Incentive Dynamics Pty Ltd (in liq) v Robins
[1999] FCA 808
•16 JUNE 1999
Incentive Dynamics Pty Ltd (in liq) v Robins [1999] FCA 808
Corporations
Incentive Dynamics Pty Ltd (in liq) v Robins [1999] FCA 808
CORPORATIONS - liquidation - advances of monies to related entities - whether directors and officers liable for debts not recoverable.
CORPORATIONS - liquidation - advances of monies to related entities - purpose of advance to assist in purchasing property - debt not recoverable - whether held as constructive trustee for lender.
Corporations Law ss 60(1), 60(2), 82A(1), 232(1), 232(2), 232(4), 232(6), 588FA, 588FC, 588FE and 598
McKenzie v McKenzie [1971] P 33 considered
Barnes v Addy [1874] LR 9 Ch App 244 distinguished
Farrow Finance Co Ltd (In Liqu) v Farrow Properties Pty Ltd (In Liqu) (1997) 26 ACSR 544 distinguished
Browne v Dunn [1894] 6 R 67 applied
Re Diplock [1947] Ch 716 considered
Black v Freedman (1910) 12 CLR 105 considered
Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565 applied
Mills v Mills (1938) 60 CLR 150 considered
Walker v Wimborne (1976) 137 CLR 1 considered
Equiticorp Finance Ltd (In Liq) v Bank of New Zealand (1993) 32 NSWLR 50 considered
INCENTIVE DYNAMICS PTY LIMITED (In Liquidation) (ACN 003 294 700) & ROBERT WILLIAM MORTON (In his capacity as Official Liquidator of Incentive Dynamics Pty Limited) v DOUGLAS ROBERT McNEILL ROBINS, JOHN HAIGH ROBINS, JONATHAN MICHAEL MEISSNER, JOHN D'ERSBY HUDSON, COLDWICK PTY LTD (ACN 053 573 395), ROBINS HAIGH McNEILL PTY LIMITED (ACN 002 876 771), PAGBY PTY LIMITED (ACN 005 203 136) & CHERYL ANN CHANG
NG 3043 OF 1997
MANSFIELD J
ADELAIDE (Heard in Melbourne)
16 JUNE 1999
BETWEEN: INCENTIVE DYNAMICS PTY LIMITED (In Liquidation) (ACN 003 294 700) First Applicant
ROBERT WILLIAM MORTON (In his capacity as
Official Liquidator of Incentive Dynamics Pty Limited)
Second Applicant
AND: DOUGLAS ROBERT McNEILL ROBINS First Respondent
JOHN HAIGH ROBINS
Second Respondent
JONATHAN MICHAEL MEISSNER
Third Respondent
JOHN D'ERSBY HUDSON
Fourth Respondent
COLDWICK PTY LTD (ACN 053 573 395)
Fifth Respondent
ROBINS HAIGH McNEILL PTY LIMITED (ACN 002 876 771)
Sixth Respondent
PAGBY PTY LIMITED (ACN 005 203 136)
Seventh Respondent
CHERYL ANN CHANG
Eighth Respondent
IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 3043 OF 1997 JUDGE: #DATE 16:06:1999
MANSFIELD J DATE OF ORDER: 16 JUNE 1999 WHERE MADE: ADELAIDE (Heard in Melbourne)
THE COURT ORDERS THAT:
1. Judgment be entered against the respondent Douglas Robert McNeill Robins in the sum of $72,244.50.
2. Judgment be entered against the respondent John Haigh Robins in the sum of $292,140.68.
3. Judgment be entered against the respondent Jonathan Michael Meissner in the sum of $9,552.77.
4. Judgment be entered against the respondent Coldwick Pty Ltd in the sum of $375,064.63.
5. Judgment be entered against the respondent Robins Haigh McNeill Pty Ltd in the sum of $52,000.
6. Judgment be entered against the respondent Pagby Pty Ltd in the sum of $402,163.12.
7. The claim against the respondent John D'Ersby Hudson is dismissed.
8. The claim against the respondent Cheryl Ann Chang is dismissed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 3043 OF 1997
BETWEEN: INCENTIVE DYNAMICS PTY LIMITED (In Liquidation) (ACN 003 294 700) First Applicant
ROBERT WILLIAM MORTON (In his capacity as
Official Liquidator of Incentive Dynamics Pty Limited)
Second Applicant
AND: DOUGLAS ROBERT McNEILL ROBINS First Respondent
JOHN HAIGH ROBINS
Second Respondent
JONATHAN MICHAEL MEISSNER
Third Respondent
JOHN D'ERSBY HUDSON
Fourth Respondent
COLDWICK PTY LTD (ACN 053 573 395)
Fifth Respondent
ROBINS HAIGH McNEILL PTY LIMITED (ACN 002 876 771)
Sixth Respondent
PAGBY PTY LIMITED (ACN 005 203 136)
Seventh Respondent
CHERYL ANN CHANG
Eighth Respondent
JUDGE: MANSFIELD J DATE: 16 JUNE 1999 PLACE: ADELAIDE (Heard in Melbourne)
REASONS FOR JUDGMENT
1 The first applicant Incentive Dynamics Pty Ltd (in Liquidation) ("Incentive Dynamics") was incorporated on 14 May 1987, initially under the name Aymala Pty Ltd. Its initial shareholders and directors were Ernest James Moore ("Moore") and the second respondent John Robins ("John Robins"). They acquired that company for the purposes of procuring from Marco Motivation Pty Ltd its business as an incentive marketing company, and of carrying on that business. Marco Motivation Pty Ltd was a company with which the fourth respondent John D'Ersby Hudson ("Hudson") had been associated, and had about that time gone into liquidation. Shortly after its acquisition, Aymala changed its name to Incentive Dynamics.
2 Moore was one of the original directors of Incentive Dynamics, but he ceased his involvement with that company during 1989 and has played no relevant role in the events to which this proceeding relates.
3 At material times to this proceeding, the directors of Incentive Dynamics were John Robins and his father the first respondent, Douglas Robert McNeill Robins ("Douglas Robins"). At least to 31 August 1995, the third respondent Jonathan Michael Meissner ("Meissner") was the Secretary of Incentive Dynamics. He is alleged by the applicants also to have been a defacto director of Incentive Dynamics. Also, from its inception and at all material times, Hudson was employed by Incentive Dynamics as its Chief Executive Officer. He too is alleged by the applicants to have been a defacto director of Incentive Dynamics.
4 From May 1987, Incentive Dynamics operated the business of establishing and marketing incentive schemes for employees of large companies. Its business was run from premises in Williamstown in Victoria. Meissner's office was nearby. John Robins generally worked in Sydney and was not involved in its day to day management. In a general way, Incentive Dynamics was part of a large "group" of companies run by John Robins that were variously involved in establishing and marketing incentive schemes, public relations and marketing, advertising, providing travel services, property development and investment, and graphic design services. It will be necessary, to some extent, to consider the individual roles and relationships of the companies with which John Robins was associated at material times. Those companies included the fifth respondent Coldwick Pty Ltd ("Coldwick"), the sixth respondent Robins Haigh McNeill Pty Ltd ("RHM"), Travel Dynamics Pty Ltd (in Liquidation) ("TD"), Advertising Dynamics Pty Ltd ("AD"), B D Graphics Pty Ltd ("BD"), Maritz Pty Ltd ("Maritz"), Out and About Travel Headquarters Pty Ltd (formerly Taipan Management Services Pty Ltd) ("Out and About"), Incentive Dynamics (NSW) Pty Ltd ("ID-NSW"), RTA Incentives Pty Ltd ("RTA") and Nicholls-Cumming Advertising Agency Pty Ltd ("Nicholls-Cumming"). In these reasons, where it is convenient to do so, I shall call those companies "the Robins group" and when it is appropriate to include Incentive Dynamics in such a description "the Robins group including Incentive Dynamics".
5 On 15 April 1996, an order was made on a creditors petition filed on 15 February 1996 that Incentive Dynamics be wound up, and the second applicant Robert William Morton ("Morton") was appointed liquidator. He is thereby an eligible applicant within the meaning of s 598 of the Corporations Law ("the Law") to institute and maintain these proceedings. I shall refer to Incentive Dynamics and Morton together where appropriate as "the applicants".
6 It is the applicants' case that Incentive Dynamics was insolvent at least from 30 June 1993, and at all material times thereafter.
The Claims
7 The applicants' claims can be broken up in to four general categories.
8 It is first alleged that Douglas Robins, John Robins, Meissner and Hudson, as directors of Incentive Dynamics, each failed in their responsibility as directors, so as to cause or permit Incentive Dynamics to advance funds variously to a number of entities in circumstances where it was improper to do so, and that they should therefore be liable to Incentive Dynamics for the funds so advanced. The particular advances to companies in the Robins group for which those persons are said to be liable are as follows:
TD $764,600.07 ID-NSW $487,074.69 Coldwick $375,065.03 RHM $306,038.76 AD $192,958.26 BD $144,260.98 Maritz $135,678.70 Nicholls-Cumming $105,222.12 Out and About $106,360.46 RTA $ 38,930.47
and to individuals, including themselves, as follows
John Robins $311,063.47
Hudson, or the trustee of $629,657.11
his family trust Pagby Pty Ltd
the seventh respondent ("Pagby")
Cheryl Chang, the eighth respondent $21,500.00
("Chang")
Meissner $41,675.55
(or $44,421.79)
Douglas Robins $72,244.50
(or $69,498.26)
Anthony Tasman Lorkin ("Lorkin") $36,034.34.
9 The second category of claims by the applicants is simply for the amounts owing by the respondents in respect of the various advances referred to above, that is the amounts said to have been advanced to and owing by Coldwick, RHM, Hudson (or Pagby), Douglas Robins, John Robins, Meissner and Chang.
10 The starting point of the respondents' responses to those two categories of claims is to dispute that the amounts alleged to be owing are owing at all. The respondents further dispute that monies from time to time paid by Incentive Dynamics to other members of the Robins group, or to them as individuals, were in the nature of loans at all. It will be necessary to address in detail the nature of the relationship of the companies referred to, and in particular the movements of money from Incentive Dynamics to the other companies. In addition, both Meissner and Hudson dispute that they were defacto directors of Incentive Dynamics at any time. In the case of the Hudson/Pagby claim, it is asserted by those respondents that monies received by them from Incentive Dynamics were monies to which they were entitled pursuant to Hudson's contract of employment with Incentive Dynamics and the contract for the provision of services between Incentive Dynamics on the one hand and Hudson/Pagby on the other.
11 The third, and relatively confined, claim made by the applicants, is that three payments made by Incentive Dynamics to Meissner each of $10,500 in August, October and November 1995 were payments which are voidable under ss 588FA and 588FE of the Law, having been made within six months of the commencement of the winding up proceedings on 15 February 1996. They claim the return of those funds. Those funds are not funds which relate to any advance said to have been made by Meissner.
12 The fourth claim relates to advances made to Coldwick, Chang and Pagby for the purchase of property.
13 In the case of Coldwick, it is the registered proprietor of land at 48-52 Dow Street South Melbourne in Victoria ("the South Melbourne property"). On 22 November 1991, Coldwick purchased the South Melbourne property for $295,000. It is alleged that Incentive Dynamics provided $128,000 (or $98,500) for that purpose, and subsequently paid Coldwick not less than $8,681.25 to meet Coldwick's mortgage obligations in respect of the property and in refurbishing the property. It is claimed that, in the circumstances of those advances, Coldwick holds its interest in the South Melbourne property entirely, or in part, upon trust for Incentive Dynamics.
