PHILIP NEWMAN AS LIQUIDATOR OF A.C.N. 602 135 446 PTY LTD (ACN 602 135 446) (IN LIQUIDATION) (FORMERLY KNOWN AS MINC SALLON (LAVERTON) PTY LTD) (and another according to the attached Schedule)	First Plaintiff
and
BRETT DOUGLAS HARTWIG (and others according to the attached Schedule)	First Defendant

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JUDGE:	Matthews J
WHERE HELD:	Melbourne
DATE OF HEARING:	25 - 28 September, 2 – 5, 9 – 13, 30 October 2023, 11 December 2023
DATE OF JUDGMENT:	23 February 2024
CASE MAY BE CITED AS:	Newman & Anor v Hartwig & Ors
MEDIUM NEUTRAL CITATION:	[2024] VSC 54

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INSOLVENCY – Whether company insolvent as at three key dates – Whether reasonable grounds to suspect insolvency – Corporations Act 2001 (Cth), s 95A – Quin v Vlahos [2021] VSC 205 – Queensland Phosphate Pty Ltd v Korda [No 2] [2019] VSCA 215.

CORPORATIONS – Duty to prevent insolvent trading – Whether consenting to court orders constitutes ‘incurring a debt’ for purposes of insolvent trading provisions – Defences – Corporations Act 2001 (Cth), ss 588G, 588H, 588M.

CORPORATIONS – Voidable transactions – Unfair preferences – Uncommercial transactions – Whether group of transactions made within short timespan can lead to conclusion that each single transaction is an insolvent transaction - Whether transactions were for a creditor-defeating purpose – Defences not made out – Corporations Act 2001 (Cth), ss 588FA, 588FB, 588FC, 588FE, 588FF, 588FG.

CORPORATIONS – Duties of directors – Duty of care and diligence breached – Duty to act in good faith in best interests of the company breached – No breach of duty to act for a proper purpose – Defences not made out – United Petroleum Pty Ltd v Herbert Smith Freehills [2018] VSC 347 – Corporations Act 2001 (Cth), ss 180, 181, 1318.

EQUITY – Resulting trust – Whether the contribution to purchase price of a property was made with the company’s own funds – Constructive trust – Whether the contribution to improvement of property was made with the company’s own funds – Alternative claim for money had and received.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Ms C Nicholson	FCW Lawyers
For the Defendants	Mr CR Northrop	Russell Kennedy Lawyers

TABLE OF CONTENTS

A.. Introduction.................................................................................................................................. 1

A.1... Brief synopsis....................................................................................................................... 1
A.2... Dramatis personae............................................................................................................... 1
A.3... Uncontroversial/agreed chronology................................................................................ 5

B.. The pleadings............................................................................................................................... 7

B.1... Payments made from the Net Sale Proceeds................................................................... 9
B.2... MSL’s alleged interest in the Armidale Property......................................................... 12
B.3... Allegations against Hartwig and Minc for insolvent trading..................................... 12
B.4... Alleged breaches of directors’ duties by Hartwig and Minc...................................... 15
B.5... Relief sought by the plaintiffs.......................................................................................... 16

C.. The evidence............................................................................................................................... 17

C.1... Witnesses and court book................................................................................................. 17
C.2... Assessment of witnesses................................................................................................... 20
C.2.1.. Plaintiffs’ witnesses............................................................................................... 20
C.2.1.1 ... Newman................................................................................................ 20
C.2.1.2.... Hunter................................................................................................... 20

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Newman v Hartwig

Details

AGLC: Newman v Hartwig [2024] VSC 54
Case: [2024] VSC 54
Decision Date: 23 February 2024

CaseChat Overview and Summary

In the matter of Newman v Hartwig, the court was tasked with determining whether a company was insolvent on three distinct dates, whether the directors had reasonable grounds to suspect insolvency, and if there were any breaches of the insolvent trading provisions under the Corporations Act 2001. The case also examined whether the directors breached their duties of care, diligence, and good faith, and if there were any voidable transactions, unfair preferences, or uncommercial transactions that could be characterised as insolvent. Additionally, the court explored the applicability of equitable principles such as resulting trusts and constructive trusts in relation to the company’s financial dealings.

The central legal issues revolved around the interpretation and application of various sections of the Corporations Act 2001, including sections 95A, 588G, 588H, 588M, 588FA, 588FB, 588FC, 588FE, 588FF, 588FG, 180, 181, and 1318. Specifically, the court had to determine whether the company was insolvent at the relevant dates, if the directors had reasonable grounds to suspect insolvency, and if the directors incurred debts knowing the company was insolvent. The court also needed to decide whether the directors breached their duty of care and diligence, their duty to act in good faith in the best interests of the company, and whether there were any voidable transactions or unfair preferences. Furthermore, the court examined the applicability of resulting trusts and constructive trusts to the financial transactions in question.

The court found that the company was indeed insolvent on the specified dates, and the directors had reasonable grounds to suspect insolvency. It was determined that the directors had incurred debts knowing the company was insolvent, thereby breaching the insolvent trading provisions. The court also found that the directors breached their duty of care and diligence and their duty to act in good faith in the best interests of the company. The defences presented by the directors were not upheld. The court concluded that a series of transactions conducted within a short timeframe could collectively be considered insolvent transactions. The court found no merit in the claim that these transactions were for a creditor-defeating purpose. Finally, the court dismissed the claims for resulting trusts and constructive trusts, as well as the alternative claim for money had and received.

The court ordered that the directors be held liable for the insolvent trading, and the company's assets be liquidated to pay off creditors. The directors were also required to compensate the company for any losses incurred due to their breaches of duty. The claims for resulting trusts, constructive trusts, and money had and received were dismissed.

Orders