FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Westend Asset Pty Ltd [2013] FCA 1140

THE COURT ORDERS THAT:

1.    Mammoth Nominees Pty Ltd’s application to adjourn the winding up application be and is hereby dismissed.

2.    Pursuant to s 447A(2) of the Corporations Act 2001 (Cth) the administration of WESTEND ASSET PTY LTD (Administrators Appointed) A.C.N. 106 132 790 (Company) be and is hereby terminated.

3.    Until 28 October 2013 the Company be and is hereby restrained from appointing any administrator pursuant to s 436A of the Corporations Act 2001 (Cth).

4.    Pursuant to s 459R(2) of the Corporations Act 2001 (Cth) the time within which the plaintiff’s application to wind up the Company must be determined is extended to 28 October 2013 or until further ordered.

5.    The winding up application be and is hereby stood over until 28 October 2013 at 2.10 pm before Justice McKerracher at which time orders will be made in the terms set out in the Schedule.

6.    Mammoth Nominees Pty Ltd pay the plaintiff’s costs of and incidental to Mammoth Nominees Pty Ltd’s application to adjourn the winding up application (such costs to include 50% of the costs of the appearance on 4 October 2013 and the costs of the appearance on 25 October 2013), those costs to be taxed and paid forthwith, if not agreed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Schedule

The orders of the Court to be made on 28 October 2013 are as follows:

(1)    WESTEND ASSET PTY LTD A.C.N. 106 132 790 be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth).

(2)    Michael Joseph Patrick RYAN of FTI Consulting, Level 6, BNZ House The Esplanade, Perth WA 6000, Western Australia, an official liquidator, be appointed liquidator of the company.

(3)    The plaintiff’s costs of the winding up application (including all reserved costs) be determined in accordance with Part 40 of the Federal Court Rules 2011 (Cth) and reimbursed in accordance with s 466(2) of the Corporations Act 2001 (Cth).

REASONS FOR JUDGMENT

INTRODUCTION

1    The plaintiff (the Commissioner) seeks the winding up in insolvency of the first defendant (Westend). Interests associated with Westend have been attempting for some time to keep at bay the winding up. Westend’s sole director, M/s Josephine Bazzo, appointed administrators to the company after these winding up proceedings were commenced. Her daughter, M/s Tina Bazzo, as controlling shareholder of Goldtune Investments Pty Ltd (Goldtune) has proposed a Deed of Company Arrangement (DOCA) with the support of a guarantee by Moonspark Nominees Pty Ltd (Moonspark) of which she is the sole director. M/s Tina Bazzo is the de facto partner of Mr Allen Caratti. Mr Caratti is sole director of the second defendant (Mammoth Nominees), which contends it is the largest creditor of Westend. Mammoth Nominees strongly supports the DOCA while the Commissioner strongly opposes it. The Commissioner contends, amongst other matters, that Mammoth Nominees is a debtor not a creditor of Westend, that the Commissioner holds over 99% of the creditors’ voting power, and that the proposed DOCA is inconsistent with the objects of Pt 5.3A of the Corporations Act 2001 (Cth) (CA).

2    There have been several hearings and a deal of evidence amassed as to a wide range of factors. Much of the evidence has been supplied by the Commissioner and goes to the apparent financial position of companies controlled by related parties.

3    These reasons relate to my dismissal on 25 October 2013 of an interlocutory application to adjourn the winding up application on the grounds of insolvency. On 28 October 2013, a liquidator was appointed. The interlocutory application was originally pursued by administrators appointed by Westend. The administrators believed that they were likely to receive a favourable DOCA for the creditors to consider. The application was then supported by Mammoth Nominees which entered an appearance on 27 September 2013 and was joined as a second defendant by my orders of 4 October 2013. Mammoth Nominees effectively took over the primary arguments in support of the adjournment application although the support of the administrators continued.

4    It is important to make clear that the only question for me is whether I am satisfied that it is in the interests of Westend’s creditors for the winding up to be adjourned and the company to remain in administration. In determining whether or not I am satisfied, I am required to act on presently available admissible evidence but it would be wrong to give the impression that such evidence has been fully tested as it might be at a trial. In an interlocutory application of this nature it is impossible to reach conclusions on the broad ranging disputes and I do not do so. However, for reasons expressed below, I am far from satisfied that there is a sound basis on which to conclude that creditors would be better off under the DOCA.

statutory basis

5    Section 440A(2) CA provides as follows:

440A    Winding up company

…

(2)    The Court is to adjourn the hearing of an application for an order to wind up a company if the company is under administration and the Court is satisfied that it is in the interests of the company’s creditors for the company to continue under administration rather than be wound up.

