Steven Naidenov trading as in his capacity as Liquidator of Tyres for Less Pty Ltd (in liquidation) v Unique Motor Group Pty Ltd

[2024] NSWDC 406

District Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Steven Naidenov trading as in his capacity as Liquidator of Tyres for Less Pty Ltd (in liquidation) and Anor v Unique Motor Group Pty Ltd [2024] NSWDC 406

Hearing dates:

19 August 2024

Date of orders:

19 August 2024

Decision date:

19 August 2024

Jurisdiction:

Civil

Before:

Newlinds SC DCJ

Decision:

(1)   Order the Defendant pay the first Plaintiff the sum of $43,155.73 inclusive of interest calculated at the Court rates up to today.

(2)   Order the Defendant pay the Company the sum of $411,521.44 again inclusive of interest up to today.

(3)   Order that the Defendant pay the Plaintiffs’ costs on the ordinary basis up to and including 8 March 2024, and thereafter on an indemnity basis.

Catchwords:

CORPORATIONS — Winding up — Claim by liquidator of company in liquidation for damages caused by alleged “insolvent transaction” being a “voidable” and “uncommercial” transaction entered into within 2 years of the “relation back date” – Evidence – Proof of insolvency – Claim for interest – Claim for outstanding debt - Proof

Legislation Cited:

Corporations Act 2001 (Cth) s 588FE; s 436A; s 588FB; s 588FC; s 286; s 588FF

Category:

Principal judgment

Parties:

Steven Naidenov, trading as in his capacity as Liquidator of Tyres for Less Pty Ltd (in liquidation) (First Plaintiff)
Tyres For Less (in liquidation) (Second Plaintiff)

Unique Motor Group Pty Ltd (Defendant)

Representation:

Counsel:
W Doble (Plaintiff)
J Tomaras (Defendant)

Solicitors:
Gadens Lawyers (Plaintiff)
Acme Consulting (Defendant)

File Number(s):

2022/161564

Publication restriction:

Nil

JUDGMENT; Ex tempore

1. This is a claim by the first Plaintiff (“the Liquidator”), who is the Liquidator of the Company (Tyres for Less Pty Limited (in liquidation)) (“the Company”) against the Defendant.

2. The Plaintiffs’ claim is for two separate and distinct causes of action. The first, by the Liquidator, is for an amount said to be a voidable transaction pursuant to s 588FE of the Corporations Act 2001 (Cth) (“Corporations Act”) amounting to approximately $43,000 inclusive of interest, and the second cause of action, by the Company, is for an alleged unpaid loan between the Company and the Defendant which amounts to approximately $411,000 inclusive of interest.

3. Dealing with each claim in turn.

4. Dealing with the Liquidator’s claim, the Company was the subject of a winding up application filed in the Supreme Court of Queensland on 4 June 2019

5. On 9 July 2019 the Liquidator and another were appointed joint and several administrators of the Company pursuant to s 436A of the Corporations Act.

6. For the purpose of timing, by reference to s 588FE, the relevant “relation back date” for the purpose of the Liquidator’s claim is that found in s 588FE(3) being that the transaction in question was entered into or given effect to during the two years prior to the “relation back date”, being the relation-back period.

7. The relation back period for the purpose of this application commenced on 4 June 2019, which means the two-year period extends back to approximately 4 June 2017.

8. The relevant transactions sought to be impugned by the Liquidator occurred on 5 November 2018 when the Company transferred to the Defendant two motor vehicles purportedly, according to the registration transfer forms, for valuable consideration.

9. The two vehicles were a Toyota HiLux, and the recorded sale value was $10,000, and a Hino Dutro, the recorded sale value being $8,000.

10. The Liquidator has proved to my satisfaction that his review of the books and records of the Company demonstrates no evidence, other than the purported amounts on the transfer documents, of any consideration being paid by the Defendant to the Company in any way, shape or form, whether it be by way of a money payment into the bank account of the Company or by some sort of setoff entered by an accounting entry on any running account between the parties.

11. Accordingly, I am satisfied that there was no consideration in fact paid by the Defendant to the Company for the motor vehicles and that the motor vehicles were transferred from the Company to the Defendant.

