Lopez v Audry - [2019] WASC 21

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   LOPEZ -v- AUDRY [2019] WASC 21
CORAM:   MASTER SANDERSON
HEARD:   6 DECEMBER 2018
DELIVERED          :   5 FEBRUARY 2019
FILE NO/S:   COR 173 of 2018
BETWEEN:   GEORGE AUBREY LOPEZ AS LIQUIDATOR LOPEZ
Plaintiff

AND

MICHEL CHARLES LOUIS AUDRY
First Defendant

KATHLEEN ANNE AUDRY
Second Defendant

Catchwords:

Corporations Law - Application by liquidator as to distribution of surplus funds - Turns on own facts

Legislation:

Corporations Act 2001 (Cth)

Result:

Directions given

Category: B

Representation:

Counsel:

Plaintiff	:	Mr F Carles
First Defendant	:	In Person
Second Defendant	:	No appearance

Solicitors:

Plaintiff	:	Carles Solicitors
First Defendant	:	In Person
Second Defendant	:	No appearance

Case(s) referred to in decision(s):

Re Central Management (NSW) Pty Ltd (in liquidation) ACN 139 989 852 [2017] NSWSC 1258

MASTER SANDERSON:

This is the plaintiff's application as liquidator of Raylane Holdings Pty Ltd (in liquidation) (Raylane) relating to the distribution of surplus funds in the liquidation to shareholders. In summary, the liquidator seeks a direction that he be entitled to distribute the surplus funds to other shareholders of Raylane and exclude the defendants as shareholders from the distribution. This is on the basis that Raylane's claims against the defendants exceed the amounts which they would otherwise be entitled to receive as a distribution of surplus funds as shareholders of Raylane.[1]
[1] Plaintiff's submissions 20 November 2018 par 3.
The second defendant has advised that she does not wish to participate in the proceedings and does not object to the orders proposed by the liquidator. Both the liquidator and the first defendant have provided calculations as to the entitlements (if any) of the defendants to participate in the distribution of surplus funds. A copy of those calculations were attached to the plaintiff's submissions. Before dealing with those calculations I should detail the relevant facts. What follows is taken largely from the plaintiff's written submissions. Where the first defendant has taken issue with the plaintiff's assessment of the facts I will detail his position.
The defendants were the only directors of both Raylane and Ioptixx Pty Ltd (Ioptixx). The shareholders of Raylane were the defendants and others. Their identity is not presently relevant and I will adopt the plaintiff's description of these persons as 'the Other Shareholders'. The defendants were the only shareholders of Ioptixx. Ioptixx was the trustee of the Ioptixx Unit Trust (the Unit Trust) with all units in that trust held by Audry Pty Ltd as trustee of the Audry Family Trust (the Family Trust). This entity was associated with the defendants. The Other Shareholders of Raylane were not involved.
The defendants as directors of Raylane caused or permitted Raylane to advance substantial funds to Ioptixx (the Loans). There were no written loan agreements for the Loans. There was no security provided by Ioptixx or any other person in relation to the Loans and Raylane did not receive or have any entitlement to receive any interest in relation to the Loans. Ioptixx went into liquidation leaving a substantial unpaid debt owed to Raylane. The amount of that debt as at 30 June 2016 was $2,595,823 according to Raylane's ledgers. According to Ioptixx's ledgers the amount was $2,617,734. According to the first defendant the amount of the debt was $1,347,542, which is the bare minimum owing under the Loans.
The liquidator of Ioptixx paid a dividend of $275,155 to the plaintiff as liquidator of Raylane. There is no further dividend to be paid. It is clear that the Other Shareholders of Raylane had no interest in Ioptixx or the Unit Trust and therefore derived no benefit from the Loans. The first defendant did not make any submissions to the contrary.
It is the plaintiff's position that these facts show a clear breach of directors' duties as set out in s 180 – 183 of the Corporations Act 2001 (Cth) (the Act). The plaintiff points to three facts which he says are decisive. First, the defendants as directors of Raylane advanced funds to Ioptixx, a company in which they had a direct influence. Second, there were no written loan agreements. Third, security was not provided by Ioptixx. Taken together, these three facts establish on the plaintiff's case a breach of directors' duties.