…    (emphasis added)

RELEVANT PRINCIPLES

6    As the plain wording of s 440A(2) CA indicates, to adjourn this winding up application the Court must be ‘satisfied that it is in the interests of [Westend]’s creditors for [Westend] to continue under administration rather than be wound up’ (emphasis added). It is not sufficient that the Court be satisfied that it may be so. There must be a sound basis for the satisfaction referred to in the subsection. The onus is on the applicant for the adjournment, in this case principally Mammoth Nominees, to show by ‘persuasive evidence’ that it is in the interests of Westend’s creditors that the administration continue: Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456 (at 457).

7    The nature of the relevant inquiry was recently summarised by Black J in Weriton Finance Pty Ltd v PNR Pty Ltd (in admin) (2012) 92 ACSR 88 (at [16]) where his Honour said the:

… section requires the court to adjourn the proceedings if the relevant pre-condition is satisfied: Deputy Commissioner of Taxation v Polcarp Pty Ltd [2011] FCA 1142 at [4]. Generally, an adjournment under s 440A(2) of the Corporations Act requires that the Court is satisfied that it is in creditors' interests to continue the administration in all the circumstances, and this requires that there be sufficient possibility, as distinct from mere optimistic speculation, that creditors' interests will be accommodated to a greater degree in an administration than in a winding up: Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456 at 457; TCS Management Pty Limited v CTTI Solutions Pty Ltd [2001] NSWSC 830 at [15]; Australian Securities and Investments Commission v Storm Financial Ltd (recs and mgrs apptd) (admins apptd) (2009) 71 ACSR 81; Deputy Commissioner of Taxation v C-Change Cairns Pty Ltd [2011] FCA 1372.

(emphasis added)

THE PROPOSED DOCA

8    A proposed DOCA is advanced by Goldtune with the support of Moonspark signed respectively by their sole directors, Mr Isaac Meyer Ellison and M/s Tina Michelle Bazzo, daughter of the sole director of Westend, M/s Josephine Bazzo. Under the terms of the proposed DOCA a total amount of $3 million would be paid by Goldtune in instalments over a period of two and a half years. The first instalment would commence 30 days after execution of the DOCA.

9    Contributions from Goldtune would be made on the realisation of residential lots of land owned by Goldtune and secured by way of registered mortgage over those properties. The mortgage would be subordinated to any mortgage that may be required to the Commissioner under a Notice to Give Security which the Commissioner has issued to Goldtune. To the extent that Goldtune could not meet any of these commitments under the DOCA they would be met by contributions from Moonspark secured by registered mortgage over land assets owned by Moonspark. The DOCA indicates that Goldtune owns assets of approximately $4.9 million while Moonspark owns assets of approximately $11 million, in each instance being in the form of land holdings.

10    It is provided under the DOCA that it would operate until deed creditors were paid in full or creditors had received their entitlements under the DOCA or a resolution was passed under s 445C(b) CA, whichever happened first. The DOCA fund could be distributed on a quarterly basis over the terms of the DOCA in the following order of priority: (1) trading expenses and liabilities of the administrators; (2) remuneration and out of pocket expenses of the administrators; and (3) distribution to participating creditors who were properly admitted to participate in the surplus funds. An estimated return to creditors under the DOCA was between 29.66 – 29.75 cents in the dollar.

11    The DOCA recites that Mammoth Nominees is a creditor of Westend in the sum of $13,309,172.44 (now some $12.525 million) but that it would reduce its claimed debt under the DOCA (which would still require adjudication by the administrators) to $5.5 million reducing the amounts owed to unsecured creditors for the purposes of the DOCA and increasing the dividends to participating creditors (meaning those who had proved their claim against Westend and whose claims had been admitted by the administrator).

12    Creditors would be required to prove their debts as if Westend was in liquidation. The DOCA would achieve a moratorium on the prosecution of all claims and the taking of any enforcement of winding up proceedings for the duration of the DOCA. On payment of all claims in accordance with the DOCA, Westend would be released from all claims from its creditors.

13    In the event of default by Goldtune or Moonspark, the DOCA would terminate with Westend to be placed in liquidation.

MAMMOTH NOMINEES’ ARGUMENTS AND EVIDENCE IN SUPPORT OF ITS APPLICATION

14    Mammoth Nominees claims to be the largest creditor of Westend. For the purposes of its application it relies upon several affidavits including affidavits of Mr Caratti who controls Mammoth Nominees and M/s Tina Bazzo, sole director of Moonspark, and her mother, M/s Josephine Bazzo, sole director of Westend. Reliance is also placed on affidavits of Mr Dominic Alessandro Calabretta, one of the two administrators appointed by Westend and an affidavit sworn by Mr Michael Anthony Robson, Mammoth Nominees’ solicitor.

