Re Ezyfix Caravan Repairs Pty Ltd (In Liq)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST

S CI 2017 01381

ROBERT SCOTT DITRICH AND CRAIG DAVID CROSBIE (IN THEIR CAPACITY AS LIQUIDATORS OF EZYFIX CARAVAN REPAIRS PTY LTD (IN LIQUIDATION) (ACN 129 822 528))	First Plaintiffs
EZYFIX CARAVAN REPAIRS PTY LTD (IN LIQUIDATION) (ACN 129 822 528)	Second Plaintiff
v
MARIA LONGORDO	First Defendant
JOSEPH LONGORDO	Second Defendant
EZYREPAIRS PTY LTD (ACN 601 843 029)	Third Defendant

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JUDGE:	GARDINER AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	6 and 7 February 2018
DATE OF JUDGMENT:	22 June 2018
CASE MAY BE CITED AS:	Re Ezyfix Caravan Repairs Pty Ltd (In Liq)
MEDIUM NEUTRAL CITATION:	[2018] VSC 343

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CORPORATIONS – External administration of company being wound up in insolvency pursuant to pt 5.4 of the Corporations Act 2001 (Cth) – Breaches by directors of their duties – Corporations Act 2001 (Cth), s 181 – Proceeds of insurance claim redirected to other corporate entity of which one of the directors was shareholder and director – Damages awarded under s 1317H, s 1317J of the Corporations Act 2001 (Cth).

CORPORATIONS – Directors – Section 9 of the Corporations Act 2001 (Cth) – Consideration of involvement of person at management level of company – Finding that that person acted as a de facto director within the meaning of s 9 of the Corporations Act 2001 (Cth).

CORPORATIONS – External administration of company being wound up in insolvency – Part 5.7B of Corporations Act 2001 (Cth) – Finding that transactions constituted by redirection of proceeds of insurance claim were uncommercial transactions pursuant to s 588FB, insolvent transactions pursuant to s 588FC and were voidable transactions pursuant to s 588FE – Order made pursuant to s 588FF accordingly.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr A J Purton	Turks Legal
No appearance for the First Defendant
For the Second Defendant	Mr M Corrigan	KOL Legal
No appearance for the Third Defendant

HIS HONOUR:

From 2008 to early 2015, Ezyfix Caravan Repairs Pty Ltd (‘Ezyfix’) operated a caravan repair business at various locations in Campbellfield in Victoria. The business was conducted under the names ‘Ezyfix’, ‘EzyRepair’, ‘Ezy Caravan Service and Repair,’ and similar such names since commencing operations.

On 19 January 2015 there was a fire at Ezyfix’s premises which was then located at Clarissa Street, Campbellfield. The business kept stock, tools, caravan componentry and spare parts, and plant and equipment on its premises together with a number of caravans and other items that it was in the process of repairing on behalf of its customers. The fire destroyed virtually all of the contents of the premises and what remained was damaged by smoke or water.

At the time of the fire, Ezyfix was covered under a Vero Enterprise Business Pack policy of insurance with Vero Insurance (‘Vero’). A claim was made on that policy and, on 18 February 2015, Vero accepted the claim. Shortly afterwards Vero made payments totalling $540,000 in three tranches (‘the proceeds of the insurance claim’).

The first defendant in this proceeding, Maria Longordo (‘Mrs Longordo’), is identified in an extract of the ASIC database for Ezyfix as the sole director and secretary of Ezyfix. She is also its sole shareholder. The second defendant, Joseph Longordo (‘Mr Longordo’), is Mrs Longordo’s husband. They are apparently separated. Mr Longordo is the sole director and shareholder of the third defendant, Ezyrepairs Pty Ltd (‘Ezyrepairs’).

This proceeding is concerned with the disbursal of the proceeds of the insurance claim by or at the direction of Mr and Mrs Longordo to Ezyrepairs.

On 4 June 2015, the Deputy Commissioner of Taxation filed an application in this Court seeking the winding up of Ezyfix for non-payment of taxation liabilities. On 25 August 2015, Ezyfix was ordered to be wound up in insolvency and Nicholas Martin was appointed the liquidator in the winding up.

On 13 April 2017, Mr Martin made application in this proceeding by originating process pursuant to ss 588FF, 1317H and 1317J of the Corporations Act 2001 (Cth) (‘the Act’) for orders in respect of the transactions constituting the disbursal of the proceeds of the insurance claim.

The primary claim made against Mr and Mrs Longordo is for damages under s 1317H of the Act, arising from their breaches of duty as director and alleged de facto director, respectively, of Ezyfix under ss 180-182 of the Act. The claim for damages arises in particular from Mr and Mrs Longordo’s breach of s 181 of the Act by reason of their involvement in the diversion of the proceeds of the insurance claim. The liquidator’s application against Ezyrepairs is primarily based on the contention that the transactions were uncommercial transactions within the meaning of s 588FB of the Act, insolvent transactions under s 588FC, and therefore voidable transactions under s588FE. To succeed in that claim the plaintiffs were required to establish that the diversion of the proceeds of the insurance claim to Ezyrepairs took place, that Ezyfix was insolvent at the time (or the effect of the transactions was to render Ezyfix insolvent) and that there was no commercial justification for the monies to be diverted in that way.

On the basis of the evidence and for the reasons which follow, I consider that Mr Longordo was acting as a director of Ezyfix at the time that each of those transactions occurred and that he and Mrs Longordo each breached their duties as directors of Ezyfix, rendering them liable for damages under s 1317H of the Act in an amount equal to the proceeds of the insurance claim. I consider that the evidence establishes that the business of Ezyfix was ‘phoenixed’ to Ezyrepairs and that the effect of the disbursal of the proceeds of the insurance claim was to deprive Ezyfix’s creditors of its assets which would have otherwise have been distributed to them in its winding up.

I also consider that the transactions by which the proceeds of the insurance claim were disbursed were uncommercial transactions, insolvent transactions and voidable transactions within the meaning of Part 5.7B of the Act, and that Ezyrepairs should be ordered to pay to Ezyfix an amount equal to the proceeds of the insurance claim.

There were three adjournments of the trial of this proceeding. Those adjournments were made on the application of Mr Longordo and were for the purpose of him obtaining legal representation which he ultimately did.

Mrs Longordo filed an affidavit but never formally appeared in the proceeding. She attended the trial of this proceeding and at its commencement I inquired as to whether she intended to participate. She indicated that she did not.

Ezyrepairs did not file an appearance and did not participate in the proceeding at any point.

The plaintiffs relied on two affidavits, sworn by Mr Martin on 13 April and 2 June 2017. In an affidavit of Robert Ditrich (‘Mr Ditrich’) sworn 22 November 2017, it was indicated that Mr Martin had resigned from the partnership of PPB Advisory and, on 24 October 2017, had resigned as liquidator of Ezyfix.[1] On 24 October 2017, Randall AsJ appointed Craig Crosbie (‘Mr Crosbie’) and Mr Ditrich as liquidators in the winding up. On 28 November 2017, I made orders that Mr Crosbie and Mr Ditrich be substituted as the collective first named plaintiff in this proceeding. In his affidavit, Mr Ditrich deposes that he has read the affidavits of Mr Martin and agrees with and adopts their contents.[2]
[1]Affidavit of Robert Ditrich sworn 22 November 2017 [2].
[2]Affidavit of Robert Ditrich sworn 22 November 2017 [6].

In addition to Messrs Martin and Ditrich’s affidavits, the plaintiffs rely on affidavits of Barrie Hahnel sworn 24 November 2017 and of Alison Malek sworn 22 November 2017. None of the deponents to the affidavits relied upon by the plaintiffs were required for cross examination.

Mr Longordo relied on his affidavits of 27 September, 7 October 2017, and 4 February 2018. Mr Longordo swore his affidavit of 4 February shortly before the trial and sought to rely on this and several other affidavits of former employees of Ezyfix which were filed and served in breach of the time limits imposed by me in my orders for directions. Mr Longordo was only permitted to rely on the affidavits of those persons who were available to attend for cross-examination and several of them were not. The evidence of those who were available, including Mr Longordo, is detailed below.

The plaintiffs’ evidence

The bulk of the plaintiffs’ evidence is contained in Mr Martin’s affidavit of 2 June 2017. In this affidavit, Mr Martin details the investigations that he and members of his staff carried out in regard to the disbursal of the proceeds of the insurance claim.

The policy issued by Vero provided cover from 25 July 2014 to that same date in 2015.[3] It was issued in favour of Ezyfix for a premium of $15,500.00. [4] The policy covered the premises at 6 Clarissa Street, Campbellfield, for contents up to a maximum of $120,000.00 and stock of $600,000.00.[5] Mr Martin exhibited three insurance assessor’s reports in respect of the Vero claim, which were prepared by an insurance loss assessor, Mr Paul Johnson.[6] Those reports indicate that his only contact on the occasions of his visits to the premises was Mr Longordo. In the first report of 20 January 2015, Mr Johnson described Mr Longordo as ‘reportedly sole director of Ezyfix’ which employed eight full time staff including Mr Longordo and his sister. The second report , dated 4 February 2015, noted that the ‘insured reported that all tools that were possibly salvageable have been stolen following forced entry into the premises.’
[3]Exhibit NM-3 to the Affidavit of Nicholas Martin sworn 2 June 2017 (‘Mr Martin’s later affidavit’).
[4]Ibid.
[5]Ibid.
[6]Exhibits NM-4 NM5 and NM-7 to Mr Martin’s later affidavit.

On the morning of 18 February 2015, a representative of Vero, Mr Emmett O’Reilly (‘Mr O’Reilly’), wrote by email to the address [email protected] (‘Ezyfix’s email address’) stating:

Good morning, Joe.
Thank you for your time this morning.
As discussed, I am pleased to confirm that your claim has been accepted for cover. As such we will now proceed to manage and assess the loss in accordance with the relevant terms and conditions of the policy
To assist you at this time, Vero would like to arrange for an interim payment of $250,000.00 to be made to you. Can you please provide the nominated bank account details for us to process this payment today
If you would like to discuss any further matters regarding your claim, please do not hesitate to contact me on the number below.
Regards[7]

[7]Exhibit NM-6 to Mr Martin’s later affidavit.

Although Mr Longordo denied this, it seems clear that he was the ‘Joe’ to whom the email was directed. Shortly afterwards on the same day, an unidentified person responded from Ezyfix’s email address to Mr O’Reilly, stating:

Thank you for your help this is the account bsb 033 137 account is 531495 ezy repairs thank you.[8]

On 19 February 2015, Vero made a payment of $250,000.00 into the account nominated in the above email to Mr O’Reilly (‘the insurance proceeds account’).[9] On 19 March 2015, Vero made a further payment of $90,000.00 into the insurance proceeds account as a second interim payment.[10] On 26 May 2015 a final payment of $200,000.00 was made,[11] which brought the total of the proceeds of the insurance claim to $540,000.00.

