FEDERAL COURT OF AUSTRALIA Muscat, in the matter of Hanjem Pty Ltd v Mustafa [2015] FCA 358 Citation: Muscat, in the matter of Hanjem Pty Ltd v Mustafa [2015] FCA 358 Parties: EDWARD MUSCAT (IN HIS CAPACITY AS LIQUIDATOR OF HANJEM PTY LTD) v MUSTAFA MUSTAFA File number(s): VID 579 of 2014 Judge(s): DAVIES J Date of judgment: 10 April 2015 Catchwords: CORPORATIONS – whether certain payments were voidable transactions within the terms of s 588FE(2) of the Corporations Act 2001 (Cth) – whether payments were "unreasonable director-related transactions" within the terms of s 588FDA of the Corporations Act 2001 (Cth) – whether payments were "uncommercial transactions" within the terms of s 588FB of the Corporations Act 2001 (Cth) – whether defendant engaged in "insolvent trading" within the terms of s 588G of the Corporations Act 2001 (Cth) Legislation: Corporations Act 2001 (Cth) ss 588E, 588FA, 588FB, 588FDA, 588FE, 588FF, 588G, 588M Date of hearing: 10 April 2015 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 7 Counsel for the Plaintiff: Katerina Poulakis (Solicitor) Solicitor for the Plaintiff: Smith Leonard Fahey Lawyers Counsel for the Defendant: The Defendant did not appear. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 579 of 2014 IN THE MATTER OF HANJEM PTY LTD ACN 123 694 146 (IN LIQUIDATION) BETWEEN: EDWARD MUSCAT (IN HIS CAPACITY AS LIQUIDATOR OF HANJEM PTY LTD) Plaintiff AND: MUSTAFA MUSTAFA Defendant JUDGE: DAVIES J DATE OF ORDER: 10 APRIL 2015 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The defendant pay the sum of $328,006.53 to the plaintiff pursuant to s 588FF of the Corporations Act 2001 (Cth). 2. The defendant pay the plaintiff's costs of the proceeding including any reserved costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 579 of 2014 IN THE MATTER OF HANJEM PTY LTD ACN 123 694 146 (IN LIQUIDATION) BETWEEN: EDWARD MUSCAT (IN HIS CAPACITY AS LIQUIDATOR OF HANJEM PTY LTD) Plaintiff AND: MUSTAFA MUSTAFA Defendant JUDGE: DAVIES J DATE: 10 APRIL 2015 PLACE: MELBOURNE REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) 1 Section 588FF of the Corporations Act 2001 (Cth) ("the Act") confers on the Court the power to make orders about voidable transactions. Those orders relevantly include an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction. Pursuant to s 588M(2) of the Act, a liquidator may apply to recover from a director of a company who has contravened the insolvent trading provisions in s 588G an amount equal to the loss or damage suffered by the company as a result of the insolvent trading, as a debt due to the company. 2 In this case, Mr Muscat, the liquidator of Hanjem Pty Ltd ("the company"), seeks orders pursuant to ss 588FE(6A), 588FE(3) and 588M of the Act that the defendant, Mr Mustafa, pay him the sum of $328,006.53 as a debt due to the company. The application is supported by an affidavit sworn by Mr Muscat on 6 October 2014 and is not opposed by the defendant, who did not appear at the hearing or file any material in opposition to the application. 3 The relation-back day is 20 August 2013. Mr Muscat has identified a number of payments from the bank account of the company between the period 5 December 2012 and 4 January 2014 that appear to have been made to the defendant (or for his benefit) or to other unidentified recipients. Those payments total in all $328,006.53 in 541 transactions as follows: Transactions Number of Transactions Total Value $ Adelaide Bank Loan repayments 12 8,716.00 Perpetual 9 12,985.91 Cash Withdrawals 369 215,532.12 Transactions involving account 27632606 (M & N Transport (Vic) Pty Ltd) 151 90,772.50 Total 541 $328,006.53 4 The liquidator claims that the payments were "unreasonable director-related transactions" within the terms of s 588FDA of the Act, and/or "uncommercial transactions" within the terms of s 588FB of the Act and/or that the defendant engaged in "insolvent trading" within the terms of s 588G. In a detailed letter sent on 1 May 2014 the liquidator sought an explanation from the defendant as to the nature and purpose of the payments. No response was received to that letter. A further letter was sent on 22 May 2014 demanding payment of the amount of $328,006.53. Again, no response was received from the defendant. In the circumstances where the defendant had ample opportunity to put before the Court appropriate material setting out the nature and purpose of the transactions that would provide an explanation for the payments and/or provide a defence to the claims that are made against him, the Court may rely upon the material presented by the liquidator as providing sufficient evidence to support the orders sought. 5 I am satisfied on the basis of the contents of Mr Muscat's affidavit that the company was insolvent at the time that each of the payments was made. From the liquidator's review of the company's 2010, 2011 and 2012 tax returns and its bank statements for the period 5 December 2012 to 4 January 2014, the liquidator has formed the view that the company was insolvent from at least 30 June 2012. The liquidator has noted that: (a) the company had negative shareholder funds at 30 June 2010, 30 June 2011 and 30 June 2012; (b) the company has been unable to pay its debts as and when they fell due since 14 October 2011; (c) in the director's questionnaire, the defendant noted that creditors began pressing the company for payment from about 2010 and he first realised the company might have to go into liquidation "from [the] beginning"; (d) creditor invoices remained outstanding at the winding up date from at least 14 October 2011. (e) the Bank of Melbourne dishonoured payments from the company's bank accounts on 73 occasions between 11 December 2012 and 17 September 2013; (f) the company had negative working capital since at least 30 June 2010; (g) the company had taxable profit of $0 for the 12 month period ending 30 June 2012; and (h) the defendant had withdrawn financial support to the company from at least 5 December 2012, when the liquidator's analysis of the company bank account transactions commenced. In addition, Mr Muscat relies upon the presumption of insolvency under s 588E(4) of the Act by reason that the company failed to keep proper financial records from at least 30 June 2012. 6 I am also satisfied on the basis of the contents of Mr Muscat's affidavit that the payments the defendant had made to himself were either "unreasonable director-related transactions" within the terms of s 588FDA of the Act, and/or "uncommercial transactions" within the terms of s 588FB of the Act and/or that the defendant contravened s 588G in relation to the incurring of a debt by the company. The defendant was a director of the company at the times when each of the transactions occurred; the defendant was also the sole director and had been sole director since the company was incorporated on 31 January 2007, and the sole signatory on the company's accounts. It may reasonably be inferred, therefore, that the defendant knew, or ought to have known, at the time that he made the payments to himself that the company was insolvent. Having regard to those matters, and the absence of any apparent benefit to the company in making those payments to the defendant, it therefore may be concluded for the purposes of s 588FB and s 588FDA, that a reasonable person in the defendant's position would not have made the payments that he made to himself. It may also be concluded for the purposes of s 588G that the defendant had reasonable grounds for suspecting that the company was insolvent when the payments were made. 7 Accordingly, an order will be made in the terms sought that the defendant pay the plaintiff the sum of $328,006.53 as a debt due to the company. I shall also make an order that the defendant pay the plaintiff's costs of the proceeding, including all reserved costs. I certify that the preceding seven (7) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies. Associate: Dated: 10 April 2015