14 On 12 May 1995, Coldwick purchased property at second floor, 24 Fallon Street, Crows Nest in New South Wales ("the Crows Nest property") for $560,000. It is alleged that it received from Incentive Dynamics $117,178.17 towards that purchase price, and again, in the circumstances in which that occurred, it is alleged that Coldwick thereby holds its interest in the Crows Nest property entirely, or in part, upon trust for Incentive Dynamics.
15 The amounts said to have been advanced to Coldwick for the purchase of the South Melbourne property and the Crows Nest property are amounts otherwise included in the claims or in respect of loans to Coldwick referred to above.
16 Chang, who is the wife of John Robins, on 6 January 1992 purchased a property at 919 Punt Road, South Yarra in Victoria ("the South Yarra property") for $215,000. It is alleged that Incentive Dynamics provided her $21,500 towards the purchase price, and that in the circumstances in which that occurred, she holds her interest in the South Yarra property entirely, or in part, on trust for Incentive Dynamics. That is the same money in respect of which there is a claim against her for recovery of a loan.
17 The final property transaction within this group concerns the purchase in about December 1988 by Pagby, as trustee of the family trust of Hudson, of a property at 37-41 Grant Street Bacchus Marsh in Victoria ("the Bacchus Marsh property"). It is alleged that it was purchased for $291,000, and that Incentive Dynamics provided $62,706.16 towards its purchase. It is further alleged that, in the circumstances in which that advance took place, Pagby holds its interest in the Bacchus Marsh property entirely, or in part, on trust for Incentive Dynamics. It is then alleged that between 1988 and 6 April 1990, Incentive Dynamics advanced further monies to Pagby in the sum of $200,000 (or $160,000). On 6 April 1990, Pagby executed a Deed of Mortgage in favour of Incentive Dynamics to secure repayment of that sum (there is uncertainty as to whether the amount of the mortgage is for $200,000 or $160,000), and acknowledged that the indebtedness was repayable on 14 December 1993. It was not repaid, and Incentive Dynamics seeks to enforce the mortgage against the Bacchus Marsh property, including interest accumulated. The amounts in issue in respect of the purchase of, or mortgage of, the Bacchus Marsh property are included in the amounts said to have been advanced by Incentive Dynamics to Pagby/Hudson. In addition, it will be necessary to determine the validity of the mortgage and whether in any event the sum of $200,000 was repaid, as Hudson and Pagby allege.
18 There was an additional allegation against John Robins, Douglas Robins, Meissner and Hudson. It became apparent in the course of the evidence that the full records of Incentive Dynamics were not in evidence. One significant issue which the parties litigated was whether or not those records were properly maintained by Incentive Dynamics by its directors. The applicants allege that they were not. In their Statement of Claim, the applicants also allege that by reason of that failure, Incentive Dynamics has suffered loss and damage. They express that claim in the following way:-
"If it is held that transactions between [Incentive Dynamics] and related entities were intended in each case to offset each other, or were intended in aggregate to offset each other, as it maintained by ["the directors"], then the applicants say that the defaults alleged in the account keeping, when combined with a deliberate general policy of shifting funds between related entities according to what were perceived to be the day to day needs of those entities, caused a substantial imbalance to arise between funds paid out by and funds received by [Incentive Dynamics]. As at 30 June 1995 the total of all accounts designated as concerning a related entity, being accounts 606.01, 687, 688, 690, all accounts commencing 691 ("Loans-intercompany"), all accounts commencing 693 ("Loan - J. Hudson"), all accounts commencing 694 ("associated loans"), 697, 698, 699, 930, 932, 933 and 941 reveal a net debit of $2,228,267.33."
19 The applicants claim that a portion of the costs of the administration of Incentive Dynamics by Morton were incurred as a consequence of Morton having to undertake work because the books and records of Incentive Dynamics were not properly maintained. It appears to be based on a breach of s 286 of the Law.
20 Section 286 obliges a company to keep written financial records that correctly record and explain its transactions and its financial position and performance, and that would enable true and fair financial statements to be prepared and audited. There is an allegation that Meissner failed to maintain those records. I find that it was his primary responsibility on behalf of Incentive Dynamics to do so. It is clear that Morton did not receive financial records which satisfied that statutory requirement. My findings, which are set out in detail later in these reasons, are that financial records were not maintained sufficient to satisfy the requirements of s 286. In particular, I find that the inter-company transactions between members of the Robins group including Incentive Dynamics were not recorded in such a way that they could be explained and that they were not recorded in such a way that its financial position could be explained and true and fair financial statements prepared and audited. There is no reason to think that the other financial records of Incentive Dynamics, in particular those that related to the day to day conduct of its business and its campaigns (as its particular incentive schemes were called in evidence), were not otherwise properly maintained.
21 However, not surprisingly, the focus of the claim was not directed to proving that Morton's costs of the administration were incurred by reason of the failure which I have found. I am not able to determine what those additional costs and expenses may be, compared to what his administration costs and expenses would have been had proper records been maintained. It would be speculative to determine a figure, other than to say that it is not insubstantial. It is a figure which is likely to overlap with costs recoverable in these proceedings if the applicants succeed. In those circumstances, apart from making the finding which I have made, I am unable to determine any particular amount, or even a general figure which reflects a genuine estimate of those costs. To do so would be mere guesswork on my part. In those circumstances, I consider that I should not award damages to the applicants against any of the respondents in respect of this aspect of the claim. If it were to succeed, it could do so only as against John Robins and Douglas Robins in their capacity as directors, and as against Meissner given my finding as to his role and responsibility in this regard. So far as Hudson's role and responsibilities for maintaining financial records is concerned, I find that he fulfilled the obligations which that role and those responsibilities imposed upon him. No submissions were directed particularly to the responsibility of John Robins and Douglas Robins as directors for what is essentially Meissner's failure. In view of my overall conclusion in relation to this aspect of the applicants' claims, I do not need to address those questions further.
Representation
22 At the commencement of the hearing, the applicants were represented by counsel, and the respondents other than Hudson and Pagby were represented by one counsel instructed by one firm of solicitors. Hudson appeared on his own behalf, and by leave for Pagby. He was assisted during the hearing by Clifford Thomas Henry Chesson, as a McKenzie friend: see McKenzie v McKenzie [1971] P 33. During the course of the hearing, the solicitors on the record for the respondents other than Hudson and Pagby ceased acting, and thereafter John Robins appeared for himself and by leave for Coldwick and RHM. Douglas Robins and Chang did not appear at the trial either in person or by counsel, although in a general sense John Robins said he was acting in their interests. Chang gave evidence. For the purposes of final submissions, each of the first, second, fifth, sixth and eighth respondents were represented by counsel. After the solicitors initially on the record ceased acting for him, Meissner also was separately represented by counsel.
The Robins group
23 On the evidence, it is clear that John Robins was the driving force behind the various companies in the Robins group including Incentive Dynamics, although in some cases not exclusively so. Douglas Robins is his father. He appears to have played little active part in the operations of Incentive Dynamics or of the companies in the Robins group.
24 Meissner at material times, at least to August 1995, acted and was engaged as the accountant of Incentive Dynamics. He was also the secretary of Incentive Dynamics, and TD. He resigned from the office as secretary of Incentive Dynamics and TD by notice signed in August 1995. He was also in that same period the secretary of ID-NSW, AD, Maritz, Nicholls-Cumming, Out and About, RTA, Travellers Pty Ltd (In Liquidation) ("Travellers") and Bonus Bonds Management Pty Ltd ("Bonus Bonds"). Both Travellers and Bonus Bonds feature in the background history to this proceeding.
25 At material times he was a shareholder in, and a director and secretary of, Coldwick and BD.
26 Coldwick was registered on 29 September 1991. It is a property investment company. John Robins was issued with 75 per cent of the issued shares, and Meissner and Lorkin each had a minority shareholding. Its directors at material times up to 1 July 1995 were John Robins, Meissner and Lorkin. On 1 July 1995, Robins resigned as a director of Coldwick, and transferred his shares to his sister Rosemary Pollack. She became a director of Coldwick. I make the finding that Meissner was a director of Coldwick, although he did not admit that fact in his defence, based upon the corporate records tendered in evidence.
27 BD operates a graphic art production and printing business in Victoria. It was incorporated on 14 August 1990, but on the material available does not appear to have come in to the Robins group fold until about April 1992. John Robins was appointed a director on 29 April 1992, but resigned on 1 July 1995 when his sister Rosemary Pollack was appointed a director. Meissner was appointed a director on 31 December 1993 and remains a director. On about 26 March 1996 Meissner's wife was also appointed a director and Rosemary Pollack ceased as a director of that company. Since then, Meissner and his wife are the sole directors and shareholders of that company.
28 RHM has operated as an accredited advertising agency based in Sydney for many years. It was incorporated in 1982. At material times up to 1 July 1995, its directors were John Robins (who held and holds all but one of the issued shares) and Douglas Robins. On 1 July 1995, John Robins resigned as a director and his sister Rosemary Pollack was appointed a director. Its manager is now Susan Louise Ryan ("Ryan"). Ryan has been employed by RHM since November 1989. From September 1997, she became its sole director. Ryan gave evidence at the hearing.
29 Maritz also is a property development company. It was incorporated on 9 January 1990 with John Robins and Douglas Robins as its directors. On 1 July 1995, John Robins resigned as a director and his sister Rosemary Pollack was appointed as a director.
30 TD was incorporated on 10 November 1987. It was a licensed travel agent, largely in providing services for Incentive Dynamics. It also operated from Williamstown in Victoria, with John Robins and Douglas Robins as its shareholders and directors. On 1 July 1995, Rosemary Pollack was also appointed a director. It is in liquidation, having been wound up by an order made on 12 March 1996.
31 ID-NSW was registered on 14 March 1991. It operated a business in New South Wales similar to that operated in Victoria by Incentive Dynamics. Its business included the sale of Incentive vouchers. Incentive Dynamics held the majority of shares in ID-NSW, and its directors at material times were also John Robins and Douglas Robins.
32 AD is an unaccredited advertising agency operating in Sydney. John Robins and Douglas Robins hold the issued shares in it, and are its directors, together with Lorkin. It was incorporated on 13 October 1988.
33 Nicholls-Cumming is a wholly owned subsidiary of AD. It also operates an accredited advertising agency based in Sydney. It was incorporated on 16 March 1989. Its directors are John Robins and Lorkin.
34 Out and About was incorporated on 4 May 1989. John Robins holds all but one of the issued shares, and has been a director with Douglas Robins at material times. On 1 July 1995, John Robins resigned as a director.
35 RTA was incorporated on 7 February 1985. It is a wholly owned subsidiary of Maritz, and so in turn was controlled by Maritz shareholders. Its directors at all times from 31 December 1990 were John Robins and Douglas Robins.
Hudson/Pagby
36 Hudson was the manager of Marco Motivation Pty Ltd until its liquidation, and of certain associated companies involved in the business of it providing and selling promotional and incentive campaign schemes. The business operated by those companies was, following their liquidation, sold to Incentive Dynamics by receivers appointed over Marco Motivation. Hudson was then appointed as Chief Executive Officer of Incentive Dynamics. Pagby is the trustee of the Hudson Family Trust, and Hudson is a director and shareholder of Pagby. At no time was he a shareholder of any of the companies in the Robins group, nor a director of any of those companies.
