Mark Damian Charles Roufeil & 1 Or v Noel Linder & 1 Or [2007] NSWSC 489

New South Wales Supreme Court

CITATION : Mark Damian Charles Roufeil & 1 Or v Noel Linder & 1 Or [2007] NSWSC 489

HEARING DATE(S) : 10/5/07

JUDGMENT DATE : 10 May 2007

JURISDICTION : Equity Division Corporations List

JUDGMENT OF : White J

EX TEMPORE JUDGMENT DATE : 10 May 2007

DECISION : 1. Give verdict and judgment for the plaintiffs against the first defendant in the amount of $1,417,698.20; 2. order that the first defendant pay the plaintiffs' costs of the proceedings including any reserved costs.

CATCHWORDS : CORPORATIONS - Directors - Insolvent trading - Compensation orders. - (Cth) Corporaitons Act 2001, s 588G

LEGISLATION CITED : Corporations Act 2001 (Cth)

Mark Damian Charles Roufeil & 1 Or PARTIES : v Noel Linder & 1 Or

FILE NUMBER(S) : SC 1424/06

COUNSEL : Plaintiffs: S Golledge Defendants: N/A

Plaintiff: The Argyle Partnership SOLICITORS : 1st Defendant: N/A 2nd Defendant: Hunt & Hunt

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

WHITE J

Thursday, 10 May 2007

1424/06 Mark Damian Charles Roufeil & 1 Or v Noel Linder & 1 Or JUDGMENT 1 HIS HONOUR: This is an application by the liquidator of Easter Logistics Pty Limited (in liquidation) to recover from a director of that company as a debt due to that company an amount equal to loss suffered by creditors of the company as a result of its having traded whilst insolvent. 2 There are two defendants to the proceedings. The claim against the second defendant, Mr Kenneth Easter, has been settled. The first defendant, Mr Noel Linder, was represented by solicitors in the proceedings until the solicitors were given leave to cease acting on 29 January 2007. 3 I am satisfied that the first defendant has notice of the hearing. He did not appear when the matter was called. Correspondence has been tendered from the solicitors who were formerly acting for him in the proceedings to the liquidator's solicitors. They advise that the first defendant did not propose to defend the proceedings and that the liquidator's solicitors were at liberty to inform the court of their client's position and to hand up a copy of their letter advising of that matter. 4 The company was ordered to be wound up on 28 February 2002. As at that date, the company had ceased to conduct any business. The liquidator has concluded from his investigations that from no later than 1 February 2001, the company was insolvent. 5 It acquired the business of a company called Macksville Haulage Pty Limited (formerly called KS Easter (Junior) Hauliers Pty Limited) with effect from about 1 November 2000. It may be that the business was effectively acquired earlier than that. The transaction was an extraordinary one. Macksville Haulage Pty Limited sold its plant and equipment, its receivables, its business records, its goodwill and anything else which formed part of the business of interstate transport carried on or previously carried on. The consideration for the acquisition was the agreement of the purchaser to assume responsibility for payment of the vendor's liabilities to employees and its trade creditors and sub-contractors who were owed money in connection with the business as at 1 November 2000. Other liabilities, including tax liabilities, were not assumed by the purchaser. 6 So far as appears, the vendor would have been left as a shell with no or negligible assets, but with liabilities to the Deputy Commissioner of Taxation which had been assessed as being in the order of $500,000 in respect of group tax and prescribed payments tax. A report from an accountant in February 2001 said that these debts had gone back to 1999 and that the Australian Taxation Office had rejected the vendor's proposal to repay the debts over time. 7 For the purposes of the present application, the relevant aspect of that transaction is that the value of the liabilities which the company assumed exceeded by up to $370,000 the value of the assets acquired. The vendor and the purchaser had at least one common director. 8 From the beginning, the company failed to meet its tax liabilities. It never completed business activity statements. At the date of liquidation, the company owed the Deputy Commissioner of Taxation $654,674 in respect of unremitted GST liabilities and PAYG tax instalment deductions which were deducted from employees' salaries but not remitted to the Australian Taxation Office. 9 By February 2001, the company was behind in its rental payments. It remained behind. The company failed to meet its obligations under motor vehicle leases and hire purchase agreements in relation to vehicles used in its transport business. From 1 February 2001, its account balance with its bank fluctuated between debit and credit balances. At no time did it have sufficient funds to meet its taxation liabilities. As at 1 February 2001, its tax debt was $115,383 and it was in overdraft. As at February 2001, the tax debt at all times exceeded the balance in its bank account by more than $100,000. The position grew inexorably worse as the months proceeded. 10 I am satisfied that the company was at all times insolvent from 1 February 2001. I am also satisfied that its insolvency was known to the first defendant. I can infer from the correspondence with the first defendant relating to outstanding rental obligations that he was aware in February 2001 that the company did not have funds to meet its liability to make lease payments. I can infer that he, at all times, knew that the company had not lodged its business activity statements and had not paid its tax liabilities. 11 In the course of the examinations conducted by the liquidator, the first defendant, when asked why tax was not paid, said "We chose not to pay the tax". There were clearly reasonable grounds for suspecting that the company was insolvent. 12 The requirements of sub s 588G(1) are all satisfied. No defence was pleaded under s 588H of the Corporations Act 2001 (Cth). 13 In the statement of claim the plaintiffs claim compensation pursuant to s 588M in the amount of $1,123,033. The plaintiffs do not press their claim for recovery of that amount of compensation. 14 Further analysis of the directors' report as to the affairs and of the proofs of debts, involving a further analysis of the ageing of the company's debts, establishes that debts totalling $963,738 were incurred from 1 February 2001 until the company was wound up. 15 In my view, interest is payable on that amount from the commencement of the winding up. Interest at the prescribed rates totals $453,960.20. 16 Accordingly, I give verdict and judgment for the plaintiffs against the first defendant in the amount of $1,417,698.20. I order that the first defendant pay the plaintiffs' costs of the proceedings including any reserved costs. 17 At this stage I will not make any order for the return of the exhibits. 18 The transactions disclosed on the application are of great concern. After acquiring the business of Macksville Haulage Pty Limited in effect on 1 November 2000, according to the directors, the business of the company was transferred to another company called Easter Group Pty Limited in October 2001. Again, it was claimed that the transfer of the company's business and assets was made on the basis that the purchaser would assume liability for its trade debts. There seems to have been a pattern of conduct by the officers concerned of ignoring the taxation liabilities of companies conducting the businesses, of transferring the company's assets and business to a new shell, which would pay key trade creditors, and leaving behind a company without assets to meet its other liabilities. 19 I am sure that the liquidator has made all appropriate reports to the Australian Securities and Investments Commission in relation to that conduct. 20 I am concerned, however, as to what appears to be the involvement of well known firms of accountants and solicitors in the transaction between Macksville Haulage Pty Limited and the company, evidenced by the sale agreement dated 10 July 2001 that has an effective date of 1 November 2000. 21 I propose to keep the exhibits for the time being to give further consideration as to whether I should direct that notice be given to the individuals concerned to show cause as to why the papers should not be referred to the appropriate bodies.