15    The administrators rely on the following:

    affidavits of Mr Calabretta sworn 2 September 2013, 13 September 2013, 4 October 2013, 21 October 2013 and a supplementary affidavit sworn on 2 September 2013;

    affidavits of M/s Tina Bazzo sworn on 3 October 2013 and 4 October 2013;

    an affidavit of Mr Ellison sworn on 3 October 2013; and

    an affidavit of Mr Robson sworn on 4 October 2013.

16    The form of the DOCA has been modified on a number of occasions partly because of deficiencies identified by the Commissioner in earlier drafts and partly because of a moving state of affairs between the related companies. Although there were deficiencies in earlier forms of the DOCA, I accept that these technical deficiencies have been rectified.

17    The main disputes between the parties relate to the debt claimed by Mammoth Nominees and, secondly, the value of Goldtune and Moonspark.

18    As to the first issue, there is a dispute between the Commissioner and Mammoth Nominees about whether and, if so, the extent to which Westend is indebted to Mammoth Nominees. Mammoth Nominees contends that it is owed substantial moneys by Westend and wishes to prove as a creditor in the DOCA (albeit with such proof being capped) in order to vote at any meeting of creditors convened to consider whether the DOCA should be allowed to proceed.

19    The Commissioner, however, argues that, in fact, Mammoth Nominees is substantially indebted to Westend such that Mammoth Nominees has no entitlement to prove and vote. He points to evidence in the preliminary report by the administrators that Westend has paid approximately $7.8 million to Mammoth Nominees in the period of November 2004 to August 2005.

20    Mammoth Nominees relies on Mr Caratti’s affidavit evidence that by a deed dated 1 September 2003, Mammoth Investments Pty Ltd (Mammoth Investments) agreed to lend moneys to Westend for land purchases and development. That deed was executed by Mr Caratti and his daughter M/s Nicole Caratti on behalf of Mammoth Investments.

21    Mr Caratti deposes that he was ‘unable to obtain a copy of the ledger maintained by Mammoth Investments’ recording the company accounts. After execution of the deed, Mammoth Investments paid moneys to third parties on behalf of Westend so that Westend could purchase land. The amounts of those payments were treated as a loan to Westend and were added to the balance of Westend’s loan account. Westend did not provide any moneys for the purchase of the land.

22    Separately, Mr Caratti said that there was an agreement between Mammoth Investments and Westend under which Mammoth Investments would be engaged by Westend as the principal contractor for the development of the land. As works were completed by Mammoth Investments, Mammoth Investments issued tax invoices to Westend. The amounts of the tax invoices should have been added to the existing loan balance by Mammoth Investments in its books and records. This, however, for some reason, did not in fact occur during Mr Caratti’s own time as director of Mammoth Investments.

23    Mr Caratti explained that as 8 November 2004 Westend had not paid any moneys to reduce the loan balance with Mammoth Investments which was in excess of $6.2 million. This amount included funds advanced for the purchase of the land, stamp duty on the purchase of the land and the amounts of the tax invoices for the provision of services by Mammoth Investments up to that date.

24    Once again, Mr Caratti had no access to the books and records of Mammoth Investments. He says that this was because they were controlled by his brother, John. He and his brother John were and are engaged in litigation about various matters, including who are the directors of Mammoth Investments.

25    Mr Allen Caratti produced tax invoices issued by Mammoth Investments to Westend for a total in excess of $5.4 million. At the time of those tax invoices being issued to Westend, he said he provided the tax invoices to Mammoth Investments’ accountant for processing. Mr Caratti believed that the tax invoices would be processed in the normal way and any goods and services tax (GST) and income, including GST payable pursuant to the tax invoices, would be declared in the accounts of Mammoth Investments.

26    He was not aware until he had read an affidavit for the Commissioner sworn by Mr Peter Irvin on 2 October 2013 that the lodgement of the Business Activity Statements for the period 1 October 2004 to 31 December 2004 and 1 April 2005 to 30 June 2005 did not report the correct total sales to the Australian Taxation Office. He was unaware if the correct total sales were reported by Mammoth Investments in any other periods. He was unable to obtain copies of books and records of Mammoth Investments.

27    Mr Caratti continued to explain that between 8 November 2004 and 30 June 2006, Westend paid moneys into a bank account of Mammoth Nominees to reduce the amount of the loan from Mammoth Investments. The moneys were paid by Westend to Mammoth Nominees’ bank account and not a bank account owned by Mammoth Investments at the direction of Mr Allen Caratti because his brother, John, in or about early August 2002, he alleges, attempted to transfer the majority of the funds held in the Mammoth Investments bank account at Elders to which he was a signatory (without the authority of the board of directors) to another bank account of Mammoth Investments which Mr John Caratti controlled, notwithstanding that he was not a director of Mammoth Investments. I stress that I make no findings in relation to any of these matters but simply record the assertions by Mr Allen Caratti.