Overview
37 The evidence is clear that there was substantial movement of funds between the various companies in the Robins group including Incentive Dynamics. It is the case of the applicants that Incentive Dynamics was one entity within that group which had access to a substantial flow of cash. It is also their case that it was treated and used by the directors to some extent as a source of funds to finance the operations of the related companies in the Robins group and as a source of funds for the personal benefit of its directors, and of their friends and business associates, in particular Lorkin and Chang. Consequently it is alleged that Incentive Dynamics, through the actions of the "directors" caused or permitted Incentive Dynamics to advance funds from time to time to the entities and persons referred to above in circumstances where it was improper to have done so. It is alleged that such loans or advances conferred no benefit upon Incentive Dynamics, and were undertaken without security, without any arrangement for the payment of interest, and without any steps to secure their recoverability. It is further alleged that each of the "directors" failed to address the particular interests of Incentive Dynamics in relation to those several advances from time to time, and simply permitted them to be done, principally at the instigation or under the supervision of Meissner.
38 The respondents collectively dispute those allegations. Amongst their responses are that other entities in the Robins group were profitable and active trading entities, including TD as a licensed travel agent and supplier of travel and holiday services, ID-NSW, and Bonus Bond and another similar business conducted through Bonus Plan Pty Ltd. In the case of TD, as part of the services which it provided to Incentive Dynamics, it procured almost exclusively for Incentive Dynamics, travel and holiday services for which it was entitled to be paid by Incentive Dynamics. The payments variously made to TD by Incentive Dynamics were said to be on account of the provision of such services. It is said that ID-NSW supplied to Incentive Dynamics bonds or goods in exchange for monies, as did Bonus Bond and Bonus Plan. It is asserted that BD Graphics received money from Incentive Dynamics in exchange for graphic design, advertising placement and printing. It is said that Nicholls-Cumming received cash from Incentive Dynamics in exchange for advertising goods or services. It is also said that Out and About received monies from Incentive Dynamics for services it provided also as a travel agent, supplying travel and holiday services to Incentive Dynamics as part of the incentives which Incentive Dynamics put in place in its business sales operation. Each of those categories of transactions is said to relate to the operations of Incentive Dynamics in its marketing services, and to have been for normal, valuable consideration and in the normal course of business between those entities.
39 It is not contended that each of the payments of monies apparently made by Incentive Dynamics to the several other entities referred to, or to those persons, corresponds precisely with a fee for services or goods provided by them respectively. As Meissner explained, there was a movement of funds between the various entities in the Robins group including Incentive Dynamics from time to time to accommodate the needs periodically of a particular group member for cash resources so that there was, within the group, a form of mutual banking facility support. It is not accepted that Incentive Dynamics alone, or principally, had the cash resources available to it to fulfil the role as group treasurer or finance provider in the way which the applicants allege. It is said that periodically monies were payable between the several members of the group, including Incentive Dynamics, both for services and to accommodate short term financial requirements, and that at the end of each financial year there was a balancing out by a process of mutual credits and mutual debits, to reflect the net result as between the various entities. It is then contended that either there were no net amounts owing by the members of the Robins group to Incentive Dynamics as alleged, or alternatively it is contended that it is not proven that the particular amounts or any substantial amounts were owing in fact to Incentive Dynamics in the way in which that is alleged.
40 The respondents accept that the financial records of Incentive Dynamics as available to Morton and as adduced in evidence do not demonstrate the picture which the respondents assert. That is because, they contend, there was an over arching document entitled "Reconciliation File" which was prepared by Meissner as its accountant, and presented to its auditor Francis Thomas Copeland ("Copeland") from time to time, which effected the reconciliations referred to. Those reconciliations are not reflected in the financial accounts in evidence, or apparently as available to Morton, although the respondents say they were done and were subject to audit by Copeland.
41 In respect of the alleged personal advances, the responses of the respondents vary. In the case of the monies said to be owing by John Robins, that is simply denied as an indebtedness, as is the amount allegedly owing by Douglas Robins and by Meissner. The amounts said to be owing by Chang and Lorkin are said to have been repaid.
Morton's investigations
42 The principal witness for the applicants was of course Morton. His evidence was largely explaining the process of his investigations into the affairs of Incentive Dynamics and his reasons for presenting the claims made in this action. He was cross-examined to test his understanding of the materials upon which he had relied, the validity of conclusions he had drawn, and the significance of other material to which he had had access but upon which he had not apparently placed weight. I was impressed with his evidence on those matters, and I accept that he is genuinely and reasonably presenting the claims made in this action as the liquidator of Incentive Dynamics. However, that does not mean that all the claims as formulated by him will succeed. Each will have to be addressed in the light of all the available evidence concerning it. Moreover, in some instances, there is likely to be other material which could touch directly upon such issues and which it would be natural for one party to have adduced. Where that is so, while the absence of such evidence cannot prove or tend to prove a fact in issue, its absence may enable an inference from available evidence to be drawn with more confidence.
43 It is obvious from the course of evidence that there is considerable animosity between Morton and various of the respondents. It was suggested in cross-examination that he had not accounted for all materials concerning Incentive Dynamics' affairs which he had seized in the course of his investigation. In particular, it was claimed that he had lost or destroyed the Reconciliation File.
44 Upon his appointment as liquidator on 15 April 1996, Morton set about procuring the books and records of Incentive Dynamics. He perceived some resistance to that course of conduct, or at least some lack of full cooperation. On 20 April 1996, Morton obtained "some 83 boxes" of documents from Meissner's shed behind his office. He caused those boxes to be described briefly in a list. There was an issue as to the list's completeness and accuracy. A review of that material led to a revised list being prepared. It remained an issue by the end of the hearing that Morton had not accounted for six boxes of material taken from Meissner's premises on that occasion. Morton inspected material in the boxes sufficiently to form the view that many documents he had expected to be in existence were not within the material produced. The material apparently missing included signed or audited financial accounts of Incentive Dynamics for any financial year, and of the other companies in the Robins group.
45 Consequently, Morton applied for and was granted a search warrant with respect to the offices of John Robins and Meissner. Those warrants were executed, and further documents (including a file entitled "Shareholders Loans") were in fact obtained from both Meissner's office on 5 June 1996, and from RHM's office on 7 June 1996.
46 At the time of the execution of the search warrant at Meissner's office, there was still at Meissner's office the "Reconciliation File". It had not been provided earlier to Morton. Given the evidence of John Robins and Meissner as to its significance, it is very difficult to understand why it had not been provided to him. Its whereabouts now are not known. It is very difficult to understand why, once there was apparent mistrust of Morton by John Robins and Meissner, it was not copied by any of the respondents.
47 Morton said that he has not, despite those processes, been able to obtain
* a complete set of minutes of directors meetings of Incentive Dynamics, or board papers
* any minutes of meetings of shareholders, or meeting papers
* trial balances for the 1993 and 1994 financial years
* complete journals and ledgers for any year
* signed or audited financial accounts for any year.
48 Evidence was adduced by the respondents to establish that Morton's recording procedures were inadequate and departed from the standards usually adopted by a liquidator. It was sought to establish by that evidence that, had such procedures been followed, further documents would have been identified which would have exposed the fact that the applicants' claims were ill-conceived and based upon selective and incomplete material.
49 It is not necessary to make a finding on whether Morton's investigative and recording procedures met any particular standard applicable generally to liquidators, because I am not prepared to take that further step which the respondents urge upon me. That is because I accept Morton's evidence that the examination of the materials which he had available to him was directed to seeking the very type of documents which are said to be missing. It is an entirely natural approach to look for the critical documents first, namely such documents as Incentive Dynamics audited or final accounts for each financial year as approved by its directors. It is beyond realistic conception to think that Morton and his staff chose to ignore that material, or overlooked it, and embarked instead on the laborious process of endeavouring to develop a picture of Incentive Dynamics' affairs from the primary records available to him, the ledgers and the trial balances, all of which were incomplete. Moreover, as I observe below in respect of Meissner, I think that the failure to produce those critical financial accounts in an understandable form lies largely at his feet. It is also the case that, at least in respect of the transactions between members of the Robins group including Incentive Dynamics, there are two accounting sides to each transaction or relationship. The financial accounts of each of those entities in the Robins group should be capable of reflecting the picture of Incentive Dynamics dealings with them. With two exceptions, the respondents chose not to present those materials, and with only a limited exception in the case of Gary Stephen Fettes ("Fettes"), no expert evidence was led to explain in any other perspective than that adduced by Morton from the materials available to him how the relationship was materially different from that which Morton presented. Copeland, the auditor of Incentive Dynamics and of a number of other entities in the Robins group, was not presented to give evidence. I think he was a witness naturally to be called by the respondents.
50 I accept that the affairs of the Robins group, including Incentive Dynamics, were not conducted with the degree of formality which one might expect. That may explain the absence of minutes of meetings. It does not explain the absence of accounting records or financial accounts or taxation returns. There is no dispute that they must have existed, except that it is acknowledged that there were no taxation returns after 1991. I accept that Morton's efforts to obtain them were unsuccessful. As appears below, there were many dealings between Incentive Dynamics and other members of the Robins group in the period in issue. As noted, it is the respondents' case that those dealings were not in the nature of loans from Incentive Dynamics to those other entities, but were mainly (but not only) payments for services rendered to Incentive Dynamics as part of its business. It is also the respondents' case that those dealings, where they were not payments by Incentive Dynamics to others of those companies, were part of the movement of funds within the Robins group to minimise bank overdraft levels and so minimise interest payments, and also to direct the available cash to the particular company which required it. One might expect those transactions to be accurately recorded in the ledgers and journals of Incentive Dynamics. The respondents say that they were not. They say that the process of recording and accounting for those transactions was only periodically brought to account in the formal accounting processes of Incentive Dynamics and of the other companies in the Robins group. In addition, it was Meissner's evidence that the year end accounts of Incentive Dynamics and of the other companies in the Robins group as generated by his computer program from year to year were progressively more inaccurate because that reconciliation did not completely take place until those accounts were "closed off".
51 I find that Morton did not receive from the respondents the particular documents he has referred to as missing from his materials, as recorded above. In reaching that conclusion, I have also borne in mind the evidence that the "Shareholders Loans" file was disassembled by Morton or his staff for the purposes of his investigations, and cannot be reliably reassembled. That is somewhat surprising. Some material from that file has been identified. All the evidence indicates that it is not the Reconciliation File, and I am satisfied that it did not contain the critical records unable to be located by Morton. I have also borne in mind the circumstances in which certain Incentive Dynamics' campaign files came to be destroyed in mid 1998. The correspondence indicates clearly the circumstances in which that occurred. None of the respondents earlier identified that material as being of particular relevance in relation to the allegations made against them, or as material which might upon analysis expose flaws in the applicants' claims. None asked for access to that material to help in resisting those claims. Again, although I think it is somewhat surprising that no efforts were made to preserve that material, it is clear from all the evidence that it did not contain the critically missing documents. I also accept that, from Morton's point of view, he had no reason to think that the material was of direct relevance to the issues in these proceedings. He had arranged for a member of his staff to check that that material was not apparently of such relevance, and that check was carried out in July 1997.