[8]Exhibit NM-6 to Mr Martin’s later affidavit.

[9]Mr Martin’s later affidavit [23].

[10]Mr Martin’s later affidavit [25].

[11]Mr Martin’s later affidavit [26].

On 15 April 2015, shortly prior to the last payment, the Australian Taxation Office (‘ATO’) served a statutory demand on Ezyfix for $235,645.29 for an outstanding tax liability.[12]
[12]Exhibit NM-10 to Mr Martin’s later affidavit.

Ezyfix held a bank account with the Delphi Bank, but on 24 February 2015, shortly after the first payment, that account was closed.[13] Investigations have revealed that the insurance proceeds account was not held in the name of Ezyfix but was maintained by Westpac Banking Corporation (‘Westpac’) in the name of Ezyrepairs. Ezyrepairs was incorporated on 16 September 2014.
[13]See Mr Martin’s later affidavit [13].

After the appointment of Mr Martin as liquidator on 25 August 2015, members of his staff made contact with Mr and Mrs Longordo. The day after the winding up order was made, Mr Martin wrote to Mrs Longordo requiring her to deliver up Ezyfix’s assets, books and records to him.[14] He also required her to deliver a completed report as to affairs (‘RATA’).[15] A form of RATA together with an accompanying verifying report was enclosed with the letter.[16]
[14]Mr Martin’s later affidavit [31].
[15]Ibid.
[16]Exhibit NM-8 to Mr Martin’s later affidavit.

From August 2015 to November 2015, Mr Martin’s staff exchanged a number of emails and conducted a number of telephone conversations with Mr Longordo concerning the books and records of Ezyfix and the provision of a RATA.[17]
[17]Mr Martin’s later affidavit [33].

On 27 August 2015, Michael Carmody (‘Mr Carmody’), who was then a member of Mr Martin’s staff, visited Ezyfix’s premises and subsequently had a telephone conversation with Mr Longordo which was the subject of a file note compiled by Mr Carmody.[18] During the course of that conversation, Mr Longordo stated words to the effect that:
[18]Mr Martin’s later affidavit [33(a)].

(i) he managed the business and it ceased to trade in January 2015 due to lack of customers and the fire destroying the building;

(ii) Mrs Longordo was its director and did work for the business but he was the primary contact;

(iii) all books and records had been destroyed in the fire but Ezyfix did have an accountant named ‘Nick’ from Patterson Group, Brunswick; and

(iv) he and the director’s email address contact was [email protected].[19]

[19]Mr Martin’s later affidavit [33(a)(i)-(iv)].

Later that day an email was sent by one of Mr Martin’s staff to Mrs Longordo at the email address provided, reiterating the request for the RATA as well as a copy of the books and records of Ezyfix.[20]
[20]Mr Martin’s later affidavit [33(b)].

Mr Martin stated that he has reviewed the file maintained for the liquidation of Ezyfix and believes that none of his staff ever had any discussions with Mrs Longordo in connection with the liquidation and that Mr Longordo was the sole contact in connection with the pre-liquidation affairs of Ezyfix.[21]
[21]Mr Martin’s later affidavit [66]-[67].

On 1 September 2015, Mr Ryan Taylor, a member of Mr Martin’s staff, telephoned Mr Longordo.[22] During the course of that conversation, Mr Longordo said to Mr Taylor words to the effect that:
[22]Mr Martin’s later affidavit [33(c)].

(v) his accountant was away until the end of the week so he needed to wait for him to return to provide much of the requested information;

(vi) the majority of the insurance pay-out went directly to the caravan owners whose caravans were destroyed;

(vii) approximately $190,000 was used to pay for tools that were personally owned by employees and the funds were used to compensate them.[23]

Mr Taylor’s contemporaneous note of that conversation is exhibited to Mr Martin’s affidavit.[24]

[23]Mr Martin’s later affidavit [33(c)(i)-(ii)].

[24]Exhibit NM-9 to Mr Martin’s later affidavit.

There then ensued several emails from Mr Taylor following up on the failure of both Mr and Mrs Longordo to provide the RATA.[25]
[25]Mr Martin’s later affidavit [33(d)], [33(f)], [33(g)], and [33(i)].

On 24 September an email was sent from Ezyfix’s email address to Mr Taylor, which stated as follows:

Hay (sic) mate just touching base in getting a letter drawn up from accounted (sic) should be to you by Monday[26]

[26]Exhibit NM-9 to Mr Martin’s later affidavit.

On 30 September 2015, Mr Taylor again emailed a request for provision of the RATA together and for information regarding the insurance pay-out received from Vero and how it was disbursed.[27] A response was sent by email from Ezyfix’s email address on 6 October 2015 from an unidentified sender stating

Have you revived [sic] all info that you reg [sic] cheers[28]

[27]Ibid.

[28]Ibid.

On 19 October 2015, Mr Taylor wrote to Mr and Mrs Longordo at Ezyfix’s email address again seeking a RATA, details as to the whereabouts of the company’s books and records and of the disbursement of the proceeds of the insurance claim.[29] Later that same day, a response was sent from that email address stating:

As I’ve told you there are no books all was lost in fire as to insurance money was spread out to back pay of (sic) workers replace tools that were not owned by ezy fix paid old debits (sic) eg Telstra electricity plus money owed to people from loss of earnings.[30]

[29]Ibid.

[30]Ibid.

The following day, Mr Taylor reiterated his request by email to Mr and Mrs Longordo for provision of the RATA together with details as to how the proceeds of the insurance claim were disbursed.[31]
[31]Ibid.

Earlier that year, on 19 April 2016, Mr Martin wrote to Mr Murray Davies of All Areas Financial Services, who were Ezyfix’s insurance brokers, seeking information in relation to the policies underwritten by Vero.[32] Mr Martin observed that this information had been sought on numerous occasions without response.[33]
[32]Exhibit NM-12 to Mr Martin’s later affidavit.
[33]Ibid.

On 9 May 2016, Mr Martin wrote to Westpac in relation to the details of the payments of the proceeds of the insurance claim by Vero and asked Westpac to confirm the account holder of the insurance proceeds account.[34] On 16 May 2016, Westpac confirmed that the first two payments, of $250,000 and $90,000, were paid into an account in the name of Ezyrepairs but that it was unable to locate the $200,000 paid on 26 June 2015.[35]
[34]Exhibit NM-13 to Mr Martin’s later affidavit.
[35]Exhibit NM-14 to Mr Martin’s later affidavit.

Ultimately, the information which Mr Martin sought in respect of the disbursal of the proceeds of the insurance claim was provided by Vero on 11 May 2016. It provided particulars of the three payments, which included information that confirmed that the payments to the insured were made to the insurance proceeds account and that that account was held in the name of Ezyrepairs.[36]
[36]Exhibit NM-12 to Mr Martin’s later affidavit.

Mr Martin stated that, by July 2016, and based on the investigations he had completed to that time, he had formed the view that Ezyrepairs was not a creditor of Ezyfix and that there was otherwise no reason for Ezyfix to pay $540,000 to Ezyrepairs.[37] Further, his investigations revealed that Mrs Longordo played no significant role in the caravan repairs business and that, up to the time of Mr Martin’s appointment, Ezyfix was under the effective control of Mr Longordo.[38]
[37]Mr Martin’s later affidavit [45(d)].
[38]Mr Martin’s later affidavit [45(e)].

On 13 July 2016, Mr Martin sent letters of demand to Mrs Longordo[39] and to the ‘proper officer‘[40] of Ezyrepairs. The letters are in similar form, detail the three payments which are the subject of this proceeding and observe that the funds were paid into the Westpac Account in the name of Ezyrepairs and not to Ezyfix.[41] Mr Martin contended in the letters that the transactions were unreasonable director related transactions, made a demand for $540,000.00, and invited a response by no later than 1 August 2016.[42]
[39]Exhibit NM-15 to Mr Martin’s later affidavit.
[40]Exhibit NM-16 to Mr Martin’s later affidavit.
[41]Exhibits NM-15 and NM-16 to Mr Martin’s later affidavit.
[42]Ibid.

The response came in a letter dated 8 August 2016 sent by email from the insurance broker, Mr Davies, , which bore the signature of Mr Longordo and stated:

To whom it may concern.
I, Joseph Longordo, director of EzyRepairs Pty Ltd was previously the manager of Ezyfix Caravan Repairs Pty Ltd. When the fire occurred, 19^th January 2015 both entities were trading from the same premises, EzyRepairs providing managing and marketing services to EzyFix. I provide this statement on behalf of myself, EzyRepairs & EzyFix, as I was manager in control, although not director.
Due to the lengthy delay in Vero settling the claim, first for loss of wages, then contents and then stock, suppliers were not prepared to deal with Ezyfix any longer and the management company had to intervene to keep Ezyfix in business.
Payments were distributed as instructed (sic) the loss adjustor and insurance officers at Vero: the first payment was distributed to employees in back payments and benefits and purchase of some tools and stock.
The second payment went completely into restocking.
From the third payment I was able to claim some of my own back wages, cash that I had injected into the business to keep it solvent and further replacement of capital items and attempted to clear creditors – I have not received my complete entitlements and I remain a creditor of Ezyfix. At this point, Ezyfix had a payment plan with the ATO which it was happy to keep to, but the ATO applied to wind up Ezyfix, whereas given time, I believe that it could have traded out of debt.
The length which it took Vero to settle claims and then substantially reduce what had been claimed, as a compromised settlement was reached so as to get funds to creditors and employees and re-establishing EzyFix as an operating entity.
All of this occurred many months before the liquidation proceedings and therefore as stated previously do not represent funds of the business (sic) the date of liquidation and your demand to pay you monies which have been paid predominantly to staff and creditors is not relevant to your proceedings.
Yours faithfully,
Joseph Longordo,
On behalf of Ezyfix Caravan Repairs Pty Ltd & Ezyrepairs Pty Ltd.[43]

[43]Exhibit NM-17 to Mr Martin’s later affidavit.

In his evidence which is detailed below, Mr Longordo contended that he is illiterate and could not have composed such a letter, that he was not the author of it, and that the signature appearing on it is a forgery.

