In the matter of Swan Services Pty Limited (in liquidation)

[2016] NSWSC 1724

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Swan Services Pty Limited (in liquidation) [2016] NSWSC 1724
Hearing dates:	13 – 16, 20 – 23 September, 5 – 7 October 2016
Decision date:	06 December 2016
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Parties to bring in agreed orders to give effect to judgment including as to costs, within 14 days or, if there is no agreement between parties, their respective draft orders and short submissions as to differences between them, indicating whether an oral hearing is required.
Catchwords:	CORPORATIONS — charges, debentures and other borrowings — charges – whether the plaintiff was a secured creditor of the company at the time of a repayment by the company to the plaintiff – where liquidator contended that if plaintiff was not a secured creditor at the relevant time certain transactions involving the plaintiff were voidable transactions – whether loan agreement and any equitable charge derived from it fails for lack of sufficient certainty in circumstances where loan agreement did not identify which assets of the company were subject to the fixed charge and which were subject to the floating charge – whether ASIC Form 309 document was effective to create charge – whether loan agreement was partly written and partly oral such that it included terms for payment of certain interests and charges – whether there was collateral contract requiring payment of certain interests and charges. CORPORATIONS — Winding up — Winding up in insolvency — Insolvent trading — Claim by liquidator against cross-defendants under ss 558G and 588M of the Corporations Act 2001 (Cth) for insolvent trading – where liquidator contended that first cross-defendant was de facto director of companies – whether first cross-defendant was de facto director during relevant time period – whether companies were insolvent or became insolvent by incurring the debts – whether presumption of insolvency arises under s 588E(4) of the Corporations Act 2001 (Cth) – whether contravention of s 588G established – whether “loss or damage” in s 588M of the Corporations Act 2001 (Cth) is reduced by recoveries by the liquidator that will allow distribution to creditors – whether creditors with benefit of retention of title clause whose security vests in company due to company’s winding up fall within scope of s 588M of the Corporations Act 2001 (Cth) – Defences – whether defences under s 588H of Corporations Act 2001 (Cth) established – whether Court should relieve cross-defendants wholly or partly from liability under s 1317S of the Corporations Act 2001 (Cth) if contravention of s 588G is established.
Legislation Cited:	- Corporations Act 2001 (Cth), ss 9, 95A, 266, 286, 436A, 556, 588E, 588FB, 588FC, 588FDA, 588FE, 588FF, 588FL, 588FM, 588FP, 588G, 588H, 588M, 588R, 588V, 1317S, Pt 5.7B - Evidence Act 1995 (NSW), ss 136, 140 - Fair Entitlements Guarantee Act 2012 (Cth) - Income Tax Assessment Act 1997 (Cth) - Personal Property Securities Act 2009 (Cth), ss 12, 267A
Cases Cited:	- Armagas Ltd v Mundogas SA [1985] 1 Ll R 1 - Australian Securities and Investments Commission v Edwards (No 3) [2006] NSWSC 376; (2006) 57 ACSR 209 - Australian Securities and Investments Commission v Edwards [2005] NSWSC 831; (2005) 54 ACSR 583 - Australian Securities and Investments Commission v Healey (No 2) [2011] FCA 1003; (2011) 85 ACSR 654 - Australian Securities and Investments Commission v Plymin (No 1) [2003] VSC 123; (2003) 46 ACSR 126 - Australian Securities and Investments Commission v Plymin (No 2) [2003] VSC 230; (2003) 21 ACLC 1237 - Ball (in his capacity as official liquidator of Wealthfarm Group Services) v Sinclair [2015] NSWSC 2103 - Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd [2011] NSWSC 186; (2011) 248 FLR 384 - Bon McArthur Transport Pty Ltd (in liq) v Caruana [2013] NSWCA 101 - Briginshaw v Briginshaw [1938] ALR 334; (1938) 60 CLR 336 - Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2011] NSWCA 109; (2011) 81 NSWLR 47 - Camden v McKenzie [2007] QCA 136; [2008] 1 Qd R 39 - Campbell Street Theatre Pty Ltd (recs & mgrs apptd) (in liq) v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669 - Commercial Union Insurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 - Cradock v Scottish Provident Institution (1893) 69 LT 380 - Craig v Silverbrook [2013] NSWSC 1687 - Daniels v Anderson (1995) 37 NSWLR 438 - Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565 - Deputy Commissioner of Taxation v Clark [2003] NSWCA 91; (2003) 57 NSWLR 113 - Edenden v Bignell [2007] NSWSC 1122 - Elliott v Australian Securities and Investments Commission [2004] VSCA 54; (2004) 10 VR 369 - Emanuel Management Pty Ltd v Foster’s Brewing Group Ltd [2003] QSC 205; (2003) 178 FLR 1 - First Strategic Development Corporation Ltd (in liq) v Chan [2014] QSC 60 - Fisher v Divine Homes Pty Ltd [2011] NSWSC 8; (2011) 85 ACSR 512 - Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 - Hall v Poolman [2007] NSWSC 1330; (2007) 65 ACSR 123 - Hussain v CSR Building Products Ltd [2016] FCA 392; (2016) 112 ACSR 507 - Illingworth v Houldsworth [1904] AC 355 - International Cat Manufacturing Pty Ltd (in liq) v Rodrick [2013] QSC 91 - International Cat Manufacturing Pty Ltd (in liq) v Rodrick [2013] QCA 372; (2013) 97 ACSR 200 - Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran [2005] NSWCA 243; (2005) 54 ACSR 410 - Lewis v Doran [2004] NSWSC 608; (2004) 208 ALR 385 - Lewis, Re Damilock Pty Ltd (in liq) v VI SA Australia Pty Ltd [2008] FCA 1801; (2008) 68 ACSR 493 - McGraddie v McGraddie [2013] UKSC 58; [2013] 1 WLR 2477 - McLellan (in his capacity as liquidator of Stake Man Pty Ltd) v Carroll [2009] FCA 1415; (2009) 76 ACSR 67 - Metropolitan Fire Systems Pty Ltd v Miller & Ewins (1997) 23 ACSR 699 - Mistmorn Pty Ltd (in liq) v Yasseen (1996) 21 ACSR 173; 14 ACLC 1387 - Morley v Australian Securities and Investments Commission (No 2) [2011] NSWCA 110; (2011) 83 ACSR 620 - Morris v Danoz Directions Pty Ltd (in liq) (No 2) [2010] FCA 836 - Mulherin v Bank of Western Australia Ltd [2006] QCA 175 - Natcomp Technology Australia Pty Ltd v Graiche [2001] NSWCA 120; (2001) 19 ACLC 1117 - National Provincial & Union Bank of England v Charnley [1924] 1 KB 431 - Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 110 ALR 449 - Playspace Playground Pty Ltd v Osborn [2009] FCA 1486 - Powell v Fryer [2001] SASC 59; (2001) 37 ACSR 589 - Queensland Bacon Pty Ltd v Rees [1966] HCA 21; (1966) 115 CLR 266 - Re Accolade Wines Australia Ltd [2016] NSWSC 1023 - Re Ashington Bayswater Pty Ltd (in liq) [2013] NSWSC 1008 - Re Salfa Pty Ltd (in liq) [2014] NSWSC 1423 - Re SSET Constructions Pty Ltd (in liq) – Sims v Khattar [2010] NSWSC 102 - Re Yorkshire Woolcombers Association, Ltd [1903] 2 Ch 284 - Roberts v Investwell Pty Ltd (in liq) [2012] NSWCA 134; (2012) 88 ACSR 689 - Sands and McDougall Wholesale Pty Ltd (in liq) v Commissioner of Taxation [1998] VSCA 76; (1998) 147 FLR 323 - Sandtara Pty Ltd v Longreach Group Ltd [2008] NSWSC 373 - Smith v Bone [2015] FCA 319; (2015) 104 ACSR 528 - Smith v Offermans [2015] QCA 55; (2015) 105 ACSR 230 - Societe d’Avances Commerciales (Societe Anonyme Egyptienne) v Merchants’ Marine Insurance Co (The “Palitana”) (1924) 20 LI L Rep 140 - Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 39 ACSR 305 - State of New South Wales v Hunt [2014] NSWCA 47; (2014) 86 NSWLR 226 - Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584 - Tourprint International Pty Ltd (in liq) v Bott [1999] NSWSC 581; (1992) 32 ACSR 201 - United Builders Pty Ltd v Mutual Acceptance Ltd [1980] HCA 43; (1980) 144 CLR 673 - White Constructions (ACT) Pty Ltd (in liq) v White [2004] NSWSC 71; (2004) 49 ACSR 220 - Williams (as liquidator of Scholz Motor Group Pty Ltd (in liq) v Scholz [2008] QCA 94 - Woodgate v Davis [2002] NSWSC 616; (2002) 42 ACSR 286 - Woodgate v Fawcett [2008] NSWSC 868; (2008) 67 ACSR 611
Category:	Principal judgment
Parties:	Judith Louise Swan (Plaintiff/First Cross-Defendant) Robert John Swan (Second Cross-Defendant) Swan Services Pty Limited (in liquidation) (Defendant/First Cross-Claimant) Anthony Wayne Elkerton (Second Cross-Claimant) Superior Cleaners WA Pty Limited (in liquidation) (Third Cross-Claimant) Cleaners ACT Pty Limited (in liquidation) (Fourth Cross-Claimant) Cleaners Vic Pty Limited (in liquidation) (Fifth Cross-Claimant) Cleaners SA Pty Limited (in liquidation) (Sixth Cross-Claimant) Cleaners Qld Pty Limited (in liquidation) (Seventh Cross-Claimant) Cleaners New South Wales Pty Limited (in liquidation) (Eighth Cross-Claimant)
Representation:	Counsel: P S Braham SC/M Rose (Plaintiff/First Cross-Defendant) C R C Newlinds SC/J Hynes (Defendants/Cross-Claimants) R Notley (Second Cross-Defendant)   Solicitors: Hall & Wilcox (Plaintiff/First Cross-Defendant) TressCox Lawyers (Defendants/Cross-Claimants) Clayton Utz (Second Cross-Defendant)
File Number(s):	2014/34940

Judgment

The parties and the matters in issue

1. These proceedings concern the affairs of the Defendant and First Cross-Claimant, Swan Services Pty Limited (“Swan Services”) and the Third–Eighth Cross-Claimants, which are several other companies within the Swan Group, Superior Cleaners WA Pty Ltd (in liq) (“Cleaners WA”); Cleaners ACT Pty Ltd (in liq) (“Cleaners ACT”); Cleaners Vic Pty Ltd (in liq) (“Cleaners Vic”); Cleaners SA Pty Ltd (in liq) (“Cleaners SA”); Cleaners Qld Pty Ltd (in liq) (“Cleaners Qld”) and Cleaners NSW Pty Ltd (in liq) (“Cleaners NSW”) (together “Companies”). Swan Services and the Companies previously operated a cleaning business which provided cleaning services to major corporate groups, shopping centres and public facilities. It appears that Swan Services and the Companies were together the fifth largest cleaning contract business in Australia at the time that administrators were appointed to them.

2. Broadly, Swan Services held the majority of cleaning contracts within the Swan Group, purchased consumables and acquired equipment and paid the majority of creditors of the Swan Group. The Companies employed cleaning staff and performed cleaning services, although Cleaners Qld was a party to several cleaning contracts, and several of the other Companies were party to other cleaning contracts. The structure contemplated that Swan Services would charge wages and expenses paid on behalf of the subsidiaries to them and they would charge management fees to Swan Services. However, the implementation of that process had broken down over the period in issue in these proceedings, including the period from 1 November 2012 to 22 May 2013 (“relevant period”).