52 Morton was provided with a series of computer discs containing the "Quicken files", that is computer records of costs paid by Incentive Dynamics in its day to day business, maintained under a computer program called Quicken. Morton's evidence was that he had attempted to examine the data on those discs, but was unable to do so. Whether he should have made greater efforts to do so is a matter for conjecture. I am, however, satisfied on the whole of the evidence that the information on those discs was not the critical information of the kind which is said by Morton to be missing. It is likely to be data of the kind partly recorded in the campaign files, and in the day to day operations of Incentive Dynamics. There is no reason to think that it was not data which is reflected in the ledgers and trial balances of Incentive Dynamics, although it may have had certain data which might have thrown light on certain entries in those records.
53 In considering the individual claims of the applicants, I shall bear in mind that the records available to Morton are incomplete and that there were other records to which he might have had access and which may have thrown some light on the particular claim. It will be necessary to assess the significance of that material, if any, in relation to the individual claim.
The evidence of John Robins and Meissner
54 The principal witnesses for the respondents were John Robins, Meissner and Hudson. As appears below, I have placed only limited weight on the evidence of John Robins and Meissner in relation to the particular claims. I have positively rejected their evidence in certain respects. It is appropriate to explain why I have taken those views.
55 John Robins' evidence was, in a number of respects, unsatisfactory. I did not form the view that he was deliberately misleading in his evidence. However, on a number of occasions he demonstrated that he was unable to relate his evidence in his statement to specific documents which should have existed. There were also documents which showed that his evidence-in-chief was apparently unreliable. In my view, his range of activities and responsibilities, including operating directly the business of RHM, meant that he was not as familiar as he professed to be with the details of inter-company money movements between members of the Robins group including Incentive Dynamics. I find that, after setting in place with Meissner the regime under which the funds available within the Robins group were to be deployed, he largely left the implementation of those movements of funds to Meissner. His evidence, in my view, suffered from a tendency to represent what he thought should have happened or what he expected to have happened rather than what in fact did happen. His lack of apparent knowledge of matters of detail means that generally speaking I have placed weight on his evidence only where it describes in general the relationship between the companies in the Robins group including Incentive Dynamics or where he was directly involved in the particular transaction.
56 Meissner gave me an impression of evasiveness in his evidence. There were matters upon which I found his answers not credible. One illustration is that, despite its significance and his clear knowledge of its location, he did not provide the Reconciliation File to Morton, or copy it, at any time. He did not identify its existence to Morton or any of his staff whilst they were at his premises. His explanation as to the process of producing the final accounts of Incentive Dynamics from the trial balances was also somewhat unsatisfactory. If, as he asserted, that process was necessary because the ledgers and trial balances did not record accurately the various movements of money between Incentive Dynamics and the Robins group, he did not explain to my satisfaction why the trial balances did not reflect any of the entries requiring reconciliation. He said that the reconciliation of those entires was done after the trial balance entires were "closed off". As those trial balances show, entries were made and able to be recorded in the ledgers for the purposes of the trial balances up to about the end of August in each financial year. The only entries not capable of being reflected in the trial balances were adjustments made after that date. But the trial balances reveal very little of the picture the respondents say was the case. I accept his evidence that, due to his lack of skill, he was unable to re-open the computer records of a particular financial year maintained under his Solution 6 software program. Once the entries for the next financial year commenced to be entered (about September for entries from 1 July), he was unable to readjust the trial balance then generated. But it is hard to accept that he did nothing about that if, as he says, the consequence was that the trial balance for one year which was the foundation for the next succeeding financial years' figures, became increasingly inaccurate because of adjustments to the trial balance he made but was unable to enter on those records. The activities of Incentive Dynamics and the Robins group were not insignificant, and the usefulness of the accounting and financial information to their proper management is self evident. There were instances in Meissner's evidence where his answers were simply not responsive, or were clearly self-exculpatory in the face of apparently clear documents. He failed to produce records which he said were available to confirm certain of his answers, despite a break in his evidence during which he could have assembled that material.
57 There are elements of his evidence which I do accept. Most significantly, I accept that he assumed the role of the Robins group treasurer, and arranged for the movement of funds between the various members of the Robins group including Incentive Dynamics as required from time to time. It remains to determine whether the result of those movements of funds is as the applicants allege.
58 As I have indicated, I accept that he was unable to "re-open" the Solution 6 computer program to adjust trial balances, after the next financial years' records commenced to be entered. I accept that he held a Reconciliation File. I deal with its content and significance in my findings below. I accept that the trial balances were not the final accounts. I have separately made findings about the significance of those matters when addressing the individual claims. I do not accept that the trial balances and ledgers of Incentive Dynamics are so unreliable that I should not put weight on them. I do not accept his evidence that the reconciliations conducted by him, and audited by Copeland, meant that none of the Robins group owed money to Incentive Dynamics at the time of its liquidation.
59 My overall impression of Meissner's role in relation to Incentive Dynamics and the Robins group is that he was unable to manage properly the conduct of its accounting affairs. I think that the pressure of work, and the complexity of the tasks, meant that he was not able to document reliably the various inter-company transactions between the Robins group members including Incentive Dynamics, and the Reconciliation File was that bundle of materials which he hoped would ultimately enable him to do so.
60 In the meantime, particularly in relation to TD and RHM, where there were external accrediting agencies, it was necessary to present audited accounts sufficient to satisfy those agencies of the solvency of those two entities. I find that he, and Copeland, entered upon a "reconciliation" by zeroing the liabilities of TD and RHM to other members of the Robins group including Incentive Dynamics, and removing their loan assets from the other members of the Robins group including Incentive Dynamics so as to produce accounts which accommodated the requirements of those accrediting agencies. I do not accept that that zeroing process accurately reflected the real position as between Incentive Dynamics and TD or RHM.
61 In my view, telling evidence to contradict that claim by Meissner was given by Morton in relation to his analysis of a draft balance sheet and profit and loss account for Incentive Dynamics for the year ended 30 June 1995, and working papers of Meissner in relation to the preparation of those draft financial statements. The starting point for the process is shown to have been the ledgers available to Morton, prepared by Meissner or his staff using the Solution 6 software program. It is clear that no accountant acting properly would make the accounting adjustments which appear to have been made in producing the draft financial statements without making appropriate journal entries to the primary records of Incentive Dynamics. There are no such journal entries. The analysis by Morton shows that the process of adjustment to produce the draft financial accounts prepared by Meissner was not by reference to any documentary materials, or ledgers other than those to which Morton had access, but by inappropriately setting off certain entries in that primary ledger data. Furthermore, the analysis of Morton in relation to the audited accounts of TD to 30 June 1995 (one of the two sets of audited financial statements which were produced in evidence, in that instance from the Travel Compensation Insurance Fund) shows that the same process was undertaken by Meissner. The coincidence of the outcome in that case is quite startling. It strongly suggests that the production of those accounts was by that coarse method, and was based upon the ledgers and trial balances available to Morton. There are no journal entries which, almost of necessity, would have been made if the process involved the use of other significant information from the Reconciliation File. I do not think that that evidence is really consistent with the more refined and complex off-setting process which Meissner said occurred by reference to the Reconciliation File.
62 I will deal with Hudson's evidence when discussing the claims against him and Pagby.
The Reconciliation File
63 There is a very significant issue as to whether the Reconciliation File was provided to Morton following his appointment as liquidator. He asserts that it was not. Meissner, in whose custody the file was, asserts that it was, but in somewhat curious circumstances.
64 I find that there was a file entitled "Reconciliation File" but I do not think that it recorded within it with any form of precision or coherence the sort of information which Meissner deposed to, namely a year end reconciliation of the accounts of each of the entities in the Robins group including Incentive Dynamics, and an adjustment of the amounts apparently owing from one to the other as recorded in their respective ledgers, trial balances and accounts presented to the auditor for auditing. Independently of the fact that none of the respondents called Copeland to give evidence to confirm the assertions of John Robins and Meissner in particular, I have formed the view that the Reconciliation File did not fulfil the function or present the picture which it is alleged to have presented. Copeland's absence gives me greater comfort in reaching that conclusion. If Meissner were correct, he would have had detailed reference to the Reconciliation File to audit the accounts of Incentive Dynamics and other companies in the Robins group, but he was not called upon to confirm its contents.
65 The existence of the Reconciliation File is established and confirmed by a number of witnesses. I have no reason to doubt them. They were, however, unable to speak in any detail as to its content. Certain witnesses (other than Meissner and Robins) did deal with its specific content. Ross Keith Holland ("Holland") from April 1992 was employed with Travellers Pty Ltd ("Travellers"), another member of the Robins group. He quickly came to learn that Meissner, who also was the company secretary of Travellers, managed the day to day finances of the Robins group. Holland's immediate responsibility was for the day to day financial control of Travellers. He reported directly to John Robins. He also liaised with Meissner to ensure:
"That the cash flow of [Travellers] and [RHM] was utilised in such a way as to minimise the amount of interest paid to the bank on overdrafts conducted by any of the Companies within the Group and that adequate cash was always available in the bank accounts of [Travellers] to meet its half monthly commitments to pay IATA for travel tickets issued and in the bank account for [RHM] to pay its monthly media accounts and production accounts. He worked for Travellers until July 1995."
66 Both TD, and Travellers, were obliged to pay, in the middle of each month, amounts in respect of which they had issued tickets to ensure continuing IATA accreditation. There was therefore a regular focus on the cash available to each of those entities at about that time in each month to ensure that commitment was met. In respect of RHM, to maintain its advertising accreditation and rating, similar arrangements had to be in place at the middle of each month.
67 Holland described a practice whereby he transferred to Incentive Dynamics or any other company account in the Robins group, as directed by Meissner, any surplus cash held by Travellers or RHM, and he advised Meissner of such transfers. Each month in the days leading up to the 15th of the month, he would arrange to ascertain how much was required in Travellers and RHM to meet the IATA and media commitment, and he would request Meissner to "repatriate" to the appropriate accounts the amounts required. He described that process as "a treasury function" under the control of Meissner.
68 Periodically Meissner came to Sydney in relation to the affairs of the Robins group, and on occasions consulted Holland. On those occasions, Holland observed Meissner having with him a series of documents and files, a laptop computer, and an archive box. Included within those files was a file entitled "Reconciliation File". He described it as a lever arch file of a marble black/grey colour and as having a lot of entries in it in Meissner's handwriting, apparently in sections concerning the companies in the Robins group. He described those entries mainly as debit and credit entries made by Meissner to reflect debit transfers and credit transfers made during the course of the year. He also described that towards the end of each financial year, for the purposes of completing the year end accounts, he completed a reconciliation of payments into and out of Travellers and RHM to other companies in the Robins group including Incentive Dynamics. He provided that reconciliation to Meissner.
69 Amongst the documents obtained by Morton was the folder entitled "Shareholders Loans" to which I have referred. It contained two hundred and seventy one pages, including computer printouts from the Incentive Dynamics' general ledger on some of which was handwriting apparently made in some cases by Meissner and in some cases by others. Some of the pages (but not the majority) are ticked to indicate that in some way they have been reconciled to other material. There are also a few different pages including two typed pages purporting to be Incentive Dynamics management fees paid/received for the years ended 30 June 1992 and 30 June 1993, and six pages apparently containing handwritten entries of Meissner relating to transactions and debit and credit entries between various members of the Robins group. Holland indicated that those documents were not documents of the type which he saw in the Reconciliation File. Meissner also acknowledged that that file was not the Reconciliation File which he asserted to exist.