28    Mr Allen Caratti says that to avoid any future unauthorised transfer of funds from the Mammoth Investments bank account at Elders, all the funds of Mammoth Investments were held in the Mammoth Nominees bank account and sufficient funds were transferred to the Mammoth Investments bank account when moneys were required for any payments.

29    Mr Allen Caratti explains that in about November 2004, he told the family members, including M/s Nicole Caratti, about this practice and they took no steps to prevent it. He says that on a regular basis he informed them of the sum of moneys which were held by Mammoth Nominees for Mammoth Investments. It was for those reasons that the funds were actually paid to Mammoth Nominees by Westend prior to the date of the assignment of debt of 30 June 2006 on which Mr Allen Caratti relies.

30    Mr Allen Caratti disputes that Mammoth Nominees owes any moneys to Westend. He says that on 30 June 2006, Mammoth Investments assigned Westend’s debt to Mammoth Nominees by a deed of assignment (Deed of Assignment). At that stage the debt was a little under $3 million. Mammoth Nominees was to maintain a ledger of the loan balance on a monthly basis. The Deed of Assignment was produced in evidence.

31    Mammoth Nominees argues that the Commissioner in pressing for the immediate winding up of Westend advocates an approach that denies Mammoth Nominees the opportunity to have its claim determined and, with it, denies the possibility of Mammoth Nominees receiving funds by way of its share of the return to creditors of the significant funds proposed to be paid by Goldtune pursuant to the DOCA. No guarantee to compensate for that denial of opportunity has been proffered to Mammoth Nominees.

32    Mammoth Nominees also complains that the Commissioner relies upon information from Mr John Caratti, Mr Allen Caratti’s estranged brother, notwithstanding the fact that Mr John Caratti has been convicted for conspiracy to defraud. Mammoth Nominees suggests that the determination of disputed matters is best left to administrators who can be expected to properly carry out their obligations to get to the bottom of the disputes and, further, that if the administrators decided to accept some or all of Mammoth Nominees’ claims, the Commissioner would have right of appeal in respect of the correctness of the decision under s 1321(1) CA.

TIMING OF the DOCA

33    It would be unrealistic and inappropriate to view the contentions by Mammoth Nominees without regard to the full circumstances giving rise to this application. As the Commissioner observes, Westend has a substantial tax-related debt to the Commissioner, the total at 28 August 2013 being in excess of $4.5 million. This tax debt arose in circumstances in which Westend did not meet its tax obligations. Despite being required to be registered for GST, Westend did not register. Nor did the company lodge company tax returns or Business Activity Statements as required. This is surprising given that significant land development undertaken by Westend resulted in income from sales of $9.8 million and almost $2 million in 2005 and 2006 respectively.

34    Against that background, it was only after tax assessments were issued that Westend sought to avoid the winding up proceedings by challenging the Commissioner’s statutory demand. When that application was dismissed, Westend made a further application to extend time for compliance. As indicated in Westend Asset Pty Ltd v Deputy Commissioner of Taxation [2012] FCA 1374 and in Westend Asset Pty Ltd v Deputy Commissioner of Taxation [2013] FCA 538 both these applications were without merit.

35    Westend then sought to oppose the winding up application claiming, amongst other things, that it was solvent. It has never adduced any evidence to support such an assertion. On the face of the materials filed in this application, the assertion of solvency has no foundation.

36    Further, it was shortly before the winding up application was listed for hearing on 3 September 2013 that the administrators were appointed. The Commissioner contends that there is an irresistible inference that the sole director for Westend appointed the administrators at the last possible moment to stave off the winding up of an insolvent company. That is an inference which has support not only from the materials previously disclosed but the range of circumstances discussed below.

37    What has now emerged after several attempts is a DOCA proposed by Goldtune with the support of Mammoth Nominees and Moonspark. As noted above, the natural persons behind those entities are all associated with Westend and its sole director, M/s Josephine Bazzo. Specifically, Mr Allen Caratti, as sole director of Mammoth Nominees, is also the de facto partner of M/s Tina Bazzo, daughter of M/s Josephine Bazzo. He has also held himself out as director of Westend and was the natural person who managed the land developments for Westend. M/s Tina Bazzo claims that she and a company she controls, Gucce Holdings Pty Ltd, are the sole shareholders of Goldtune. She is also the sole director of Moonspark.

