trading proceedings against him;

– the transfer was for one dollar;

– the transfer was to his wife;

– no proper and documented valuation of the share or of Bowan Downs was obtained in support of the transaction;

– no accounts of Kalivise, Sennabeau and CARM were available at the time of the transaction, nor were they produced afterwards, showing the alleged state of indebtedness of Kalivise and showing that Mr Poolman’s share could be accepted as having a nil value;

– Mr and Mrs Poolman had placed Bowan Downs on the market in January 2004, shortly after the transfer of Mr Poolman’s share;

Bowan Downs

534 The Liquidators submit that Mrs Poolman must have been aware of Mr Poolman’s intent in carrying out the share transfer so that Mrs Poolman was not a purchaser for value without notice.

Whether share transfer void

535 Section 37A(1) Conveyancing Act provides:

“Save as provided in this section, every alienation of property, made whether before or after the commencement of the

, with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced.”

536 There is no doubt that the Liquidators, as persons intending to bring proceedings on behalf of Wines and Vineyards against Mr Poolman at the time of the share transfer, were persons “prejudiced” by the transfer within the meaning of the section, and that they thereby had standing to make this application. The transfer had the effect of placing beyond the Liquidators’ reach an asset which would otherwise have been available to satisfy a judgment debt obtained against Mr Poolman: see Silvera v Slavic (1999) 46 NSWLR 124; Langdon v Gruber [2001] NSWSC 276 at [59], [60] per Austin J.

537 I am satisfied on the evidence provided by the Liquidators that they have proved the facts which they assert.

538 I accept the submissions of the Liquidators as to the conclusion which should be drawn from the facts proved. The timing of the transfer, the informality of the transaction, the lack of support documentation – particularly, documentation giving any substance to Mr Poolman’s assertion that the share was valueless – all strongly suggest that the transfer was effected with the express intent of placing Mr Poolman’s interest in Bowan Downs beyond the reach of the Liquidators if they should launch these proceedings.

539 I am confirmed in this inference by the content of the letter which Mr Poolman’s solicitors sent in response to the Liquidators’ enquiries about Mr Poolman’s interest in Bowan Downs. That letter, obviously written on instructions from Mr Poolman, was deliberately misleading. Mr Poolman could not have been in any doubt that the property referred to by the Liquidators, described in the real estate agent’s advertisement as “on the Cudal Road”, was Bowan Downs.

540 I am satisfied that Mrs Poolman was aware of the share transfer and its purpose. The evidence shows that in early January 2004 a loan of $2.4M from the ANZ Bank was obtained by a company of which Mr and Mrs Poolman were directors. The approval letter is dated 8 January 2004 and was sent to Mr and Mrs Poolman at Bowan Downs. The letter was addressed: “Dear Peter and Constance”. Mrs Poolman subsequently signed the loan documents. Mr Poolman said that it was Mrs Poolman who placed Bowan Downs in the hands of real estate agents. There is no evidence to suggest that Mr and Mrs Poolman were estranged at this time. The evidence strongly suggests that they were co-operating in ordering their financial affairs. I infer that Mr Poolman told Mrs Poolman about the transfer of his share in Kalivise and why he thought it necessary. There is no suggestion that Mrs Poolman was a purchaser for value of the share. I am satisfied that Mrs Poolman acquired the share with notice of Mr Poolman’s intent to defeat his creditors.

541 I conclude that the Liquidators are entitled to a declaration that the transfer of Mr Poolman’s share in Kalivise to Mrs Poolman on or about 1 December 2003 is void, pursuant to s.37A Conveyancing Act.

Is the issue of a share “an alienation of property”

542 While the transfer to Mrs Poolman of Mr Poolman’s share in Kalivise may readily be declared void and of no effect, so that the share register of Kalivise should be rectified accordingly, the question of the issue of a new share to Mrs Poolman is more complicated.