70 In my judgment, as with all witnesses who were not parties, other than Ryan, I accept Holland's evidence as honestly given and generally reliable. He impressed me as a credible cautious and fair witness, but I did not think that he demonstrated a sound memory for detail. I am reluctant to place much weight on his evidence on matters of detail except where it is confirmed by other evidence. Also, whilst I accept him as an honest witness, his statement was provided by dictating it to Ryan, and whilst Robins was available to assist him. I do not think that his statement, in those circumstances, necessarily reliably reflects the picture which he might have formed in a general way had he not had that assistance. I do not suggest that the assistance so provided involved any deliberate impropriety on the part of Ryan or Robins, but it is another reason why I ascribe rather less weight to his statement and his oral evidence than I otherwise would have done.
71 Holland confirmed the existence of final accounts prepared by him for Travellers and RHM as at 30 June 1995. He was unable to confirm that they had actually been adopted and approved by the Directors. Those accounts were not produced in the course of evidence, although I received at the commencement of submissions the unaudited accounts of RHM to 30 June 1994 as adopted by its directors. He described that in 1992 and 1993, Travellers had significant cash surpluses and provided substantial funds to Incentive Dynamics. He said that the situation was reversed in late 1993, and in 1994 and 1995, when Travellers was in need of funds to satisfy its requirements to fund the increasing value of debtors. It received monies from Incentive Dynamics during that period. However, he asserts that when Travellers ceased trading on 30 June 1995, all monies owed to Travellers by Incentive Dynamics had been repaid and further that Travellers was not indebted to Incentive Dynamics. The accounts prepared by him, in conjunction with external accountants, for 30 June 1995 and provided to the liquidator of Travellers in July and August 1995 show (he asserts) that the only amount due to related companies or shareholders by Travellers at that time was $129,582 due to ID-NSW.
72 His cross-examination suggested to me that that very explicit statement of the position was less clear than he asserted. He did not know what Meissner did with funds transferred from Travellers and under Meissner's control, nor did he know the source from which money was transferred back into Travellers from time to time. He was aware through his frequent liaison with Meissner's office, that the payee of funds from Travellers was not always the entity from which funds were received when Travellers required funds. The indebtedness to ID-NSW was, he said, of long standing.
73 In his cross-examination, John Robins had said:
"The financial statements of Travel Dynamics and other travel agents and the advertising agents were all zeroed annually in order to avoid this problem [eliminating related party transactions from financial statements] sorry, when I say "zeroed", I mean reduced and any counterbalancing loans to and/or from were reduced and offset so that the effect, the ultimate effect, was you didn't end up with, as it says here, an asset on the one hand which you couldn't put into the financial reports and a liability on the other which you should put into the financial reports because obviously it would have a double impact effect."
74 Holland was unable to comment on that proposition, as he said Meissner controlled the treasury function for the group. His awareness was limited to that of RHM and Travellers.
75 I accept his evidence that RHM generated significant profits, and always had a very positive cash flow. It never had to borrow funds, and was the source of much of the money to the group. He confirmed that it was common practice for money advanced by RHM to go to Incentive Dynamics as part of the overall treasury operation, and then to be `repatriated' to Travellers, if Travellers required money, from Incentive Dynamics. Consistent with that finding, I also accept that Holland, through his staff, maintained a spreadsheet detailing all inter-company transfers of money from and to Travellers for the period June 1994 to July 1995. He was also aware that Meissner had trouble meeting time constraints in relation to inter-company transfer reconciliations, and each year there was some pressure upon him because Travellers was required to be audited annually by 30 September. Meissner came to Sydney to complete that process, and in doing so met with Copeland and others. Holland specifically describes Meissner and Copeland, on many occasions, working together to try and clarify the entries Meissner had made. He also received a copy of a letter from Copeland to Meissner of 18 October 1994 formally requesting information to complete the audit for the 1994 years in respect of Travellers, RHM, Out and About and TD. The request referred to, and apparently included, signed copies of the financial statements of Travellers, TD, RHM, and Out and About and the financial review conducted by the Travel Insurance Compensation Fund in respect of Travellers, TD and Out and About, and by the media accreditation authority in respect of RHM. As those accounts presumably were audited, it is most surprising that they were not made available in the course of evidence. It is also most surprising that Copeland did not give evidence.
76 Holland further described that, in the period from July 1993 to April 1995, he procured cheques drawn by Travellers to pay retailers who had redeemed bonus bonds, which were payments made on behalf of Incentive Dynamics as Incentive Dynamics had previously received the benefits of monies paid by their clients for the purchase of bonus bonds. The amount which he asserts Travellers paid on behalf of Incentive Dynamics was in the order of $550,000. The amount due by Incentive Dynamics had somehow been offset in the books of Travellers, by amounts Travellers owed to RHM, Maritz and Robins. He did not expand upon that in his evidence. However, it transpired that he was able to assert that offsetting on the basis of information given to him by Meissner.
77 Holland also had some knowledge of a transaction in about March 1994 involving the transfer of furniture and equipment from Incentive Dynamics to RHM. The purpose of the transfer was to make assets available to the group as security for facilities to be provided by the Commonwealth Bank. At the time, Incentive Dynamics' assets were charged to National Australia Bank. Holland does not explain how or why, but was aware that Incentive Dynamics was to sell furniture and equipment to Travellers for about $113,000, and that RHM would then purchase about $77,000 of those assets. He asserts that the entries to reflect that transaction are recorded in the general ledgers of Travellers and of RHM. There are also other assets which he says were sold by RHM to Travellers at the time. He confirmed that there were no cheques drawn by way of payment.
78 Holland also gave evidence about a further relevant transaction during 1995. The Commonwealth Bank was seeking further security for advances it had made to the Robins group. Robins and Meissner decided to arrange for Travellers to "pay" Incentive Dynamics $200,000 being a sum equal to the face value of a mortgage granted by Pagby over the Bacchus March property so as to procure the discharge of that mortgage. The amount then said to be owing by Travellers to John Robins in excess of $600,000 would be credited to Travellers account as against John Robins. It was then contemplated that the indebtedness of Pagby/Hudson to Incentive Dynamics would be transferred to another group company, so as to be available to support further borrowing from the Commonwealth Bank by the giving of security over the Bacchus Marsh property. His evidence about that transaction is very vague. I place no real reliance upon it.
79 Julie Sommers ("Sommers") worked for Meissner from December 1993 to March 1996 as an assistant accountant, and during that time prepared financial accounts primarily for Incentive Dynamics. She also did bank reconciliations between the companies in the Robins group, including between Incentive Dynamics and TD. I found her to be a credible and open witness, not given to exaggeration and I am prepared to accept her evidence generally. Of course, as with all evidence, it must be weighed in the balance to determine the ultimate facts.
80 She understood that Incentive Dynamics operated incentive schemes, and used TD, as a licensed travel agent, to arrange for the travel components of those schemes. Incentive Dynamics provided funds to TD, so that TD could in turn meet the various payments it was required to make to its suppliers, including payments in advance of a proportion of the cost of travel booked and payment of the balance of invoices rendered by suppliers. Those payments by TD represented costs incurred by TD for and on behalf of Incentive Dynamics. It was the practice that those figures would generally be rounded figures, because of the volume of transactions involved, rather than being payments made for specific invoices of TD.
81 Sommers was responsible for journal entries, preparing ledgers, trial balances, profit and loss statements and balance sheets principally for Incentive Dynamics. She used the Solution 6 package on Meissner's computer. She described that a number of the accounts in the ledgers were used to report payments by, and receipts to, Incentive Dynamics from other entities in the Robins group arising out of trading relationships between them, although they were labelled inter-company loan accounts. They were not recorded against specific client accounts, either because of the quantity of the payments or because the payments may have incorporated numerous clients accounts. Adjustments were made at a later time. She therefore recorded receipts from related companies to Incentive Dynamics as credit entries in the inter-company loan accounts of Incentive Dynamics' ledger. She provided some examples. Sometimes when payments were made by Incentive Dynamics to third parties on behalf of related companies such as TD, they also were recorded in the inter-company loan accounts. On occasions, Incentive Dynamics made payments direct to suppliers of TD, rather than making payments to TD to on pay its suppliers. Again she was able to give examples of such entries, where the payment was debited to TD as an inter-company loan in Incentive Dynamics' ledgers, and where later adjusting entries were made to reflect the true nature of the transaction.
82 She described the existence of a Reconciliation File in which was kept the documents relating to the reconciliation of the inter-company transactions. She said the folder was a black one, which was labelled and which she last saw in a shelf behind Meissner's desk in early 1996. She had the practice, on a monthly basis, of printing out the inter-company loan ledgers as she had entered them and of placing that printout in the Reconciliation File. In that way, at least from her point of view, she maintained the Reconciliation File in an up-to-date manner. She was unable to say that, on every occasion that Incentive Dynamics paid money to TD, it represented a debt payable by Incentive Dynamics to TD or that their relationship was purely a trading relationship. The picture which emerges from her evidence is that, generally speaking, payments by Incentive Dynamics to TD were in respect of their trading relationship. If that were so, it is not clear why the reconciliation based upon the ledgers which she printed out each month and placed in the Reconciliation File would have been a difficult exercise.
83 The type of reconciliation which she had in mind is different from the type of reconciliation to which Meissner referred. On the basis of her material, there is no reason why the year end trial balances could not reflect those reconciliations, and be incorporated into the year end accounts. Meissner's evidence was that he was unable to do so because, when he came to do the year end accounts, there may have been entries not then available to be quantified and which could not be incorporated. There would be a time in about late August of each year when it would be necessary to start entries for the then current financial year. He would make such adjustments to the previous financial year as were then available, but leaving a balance of transactions outstanding. He did not have the technical skills, he said, to reopen the computer generated records relating to the previous financial year, so as to make adjustments which were appropriate after that point in time. If Sommer's evidence is correct, at least from her point of view, by the end of July or thereabouts in each year she would have completed and printed out the total record of inter-company transactions between TD and Incentive Dynamics as at 30 June in that year. There would be no reason why that reconciliation could not be given effect to before the "close" of the computer generated accounting figures for that financial year. Meissner did not explain why that was not the case.
84 Sommers' evidence does not deal with inter-company transactions which were not direct between, for example, Incentive Dynamics and TD but also involved other companies in the Robins group, and she had no real knowledge of other non-trading transactions involving Incentive Dynamics and other members of the Robins group. In my judgment, her evidence does show that a significant number of the transactions between Incentive Dynamics and TD involved Incentive Dynamics paying TD for services provided for, or debts incurred by TD, on behalf of Incentive Dynamics. Consequently, I find that the reconciliations proposed by Sommers were required to reflect properly trading relationships between Incentive Dynamics and TD, and were made in a timely way. There is no reason why they could not have been made by the time the Solution 6 accounts were closed off some two months or so after the end of each financial year. The computer generated ledgers do indicate such adjustments being made for each year as a series of adjustments as at 30 June, consistent with the process which Sommers indicated would then occur. Her evidence does not leave much scope for the contention of the respondents that, as between Incentive Dynamics and TD, the amounts outstanding to Incentive Dynamics not recorded in the accounts were by reason of their trading relationship.
85 Sommers' evidence does, however, confirm that Meissner and his staff were unable to backdate entries to a particular financial year's accounting data once the current year accounting data was commenced to be entered. She also was able to confirm that there were some payments made by Incentive Dynamics to other companies in the Robins group to provide cash funds to those entities and which were properly categorised at the time as loans.
