Australian Combined Financial Services Pty Ltd v Fusion Realty Pty Ltd [2008] NSWSC 1258

New South Wales Supreme Court

CITATION : Australian Combined Financial Services Pty Ltd v Fusion Realty Pty Ltd [2008] NSWSC 1258

HEARING DATE(S) : 21/10/08

JUDGMENT DATE : 28 November 2008

JURISDICTION : Equity Division Corporations List

JUDGMENT OF : Barrett J

DECISION : Proceedings dismissed with costs

CATCHWORDS : CORPORATIONS - directors duties - allegation that sole director of one company caused that company to make gratuitous transfer of assets of that company to another company of which he was also the sole director - first company in liquidation - proceedings by first company and liquidator against the director - plaintiffs fail to show that the assets were assets of the first company as distinct from a wholly owned subsidiary of the first company

LEGISLATION CITED : Corporations Act 2001 (Cth), Division 2, Part 5.7B, ss 181, 182, 588FE, 588FF, 598

CATEGORY : Principal judgment

CASES CITED : Universal Communication Network Inc v Chinese Media Group (Aust) Pty Ltd [2008] NSWCA 1

Australian Combined Financial Services Pty Limited (in liquidation) - First Plaintiff PARTIES : David Gregory Young - Second Plaintiff Fusion Realty Pty Limited - First Defendant Graeme Michie - Second Defendant

FILE NUMBER(S) : SC 5094/07

COUNSEL : Mr M J Dawson - Plaintiffs Ms F A Sinclair - Defendants

SOLICITORS : Kennedys Law Firm - Plaintiffs Second Defendant in Person

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

BARRETT J

FRIDAY, 28 NOVEMBER 2008

5094/07 AUSTRALIAN COMBINED FINANCIAL SERVICES PTY LIMITED (IN LIQUIDATION) & ANOR v FUSION REALTY PTY LIMITED & ANOR JUDGMENT 1 The first plaintiff is Australian Combined Financial Services Pty Ltd ("ACFS"), a company in liquidation. The second plaintiff is its liquidator, Mr Young. 2 The winding up of ACFS was ordered by this court on 14 December 2006, following its restoration to the register of companies. It had been deregistered on 8 January 2006. 3 The second defendant, Mr Michie, is a real estate agent by occupation. He became a director of ACFS in June 1999 and continued in office up to the commencement of the winding up. Mr Michie became a director of the first defendant, Fusion Realty Pty Ltd ("Fusion"), on its incorporation on 8 November 2005. He was, at all material times, the sole director of each of these companies. 4 The plaintiffs allege liability of both Mr Michie and Fusion on account of what they view of a transfer of assets of ACFS to Fusion without consideration. The liability is said to arise in various ways to which I shall come. 5 On 5 May 2004, ACFS entered into an agreement with Ms Joy Bayley to purchase the whole of the issued share capital of Joy Bayley Real Estate Pty Limited ("JBRE"), a company that conducted a real estate agency business at Newtown. At that time, JBRE acted as property manager and collected rents for a number of landlords in return for payments of commission. ACFS itself had for some time carried on a similar business in the course of which it managed properties and derived income by way of commission on rents and rents for other landlords. 6 Recital A to the agreement of 5 May 2004 was in these terms: "The Company [ie, JBRE] is the proprietor of the Rent Roll comprising the properties managed by the Company as set forth in the schedule annexed hereto and marked 'A' (hereinafter referred to as 'the Rent Roll')." 7 The annexed schedule A listed numerous properties and included for each the address of the property, the name of the owner (landlord), the name of the tenant, the date of lease expiry, the weekly or monthly rent and the percentage rate of commission payable to JBRE. It is this schedule A that was referred to during the hearing as the "rent roll". 8 The purchase price under the agreement of 5 May 2004 was $240,000 but this was subject to reduction in certain events. Provision was made, in particular, for reduction if "the management of any property on the Rent Roll has been lost by the Company from the date of Completion to the period ending three (3) months from Completion", where the loss was, in broad terms, not attributable to neglect or mismanagement of JBRE. 9 The price was payable as to $90,000 on completion and, as to the balance, by two equal instalments, one due one year after completion and the other due two years after completion, and with each carrying interest in the meantime. 10 On one version of events, completion of the sale and purchase of the shares in JBRE took place on 5 May 2004. On another, completion occurred in June 2004. The first payment of $90,000 was made upon completion. 11 The vendor, Ms Bayley, died on or about 1 February 2005. ACFS did not make any payments for the shares in JBRE beyond the initial $90,000 paid on completion. 12 It is the contention of the plaintiffs that, at some point after May or June 2004, ACFS itself, having acquired the whole of the share capital of JBRE, took possession and assumed control of JBRE's rent roll. As a result, the plaintiffs say, ACFS operated and enjoyed the rent roll directly, instead of "through" JBRE. The plaintiffs further say that, from some time after May or June 2004, ACFS, which, as I have said, already had a real estate agency business of its own, came to conduct also the property management and rent collection activities of its wholly-owned subsidiary, JBRE. 13 Mr Michie gave evidence about how ACFS came to be deregistered on 8 January 2006. In a report as to affairs furnished by him to the liquidator of ACFS, Mr Michie said that he became aware in June 2005 that ACFS had a liquidity problem. He further said that the action he then took was "decide to close the company down". There was also reference to a dispute with the company's accountant. Mr Michie said in cross-examination that he "didn't really decide to close it down, I just let it go because what I wanted to do was sort out things with the accountant". 14 At all events, having realised in June 2005 that AFCS had a liquidity problem and decided either to "close it down" or "let it go", Mr Michie allowed ACFS to reach a state in which ASIC caused it to be deregistered on 8 January 2006 for non-payment of fees or non-lodgment of documents. As sole director, he could have prevented this. Meanwhile, on 8 November 2005, Mr Michie had caused Fusion to be registered with himself as sole director and shareholder. 15 Mr Michie also gave evidence about the commencement of the activities of Fusion. He accepted in cross-examination that Fusion began to carry on a real estate agency business in "the next financial year", by which I understood him to mean some time after 1 July 2006. He also accepted that income of Fusion as shown in a summary for the period July 2007 to June 2008 included income from management fees. The cross-examination continued: "Q. At least in part the income Fusion Realty derived was a result of the rent roll, correct? A. Of the combined created rent roll.