543 As I have found, Mrs Poolman became the sole shareholder and director of Kalivise, in place of Mr Poolman, pursuant to a scheme to defraud Mr Poolman’s creditors. The issue of a new share in Kalivise directly to Mrs Poolman, after she had become a director and thus empowered to resolve that the new share be issued, dilutes the capital of Kalivise. If only the share transferred by Mr Poolman to Mrs Poolman is restored to Mr Poolman’s bankruptcy trustee, Mrs Poolman will retain a fifty percent interest in the assets of Kalivise, whereas previously Mr Poolman’s share in the company represented a one hundred percent interest. Is the issue of Mrs Poolman’s share in Kalivise voidable as “an alienation of property” under s.37A Conveyancing Act?

544 The Liquidators say that, “although it is accepted that the issue of the share itself is not a disposition of property”, the issue of the share was “consequent” upon the voidable transfer of Mr Poolman’s share to Mrs Poolman so that the Court should order that the new share be transferred to Mr Poolman, or his bankruptcy trustee. No authority is cited for the power of the Court to make such an order.

545 In my opinion there is a more direct path to the result which justice requires in this case.

546 As I have observed, the evidence supports the conclusion that the new share in Kalivise was issued to Mrs Poolman shortly after the transfer of Mr Poolman’s share to her in furtherance of an intention, common to both Mr and Mrs Poolman, that Mr Poolman’s interests in Bowan Downs be placed beyond the reach of his creditors. It may well have been thought that the issue of a new share in Kalivise would not be as vulnerable to attack under s.37A as the transfer of Mr Poolman’s existing share. No other commercially justifiable reason for the issue of the share to Mrs Poolman appears from the evidence. If this was the intention of Mr and Mrs Poolman – and I infer that it was – then the issue of the new share can be seen as simply a step in the overall scheme to defraud Mr Poolman’s creditors.

547 In Silvera v Slavic (supra), Mr Slavic, anticipating a judgment against him in District Court proceedings, obtained orders by consent from the Local Court for the transfer of virtually all of his assets to his de facto wife under the (then) De Facto Relationship Act 1984. The plaintiff, having obtained judgement against Mr Slavic, applied to the Supreme Court pursuant to s.37A for orders avoiding the transfers made pursuant to the Local Court orders.

548 Hodgson CJ in Eq (as he then was) found that the consent orders made in the Local Court were procured by Mr Slavic and his de facto wife pursuant to a common intention to defraud Mr Slavic’s creditors. However, it was argued for Mr Slavic that the Court could not make an order avoiding the transfer because such an order would be inconsistent with a valid order made by the Local Court.

549 Hodgson CJ in Eq concluded that the order setting aside the transfer made by Mr Slavic would indeed be inconsistent with the Local Court’s orders. However it did not follow that the purpose of s.37A was frustrated. His Honour said at [72]:

“What s 37A says is that the ‘alienation’ is ‘voidable’. In my opinion, when an application is made under s 37A to the Supreme Court, that Court can achieve the effect of avoiding the alienation by such measures as seem appropriate in the particular case. For example, the Court could declare that the effect of the Local Court order is spent by reason of its being carried out by the subsequent transfers, and then order appropriate re-transfers of the property. Such orders would not be inconsistent with the Local Court orders, nor could they give rise to any possible embarrassment by reason of the existence of conflicting court orders.”

550 The purpose of s.37A is to defeat fraud no matter by what device it is implemented. The reach of the section is not foreshortened by technical obstructions placed in the way of recovery proceedings in furtherance of the original fraudulent intent. The words of the section are of the widest possible application; they focus on the effect of what is done, not on the means by which it is done. The word “alienation” encompasses every conceivable means whereby property might be removed from the reach of a person’s creditors. The section does not say that the alienation must be by the act of the fraudulent debtor.

551 If a person acts collusively with a fraudulent debtor in such a way as to cause ownership of property to move, or to remain away, from the apparently passive debtor, there nevertheless has been an alienation of property for the purposes of the section. In this regard, s.37A Conveyancing Act is wider in reach than s.121(1) of the Bankruptcy Act 1966, which catches only “a transfer of property by a person who later becomes bankrupt”: cf. Official Trustee in Bankruptcy v Mateo (2003) 202 ALR 571, at [61] per Wilcox J.