86 In her evidence in cross-examination, Sommers indicated that beyond her insertions she did not know what was in the Reconciliation File. She saw that file about monthly, when she put in the printouts to which reference has been made.
87 Jaquelyn Faye Rawling ("Rawling") was employed by Incentive Dynamics from January 1989 as an accounts officer, and then with Meissner from October 1989 to December 1993 in that same capacity. She prepared the financial accounts for Incentive Dynamics, and reconciliations between the inter-group companies. On a daily basis she prepared the ledger accounts for Incentive Dynamics, and on a monthly basis prepared bank reconciliations, using the Solution 6 package on the computer. There were many hundreds of transactions each month, and many cheques each day. To complete bank reconciliations, she had access to all the deposit and cheque books and the bank statements for Incentive Dynamics. She checked them against the respective entries. Where there was no corresponding entry in the deposit books for a deposit, she made enquiries as to the source of the funds. She generally found that the source was a related company. She then said that Meissner prepared journal entries "for the Reconciliation File" and she updated the files on the computer. The bank reconciliations were filed in lever arch folders which had dividers for each month.
88 Rawling's other task was to prepare a reconciliation between the companies in the Robins group, which she did a couple of times each year. It was done in July and December for each previous financial year to enable tax audits to be performed on those companies which required auditing. For the purpose of the reconciliations, she used a Lotus 123 spreadsheet, and she obtained the financial documents of each of the relevant companies in the Robins group. She described ascertaining the opening balances on each of the related company ledgers and using those as the opening balances on the spreadsheet. She then went through the bank statements and deposit books of each of the related companies, and made enquiries of the relevant accounting officers of the related companies, to obtain further details of monies transferred in to and out of those entities. She asked questions such as whether deposits had been made into a related company account on behalf of some other entity. She was conscious of the fact that although there may have been an entry in only two sets of accounts, there may have been a third company debit or credit which also should have been reflected in a reconciliation. Her evidence confirms that there was a general movement of funds within the Robins group including Incentive Dynamics, and that those fund movements were "reconciled" on a reasonably regular basis.
89 Rawling was aware that RHM made payments to Incentive Dynamics when it had excess funds, and when Incentive Dynamics required funds to meet payments. When Incentive Dynamics had funds in its own account, it repaid RHM often in numerous part payments. She described significant funds flowing between Incentive Dynamics and RHM "where one company needed funds to meet commitments". She also described movements between the companies in respect of wages. Incentive Dynamics paid the wages of Nicholls-Cumming, RHM, Travellers (for a time) and BD. It paid those wages directly to employees, and they were not entered into other companies' accounts. She said those other companies generally then deposited money with Incentive Dynamics to cover those wages, or that there were other transactions against which the wage entries were offset.
90 The reconciliation which she carried out was crucial to reflect the true situation between the companies in the Robins group including Incentive Dynamics. She said that that reconciliation was necessary for management and audit purposes. Her practice, upon completing a spreadsheet reconciliation, was to print out the spreadsheet to reflect the reconciliations. She then gave the hard copy printout to Meissner for checking. He appeared to her to make notes on the spreadsheets, or on separate pieces of paper. She then filed all those documents in a blue lever arch folder which was marked on its spine "REC-N FILE". That file was kept in Meissner's office on a shelf behind his desk.
91 Rawling did not see the final accounts of Incentive Dynamics after auditing, as they were kept in Meissner's office and access to them was permitted only to Meissner, John Robins and Copeland. She regarded the Reconciliation File as an important one to properly understand the accounts of the companies in the Robins group including Incentive Dynamics.
92 Rawling ceased working for Meissner in December 1993. Her replacement was Sommers. Sommers did not do the same extensive reconciliation as Rawling, as her evidence discloses. Her role was confined to reconciling the trading transactions between Incentive Dynamics and TD.
93 Since November 1989, Ryan has worked for RHM in effect as personal assistant to John Robins. As noted elsewhere, RHM is an advertising agency accredited with the media accreditation authority of Australia. Ryan has been a director of RHM since September 1997, and a shareholder also from about that time. Her interests in what she believes to be 10,000 shares has not yet been recorded in the public register. Since about that time, John Robins also formally ceased his employment with RHM, but Ryan's cross-examination indicated that he was still playing an active role in the operations of its affairs.
94 It was apparent from her evidence that she had quite a detailed knowledge of the Robins group. She worked with Meissner on his visits to Sydney four or five times per year. On those visits, Meissner brought with him various materials and files, including lever arch files titled "Group Annual Accounts", "Inter Company Loans" and "Bank Reconciliations". Ryan described the inter-company loans file as a standard black lever arch file with a handwritten label.
95 Part of her duties involved ensuring that RHM paid its media account on the 15th day of each month, in accordance with the rules of media accreditation. She would therefore, in the days preceding the 15th of each month, arrange for the collection of any money owed to RHM by clients, and where money had been lent by RHM to another company in the Robins group, she would contact Meissner and arrange for repayment. RHM operated in part under the name AdPro. She would inquire of Meissner how much was owed by other companies in the group to RHM, and he would provide her with the details. To her recollection, there was never any offsetting liability, that is money borrowed by RHM from any other company in the Robins group, so that money reimbursed was not ever subject to a deduction for money loaned to RHM by any other company in the Robins group.
96 Her duties also involved liaising with Hudson of Incentive Dynamics concerning the preparation and printing of promotional material for clients of Incentive Dynamics, and in other incidental ways from time to time. She was also responsible for maintaining John Robins confidential files, including one headed "Pagby/Hudson". Although she was not directly involved in negotiating the transaction, she was aware of a document in that file that was a mortgage in favour of Incentive Dynamics from Pagby, and a subsequent mortgage in replacement of that earlier mortgage in favour of John Robins. Her cross-examination disclosed that much of that information was hearsay, and I place little weight on it.
97 Ryan also dealt with Barry Patherjohns, managing director of Travellers, from about December 1994. When Travellers, or its business was proposed to be sold to Carlson Wagonlit Travel, she assisted Patherjohns in preparation of the due diligence documentation. She observed a statement of the liabilities of Travellers, indicating that it owed RHM hundreds of thousands of dollars less than she had believed. In around April 1995, she raised that matter with Patherjohns. She also queried the matter with Meissner, who told her that all explanations were contained within the Reconciliation File.
98 In her work, she was aware from time to time of both Travellers and Incentive Dynamics depositing funds with RHM in repayment of advances previously made by RHM to those entities. She was unable to give any detail about those transactions.
99 She recalled a tension between Robins and Meissner when Robins received a writ in relation to unpaid group tax. That was the first notice she had had of any problems within the group in relation to group tax. She thought she would have been aware of any such issue within the group, had the information earlier been provided to Robins.
100 Ryan described RHM as highly successful. It had a lean overhead cost structure, substantial income, and it delivered a surplus in excess of expenses of around $300,000 per annum on a reasonably regular basis. It was part of her responsibility to complete financial information to submit to the Commonwealth Bank. She also received details of the group net position "following the reconciliation of the inter-company loans" including as at December 1994. She was adamant that RHM was not indebted to anyone, given the profits it was making and the cash it retained in its business.
101 She also gave evidence of the occasion on which Morton executed the search warrant on 7 June 1996, at the premises of RHM at 110 Sussex Street Sydney. I have made my findings as to the significance of that event earlier in these reasons.
102 Overall, I was impressed with Ryan as a witness, although at times she appeared to lean to a protective view of the interests of RHM and of John Robins. Nevertheless in general I accept her evidence. In particular, as she reaffirmed in cross-examination, she maintained an internal reconciliation file (not the Meissner Reconciliation File) from which she worked to check that funds would be available to pay the media accreditation commitment on the 15th of each month. It was on the basis of that record, to which she frequently resorted, at least on a monthly basis, that she was of the firm view that RHM was a lender to the Robins group, and at no time a borrower, within the group. The letter from RHM (John Robins) to Chang of 17 May 1995 in my judgment is consistent with that view as it is in the following terms:
The claim against Lorkin
209 Lorkin was an employee of Nicholls-Cumming. He did not give evidence.
210 The available ledgers from time to time show an increasing indebtedness of Lorkin to Incentive Dynamics, and the trial balance to 30 June 1995 shows a closing balance of $35,883.62. That level of indebtedness is shown to have increased by a little over $5,000 during the 1994/95 financial year. On 6 July 1995, Meissner sent a memorandum to Lorkin enclosing a summary of his loan account with an outstanding indebtedness of $36,034.37.
211 There is no evidence to controvert that documentary evidence. I accept it. I think I should adopt the reconciled figure of Meissner, namely $36,034.37. I find that Lorkin is indebted to Incentive Dynamics in that amount. The indebtedness probably reflects the general approach of John Robins to which I have referred above, that Incentive Dynamics was an appropriate vehicle for advancing funds to himself and his associates from time to time if cash resources were then available. That picture is, in a very general way, confirmed by the statement of Douglas Robins.
The Preference Claim
212 I find that Meissner submitted his accounts for services on a more or less monthly basis, sometime after the end of the month to which the work related. I further find that he issued accounts for professional fees performed in the months of August, October and November 1995 after the end of each of those months and was paid by Incentive Dynamics for those accounts after 15 August 1995 and before 15 February 1996. Each of those accounts was for $10,500.
213 Incentive Dynamics was ordered to be wound up on the basis of a creditor's petition of 15 February 1996. Accordingly, that is the relation-back day for the purposes of ss 588FA, 588FC and 588FE of the Law: s 9. Those provisions mean that if those three payments, or any of them, were unfair preferences under s 588FA, and insolvent transactions under s 588FC, they are voidable under s 588FE(2) because the payment was made during the six months ending on the relation-back day, namely after 15 August 1996: s 588FE(2)(b)(i) of the Law.
214 Those matters appear to involve the consequence that each of the three payments of $10,500 by Incentive Dynamics to Meissner amounted to Meissner receiving payment in full of an unsecured debt when, if he were to prove for those debts in the winding up of Incentive Dynamics, he would not receive that full amount. Accordingly, subject to consideration of s 588FA(2), I consider that each of those payments constituted a transaction that was an unfair preference given by Incentive Dynamics to Meissner.
215 Section 588FA(2) provides:
"Where:
(a) a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including such a relationship to which other persons are parties); and
(b) in the course of the relationship, the level of the company's net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship;
then:
(c) subsection (1) applies in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and
(d) the transaction referred to in paragraph (a) may only be taken to be an unfair preference given by the company to the creditor if, because of subsection (1) as applying because of paragraph (c) of this subsection, the single transaction referred to in the last-mentioned paragraph is taken to be such an unfair preference."
216 In my judgment, s 588FA(2) protects the three payments from being unfair preferences under s 588FA. The evidence shows that Meissner provided accounting services to Incentive Dynamics on a continuous basis, and had an agreed monthly fee for that work. Shortly after the end of each month, he would submit to Incentive Dynamics an invoice or fee note for the preceding months' fees in the agreed sum of $10,500. He, or members of his staff, would then arrange payment of that sum soon after it was invoiced, as Meissner was responsible for payment of that type of liability on behalf of Incentive Dynamics. He had a long running business relationship with Incentive Dynamics in the provision of such services and the indebtedness arose at the end of each month and was paid during the following month. The net result of that "running account" was that the performance of work in the month of July 1995 and in the preceding and succeeding months, and the payments made in respect of that work, should be taken together as one transaction. When approached in that way, as s 588FA(2)(c) directs, I do not consider that in fact Meissner received from Incentive Dynamics in respect of an unsecured debt more than he would receive if the three payments were set aside and he were to prove in the winding up. That is because, progressively, he was providing valuable accounting services to Incentive Dynamics in exchange for the regular payment of his fees. The net result of the three transactions is that, at the end of them, the net indebtedness to Meissner was not increased.