3. Swan Services and the Companies are now in liquidation and their liquidator, Mr Anthony Elkerton, is the Second Cross-Claimant in the proceedings. Mr Elkerton was appointed (with Mr David Young) as administrator of Swan Services and the Companies under s 436A of the Corporations Act 2001 (Cth) on 22 May 2013. Messrs Elkerton and Young subsequently became liquidators of Swan Services and the Companies when their creditors resolved that they be wound up, at a second meeting of creditors held on 27 June 2013. Mr Young subsequently ceased to be liquidator of Swan Services and the Companies on 30 September 2013 and Mr Elkerton continued in that role.

4. The Plaintiff and First Cross-Defendant in the proceedings is Ms Judith Swan, who is the former wife of Mr Robert Swan. Ms Swan had a significant involvement with the affairs of Swan Services from at least 1998 and throughout the relevant period, although the character of that involvement is a central issue in the proceedings. The Second Cross-Defendant, Mr Swan, was the managing director of Swan Services and its subsidiaries and the sole shareholder of Swan Services since 1991. Mr Swan has been a director of Swan Services since June 1969 and has been the sole director of Swan Services (at least in a formal sense) since September 1998 and its sole secretary from October 1998.

5. The proceedings are complex and involve, variously, a claim by Ms Swan for an extension of time for the registration of a security; a claim for insolvent trading brought by the liquidator against Ms Swan on the basis of an allegation that she was a de facto director of Swan Services and the Companies; and a claim for insolvent trading brought by the liquidator against Mr Swan who was a director of Swan Services and the Companies. The proceedings were heard over eleven days commencing 13 September 2016, with oral submissions concluding on 7 October 2016.

6. In assessing the evidence in this case, to which I will refer below, I am conscious of the importance of the credit of witnesses where there is, in respect of some issues, inconsistencies in the oral evidence: McGraddie v McGraddie [2013] UKSC 58; [2013] 1 WLR 2477 at [28]; Craig v Silverbrook [2013] NSWSC 1687 at [142] per Sackar J. I also recognise that the credibility of a witness and his or her veracity may be tested by reference to the objective facts proved independently of the testimony given, in particular by reference to the documents in the case, his or her motives and the overall probabilities: Armagas Ltd v Mundogas SA [1985] 1 Ll R 1 at 57. I have also had regard to Atkin LJ’s observation in Societe d’Avances Commerciales (Societe Anonyme Egyptienne) v Merchants’ Marine Insurance Co (The “Palitana”) (1924) 20 LI L Rep 140 at 152 that “an ounce of intrinsic merit or demerit in the evidence, that is to say, the value of the comparison of evidence with known facts, is worth pounds of demeanour”; substantially the same view was taken by Keane JA in Camden v McKenzie [2007] QCA 136; [2008] 1 Qd R 39 at [34], by Leeming JA (with whom Barrett JA and Tobias AJA agreed) in State of New South Wales v Hunt [2014] NSWCA 47; (2014) 86 NSWLR 226 at [56]: see also Craig v Silverbrook above at [141].

7. I will now refer briefly to the affidavit evidence generally, although I will primarily deal with the evidence that is relevant to particular issues in dealing with those claims below. I will then deal with the relevant claims in the order in which the parties addressed submissions, dealing first with the liquidator’s cross-claim, which is of wider scope than Ms Swan’s claim, and then with Ms Swan’s claim.

8. Mr Elkerton’s first affidavit dated 12 December 2014 (in 199 paragraphs) (“Elkerton 1”) exhibits eight lever arch folders of documents relevant to the financial position of Swan Services and the Companies, including bank statements and records, financial statements, documents relevant to a calculation of a quick asset ratio and documents relevant to creditors. That affidavit also outlined several aspects of the history of Swan Services and the Companies, provided information as to the nature of their business, accounting systems and financial statements, and provided Mr Elkerton’s analysis of the financial position of Swan Services and the Companies, including by reference to a quick asset ratio (“QAR”) summary, a calculation of its debtors and creditors, and an analysis of the tax position of Swan Services and the Companies. Mr Elkerton also dealt with other matters that were relevant to the solvency of Swan Services and the Companies, including indicia of insolvency, non-current assets and liabilities, cashflows and access to borrowed funds.

9. Mr Elkerton’s second affidavit dated 12 December 2014 in 194 paragraphs (“Elkerton 2”) exhibits three further lever arch folders of documents relating the circumstances in which a charge was given by Swan Services to Ms Swan in 2013 (“2013 Charge”) and to the role of Ms Swan within Swan Services. Mr Elkerton’s evidence is also that some 73 unsecured creditors had submitted proofs of debt in the liquidation totalling $8,378,392.68, although he had not yet formally called for proofs of debt; if the 2013 Charge is held to be valid, Mr Elkerton estimates that unsecured creditors would not receive a dividend in the liquidation; and, if the 2013 Charge was held to be invalid, and he made no further recoveries from unrelated recovery actions, he estimates that unsecured creditors would receive a pro rata distribution of up to five cents for every dollar of their total claim (Elkerton 2 [36]–[38]). An issue subsequently arose in respect of that evidence, since Mr Elkerton subsequently recovered a substantial preference, in the order of approximately $2.5 million, in respect of tax payments made by the Swan Group to the Australian Taxation Office (“ATO”).

10. Mr Elkerton’s further affidavit dated 9 May 2016 exhibited correspondence between Ms Swan and other persons which was intended to demonstrate the significance of her role within the Swan Group. By his further affidavit dated 31 August 2016, Mr Elkerton led evidence as to a further calculation of the claim against the Cross-Defendants under ss 588G and 588M of the Corporations Act, involving a modest reduction in that claim. As I will note below, that claim was further reduced in the course of submissions at the hearing. By his fifth affidavit dated 6 September 2016, Mr Elkerton led evidence of wages incurred by the Companies to employees in the relevant period, as to which substantial amounts remained outstanding, and monies received from the Department of Employment which were distributed to eligible employees in respect of unpaid employee entitlements incurred by the Companies prior to his appointment, pursuant to the Fair Entitlements Guarantee Act 2012 (Cth). In my view, Mr Elkerton gave honest and fair evidence, making appropriate qualifications or concessions in cross-examination.

11. The liquidator also relied on the affidavit of Mr David Lombe dated 7 January 2016 which exhibited his expert report dated 21 December 2015. Mr Lombe is a partner in the restructuring services practice of Deloitte Touche Tohmatsu and has extensive experience. Mr Lombe was instructed to provide an opinion on the methodology adopted by Mr Elkerton to assess the financial position of Swan Services and its subsidiaries, and specifically whether the QAR analysis undertaken by Mr Elkerton was an appropriate method to assess Swan Services’ and/or the Swan Group’s financial position, and whether each of the companies within the Swan Group were insolvent in the relevant period. Mr Lombe was cross-examined and was a precise and impressive witness in cross-examination. I will address the detail of Mr Lombe’s evidence below in dealing with the question of solvency.

12. The liquidator also relied on an affidavit of Ms Ann Brewer dated 18 July 2016. Ms Brewer was at the relevant time the Chief Executive for the Centre for Continuing Education and Sydney Learning Pty Ltd (“Sydney Learning”), which was associated with the University of Sydney, and provided consulting services to Swan Services. Ms Brewer also had a personal friendship with Ms Swan, although the extent of that friendship was in dispute, and her son had worked for a period within the Swan Group. Ms Brewer was vigorously cross-examined by Mr Braham who appeared with Mr Rose on behalf of Ms Swan. It was put to Ms Brewer, on behalf of Ms Swan, that aspects of her evidence were false. One possible explanation for Ms Brewer having a degree of antagonism to Ms Swan was identified (T390).

13. The liquidator submits that Ms Brewer gave firm, impartial and considered evidence and the Court should accept Ms Brewer’s evidence without qualification. It seems to me that Ms Brewer’s cross-examination demonstrated that aspects of her recollection were incorrect, and inconsistent with contemporaneous documents or the sequence of events, and she was generally reluctant to depart from her account in her affidavit in cross-examination, even when those inconsistencies were exposed (for example, T221, T227, T261). For example, Ms Brewer was at least incorrect as to the timing of a conversation with Ms Swan concerning Mr Itaoui’s responsibilities, which she attributed to a time after Mr Itaoui had left the Swan Group. Ms Brewer’s affidavit evidence did not fully disclose the extent of her personal friendship with Ms Swan, at the time they were working together, which was evident in the tone of their email communications, and Ms Brewer was also reluctant to concede that matter in cross-examination (for example, T211–212). There was a lack of precision in her evidence as to different roles which she and Sydney Learning dealt with Swan Services, with Sydney Learning at one point providing training for cleaners and managers, Ms Brewer or Sydney Learning at another point advising Swan Services in respect of a cultural change project required by a major client, Sydney Airport Corporation Limited (“SACL”), and Ms Brewer at another point conducting workshops or meetings with senior management of Swan Services, whether on her own behalf or on behalf of Sydney Learning. I have concerns as to an element of overstatement in Ms Brewer’s affidavit evidence and her evidence in cross-examination and I consider her evidence should be approached with a degree of caution.

1. Ms Swan relied on several affidavits. Ms Swan’s affidavit dated 29 January 2014 (“JS1”) was directed to support her claim in respect of the 2013 Charge. Ms Swan’s second affidavit dated 23 May 2014 referred to repayment to her of the amount of $868,200 on 21 May 2013 and to the additional amount which she claimed was due to her, should her claim in respect of the 2013 Charge be successful. Ms Swan’s third and lengthy affidavit dated 5 June 2015 (“JS3”) referred to her background, her marriage to Mr Swan and her involvement with Swan Services over the period since 1998. Ms Swan’s third affidavit also responds, at length, to matters raised in Mr Elkerton’s affidavit dated 12 December 2014 of 199 paragraphs. I will refer to other aspects of that affidavit below. Ms Swan also relied on her further affidavit dated 24 March 2016, which took issue with significant aspects of Ms Brewer’s evidence. By a further affidavit dated 8 September 2016, Ms Swan responded to Mr Elkerton’s affidavit dated 9 May 2016, Ms Brewer’s affidavit dated 18 July 2016 and Mr Itaoui’s affidavit dated 25 August 2016 (which was ultimately not read in the proceedings). There are difficulties with aspects of Ms Swan’s evidence including, as the liquidator points out, the extent to which she sought to qualify her affidavit evidence and gave oral evidence inconsistent with her affidavit evidence, in the course of cross-examination. Ms Swan’s evidence in cross-examination frequently had a somewhat self-serving character, which is perhaps not surprising given the substantial risk she faced in the proceedings.

2. Ms Swan also relies on affidavits of Mr Richard Allsop, who was a solicitor and was retained by Ms Swan over the relevant period, dated 30 January 2014 and 10 June 2015. Mr Allsop’s first affidavit refers to the matters which led to a delay in registration of the 2013 Charge on the Personal Property Securities Register (“PPSR”) and his second affidavit addresses two matters to which I will refer below. Ms Swan also relied on the affidavit of Mr Renner-Mitchel sworn 4 December 2014 which provided further evidence as to the circumstances leading to the delay in registration of the 2013 Charge.

3. Ms Swan relies on an affidavit of Mr Michael Bell dated 24 March 2016. Mr Bell was the chief financial officer for Swan Services from 1 March 2013 to 9 May 2013 and continued as a consultant with Swan Services for about two weeks after that time. Ms Swan submits, and I accept, that particular weight should be given to Mr Bell’s evidence, because he only had a short association with Mr Swan and Ms Swan between his employment on 1 March 2013 and the appointment of an administrator on 23 May 2013, and can be treated as a genuinely independent witness, without personal loyalty to the parties to the proceedings. Mr Bell was cross-examined, and presented as a credible and convincing witness, who had no particular reason to give inaccurate evidence.