552 So, for example, if a mortgagee exercised a power of sale in collusion with the fraudulent debtor, there will have been an alienation within the meaning of the section even though the debtor has not signed a transfer or done any other overt act in aid of the transfer. If Mr Slavic had not complied with the Local Court’s order to transfer his property and a Registrar of the Court had signed the transfer in his place, there would still have been an alienation within the reach of the section.

553 “Alienation” includes taking steps to frustrate recovery of property under s.37A. It would defeat the purpose of the section if property, once removed from creditors’ reach, could be kept permanently out of their reach by the collusive defensive acts of a third party, even though those acts could not have been undertaken by the fraudulent debtor. Section 37A therefore empowers the Court to declare void the acts of a collusive third party calculated to maintain the fraudulent alienation, and the Court may order the third party to re-transfer the property.

554 These propositions are, in my opinion, supported by the general reasoning of the Hodgson CJ in Eq in Silvera and in the cases which have followed it: see in particular Houvardas v Zaravinos (2003) 202 ALR 535, at [128] per Bergin J.

555 I am satisfied that the issue of the new share in Kalivise to Mrs Poolman was part of the scheme between Mr and Mrs Poolman to alienate the property of Mr Poolman so as to defeat the Liquidators’ claim. I will make a declaration that the issue of the new share to Mrs Poolman is void and that the register of Kalivise be rectified accordingly.

SUMMARY OF ORDERS AND RELIEF

556 I propose to make orders to the following effect.

557 In proceedings No 2032 of 2004:

i) declaration that Mr Poolman is liable under CA s.588M(2) to pay the loss and damage suffered by Wines and Vineyards in respect of unpaid debts of those companies incurred on and from 1 March 2003 to 4 August 2003;

ii) declaration that Mr Irving is liable under CA s.588M(2) to pay the loss and damage suffered by Wines and Vineyards in respect of unpaid debts of those companies incurred on and from 6 February 2003 to 4 August 2003;

iii) declaration that Mr Irving is entitled in equity to contribution from Mr Martini in respect of Mr Irving’s liability to the Liquidators as declared in paragraph (ii) to the extent only of debts incurred by Wines and Vineyards on and from 8 February 2003 to 4 August 2003;

iv) declaration that Mr Martini is entitled in equity to contribution from Ms Yates in respect of Mr Martini’s liability to Mr Irving as declared in paragraph (iii) to the extent of debts incurred by Wines and Vineyards on and from 1 March 2003 to 30 June 2003;

v) direct that the amounts of loss and damages and contribution for which the parties are liable be ascertained by reference under UCPR 20.14, or by a Court appointed expert, in accordance with directions to be made;

vi) declaration pursuant to s.37A Conveyancing Act 1919 (NSW) that the transfer of one share in Kalivise Pty Ltd from Mr Poolman to Mrs Poolman made on or about 1 December 2003 is void ab initio;

vii) declaration that the issue of one share in Kalivise Pty Ltd to Mrs Poolman on or about 17 December 2003 is void ab initio;

558 In proceedings No 2685 of 2004:

i) declaration that each of the payments made to the Commissioner by Wines as alleged in paragraph 7 of the Statement of Claim and by Vineyards as alleged in paragraph 14 of the Statement of Claim is:

a) an unfair preference pursuant to CA s.588FA;

b) an insolvent transaction pursuant to CA s.588FE;

c) a voidable transaction pursuant to CA s.588FE;

ii) order pursuant to CA s.588FF that the Commissioner repay to Wines and Vineyards respectively the amounts of the payments referred to in paragraph (i);

iii) declaration that Mr Irving and Mr Martini are liable to indemnify the Commissioner pursuant to CA s.588FGA(2) in respect of the loss and damage sustained by the Commissioner as a result of the order in paragraph (ii) to the extent of payments for liabilities under Sub-division 16B in Schedule 1 to the Taxation Administration Act 1953 (Cth);

iv) declaration that Ms Yates is liable to indemnify the Commissioner pursuant to CA s.588FGA(2) in respect of the loss and damage sustained by the Commissioner as a result of the order in paragraph (ii) to the extent of payments received by the Commissioner before 30 June 2003 for liabilities under Sub-Division 16B, as aforesaid;

v) declaration that Wines is liable to indemnify Mr Irving pursuant to Clause 2.1 of the Indemnity and Access Deed dated 5 September 2001 in respect of the liability, loss or damage incurred by Mr Irving as a consequence of the declaration in paragraph (ii) and the orders to be made in accordance with that declaration;

559 Interest will be payable on the amounts found due as between the parties. The interest cannot be calculated until the amounts for which the parties are liable are ascertained.

