Re Kitchen Dimensions Pty Ltd (in liq)
[2011] VSC 637
•15 December 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2011 02400
IN THE MATTER OF KITCHEN DIMENSIONS PTY LTD (IN LIQUIDATION) ACN 064 819 450)
BETWEEN
| MARIO GIUDICE | Applicant |
| v | |
| CRAIG BOLWELL (as liquidator of Kitchen Dimensions Pty Ltd) (in liq) | Respondents |
| - and - | |
| KITCHEN DIMENSIONS PTY LTD (in liquidation) ACN 064 819 450 |
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JUDGE: | GARDINER AsJ | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 25 October, 16 November and 24 November 2011 | |
DATE OF JUDGMENT: | 15 December 2011 | |
CASE MAY BE CITED AS: | Re Kitchen Dimensions Pty Ltd (in liq) | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 637 | |
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CORPORATIONS– External administration – Application for termination of winding up under section 482(1) of Corporations Act 2001 – Finding that manner in which affairs of company were conducted was not conducive to commercial morality – Application dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr M Galvin | Blaak and Associates |
| For the Respondent | Mr P Montgomery | Velos Lawyers |
HIS HONOUR:
Introduction
On 15 June 2011, the Court ordered that the defendant, Kitchen Dimensions Pty Ltd (“the company”) be wound up in insolvency and appointed Craig Bolwell as liquidator.
By an interlocutory process filed 19 August 2011, Mario Giudice makes application that the winding up be terminated pursuant to s 482 of the Corporations Act2001 (Cth). Mr Giudice is a 50% shareholder in the company as well as being its sole director.
Mr Giudice is a cabinet maker and prior to being wound up, the company, which was incorporated in 1994, carried on such a business for some 17 years.
Mr Giudice has sworn five affidavits in support of the application on the following dates:
(i)19 August 2011;
(ii)23 September 2011;
(iii)24 October 2011;
(iv)15 November 2011;
(v)24 November 2011.
Mr Giudice’s wife, Cherise Giudice, who was a director of the company from 1994 until June 2010, has sworn two affidavits in support of the application on 23 September 2011 and 24 November 2011. An accountant engaged by Mr Giudice to assume responsibility in respect of preparation of the company’s accounts, Donald Perrett, has sworn two affidavits, sworn 23 November 2011 and 20 October 2011.
The liquidator, Mr Bolwell, opposes the application and has sworn several affidavits, dated 23 September 2011, 7 October 2011, 18 October 2011, 24 November 2011 and 29 November 2011. Mr Bolwell also relies on an affidavit of Samala Nancarrow sworn 11 November 2011 and Tamara Timachki sworn 22 November 2011.
Legal principles
Section 482 of the Act provides relevantly in the context of this application:
482(1) At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order.
482(1A) An application may be made by:
(a)in any case – a liquidator, or a creditor contributory, of the company; or
(b)…
(c)…
Mr Giudice makes his application as a contributory of the company.
The jurisdiction to terminate a winding up under s 482 is discretionary. There are no statutory criteria prescribed as to how such discretion should be exercised but in the West Australian case of Re Warbler Pty Ltd,[1] Master Lee QC provided a list of criteria which are of useful guidance and they are as follows:
[1](1982) 6 ACLR 526.
1.The granting of a stay is a discretionary matter, and there is a clear onus on the applicant to make out a positive case for a stay: In Re: Calgary and Edmonton Land Co Ltd (In liq) (1975) 1 WLR 355 at pp 358-359 per Megarry J. See also sec. 243 of the Act [i.e, Companies Act 1961].
2.There must be service of notice of the application for a stay on all creditors and contributories, and proof of this; Re South Barrule Slate Quarry Co (1869) 8 Eq 688; Re Bank of Queensland Ltd (1870) 2 QSCR 113.
3.The nature and extent of the creditors must be shown, and whether or not all debts have been or will be discharged: Krextile Holdings Pty Ltd v Widdows (supra) [[1974] VR 689]; Re Data Homes Pty Ltd (supra) [1971] 1 NSWLR 338], Law of Company Liquidation (supra) at p 395.