4. Ms Swan also relied on Mr Wickenden’s affidavit dated 5 June 2015. Mr Wickenden refers to the circumstances in which he was approached by Mr Allsop, and subsequently engaged by Ms Swan. He also sets out, at some length, the work done in the course of that engagement. Ms Swan also relied on a further affidavit of Mr Wickenden dated 14 August 2015, which took issue with an aspect of Mr Swan’s evidence. The liquidator accepted, and I also accept, that Mr Wickenden’s evidence in cross-examination was direct, forthright and honest.

5. Ms Swan relied on an affidavit of Mr Petrie dated 5 June 2015. Mr Petrie was a young solicitor who commenced employment with Cleaners NSW as program delivery coordinator in April 2012, reporting to Ms Swan, and assisting her with projects in the area of employment law, public liability, compliance, administration and commercial disputes. I will refer to Mr Petrie’s evidence, which is relevant to identifying the role played by Ms Swan within the Swan Group, below. Mr Petrie was cross-examined, and it appears that he had initially met Ms Swan in a social setting, and that she had arranged for his employment by Cleaners NSW. There is, however, no reason to think that Mr Petrie did not give honest evidence of his observations.

6. Ms Swan relied on an affidavit of Mr Winterbottom dated 24 March 2016, which annexed a report setting out a calculation of the amount due to Ms Swan under the 2013 Charge if its validity is sustained. That calculation ultimately appeared to be uncontroversial.

7. Mr Swan relied on his affidavit dated 6 July 2015 (“RS1”). By a second affidavit dated 29 March 2016 (“RS2”), Mr Swan referred to his having read Ms Swan’s affidavit dated 5 June 2015, and expressed his agreement with several aspects of that affidavit, although qualifying or indicating that he did not recall other matters in that affidavit which were potentially adverse to him. The liquidator submits, and I accept, that Mr Swan’s affidavit evidence did not provide any detailed account of his involvement in the business and that Mr Braham’s cross-examination which sought to elicit further evidence from him was undertaken at a high level of generality. There also seems to me to be substantial force in the proposition put to Mr Swan in cross-examination, but denied by him, that he has a financial interest in Ms Swan’s success in the proceedings, so far as he is presently resident in a property owned by Ms Swan, for which he is not paying rent, and that position may be at risk if a substantial judgment is obtained by the liquidator against Ms Swan in the proceedings. Mr Swan also relies on affidavits of his solicitor, Mr Collins dated 13 September 2016, and a further affidavit of another solicitor retained by him, Mr Dayal dated 13 September 2016, which it is not necessary to address further for present purposes.

8. Evidence was not led from several other persons who had significant roles in Swan Services, including Mr Tony Baddour who was the financial controller for the Swan Group from February 2008 to March 2013 and Mr Fred Itaoui who was the chief executive officer for the Swan Group from March 1993 until October 2012.

Insolvent trading claim by Swan Services and the Companies against Ms Swan and Mr Swan

22. By the Second Further Amended Points of Cross-Claim, filed by leave on 20 September 2016, Swan Services and the Companies bring an insolvent trading claim against Ms Swan in respect of the relevant period, on the basis of an allegation that she was a de facto director of Swan Services and the Companies within that period. Swan Services and the Companies also bring an insolvent trading claim against Mr Swan who was a director of Swan Services and the Companies.

23. In order to establish liability for insolvent trading on the part of Ms Swan (and Mr Swan) under s 588G of the Corporations Act, the liquidator must establish, relevantly, that (1) she (or he) was a director of Swan Services or the Companies at the time it or they incurred a debt; (2) Swan Services, or it and the Companies, was or were insolvent at the time the debt was incurred, or became insolvent by incurring the debt; (3) at the time the debt was incurred, there were reasonable grounds to suspect that Swan Services, or it and the Companies was or were insolvent or may become insolvent by incurring the debt; (4) and Ms Swan (or Mr Swan) was aware that there were reasonable grounds to suspect insolvency or a reasonable person would have been aware of that matter. The fact that Mr Swan was a director of Swan Services and the Companies during the relevant period is uncontroversial and the balance of those matters will need to be determined in the claim against him.

24. In Woodgate v Davis [2002] NSWSC 616; (2002) 55 NSWLR 222; 42 ACSR 286, Barrett J (as his Honour then was) observed (at [36]) that:

“Section 588G and related provisions serve an important social purpose. They are intended to engender in directors of companies experiencing financial stress a proper sense of attentiveness and responsible conduct directed towards the avoidance of any increase in the company's debt burden. The provisions are based on a concern for the welfare of creditors exposed to the operation of the principle of limited liability at a time when the prospect of that principle resulting in loss to creditors has become real.”

25. Ms Swan submits, and I proceed on the basis that, an insolvent trading claim must be established having regard to the standard recognised in the general law in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361–362; Playspace Playground Pty Ltd v Osborn [1938] ALR 334; [2009] FCA 1486. I also recognise that s 140 of the Evidence Act 1995 (NSW) similarly provides that, in a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities and that, without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account the nature of the cause of action or defence, the nature of the subject-matter of the proceeding and the gravity of the matters alleged. In Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 110 ALR 449 at 450, the plurality observed that:

“The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary ‘where so serious a matter as fraud is to be found’. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.”

Whether Ms Swan was a de facto director of Swan Services and the Companies

26. The parties agreed that the first issue to be determined in the proceedings, which arises only in respect of Ms Swan, was:

“At any time during the period 28 November 2012 to 22 May 2013 was Ms Swan a “de facto” director of [Swan Services] or any or all of the [Companies] and, if so:

a   over which of the companies within the Group was she a “de facto” director; and

b   during what part of the period 28 November 2012 to 22 May 2013 was she a “de facto” director.”

27. As I noted above, in order to establish liability for insolvent trading on the part of Ms Swan under s 588G of the Corporations Act, the liquidator must first establish that she was a director of Swan Services or the Companies at the time it or they incurred a debt. The definition of the term “director” in s 9 of the Corporations Act extends, in paragraph (b)(i) (unless the contrary intention appears), to a person who is not validly appointed as a director but who is acting in the position of director. A person may be a "de facto" director if he or she is engaged in the affairs of a company generally, as distinct from performing specific functions as a consultant: Mistmorn Pty Ltd (in liq) v Yasseen (1996) 21 ACSR 173; 14 ACLC 1387 per Davies J at 1395. In Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565 at 570; 16 ACLC 1555, Madgwick J observed that that whether a person acts as a director:

“will often be a question of degree, and requires a consideration of the duties performed by that person in the context of the operations and circumstances of the particular company concerned.”

His Honour also observed (at 569) that, in order to establish that a person was "acting in the position of a director" so as to fall within the definition of "director" in the former s 60 of the Corporations Law, it would be necessary to show that he or she "exercises what might be called the actual (and statutorily extended) top level of management functions". His Honour noted (at 570) that a conclusion that a person acted in the position of a director could well be justified, if he or she acted in relation to matters of great importance for a small company, other than as an arm's length expert engaged for a limited purpose.

28. In Natcomp Technology Australia Pty Ltd v Graiche [2001] NSWCA 120; (2001) 19 ACLC 1117, Stein JA (with whom Spigelman CJ and Heydon JA agreed) applied the approach in Deputy Commissioner of Taxation v Austin above and noted (at [13]) that issues relevant to whether a person acted as a de facto director would include how outsiders who dealt with the company would have reasonably perceived that person and whether that person held himself or herself out as director. In International Cat Manufacturing Pty Ltd (in liq) v Rodrick [2013] QSC 91 at [189], McMurdo J in turn identified several factors, on the facts of that case, relevant to whether the defendant had become a de facto director of the relevant company.

29. The liquidator relies on the observations of the Full Court of the Federal Court of Australia as to the concept of a “de facto director” in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 at [64]–[76]. The Full Court there observed (at [66]) that whether the roles and functions performed by a person are such as to constitute that person a director for the purposes of the Corporations Act will often be a question of degree having regard to the “nature of the functions or powers which are exercised and the extent of their exercise”; the relationship of a person with a company may evolve over time into that of a de facto director (at [67]); the question is one of substance and not simply how the person has been described in or by the company (at [68]); and whether a person is a director will turn on the nature and extent of the functions he or she performs (both in and beyond the engagement) and on the constraints imposed on him or her (at [68]). The Full Court also observed that the fact that a company has an active director apart from the alleged de facto director does not preclude a finding that that person was a de facto director (at [74]) and that perceptions by others that the person was a director can have evidentiary significance, particularly if those perceptions were “independently formed, reasonable in the circumstances and support the appearance that the person was acting ‘under colour of office’” (at [75]).

30. In closing submissions, Ms Swan points out, and I accept, that the Corporations Act distinguishes between the position of an “officer”, which includes persons who make or participate in making decisions that affect the whole or a substantial part of the business of a corporation, or who have the capacity to affect significantly the corporation’s financial standing, and the position of a “director”, including a de facto director. Even if Ms Swan was involved in making decisions that affect the whole or a substantial part of Swan Services’ or the Companies’ business, or decisions which had the capacity to affect Swan Services’ or the Companies’ financial standing, it does not follow that she was a de facto director, rather than a person falling within the extended category of “officer”, and liability for insolvent trading is not imposed upon company officers as distinct from company directors.

31. Ms Swan also submits that care should be exercised before characterising a member of a director’s family, who provides assistance in a period of crisis, as a de facto director. There is some support for that proposition in the observations of Madgwick J in Deputy Commissioner of Taxation v Austin above. However, I can see little reason to treat a family member differently from any other person who becomes involved in a company’s management, whether in a position of crisis or otherwise, in determining whether he or she should properly be characterised as a de facto director of the company. Even if he or she has, for praiseworthy reasons, chosen to become involved in making high level management decisions, consistent with his or her characterisation as a de facto director, that seems to me to provide little reason not to treat him or her as subject to the obligations imposed upon a director in respect of such decisions. To that extent, I would differ from the observations of Madgwick J in Deputy Commissioner of Taxation v Austin above, although those observations do not seem to me to be necessary to his Honour’s decision and that question is also not determinative in this case.

32. Ms Swan also submitted, in closing submissions, that a secured creditor may, by reason of its negotiating position, make demands or requests of a debtor company and the company’s compliance with those demands or requests does not establish that a secured creditor had become a de facto or shadow director: Emanuel Management Pty Ltd v Foster’s Brewing Group Ltd [2003] QSC 205; (2003) 178 FLR 1; Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2011] NSWCA 109; (2011) 81 NSWLR 47 at [215]. While I accept that that proposition is plainly established by the case law, it seems to me of limited assistance in this case, which is not one where Ms Swan was, for example, requiring Swan Services or the Companies, acting by their officers, to take particular steps as a condition of her continuing financial support, but instead one where Ms Swan was, to a significant extent, attending to matters herself. It seems to me that a secured creditor who himself or herself acts on a company’s behalf, in appropriately significant matters, may more readily be characterised as a de facto director than a secured creditor which set requirements which a company may have to meet as a condition of continuing financial support. Whether Ms Swan is in fact a de facto director must depend upon a detailed analysis of the actions which she took, as set out in the affidavit evidence and outline of facts below.

The evidence as to Ms Swan’s role within the Swan Group

33. I will now refer to the evidence which set out Ms Swan’s role within the Swan Group, and also to evidence as to Mr Swan’s role which provides important context for Ms Swan’s role. To some extent, the numerous emails from Ms Swan referred to below create a misleading impression of the level of her activity, by comparison with Mr Swan, since she was a regular and he a more limited user of email.