560 Pursuant to CA s.536(1)(a), I will enquire into the conduct of the Liquidators in:

– entering into a funding agreement and commencing these proceedings when they were aware that there was a substantial risk that the creditors would receive no, or very little, dividend;

– permitting costs to amount to approximately $2M;

561 I will formulate questions for the Liquidators after submissions from the parties and I will give directions as to how the enquiry is to proceed.

562 Questions of costs will be reserved until my enquiry into the Liquidators’ conduct is concluded and the amounts payable as between the parties are ascertained.

563 The Liquidators have commenced proceedings against Mrs Poolman, No 4870 of 2005, the outcome of which is said to depend on the fate of the s.37A claim. No submissions have been made as to what orders are appropriate in proceedings No 4870 of 2005. I will expect such orders to be formulated in Short Minutes of Orders.

564 I will stand the hearing of these proceedings over to a date to be fixed for the bringing in of Short Minutes of Order to reflect these reasons for judgment and for submissions as to the appropriate directions for the further conduct of the case.

– oOo –

– oOo –

03/12/2007 - Para 172 - Correction of date to read "2002" instead of "202".Para 224 - Correction of words: "an ATO officer" should read "an AGS solicitor".Para 237 - Deletion of second occurrence of "not have".Para 327 - Correction of plaintiff cited to "Australian Securities & Investments Commission".Para 406 - Correction of words in first bullet point: "so that the Commissioner's claim against the companies fails" should read "so that the Liquidators' claim against the Commissioner fails".Para 407 - Second sentence deleted and the following substituted: "I have exonerated Mr Irving under CA s.1317S and s.1318 from liability for insolvent trading only up to 5 February 2003. The payments by Wines and Vineyards to the Commissioner were made after that date, when the companies should not have been trading at all. In my opinion, Mr Irving should not be exonerated in respect of liability to the Commissioner under CA s.1317S and s.1318."Para 512 - "above" substituted for "below" where twice occurring.Para 557(iv) - "30 June 2003" substituted for "4 August 2003". - Paragraph(s) 172, 224, 237, 327, 406, 407, 512, 557(iv)