In response to a request by Mr Longordo’s solicitors to identify the source of the letter,[44] Ms Malek emailed Mr Longordo’s solicitors on 6 October 2017 stating that the letter was provided by Mr Murray Davies of Bayside Advice Centre to the liquidators on 8 August 2016.[45] Ms Malek exhibits an email chain in relation to that letter passing between Mr Davies, Ezyfix’s insurance broker, and the liquidators’ office. That email chain consists of the following correspondence:
[44]See Exhibit ARM-1 to the Affidavit of Alison Malek sworn 22 November 2017 (‘Ms Malek’s affidavit’).
[45]See Exhibit ARM-2 to Ms Malek’s Affidavit.

(a) On Monday 1 August 2016, Mr Davies wrote to Mr Naughton, an employee of the liquidators, stating:

Good afternoon Robert,

The two letters as sent to the accountant of Ezyfix have been provided to me last week.
The director has requested my assistance in compiling a reply – we will be in a position to do so on Wednesday and notify you of such, due to your letter stating replies by today, but the letter has travelled around before reaching us.
We will write to you again on Wednesday,
thanking you for your kind patience and consideration,
warmest regards,
Murray[46]
[46]See Exhibit ARM-3 to Ms Malek’s Affidavit.

(b) On 4 August 2016, Mr Davies again wrote to Mr Naughton stating as follows:

Good morning Robert,
My apologies, but have been off ill again (have been very ill since March, as advised to you on another occasion) – I will submit a draft to the client for their approval this evening & once approved have that to you during the course of tomorrow,

thanking you for your consideration.
warmest regards,
Murray[47]
[47]See Exhibit ARM-3 to Ms Malek’s Affidavit.

(c) On 8 August 2016, Mr Davies again wrote to Mr Naughton stating as follows:

Good afternoon Robert,
I’ve been requested to send this correspondence to you,
thanking you for your kind assistance,
warmest regards,
Murray[48]

Attached to this email was a PDF of the letter of 8 August 2016 referred to in paragraph [39].

[48]See Exhibit ARM-3 to Ms Malek’s Affidavit.

Mr Longordo did not call evidence from Mr Davies and no explanation was provided about this by him. Counsel for the plaintiffs, Mr Purton, submitted, and I agree, that it is open to infer that Mr Davies would have had no evidence to advance Mr Longordo’s position as to the alleged controversy surrounding the authorship and provenance of the letter of 8 August. Further, Ms Malek was not cross-examined on her affidavit.

Mr Martin’s investigations following the assertion made by Mr Longordo in his letter in relation to a payment plan with the ATO revealed that the only evidence of a payment arrangement was one which was in place between 30 September 2013 and 17 December 2013, during which time 10 payments were made totalling $26,000.[49] He was not able to identify any payments made to the ATO after that date range which were made in accordance with an agreed payment plan. Mr Martin exhibits a copy of a running balance account obtained from the ATO in December 2015 which shows the debits and payments made by Ezyfix on the account. The contents of this exhibit confirm the matters Mr Martin deposed to in regard to Ezyfix’s ATO running balance account.[50]
[49]Mr Martin’s later affidavit [50].
[50]Exhibit NM-18 to Mr Martin’s later affidavit.

Mr Martin also exhibits a copy of the electronic diary maintained by officers of the ATO in respect of Ezyfix from October 2013 to August 2015,[51] obtained as a result of a Freedom of Information Request made by Mr Martin.[52] It is a contemporaneous record of communications between officers of the ATO and representatives of Ezyfix. By reference to that document, it is evident that Ezyfix was in arrears of its taxation obligations from at least October 2013. On 2 September 2014, the diary records that a garnishee notice was sent to Ezyfix’s bank..[53] On the same day the diary records:

Last payment made in December 2013 ∙ (Joseph Longordo is not the director of this company, he is however an authorised contact – narrative on 11 July 2014 refers to him as a Director). … Authorised contact (Joseph Longordo) rang on 11 July 2014 enquiring about a payment arrangement, he was advised about outstanding lodgements. He was to call back by 15 July 2014, legal warnings were given in phone call. Outstanding BAS and ITR was lodged, however now there are further BAS outstanding and no payments have been made. …[54]

[51]Exhibit NM-10 to Mr Martin’s later affidavit.

[52]Mr Martin’s later affidavit [34].

[53]Exhibit NM-10 to Mr Martin’s later affidavit.

[54]Ibid.

In December 2016, Mr Martin instructed his solicitors to send letters of demand to Mr and Mrs Longordo,[55][56] and Ezyrepairs[57] in connection with the payment of the proceeds of the insurance claim to Ezyrepairs. Each of those letters was in much the same form and contained the following request:

To assist my client with its investigations, I have been instructed to request the following information from you:
(a)Details of the payments allegedly made to staff and creditors of Ezyfix, and for tools, stock and capital items of and in relation to Ezyfix, with supporting documentation;
(b)The basis of these payments, noting no books and records survived the fire which destroyed Ezyfix’s premises on or about 19 January 2015; and
(c)Clarification as to how it is proper that tools, stock and capital items have been purchased with Ezyfix’s funds when Ezyfix did not trade after the fire.[58]

[55]Exhibit NM-19 to Mr Martin’s later affidavit.

[57]Exhibit NM-21 to Mr Martin’s later affidavit.

[58]Exhibits NM-19, NM-20, and NM-21 to Mr Martin’s later affidavit.

On 9 January 2017, Stephen Collings, a lawyer employed by Mr Martin’s solicitors, received a telephone call from Mr Longordo.[59] Among other things, Mr Longordo indicated that he did not understand why the liquidator’s solicitor was making a claim because he did not believe that Ezyfix had any creditors.[60] He requested a list of those creditors.[61]
[59]Mr Martin’s later affidavit [57].
[60]Mr Martin’s later affidavit [57(d)].
[61]Mr Martin’s later affidavit [57(e)].

In response, the liquidator’s solicitors sent to Mr Longordo by email to Ezyfix’s email address a letter setting out a breakdown of known creditors as at 16 January 2017.[62] The letter states, inter alia, that the creditors known to the liquidator (as at 16 January 2017) were as follows: [63]
[62]Mr Martin’s later affidavit [60]
[63]Mr Martin’s later affidavit [60(a)].

Priority Creditors

Amount ($)

Supporting documentation

Deputy Commissioner of Taxation – Petitioning Creditor’s Costs

2,102.70

Court Order

Deputy Commissioner of Taxation – Superannuation

122,343.95

Proof of Debt

Total (minimum)

124,446.65

Unsecured Creditors

Amount ($)

Status of claim

Deputy Commissioner of Taxation – Income Tax

9,062.40

Proof of Debt

Deputy Commissioner of Taxation – Running Account Balance

256,692.09

Proof of Debt

NCE Pty Ltd

36,313.59

PPSR Questionnaire

Westpac Banking Corporation

Unknown

Letter

Energy Australia

5,178.04

Outstanding bill

Total (minimum)

307,246.12

The letter states further that, as at 16 January 2017, the liquidator had not called for proofs of debt and therefore, further creditors could be revealed when the liquidator did so.[64] No response to that letter was received.[65]

[64]Mr Martin’s later affidavit [60(b)].

[65]Mr Martin’s later affidavit [62].

Mr Martin states that based on his investigations he believes that:

(a) Ezyfix did not trade after the fire however the caravan repairs business has continued to trade under the auspices of Ezyrepairs at other premises in Campbellfield;[66]
[66]Mr Martin’s later affidavit [63(a)].

(b) from around February 2016 to October 2016 the caravan repairs business traded from premises at Merola Way, Campbellfield, in Victoria;[67]

(c) on or around 19 October 2016, there was a fire at the caravan repairs business at Merola Way, Campbellfield in which two cars and a caravan were destroyed;[68]

(d) since around October 2016, the caravan repairs business has traded from premises at Production Drive, Campbellfield.[69]

[67]Mr Martin’s later affidavit [63(b)].

[68]Mr Martin’s later affidavit [63(c)].

[69]Mr Martin’s later affidavit [63(d)].

Mr Martin exhibited extracts from the website of ‘ that appeared on the website on 1 June 2017. [70] The website described Mr Longordo as the ‘Managing Director/Owner’ and stated, among other things, that:
[70]Mr Martin’s later affidavit [64].

(a) ‘Ezy Caravan Repair is a modern, quality Caravan Repair & Service Centre in Melbourne’s North”;[71]
[71]Mr Martin’s later affidavit [65(a)].

(b) “Ezy Caravan Repair was established in 2008 by Joe Longordo, having over 20 years’ experience in manufacturing and service repairs and is based on old fashioned business practices: Offer customers the best quality repair & service at the best prices;’[72]

(c) ‘Our professional approach to business ensures that we continue to invest in Training, People & Equipment thus ensuring our continued success in the industry;’[73]

(d) ‘Joseph Longordo personally manages the Melbourne service centre.’[74]

[72]Mr Martin’s later affidavit [65(b)].

[73]Mr Martin’s later affidavit [65(c)].

[74]Mr Martin’s later affidavit [65(e)].

Mr Martin deposed that at no time since his appointment has he received any communication from Mrs Longordo in connection with the matters referred to in his evidence.[75] This is despite numerous approaches to her by his staff. He also stated that, based on his review of the file and his discussions with his staff who have been involved in the litigation, he believed no members of his staff have received any communication from her.[76] The same situation applied in regard to communications with the liquidator’s solicitors.[77]
[75]Mr Martin’s later affidavit [66].
[76]Mr Martin’s later affidavit [67].
[77]Mr Martin’s later affidavit ]68].

Mr Martin stated that despite repeated requests, he has not been provided with any books and records of Ezyfix.[78] Mr Longordo has told Mr Martin and his staff that the records were destroyed in the fire on 19 January 2015. Mr Martin contends that even if Mr Longordo’s statements about the financial records were accepted, this does not explain what happened to the financial records generated after the fire.[79] In this regard it would be expected that there would be financial records generated after the fire in connection with the disbursal of the proceeds of the insurance claim. Despite specific requests for records surrounding the payments from Vero to Ezyrepairs, no financial records concerning these transactions have been provided by either Mr or Mrs Longordo. [80] On the basis of this, Mr Martin contends that Ezyfix failed to keep financial records that correctly record and explain its transactions and financial position performance since the fire on 19 January 2015.[81]
[78]Mr Martin’s later affidavit [69].
[79]Mr Martin’s later affidavit [70].
[80]Mr Martin’s later affidavit [70].
[81]Mr Martin’s later affidavit [71].

Mr Martin believes that Ezyfix became insolvent on or around 19 February 2015, being the date that the insurance claim was accepted and after which Mr Longordo directed payments in connection with the insurance claim to be paid to Ezyrepairs not Ezyfix.[82] In support of this opinion he noted:
[82]Mr Martin’s later affidavit [72].