34. Mr Elkerton’s second affidavit referred to numerous communications involving Ms Swan and her various roles with Swan Services, extending over the period from 1999, shortly after she married Mr Swan in November 1998, through to 2013. Ms Swan objected to the tender of numerous documents relating to the earlier period, which I held were relevant, so far as Ms Swan’s role with Swan Services in the earlier period could create a proper basis for findings as to her role in the later period. It seems to me that those documents establish that Ms Swan plainly had the skills, arising from her professional qualifications as a legal practitioner, and the capacity to provide significant assistance to Swan Services and the Companies in periods of difficulty, and had done so in earlier years, and also had ambitions to take a wider role with Swan Services and the Companies beyond the role that she had in fact been permitted to undertake. Ms Swan ultimately acknowledged as much, at least in her cross-examination, although she had been less forthcoming as to that question in her affidavit evidence. Beyond that, it seemed to me that there was ultimately little utility in examining Ms Swan’s role in earlier years, in order to determine her role in the relevant period from November 2012, since it was plain that Ms Swan’s role had changed significantly, from time to time, over the very lengthy period in which she had involvement with Swan Services. I will nonetheless address the evidence of Ms Swan’s role over the lengthy period that was addressed in the evidence.

33. Ms Swan commenced working with Swan Administration Trust as General Manager in January 1999 (JS1 [6]; JS3 [19]). There is evidence that, at various times, Ms Swan was content to be understood to have a significant role within the Swan Group. A curriculum vitae of Ms Swan, prepared about 2000, refers to her having been General Manager (Administration) and Acting CEO for Swan Services from July 1998 and to having been responsible, not only for industrial relations and employment matters, and various other specific responsibilities, but also, as Acting CEO, for introduction of cultural change management, restructuring the senior management team, setting strategies and liaising with clients (Ex CC13, 780). At the same time, it must be recognised that a curriculum vitae of an executive will not always be the most objective or reliable record of the level of his or her responsibilities and that the nature of Ms Swan’s role, pre-2000, is in any event of limited relevance to determining her role during the relevant period. When further tax difficulties arose in respect of the Swan Group in 2002, Mr Swan responded to payment demands by appointing Ms Swan as the point of contact for the ATO in relation to the Swan Group’s tax debts (Ex CC13, 785–787). Ms Swan later held executive positions with the Swan Group from time to time and worked with Cleaners NSW as General Manager, Legal and Human Resources from 2003 to 2011.

34. There are also several occasions in which Ms Swan described herself as playing a significant role in the Swan Group in correspondence with friends and acquaintances. In an email sent on 13 March 2003 to a friend (Ex CC13, 818–819), Ms Swan wrote that she had “just fired our CEO” and described her role in terms that:

“We own and manage a contract cleaning company with over 1300 employees … My main responsibilities up until recently were taking care of IR, legals and insurance matters. Now I am also flooded with the financials because the CEO, in a nutshell, stuffed up”

The nature of Ms Swan’s role in 2003, whether or not overstated, again says little as to her position in the relevant period.

37. Ms Swan, in 2004, had prepared (or, she suggested in cross-examination, others may have prepared) a draft letter to the ATO (which may or may not have seen sent) describing herself as the General Manager of Swan Group, setting out matters which had then caused the Swan Group to run into financial difficulty at that time, and referring to steps which she had undertaken to restructure Swan Services at earlier times. That letter also pointed to matters which limited Mr Swan’s management capacity and submitted that he had been a director of the company “in name only” when another person was appointed as chief executive officer in May 2001 (Ex CC13, 990ff).

38. Ms Swan had considerable difficulty, in cross-examination, in explaining the submission to the ATO as to Mr Swan’s role which had been prepared in her name, seeking to suggest that it may have been prepared by others, including Mr Allsop, and that it was a statement “in mitigation” and may have underplayed certain circumstances (T299). That explanation was not a credible explanation of a statement to the ATO that Mr Swan was a director of Swan Services in name only, if that were not the case. Ms Swan, not surprisingly, also had difficulty in maintaining the position that the statement that Mr Swan was a director of Swan Services in name only was not a lie (T299) while at the same time not accepting that it was an accurate description of the position. Ms Swan’s evidence in cross-examination was that Mr Swan was running the Swan Group, in respect of matters other than payments to the ATO (T301), but that was not, of course, what had been said to the ATO. Ms Swan also had difficulty in giving a fair answer to the question whether the Swan Group’s difficulties with the ATO in 2003 amounted to a “crisis”, having initially characterised the position as no more than a “hiccup”, before ultimately accepting that it was a “crisis”, and then seeking to reconcile the two answers by suggesting that “in hindsight it was a hiccup; at the time it was a crisis” (T302).

39. In April 2004, Ms Swan sent an email to Mr Swan’s son from his earlier marriage, Ben Swan (Ex CC13, 929–930) which stated that:

“Swan’s precarious financial circumstance were not caused by me. I have spent most of the past six and a half years, except for 2002 when I was selling the Hotel licence, trying to fix them. Unfortunately, in 2001 I was distracted due to the demise of HIH Ltd. I had set up an arrangement with the ATO that John failed to follow and he failed to advise me of this. I was only made aware of this on 18 February 2003 …

You set out to put a proposal to Bob [Swan] for Swan where I was not included and was not even considered, despite the reliance that Swan has on me for both financial and administrative input and had the audacity to infer that I was in a less superior position to Bob [Swan] in the company and then when finding this out, you chose to explain it away as if it meant nothing …”

40. The liquidator also relies on emails sent from Ms Swan to members of Swan Group’s management, including one in March 2005 (again many years prior to the relevant period) where Ms Swan sought operational information in respect of Swan Services. For example, Ms Swan sent an email to Mr Itaoui, then the General Manager, Business Development, in March 2005 (Ex CC13, 1094) which stated:

“What is happening with our contracts? What jobs have we started? What is required from us pertaining security? When do we start security contracts? We need to be informed and I know nothing.”

41. In 2008, still several years before the relevant period, Ms Swan appears to have sought to review correspondence between companies in the Swan Group and third parties, before it was sent (Ex CC13, 1199). In February 2009, Ms Swan wrote to a friend (Ex CC13, 1221) stating that:

“… Now I just run a big business with 3000 employees and it gives me headaches (like managing children). That with four children means that I do not have much time for anything else. It could be worse. I spoke to a friend of mine in South Africa whose business employs 100,000 employees.

My husband is 62 and has a huge yacht (which he is sailing now). It is a good thing as it means that he doesn’t interfere too much …”

That email, if taken on its face, would suggest Ms Swan had a substantial role and Mr Swan a minimal role in Swan Services and the Companies. That characterisation is plainly not consistent with the bulk of the evidence and I read that email as an overstatement of Ms Swan’s role.

42. Ms Swan and an Operations Manager assumed management of a contract with Colonial First State Properties (“Colonial”), which was Swan Services’ largest contract, in 2011 as a result of dissatisfaction by Colonial with Mr Itaoui’s performance (RS1 [36]–[37]). An email in February 2011 from Ms Swan to Mr Itaoui and others (Ex CC13, 1362) stated that:

“I am involved as a consequence of being responsible for HR, being CEO, being the company’s lawyer, being Bob’s wife and being locus in parentis to Joe. Thanks Alan for the update.”

43. Ms Swan’s aspirations to a wider leadership role in the Swan Group were also evident in her dealings with Ms Brewer and other members of Swan Group’s management involving Ms Brewer in 2011. In September 2011, a first workshop took place involving Ms Brewer and the Swan leadership group (Brewer 18.7.16 [29]; Ex CC13, 1386). Ms Swan set out the nature of her role in a document headed “Role Clarification Questionnaire” provided to Ms Brewer on 29 September 2011, which described her position as “CEO” but also recorded that her supervisor was the managing director, presumably Mr Swan. Little weight should be given to the title “CEO” which seems to have been allocated to Ms Swan in a somewhat contrived attempt to persuade Colonial that she was qualified for a supervisory role in respect of the contract with it, after Colonial fell out with Mr Itaoui and requested his replacement in that role. That document in turn recorded that Ms Swan’s responsibilities were (Ex CC13, 1394):

“Managing all employment matters, all legal matters, major client matters eg Colonial, compliance, OHS, workers compensation and contract reviews.”

That document stated that Ms Swan was fully responsible for “legal, employment and compliance”, partially responsible for “contract reviews, OHS, workers compensation” and noted that (Ex CC13, 1396):

“There is a clash between [Mr Swan] and me with regard to the importance of administration/compliance versus operations”

That document stated that she took on a role as account manager of Colonial when the Swan Group was “not performing” and that the contract was now successful. Ms Swan also recorded (Ex CC13, 1394ff) that she sought clarification as to the “CEO” role and was unclear as to what others expected of her in that role and noted that she would like others to recognise, in respect of the work that she did:

“That it is important. Not only do they underestimate its value, but they undermine it and my staff.”

44. That document does not seem to me to provide any substantial support for a contention that Ms Swan in fact made significant strategic or corporate decisions, of a kind that would be consistent with a director’s role, and emphasises the extent to which others in the Swan Group did not accept Ms Swan’s aspirations as to her role. Ms Brewer accepted in cross-examination that at the time she received relevant role questionnaires, including that of Mr Swan and that of Ms Swan, she understood that Mr Swan considered that he was running the Company and that all the senior people were reporting to him, although she also pointed to Ms Swan having sought clarification as to the scope of the “CEO” role which she (I interpolate, nominally) held (T236).

45. Mr Swan’s attitude to Ms Swan’s ambition is well illustrated by an email sent by Ms Swan to Ms Brewer after a management workshop on 3 November 2011 (Ex CC13, 1418), which recorded that Mr Swan had been “ballistic” at Ms Swan since that meeting, on the basis that he believed Ms Swan had insulted Swan Services’ financial controller, Mr Baddour, and that she was “not qualified to be CEO” and “should find another job”. Ms Swan, incidentally, there also recorded the view that “because the accounts are so behind, the banks won’t lend to [Swan Services]”, although they would lend to Ms Swan because she held assets. Ms Brewer suggested, in cross-examination, that that email implied that Ms Swan’s motivation “is and was to be CEO and that she was under threat by taking up that position” (T241). I accept that, at the relevant time, Ms Swan wished to be chief executive officer in substance, and not merely in name, but it seems to me clear on the evidence that she failed to achieve that objective. Ms Brewer also recognised, both in a report which she prepared following the workshop on 3 November 2011 (Ex CC13, 1423) and in her cross-examination that the Swan Group’s senior leadership team, and in particular Mr Itaoui and Mr Swan, were not supportive of Ms Swan performing the role of chief executive officer, and none of them thought that Ms Swan should be calling herself “CEO”, because they did not feel she was capable of performing that role and resented her seeking to give instructions to them (T242).

46. In a later email dated 6 November 2011 to Ms Brewer (Ex CC13, 1425–1426), Ms Swan stated that:

“Prior to the global financial crisis, I insisted on being debt free and stripping ourselves of unnecessary staff members. We were therefore in a perfect position, strategically, when this happened. Bob has a short memory and forgets these strategic decisions made by me. I have a lot vested in the company too.”

That email also indicates Ms Swan’s aspirations to exert a greater degree of influence over Swan Services, in stating that Mr Swan had appointed her as CEO for “succession planning” reasons and because it seemed the “natural thing to do” and that future turnover of the Swan Group “can rise without much effort, if [Mr Swan] allows [Ms Swan] to take some control”. Again, it seems to me that this email indicates what Ms Swan wished to have happen, rather than what had happened, and itself recognises that Mr Swan at that point was not allowing Ms Swan to exercise the degree of control that she wished to.