Citations

Hall v Poolman [2007] NSWSC 1330

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CITATION:	Hall & Ors v Poolman & Ors [2007] NSWSC 1330 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	31 January, 1, 2, 5-19 and 26-28 February 2007, and written Outlines of Closing Submissions received from the Plaintiffs on 23.02.07, 27.02.07, 28.02.07, 31.05.07, 08.06.07 and 15.06.07, from Mr Irving on 23.02.07, 25.05.07, 28.05.07 and 26.06.07, from Mr Martini on 23.02.07, from the ATO on 23.02.07 and from Ms Yates on 23.02.07
JUDGMENT DATE :	23 November 2007
JURISDICTION:	Equity DIvision
JUDGMENT OF:	Palmer J
DECISION:	See paragraphs 557 to 564.
CATCHWORDS:	INSOLVENCY – Related companies – whether companies insolvent – whether solvency of company A independent of solvency of company B – whether disputed tax debt “due and payable” – whether companies insolvent because of trade debts. - INSOLVENT TRADING – Directors’ liability – whether reasonable grounds to suspect insolvency – whether director aware of reasonable ground for suspecting insolvency. - INSOLVENT TRADING – DEFENCES – whether reasonable grounds to expect solvency – discretionary defences under s.1317S(2) and s.1318(1) Corporations Act 2001 (Cth) – whether s.1318 applies for contraventions of Corporations Act – whether director acted “honestly” – whether lack of Directors and Officers Insurance relevant to discretion – liquidator enters litigation funding agreement – liquidator knows almost all of proceeds will go to liquidator and litigation funder with negligible return to creditors – whether return to creditors relevant to discretionary defences – control by Courts of abuse of litigation funding – costs under s.98 Civil Procedure Act – liquidators’ duty to seek direction of Court. - INSOLVENT TRADING – UNFAIR PREFERENCES – Where payments by ATO were unfair preferences – whether ATO entitled to indemnity from directors – whether directors entitled to indemnity and set off. - EQUITY – Cross claims between directors – whether directors entitled to equitable contribution to their common liability for insolvent trading. - FRAUD – Director transferred share in company to his wife – whether alienation of property with intent to defraud creditors – ambit of s.37A Conveyancing Act 1919 (NSW) – meaning of “alienation” – whether acts of person other than debtor can be avoided.
LEGISLATION CITED:	- Administrative Appeals Tribunal Act 1975 (Cth) – s.43(6) - Bankruptcy Act 1966 (Cth) – s.58(3), s.82(2), s.86 - Civil Procedure Act 2005 (NSW) – s.21, s.56, s.60, s.98 - Conveyancing Act 1919 (NSW) – s.37A - Corporations Act 2001 (Cth) – s.95A, s.296(1), s.459E, s.459H, s.459J, s.511, s.536, s.553(1), s.553C, s.588FC, s.588FE, s.588FF, s.588FG, s.588FGA, s.588FGB, s.588G, s.588H, s.588J, s.588K, s.588M, s.588U, s.1317S, s.1318 - Income Tax Assessment Act 1936 (Cth) – s.177, s.204(1), s.208, s.209 - Taxation Administration Act 1953 (Cth) – Pt IVC, s.14ZZM, s.14ZZR; and Schedule 1 Pt 4.15, 255-5, 255-10
CASES CITED:	- ACN 076 673 875 Ltd (in liq), Re (2002) 42 ACSR 296 - Addstone Pty Ltd (in liq), Re (1998) 83 FCR 583 - Anstella Nominees Pty Ltd v St George Motor Finance (2003) 21 ACLC 1347 - Australian Beverage Distributors Pty Ltd v Evans & Tait Premium Wines Pty Ltd [2007] NSWCA 57 - Australian Machinery & Investment Co Pty Ltd v Deputy Commissioner of Taxation (No 2) (1945) 20 ALJR 326 - Australian Securities & Investments Commission v Adler (2002) 42 ACSR 80 - Australian Securities & Investments Commission v Australian Investors Forum Pty Ltd (No 2) (2005) 53 ACSR 305 - Australian Securities & Investments Commission v Vines (2005) 56 ACSR 528 - Bank of