4.The attitude of creditors, contributories and the liquidator is a relevant consideration: sec. 243(1), Calgary and Edmonton Land Co Ltd (supra).
5.The current trading position and general solvency of the company should be demonstrated. Solvency is of significance when a stay of proceedings in the winding-up is sought: In re a Private Company(1935) NZLR 120; Re Mascot Home Furnishers Pty Ltd[1970] Vic Rp 78; (1970) VR 593 at p 598.
6.If there has been non-compliance by directors with their statutory duties as to the giving of information or furnishing a statement of affairs, a full explanation of the reasons and circumstances should be given: Re Telescriptor Syndicate Ltd (supra) [[1903] 2 Ch 174].
7.The general background and circumstances which led to the winding-up order should be explained: Krextile Holdings Pty Ltd v Widdows (supra).
8.The nature of the business carried on by the company should be demonstrated, and whether or not the conduct of the company was in any way contrary to ‘commercial morality’ or the ‘public interest’: Krextile Holdings Pty Ltd v Widdows (supra).”
In Re Skay Fashions Pty Ltd,[2] Tadgell J, in considering this type of application, stated at 746:
The considerations which ought to move the Court when assessing the merits of an application for the termination of a winding up are in general those that are applied, in the bankruptcy law, to an application to rescind a sequestration order. I refer to the well-known decision of Buckley J in Re Telescriptor Syndicate Limited [1903] 3 Ch 174 and particularly at 180. The Court will refuse to act simply upon the assent of creditors. Here some of the creditors of the company have said that they do not oppose the application; others have expressed no point of view and some of them, as I have indicated, have opposed the application.
The Court also has to consider whether the termination of the winding up will be conducive or detrimental to commercial morality and the interests of the public at large. It is a clear axiom that insolvent companies should be wound up and that they should stay in liquidation unless solvency can be demonstrated. If solvency could be demonstrated here, it would be no more than bare solvency. That is about as much as could ever be expected if an adjournment were allowed. The Court would if making an order to terminate a liquidation, probably, and in the ordinary course should, give directions for the resumption of management of control of the company by its officers. As I say, here I am given no information at all as to who might conduct the company’s affairs or how they might be conducted. For all one knows, they would be conducted in the same sloppy fashion as they have been conducted heretofor.
[2](1986) 10 ACLR 743.
In Metledge (t/a Metledge and Associates)vBarkit Pty Ltd (in liq),[3] Barrett J stated at [31]:
In any application under s 482 for an order terminating winding up, the onus is on the applicant to make out a positive case for termination: Re Calgary and Edmenton Land Co Limited [1975] 1 WLR 355 at pp 358, 359. Where the ground for winding up was insolvency, an indispensable part of the applicant’s task is to prove solvency. As a matter of public policy or commercial morality, the Court will not countenance the return of an insolvent company to the mainstream of commercial life: see, for example, Re Mascot Home Furnishers Pty Ltd [1970] VR 593; Re Denistone Real Estate Pty Ltd [1970] 3 NSWLR 327; Re Data Homes Pty Ltd [2971] 1 NSWLR 338. Upon an application of the present kind, as in the case of defence to a winding up summons where the presumption of insolvency operates, the party bearing the onus of proof must lead the “fullest and best” evidence of the financial position; Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 477.
[3][2005] NSWSC 160.
Ferguson J observed recently in Stoljar Joinery (Aust) Pty Ltd v Charterarm Investments Pty Ltd (in liq)[4]
… In this regard, where effectively the Court’s imprimatur is sought to permit a company to begin trading again, I do not think that it is acceptable to brush aside considerations such as the likely position of future creditors and persistent failures by the director of the company to comply with statutory obligations. This is particular so in circumstances where the company has been insolvent in the past and there is insufficient evidence to establish that it would be anything more than barely solvent were it to commence trading again. I accept that how the company has performed in the past is the best indicator of how it is likely to conduct itself in the future. In my view, if all the evidence is considered there is no doubt that it would be contrary to public interest and contrary to commercial morality to permit the company to resume trading.