47. Ms Swan had an argument with the Swan Group’s then chief executive officer, Mr Itaoui, in September 2012 in which she claimed she was able to call up her loan to Swan Services and “take over” if Mr Swan did not repay her; suggested that she had Mr Swan’s support and that he had seen “the mess” that Mr Itaoui had created; and that she would be a “lot more in [Mr Itaoui’s] face” when she returned from a trip to South Africa which she was about to take (JS3 [171]). Mr Itaoui resigned by letter dated 17 September 2012 following this argument (Ex CC13, 1490). By email dated 18 September 2012 to Mr Itaoui (Ex CC13, 1492), presumably before knowing of Mr Itaoui’s resignation, Ms Swan advised him that:

“Finally, if you ever question my authority or right of ownership of Swan or if you ever swear at me again, I will have no hesitation but to ask you to leave.

From now on, despite what you think, I will be getting involved in the management of operations, tenders and other matters and you will be held accountable. We will set KPI’s for you and if you fail to meet them, you will be addressed on this”.

48. In October 2012, a suggestion that Mr Swan would be managing director and Ms Swan would be chief executive officer of the Company, at the same level as Mr Swan, was reflected in an organisational chart prepared by Mr Petrie, reflecting Ms Swan’s wishes (Ex CC15, T399). Ms Swan also accepted in cross-examination that, at that time, she was “pushing heavily” to seek to assert her position in the Swan Group, as an equal with her husband, where she would jointly make all important decisions (T400). Ms Swan did not, however, accept that she achieved that position or that that had occurred from December 2012 (T401). Ms Swan also gives evidence of having been busy, in the period from October 2012 until December 2012, “putting out spot fires” after Mr Itaoui’s resignation, but her evidence is that that was an “interim ad hoc role until new managers were appointed” by Mr Swan (JS3 [182]). That evidence is not wholly consistent with her evidence (to which I refer below) of her only having been asked to return to work, at least on a full-time basis, in November 2012. However, I will also refer below to the evidence that other persons, Messrs Spiller and Webb, not Ms Swan, took up the senior management roles in the Swan Group at this time, with Mr Spiller performing a role broadly equivalent to Mr Itaoui’s role, and Mr Webb being responsible for operational matters.

49. In late November 2012, significant unreported tax liabilities owed by the Swan Group to the ATO were drawn to the attention of Mr Swan and Ms Swan, by its financial controller, Mr Baddour, and it became apparent in early December 2012 that those liabilities were as much as $10 million. I will refer to these matters in dealing with the issues as to solvency below, but they provide important background to Ms Swan’s role from November 2012 to which I now turn. Ms Swan’s evidence is that, after these tax issues were identified in November 2012, Mr Swan requested that she return to Swan Services on a full time basis and she required that she be paid a salary in order to do so (JS3 [183]). Ms Swan also engaged Mr Allsop, and Mr Allsop engaged Mr Wickenden, to advise her in respect of these issues. She had an obvious interest in obtaining such advice as a substantial creditor of the Swan Group.

50. By email dated 30 November 2012 (Ex CC13, 1530), Ms Swan advised Mr Allsop that:

“A lot is happening and I am having to do some high level managing. I have again been let down by [Mr Swan] …”

51. By email dated 2 December 2012 (Ex CC13, 1539), Ms Swan advised Mr Webb, with a copy to Mr Spiller that:

“[Professor] Ann Brewer who is assisting me with the restructuring of the business would like to have a meeting with you, me and Jason [Spiller] on Saturday afternoon … .”

52. Ms Swan was recorded as becoming an employee of the Swan Group from 3 December 2012 in payment records (Ex CC13, 1542). Mr Baddour resigned by email dated 3 December 2012 (Ex CC13, 1543) addressed to both Mr Swan and Ms Swan, although he subsequently continued work beyond that date. By email dated 4 December 2012, Ms Swan responded to Mr Baddour’s email resignation (Ex CC13, 1544) in a manner that again suggested that she was taking responsibility for managing events, as follows:

“Tony we need to focus on what is ahead. We can talk about this when it is done. We don’t have time to nit-pick and figure out what went wrong where. It is plain. Unprofitable contracts, low margins, high overheads. Now we change all that, negotiate with clients, cut overheads, reduce in size and we will survive. No time to weep or bleed.”

53. By letter dated 5 December 2012 (Ex CC13, 1554) from HLB Mann Judd to Mr Allsop, that firm recorded its engagement for “tax consulting, accounting and business advice” in relation to the management and payment of the Swan Group’s outstanding tax and business liabilities. The liquidator seeks to rely on that matter as indicating that the retainer by Ms Swan of Mr Wickenden was undertaken on behalf of Swan Services and the Companies. I do not draw that inference, and it seems to me that this was no more than an erroneous reference to an investigation of Swan Services’ and the Companies’ outstanding tax and business liabilities, which was plainly relevant to Ms Swan as a substantial creditor of Swan Services. That matter is made clear by the detailed description of the scope of the engagement, as follows (Ex CC13, 1555):

“●   To undertake meetings and telephone calls to discuss and advise [Ms Swan] on the management and payment of [Swan Group’s] outstanding tax and business liabilities.

●   To review and advise [Ms Swan] on the Swan Group’s current and projected financial positions.

●   To assist [Ms Swan] in interpreting the Swan Group’s financial accounts and cashflow projections showing its current and projected financial positions.

●   If necessary, to enter into discussions and negotiations with the [ATO] on behalf of [Ms Swan] concerning arrangements for the payment of Swan Group’s outstanding tax liabilities. …”

54. At a meeting with Ms Swan and Mr Allsop on 6 December 2012, Mr Wickenden was advised (Ex CC13, 1566) that:

“[Ms Swan] has never been a director of any of these companies but has been an employee and is presently CEO of Swan Services Pty – discussed risk of being a deemed director.”

Ms Swan’s evidence is that Mr Wickenden referred to the risk that “they will try and have a go at you as a deemed director” at that meeting (JS3 [193]). That conversation plainly contemplated the risk of insolvency and the liquidation of Swan Services, since (putting aside any question of directors’ duties) that is the primary circumstance in which a characterisation as “deemed” director or de facto director would be relevant. Ms Swan also sets out, at some length, the description of her role which she provided to Mr Wickenden, in that conversation, in explaining why she says she was not a director of Swan Services. Mr Allsop’s evidence (Allsop 10.6.15 [6]) is that the possibility that Ms Swan might be treated as a “deemed” or de facto director had been raised at that meeting, by reference to her title of chief executive officer, and (in evidence admitted under s 136 of the Evidence Act 1995 (NSW) as proof of conversation and not proof of fact) that she had emphasised that Mr Swan ran the company and always had the final say on everything, and that Mr Itaoui and Mr Baddour reported to Mr Swan. Shortly after the meeting between Mr Wickenden and Ms Swan on 6 December 2016, Ms Swan ceased to use the title “CEO”.

55. On 6 December 2012, Swan Services and several of the Companies authorised Mr Wickenden to act on their behalf in dealing with the ATO in respect of their accounts and financial position, in letters signed by Mr Swan (Ex CC13, 1570–1580). Mr Wickenden’s evidence was that he understood he was acting for Ms Swan personally, although in relation to the Swan Group’s affairs, prior to receiving the letters of confirmation allowing him to deal with the ATO on behalf of Swan Services and the Companies (T466). In cross-examination, Mr Wickenden accepted that, at a later meeting on 5 March 2013, he understood that Ms Swan had power to make some decisions and was able to give instructions as to what the Swan Group might do (T482). Mr Wickenden also accepted that Ms Swan provided later instructions as to the proposals which should be made to the ATO (T483). However, Mr Wickenden made clear in re-examination that he primarily reported, when agreement was reached with the ATO, to the chief financial officer of the Swan Group, primarily Mr Baddour and subsequently Mr Bell (T484). Mr Swan’s evidence in cross-examination was that he authorised Mr Wickenden to deal with the ATO; and he conceded that, because the authorities sent to the ATO “confirmed” Mr Wickenden’s authority, he must previously have been given that authority (T525). It seems to me that that is too technical a reading of the term “confirm” in those letters.

56. The liquidator relies on the retainer of Mr Wickenden, and the subsequent authorisation given to him to act on behalf of Swan Services and the Companies, for a submission that Ms Swan thought she had authority to retain solicitors and accountants on behalf of Swan Services and the Companies at this time. I do not accept that submission. It seems to me that Ms Swan retained Mr Wickenden and Mr Allsop for herself, although they were subsequently authorised by Mr Swan to represent Swan Services and the Companies in negotiations with the ATO, and appear to have undertaken other work for Swan Services and the Companies, and the costs of their retainer were ultimately paid by the Swan Group. It is significant, in this respect, that Swan Services and the Companies did not themselves seek to enter a retainer agreement with either Mr Allsop or Mr Wickenden. While the arrangement for advisers acting for Ms Swan also to act in the Swan Group’s interests may be somewhat informal in its character, it does not seem to me to indicate that Ms Swan was acting as a company officer, still less as a director, in dealing with Mr Allsop or Mr Wickenden.

57. A third workshop, or at least a meeting, took place on 8 December 2012 attended by Ms Brewer, Ms Swan, Mr Spiller and Mr Webb (Brewer 18.7.16 [73]–[75]; Ex CC13, 1587). There was a difference between Ms Swan and Ms Brewer as to whether that meeting was a wider management workshop, or was a narrower assessment by Ms Brewer of their suitability for senior management roles (T395). That difference does not need to be resolved in order to determine these proceedings.

58. The liquidator also relies rely on an “organogram” prepared by Ms Brewer on about 8 December 2012 (Ex CC13, 1586). That document shows the CEO and managing director of Swan Group at the same level and a general manager reporting to the CEO. There were plainly difficulties with that document, so far as it was apparently produced for the 8 December 2012 meeting with Mr Spiller and Mr Webb to discuss their proposed roles as general manager and chief operating officer in Swan Group, but did not accurately identify those roles, or the role of chief financial officer or financial controller and also contained other errors (including as to the name of a major client) that suggested, at least, a lack of engagement by Swan Services with it (T257–258). It seems to me that, at its highest, that document goes no further than to record Ms Brewer’s understanding of an ambition that Ms Swan plainly held, or had held, to elevate her role as nominally “CEO” of Swan Services to the point at which she had an equal role in Swan Services with Mr Swan. However, the evidence to which I will refer indicates that Ms Swan never achieved that objective.

59. There is some, although limited, evidence that third parties understood Ms Swan to have a significant role within the Swan Group. An email dated 7 December 2012 from SACL to Ms Swan (Ex CC13, 1593) stated that:

“We also understand that the entire Swan organisation, not just the Swan business at Sydney Airport, is going through a period of significant change. We appreciate you are busy with the whole of the business …”

60. Ms Swan’s evidence is that, on 19 December 2012, she and Mr Swan had a reconciliation and Ms Swan said that Mr Swan would have to speak to her advisers until the loan was repaid, and they would “need to have complete access to the accounts department and no more lies”, and Mr Swan promised to speak to Ms Swan’s advisers and to provide such access (JS3 [205]). The liquidator also relies on this matter to submit that Ms Swan exercised ultimate control of the Swan Group and I will address that submission below.

61. By an email dated 9 January 2013, Ms Swan wrote to Mr Allsop in a manner which again suggested a significant involvement with management issues (Ex CC13, 1730) as follows:

“I have been in back-to-back management meetings with the staff and putting in place structural changes, seeking increases, meeting clients etc so have been fairly under the pump with these matters. Tony [Baddour] has resigned. I want to take a statement from him too. Also do you have a good solid financial guy who wants to earn say $150k and is possibly a cost accountant that you know to employ replace him?”