Reference was made by counsel to the decision of Re Central Management (NSW) Pty Ltd (in liquidation) ACN 139 989 852 [2017] NSWSC 1258. On facts very similar to these the court held there was a breach of director's duties. The director was liable to fully compensate the company in liquidation under s 1317H of the Act.
In this case there can be no doubt as to breach of the directors duties by the defendants. In oral submissions the first defendant attempted to explain the need for loans and how the making of those loans was in the best interests of both Raylane and Ioptixx. With respect to the defendant I had some difficulty following his submissions. But, even if the loans were made with the best of intention and with the sole aim of benefiting both corporations, the fact remains they were not documented and no security was given. Moreover, there was no arrangement for the payment of interest. To put in place such an arrangement is a clear breach of directors' duties and, insofar as it is necessary to make a finding to that effect, I would do so.
Turning then to the amount of the debt, the plaintiff is prepared to accept the figure of $1,347,542 as at 30 June 2016, as proposed by the first defendant. The evidence does not disclose how the debt owed by Ioptixx to Raylane has reduced from over $2,500,500 to the much lesser figure. But, it does not matter. The amount available for distribution is nothing like the debt taken at its lowest figure. In his written submissions, counsel for the plaintiff pointed out the failure to maintain adequate financial records is in and of itself a breach of directors' duties. Having already concluded there was such a breach, nothing further need be said about this issue.
At par 121 of the first defendant's affidavit he says that the loans were made when Raylane was solvent, and the directors were acting honestly, genuinely believing the loans were a wise business investment.[2] I have already dealt with this issue above and I will not repeat what I have said. Suffice it to say any genuine belief held by the directors is not sufficient to exonerate their conduct in this case.
[2] Affidavit of Michel Charles Louis Audry sworn 9 October 2014.
As pointed out by counsel for the liquidators, once it is accepted there has been a breach of directors' duties, it follows that the liquidator's calculation should be accepted. The liquidator's calculations are to the effect that after taking into account various debits and credits, the first defendant owes Raylane $4,142 and the second defendant owes Raylane $914,366.04. The starting point in the plaintiff's calculations is there is a notional amount of $1,709,418.19 available for distribution to the shareholders. That amount is made up of $397,374.63 cash at bank, a breach of directors' duties claim arising from the debt owed by Ioptixx to Raylane of $1,347,542, a loan account owed by the first defendant to Raylane of $216,688, and a loan account owed by the second defendant to Raylane of $22,969.[3]
[3] Plaintiff's submissions 20 November 2018 par 6.
The first defendant's calculations are difficult to follow. The calculations give the defendants a credit in an amount of $196,010 for 'sale proceeds foregone by Mr Audry from D'Arassus'. D'Arassus is a separate legal entity to Raylane. Any transaction between D'Arassus and the first defendant is irrelevant for the purposes of calculating how the liquidator of Raylane should distribute surplus funds to Raylane's shareholders. Moreover, the first defendant's calculations confine the defendants into a single joint person/entity. That is an error. A loan of $216,688 owed by the first defendant to Raylane cannot be claimed against the second defendant. A loan of $22,969 owed by the second defendant to Raylane cannot be claimed against the first defendant. In addition, the first defendant has not accepted the amount of $1,347,542 for breach of director's duties. Once that is taken into account the claims of the first defendant fall away.
On any view of this matter the defendants have no entitlement to participate in the distribution of surplus funds from the liquidation of Raylane. The liquidator will be directed to distribute those funds to the Other Shareholders. I will hear the parties as to the precise form of orders and as to costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
DG
Associate to Master Sanderson
5 FEBRUARY 2019