[4][2011] VSC 577 at [49].
The circumstances leading up to the winding up order
The company commenced trading in June 1994 from a small factory in Dandenong. Over time the business expanded. At the time of its liquidation, it occupied a substantial premises at Hallam, Victoria which is leased from Obsidian Nominees Pty Ltd (“Obsidian”). Obsidian is a related company and is the corporate trustee of the Giudice Family Trust. Mr Giudice is the sole director of Obsidian.
The company manufactured kitchens, vanity units, laundry units, libraries, home theatres and wardrobes. Up until May 2011, the company employed several workers, including administrative staff, but immediately prior to the winding up order its only employees were Mr Giudice and an apprentice.
In November 2010, prior to the current proceeding which gave rise to its winding up, the plaintiffs issued an earlier winding up proceeding in this Court against the company based on non‑compliance with a statutory demand issued in September 2010. That statutory demand required payment of two judgment debts totalling approximately $29,000 obtained in the Magistrates’ Court at Dandenong on 13 August 2010. The judgments were entered as a result of the company’s failure to attend a pre‑hearing conference in relation to the Magistrates’ Court proceeding. The explanation for that non‑appearance by Mrs Giudice was that she was representing the company at the hearing of an unrelated matter at the Melbourne Magistrates’ Court on the same day and she says that she inadvertently failed to appear at the pre‑hearing conference.
Mr Giudice states that the company did not receive the September 2010 statutory demand, contending that it was sent to the incorrect address. There was no reaction to the demand and it was not complied with, giving rise to a presumption of insolvency under s 459C of the Act. Mr Giudice only became aware of the winding up application which was subsequently issued in November 2010 when Mrs Giudice was informed of it by a supplier. By that time it was too late to challenge the demand.
On 18 February 2011, following an adjournment of the winding up application from December 2010, the matter went before Efthim AsJ. The company filed material in opposition to that winding up application directed to its solvency. Mrs Giudice swore an affidavit on 17 February 2011 in opposition to that application. In that affidavit, Ms Giudice asserts that, as at 30 June 2009, the company had net assets of $1,105,264 and, at 30 June 2010, net assets of $959,184. Efthim AsJ apparently raised concerns at the hearing about the level of shareholders loans and interest payable to the Giudice Superannuation Fund, which issues were revealed in the accounts exhibited to her affidavit. Those accounts revealed that, as at 30 June 2009, there were unsecured loans to shareholders and the Giudice Family Trust totalling $883,756 and the company was said to owe $76,154 to the Giudice Family Superannuation Fund. As at 30 June 2010, the accounts revealed that the unsecured loans to the shareholders and the Giudice Family Trust had increased to $1,048,819 and the unsecured loan from the superannuation fund had increased to $358,655. The matter was stood down and terms of settlement were negotiated between the company and the plaintiff. Under those terms, the company was required to pay the plaintiff $37,000 by 24 February 2011.
The company failed to make the payment. Mr Giudice says that it was his wife’s responsibility to attend to that payment and that because of her failure to do so, the plaintiffs filed the winding up application (the proceeding in which the winding up order was obtained) relying on a fresh statutory demand served on 28 March 2011 demanding payment of the unpaid settlement sum.
The service of that demand was effected by personal delivery to the registered office of the company (which is at the company’s factory at 76‑78 Hallam South Road, Hallam). The process server handed the documents to Mrs Giudice. There was no reaction to it by the company, it thereby failed to comply with the demand and was presumed to be insolvent.
On 18 May 2011, the plaintiff filed the originating process pursuant to which the winding up order the subject of this proceeding was obtained. It was served on 24 May 2011. Again, the documentation was personally delivered by a process server who handed it to Mrs Giudice at the registered office.