62. It appears that Ms Swan took at least some role in directing Mr Baddour’s work over the relevant period. An email dated 10 January 2013 (Ex CC13, 1732) from Mr Baddour recorded that:

“Judy and Bob have assigned a number of key projects to me in the past week which require my urgent attention.”

63. Ms Swan was developing a proposal from late January 2013 that, had it been agreed, would have led at least Mr Swan to take a reduced role in Swan Group’s management. In her second affidavit, Ms Swan refers (JS3 [214]) to a meeting between herself, Mr Allsop and Mr Wickenden in early 2013, which led to a proposal, which Ms Swan attributes to Mr Allsop, that there should be a board of directors for the Swan Group. Ms Swan then suggested that Mr Allsop and Mr Wickenden would need to raise that matter with Mr Swan, who would not listen to her in respect of it. Ms Swan, in cross-examination, alternatively attributed the suggestion for the development of a board, and that Mr Swan would be chairman, to Ms Brewer (T395). Whether or not Mr Allsop or Ms Brewer was the origin of that suggestion, it seems to me that Ms Swan was promoting it at least by the time of her dealings with Mr Allsop, Mr Wickenden and Ms Brewer as to these matters in early 2013.

64. An email dated 24 January 2013 from Ms Swan to Mr Allsop and Mr Wickenden (Ex CC13, 1850), headed “Proposal for Swan Services”, stated that:

“I refer to our meeting today and confirm that it was agreed that: …

2. Meet with Bob to present him with a letter setting out the proposed management structure of the business. Date 29/1/2013 Richard and Neil

3. The new management proposal makes Jason Spiller as the manager of the business with Jon Webb as the head of operations. Immediate

4. Judy stands aside and focuses on risk, employment, training, systems, special projects or requests by Jason and Jon and communication. Immediate”

5. Proposal Bob stands aside and becomes Chairman of the Board …”

65. The liquidator submits that the proposal at the meeting on 24 January 2013 that Mr Swan and Ms Swan stand aside was not implemented, so far as Ms Swan was concerned, and she continued in the same capacity, in exercising control and oversight of the Swan Group, from 24 January 2013. I do not accept that submission, as will emerge below.

66. By email dated 25 January 2013 from Ms Swan to Mr Spiller, Mr Webb and Ms Brewer (Ex CC13, 1864) relating to “Interviews for CFO”, Ms Swan stated that:

“Neil Wickenden and Richard Allsop are assisting me with structural matters and other matters as discussed. Neil Wickenden wants us to interview the new recruits for the CFO position at his office in Kent Street on Wednesday at 6pm.”

67. By email dated 25 January 2013 from Mr Allsop to Mr Wickenden, copied to Ms Swan, relating to the “Proposal for Swan Services” (Ex CC13, 1872) he noted that:

“I confirm that we are to meet Bob Swan at your offices at 9:30am on Tuesday, 29 January 2013.

At that meeting we are to outline to Bob what is proposed and to seek his approval.

I confirm that it is my belief that we must try and ensure that Bob [cooperates] with the proposed review and restructuring of the business … .”

68. The meeting between Mr Allsop, Mr Wickenden and Mr Swan took place on 29 January 2013 (Ex CC13, 1880). Mr Wickenden responded to Ms Swan’s email of 24 January 2013 on 30 January 2013, after that meeting with Mr Swan, noting that Mr Swan’s role was discussed at the meeting but “any change in the role will probably evolve over time” (Ex CC13, 1881). That statement reflects a lack of immediate agreement by Mr Swan to such a change. Ms Brewer also met with Mr Swan on 29 January 2013 and, by email dated 29 January 2013 to Mr Swan (Ex CC13, 1875), she recorded that:

“You have agreed to consider stepping back and taking on a different role including being a board member of Swans … .”

69. By email dated 17 February 2013, Mr Spiller advised Ms Brewer (Ex CC13, 1978) that:

“There remains an undercurrent of tension between [Mr Swan] & [Ms Swan].

This stems from [Ms Swan’s] vision of where the business needs to go and [Mr Swan’s] insistence that everything can remain the same.

This tension is picked up in the office by the other members of staff and has created an office environment that is divided not so much by loyalties to either [Mr Swan] or [Ms Swan], but fear that if direction is not followed they are afraid of losing their position. This has created confusion and angst amongst the office team. It is my belief this will change once structures are implemented.”

70. In mid-February 2013, Ms Swan was involved with the recruitment of Mr Bell. Mr Bell referred (in evidence which was limited under s 136 of the Evidence Act to proof of the conversation, not the asserted facts) to Ms Swan’s description of Swan Services, at the time of his interview with Swan Services, as follows (Bell 24.3.16 [10]):

“Swan Services is [Mr Swan’s] company and he is the only director and shareholder. I am a secured creditor of the company. I’m just coming back in to help out because there are problems with the business. I’ve done this before when necessary but with having to look after the kids I’ve stayed away.

We had someone running the business up until September, but there were problems in relation to the cleaning contracts and he left the company. We’re also having some problems with tax debts – we have some payment arrangements in place and we need to get the financials updated first to see what we need to get the remaining arrangements in place with the ATO.”

71. I accept Mr Bell’s evidence as to the substance of what was said to him by Ms Swan at that time. That evidence is significant in several respects, notwithstanding the limited basis on which it was admitted. First, it emphasises that, at least by February 2013, Ms Swan advised a potential senior employee that she had a more limited role with Swan Services than that to which she had previously aspired. Second, importantly, it allows an inference as to Ms Swan’s understanding as to the state of Swan Services and the Companies’ then financial records, although not (because of the limiting order) a conclusion as to the underlying fact, so far as Ms Swan acknowledged the need to “update” the financials before remaining arrangements could be finalised with the ATO.

72. Mr Bell also refers to having then met with Mr Spiller and Mr Webb, who were by then the general manager and operations manager of the Swan Group, and to Mr Spiller having referred to the need to get used to the way in which Mr Swan “runs the business and the way that he micro-manages every aspect of the business” and to Mr Spiller or Mr Webb also having referred to the fact that Ms Swan was not in the office much, but that she and Mr Swan sometimes argued when she was present (Bell [23]–[24]). That evidence is also significant, so far as it indicates both Mr Swan’s continuing involvement in the management at least of operational aspects of the business and Ms Swan’s limited presence in the Swan Group’s office.

73. The letter appointing Mr Bell as chief financial officer (Ex CC13, 1993) was signed by Mr Swan and stated that:

“10. You will carry out this role under the guidance and control of Judy Swan, our Managing Director and General Manager … .”

Mr Newlinds made clear, in the course of Ms Swan’s cross-examination, that it was not suggested that that appointment letter indicated that Ms Swan was in fact the managing director and general manager of Swan Services, but only that it provided for Mr Bell to report to three people, one of whom was Ms Swan (T404–405). That concession was rightly made, since it is plain that Mr Swan remained as managing director and Mr Spiller had been appointed as general manager at this time. Ms Swan accepted in cross-examination that Mr Bell was required to report to her, but only in relation to employee matters, which were within her human resources role (T405). Mr Bell’s letter of appointment also provided that only Mr Swan had authority to sign or bind the company in any contractual situation (Ex CC13, 1991). The organisational chart which was later provided to Mr Bell showed Mr Swan as the managing director and chairman, Mr Spiller as general manager and Mr Webb as national operations manager, and described Ms Swan, who was shown as reporting to Mr Spiller, as “head of legal, HR, risk and compliance”. That description is inconsistent with a characterisation of Ms Swan as exercising a wider strategic role.

74. A memorandum dated 11 April 2013 prepared by HLB Mann Judd set out recommendations concerning a possible restructure of the Swan Group and was emailed to Ms Swan, Mr Swan and Mr Bell (Ex CC13, 2170). During April 2013, Mr Wickenden and Mr Allsop continued to deal with Ms Swan in relation to potential restructurings of Swan Services and its subsidiaries, including changing the name of the Companies, presumably in anticipation of the possibility that they would be placed in administration or liquidation.

75. I turn now to further affidavit evidence dealing with Ms Swan’s role within the Swan Group. In her second affidavit dated 5 June 2015, Ms Swan referred to earlier occasions on which she had assisted Mr Swan and Swan Services in dealing with issues which had arisen in respect of failure to comply with taxation liabilities, initially in 1998, shortly after Mr Swan and Ms Swan had married and again in 2003–2004 (JS3 [20]–[30], [62]–[66]). Ms Swan also sets out, at some length, the extent of her involvement with Swan Group in the years prior to the relevant period. Ms Swan refers, in particular, to her involvement in dealing with employment and industrial relations issues on behalf of the Swan Group. She also refers to the circumstances in which Mr Swan asked her to become involved with the cleaning contract for one of Swan Group’s largest clients, Colonial, and gives evidence that (as I noted above) she was allocated the title “Chief Executive Officer” after a representative of Colonial had questioned what the General Manager of Human Resources and Legal knew about cleaning. Her evidence is that, although she received that title, her role, duties and authority did not change. Ms Swan also leads evidence as to her involvement with SACL in respect of the contract to clean Sydney Airport won by Swan Services. Ms Swan’s position in cross-examination was that, while she held the title CEO, she held that role only nominally (T354). Ms Swan’s evidence in cross-examination (T376) was also that:

“I never had the authority to make any directions to any staff members in that company either in a limited sense and on instructions of [Mr Swan], I never had any access to any financial information of the company, I never made strategic decisions for the company. At any time, when I asked for meetings to be held they were never held, so I was never ever treated or never ever called a director, and never ever did actions which I understood a director undertakes, and that is to make decisions on behalf of the company. That was always [Mr Swan’s] role and [Mr Swan] did that, firstly, with Fred Itaoui, and when Fred left with Tony Baddour.”

76. Ms Swan was not prepared to accept in cross-examination, at least at some points, that she was determined to ease Mr Swan out of the Swan Group or at least to co-manage with him, or that she had been thinking of doing that for some time (T387). I do not accept that aspect of her evidence. At other points in her cross-examination, Ms Swan frankly conceded that there were times when she had wanted to be at the same level in the Swan Group as her husband, although her evidence was that there was never any time that she could have been, because Mr Swan rejected that possibility (T398). I accept that evidence.

77. Mr Swan’s evidence, in cross-examination by Mr Braham, was that he looked over the financial side of the Swan Group with its financial controller, Mr Baddour, including information relating to creditors and debtors and also looked after major clients throughout Australia (T494) and that Ms Swan’s role was mainly dealing with human resources and insurance matters, including workers compensation and public liability matters. Mr Swan acknowledged that, since late 2012, Ms Swan also had customer responsibilities with major companies, including Colonial, GPT and SACL after those customers had asked for Mr Itaoui to be removed from those contracts (T495–496). Mr Swan’s evidence was that he gave Ms Swan the title “chief executive officer” in late 2011 because Swan Services needed to present Ms Swan in an executive role in respect of those customers. Mr Swan’s evidence in cross-examination was also that, in December 2012, Mr Spiller was appointed as general manager, in Mr Itaoui’s role, and Mr Webb was appointed to take over operations (T497).

78. Mr Swan denied in cross-examination that he was told by Ms Swan or anyone else that Ms Swan was taking over responsibility for the finances of the Swan Group and his evidence was that he, in December 2012, was making decisions in relation to the Swan Group (T501). Mr Swan also denied that anything was put to him by Mr Allsop or Ms Brewer in January 2013 about his stepping aside from the Swan Group, although his evidence in that respect appears to be inconsistent with the contemporaneous correspondence to which I have referred above (T501). Mr Swan’s evidence in cross-examination by Mr Braham was that his role remained the same from February 2013 until May 2013, Ms Swan’s role had not changed in March 2013 and that he was going into the office every day, and that she attended about three times a week (T503). Mr Swan denied that he had come to an agreement with Ms Swan that no important financial decision would be made unless her financial advisers agreed to it (T533). Whether or not such an agreement was reached, it does not seem to me that it was implemented.