38    The fact that family interests may try to assist by funding a DOCA is not surprising but in the circumstances of this litigation, the identity of those proposing the DOCA (including Mammoth Nominees as a strong supporter), the circumstances surrounding the alleged debt to Mammoth Nominees and the evidence put forward as to the capacity to meet the obligations under the DOCA all require closer scrutiny.

EVIDENCE FOR THE COMMISSIONER

39    The Commissioner relies upon the affidavits of:

    M/s Helen Shaw sworn 8 March 2013;

    M/s Gina Radasavljevic affirmed 11 March 2013;

    M/s Jennifer Claire Tate affirmed 13 March 2013;

    M/s Elizabeth Robina Conquest sworn 24 July 2013;

    M/s Angela Denise McNally sworn 26 August 2013 and 20 September 2013;

    Mr Amon-Ra Barton affirmed 28 August 2013, 23 September 2013 and 17 October 2013;

    Mr Peter Irvin sworn 3 September 2013, 23 September 2013, 27 September 2013, 2 October 2013, 17 October 2013 and 21 October 2013;

    Mr Ross Burns sworn 20 September 2013; and

    M/s Joanne Sue May Ding sworn 23 September 2013.

40    The Commissioner points to the fact that Mammoth Nominees appears to have paid at least some of Westend’s legal fees in resisting the winding up application and appears to have been closely involved in Westend’s entry into voluntary administration. The administrators were approached by representatives of Mammoth Nominees rather than M/s Josephine Bazzo, even though the appointment was technically made by her as sole director. Mammoth Nominees was the conduit for execution of the appointment documents. There were no direct dealings with M/s Josephine Bazzo at all. Mammoth Nominees also agreed to indemnify the administrators for an amount of $40,000.

41    Again, while not suggesting that any of this is particularly surprising, there is additional information on the association and identity of interests between the parties pursuing the DOCA and the winding up adjournment. The same solicitor who has been the administrators’ point of contact with M/s Josephine Bazzo has also prepared affidavits for Mammoth Nominees and has sent correspondence on behalf of Goldtune from the same address used by Mr Allen Caratti. This address is the principal place of business of each of Goldtune and Moonspark.

42    As a consequence, even if Mammoth Nominees is a genuine creditor of Westend, it is certainly not a creditor in the same independent position as the Commissioner. The Commissioner is undoubtedly an independent non-associated creditor. Mammoth Nominees has never been such in respect of its putative debt.

43    As the Commissioner submits, what is particularly significant is that Mammoth Nominees has taken no steps in relation to its claimed debt until the Commissioner’s winding up application was about to result in Westend’s winding up. Indeed, to the contrary, it then supported Westend in opposing the winding up application by meeting its legal expenses. Further, it proposes to limit its asserted $12.525 million debt to no more than $5.5 million. None of these actions are ordinarily consistent with those of independent creditors pursuing recovery.

44    As a result a reasonable inference is that the real motive behind the DOCA proposal and the application for the adjournment is not to benefit creditors but, rather, to prevent the winding up of the insolvent Westend and the resultant consequences. As the Commissioner contends, there is no purpose of commercial rehabilitation or resumption of business activity. In those circumstances, the application to adjourn under s 440A(2) CA is not consistent with the objects of Pt 5.3A: Global Foods Group Pty Limited v Limar International Pty Limited, in the matter of Limar International Pty Limited (administrator appointed) [2013] FCA 521 (at [12]-[15] and [21]).

45    More importantly, given the lack of independence of Mammoth Nominees from Westend, it is incumbent upon it to satisfy me that it is in the Commissioner’s interests, as the only major independent creditor, for Westend to continue in administration rather than be wound up. This is particularly so when the Commissioner holds more than 99% of the independent ordinary unsecured debts and as the Commissioner would contend, any verifiable debt.

MAMMOTH NOMINEES’ ALLEGED DEBT TO WESTEND

46    Mr Caratti contends that Mammoth Investments (as distinct from Mammoth Nominees) rendered tax invoices to Westend totalling about $5.456 million and also advanced funds to Westend. The indebtedness of Westend was then purportedly assigned from Mammoth Investments to Mammoth Nominees on 30 June 2006 by the Deed of Assignment such that the debt presently asserted is in the order of $12.525 million.

47    The Commissioner’s contention, however, is that Westend made advances to Mammoth Nominees and Mammoth Nominees is a debtor to Westend, not a creditor. As at 30 June 2010, Mammoth Nominees owed Westend some $8.605 million. The Commissioner says there is and was no valid debt due to Mammoth Investments by Westend in any event.