Mr Giudice states that at the time of the service of the statutory demand and the winding up application, Mrs Giudice was suffering from personal problems and that she has no recollection of being served with the documentation. Mr Giudice states that he was engaged at the factory and left the day to day business management to his wife. He states that he was unaware that she was not coping at the time.
On 15 June 2011, the winding up application came on for hearing. There was no appearance by the company and the winding up order was made.
The evidence
In his first affidavit in support of this application, Mr Giudice deposed that trade creditors were only owed $26,814 in the winding up. Further, he expressed a belief that the company owed the Australian Taxation Office (“ATO”) “at least $154,696” but that Mr Perrett, the new accountant engaged by the company, anticipated that the total amount owed to the ATO would be of the order of $200,000. Mr Giudice contended that the company’s debtors totalled $163,181.80. The liquidator, Mr Bolwell, has deposed that the amount of recoverable debts was a much lower sum, $22,022.
In that affidavit, Mr Giudice describes the transaction by which the Giudice Superannuation Fund advanced funds to the company. He states that that transaction was implemented by Mrs Giudice to pay out a mortgage facility with the Commonwealth Bank which was secured over the family home and which was in default. Mr Giudice seeks to explain that while such funds went through the accounts of the company, this only took place in order that the funds could be then transferred into the Giudices’ personal account and then paid to the bank. Mr Giudice states by way of purported explanation that “without the use of these funds, I believe the Commonwealth Bank would have repossessed our home.” In a later affidavit, Mr Giudice reveals that the home loan was in the name of the company, that the company was the principal debtor under that facility, with guarantees being provided by Mr and Mrs Giudice in respect of the company’s liabilities.
It goes without saying that application of funds in a superannuation fund towards satisfaction of what are, in reality, personal debts is impermissible and is a serious breach of Commonwealth legislation regulating superannuation funds. Such funds have not been restored to the fund to this day. It appears not to have been a singular transaction. As I have noted, the 2009 draft accounts exhibited to Mrs Giudice’s affidavit in opposition to the earlier winding up application record an earlier unsecured loan from the Giudice Family Superannuation Fund of $76,154. That loan was apparently made in the 2009 financial year.
In her affidavit sworn 23 September 2011, Mrs Giudice seeks to explain the transaction involving the superannuation fund. She states that the day before she made the withdrawal a representative from the Sherriff’s office attended at the home and had given her an eviction notice. She states that the company was only involved because the only electronic banking arrangements in place were between the super fund and the company, so that she withdrew the funds from the super fund via the internet and transferred them to the company’s bank account and then proceeded to transfer the money from the company’s bank account on‑line to the Commonwealth Bank. She states that she did not appreciate what she was doing was unlawful. The transaction was sought to be explained away at the hearing of this matter as not being one involving the company as the money merely passed through the company’s accounts. That explanation is at odds with by the fact that the housing loan in question was in the name of the company which was the principal debtor in the transaction and the effect of the superannuation fund transaction was to discharge the company’s debt to the Bank to the extent of the payment. Even if the characterisation of the transaction which was put forward was accepted, those associated with the company were involved in a serious breach of the Commonwealth legislation concerned with protection of superannuation funds.
In the course of the hearing of this application, which took place over a number of days, it emerged that Mrs Giudice was made bankrupt by an order of the Federal Magistrates’ Court on 8 May 2007. It was not until 15 months later, on 27 August 2008, that Mrs Giudice filed a statement of affairs with her trustee. She was discharged from bankruptcy three years after the date of her filing her statement of affairs on 27 August 2011. For much of that time, she continued to act as a director of the company, only resigning as a director in June 2010, over three years after she was made bankrupt. In her affidavit sworn 17 February 2011, filed in opposition to the first winding up application, she described herself as the general manager of the company and this is confirmed by Mr Giudice’s characterisation of her role in his evidence. Approximately $900,000 is owed by way of shareholder’s loans according to the 2010 draft accounts but such loans are not mentioned in the RATA filed with her bankruptcy trustee. Mrs Giudice is noted as a shareholder of 50% of the issued shares in the ASIC records of the company.