(a) as at the date of the fire, Ezyfix had a number of creditors, including the ATO which was owed in excess of $226,000 at that time;

(b) all of Ezyfix’s significant assets were destroyed in the fire;

(c) the fire also triggered a number of claims that could only have been met from the proceeds of insurance; and

(d) Ezyfix did not trade after the fire and accordingly, the only funds it had available to it to meet its liabilities were the proceeds of the insurance claim.[83]

[83]Mr Martin’s later affidavit [73].

In his affidavit of 24 November 2017, Mr Hahnel stated he is an insurance investigator[84] and was instructed by Allianz Australia Insurance Limited (apparently an agent of Vero in the processing of the claim) to conduct interviews with Mr Longordo on 4 February 2015, 2 November 2016 and 16 January 2017.[85] The transcripts of those interviews, obtained under a subpoena filed by the plaintiffs’ solicitors on 2 November 2017, were exhibited to Mr Hahnel’s affidavit.[86]
[84]Affidavit of Barrie Hahnel sworn 24 November 2017 (‘Mr Hahnel’s affidavit’).
[85]Mr Hahnel’s affidavit [3].
[86]See BH-1 to Mr Hahnel’s affidavit.

The first interview was conducted on 4 February 2015 between Mr Hahnel (BH) and Mr Longordo (JL).

Q6 BH: How did you come to… occupy the factory there?

JL: I started a business, Eazy Fix (sic) Caravan Repair Centre backin 2009, opened in 2010. Started out in Merola Way Campbellfield. Out grew (sic) that one, went to the Hume Highway, Craigieburn. Outgrew that one and moved into 6 Clarissa Street through an agent Joe Morolla at City Link Agents and he found that factory for me which was the perfect size for us.

Q7 BH: When did you move into the premises?
JL: I’m pretty sure it’s 2012.
…
I’m pretty sure I got the keys 2012 November. Opened in 2013. January there. So after the festive season.[87]

[87]Exhibit BH-1 to Mr Hahnel’s affidavit.

Mr Hahnel and Mr Longordo then went on to discuss the details of the lease of the premises. In response to a question from Mr Hahnel as to the term of that lease, Mr Longordo stated:

Q13…
JL: …I’m pretty sure it was two years with option of two and the two years had ran out and there was a bit of confusion along the way, I’m pretty sure I owed Lucky, I don’t know, about $8000 in rent or something.
…

Q15 BH: … Was there an issue with Joe Marolla, the agent?
JL: Correct.

Q16 BH: Some bond money or something?
JL: Correct, that’s 100% sure. We – I was still renting in the Hume Highway when Joe gave me the factory. On (sic) proposal I requested two months free rent which he agreed but I had to pay one month bond and one month rent which we provided proof that we paid that. … I tried to contact Joe hundreds of times, so did Lucky, we both did together and in the end of the day (sic) what we did was we sat down in that meeting in the second we (sic) of December and agreed there was an issue there so we come to the conclusion the 8000 and something dollars would need to be paid to Lucky and that would be paid after we went back to work when we signed a new lease ...

Mr Hahnel then went on to enquire as to the amount Mr Longordo was prepared to pay for a new lease, after asking whether a new lease had in fact been procured. The conversation between he and Mr Longordo in this regard ensued as follows:
Q21     BH:     Has a new lease agreement been signed?
JL:       No. No it hasn’t because it was up to the agent Tanya because me and Tanya from Barry Plant had a verbal agreement of what I wanted to pay for a new lease, I thought I was paying well over the mark and I was willing to leave and find myself a new premises which I applied for a few new factories and then Tanya and Lucky in that meeting said, “No, we’ll come to an arrangement that we’re (sic) suitable both parties” and she was going to draw up that lease, like I said, in this new year after the 19th of Jan and we were happy to stay there on the terms that we pay the rent that we wanted to pay …
Q22BH:     How much was that that you were going to pay?
JL:       I believe, now this you’d have to ask Tanya, I believe it would be about 40,000 a year. She had found me a factory at the same price around the corner, similar size as well if we didn’t agree with Lucky.

Q23     BH:      Yep.
JL:       Lucky left it in Tanya’s hands so I believe it would have been around the $40,000 a year plus outgoings. So we were – we were comfortable with that but for the last, you know, 12 months, I’d be - I was paying nearly $70,000. So it was a lot of money. And plus like, there was a bit of an argument along the way with Joe Marolla because of back-pay and I had to pay him a cash (sic) well cheque of back-pay, so, yeah.
Q24BH:     Gee it’s a lot of difference isn’t? 40 to 60, 40 to 70.
JL:       Yeah, yeah it is a lot of difference, but it would have helped me out tremendously because I was paying a lot of rent there. That was all set up with Joe Marolla because originally I was going to the building for six months and then I was going to purchase the building. I was going to buy the factory. What happened when the time come to buying the financials that I could get weren’t enough to buy the factory because of the fact that the bank valued it at one price and obviously the agent and Lucky wanted a certain price so we pulled out and we weren’t going to buy it for that much money.   … And then in that agreement it was that I’d be paying rent, I think it was 4125 a month and if I didn’t purchase at (sic) price it would go up to the new rent and the new rent become 5500 a month. And, you know, it really, I didn’t look into it properly when I signed.

Q25BH: Sure.
JL: I didn’t look into it all. I just needed to get a bigger place.

Mr Hahnel then enquired as to the business that was being carried on by Ezyfix:

Q27BH:     What’s the business that was being carried on at the premises?
JL:       Repairing caravans for insurance work, for insurance companies and also doing repairs for manufacturers around the area and also doing aluminium fit offs at other manufacturers as well.
Q28BH:     Obviously there was you, you worked at the business. Who else worked there?
JL:       I had my son.
Q29BH:     His name?
JL:       Patrick.

Q30     BH:     Same surname?
JL:       Yes.
…
Q39BH:     The office. Was anybody working in there?
JL:       My wife.
Q40BH:     Her name?
JL:       Maria.
…
Q42BH:     … In relation to the work performed by your business, what was the monthly turnover?
JL:       Oh mate depending on – it’s hard to say but depending on what insurance job we could get our monthly turnover would be 200 plus thousand. Could be less. All depends if we have big insurance jobs that we were doing at the time. In the factory now at present I’ve had probably, what is it? You’ve got 30,000, 40, another 40, another 60, 65. About $200,000 worth of work there… Plus with the aluminium work that would generate about 20 plus thousand a week. Guaranteed every week. That was like my cash flow.
Q43BH:     Cool. Good business, huh?
JL:       Yeah, very good business. It’s a very, very good business.
Q44BH:     Okay.
JL:       A lot of hard work but my record there shows that I started a small factory, 12 months later went to a bigger, 12 months later went to a massive. So, you know, it’s very good. We’ve got a good name.

Mr Longordo was interviewed again by Mr Hahnel on 2 November 2016, shortly after the second fire at Ezyrepairs premises on 19 October 2016 however that interview has no direct relevance to this proceeding.[88]
[88]Mr Martin’s later affidavit [63](c).

On 16 January 2017, Mr Hahnel conducted his third interview of Mr Longordo. This was shortly after the liquidators’ solicitors’ demand was sent on 22 December 2016.[89] Mr Davies, Mr Longordo’s insurance broker, was also present.
[89]See Exhibit NM-19, NM-20, and NM-21 to Mr Martin’s later affidavit.

During that interview, Mr Hahnel enquired about the proceeds of the insurance claim, to which Mr Longordo responded as follows:

Q38BH: In relation to the Suncorp – so moving on – the Suncorp settlement from January 2015 claim. How much was that settlement?
JL: Oh I think it was a total of 540 all up.
…

Q41 BH: In relation to that what was that – those moneys used for?
JL: Tools, bills, setup costs, workers. There was I think five that stuck around. They all had to get paid. Or maybe six. So that’s all been provided to you with the financials of – that’s all on there.

Ezyfix did not trade after the fire and it seems clear that the items referred to by Mr Longordo were a reference not to Ezyfix’s activities and the discharge of its liabilities, but rather to the funds being expended by him on start-up costs for Ezyrepairs shortly after the first fire on 19 January 2015, which included the purchase of tools.

Mr Martin stated that he was not able to conduct any type of tracing exercise to determine what became of the proceeds of the insurance claim after they were paid to Ezyrepairs, but that it was clear that the funds paid by Vero were paid to Ezyrepairs and not Ezyfix, and that there was no commercial justification or explanation for those payments.

The evidence relied on by Mr Longordo

In his evidence, Mr Longordo contended on several occasions that he is illiterate. At the trial of this proceeding, Mr Corrigan of counsel, who appeared on behalf of Mr Longordo, sought to orally lead him through the matters contained in his affidavit. This situation was most unsatisfactory as it created a potential for a departure from the case the plaintiffs had been prepared to react to. Further, while it is assumed that in litigation affidavits are most often drafted by solicitors or counsel, it emerged in his oral evidence that Mr Longordo had no understanding of several words and expressions in his affidavits. By way of example, in response to a question from Mr Corrigan, Mr Longordo was not able to explain the meaning of the words ‘depose to’ or ‘business acumen.’ The affidavits were sworn in the way prescribed for literate deponents, not in the manner under rule 33.2 of the Supreme Court (General Civil Procedure Rules) 2015 which prescribes how affidavits are to be sworn by illiterate persons.

In Mr Longordo’s affidavit of 27 September 2017 (‘Mr Longordo’s September affidavit’), he stated that Mrs Longordo established the business in 2010 when she suggested she would like to start a business venture.[90] Mr Longordo loaned her $180,000 to start the business.[91] He stated that after the business had been established, he worked in it as an employee for some years before the marriage eventually began to fail and they separated.[92] He stated that he had stopped receiving wages and that the business owed him a significant sum of money in addition to the money he says he lent to Mrs Longordo, which he stated was never repaid.[93]
[90]Affidavit of Joseph Longordo sworn 27 September 2017 (‘Mr Longordo’s September affidavit’) [3].
[91]Ibid.
[92]Mr Longordo’s September affidavit [4].
[93]Ibid.

Mr Longordo said that he left school in year 9 and described himself as illiterate.[94] He stated that he was not able to read and had an extremely limited ability to write.[95] He said that he never involved himself in the day to day affairs of the business and left this entirely to Mrs Longordo, who had the business background.[96] Mr Longordo did not explain why he did not have the capacity or ability to be a director of Ezyfix but was readily able to take up that role in Ezyrepairs. He stated that he was an employee only and provided the capital from his life savings.[97] The affidavit culminated in the statement that he did not write the letter of 8 August 2016 sent by email by Mr Davies, the insurance broker to the liquidators.[98] In this regard, he contended that the signature which appears on it was a forgery and he provided a sample of his signature for the purposes of comparison.[99]
[94]Mr Longordo’s September affidavit [5].
[95]Ibid.
[96]Ibid.
[97]Ibid.
[98]Mr Longordo’s September affidavit [9].
[99]Ibid.