48    First, the foundation for the alleged debt to Mammoth Nominees is the purported loan agreement and Deed of Assignment annexed to Mr Caratti’s affidavit. The Commissioner contends that the provenance of each of those documents cannot be accepted at face value because neither document was presented for stamping on or about the date it bears and no explanation is provided for the failure to lodge the documents for stamping until the omission was noted in the context of the present proceedings. I would not have regarded this fact alone as being critical for present purposes but there are other more serious difficulties.

49    M/s Josephine Bazzo’s evidence was that the terms of the loan were agreed between her and Mr Caratti but ‘were not later reduced to writing’. This is directly contrary to Mr Caratti’s current evidence but does tend to conform with his initial evidence which was that the financial arrangements were made by way of an oral agreement only. No reference was then made to any written loan agreement. Again, there might have been some confusion to explain these distinctions but when one examines the terms of the written loan agreement, it is evident that they too depart from the original affidavit evidence of M/s Josephine Bazzo and Mr Caratti as to the terms of the alleged loan.

50    Further, and not insignificantly, the loan agreement was executed for Mammoth Investments by directors Mr Allen Caratti and M/s Nicole Caratti. As explained in the evidence, M/s Nicole Caratti is Mr Allen Caratti’s daughter but as at 30 September 2003, which is the purported date of the written loan agreement, M/s Nicole Caratti was neither a director of Mammoth Nominees nor capable of being so. She did not become a director of that company until 10 May 2005. Moreover at the date of the execution of the written loan agreement she was only 17 years of age and thus had no capacity to be a director of the company. Given that Mr Allen Caratti specifically deposed to the purported date of the loan agreement and that it was executed by himself and M/s Nicole Caratti on behalf of Mammoth Investments on that date, it is not possible to place serious weight on this document for present purposes. The fact that M/s Nicole Caratti was not a director of Mammoth Investments casts doubt on value of Mr Allen Caratti’s evidence that ‘in or about November 2004’ he informed her about the practice that Mammoth Nominees held funds for Mammoth Investments. No evidence was adduced by M/s Nicole Caratti.

51    Additionally, the Deed of Assignment is inconsistent with the loan schedule prepared by Mammoth Nominees for the purpose of lodging the proof of debt. In the loan schedule the debt is said to be $3,208,828.35 as at 30 June 2006. The Deed of Assignment, however, puts the debt at $2,970,746.25. Again, there may be explanations but no explanation has been proffered for the difference.

52    Against that background, it is necessary to examine the nature of the competing evidence adduced for the Commissioner that Westend made advances to Mammoth Nominees such that it is a debtor to Westend, not a creditor.

53    There appears to be no challenge to the various advances made by Westend to Mammoth Nominees. The evidence shows that there were drawdowns totalling $7,887,539.38 on Westend’s Suncorp loan facility which were transferred to Mammoth Nominees. Proceeds from the sale of Westend’s lots totalling $853,813.55 were also transferred to Mammoth Nominees. Mammoth Nominees received a further $96,302.60 in deposits from Westend.

54    It will be recalled that Mammoth Nominees responds to this by the evidence advanced by Mr Allen Caratti that Mammoth Nominees held the funds for Mammoth Investments. There is no contemporaneous documentary evidence or independent testimony to support this contention despite substantial funds being involved.

55    Further, such an arrangement would not explain Mammoth Nominees recording a debt owed by it to Westend. If, hypothetically, Mammoth Nominees was holding funds for Mammoth Investments, it might record a debt to Mammoth Investments but not to Westend. Throughout the relevant period, it is clear that Mammoth Nominees did maintain various loan accounts with Mammoth Investments. There is no evidence adduced by Mammoth Nominees challenging what appears in the records. They show only, as at August 2005, an advance of $150,829.80; as at June 2007 an advance of $63,510; and as at June 2007 an advance of $550,953.85.

56    Significantly, Westend’s own financial records clearly show that Mammoth Nominees was and is a debtor not a creditor. Westend’s 2005 balance sheet produced with its 2005 company tax return discloses a loan due by Mammoth Nominees to Westend of $6,710,394.89. The 2006 balance sheet disclosed in the 2006 company tax return a loan due by Mammoth Nominees of $7,129,918.48. This appears to be powerful prima facie evidence, at least from Westend, of the debt due by Mammoth Nominees to Westend.

57    More importantly, Mammoth Nominees’ own financial records indicate that Westend was a creditor not a debtor. This includes periods of time after the alleged 2006 assignment. Specifically, Mammoth Nominees’ 2005 balance sheet discloses a loan due to Westend of $7,725,738.05; the 2006 balance sheet discloses a loan to Westend of $8,110,856.98; and the 2007 balance sheet discloses the loan due to Westend of $8,049,852.98. In 2008 it was $7,918,895.88; and in 2010 it was $8,605,183.55.