In her affidavit of 24 November 2011, which was filed as a result of matters raised by me at one of the earlier hearings of this application, Mrs Giudice indicates that she believes there were only two creditors in her bankruptcy, the petitioning creditor, which was a firm of solicitors Tisher Liner and Co (which was said to be owed $2,500), and a credit card debt to the ANZ of $7,000. In her statement of affairs filed in her bankruptcy administration, she states that her bankruptcy arose by reason of a fee dispute with Tisher Liner. The bankruptcy of Mrs Giudice would presumably have the effect of discharging her from her obligation to repay amounts that she owed to the company for directors’ loans[5] (as well as vesting her shares in the company in her bankruptcy trustee).[6] The official trustee in bankruptcy has lodged a caveat on Mr and Mrs Giudice’s property at Harkaway on 8 September 2008, noting the Official Trustee’s interest in the property arising from Mrs Giudice’s bankruptcy.
[5]Section 153(1) Bankruptcy Act 1966.
[6]Section 58(1) Bankruptcy Act 1966.
Mrs Giudice states that as of the date of the affidavit the superannuation fund has not been reimbursed. She concludes her affidavit with an assertion that the debt owing to Cedar Corporation Pty Ltd has been discharged. In my view, it is not possible nor necessary to come to a conclusion in regard to that debt as I have determined to dismiss the termination application on the commercial morality ground.
Mr Giudice proposes that the company’s financial position be redeemed by a transaction by which the related company, Obsidian, gives a mortgage over its assets to a lender, Commercial Funding Services Pty Ltd to secure a facility of $1.19 million. He states that that facility will be used to pay the shareholders’ loans in full and the company will then have sufficient funds to pay its trade creditors and the ATO, together with liquidator’s fees and expenses. The transaction is not an equity injection by those associated with the company but is a loan by Obsidian to the company and would give rise to a liability in the company’s accounts for the amount of the advance.
The company’s accountant, Mr Perrett, states that he has re‑structured the directors’ loans so as to purportedly extend the repayment period of them to 20 years on the basis the loans would be secured by Mr and Mrs Giudice’s home at Harkaway. Of course, the situation is complicated by the fact that Ms Giudice’s interest in the property vested with her trustee in bankruptcy upon her bankruptcy, so one wonders how she could give such a mortgage. Mr Perrett also seeks to explain the transaction involving the loans from the superannuation fund. He states that the characterisation by the previous accountants as a loan from the superannuation fund to the company and then as a loan from the company to the shareholders is incorrect. He states the company has never benefited from or been advanced money from the superannuation fund. This is completely at odds with the evidence that the funds were applied to discharge a liability to the Commonwealth Bank for a home loan. The company was the principal debtor under that facility. It appears clear that the “directing minds” of the company have been involved in an unlawful transaction by which superannuation funds have been applied improperly in discharge of personal liabilities.
Mr Perrett reveals that he has prepared 11 outstanding BAS statements for the company going back to the period October to December 2008. He states that the treatment of BAS, GST and income tax liabilities in the financial statements which have been previously prepared for the company do not correctly record its financial position. Included amongst the reasons for this are that the company’s internal MYOB accounting system had not been properly managed and not all transactions had been properly entered, errors had been made in the recording of GST, various loans recorded as income and capital repayments as recorded expenses. As at the date of his first affidavit, Mr Perrett stated that the amount owing to the Deputy Commissioner of Taxation was $225,188. This amount was comprised of $196,000 or thereabouts for outstanding BAS liability and income tax, together with unpaid superannuation guarantee charges of $29,000. He states that the creditors of the company total $323,357, comprised of $98,168 owing to the trade creditors he identifies and $225,188 owing to the Australian Taxation Office.
Mr Perrett concludes his affidavit with an optimistic prognosis as to the company’s trading future if the winding up is terminated.