217 Accordingly, I consider that the applicants fail on this claim against Meissner. It emerged in evidence that it may have been that the accounting services were provided by Shinsay Pty Ltd trading as J Meissner & Co, rather than by Meissner personally, but neither the applicants nor Meissner raised that matter in relation to this aspect of the applicants' claims. I do not need to address it further in view of my conclusion expressed above.
Were Meissner and Hudson defacto directors?
218 Section 60(1) and (2) of the Law provides:
"(1) Subject to subsection (2), a reference to a director, in relation to a body, includes a reference to:
(a) a person occupying or acting in the position of director of the body, by whatever name called and whether or not validly appointed to occupy, or duly authorised to act in, the position;
(b) a person in accordance with whose directions or instructions the directors of the body are accustomed to act;
(c) in the case of a body incorporated or formed outside Australia;
(i) a member of the body's board;
(ii) a person occupying or acting in the position of member of the body's board, by whatever name called and whether or not validly appointed to occupy, or duly authorised to act in, the position; and
(iii) a person in accordance with whose directions or instructions the members of the body's board are accustomed to act.
(2) A person shall not be regarded as a person in accordance with whose directions or instructions:
(a) a body's directors; or
(b) the members of the board of a body incorporated or formed outside Australia;
are accustomed to act merely because the directors or members act on advice given by the person in the proper performance of the functions attaching to the person's professional capacity or to the person's business relationship with the directors or the members of the board, or with the body."
219 Section 60(1)(a) was discussed by Madgwick J in Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565 at 569-570 in the following terms:
"... it seems to be a necessary condition of acting as a director, whether properly appointed or not, that one exercises what might be called the actual (and statutorily extended) top level management functions. However, that is not necessarily a sufficient condition for such a conclusion, nor is it the same as saying that one must do things which only a director can do.
...
Whether a delegate or intermeddler is acting as a director will depend upon the nature of the functions or powers which are exercised and the extent of their exercise.
...
If, in the case of a small company, a person has, with full discretion, "acted as the company" in relation to matters of great importance to the company, and other than as an arms' length expert engaged for a limited purpose, the conclusion that that person has acted in the capacity of a director may well be justified. The extent to which and the circumstances in which the person has so acted will nevertheless be of importance."
220 Whether or not a person is acting as a director is often a question of degree. It requires consideration of the duties performed by that person in the context of the operations and circumstances of the particular company concerned. Factors to consider will include the impact of the person's decisions on the company overall, the internal practices or structure of the company, that is, how much the person has to do with the overall running of the company as opposed to their particular area of expertise, and how those dealing with the company reasonably perceived the person. It may therefore be relevant if persons have expressly or impliedly held themselves out as directors.
221 In respect of s 60(1)(b), the authorities indicate again that the decision is one of fact to be made in all the circumstances of the particular company. Just because directors do not act entirely as puppets of the alleged director does not mean that that person is not a director. A person may be a defacto director even if some decisions did not involve them at all. The section only requires that, as and when the nominated directors are directed or instructed, they are accustomed to act as the section requires. It is however appropriate to look to the aggregate of the transactions to see whether the directors customarily acted on that person's advice in the proper performance of that person's duties. There may be circumstances where the role and expertise of a particular person may, in a practical sense, leave the directors with little option other than to accept that person's advice. Nevertheless, if the ultimate decision is made by the directors, that person does not thereby become a director by reason of s 60(1)(b) of the Law. On the other hand, it is not necessary to show that formal directions or instructions were given in matters in which a person is involved for that person to be a defacto director. The formal command is not always necessary to secure compliance by the directors with that person's objectives. Ultimately, the question which the section poses is to identify for some or all the purposes of the company, the locus of effective decision making. If that resides in a person other than the named directors, and if that person cannot secure the "advisor" protection of s 60(2), then it is open to find that person is a director for the purposes of the Law.
222 As the applicants point out, neither John Robins nor Douglas Robins were active in the management of Incentive Dynamics. They were located in Sydney. Hudson ran its business, and Meissner had apparent authority to direct and implement the transfer of funds into and out of Incentive Dynamics and many other companies in the Robins group. There were few if any formal directors meetings after Moore's departure in 1989, and no records of the minutes of such meetings. To the extent that there were annual meetings of the directors to approve the financial accounts, and to receive Copeland's report as auditor, there is nothing to suggest that Hudson attended such meetings. It is unclear whether Meissner did so, if there were any such meetings, but it would be consistent with his role that he would have participated in the final review of the accounts at the end of each financial year.
223 Meissner's role was more extensive than that of secretary of Incentive Dynamics. He operated ostensibly as its financial controller, in the sense that from the point of view of the employees including Hudson he was the person authorised to apply any surplus funds to other members of the Robins group, and was the person to whom enquiries were directed when Incentive Dynamics required an inflow of funds. Through his practice company Shinsay Pty Ltd trading as John Meissner & Co, he provided extensive accounting services to Incentive Dynamics involving over half of his own time and almost two full time staff. He submitted monthly invoices for those services. On the evidence, I find that in effect Incentive Dynamics subcontracted to John Meissner & Co the performance of its financial and accounting services, leaving Hudson and the employees working under Hudson's direction to focus on the conduct of Incentive Dynamics' principal business, namely the marketing of and conduct of business incentive promotion schemes.
224 I have carefully considered the evidence as to the relationship between Meissner and John Robins, including the evidence of persons with whom Meissner had dealings on behalf of Incentive Dynamics and the other Robins group companies. I find that that relationship evolved over time. Initially, his role was a limited one of conducting the accounting functions of Incentive Dynamics. In that work, he had routine consultations with John Robins when he reported to him. At about that time, John Robins' business interests were expanding. He desired to ensure that companies in his Robins group did not pay commercial interest on borrowings when there were cash resources elsewhere in the Robins group. There were other matters which moved John Robins to seek to ensure that the funds available within the Robins group including Incentive Dynamics were deployed appropriately across the Robins group. John Robins and Meissner discussed that issue. That led to a more expanded role for Meissner, as the treasury manager for the Robins group including Incentive Dynamics. At the early stages of that role, he acted in arranging the transfer of funds within the group on the instructions of John Robins. I find that progressively he began to take the initiative in suggesting to John Robins what cash movements should take place, and that within a relatively short period of time, he began to assume the role of making decisions to move funds within the Robins group including Incentive Dynamics without reference to John Robins. The evidence from employees of companies in the Robins group is that he was the person to whom they turned when funds were required within a particular company, and that he then appeared to procure those funds as required. I find that he maintained that role up to about 31 August 1995.
225 In my judgment, Meissner's role was one conducted under the authority given to him by John Robins and subject to John Robins direction and control. I consider that he performed the functions of accountant to Incentive Dynamics and of providing the general accounting services to Incentive Dynamics only in that way. The provision of accounting services was no more than the performance of what were routine tasks. The provision of accounting advice was given in his professional capacity, and was subject to the decision of John Robins as to whether it was implemented. Over time, the level of his authority in such matters came to be expanded but I think that that was really only because John Robins chose not to exercise the authority which he had, rather than because Meissner himself had authority as if he were a director. The performance of his role supervising the Robins group "treasury' operations was also one which I am satisfied was conducted subject to the control of John Robins. Meissner reported to John Robins frequently, and I accept consulted with John Robins for direction when any issue arose which was not part of the routine movement of funds.
226 The decision is ultimately one of fact in all the circumstances of the case. Although Meissner was clothed with significant authority in the operations of certain aspects of Incentive Dynamics business, I find that that authority was not such as to bring him within the operation of s 60 of the Law.
227 In my judgment, Hudson was not a defacto director of Incentive Dynamics.
228 I find that his role was to operate the main business of Incentive Dynamics, and that beyond that role he was little involved in its processes. I accept his evidence that he did not attend any formal meetings of Incentive Dynamics' directors after the early meetings involving Moore. He did not see the annual accounts apart from in the early period of its operation and did not participate in their preparation, except for the provision of operating information to Meissner. He was not responsible for its overall financing. He had no role to play beyond the conduct of its main business.
229 In late 1995, he began to take a more direct role in the payment of Incentive Dynamics' trade creditors. That was because by then he perceived some delays in those payments occurring, and he was anxious that such delays might rebound adversely on the operation of the business. Until then, he had left such matters to Meissner and his staff.
230 Throughout his time with Incentive Dynamics, I am satisfied that he remained subject to the direction and control of John Robins, and in respect of expenditure other than expenditure directly concerning the main business he also remained subject to the direction of Meissner. In the day to day operation of the business of Incentive Dynamics he was left to his own resources, but that reflects his particular expertise. His role as its Chief Executive Officer performing those functions does not, in my judgment, render him a defacto director of Incentive Dynamics. In respect of monies paid to Pagby, he required and sought the approval of John Robins or Meissner before those payments were made.
231 I do not think that his role and responsibilities as Chief Executive Officer involved him exercising the powers and functions of a director. They were, in the circumstances, the powers and functions of a manager. They included dealing with potential clients, negotiating and entering into incentive scheme campaigns, hiring and dismissing staff, and the supervision of the work. I infer that those decisions always remained subject to the overriding control of John Robins. He had no power to direct Meissner or his staff as to how they went about their work. He was frustrated with Meissner's responses to him from time to time, but he was unable to do anything about that apart from ultimately referring his concerns to John Robins. An example of his limited role in financial areas is his concern during 1993 about certain group tax penalty notices which came to his attention. He took up that matter with Meissner, because of what he then understood to be sloppy accounting controls, but was not in a position himself to address the problem.
232 John Robins also gave evidence that Hudson was not treated as, and was not regarded by him as, a director of Incentive Dynamics. He took advice from Hudson, in matters where Hudson had the expertise which John Robins did not have, and made decisions in the light of that advice. Hudson had no role in, and only a general awareness of, the practice of moving funds within the Robins group including Incentive Dynamics. He had no role in selecting, or dealing with, the bankers.
The claims against the directors and officers
233 The claims against John Robins and Douglas Robins, as directors of Incentive Dynamics are founded upon their alleged breaches of subs 232(2), (4) and (6) of the Law and for breach of their fiduciary duty to act in good faith and for the benefit of Incentive Dynamics: Mills v Mills (1938) 60 CLR 150 at 195. Section 232(2) imposes the duty upon officers of the company to act honestly. Section 232(4) imposes the duty to act with due care and diligence. Section 232(6) imposes the duty not to make improper use of an officers' position to gain directly or indirectly an advantage to that officer or to cause detriment to Incentive Dynamics. The claims against Hudson are upon the same basis, and are pursued whether or not he was a defacto director of Incentive Dynamics, because his role as Chief Executive Officer renders him an officer of Incentive Dynamics with those same obligations. Similarly, the claims against Meissner are pursued on the same basis, whether or not he was a defacto director of Incentive Dynamics, because he was the company secretary. Section 82A(1) of the Law defines "officer" of a company to include a director, secretary, and executive officer or employee of that company. Section 232(1) of the law contains its own definition of "officer" to include a director, secretary, or executive officer of the company for the purposes of that section.