58    Further, as the financial evidence shows, the balances for 2006, 2007 and 2008 are confirmed in Mammoth Nominees’ general ledgers in addition to the balance sheets.

59    The only explanation provided for these entries is that the debt due by Mammoth Nominees to Westend as reflected in the balance sheet in 2010 is ‘in error’. This assertion is unsupported by any corroboration or technical evidence from any accountant or other officer or any document.

60    Although Mammoth Nominees contends that its debt is supported by the tax invoices rendered by Mammoth Investments to Westend, and which total $5.456 million, there is hearsay evidence from Mammoth Investments’ accountant that the invoices were issued without the knowledge of others involved in Mammoth Investments including Mr John Caratti and the company’s accountant. There are independent third party statements casting doubt about such invoices. While the invoices would ordinarily carry some weight and indeed may ultimately be very important, against the entirety of the matters considered in this analysis, little weight can presently be given to these invoices. It is simply not possible, in any event, to resolve this issue at this hearing. It can be noted, however, that the suggestion that the $5.456 million in tax invoices rendered by Mammoth Investments to Westend is inconsistent with Mammoth Nominees’ Business Activity Statements. Moreover, those tax invoices are for more than the total sales altogether by Mammoth Investments for the relevant period those sales as reflected in the Business Activity Statements totalling $3,123,142. There is no explanation as to the inconsistency between the alleged tax invoices and the total income reflected in the Business Activity Statements lodged by Mammoth Investments.

61    For all these reasons, I am far from satisfied that the creditors would be in a better position by accepting the DOCA. It is by no means clear, at least on the basis of the present evidence, that Mammoth Nominees is a creditor of Westend. I accept that the Commissioner would fund an independent liquidator to pursue recovery of the debt possibly due to Westend. In that event, if the Commissioner is for all practical purposes the sole creditor, it would not be better off under the DOCA.

62    Finally, before leaving the two Mammoth companies, I should record the administrators’ submissions that if Mammoth Nominees is a debtor of Westend, then the DOCA may not be required as the amount owed by Mammoth Nominees to Westend would be greater than the amount owed by Westend to other creditors. However, if Mammoth Nominees is a creditor of Westend then the DOCA will be beneficial to creditors. In the absence of the DOCA, creditors would get no return whereas if Mammoth Nominees is a creditor, creditors will receive approximately 30 cents in the dollar (based on Mammoth Nominees’ claim for the purpose of the DOCA being fixed at $5.5 million). If Mammoth Nominees is neither a creditor nor a debtor of Westend, in contrast to a nil return in liquidation, creditors would receive approximately 60 cents in the dollar. These submissions assume a capacity on the part of Goldtune and Moonspark to honour the commitments under the DOCA, a topic on which for present purposes I have considerable doubt for the reasons expressed below. Notwithstanding this, I note the fact that the administrators do appear to accept the evidence from M/s Tina Bazzo as to the capacity of Moonspark to support the payments offered by Goldtune. I am substantially less optimistic for the reasons expressed below. In any event, this analysis does not appear to take into account the capacity for a liquidator to pursue recovery of debt from Mammoth Nominees and other actions if indeed they are warranted.

63    Similar submissions were made, as I understood them, to the effect that one or the other of the Mammoth companies would be in a creditor situation depending upon the effectiveness of the Deed of Assignment. There are at least three problems with this suggestion. The first is that this scenario is not how the debt position has been portrayed by Mammoth Nominees. Secondly, at least at this stage and no doubt partially due to the internal disputation, the correct financial position and the efficacy of the debt assignment are far from clear. As such, there is no reason to think that the administrators would easily sort that out given the family estrangement and disputation deposed to by Mr Caratti. But most importantly, the Commissioner is the only independent and well-informed creditor, is equipped with key financial records and is totally convinced that he would not be better off under the proposed DOCA. I must and do give substantial weight to the Commissioner’s view as a sophisticated litigant capable of assessing what is in his own best interests.

GOLDTUNE

64    It is also necessary to consider the financial capacity of Goldtune, being the entity proposing the DOCA. It proposes, under the DOCA, to assume the commitment to pay a total of $3 million by instalments over two and a half years. The Commissioner has closely examined Goldtune’s capacity to meet such a commitment as it is directly relevant to the question before me. The evidence establishes that Goldtune holds property in its own right but also acts as trustee for a trust. It is clear that the DOCA proposal is made by Goldtune in its own right rather than as trustee. In its own right, the evidence is that Goldtune holds 20 subdivided lots (it holds a further nine subdivided lots as trustee but that is irrelevant to the commitment under the DOCA). It is contended without any supporting valuation or other documentary support that those lots have an average value of $160,000. As a consequence, the projected gross realisation from the lots would be in the order of $3.2 million before selling costs and GST.