The liquidator’s evidence
In his affidavit of 7 October 2011, the liquidator, Mr Bolwell, contended that his investigations to date had revealed the debts owing to unsecured creditors totalled $270,932.25. Only one of those debts, owed to Cedar Corporation was disputed. The debt owing to the Australian Taxation Office was at that point recorded as $154,696.
Mr Bolwell states that the company has a loan with the Commonwealth Bank of Australia of approximately $219,000 which is secured by personal guarantees from Mr and Mrs Giudice, together with a mortgage over their residential property. It transpires from other affidavit material that despite it being in the name of the company this facility is in fact a housing loan.
In addition, the company is indebted to BMW Australia Finance Limited for $50,399.73 under a finance agreement which is secured by a chattel mortgage over a 2007 Audi motor vehicle.
Mr Bolwell refers to Mr Giudice’s contention in his affidavits that the company’s debtors total $163,181. He considers that a realistic and likely realisable value of the company’s debtors is considerably less, $22,022.90 and that based on Mr Bolwell’s investigations, Mr Giudice has overstated the realisable assets of the company.
He states that Mr Giudice had indicated to him on 17 June 2011, that he would not notify customers and suppliers of the liquidation “because it would cause problems for the company if and when it continued to trade.” Mr Bolwell states that on 21 June 2011, Mr and Mrs Giudice were in informed by him that all customers and suppliers must be informed that the company was in liquidation.
Mr Bolwell also states that he has been informed that the Australian Taxation Office is also investigating the company in respect of unpaid employees’ superannuation guarantee entitlements. This is consistent with the view of Mr Perrett that some $29,000 is outstanding in that regard.
Mr Bolwell confirms Mr Perrett’s revelation that the company had failed to lodge BAS and Instalment Activity statements with the ATO since late 2008 and that Mr Perrett has provided him with 11 BAS statements for the quarterly periods commencing 1 October 2008 to 30 June 2011. Those 11 BAS have been lodged with the ATO unsigned. Mr Perrett has advised Mr Bolwell that the estimated total tax liability will increase to $225,188.42 and Mr Bolwell also expects that penalties and charges will be exacted but this is yet to be confirmed by the ATO.
Mr Bolwell states that the search of the National Personal Insolvency Index conducted by him on 22 August 2011 confirmed that Mrs Giudice was declared a bankrupt on 8 May 2007 by the Federal Magistrates’ Court. She only resigned as a director on 2 June 2010 yet continued to act as manager of the company, conducting the day to day affairs of the company.
Mr Bolwell is concerned that the transaction involving the Guidice Superannuation Fund amounts to a contravention of Division 7A of the Income Tax Assessment Act and the civil penalty provisions of the Superannuation Industry (Supervision) Act 1993 when Mrs Giudice transferred funds.
Mr Bolwell states that since his call for informal proofs of debt to be lodged by creditors, he has been informed of various debts which were incurred by the company which were not disclosed in the Report as to Affairs which has been filed by Mr Giudice. Mr Bolwell states that he is concerned that Mr Giudice has failed to disclose all relevant matters to him and in this regard intends to lodge a report with the Australian Securities and Investments Commission pursuant to s 533 of the Corporations Act 2001. In a later affidavit, Mr Bolwell confirms that such a report had been lodged on 11 October 2011.
In conclusion, Mr Bolwell states that, based on his investigations, he believes that the company is insolvent and has been insolvent since at least 2009. He states his reasons for that belief as being as follows:
(a)there was a deficiency in net assets at the date of his appointment;
(b)as at June 2009 the company did not have sufficient assets to pay creditors as and when they fell due;
(c)the ratio of current assets to current liabilities is less than one (it is generally considered that a ratio of less than one is an indicator of insolvency);
(d)from 31 July 2010 to 15 June 2011 there was a high percentage of creditors comprising debts owed 90 plus days and thus the company was unable to pay its liabilities as and when they fell due;
(e)from January 2010 the bank accounts of the company were regularly overdrawn and cheques were dishonoured;
(f)the company did not pay its taxes within the statutory time limits;
(g)the Australian Taxation Office had had a garnishee order against the company’s bank accounts since February 2011;
(h)legal proceedings had been commenced by numerous creditors to recover outstanding debts; and
(i)a winding up application had been filed against the company by SP Kripps and RD Miller, the plaintiff in this proceeding (this is a reference to the winding up the subject of this proceeding).