234 There is no dispute about those obligations. The dispute is whether any of those obligations were breached by any of those four persons in their particular circumstances, and what consequences follow if there was a breach.
235 In respect of the primary liabilities which I have found to exist to Incentive Dynamics, all of which constitute monies advanced to those persons or entities, it is clear that none were adequately recorded. I do not regard the Reconciliation File, whatever its contents, as being an adequate record of such advances. Its contents, as I have found them to have been, did not constitute a clear and sufficient record of those advances. There were no minutes of directors, or of senior staff recording the advances. The process of reconstruction undertaken by Morton has been a painstaking one, and as certain of my conclusions have demonstrated one fraught with uncertainty. There are no agreements for the loans, no agreed terms for repayment, no agreed terms as to interest, no acknowledgments of indebtedness and no securities taken in respect of any of those advances.
236 The one exception to those comments are the advances to Pagby, but even then the records are not clear. However, the advances were secured by the mortgage of 6 April 1990. In addition, the accountant for Pagby and Hudson on an annual basis sought from Meissner details of the amount then said to have been advanced by Incentive Dynamics.
237 In the case of the claim against Hudson, I have found that he was not a defacto director of Incentive Dynamics. Apart from the advances to Pagby, I find that he had only general knowledge of the fact that Incentive Dynamics advanced monies to other members of the Robins group from time to time. He was not aware of the details of those advances, nor whether they were repaid. He was not responsible for them in any way. Furthermore, until late 1995, I find that he was not aware that Incentive Dynamics was, or may have been, in a parlous financial state. His conduct of the business of Incentive Dynamics was apparently successful and profitable. I find he had no particular reason to think otherwise. The occasion in 1993 when it came to his attention that group tax instalments were unpaid resulted in him referring that matter to Meissner, and so far as he was aware thereafter that matter was addressed. The advances to Pagby were made by arrangement with John Robins and Moore in 1988, and later by John Robins. Hudson did not himself decide on the making of those advances. He discussed the fact of those advances with Meissner from time to time, in the context of seeking from Meissner financial accounts upon which his "profit share" could be claimed by him. He did not think that the advances to Pagby could not be repaid, and I accept his evidence that ultimately they would be offset against his "profit share".
238 In those circumstances, I do not consider that Hudson was in breach of his duty as an officer of Incentive Dynamics in respect of the making of any of the advances which I have found to have been made by, and to be still outstanding to, Incentive Dynamics.
239 The position with respect to John Robins, Douglas Robins and Meissner is more complicated. There is no evidence to indicate that any of them addressed the particular interests of Incentive Dynamics, as distinct from the interests of the Robins group including Incentive Dynamics. That obligation to do so becomes more significant, for consideration of the present claims, at the point when it became apparent to them that the solvency of Incentive Dynamics was at risk: Walker v Wimborne (1976) 137 CLR 1; Equiticorp Finance Ltd (In Liq) v Bank of New Zealand (1993) 32 NSWLR 50.
240 It may be, as the applicants submit on the basis in particular of the evidence of Paul Lom ("Lom"), an expert accountant, that Incentive Dynamics was insolvent by 30 June 1993. There were, at the time, cash flow difficulties which Meissner acknowledged. In particular, Incentive Dynamics was unable to pay its accumulating group tax liability. It is not apparent why Meissner could not arrange for that liability to be paid, either by the repayment into Incentive Dynamics of an indebtedness of another entity in the Robins group, or by the advance of funds into Incentive Dynamics from another entity in the Robins group. He had the authority to do that. During the latter part of 1993, and thereafter, Incentive Dynamics under Meissner's accounting control was extending the period within which it paid its creditors. I think that one of the reasons for that difficulty, as Meissner acknowledged, was that Incentive Dynamics had advanced substantial funds to ID-NSW or to its New South Wales operation and was continuing to do so.
241 The respondents called Fettes to establish that Incentive Dynamics was not insolvent at 30 June 1993. He obviously addressed that question from a less clinical perspective than Lom, in the sense that he had regard to information which was made available to him by John Robins and by Meissner about the nature of the Robins group and the capacity within that group to support its members. For present purposes, it is sufficient to note that he agreed that the problems to which I have referred above, based upon Meissner's evidence, represented the kind of pattern experienced by a company with solvency problems.
242 The awareness of Meissner about the matters to which I have referred from about mid 1993 is clear. In my view, as an officer of Incentive Dynamics, those matters should have provided a focus for attention to the practice of loans or cash movements among the Robins group which might not earlier have been required.
243 It is clear that John Robins was aware of the practice of moving funds between the various entities within the Robins group, including Incentive Dynamics. He was responsible for the practice. As I have found, he largely left the implementation of that practice to Meissner from an early stage but he was consulted about it from time to time. I also find that by 30 June 1994, he was aware that Incentive Dynamics was substantially in credit in relation to other members of the Robins group. He acknowledged that in his examination under Pt 5.7B of the Law. He did little to secure the separate interests of Incentive Dynamics or of its creditors at that time or thereafter.
244 I am not satisfied that John Robins was aware of the group tax unpaid liability before 1995. I reject Meissner's evidence that John Robins was told about that. My impression overall was that Meissner, having been given the responsibility as "group treasurer", was prepared to endeavour to fulfil that role without complaint and tended not to share the problems with John Robins. The evidence of Ryan that John Robins was surprised and angry when he learnt of the unpaid group tax, after being served with notice of personal liability, is consistent with that. It is also consistent with that conclusion that John Robins struck me as the sort of person who would require a problem to be addressed promptly, perhaps even by unrealistic demands. I do not think he would have let such a liability lie unmet, and accumulating significant interest and penalties, had he known of it.
245 Although I find that he had been aware of possible solvency problems within Incentive Dynamics for some time, I find that he was specifically aware of the demand by National Australia Bank made on 7 June 1993 for repayment of the then overdraft of $400,000. Apart from other resources within the Robins group and from his own resources, Incentive Dynamics then apparently had no avenues to meet that liability. As against that apparent cash shortfall, he was aware (as I find to have been the case) that the volume of business of Incentive Dynamics was increasing and was apparently being conducted in a profitable way. RHM was trading profitably. I do not think he had a clear picture of the various members of the Robins group which were indebted to Incentive Dynamics from time to time. I am not persuaded that he had any belief that the resources available within the Robins group would be unable to support Incentive Dynamics or to the extent to which they were debtors would be unable to meet those debts, until some time soon after 30 June 1994.
246 I find that Douglas Robins had no real awareness that Incentive Dynamics was, or may have been, in straitened circumstances until shortly before its liquidation. He effectively delegated all significant decision making to John Robins, and he took only a very broad and remote interest in the day to day affairs of Incentive Dynamics and indeed of the Robins group generally. He was aware of the practice within the Robins group of funds being advanced to other members of the Robins group from time to time, but I am not persuaded that he had any awareness of that practice resulting in there being long term liabilities unpaid as distinct from temporary transfers of funds.
247 I do not consider, however, that Douglas Robins would have learnt further information about the precarious state of Incentive Dynamics had he been more assiduous. He may have demanded reports or information. It is not shown that he would thereby have received information which could have required him to take steps which he did not otherwise take. For that reason, this aspect of the claim against him is dismissed.
248 As against John Robins and Meissner, it is necessary for the applicants to show that the fulfilment of their duties as a director and as the secretary respectively required them to take certain steps which they failed to take, and as a result that Incentive Dynamics suffered loss. As John Robins points out in his submissions, the transfer of funds within the Robins group was directed to ensuring all of the companies within the group including Incentive Dynamics operated efficiently. They were, in large measure, providing complementary services and (he contends) it was in their individual interests that the respective suppliers of services should continue to do so. To the extent that the payments were part of an ongoing trading relationship, and were expected to be short term, it is in my view difficult to be too critical of the decisions made to permit those transactions to take place.
249 I am not satisfied on the evidence that the judgments to be entered against Coldwick, RHM and Pagby will be unmet in part. I am unable to find that, even if either Meissner or Robins were in breach of duty, Incentive Dynamics will have suffered a loss by any such breach. The same considerations apply to the amount I have found owing to Incentive Dynamics by AD.
250 I am also not satisfied that there was any breach of duty on their part in relation to the advances to Pagby and to ID-NSW given the time when those advances were made, or largely made, and the circumstances in which they were made.
251 Similarly, with respect to the indebtedness of TD which I have found to exist, I am unable to find with any confidence when any particular part of that liability arose. There is some information that it arose mainly after 1993, and some other information suggesting a substantial indebtedness at that time. In addition the evidence shows a very significant ongoing trading relationship until the liquidation of TD. There is not sufficient evidence to satisfy me that, in the circumstances, either Meissner or John Robins were in breach of duty to Incentive Dynamics by not having taken some action to call in the outstanding indebtedness of TD or by not ceasing to deal with it. Nor am I able to be satisfied that, had either of them taken such action, the loss to Incentive Dynamics would have been any different. I am also not satisfied that either Meissner or John Robins are shown to have been in breach of their duty to Incentive Dynamics by not calling in any indebtedness of BD, or of Maritz, once those advances had been made, or by permitting any further advances to those entities once they were on notice of the parlous state of Incentive Dynamics finances. In those instances also, I am unable to find with any confidence what different outcome there would be for Incentive Dynamics had some such action been taken by one or other of them at an earlier date.
252 For those reasons I reject the claims of the applicants that any of the four persons alleged to have been directors of Incentive Dynamics are themselves liable for the indebtedness of the entities which I have found are indebted to Incentive Dynamics.
Orders
253 In the light of the reasons given above, I consider that the following orders should be made in favour of the applicants Incentive Dynamics Pty Ltd (In Liquidation) and Robert William Morton as liquidator of Incentive Dynamics Pty Ltd (In Liquidation):
1. Judgment be entered against the respondent Douglas Robert McNeill Robins in the sum of $72,244.50.
2. Judgment be entered against the respondent John Haigh Robins in the sum of $292,140.68.
3. Judgment be entered against the respondent Jonathan Michael Meissner in the sum of $9,552.77.
4. Judgment be entered against the respondent Coldwick Pty Ltd in the sum of $375,064.63.
5. Judgment be entered against the respondent Robins Haigh McNeill Pty Ltd in the sum of $52,000.
6. Judgment be entered against the respondent Pagby Pty Ltd in the sum of $402,163.12.
I further order that:
7. The claim against the respondent John D'Ersby Hudson is dismissed.
8. The claim against the respondent Cheryl Ann Chang is dismissed.
I certify that the preceding two hundred and fifty-three (253) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.
Associate:
Dated: 16 June 1999
Counsel for the Applicants: Mr S Whelan QC with him
Mr T McLean
Solicitors for the Applicants: Marshalls & Dent Mr J H Robins appeared in person on behalf of the First, Second, Fifth,
Sixth and Eighth Respondents
Counsel for the Third Respondent: Mr A Radojev Solicitors for the Third Respondent: Richmond & Bennison Mr J D Hudson appeared in person with Mr C T H Chessun on behalf
of the Fourth and Seventh Respondents
Dates of Hearing: 29 & 30 April 1998; 1, 5, 6 & 7 May 1998;
15, 16, 17, 18, 19 & 26 June 1998;
10, 11, 12, 13, 14, 17, 18 & 19 August 1998;
12 & 13 October 1998
Date of Judgment: 16 June 1999
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