In the matter of FMA Holdings Group Pty Ltd (In Liquidation)

[2018] NSWSC 2057

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	In the matter of FMA Holdings Group Pty Ltd (In Liquidation) [2018] NSWSC 2057
Hearing dates:	27 March 2018
Date of orders:	27 March 2018
Decision date:	27 March 2018
Jurisdiction:	Equity - Corporations List
Before:	Brereton J
Decision:	(1)   Give judgment that the defendant pay the plaintiffs the sum of $919,621.12.  (2)   Order that the defendant pay the plaintiffs' costs on the indemnity basis.
Catchwords:	CORPORATIONS — Winding up —Voidable transactions – unexplained payments to accountancy firm – whether a reasonable person in the company’s circumstances would have entered into the transactions – where amounts appear disproportionate for accountancy fees – where apparent absence of any benefit to the company – where the benefit to the defendant is disproportionate to the benefit to the company – where the company has not kept written financial records – where the company is presumed to have been insolvent throughout the period of its existence – where transactions occurred within two years before the relation back date –
Legislation Cited:	(CTH) Corporations Act 2001, ss 9, 286, 588E, 588FB, 588FC,588FE, 588FF
Category:	Principal judgment
Parties:	Ozem Azzam and Jason Bing-Fai Tang as Joint and Several Liquidators of FMA Holdings Group Pty Ltd (In Liquidation) (First Plaintiff) FMA Holdings Group Pty Ltd (In Liquidation) (Second Plaintiff) Banq Accountants and Advisors Pty Ltd (Defendant)
Representation:	Counsel: I.D. Faulkner (Plaintiffs)   Solicitors: Craddock Murray Neuman Lawyers (Plaintiffs)
File Number(s):	2016/ 318798

Judgment (ex tempore)

1. Pursuant to an Originating Process filed on 25 October 2016, the first and second plaintiffs Ozem Azzam Kassem and Jason Bing-Fai Tang (the Liquidators), being the liquidators of the third plaintiff FMA Holdings Group Proprietary Limited (the Company), seek to recover from the defendant Banq Accountants and Advisers Pty Limited (Banq), three payments amounting in all to $702,000 made by the company to Banq, on the footing that they are voidable either as insolvent uncommercial transactions and/or as unreasonable director-related transactions for the purposes of (CTH) Corporations Act 2001, s 588FE.

2. The proceedings continued on pleadings, by a statement of claim filed on 3 March 2017, and Banq filed a defence on 4 April 2017, by solicitors who had previously filed a notice of appearance.  Subsequently, on 1 September 2017, those solicitors filed notice of ceasing to act. The evidence establishes that the affidavits relied on at the hearing today, together with notice of today's hearing (pursuant to directions made from time to time by the Court, and over and above those directions), have been provided to Banq at its registered office and to its former solicitors and also to another solicitor who seemed at one stage to be likely to act for it. The proceedings were set down for hearing today on an undefended basis and notice of the date and time of listing was given to Banq. There was no appearance for Banq when the matter was called for hearing.

3. The Liquidators’ claim is put first on the basis of an insolvent uncommercial transaction.

4. By Corporations Act, s 588FF, the Court on application by a liquidator, if satisfied that a transaction of a company is voidable because of s 588FE, may make various orders, including an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction. For the purposes of s 588FE, a transaction is voidable if it is an insolvent transaction and is an uncommercial transaction of the company entered into during the two years ending on the relation back day. Pursuant to s 588FC, a transaction is an insolvent transaction if it is, relevantly, an uncommercial transaction entered into at a time when the company was insolvent. Pursuant to s 588FB, a transaction is an uncommercial transaction if it may be expected that a reasonable person in the company's circumstances would not have entered into it, having regard to the benefit to the company and the detriment to the company of entering into it and the respective benefits to other parties of the transaction of entering into it, and any other relevant matter.