In response, Mr Giudice stated, as I have referred to above, that the loan by the Commonwealth Bank of Australia to the company, in respect of which amounts of $219,000 remains owing, is in fact Mr and Mrs Giudice’s home loan. He says that at the time he applied for the loan, he was advised by his former accountants to apply for it in the company’s name despite the fact that the loan had nothing to do with the trading operations of the company. It is not said who made the interest payments for this loan. Mr Giudice says that attempts have been made to transfer the loan out of the name of the company but Mr Bolwell has not yet approved of this and it remains in the company’s name. As such, it is a liability of the company.
In his affidavit of 15 November 2011, Mr Giudice states that the debt said to be owing to Cedar Corporation for $15,750 has been paid, but Ms Dimachki, in her affidavit of 22 November 2011, says that this is not the case and she exhibits a series of documents supporting her evidence in that regard.
As to the loan by BMW Australia Finance Limited for $50,399.73 referred to by Mr Bolwell, Mr Giudice states that he has been personally making the loan repayments due to BMW since the winding up order. Mr Giudice states that the loan is secured. This might be so but it is without doubt a debt owing by the company which is required to be taken into account when assessing its liabilities. The RATA for the company appended documentation in respect of the BMW loan which notes that the residual payment under that contract is $44,000, payable on 31 January 2012. Evidence obtained by the liquidator suggests that the value of the vehicle which secures that loan is between $45,000 to $55,000 so that if it is sold it will only just meet the pay out liability for that loan.
Mr Giudice does not recall any discussions in the meeting with Mr Bolwell on 17 June 2011 in which Mr Bolwell directed him to inform the company’s customers and suppliers that the company was in liquidation but I accept what Mr Bolwell says in that regard as being a plausible account of what a liquidator would say to a director at a meeting in the early stages of a company liquidation. Mr Giudice exhibits letters to the company’s creditors but I note that these were only sent in late September 2011 and were written to effect service of the interlocutory process seeking termination of the liquidation. By that time, the liquidation had been underway for some three and a half months.
As to the failure to lodge BAS, Mr Giudice states that he relied heavily on his wife and his previous accountants to prepare and lodge these documents. He states that Mrs Giudice has informed him that until late 2009 she was unaware that she was prohibited from being a director of the company as a result of being made bankrupt. As to the criticisms made by Mr Bolwell that a number of the company’s creditors were not mentioned on the Report as to Affairs, Mr Giudice states that, “Not all of the debts owed by the company were known to me (or at all) at the time the RATA was completed. I attach to the RATA a copy of what I believe was a full list of the company’s creditors.” I consider that such explanation to be unconvincing and in any event as the company’s director, Mr Giudice was under an obligation to be aware of the extent and identity of the company’s creditors.
Mr Giudice disagrees with Mr Bolwell’s comments that the company failed to keep properly managed accounting systems, stating that it maintained an up to date MYOB system. He states that if this application is successful, Perrett and Associates will be primarily responsible for managing and maintaining the company’s accounts.
Mr Giudice disagrees that the company is insolvent. He states that while the cheque account may have occasionally been overdrawn, this was only “because payments for customers were deposited into the company’s business account and needed to be transferred across to offset against business expenses which were being paid out of the cheque account.”
As to the matters mentioned in paragraph 47(g) above, Mr Giudice is not able to explain how the ATO obtained a garnishee order against the company in February 2011. Mr Giudice says that the proceedings commenced against the company were commenced for non‑payment of invoices or debts. The company did not make these payments, either because the goods or services which were provided were defective or unsatisfactory.