12. Returning then to the statutory basis of the claim it is necessary for the Plaintiff to prove that the transaction (i.e., the transfer of the vehicles) was an “uncommercial transaction” as that phrase is defined in s 588FB of the Corporations Act, viz;

“that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to the benefits (if any) to the company of entering into the transaction; and the detriment to the company of entering into the transaction; and the respective benefits to other parties of the transaction and any other relevant matters”

13. It seems to me axiomatic that, upon a finding that vehicles of value were transferred out of the ownership of the Company for no consideration, absent any other evidence, that transfer confers no benefit at all on the Company and significant detriment, being the obvious diminution to the overall assets of the Company, and that no reasonable person in the circumstances insofar as I am aware of them would have entered into such a transaction.

14. Accordingly, I am satisfied that the transactions the subject of the claim fall within the definition of uncommercial transactions in s 588FB.

15. The third matter that the Plaintiff needs to prove is that the transactions were “insolvent transactions” as that concept is defined in s 588FC of the Corporations Act, part of which, of course, is that the transaction was an uncommercial transaction, which I have already concluded that it was. In addition to the transaction being an uncommercial transaction the Plaintiff needs to prove that at the time the transaction was entered into or was given effect to the Company was either insolvent, or by virtue of the very transaction itself, became insolvent.

16. On behalf of the Liquidator, there has been tendered the Liquidator’s report to creditors, which is a detailed, comprehensive, and if I may say so, very professional document. However, in the way it is expressed, if the matter was the subject of contest, it would probably be given limited weight, because the Liquidator did not prepare the report for use in litigation. Rather, he prepared it in accordance with his statutory obligations to report his findings to creditors. What that means is that I would not allow it as evidence before me of his opinion, but it remains a business record of the Liquidator. The very reason that it is not in particular admissible form as evidence is because it was not prepared in contemplation for litigation but was prepared for a different purpose.

17. The report is prepared in such a way that it sets out a series of objective facts, albeit without putting before me the source materials. Those facts clearly show that the Company was most certainly not paying its debts as and when they fell due for a significant period prior to the date of the relevant transaction and, by way of inference, obviously was not paying its debts as and when they fell due because it could not pay its debts as and when they fell due.

18. I include as examples of some of those objective facts that the aged payable listing of the Company indicates that many creditors were unpaid outside agreed trading terms from at least 1 August 2018, that from 2 May 2019 the Company’s records indicate dishonoured payments and reversal of debits, that the Company had negotiated two payment arrangements with the Australian Taxation Office (ATO) between 9 and 11 March 2018 and 3 April 2019 and then failed to meet its promises made pursuant to those arrangements. From that evidence I infer that the ATO was satisfied at the relevant times that the Company was unable to pay its debts to the ATO in full and, from the fact that the Company failed to meet those arrangements, that state of affairs continued.

19. Returning then to the list of objective facts, there is also before me evidence that, between 18 July 2018 and 8 July 2019, the Company received numerous legal demands for payment, and that from 2 May 2019 the Company made a number of “round sum” payments to various creditors, which supports an inferential finding that they were not payments in full of invoices, which again is consistent with an inability to pay debts as and when they fell due. Finally, the evidence of the Liquidator is that the Company was unable to produce timely and accurate financial information of a standard which he believes was required under s 286 of the Corporations Act.

20. In addition to all of that, I have failed to mention that the Defendant was a related corporation of the Company and therefore, I think, absent any explanation from the Defendant there is an inference available from the transactions themselves to the effect that the Company was in dire financial straits because, as I have said, no reasonable director of a company would start giving away valuable assets unless they thought there was a good reason to do that, a reason may well be a conscious understanding by the director that the company was about to go into some form of solvency regime.

21. For all those reasons, I am satisfied that the Company was insolvent at the time of the transfer, and therefore the transactions were “insolvent transactions” and that the definition in s 588FC has been satisfied.

22. I therefore conclude that the three elements necessary to prove that the transactions were voidable transactions under 588FE have been satisfied, which then engages the power of the Court to make an order under s 588FF about those transactions. Even though s 588FF is couched in terms of “the Court may make one or more of the following orders”, my understanding of the authorities is that that “may” does not engage some sort of broad discretion that would allow the Court to not make any orders at all. Rather, it directs the Court to making a choice between what the Court considers to be the most appropriate order in all the circumstances of a particular case.