Mr Longordo’s affidavit of 7 October 2017 (‘Mr Longordo’s October affidavit’) was the subject of numerous objections which were sustained. My reasons for sustaining the objections raised by Mr Purton appear on the transcript and what follows is a summary of the remaining contents of the affidavit.

Mr Longordo again denied that he was a shadow director at any time and stated that Mrs Longordo and a Bill Deralis owned the company as joint directors from 2010, with Leo Italiano acting as the manager from 2011 to 2015.[100] He stated that he commenced as an employee in 2011, worked on the floor in the company of 30 to 50 staff,[101] and that at no point did he have any role in the operations of the business.[102] He stated that the tools and machinery which belonged to him and which were used in the business and destroyed included a panel saw, blades and dust extractor, costing $45,000, compressors valued at $18,000, compressor fit out of $12,000 and electric tools for 50 staff consisting of an estimated 700 electrical Makita and Dewalt tools.[103] He deposed that the latter items cost approximately $500 each and totalled almost $350,000 to replace.[104] He said that there were also ‘thousands of hand tools for fitting out up to 50 staff, totalling approximately $40,000.’[105]
[100]Affidavit of Joseph Longordo sworn 7 October 2017 (‘Mr Longordo’s October affidavit’) [2].
[101]Ibid.
[102]Ibid.
[103]Mr Longordo’s October affidavit [4].
[104]Ibid.
[105]Ibid.

There was not, as might be expected, any inventory, depreciation schedules or documentary evidence to substantiate the existence of these items. In his oral evidence in chief, he stated that the figure of $350,000 for the replacement of the tools was incorrect and that the correct figure was $37,000. His evidence about the value of the tools is made even more confusing given that he states at a later point in his affidavit he received $170,000 for his tools.[106]
[106]Mr Longordo’s October affidavit [7].

As regards the email notifying Mr O’Reilly of Vero of the account details into which the insurance proceeds were to be paid, Mr Longordo stated that every person working at Ezyfix used the same email including Mrs Longordo, Mr Italiano (the manager), his sister Suzie, and the accountant Nick Kyriopolous.[107] He stated that he had access to the emails but very rarely opened them.[108] He did not nominate another candidate for the authorship of the email in his affidavit or his oral evidence, nor anyone else who would have known of the account number of Ezyrepairs Westpac bank account.
[107]Mr Longordo’s October affidavit [5].
[108]Ibid.

As to the disbursal of the proceeds of the insurance claim after they had been paid to Ezyrepairs, Mr Longordo’s evidence was most confusing and contradictory. It is clear, however, that he was the person who disbursed the funds from the Ezyrepairs bank account. He stated he was owed about four months of wages at $1,350 a week by Ezyfix, totalling $21,600, which he paid to himself.[109] He stated that he did not receive the full amount for his tools, more particularly, that he only received ‘maybe $170,000’ for them,[110] and that when the first payment from Vero came through he kept ‘the parts that were his’ and returned $75,298.32.[111] He stated that when the second payment from Vero came through he repaid Mrs Longordo in several instalments as “she had some personal problems at the time and asked to be provided with the money in instalments”.[112] It was not clear what debt was being repaid to Mrs Longordo. Mrs Longordo asked Mr Longordo to draw cheques directly to ‘some people and companies,’ which he apparently did.[113]
[109]Mr Longordo’s October affidavit [7].
[110]Ibid.
[111]Ibid.
[112]Mr Longordo’s October affidavit [8].
[113]Mr Longordo’s October affidavit [8]; Exhibit JL-2 to Mr Longordo’s October affidavit.

Mr Longordo exhibited a bundle of bank statements from Ezyrepairs’ Westpac account[114] however these were uninformative as to the destination of the payments or their purpose and merely showed numerous transactions on the account. The balance of the account shortly after it was opened in early February 2015 was very modest (of the order of $2000).[115] The statements record the deposit of $250,000 on 20 February (the first payment by Vero). Soon after this, there were a number of withdrawals, several in excess of $10,000 and one of $75,298.[116] Mr Longordo stated in his oral evidence in chief that he made the latter transfer to Mrs Longordo.
[114]See Exhibits JL-1, JL-2, and JL-3 to Mr Longordo’s October affidavit.
[115]Exhibit JL-1 to Mr Longordo’s October affidavit.
[116]Ibid.

Mr Longordo stated that the only role he had in the insurance claim process was assisting the inspectors to value his lost equipment.[117] This statement is to be contrasted with the insurance assessor’s reports referred to above in paragraph [18]. He said that a lot of the workers had quit or left during ‘the struggle’’ as he described it, and that only seven remained.[118] He stated that he became close with the workers that remained and wanted to make sure they got paid.[119] They received about $750 a week and he estimated that the total was about $73,500.[120] Mr Longordo provided no evidence of any payments to those persons, who it seems became employees of Ezyrepairs after the first fire. He stated that he had nothing to do with how Mrs Longordo arranged the rest of her business affairs and no knowledge of how she spent the funds he gave to her.[121] It seems clear that Mrs Longordo received a proportion of the proceeds of the insurance claim, was complicit in their diversion to Ezyrepairs and was aware of their disbursal.
[117]Mr Longordo’s October affidavit [10].
[118]Mr Longordo’s October affidavit [11].
[119]Ibid.
[120]Ibid.
[121]Mr Longordo’s October affidavit [12].

During the period from 23 to 26 February (inclusive) over which numerous withdrawals from the Ezyrepairs Westpac account were made, the balance of the account, which at the outset of that period was largely made up of the $250,000 Vero payment, was reduced to $82,063.[122] The cash withdrawals were described as “withdrawal cash” from the South Morang branch of the bank, and several other withdrawals were by consecutively numbered cheques.[123] The March statements for the account, in the earlier part of the month, record a number of withdrawals by cheques drawn on the account.[124] Again, the narratives in the statement do not describe the destination or purpose of any of the funds.
[122]Exhibit JL-1 to Mr Longordo’s October affidavit.
[123]Ibid.
[124]Exhibit JL-2 to Mr Longordo’s October affidavit.

On 20 March, the second Vero payment of $90,000 was paid into the account, and on 23 March an amount of $16,000 was deposited.[125] The latter amount was described as having been made by ‘Sandra and Tony Joe Longordo,’ presumably relatives of Mr Longordo.[126] Towards the end of the month, on 27 and 31 March, there were withdrawals by cheque of $20,000 and $30,000 respectively.[127] During the period of these payments, there was no inflow of funds into the accounts save for the Vero payment and the payment of $16,000. On 7 April, there was another withdrawal of $15,005, and between 17 and 20 April, there were withdrawals totalling approximately $11,000 on the account.[128] By 26 May, the balance of the account had been reduced to approximately $47,500.[129]
[125]Ibid.
[126]Ibid.
[127]Ibid.
[128]Exhibit JL-3 to Mr Longordo’s October affidavit.
[129]Ibid.

On 27 May, the third Vero payment of $200,000 was paid into the account and, on the day after that, there were several withdrawals by consecutively numbered cheques which totalled $38,785.[130] In June and July, the balance of the account steadily reduced from approximately $204,000 at the beginning of June to little over $48,000 at the end of July.[131] Again, there were several significant payments of rounded amounts but there is no explanation or evidence as to the destination or purpose of the payments, in particular whether they were for the benefit of Ezyfix.
[130]Ibid.
[131]Ibid.

In his October affidavit, Mr Longordo states that he received $50,000 towards his ‘initial investment’ and a further $25,000 for his ‘contributions to stock’. If established, those payments would be payments to Mr Longordo in his capacity as an unsecured creditor of Ezyfix and be preferential payments. [132] He asserts that he returned the rest of the money to Mrs Longordo and Ezyrepairs in instalments[133] There is no evidence to support any of these assertions.
[132]Mr Longordo’s October affidavit [9].
[133]Mr Longordo’s October affidavit [9].

In Mr Longordo’s affidavit of 4 February 2018 (‘Mr Longordo’s February affidavit’), he stated that Ezyrepairs owned the website and that the website is in no way related to Ezyfix.[135] In that regard, he stated that there is an error in the ‘about us’ page as the website designer states the business was established in 2008, when in fact it was established in 2014.[136] He stated that because of his illiteracy he was unable to amend the website and that the error was never brought to his attention.[137] I consider this to be a most unconvincing explanation of why the website contains the text which is mentioned above in paragraph [49] and I consider that it has been contrived to suit the case which he seeks to mount in his defence of the plaintiffs’ claim.
[134]Mr Longordo’s February affidavit [2].
[135]Mr Longordo’s February affidavit [4].
[136]Mr Longordo’s February affidavit [5].
[137]Ibid.

He stated that his October affidavit contained several errors and in this regard he again says these have arisen because of his illiteracy.[138] He stated that although he gave instructions to his solicitor at the time of his first affidavit being prepared, he was in a rush to attend to other business and, because of his difficulty in reading, he did not pick up the errors.[139] He stated further that he should have asked the solicitor to read it out to him before he swore the affidavit.[140]
[138]Mr Longordo’s February affidavit [8].
[139]Ibid.
[140]Ibid.

As regards the involvement of Mr Davies as deposed to in his 7 October 2017 affidavit, Mr Longordo stated that Mr Davies was his insurance and superannuation broker who was his contact for prior business dealings.[141] He stated that Mr Davies inadvertently nominated him as the contact point for Ezyfix’s insurance matters Mr Longordo stated that after the fire Mrs Longordo was incapable of taking care of the insurance claims due to anxiety and substance abuse issues and so he assisted as best as he could.[142] As regards the value of the tools mentioned in his September affidavit, he stated that he lent the employees at Ezyfix 50 tool bags containing a total of 700 electrical tools comprised of drills, drivers, planers, jigsaws, and four staple guns which were lost.[143] He asserts that the total cost of these tool bags amounted to $37,500,[144] but again, he provides no substantiation in support of that assertion.
[141]Mr Longordo’s February affidavit [10].
[142]Mr Longordo’s February affidavit [11].
[143]Mr Longordo’s February affidavit [12].
[144]Ibid.

