New South Wales Supreme Court CITATION : Condon & anor v Commissioner of Taxation; Condon v Holliday-Smith [2006] NSWSC 745 HEARING DATE(S) : 18 and 19 July 2006 JUDGMENT DATE : 19 July 2006 JURISDICTION : Equity Division JUDGMENT OF : Windeyer J at 1 DECISION : In matter 3747/03 judgment for the Commissioner of Taxation against Mr Holliday-Smith for $131,538.38. ; In matter 3852/03 judgment for the plaintiff against the first defendant for $569,699.97. CATCHWORDS : CORPORATIONS LAW - insolvent trading - claim against directors established - CORPORATIONS LAW - unfair preference - settlement of claim against Commissioner of Taxation - settlement of claim by Commissioner against one director under s588FGA of the Act - claim against other director order to indemnify Commissioner made - CORPORATIONS LAW - director - whether person not appointed as director is director within s9 of the Act as acting in the position of a director Schon Condon (First Plaintiff in both matters) Justinprint Australia Pty Ltd (In Liquidation) (Second Plaintiff in both matters) PARTIES : Commissioner of Taxation (Defendant in 3747 of 2003) Gary Alex Holliday-Smith (First Defendant in 3852 of 2003) Michael James Connor (Second Defendant in 3852 of 2003) FILE NUMBER(S) : SC 3747 of 2003; 3852 of 2003 R D Marshall (Plaintiffs) COUNSEL : P Rodionoff (Commissioner of Taxation) No Appearance (First Defendant in 3852 of 2003) No Appearance (Second defendant in 3852 of 2003) Gordon & Johnstone (Plaintiffs) SOLICITORS : ATO Solicitor (Commissioner of Taxation) No Appearance (First Defendant in 3852 of 2003) No Appearance (Second defendant in 3852 of 2003) - 3 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WINDEYER J WEDNESDAY 19 JULY 2006 3747/03 - SCHON CONDON & ORS v THE COMMISSIONER OF TAXATION 3852/03 - SCHON GREGORY CONDON & ORS v GARY ALEX HOLLIDAY-SMITH & ORS JUDGMENT 1 HIS HONOUR: In this matter, the court is hearing two matters at the same time. The first is a claim by Mr Condon, as liquidator of a company, Justinprint Australia Pty Ltd, against, in this case, the first defendant, Mr Holliday-Smith for insolvent trading. For that case to succeed, it is necessary first to establish the date upon which the company became insolvent and unable to pay its debts as they fell due and, secondly, that Mr Holliday-Smith was a director from that time until in this case the date the winding up order was made on 11 June 2002. 2 The evidence of the liquidator, in my view, clearly establishes insolvency at the date put forward, 7 September 2001. At that stage, the company did not have sufficient funds to pay its creditors. According to its accountant, Mr Clancy, had it ceased trading, it could not have paid its creditors, and all that it was able to do was to continue to trade, to some extent, using up what funds it had. It had been able to trade up to that date because the persons who had been previously in control of it had made available to it the necessary funds to enable it to trade. When that came to an end and those persons left the company, that source of funding was no longer available and there was no substitute source of funds available. I find insolvency as at that date. 3 The next question is whether Mr Holliday-Smith, the first defendant, was a director of the company as from that date. He was not formally appointed as a director. He is not registered as a director in the ASIC records. From 7 September 2001, the company was without appointed directors as both Mr Keighery and Mr Millett had resigned as directors. Mr Connor was not appointed as a director. Mr Clancy, who was the accountant of the company, said that in September 2001 Mr Holliday-Smith told him that both Keighery and Millett had resigned and that he was to report directly to him, Mr Holliday-Smith, on the financial affairs of the company. Thereafter, the evidence of Mr Clancy is that all management decisions and policy decisions were made by Mr Holliday-Smith. Mr Holliday-Smith was a signatory to the cheques. He signed, purporting to be a director, documents relating to factoring agreements entered into for the purposes of the company. He gave instructions to Mr Clancy, which, on their face, were clearly improper, to ensure that Justinprint Australia Pty Ltd was denuded of whatever funds it had by transferring them to another company in which he was interested. I find that he was a director within the meaning of the Corporations Act. 4 The claim for insolvent trading is for liabilities incurred from 7 September 2001 up to the date of appointment of the liquidator. The somewhat late evidence of Mr Kite establishes that the correct figure for those liabilities incurred between those dates is the sum of $484,880.98. From that, it is accepted there should be a deduction of $69,000 being an amount which Mr Connor has paid to the liquidator. This leaves a sum of $415,880.98. 5 Interest on that amount is claimed as from the date of appointment of Mr Condon as liquidator, namely, 11 June 2002, which has been calculated at $153,818.99. It follows that the plaintiffs are entitled to judgment against the first defendant for the sum of $569,699.97. I give judgment for the plaintiffs against the first defendant for $569,699.97 and costs. 6 In matter 3747/03, Mr Condon, as liquidator, sued the Commissioner of Taxation to recover moneys paid to the Commissioner by the company during the relation back period claiming those to be unfair preferences under the Corporations Act. I have just decided that the company was insolvent as from a date in September 2001 and the presumption is that such insolvency continued. Judgment has been entered in favour of the plaintiffs against the Commissioner for the sum of $75,000 together with interest on that sum from 22 July 2002 until 15 June 2004. The Commissioner seeks to recover from Mr Holliday-Smith, as respondent to an interlocutory application, the amounts paid by him, and seeks indemnity in respect of any loss or damage as a result of the order made in favour of the liquidator. I am satisfied that Mr Holliday-Smith had an opportunity to contest the question of insolvency and, in fact, it was he who sought an adjournment when the matter was previously listed for hearing. He has not appeared in these proceedings on the hearing yesterday or today. 7 As I have found on the question of insolvency in favour of the liquidator, and as there has been a judgment in favour of the liquidator against the Commissioner in respect of the claim for refund of the unfair preference payments, and as I have found that, although not appointed as a director, Mr Holliday-Smith was a director in accordance with the definition in the Corporations Act, it follows that the Commissioner is entitled to succeed on his claim in the interlocutory application filed on 18 May 2004 and I so find. 8 The evidence shows that the Commissioner of Taxation has paid to the liquidator the following amounts: (a) the preference claim of $75,000 paid on 15 June 2004; (b) interest on that amount in the sum of $12,850 paid on 17 January 2005; (c) agreed costs of $25,000. The Commissioner seeks recovery of those sums and in addition seeks interest on the amounts paid as from the date of payment. Those sums amount to $112,850. Interest on those sums comes to $18,688.38 up to today. This brings about a total of $131,538.38. 9 In addition to claiming judgment for that sum, the Commissioner claims that he is entitled to an order that Mr Holliday-Smith pay to him: (a) his costs of defending the liquidator's claim for recovery of the unfair preferences; (b) half his costs in connection with this interlocutory process up until 9 December 2004, that being the date upon which settlement was come to with Mr Connor; (c) the whole of the costs of the interlocutory process from 9 December 2004. I consider those are all costs for expenses or losses to which the Commissioner is entitled to be indemnified and I will make that order. 10 The orders as follows: Judgment for the Commissioner of Taxation against the second respondent, Gary Alex Holliday-Smith for $131,538.38. Order that in addition, the said second respondent pay the following: (a) the costs of the defendant Commissioner of defending the plaintiff's claim against him; (b) one half of the costs of the Commissioner in relation to this interlocutory process filed 10 May 2004 until 9 December 2004; (c) the costs of the Commissioner of the said interlocutory process from 9 December 2004. The exhibits can be returned. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.