In Mr Perrett’s second affidavit, he takes issue with Mr Bolwell’s assessment that the company is insolvent and has been so since June 2009. In this regard, he states that the liquidator has failed to take into account the director’s and related party loans as an asset of the company and that as of June 2009, the value of that asset was $1,008,046. As I have observed above, in the circumstances of Mrs Giudice being made bankrupt, prima facie the right to recover any debt owing by her is discharged by operation of s 154 of the Bankruptcy Act 1966, absent some special feature. Mr Perrett refers to the restructure of the director’s loan from a seven year unsecured loan to a 20 year secured loan. This subject was not addressed specifically in argument but one wonders whether such an arrangement would withstand any attack as to its commerciality mounted by the liquidator under Part 5.7B of the Act.
Mr Perrett states that it is his understanding that the company’s previous accountants have already lodged a contravention report in respect of the transfer of funds from the Giudice Superannuation Fund to the company with the ATO.
The views of creditors and other relevant matters
In a further affidavit of Mr Bolwell of 18 October 2011, he reported on the outcome of a meeting of creditors which was convened to seek the views of creditors in respect of this application. The representative of the Australian Taxation Office present stated that the Deputy Commissioner of Taxation considered that the liquidation of the company should continue by reason of the company’s numerous acts of non‑compliance with Commonwealth tax requirements prior to its liquidation. Mr Stephen Cripps, one of the plaintiffs in the winding-up application, stated that the liquidation of the company should continue. A similar view was expressed by Ms Dimachki of Cedar Corporation Pty Ltd.
Mr Bolwell states that the amount owing to the Australian Taxation Office was $252,687 and that as of 18 October 2011 he had received priority and unsecured creditors’ claims totalling $380,107. As such, he said, the creditors who attended the meeting accounted for 84% of the total value of claims and they considered that the liquidation should continue.
Mr Bolwell has reported the existence of the director’s loans to the Insolvency Trustee Service of Australia, which is trustee in bankruptcy of Mrs Giudice’s estate. Mr Bolwell states that in the course of reporting that loan he was told that Mrs Giudice had failed to disclose the debt to her bankruptcy trustee. I note that the director’s loans are not mentioned in her statement of affairs filed in her bankruptcy.
Mr Bolwell has sworn the other affidavits to which reference has been made above, but they have peripheral relevance to the reasons that I have decided to dismiss the application for termination of the winding-up.
Decision
I consider that Mr Giudice’s application should be dismissed. My primary reason for coming to this decision is based on a consideration of the manner in which the affairs of the company and those associated with it were conducted prior to it being wound up. To adopt the phraseology of Tadgell J, I consider that a termination of the winding up would not be conducive to commercial morality and the interests of the public at large. The circumstances leading up to and surrounding the making of the winding up order point to a delinquent attitude by those associated with the company in the management of its affairs, in its dealing with revenue authorities and its other creditors.
The evidence reveals that there has been serial disregard to compliance by the company with its obligations to file BAS statements. In addition, as detailed below, Mrs Giudice continued to act as a director of the company for several years after she had been made bankrupt. Further, the company was involved in a transaction by which moneys held in a self‑managed superannuation fund were applied in discharge of a debt owed in respect of a housing loan. Those moneys have not to this day been restored to that fund. I consider that these factors lead to the conclusion that the winding up of the company should not be terminated.
In addition, although it is not strictly necessary to determine the financial position of the company given my decision to dismiss the application on the commercial morality ground, I consider that the solvency of the company has not been established to a satisfactory degree.
A good deal of the time spent hearing this matter was occupied by explanations being provided by Mr Galvin, counsel for Mr Giudice as to aspects of the financial position of the company. The liquidator points to very substantial differences in the position as to the identity and quantum of the company’s creditors to that contended by Mr Giudice. In addition, there is a similar substantial difference in the position as to the recoverable debtors. The overwhelming proportion in value of creditors (some 88%), whose views were sought by the liquidator, were opposed to the making of orders terminating the winding up.
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