Australasia v Hall (1907) 4 CLR 1514 - Batagol v Federal Commissioner of Taxation (1963) 109 CLR 243 - Battenberg v Union Club (2005) 53 ACSR 263 - Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 48 NSWLR 1 - Bialkower v Acohs Pty Ltd (1998) 83 FCR 1 - Bloemen Pty Ltd, F.J., v Commissioner of Taxation (Cth) (1981) 147 CLR 360 - Buiscex Ltd v Panfida Foods Ltd (in liq) (1998) 28 ACSR 357 - Burke v LFOT Pty Ltd (2002) 209 CLR 282 - Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd (2006) 80 ALJR 1441 - Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 15 ACSR 682 - Clyne v Deputy Commissioner of Taxation (NSW) (No 3) (1983) 57 ALJR 673 - Collector of Customs v Gaylor Pty Ltd & Dahlia Mining Co Ltd (1995) 35 NSWLR 649 - Commissioner for Corporate Affairs (Vic) v Harvey [1980] VR 669 - Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 - Companies Act, Re; Ex parte Watson (1888) 21 QBD 301 - Coventry v Charter Pacific Corporation Ltd (2005) 80 ALJR 132 - Crema (Vic) Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd (2006) 58 ACSR 631 - Cywinski v Deputy Federal Commissioner of Taxation (Vic) [1990] VR 193 - Daniels v Anderson (1995) 37 NSWLR 438 - Deputy Commissioner of Taxation v Dick [2007] NSWCA 190 - Deputy Commissioner of Taxation v Van Phu Ho (1996) 131 FLR 188 - Deputy Commissioner of Taxation v Mackey (1982) 13 ATR 547 - Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168 - Deputy Commissioner of Taxation v Stjepovic (1991) 91 ATC 4,715 - Dering v Earl of Winchelsea (1787) 1 Cox Eq Cas 318; 29 ER 1184 - Expo International Pty Ltd (in liq) v Chant [1979] 2 NSWLR 820 - Farah Constructions Pty Ltd v Say Dee Pty Ltd (2007) 81 ALJR 1107 - Federal Commissioner of Taxation v Clarke (1927) 40 CLR 246 - Federal Commissioner of Taxation v Myer Emporium Ltd (No 1) (1986) 160 CLR 220 - Fermoyle Pty Ltd (in liq), Re; Commonwealth of Australia v Brown (1982) 62 FLR 413 - Fortuna Holdings Pty Ltd v Deputy Commissioner of Taxation of the Commonwealth of Australia [1978] VR 83 - Gye v McIntyre (1991) 171 CLR 609 - Hoare Bros Pty Ltd v Deputy Federal Commissioner of Taxation (1995) 16 ACSR 213 - Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1996) 19 ACSR 125 - Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (No 2) (1996) 21 ACSR 449 - Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1996) 62 FCR 302 - Houvardas v Zaravinos (2003) 202 ALR 535 - Hughes, Re; ex parte Westpac Banking Corporation [1997] FCA 1324 - Hymix Concrete Pty Ltd v Garritty (1977) 2 ACLR 559 - Imobridge Pty Ltd (in liq) (No 2), Re [2000] 2 Qd R 280 - Industrial Equity Ltd v Blackburn (1977) 137 CLR 567 - Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191 - Kenna & Brown Pty Ltd v Kenna (1999) 32 ACSR 430 - AP & PJ King Pty Ltd (in liq), Re [2006] NSWSC 315 - Koadlow v Deputy Commissioner of Taxation (1985) 85 ATC 4147 - Langdon v Gruber [2001] NSWSC 276 - Lewis v Doran (2004) 50 ACSR 175 - Love, Re (2003) 44 ACSR 367 - McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 - MacIntosh v Lobel (1993) 30 NSWLR 441 - Manpac Industries Pty Ltd v Ceccattini (2002) 20 ACLC 1304 - Moutere Pty Ltd v Deputy Commissioner of Taxation (2000) 34 ACSR 533 - Movitor Pty Ltd (in liq) v Sims (1996) 64 FCR 380 - Newark Pty Ltd (in liq), Re; Taylor v Carroll (1991) 6 ACSR 255 - Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434 - Noxequin Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87 - Oates v Federal Commissioner of Taxation (1990) 27 FCR 289 - Official Trustee in Bankruptcy v Mateo (2003) 202 ALR 571 - Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation (2006) 94 SASR 269 - Palmer v Commissioner of Taxation [2006] NSWSC 1253 - Pollack, Re; ex parte Deputy Federal Commissioner of Taxation (1991) 32 FCR 40 - Powell v Fryer (2001) 37 ACSR 589 - Public Prosecutions, Director of v Ashley [1955] Crim LR 565 - Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 - Reynell v Sprye (1852) 42 ER 710 - Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 - Sarina, Re (1980) 32 ALR 596 - Scope Data Systems Pty Ltd v BDO Nelson Parkhill (2003) 199 ALR 56 - Scott v Williams [2002] SASC 424 - Sheahan v Hertz Australia Pty Ltd (1995) 16 ACSR 765 - Silvera v Slavic (1999) 46 NSWLR 124 - Smallcombe v Olivier (1844) 13 M&W 77 - Snow v Deputy Federal Commissioner of Taxation (WA) (1987) 14 FCR 119 - Softex Industries v Commissioner of Taxation (2001) 187 ALR 448 - Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 - Spika Trading Pty Ltd v Harrison (1990) 19 NSWLR 211 - Stanilite Pacific Ltd (in liq) v Seaton (2005) 55 ACSR 460 - Stewart, re Newtronics Pty Ltd [2007] FCA 1375. - Street & Halls v Retravision (NSW) Ltd (1995) 56 FCR 588 - Sycotex Pty Ltd v Baseler (No 2) (1994) 13 ACSR 766 [(1994) 51 FCR 425 ?] - Taylor v Australia & New Zealand Banking Group Ltd (1988) 13 ACLR 780 - Taylor v Carroll (1991) 6 ACSR 255 - Tosich Construction Pty Ltd, Re (1997) 73 FCR 219 - Tourprint International Pty Ltd (in liq) v Bott (1999) 32 ACSR 201 - Uysal v Deputy Commissioner of Taxation (2003) 54 ATR 214 - Vines v Australian Securities & Investments Commission (2007) 62 ACSR 1 - Walker v Wimborne (1976) 137 CLR 1 - West End Networks Ltd (in liq), Re [2004] 2 AC 506 - Wilde v Australian Trade Equipment Co Pty Ltd (1981) 145 CLR 590 - Willemse Family Company Pty Ltd v Deputy Commissioner of Taxation [2003] 2 Qd R 334 - Wobelea Pty Ltd v Deputy Commissioner of Taxation (1996) 20 ACSR 436
PARTIES:	Gregory Winfield Hall – First Plaintiff (2032/04, 2685/04) Philip Patrick Carter – 1st Plaintiff (2032/04), 2nd Plaintiff (2685/04) Reynolds Wines Ltd (R&M Appointed) (in liq) – 2nd Plaintiff (2032/04), 2nd Respondent (2685/04), 1st Plaintiff (4870/05) Reynolds Vineyards Pty Ltd (R&M App) (In liq) – 3rd Plaintiff (2032/04), 2nd Plaintiff (4870/05) Peter Renwick Poolman – 1st Defendant (2032/04), 1st Respondent (2685/04) Malcolm Geoffrey Irving – 2nd Defendant/Cross Claimant (2032/04), 2nd Respondent/Applicant (2685/04) Constance Helen Poolman – 3rd Defendant (2032/04), Defendant (4870/05) Kalivise Pty Ltd – 4th Defendant (2032/04) Sennabeau Pty Ltd – 5th Defendant (2032/04) Morecraft Kitchens & Joinery Pty Ltd – 6th Defendant (2032/04) John Giske Martini – 1st Cross Defendant/Cross Claimant (2032/04), 3rd Respondent (2685/04) Rupert Clifton-Bligh – 2nd Cross Defendant (2032/04), 1st Respondent (2685/04) Sandra Lee Yates – 1st Cross Defendant (2032/04), 4th Respondent (2032/04) Commissioner of Taxation – Defendant/Applicant (2685/04)
FILE NUMBER(S):	SC 2032/04; 2685/04; 4870/05
COUNSEL:	M.J. Slattery QC, P.W. Flynn – Plaintiffs (2032/04, 2685/04, 4870/05), 2nd Respondent (2685/04) I.M. Jackman SC, J. Shepard – M.G. Irving (2032/04, 2685/04) J. Stoljar – J.G. Martini (2032/04, 2685/04) J.M. White – R. Clifton-Bligh (2032/04, 2685/04) P.G.Cutler – Ms S.L. Yates (2032/04, 2685/04) M.R. Aldridge SC, P.D. Rodionoff – Defendant/Applicant (2685/04)
SOLICITORS:	Blake Dawson Waldron – Plaintiffs (2032/04, 2685/04, 4870/05), 2nd Respondent (2685/04) Addisons – M.G. Irving (2032/04, 2685/04) SBA Lawyers – J.G. Martini (2032/04, 2685/04) Kemp Strang – R. Clifton-Bligh (2032/04, 2685/04) Deacons – Ms S.L. Yates (2032/04, 2685/04) Australian Government Solicitor – Defendant/Applicant (2685/04) PMF Legal – 1st & 3rd to 6th Defendants (2032/04), Defendant (4870/05)