23. In this case the Liquidator has sought an order, under subs (c) of s 588FF, requiring the Defendant Company to pay the amount of the market value of the vehicles at the time of the transfer which the Liquidator has proved to me, plus interest from the date of the demand. There is an interesting question in this line of cases as to whether interest ought run at all in light of the fact that the actual legal obligation to pay any money at all by a Defendant to a Liquidator in this sort of case only arises when a Court makes an order under s 588FF. However, I think the answer is if subs (c) is engaged the Court can adjust the amount payable by way of monetary compensation so that it fairly represents some of the benefits that the Defendant has received. If the Defendant has received the benefit of valuable assets at a point in time, then a way of adjusting or paying for that benefit, a way of valuing that benefit, can be by way of an order for interest.

24. The Liquidator seeks an order for interest from the date of what is described as the third demand in the material, and I am prepared to make an order to that effect, which means that in relation to the Corporations Act part of the claim, inclusive of interest calculated up to today in the schedule of amounts claimed handed up by the Plaintiff, which became MFI 1, I would order an amount of $43,155.73 to be paid by the Defendant, I think, to the Liquidator.

25. Turning then to the loan claim, the facts are simple.

26. Within the books and records of the Company, there is evidence that there was a running account type loan arrangement between the Company and the Defendant.

27. The Liquidator has undertaken a careful investigation of the bank statements of the Company and conducted a reconciliation of those amounts, and has concluded that there is an amount outstanding on that loan, inclusive of interest calculated at the Court rates, at $411,521.44.

28. I should say that the way the pleadings were structured in this case the Defendant’s position in relation to the loan part of the claim was to not admit all of the claim and to only have one positive defence, which was to the effect that some or all of the alleged loan had been repaid by way of what was described as “offsetting payments”.

29. The Liquidator has proved to my satisfaction that there is no material at all within the books and records of the Company consistent with any such offsetting amount, and that absence of evidence is, to my mind, proof of the negative. That is, that there was no offsetting account. More to the point, there is no evidence at all of such an offsetting claim and the evidentiary onus, at least, is on the Defendant to make good that allegation.

30. I should say at this stage that the Defendant company has been represented by Mr Tomaras, solicitor at all times leading up to this hearing, but this morning he appeared before me and sought leave to file a notice of ceasing to act upon the basis that whilst his client had knowledge of the hearing today his client had not participated or cooperated in the preparation for hearing, and although I rejected his application to file a notice of ceasing to act, and Mr Tomaras voluntarily, I think more as a courtesy to the Court than anything else, chose to remain in court, but proffered no submissions, nor tendered any evidence, in answer to the Plaintiffs’ claim. As things stand, he really did not have any proper instructions from his client other than, I suppose, to maintain the position in the defences.

31. My point being that the Defendant had every opportunity in the lead up to this matter to put positive evidence before the Court, firstly, explaining the circumstances under which the what I have found to be uncommercial transactions took place and chose not to do that, and secondly, to prove, if it was capable of proof, that there had been a payment on the loan account by way of some sort of offsetting payment.

32. I think in those circumstances, I am entitled to infer that there was no evidence on either of those topics that the Defendant could have put before the Court that assisted the Defendant’s case. That is not to say that I approach the matter by reversing the onus of proof. But, in circumstances where I am satisfied that the Plaintiff has proved the matters I have identified, I am more confident in coming to those conclusions by the absence of any contrary evidence being put forward by the Defendant.

33. In conclusion, what that means is I am satisfied, inclusive of interest, that the Liquidator is entitled to a judgment of $43,155.73 and the Company entitled to a judgment of $411,521.44. I think because the cause of action for the voidable transactions is at the suit of the Liquidator I should enter separate and different judgments in favour of each Plaintiff.

• NB: An application for indemnity costs was made and a letter tendered.

34. The orders are:

1. Order the Defendant pay the first Plaintiff the sum of $43,155.73 inclusive of interest calculated at the Court rates up to today.

2. Order the Defendant pay the Company the sum of $411,521.44 again inclusive of interest up to today.

3. Order that the Defendant pay the Plaintiffs’ costs on the ordinary basis up to and including 8 March 2024, and thereafter on an indemnity basis.

**********

Amendments

10 September 2024 - Change in coversheet details

Decision last updated: 10 September 2024