With respect to the $75,298.32 paid to Mrs Longordo, Mr Longordo stated it was paid to her in cash as she requested.[145] In relation to his statement in his September affidavit that he returned the full amount to Mrs Longordo in several parts, he stated he wished to clarify that the correct figure was $90,000.[146] He stated further that where he referred in his earlier affidavit to returning the rest of the money to Mrs Longordo and Ezyrepairs in instalments, this was an error and that the reference should have been to Ezyfix, not Ezyrepairs.[147]
[145]Mr Longordo’s February affidavit [14].
[146]Mr Longordo’s February affidavit [15].
[147]Mr Longordo’s February affidavit [16].

Mr Longordo was cross‑examined by Mr Purton. His attitude throughout his cross examination was evasive and I formed the view that he was a most unsatisfactory witness. He was asked about the interviews he had with Mr Hahnel, the insurance investigator. He emphatically denied speaking to Mr Hahnel in 2015 when the first of the interviews occurred. He states that the only time that he met Mr Hahnel was in 2016 and he says that that interview was concerned with the second fire at the Ezyrepairs premises.

When Mr Longordo was asked about his involvement at Ezyfix, he was adamant that he had no managerial level responsibilities or that he was involved as a quasi-director. He denied that he told Mr Johnson, the insurance investigator, that he was the sole director of Ezyfix, but asserted that he told Mr Johnson he was the floor manager. He nonetheless accepted that an interview had taken place between them on about 20 January. When the subject returned to the interview conducted in early February 2015, he accepted that there was an interview which occurred at his sister’s house in Epping, but he stated that it was not with Mr Hahnel.

There was no challenge to the plaintiffs’ evidence concerning Mr Hahnel’s interviews with Mr Longordo. I do not accept Mr Longordo’s evidence in that regard and consider that the transcripts are an accurate record of those interviews.

The cross‑examination then moved on to the claim made with Vero. Mr Longordo stated he had a discussion with Mr O’Reilly, who rang him in connection with the claim and informed him that there was going to be a part‑payment of $250,000. This was confirmed in the email of 18 February 2015 from Mr O’Reilly which has been mentioned.

Mr Longordo denied that he was the person who responded to Mr O’Reilly’s email, and stated that his only contact with him was over the telephone. Mr Corrigan, in his final submissions, contended that there was nothing in the evidence which justifies the submission that it was Mr Longordo who provided the Ezyrepairs bank account details to Vero, but I cannot accept that submission that Mr Davies, the insurance broker, might well have played some part in arranging for the sending of the email. There is simply no basis for such a submission in my view. I do not accept his evidence. It is overwhelmingly probable that Mr Longordo was the author of the response, which was in turn a response to an email beginning ‘Good morning, Joe,’ and which provided the bank account details for Ezyrepairs. As a result of that communication, the proceeds of the insurance claim which were the property of Ezyfix were diverted to Ezyrepairs.

It was put to Mr Longordo at the time these emails were sent (on 18 February 2015) that Ezyfix was behind in its obligations to the ATO. Mr Longordo agreed and added that “they always were”. He states that on one occasion his sister arranged for him to telephone the ATO as she and Leo Italiano were Ezyfix’s ‘spokesmen’ for the ATO. He stated that when his sister was away undergoing surgery, he telephoned the ATO in connection with a payment plan.

Mr Longordo was taken by Mr Purton to the contact that he had with employees of the liquidator. The first such contact was the telephone conversation between Mr Longordo and Mr Carmody on 27 August 2015, referred to above in paragraph [25]. In particular, Mr Purton took Mr Longordo to a contemporaneous file note that Mr Carmody drafted while speaking with Mr Longordo.[148] In his file note, Mr Carmody wrote that Mr Longordo’s ‘wife while director did work for the business but [Mr Longordo] was the primary contact,’[149] however Mr Longordo denied saying this to Mr Carmody. His denial was supported only by the comment ‘okay, but that doesn’t mean that’s what I said … [t]here’s no signature there to say that’s what I said.’
[148]See Exhibit NM-9 to Mr Martin’s later affidavit.
[149]Ibid.

The cross examination then moved to the letter of 8 August 2016 attached to Mr Davies’ email. Mr Longordo states that he did not recall Mr Davies submitting a draft of the letter to him for his approval as Mr Davies indicated he would in his email dated 4 August 2018 to the liquidators. He said he was never provided with a draft of that letter, had not seen it before, and had not requested that it be sent as Mr Davies indicated. He agreed that he had known Mr Davies for a long time, since 1995, but was anxious to say that Mr Davies was not his personal insurance broker, but rather, that of Ezyfix. He agreed that there was no‑one else at Ezyfix who would have requested that the letter be sent, but maintained that Mr Davies had sent the letter without any instruction from him. This is despite the fact that Mr Longordo agreed with much of the contents of the letter and that much of the letter contained accurate references to matters about which it is unlikely Mr Davies (or indeed anyone else) would have any knowledge of. He agreed with the passages in the letter referring to the distribution to employees in back payments and benefits and purchases of some tools and stock, and that the third payment was applied to pay his own wages and the cash he injected into the business to keep it solvent, but denied that the letter was correct when it referred to the second payment being completely directed into restocking. He also agreed that monies were applied for further replacement of capital items. Such restocking and replacement of capital items could only have been for the benefit of Ezyrepairs – Ezyfix had ceased trading. When questioned further by Mr Purton, Mr Longordo reiterated that the signature on the letter was not his, that he did not instruct Mr Davies to send it, and that the only time he found out about its existence was the first occasion he appeared at a directions hearing in this proceeding.

I am satisfied that the letter of 8 August 2016 was drafted with the assistance of Mr Davies, that its contents were composed in close consultation with Mr Longordo, and that Mr Davies forwarded it to the liquidators with the authority of Mr Longordo. No person, other than Mr Longordo, would have been as familiar with the details of Ezyfix’s affairs set forth in the letter and there was no other candidate for the contribution to its authorship suggested by Mr Longordo. I regard it as implausible that Mr Davies composed and sent the letter on his own initiative. It would require a finding that Mr Davies when communicating with the liquidators was on a frolic of his own and was not authorised to act on behalf of Ezyfix.

The letter of 8 August 2016 suggests that some of the proceeds were applied to paying employees’ wages but the evidence given by several employees, detailed below was vague and unsubstantiated by any contemporaneously generated banking or other documentation. Ezyfix did not resume operation after the fire and any tools purchased could only have been for use in the Ezyrepairs operation at the new location. Again, it will be seen that the evidence in regard to the tools did not rise above assertion and is not substantiated by any contemporaneously generated financial documentation such as receipts.

During cross examination, Mr Longordo agreed that Ezyrepairs was formed in September 2014 and started trading after the fire in February 2015. He confirmed that it traded from premises at Production Drive before moving to Merola Way, after which time, in October 2016, there was another fire. It was put to Mr Longordo that he only began maintaining that he was not involved in the management of Ezyfix after letters of demand had been received from the plaintiffs’ solicitors in December 2016, which he denied. He agreed that he used his phone if he needed to email people, but avoided answering the question as to whether he sent an email of 24 September 2015 to Mr Taylor at the liquidators which states:

Hey mate just touching base in getting a letter drawn up from accounted (sic) should be to you by Monday
Sent from my iPhone.[150]

Ultimately, when pressed, he was unable to say whether he did or did not send that email. He did admit sending the email to Mr Taylor referred to above in paragraph [31] which stated ‘[h]ave you revived (sic) all the info that you reg (sic) cheers.’[151]

[150]Exhibit NM-9 to Mr Martin’s later affidavit.

[151]Exhibit NM-9 to Mr Martin’s later affidavit.

Mr Longordo was asked about the third interview that he had with Mr Hahnel where he provided Mr Hahnel with a list of tools that had been lost in the second fire. Mr Longordo was asked about the tools Ezyfix owned, which were said to be worth about $120,000, and for what value they were insured. Mr Longordo agreed that that property, consisting of industrial air compressors, shelving, power tools, hand tools and electrical fittings, was destroyed in the fire and Mr Longordo continued in what I would describe as an evasive vein by ultimately stating that the tools were not company property. When asked about the proceeds of the insurance claim, he agreed it went into the Ezyrepairs account and that it was used to pay all the debts and recover his money and start-up costs for Ezyrepairs.

Mr Longordo then called several former employees of Ezyfix who each swore affidavits and who were cross examined. Their affidavits were in almost identical form and were principally directed to the issue of Mr Longordo’s role at Ezyfix.

The first of those was Mr Sammy Sammit, who swore an affidavit on 1 February 2018. In his affidavit, Mr Sammit says that he was employed by Ezyfix as a repairer from approximately 2013 to 2015.[152] He stated that he left soon after the fire in January 2015 to seek alternative employment.[153] He said that his tools were destroyed and that he recalls being paid for the cost of the tools several weeks after the fire.[154] In regards to Mr Longordo’s role at Ezyfix, he states that during his time there, Mr Longordo was a floor supervisor and Mrs Longordo was always in charge.[155]
[152]Affidavit of Sammy Sammit sworn 1 February 2018 (‘Mr Sammit’s affidavit’) [3].
[153]Mr Sammit’s affidavit [4].
[154]Mr Sammit’s affidavit [6].
[155]Mr Sammit’s affidavit [7].

During cross‑examination, Mr Sammit stated that he could not remember how many of his tools were lost or how much he was paid for them. He did not produce any documentation to support his evidence. He reiterated that Mr Longordo was in charge of the factory floor while Mrs Longordo ‘was in charge of everything’.

The second employee to be called was Suzanne Dinneen who swore an affidavit on 2 February 2018. She is Mr Longordo’s sister and was employed by Ezyfix for seven and a half years until the fire. She stated that Mrs Longordo did the administrative work for Ezyfix and that, whatever tasks Ms Dinneen had to do, she was required to report to her. Ms Dinneen stated that she herself was responsible for doing the payroll and was authorised to deal with the ATO. She stated that Mr Longordo did not work in the office but on the factory floor where he was in charge, and that the interaction with customers was through herself, Mrs Longordo and Leo Italiano. In regards to the interview conducted by Mr Hahnel with Mr Longordo at her house in January 2015, she recalled the interview occurring.