5. By Corporations Act, s 9, a transaction includes, for relevant purposes, a payment made by the corporation.

6. In suit in these proceedings are three payments made by the Company to Banq: the first on 15 February 2013 in the sum of $8,000; the second on 7 March 2013 in the sum of $528,410;, and the third on 18 March 2013 in the sum of $165,590. The evidence plainly establishes that those payments were made.

7. The Liquidators were appointed liquidators of the Company on 27 October 2013, pursuant to a special resolution of the Company. The winding up is a creditor's voluntary winding up. The relation back day is therefore 27 October 2013, and all payments to which I have referred were made within two years before that date.

8. The Liquidators have investigated the affairs of the company and have been unable to ascertain any commercial basis for the payments in question. The Company was purportedly engaged in the business of selling luxury motor vehicles. Banq was an accountancy practice. The total amount of the payments, having regard to the affairs of the company overall, appear disproportionate to any sum that might have been properly payable for accountancy fees. No fee notes, invoices or any other like documents that might provide a basis for supposing that there was any commercial basis for this transaction, have been identified. Although Banq put on a defence in which it denied that the transactions were uncommercial, it advanced no explanation for the payments. I am satisfied that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to the apparent absence of any benefit whatsoever to the company from doing so, and the detriment of denuding it of a large proportion of its assets. The benefit to Banq, so far as the evidence reveals, the was entirely disproportionate to any benefit to the Company.

9. As to the question of insolvency, the Liquidators rely on the presumption provided for by Corporations Act, s 286, where a company fails to maintain the books, records and other documents sufficient to correctly record and explain the company's transactions and financial position. Mr Tang, one of the Liquidators, has given evidence that he would have expected that, for that purpose, there would be financial statements (including a profit and loss statement, balance sheet, depreciation schedule and income tax returns), general ledger and general journal, financial records (including bank account statements, cheque butts, deposit slips and petty cash books, sales and debtor records, purchases and creditor records), loan agreements, legal documents, an asset register and a members' register. I should not be taken as indicating that I would necessarily expect all of those documents to be held or maintained in order to comply with s 286; however I do not doubt that one would expect at least there to be financial statements of the type described by Mr Tang, ledgers and a cash book ‑ whether manual or electronic, such as might be found in a QuickBooks or MYOB system. In this case, the endeavours of the Liquidators to obtain any financial records of the Company have been unsuccessful. They have obtained Business Activity Statements and tax returns from Banq, which are predominantly not the Company's records but working papers of its accountants. The lack of success in this respect of the Liquidators has been matched by that of the Australian Taxation Office in conducting an audit, which similarly was unsuccessful in obtaining any relevant information from the Company.

10. On that basis I am satisfied, for present purposes, that the Company has not kept written financial records that correctly record and explain its transactions and financial position and performance, and would enable true and fair financial statements to be prepared and audited. The failure, in that respect, is not merely minor or technical as referred to in s 588E(5), but substantial. Accordingly, pursuant to s 588E(4) the company is presumed to have been insolvent throughout the period of its existence, no such records as required by s 286 having apparently being maintained at any time of its existence. Relevantly, that means that it is presumed to have been insolvent throughout 2013, including when the relevant payments were made.

11. As the definition of "transaction" in s 9 includes, as I have said, a payment, the impugned payments are plainly transactions. It follows that the transactions were voidable as insolvent uncommercial transactions entered into within two years before the relation back day, and the Court's powers under s 588FF are enlivened.

12. In those circumstances, it is unnecessary to consider the more difficult questions that arise in connection with the allegation that they are unreasonable director‑related transactions.

13. The plaintiff has calculated interest from the date of each of the relevant payments, apparently at the appropriate rates, which amounts, in all, to $217,621.12.

14. The Court:

1. Gives judgment that the defendant pay the plaintiffs the sum of $919,621.12.

2. Orders that the defendant pay the plaintiffs' costs, on the indemnity basis.

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Amendments

26 November 2019 - Typographical error paragraph 2.

Decision last updated: 26 November 2019