79. In his affidavit dated 24 March 2016, Mr Bell refers to the circumstances in which he was interviewed for employment by Swan Services, by Ms Swan, in February 2013, and to his subsequent employment with the Swan Group. Mr Bell’s evidence is that Mr Swan’s approval was required before he paid invoices or staff wages and for entry into any payment arrangement with a contractor or creditor (Bell [31]) and that Mr Swan signed all cheques as sole signatory (Bell [33]). Mr Bell also referred to Mr Swan’s invariable practice of checking incoming mail, including mail which was not addressed to him (Swan [35]). Mr Bell observed that Mr Swan primarily focused on issues to do with debtors and creditors, and was less involved with the preparation of updated financial statements or the reconstruction of accounts and did not show any positive interest in the accounts, and was less involved with discussions with the ATO (Bell [36]). While there was substantial focus on dealings with the ATO in this case, it should of course be recognised that operational issues and debtors and creditors are of obvious importance in the management of a cleaning company.

274. Ms Swan referred to numerous authorities that recognise that, where there is a contractual intention and part performance, the courts should do their best to uphold the bargain, even where difficulties of construction or difficulties because of incompleteness arise. I accept that proposition, and note that the principles were well-expressed by Bergin J (as her Honour then was) in Sandtara Pty Ltd v Longreach Group Ltd [2008] NSWSC 373 (at [87]), where her Honour pointed to:

“Judicial statements to the effect that the Courts should not be seen as contract wreckers and that implications of what is just and reasonable are able to be ascertained by the Court as a matter of machinery where the contractual intention is clear but silent on some detail are not controversial.”

277. Ms Swan submitted, and I also accept, that that the charge (or, more precisely, the 2003 Loan Agreement) is to be construed objectively, according to what each party by words and conduct would have led a reasonable person in the position of the other party to believe, and by reference to the surrounding circumstances known to the parties, the purpose and object of the transaction, and that the process of construction may legitimately involve words being supplied, omitted or corrected, in an instrument, where that is clearly necessary in order to avoid absurdity or inconsistency or correct an obvious mistake.

278. Ms Swan submitted that the charge (or, more precisely, the 2003 Loan Agreement) can be read as conferring on her a wholly floating charge over the assets of Swan Services and as not conferring a fixed charge over any of those assets. She submits that result can be achieved, first, by omitting the words “fixed and” as part of the construction exercise, where it could not have been the intention of the parties that the fixed charge be over all the assets of Swan Services. She submits that the extraneous evidence makes it plain that it was contemplated by the parties at the time the charge was given that Swan Services would continue to trade normally (and without needing continued involvement from Judy Swan) having given the charge, and that a fixed charge over all the assets of the company, including cash and accounts receivable, would be inconsistent with the common intention of the contracting parties, objectively ascertained, because it would have prevented the continued normal trading of Swan Services. Accordingly, she submits, it is reasonable to construe the document as intending a floating charge over all the assets of the company, and not a fixed charge.

279. I accept that it is unlikely, in the circumstances, that the parties intended that the charge be fixed in all respects, both because it was described as “fixed and floating” and because of the need for Swan Services to be able to deal with accounts receivable and smaller physical assets in the ordinary course of business. However, it does not follow that I can infer a common intention that the charge be only a floating charge, disregarding its express terms, and where there is no evidence that, and it is not self-evident that, the parties’ objective intention was not that the charge be fixed over major assets, such as larger equipment or fixed assets, that would be retained and used in Swan Services’ business.

280. Alternatively, Ms Swan submits that the “fixed” part of the charge related only to the shares in Swan Services, which are the only assets specifically referred to in the charge and, on that reading of the charge, it was fixed over the shares, and floating over the assets of Swan Services. However, that submission has the difficulty, first, that it would give no effect to the fixed charge, since Swan Services did not own and could not charge the shares in itself. Second, it has the difficulty noted above, that there is not there is no evidence that, and it is not self-evident that, the parties’ objective intention was not that the charge be fixed over major assets of Swan Services. Third, it has the difficulty that there is no conceptual or evidentiary basis for the Court to determine whether Ms Swan’s first construction of the charging clause in the 2003 Loan Agreement or the alternative construction would better reflect the parties objective intentions in the relevant circumstances.

Conclusion as to validity of the 2003 Charge

281. It is clear enough that an equitable charge can be created where property is expressly or constructively made liable, or appropriated to, the discharge of a debt and the chargee is given a right of realisation by judicial process. In Cradock v Scottish Provident Institution (1893) 69 LT 380 at 382, it was observed that:

“To constitute a charge in equity by deed or writing it is not necessary that any general words of charge should be used. It is sufficient if the court can fairly gather from the instrument an intention by the parties that the property therein referred to should constitute a security.”

282. In National Provincial & Union Bank of England v Charnley [1924] 1 KB 431 at 449–450, Atkin LJ observed that:

“… I think there can be no doubt that where in a transaction for value both parties evince an intention that property, existing or future, shall be made available as security for the payment of a debt, and that the creditor shall have a present right to have it made available, there is a charge, even though the present legal right which is contemplated can only be enforced at some future date, and though the creditor gets no legal right of property, either absolute or special, or any legal right to possession, but only gets a right to have the security made available by an order of the Court. If those conditions exist I think there is a charge. If, on the other hand, the parties do not intend that there should be a present right to have the security made available, but only that there should be a right in the future by agreement, such as a licence, to seize the goods, there will be no charge.”

283. In Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584 at 594, Buckley LJ observed that:

“If there has been no legal transfer of a proprietary interest but merely a binding undertaking to confer such an interest, that obligation, if specifically enforceable, will confer a proprietary interest in the subject matter in equity. The obligation will be specifically enforceable if it is an obligation for the breach of which damages would be an inadequate remedy. A contract to mortgage property, real or personal, will, normally at least, be specifically enforceable, for a mere claim to damages or repayment is obviously less valuable than a security in the event of the debtor’s insolvency. If it is specifically enforceable, the obligation to confer the proprietary interest will give rise to an equitable charge upon the subject matter by way of mortgage.”

284. In Roberts v Investwell Pty Ltd (in liq) above at [27]–[30], the Court of Appeal considered a similar question to this case, whether a payment made to a creditor, at the time a company was insolvent, could be sustained on the basis that it was a payment in respect of a secured debt and did not constitute an unfair preference or a voidable transaction. Bathurst CJ there observed (at [29]) that:

“What is clear from the authorities is that for either an equitable mortgage or equitable charge to come into existence there must be an intention to create an immediate proprietary interest or immediate right of recourse to identifiable, present, or in the case of a charge, future property.”

His Honour also observed (at [31]) that:

“… the question depends, in my view, on the construction of the clause in question. If the provision on its true construction confers an immediate equitable interest in particular property, or grants an immediate right of recourse to present or future property, then the grantee will be secured to the extent of his or her interest in, or right to, the property. If it does not, the creditor will be unsecured.”

The Chief Justice held that the clause in issue in that case did not confer an immediate right of recourse to the property, inter alia, because the form of security was not settled but was required to be in a form acceptable to the legal advisers to the creditor. The present agreement does not contain such a provision.

285. While I accept that the Court will do its best to seek to avoid a contract failing for uncertainty, it seems to me that the 2003 Loan Agreement, and any equitable charge derived from it, was too uncertain to be enforceable. As Ms Swan accepts, the 2003 Loan Agreement identifies the assets that were the subject of either a fixed or a floating charge, namely the assets of Swan Services, but does not identify which assets were subject to the fixed charge and which to the floating charge. The lack of attention to that question would not be surprising, if the parties contemplated that a more detailed charge would be executed and registered. That question was of critical importance, since Swan Services’ ability to deal with assets in the ordinary course of business without Ms Swan’s consent would only extend to those assets that were subject to a floating rather than a fixed charge. Recourse to surrounding circumstances does not assist in determining which property was to be the subject of the fixed component of the charge, and which property was to be the subject of the floating component of the charge, since there is no evidence that either Swan Services or Ms Swan turned their mind to that question. The boundary to be drawn between which assets were subject to a fixed charge and not able to be dealt with by Swan Services without Ms Swan’s consent, and which assets were subject to a floating charge, could have been drawn in different places, even if there exists common practices in that respect, and it does not seem to me that the Court can settle where it should be drawn where the parties did not do so.

286. Ms Swan’s alternative case that the Form 309 notification of details of a charge to ASIC lodged 22 April 2003 gives rise to a charge must also fail for the same reason. That document does not purport itself to be a charge, but appears to be notification of the charge created by cl 3 of the 2003 Loan Agreement, and cannot be effective where the 2003 Loan Agreement does not give rise to an enforceable charge by reason of the lack of certainty noted above. It is not necessary to deal with the liquidator’s further submission that the notification did not adequately identify the property charged or that s 266 of the Corporations Act would have operated to avoid the charge had Ms Swan relied on it as security.

287. The issues identified for determination by the parties suggest that Ms Swan does not now press a further alternative claim that a notification of details of a charge document provisionally accepted by ASIC on 11 June 2004 (Ex CC13, 1033) constituted an effective charge. If it were necessary to determine that proposition, it seems to me that that document would also not be effective as a charge, both because it misdescribed the relevant interest as a “floating charge” only, and not as a fixed and floating charge, and also because it also depended on the terms of the 2003 Loan Agreement, and the uncertainty that deprived that agreement of effect would also deprive a notification derived from it of effect.

288. On that basis, the repayment to Ms Swan in 2013 was a preference and the grant of the 2013 Charge was an uncommercial transaction.

The amount owing to Ms Swan as 2 April 2013

289. The parties identified a further issue as to the amount owed to Ms Swan as at 2 April 2013. The parties noted that the first question relevant to this issue was:

“Whether interest and other charges can be included as part of the amounts owing under the 2003 Loan Agreement notwithstanding the absence of any written terms in relation to such items in the 2003 Loan Agreement.”

290. The Parties identified a second question relevant to this issue as:

“Whether there is a separate agreement collateral to the 2003 Loan Agreement providing for the payment of interest and charges (Collateral Agreement).”

291. The 2003 Loan Agreement did not, in its terms, provide for interest to be payable on the amount of the loan. No basis was shown on which such a term could be implied. Such a term could only be implied in fact, rather than in law, and the requirements for the implication of that term are those set out by the majority of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282–283, as approved by the High Court in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 347, namely the specified term (1) must be reasonable and equitable; (2) must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) must be so obvious that “it goes without saying”; (4) must be capable of clear expression; and (5) must not contradict any express term of the contract. In my view, an implied term that interest be payable is neither necessary to give business efficacy to the contract nor so obvious it goes without saying, where it may be logical and commercially sensible for a shareholder or person interested in a company’s success to provide a loan to it on an interest free basis.

292. Ms Swan contends that there were other, oral terms of the 2003 Loan Agreement, or a collateral contract, and that it was agreed that Swan Services repayment obligation would be equal to that required to be paid by Ms Swan under the loan from NAB to Mr Swan and Ms Swan. Ms Swan’s evidence as to that matter is that she and Mr Swan had a conversation at the time of entry into the 2003 Loan Agreement in the following terms (JS3 [55]):

Ms Swan:   “… [W]hatever I owe NAB on the house mortgage, Swan will owe me on the loan. The loan must be secured and registered. The NAB has indicated that the amount repayable each month will be fixed at approximately $10,000. We will have to make the loan repayment terms this amount. That means that Swan will have to make loan repayments to me for the same amount. I expect the loan to repaid [sic] as soon as possible and not in 20 years.”