The third employee of Ezyfix to be interviewed was Mr Leo Italiano, who swore an affidavit on 4 February 2018. He stated that he was employed as a manager of Ezyfix from 2012 to 2013. He stated that Ezyfix was trading satisfactorily during the period he worked there[156] and that there were around eight employees at the time.[157] He reported directly to Mrs Longordo.[158] He stated during cross examination that Mr Longordo was ‘always on the tools’ and was not the manager but rather that he, Mr Italiano, was.[159] He was directed to the inconsistency between these statements and the advertising of Ezyfix on its website which stated that Mr Longordo personally managed the business which Mr Longordo established in 2008. In response to a question as to why the website would state this, Mr Italiano responded that one ‘couldn’t very well put Maria Longordo, who has been hairdressing for 20 years and has now decided to open up a caravan repair centre’ and that ‘it was all about building the business.’ In regards to whether the mobile number that appears on the website is in fact Mr Longordo’s, Mr Italiano stated ‘yes, I believe so… [b]ut again there’s no point in ringing Maria; she’s a hairdresser.’ In response to a question put by Mr Purton as to why customers would call Mr Longordo, Mr Italiano responded ‘[b]ecause he’s the one with the experience, mate… he’s the one who can talk to them about what to do with their vans, how to repair them, how to service them. There’s no point in them ringing Maria.
[156]Affidavit of Leo Italiano sworn 4 February 2018 [4].
[157]Ibid.
[158]Affidavit of Leo Italiano sworn 4 February 2018 [5].
[159]Ibid.

The fourth and last employee of Ezyfix cross examined by Mr Purton was Athanasios Avlonitis, who swore an affidavit on 31 January 2018 which exhibited a statutory declaration he had sworn on 21 January 2018. Again his evidence was directed to the role of Mr Longordo at Ezyfix being confined to factory floor duties. He stated that he reported to Mr Italiano, not to Mr Longordo, and that Mr Longordo would ‘work alongside’ him and was not involved in management tasks. He stated that Mr Longordo had a clock card and would clock on and off like he did.[160] Mr Avlonitis worked at Ezyfix for three years.
[160]Affidavit of Mr Avlonitis sworn 31 January 2018;

Consideration
(i) The claim against Mr and Mrs Longordo

I now turn to the various issues requiring consideration. The first of these is that of the role that Mr Longordo played at Ezyfix and whether on the evidence he acted as a director of Ezyfix within the meaning of s 9 of the Act.

Section 9 of the Act provides that ‘director’ of a company or other body means:
(a)       a person who:
(i)        is appointed to the position of a director; or
(ii) is appointed to the position of an alternate director and is acting in that capacity; regardless of the name that is given to their position; and
(b) unless the contrary intention appears, a person who is not validly appointed as a director if:
(i)        they act in the position of a director; or
(ii) the directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes.
Subparagraph (b)(ii) does not apply merely because the directors act on advice given by the person in the proper performance of functions attaching to the person’s professional capacity, or the person’s business relationship with the directors or the company or body.
In Company Directors Principles of Law and Corporate Governance[161] the authors observe[162] that the s 9 definition, as well as for making provision for formally appointed directors, also includes ‘de facto’ (see definition at (b)(i)) and ‘shadow directors’ (see definition at (b)(ii)) as alternatives and which should be regarded as being mutually exclusive. De facto directors are those who are not validly appointed as a director if they act in the position of a director. A ‘shadow director’ is a person who is not validly appointed as a director but the directors of the company are accustomed to act in accordance with the persons instructions or wishes.
[161]Austin Ford & Ramsay, LexisNexis Butterworths (‘Austin’).
[162]Ibid [5.9]–[5.9].

The authors observe:[163]
[163]Ibid [5.9].

Insight into who is a de facto director can be obtained from the judgment of Madgwick J of the Federal Court in DCT v Austin (1998) 28 ACSR 565, 16 ACLC 1555. At issue was whether Mr Austin was liable to indemnify the Deputy Commissioner of Taxation for certain payments because he was a de facto director. Mr Austin had resigned as a director of the company but he then continued to play an active role in the company including negotiating agreements with the Deputy Commissioner of Taxation on behalf of the company and negotiating time to pay with some of the company’s creditors. The Court stated that, given the great variety of commercial and corporate life, defining what it means to be “acting as a director” by reference to general principles will be unprofitable. Rather whether a person acts as a director “will often be a question of degree, and requires a consideration of the duties performed by that person in the context of the operations and circumstances of the particular company concerned”. Factors considered relevant by the Court included:
1.The size of the company – in a large and diversified company, great discretion to deal with significant matters may be given to employees;
2.The internal practices or structure of the company in that certain work given to an individual may be of such a type that it is more appropriate to classify that work as being undertaken by the individual in the capacity as an expert employee or consultant rather than as a director; and
3.The other person who it is claimed has acted as a director was reasonably perceived by outsiders who deal with the company.

The Court stated that a necessary condition of acting as a director, whether properly appointed or not, is that one exercises what might be called “top-level management functions”. On the facts of the case, Mr Austin exercised such functions and, according to the Court, had “the practical direction of the company”. In these circumstances, Mr Austin was held to be a de facto director.

In my view, it appears clear from the evidence that Mr Longordo was a, if not the, principal directing mind and a de facto director of Ezyfix. Ezyfix was a small commercial concern with relatively few staff and little need for delegation of management matters. The evidence strongly points to Mr Longordo being the person directing that the insurance proceeds be diverted from Ezyfix to Ezyrepairs and, thereupon, disbursing those funds as Ezyrepairs’ sole director to himself, Mrs Longordo and other unidentified recipients. He also conducted the most significant negotiations and communications with third parties on behalf of Ezyfix, such as meeting with leasing agents and landlords to secure a lease, communicating with the ATO in respect of payment obligations and dealing exclusively on its behalf with the insurance claim. He was the sole contact with the liquidator after Mr Martin was appointed. On the other hand, Mrs Longordo, who is the sole director of Ezyfix according to the extract of the ASIC records for it, appears from the evidence to have had only peripheral involvement in the affairs of Ezyfix, in particular at the time that the insurance proceeds were directed to Ezyrepairs, save that it is undisputed that she has received part of the proceeds of the insurance claim.

In his closing submissions, Mr Corrigan submitted that there was no evidence of any attempt by Mr Martin to locate and interview Mrs Longordo. I do not accept that submission. There is abundant evidence in Mr Martin’s affidavit of the concerted quest by him and his staff to make contact with Mrs Longordo with no success.

The evidence of the employees does not change my view in that regard. Mr Corrigan referred to the evidence given by the employees who were called that Mr Longordo was variously a manager, a floor supervisor, an employee on the floor, and a foreman. However, they worked with Mr Longordo on the factory floor and would have no knowledge of his activities in regard to Ezyfix’s affairs away from there. Mrs Longordo was not involved in the significant transactions mentioned and, as Mr Italiano stated, as a hairdresser she had no skills to bring to bear in the running of a company involved in caravan repairs. Further, although it is not necessary to make such a finding, I consider that the evidence about Mr Longordo’s role in Ezyfix is such that it is open to the Court to find that Mr Longordo was a shadow director of Ezyfix in that Mrs Longordo was accustomed to acting in accordance with his instructions or wishes in the sense that she stood aside and allowed Mr Longordo to conduct the affairs of Ezyfix without recourse to her.

My opinion in that regard is only confirmed by reference to the interviews conducted with Mr Hahnel, particularly the first one, which reveals in my view that Mr Longordo was certainly a, if not the only, directing mind of Ezyfix. His language, expressed in the first person, reveals in my view that he regarded the business as his.

I now turn to a consideration of whether Mr and Mrs Longordo breached their duties as directors of Ezyfix by reason of their involvement in the redirection of the proceeds of the insurance claim to Ezyrepairs.

Section 181 of the Act which is a civil penalty provision provides that:

(1)A director or other officer of a corporation must exercise their powers and discharge their duties:
(a)in good faith in the best interest of the corporation; and

(b)for a proper purpose.

In Austin, the operation of s 181 is discussed. The duties extend to directors and other officers of the company and are two distinct duties.[164]
[164]Ibid at [7.2].

Relevantly in the present context, the authors consider the question of the interests of creditors and observe that in recent years Australasian and English courts have developed an approach that, in discharging their duty to act in good faith in the interests of the company, directors must have regard to the interests of the company’s creditors, especially where the company is nearing insolvency. In this regard they observe that unsecured creditors have no proprietary interest in the company’s assets and they lack standing to interfere with the conduct of the company’s business aside from obtaining injunctions executing on a judgment or taking proceedings for liquidation. At [7.10] the authors observe:

In a line of cases beginning in the 1970s, courts have held that there may come a time in the life of a limited company when the directors have a duty to avoid acting contrary to the interest of creditors, even though unsecured creditors lack standing to interfere with the conduct of the company’s business and have other remedies under the Corporations Act: Walker v Winborne (1976) 137 CLR 1 at 7… They regard the duty to consider the interests of creditors as following from the enjoyment by members of limited liability and the inability of creditors to look beyond the assets of the company in most cases.
It is now clear that a duty to avoid action contrary to the interests of creditors exists where the company is insolvent or is nearing insolvency. …That the test is objective has been confirmed by the Court of Appeal of New South Wales in Linton v Telnet Pty Ltd (1999) 30 ACSR 465. … The Court of Appeal applied the test in Charterbridge Corp Ltd v Lloyds Bank Ltd [1970] Ch 62 at 74 … where Pennycuick J proposed the objective formulation that a decision of directors would be in breach of duty if an intelligent and honest person in the position of the directors could not have reasonably believe that the transaction was for the benefit of the company. … In Linton, the Court of Appeal proposed that the test in the context of the interests of creditors was whether an intelligent and honest person in the position of the directors could not have reasonably believed that the transaction (a loan) was for the benefit of the company, having in mind the interests of the company’s creditors.

The evidence indicates that, at the time of the diversion of the funds, the company was insolvent; significant sums were owed to the ATO which had served a statutory demand (which had not been complied with) and was in the process of commencing winding up proceedings. Further, there was no commercial reason or justification for the diversion of the funds. In this context, Mr Purton referred to the decision of Owen J in Bell Group v Westpac Banking Corporation (No 9)[165] in which Owen J reviewed the authorities dealing with s 181. Owen J observes that the duty is owed to the company, not to the shareholders. His Honour stated that:

It is, in my view, incorrect to read the phrases “acting in the best interests of the company” and “acting in the best interests of the shareholders” as if they meant exactly the same thing. To do so is to misconceive the true nature of the fiduciary duty between a director and the company. And it ignores the other range of other interests that might (again, depending on the circumstances of the company and the nature of the power to be exercised) legitimately be considered. On the other hand, it is almost axiomatic to say that the content of the duty may (and usually will) include a consideration of the interests of shareholders. But it does not follow that in determining the content of the duty to act in the interests of the company, the concerns of shareholders are the only ones to which attention need to be directed or that the legitimate interest of other groups can safely be ignored. … In my view the true state of the law is this. A director has a duty to act in the best interests of the company. The duty is owed to the company and not to any third parties (including creditors). But in an insolvency context (and I will narrow that concept shortly) the duty entails or includes an obligation on the directors to take into account the interests of creditors. Why should this be so? The answer is, as Mason J said in Walker, any failure by the directors to take into account the interests of creditors will have adverse consequences for the company as well as for the creditors. What are those consequences? They are many, but they include threats to the very existence of the company: to its ability to continue as a going concern.[166]

[165][2008] WASC 239. Note that Justice Owen’s decision was varied on appeal in Westpac Banking Corporation v The Bell Group Ltd (in liq) [2012] WASCA 157.

