Warranted Financial Solutions Pty Ltd v Horton (2)

[2011] VCC 3

IN THE COUNTY COURT OF VICTORIA Revised

(Not) Restricted

AT MELBOURNE
COMMERCIAL LIST

GENERAL DIVISION

Case No. CI-09-04351

WARRANTED FINANCIAL SOLUTIONS PTY LTD	Plaintiff
v.
STEVEN LESLIE HORTON	Defendant

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JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	18 January 2011
DATE OF JUDGMENT:	18 January 2011 (Revised 19 January 2011
CASE MAY BE CITED AS:	Warranted Financial Solutions Pty Ltd v. Horton (2)
MEDIUM NEUTRAL CITATION:	[2011] VCC 0003

REASONS FOR JUDGMENT

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Catchwords:  Company in liquidation – Recovery action for balance of director’s loan account – Set off claimed by director for “management fees” to compensate him for his services to the company over many years – No evidence to substantiate director’s set off claim.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J. Kohn	Gadens Lawyers
For the Defendant	In person
HIS HONOUR:

1           The company, Zero Bond Financial Services Pty Ltd was incorporated in 1984. The defendant, Mr Steven Horton, was the sole director. In 2004, the name of the company was changed to Warranted Financial Solutions Pty Ltd.

2           The company went into liquidation by order of the Supreme Court on 11 February 2009. At that time, the defendant was the sole director and shareholder of the company. He filed a report as to the affairs of the company, which he signed and certified as true to the best of his knowledge and belief on 5 March 2009. Mr Horton verified the report by a separate document signed by him on the same day.

3           Schedule B of the report, under the heading “Sundry Debtors (Including Loan Debtors)” included himself as a debtor, owing $355,522.16, noting the debt as “subject to any claim by debtor as employee of the company”. Schedule E to the

report, headed “Claims by Employees”, was left blank and Mr Horton did not include
himself in the various schedules recording the creditors of the company.

4           In the proceeding, the liquidator of the company seeks payment by the defendant of the admitted debt of $355,522.12.

5           In the defence filed on the defendant’s behalf by his solicitors on 19 November 2009, it is pleaded in paragraph 17 that:

“From in or about July 2002, the defendant and plaintiff agreed that the

defendant would be entitled to be paid a market rate for:

a.	the provision of managerial services provided by the defendant to the plaintiff; and
b.	the provision by the defendant of his personal name and wealth as a guarantor on behalf of clients of the plaintiff from which the plaintiff earned its revenue; and
c.	in return, the plaintiff made payments at the direction of the defendant in consideration of his services”.

6           The defendant further pleads that as a result of this agreement, “he is entitled to set off against the advances made by the plaintiff to the defendant unreconciled amounts owing to him at the time of the liquidation of the plaintiff” or, alternatively, the plaintiff should not succeed because to do so would unjustly enrich the plaintiff unless allowance were made for “a fair and just restitution to the defendant for the benefit derived by the company”.

7           The liquidator, Mr Matthew Muldoon, has given evidence in support of the company’s case and produced documents which were provided to him as liquidator by the defendant or by the company’s accountant, Mr Prior. The documents provided to the liquidator include the general ledger for the period 1 July 2008 to 11 February 2009 in respect of the loan to the defendant. This records an opening balance as at 1 July 2008 of $680,600.26 and, during the period covered by the ledger, additional payments for the benefit of the defendant, totalling $254,069.86 and credits to the loan account totalling $579,148, leaving a balance as at the date of the liquidation of the company in the defendant’s loan account of $355,522.12.

8           The opening balance of $680,600.26 is further detailed in a screen-print from accounting records in a computer program, MYOB Accounting, which show the monthly balances in the defendant’s loan account. The record indicates that in July 2007 the balance of the account was -$5,699.30. The entries in the defendant’s loan account ledger can be verified by reference to bank statements of the company, which are in evidence for the relevant period. The balance sheet of the company as at the date of liquidation confirms that there was a loan to the defendant included as an asset in the sum of $355,522.12.

9           The documents provided to the liquidator include a tax invoice dated 30 June 2007 from Wooddale Investments Pty Ltd to the company for “management fee for year ended 30 June 2007” for an amount of $230,000, which, together with GST, brings the total amount of the invoice to $253,000. Wooddale Investments Pty Ltd is a

company of which the defendant is also the sole director and shareholder.

10         The balance of the loan account claimed by the plaintiff from the defendant relates to transactions between 1 August 2007 and the date of liquidation in February 2009. There does not appear to be any further documentation which relates to any relevant management fees or salary payable to the defendant or one of his companies for that period. Financial statements for the company provided to the liquidator show, in respect of the financial year ended 30 June 2006, commissions paid during the year, totalling $257,862.46 and consultancy fees of $12,658.65. For the following year, the profit and loss statement records as an expense, management fees of $232,000.

11         Copies of the defendant’s tax returns for the years 1990 to 2009 are in evidence. For the years 2006 and 2007, the returns show that the main salary of the defendant came from his occupation as company director and details his employer as Wooddale Pty Ltd. There is no similar entry at all in the tax return for the year 2008. In that year, the defendant’s tax return shows dividend income from the plaintiff of $37,500. It does not show any salary or other income from the company. The return was signed by the defendant on 4 July 2010.

12         Mr Muldoon gave evidence that, from his knowledge of the documents provided to him by the defendant and by Mr Prior, there were no documents evidencing an employment or management agreement between the company and the defendant, or recording the performance of management services by the defendant for the company, or recording the defendant’s entitlement to set off amounts against his loan account and there were no resolutions of the company in relation to the payment of management fees to the defendant.

13         The defendant, Mr Horton, did not give evidence in the proceeding. Accordingly, there is no evidence before me to support the positive allegations made by him in the defence. These allegations must fail, and accordingly, the plaintiff is entitled to succeed upon its claim for repayment of the amount recorded in the loan account of $355,522.12. I will enter judgment for the plaintiff against the defendant in respect of that sum.

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Certificate

I certify that these 3 pages are a true copy of the reasons for decision of His Honour Judge

Anderson delivered on 18 January 2011 and revised on 19 January 2011.

Dated: 19 January 2011

Caroline Dawes

Associate to His Honour Judge Anderson