Mr Swan:   “That is fine. To make it simple, Swan will make the monthly repayment to NAB directly each month.”

293. There are several reasons to approach Ms Swan’s evidence as to this matter with scepticism. They include that Ms Swan is giving evidence of a conversation that is said to have occurred some 12 years before she swore her affidavit dated 5 June 2015; that the conversation has an obviously self-serving character, given the matters that are now in issue in these proceedings; that Ms Swan repeatedly departed from her affidavit evidence, in respect of other matters, in the course of cross-examination; and that it would be odd, in the extreme, if after the parties reached a detailed oral agreement as to the terms on which repayments would be made, they then proceeded to execute a written loan agreement in substantially different, and less detailed, terms. I am not persuaded by Ms Swan’s evidence as to the terms of this conversation, given the time that had passed since it occurred; the risk that hindsight and the intervention of the dispute would affect Ms Swan’s recollection of the relevant events; and the inconsistency between the conversation and the terms of the 2003 Loan Agreement. If I had accepted Ms Swan’s evidence of that conversation, I would have found that it amounted to an informal arrangement that payments would take place in a particular manner, not reflected in the 2003 Loan Agreement, which was not intended to have legal effect. The fact that Swan Services, under Mr Swan’s control, subsequently acted in accordance with that arrangement, whether or not it had been the subject matter of any earlier conversation, takes the matter no further.

294. The liquidator also points out, and I accept, that the parole evidence rule excludes, with limited exceptions, evidence of earlier statements of intention and antecedent negotiations to add, vary or contradict the language of a written agreement: Bon McArthur Transport Pty Ltd (in liq) v Caruana [2013] NSWCA 101 at [30]–[31]. The parole evidence rule will apply only where the parties’ agreement is wholly in writing. In the present case, the recital to the 2003 Agreement provides support for a conclusion that the 2003 Agreement was of that character, since it records the fact that the terms of the 2003 Agreement record the earlier loan agreement, and the 2003 Loan Agreement appears to be complete and workable on its face. Even if I were wrong in that view, additional oral terms of the 2003 Loan Agreement, or a collateral agreement, are not established where I have not accepted Ms Swan’s evidence as to the conversation on which those terms are based.

295. The parties identified a consequential question, if a collateral agreement is found to exist, whether the obligations under that agreement were the subject of an equitable charge such as to make Ms Swan a secured creditor for monies advanced under the collateral agreement. Ms Swan submitted that she did not consider that issue needed to be determined for the reasons raised in the transcript at T589–590. It is not necessary to address that issue since I have found that the collateral agreement has not been established.

296. The parties identified further issues, which it is also not strictly necessary to decide given the conclusion I have reached above, whether the sum of $200,000 drawn down on the NAB Facility on 28 October 2003 and whether the sum of $279,000 drawn down on the NAB Facility on 6 November 2003 were each a drawdown under the 2003 Loan Agreement. The difference between the liquidator and Ms Swan in respect of the drawdowns of 28 October 2003 and 6 November 2003, arises from the fact that the liquidator cannot find evidence that those sums, although withdrawn from the NAB facility, were paid into Swan Services’ bank accounts. Ms Swan recognises that, if those amounts were not paid to Swan Services, and less than the amount repaid to NAB on 2 April 2013 was owed by Swan Services to Ms Swan, then the excess will be a voidable transaction under Pt 5.7B of the Corporations Act.

297. Ms Swan refers, in respect of the drawdown of 6 November 2003 of $279,000, to a further transaction on 5 December 2003, by which Swan Services remitted that amount to the NAB. I am not satisfied that that matter indicates, on the balance of probabilities, that the drawdown on the NAB loan of $279,000 was made for Swan Services, where that conclusion would be founded on no better basis than a coincidence in amount and a degree of proximity in timing. Ms Swan also refers to a later email from Ms Swan to Swan Services’ external accountants in which Ms Swan included the two amounts in a list of advances from NAB provided to Swan Services (Ex CC13, 1039) and those accountants later responded indicating that they were “wanting to confirm that the balance is correct” and seeking bank statements in order to do so. It does not seem to me that those matters demonstrate anything beyond Ms Swan’s understanding as to the character of those amounts.

298. The liquidator submits, and I accept, that the fact that Mr Swan and Ms Swan did not lead further evidence as to the manner in which the borrowings on 28 October 2003 and 6 November 2003 were disbursed should lead to an inference that their evidence would not have assisted as to this matter: Commercial Union Insurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418–419. To the extent that Ms Swan bears an evidentiary onus in respect of these transactions, it seems to me that she has not established that these amounts were referable to advances to Swan Services.

Claim under s 588FP of the Corporations Act

299. The parties identified a further issue whether the 2013 Charge is void by virtue of s 588FP of the Corporations Act. The liquidator contends that the Second Charge is void by reason of s 588FP of the Corporations Act because it was enforced within six months of its creation without leave of the Court and Ms Swan was an associated person within the meaning of the Corporations Act. The liquidator submits that any requirement for such leave, that Ms Swan establish that Swan Services was solvent, could not be satisfied, and that is consistent with the findings that I have reached above. There is a question whether Ms Swan took any step to enforce the charge, where the true position appears that Swan Services, under Mr Swan’s control, made a payment to Ms Swan, to the disadvantage of other creditors, without her doing more than request immediate payment (Ex CC13, 2333–2334). It does not seem to me to be necessary to determine this matter, where the parties are agreed that the consequence of the finding that I have reached in respect of the 2003 Loan Agreement is that the liquidator succeeds in its claim for the net amount that was paid to Ms Swan, and Ms Swan fails in her claim to recover any further amount from Swan Services in preference to unsecured creditors.

299. Had I accepted that, contrary to the view that I have reached, there was an effective charge reflecting the terms of the 2003 Loan Agreement, then I would have accepted the liquidator’s calculation of the amount owing to Ms Swan, excluding the two disputed payments and on the basis that no interest or other charges were payable, as $106,549.91, so the transaction on 2 April 2013 would have amounted to a preference to the extent of $1,239,260.33 (Elkerton 2 [28]). That amount would have had to be adjusted, so far as a judgment against Ms Swan was concerned, to the extent necessary to take account of the subsequent readvance to Swan Services and repayment to Ms Swan, as the parties have accepted. It is not necessary to make that adjustment given the findings that I have reached on other grounds.

Result of determination in respect of charge

301. The parties indicated that, once the issues noted above in respect of the 2003 Loan Agreement and the 2013 Charge were determined, the parties could calculate any relief to which the liquidator is entitled under s 588FF of the Corporations Act in respect of the payment made on 2 April 2013. The parties also agreed that, if Ms Swan is found to be a secured creditor as at the date of repayment on 2 April 2013, and the security is not found to be void by virtue s 588FP, then she is entitled to the relief claimed in the Amended Originating Process under s 588FM, there being no opposition to the exercise of the discretion in her favour. That result does not arise on the findings I have reached.

Summary and orders

302. In summary, I have held that it has not been established that Ms Swan was a “de facto” director of Swan Services or any of the Companies during the relevant period.

303. I have held that the presumption of insolvency under s 588E(4) of the Corporations Act applies during the whole of the relevant period in respect of both Swan Services and the Companies. I have also held that it has been established that, throughout the relevant period, each of Swan Services and the Companies were insolvent as a matter of fact. I have held that there were reasonable grounds to suspect that Swan Services and each of the Companies were insolvent or would become insolvent by incurring the relevant debts throughout the relevant period for the purposes of s 588G(1) of the Corporations Act. I have held that a reasonable person in the position occupied by Mr Swan and Ms Swan (if, contrary to the conclusion I have reached, she was a de facto director) in a company in Swan Services’ and the Companies’ circumstances would be aware that there were such grounds for so suspecting that each of Swan Services and the Companies were insolvent or would become insolvent by incurring the relevant debts throughout the relevant period for the purposes of s 588G(2) of the Corporations Act.

304. I have reached findings as set out above in relation to the identified issues as to the debts claimed under s 588M of the Corporations Act. In particular, I have held that the liquidator must, in proving loss or damage for the purpose of s588M, bring to account any anticipated or estimated return to creditors in the relevant insolvencies, and to that extent have followed the approach stated in Smith v Offermans above in preference to that stated in Powell v Fryer above. The recovery of $2.5 million as a preference from the ATO, and the fact that the ATO will be entitled to proof in the liquidation for the amount repaid, should therefore be taken into account in determining the loss or damage recoverable by the liquidator. I note the parties’ agreement that they will be able to determine the respective liability of Mr Swan and Ms Swan on the basis of those findings.

305. I have held that neither Mr Swan nor Ms Swan (if, contrary to my findings, she was a de facto director) has established that he or she had reasonable grounds to expect, and did expect, that Swan Services and the Companies was solvent, and would remain solvent even if they incurred the debts and any other debts that they incurred at the time, for the purposes of s 588H(2) of the Corporations Act. I have held that neither Mr Swan nor Ms Swan (if, contrary to my findings, she was a de facto director) has established the defence under s 588H(3) of the Corporations Act. I have held that Mr Swan should not be relieved either wholly or partly from a liability to which he would otherwise be subject, under s 1317S of the Corporations Act. I have not determined that question in respect of Ms Swan, where that question would likely only arise for determination on a different factual basis, if an appellate court took a different view from that which I have formed as to whether she was a de facto director of the relevant companies.

306. I have held that, as at the date of repayment on 2 April 2013, Ms Swan was not a secured creditor for all or part of the amount paid to her, because the 2003 Loan Agreement was ineffective to create a charge by reason of uncertainty in identifying which property was subject to a fixed and floating charge. I have held that the Form 309 document subsequently lodged by Ms Swan did not create an effective charge, since it depended on the terms of the 2003 Loan Agreement and was affected by the same uncertainty.

307. It is therefore not necessary to determine the amount owed to Ms Swan as at 2 April 2013. However, against the contingency that an appellate court might take a different view, I have addressed that question and held that interest and other charges payable by Mr Swan and Ms Swan to NAB were not included as part of the amounts owing under the 2003 Loan Agreement, absent any written terms in relation to such items in the 2003 Loan Agreement. Ms Swan’s claim that a separate agreement collateral to the 2003 Loan Agreement providing for the payment of interest and charges has not been established. I have held that it has not been established that the sum of $200,000 drawn down on the NAB Facility on 28 October 2003 or the sum of $279,000 drawn down on the NAB Facility on 6 November 2003 were drawdowns under the 2003 Loan Agreement. I note the parties’ agreement that, once these issues have been determined, they can calculate any relief to which the liquidator is entitled under s 588FF of the Corporations Act in respect of the payment made to Ms Swan on 2 April 2013.

308. I have not determined the question whether the 2013 Charge dated 2 April 2013 is void by virtue of s 588FP of the Corporations Act where it does not seem to require determination, given the grant of that charge would be set aside as an uncommercial transaction, or the time for its registration not extended, on the basis of the other findings that I have reached. I understand it to be common ground between the parties that, where I have held that Ms Swan was not a secured creditor as at the date of repayment on 2 April 2013, then she ought not be granted the relief claimed in the Amended Originating Process under s 588FM of the Corporations Act in respect of the 2013 Charge.

309. The parties should bring in agreed orders to give effect to this judgment, including as to costs, within 14 days or, if there is no agreement between them, their respective draft orders and short submissions as to the differences between them, indicating whether an oral hearing is required.

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Decision last updated: 07 December 2016