[166]At [4395] and [4418].

The relevant passage of Walker v Wimborne referred to by Owen J is contained in the decision of Mason CJ who observed:[167]

Indeed, the emphasis given by the primary judge to the circumstance that the group derived a benefit from the transaction tended to obscure the fundamental principles that each of the companies was a separate and independent legal entity, and that it was the duty of the directors of Asiatic to consult its interests and its interests alone in deciding whether payments should be made to other companies. In this respect it should be emphasized that the directors of a company in discharging their duty to the company must take account of the interest of its shareholders and its creditors. Any failure by the directors to take into account the interests of creditors will have adverse consequences for the company as well as for them. The creditor of a company, whether it be a member of a “group” of companies in the accepted sense of that term or not, must look to that company for payment. His interests may be prejudiced by the movement of funds between companies in the event that the companies become insolvent.

[167](1976) 137 CLR 1, 7.

It is useful at this point to summarize the chronological background. On 11 July 2014, Mr Longordo spoke to the ATO about the possibility of a payment plan for the outstanding tax owed. Mr Longordo admitted that this encounter occurred, and it is confirmed by the electronic diary maintained by the ATO. On 2 September 2014, the ATO served a garnishee notice on Ezyfix’s bank to recover the outstanding tax liability which was then approximately $160,000.00. Shortly after that, on 16 September 2014, Ezyrepairs was incorporated. On 19 January 2015, the fire occurred at the Campbellfield premises. In mid-February 2015, Ezyrepairs began trading the caravan repair business from the new premises at Merola Way, Campbellfield. On 18 February 2015, Vero accepted Ezyfix’s claim and the following day it paid the first tranche of the proceeds of the insurance claim into the insurance proceeds account held by Ezyrepairs, nominated in an email from Ezyfix’s email address. On 24 February 2015, the Ezyfix bank account was closed. The three payments of the proceeds of the insurance claim were made on 19 February, 19 March, and 26 May 2015. On 15 April 2015, the ATO served a statutory demand on Ezyfix which was not complied with and, on 4 June 2015, the ATO filed a winding up application against Ezyfix based on the non-compliance with the demand. The winding up order was made on 25 August 2015.

Mr Purton submitted that the interests of creditors were ignored when the diversion of the funds occurred and there was no evidence that Ezyfix received any commercial benefit at all; this left Ezyfix in a position where it could not pay its outstanding liabilities and indeed the company was ordered to be wound up in insolvency a short time afterwards.

As such, Mr Purton contended that there had been breaches of the directors’ duty provisions of the act of the Act, most obviously s 181 and I agree. Judged objectively the diversion of the proceeds of the insurance claim could in no way possibly be characterised as being in good faith nor in the best interests of Ezyfix nor for a conceivably proper purpose and Mr and Mrs Longordo both thereby committed breaches of s 181.

As has been observed, s 181 is a civil penalty provision under the Act. This triggers potential application of s 1317H of the Act which provides for compensation orders arising for damages suffered by a company as a consequence of the breach of the civil penalty provisions. Section 1317H(1) provides:

(1)A Court may order a person to compensate a corporation or registered scheme for damage suffered by the corporation or scheme if:
(a)the person has contravened a corporation/scheme civil penalty provision in relation to the corporation or scheme; and

(b) the damage resulted from the contravention.

The order must specify the amount of the compensation.
Note:An order may be made under this subsection whether or not a declaration of contravention has been made under section 1317E.

Mr Longordo’s involvement in the disbursal has been described above in some detail and I will not repeat it. Mrs Longordo was a director of Ezyfix at the time of the diversion of the proceeds of the insurance claim to Ezyrepairs and the evidence points to an awareness on her part of it occurring and indeed I am satisfied that on the balance of the evidence, she received part of such proceeds.

I consider that Mr and Mrs Longordo should be ordered to compensate Ezyfix pursuant to s 1317H and the quantum of that claim is the amount of the proceeds of the insurance claim plus interest.

(ii) The claim against Ezyrepairs

I now turn to the case against Ezyrepairs. Mr Purton contended that the transactions constituted by the diversion of the proceeds of the insurance claim were uncommercial and insolvent transactions and therefore voidable transactions under s 588FF of the Act.

Section 588FE(3) of the Act provides that a transaction is voidable if:

(a)it is an insolvent transaction, and is also an uncommercial transaction, of the company; and
(b)it was entered into, or an act was done for the purpose of giving effect to it, during the two years ending on the relation back day.

Section 588FB of the Act provides that a transaction of a company is an uncommercial transaction of the company if, only if, it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to:

(a) the benefits (if any) to the company of entering into the transaction;
(b) the detriment of the company entering into the transaction; and
(c)the respective benefits to the other parties to the transaction of entering into the transaction;
(d)any other relevant matter.

In regard to the application of this provision, Mr Purton referred to the decision of Gordon J (sitting as a judge of the Federal Court) in Capital Finance Australia v Tolcher[168] where her Honour summarised the key principles to be taken into account assessing whether a transaction is uncommercial. What follows is a summary of her Honour’s views at paragraph [129] of the judgment:
[168](2007) 245 ALR 528.

(a) section 588FB sets out an objective standard to determine if a transaction is uncommercial;

(b) four criteria are to be considered – the benefits enjoyed by the company, the detriments to the company, the respective benefits others received and any other relevant matters;

(c) the objective criteria not considered in some vacuum but by reference to ‘the company’s circumstances’ which must include the state of knowledge of those who were the directing mind of the company, such as its controlling director or directors; and

(d) for the transaction to be ‘uncommercial’ it must result in the recipient receiving a gift or obtaining a bargain of such magnitude that it cannot be explained by normal commercial practice or where the consideration lacks a ‘commercial quality’.

In Parker v Tucker[169] Gordon J, again sitting as a single judge of the Federal Court of Australia, considered that a scheme whereby the assets and business of a company were diverted from an existing company to a new entity constituted an uncommercial transaction.[170]
[169](2010) 77 ACSR 525.
[170]Ibid at [90]–[94].

In my view, the transactions constituted by the diversion of the proceeds of the insurance claim were clearly uncommercial transactions within the meaning of s 588FB. Ezyfix derived no benefit by the diversion of the funds indeed the effect was to deprive it of its remaining asset. Mr Longordo attempted to contend that the funds were used to discharge obligations to creditors of Ezyfix but there is no evidence that this occurred. Once the funds were diverted they were disbursed from the Ezyrepairs account to numerous payees, at least some of which were directed to fund the start-up costs for Ezyrepairs. The evidence as to any commerciality underlying the dispersal of the insurance proceeds is completely absent and Ezyfix derived no benefit. On the other hand Ezyrepairs and the ultimate beneficiaries of the funds provided no consideration for the payments they received. To adopt the phraseology of Gordon J, the diversion of the proceeds of the insurance claim resulted in Ezyrepairs and those others who received a benefit receiving a bargain of such magnitude it is inexplicable by normal commercial practice.

At this point I also observe that Mr Longordo, who was the sole director of Ezyrepairs and who I consider also acted as a de facto director of Ezyfix during this period, had knowledge of Ezyfix’s dire financial predicament at the time of the transactions, which occurred after the fire when the company had no assets other than the proceeds of the insurance claim and significant liabilities.

Section 588FC of the Act provides that a transaction is an insolvent transaction, if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company and:

(a) any of the following happens at a time the company is insolvent;

(viii) the transaction is entered into; or

(ix) an act is done, or omission is made, for the purpose of giving effect to the transaction; or

(b) the company becomes insolvent because of, or because of matters including:

(i) entering into the transaction; or

(ii) a person doing an act, or making an omission for the purpose of giving effect to the transaction.

Ezyfix owed the ATO a considerable sum for outstanding tax liabilities at the time of the each of the three transactions disbursing the proceeds of the insurance claims. The sole remaining asset of Ezyfix, the proceeds of the insurance claim, was transferred to Ezyrepairs. Ezyfix then had no means whatsoever to pay its creditors including the ATO. If the company was not insolvent immediately before the series of transactions it certainly became so after the funds were diverted.

Mr Purton also contended that the complete absence of any books and records on the part of Ezyfix gives rise to a presumption of insolvency under s 588E(4) of the Act. In his evidence, Mr Longordo contended that Ezyfix had external accountants. I am not satisfied that the failure to provide any financial records whatsoever of the company is because of the first fire. One would assume that those external accountants would have been in a position to provide some financial books and records or copies of them. As the evidence above indicates, despite numerous requests made of both Mr and Mrs Longordo, no such records were provided. Mr Longordo was not even able to provide information as to the disbursal of the proceeds of the insurance claim. In my view, because of the other evidence in regard to the insolvency and financial position of Ezyfix at the time of the transactions, the statutory presumption of insolvency arises by reason of Ezyfix’s failure to keep proper books. My primary finding of insolvency is however based on the evidence as to Ezyfix’s creditors at the time of the transactions, in particular the ATO, and the absence of any ability to meet such liabilities.

In relation to the claim against Ezyrepairs, I will make declarations that the transactions constituted by the diversion of the proceeds of the insurance claim were each uncommercial transactions and insolvent transactions pursuant to ss 588FB and 588FC respectively and therefore they are voidable pursuant to s 588FE(3). I will order that Ezyrepairs pay to Ezyfix an amount equal to the total of the transactions constituted by the disbursal of the proceeds of the insurance claim.

I will hear the parties on the question of costs and interest.

[56]Exhibit NM-20 to Mr Martin’s later affidavit.

Priority Creditors	Amount ($)	Supporting documentation
Deputy Commissioner of Taxation – Petitioning Creditor’s Costs	2,102.70	Court Order
Deputy Commissioner of Taxation – Superannuation	122,343.95	Proof of Debt
Total (minimum)	124,446.65
Unsecured Creditors	Amount ($)	Status of claim
Deputy Commissioner of Taxation – Income Tax	9,062.40	Proof of Debt
Deputy Commissioner of Taxation – Running Account Balance	256,692.09	Proof of Debt
NCE Pty Ltd	36,313.59	PPSR Questionnaire
Westpac Banking Corporation	Unknown	Letter
Energy Australia	5,178.04	Outstanding bill
Total (minimum)	307,246.12

[2018] VSC 343

22 June 2018