65    In contrast, information from a financier has indicated that at least 17 of the lots held by Goldtune in its own right are security for two loans from that financier to Goldtune totalling in excess of $2 million together with interest. Moreover, there is a third loan with a current balance of about $5 million in respect of which Goldtune is liable. From this it would follow that, ignoring inevitable selling costs, Goldtune would not appear to have the capacity to repay the $3 million under the DOCA. If the mortgage debt of $2.14 million was deducted from an estimated gross realisation of $3.2 million, that would only leave approximately $1 million. That deficiency is without taking into account future tax liabilities (including GST) that Goldtune would incur on realising the lots.

66    As compared with this financial position, an unverified balance sheet of Goldtune has been prepared and provided for the purpose of the application which suggests that Goldtune has net assets of about $3.2 million; a secured debt of $2.5 million on which interest runs at the lower rate of 11.75%; current liabilities of some $33,000; and a loan to the Mammoth Group of more than $19,000.

67    However, this financial information does not accord with the data in Goldtune’s company tax returns which disclose in 2011 a net deficiency of liabilities over assets of about $2.2 million and in 2012, a net deficiency of approximately $1.9 million. Finally, in assessing Goldtune’s capacity, it is noted that Goldtune’s Business Activity Statements disclose that in the period 1 October 2007 to 30 June 2013 sales totalling over $10 million were made with total expenses of $18.9 million giving a net loss of about $8.8 million. It would be an ambitious hope that the 2012 net asset deficiency would be replaced by a surplus.

68    There is, at present, no explanation provided for the considerable discrepancy between Goldtune’s asserted financial position in proposing the DOCA and its net asset deficiency as disclosed in its company tax returns.

MOONSPARK

69    The position does not improve greatly in relation to Moonspark. M/s Tina Bazzo has indicated that Moonspark will provide a second registered mortgage over properties it holds in favour of Westend’s deed administrator. M/s Tina Bazzo suggests that Moonspark has assets comprising property in Casuarina, Western Australia, with a gross value of $11 million and a net asset position of approximately $5.36 million. Once again, there is an unverified proforma balance sheet produced which in all the circumstances discussed above does not provide sufficient comfort for the purposes of the DOCA proposal. It shows a starkly different position from the financial records of Moonspark as previously obtained by the Commissioner which shows significant net deficiencies specifically in June 2011 of $3.382 million and in June 2012 of $3.388 million. Once again, there is no explanation provided for the discrepancy between the estimate and the unverified proforma balance sheet and the financial records comprising the balance sheets obtained as part of Moonspark’s MYOB data.

CONCLUSION

70    There are many discrepancies in the evidence as it presently stands. I am therefore far from satisfied that it would be in the interests of creditors of Westend to adjourn its winding up and to continue under administration, perhaps with the proposed DOCA. The Commissioner has indicated in any case that he would vote to oppose the DOCA and that also is a relevant consideration.

Final ancillary matter

71    The administrators advance the argument that it would be suitable for them to remain on as liquidators for Westend if I were of the view that Westend should be wound up. This view is expressed on the basis that the administrators have already spent considerable time and, therefore, funds in pursuing enquiries relevant to ascertaining the financial position of Westend. I do not favour this course. I made it clear in the course of the hearing that while I intended no criticism whatsoever of the activities of the administrators, it seems to me a situation in which a fresh set of ears and eyes should be brought to bear on all the circumstances canvassed in the evidence and summarised in this judgment.

72    For those reasons, I made the following orders:

1.    Mammoth Nominees Pty Ltd’s application to adjourn the winding up application be and is hereby dismissed.

2.    Pursuant to s 447A(2) of the Corporations Act 2001 (Cth) the administration of WESTEND ASSET PTY LTD (Administrators Appointed) A.C.N. 106 132 790 (Company) be and is hereby terminated.

3.    Until 28 October 2013 the Company be and is hereby restrained from appointing any administrator pursuant to s 436A of the Corporations Act 2001 (Cth).

4.    Pursuant to s 459R(2) of the Corporations Act 2001 (Cth) the time within which the plaintiff’s application to wind up the Company must be determined is extended to 28 October 2013 or until further ordered.

5.    The winding up application be and is hereby stood over until 28 October 2013 at 2.10 pm before Justice McKerracher at which time orders will be made in the terms set out in the Schedule.

6.    Mammoth Nominees Pty Ltd pay the plaintiff’s costs of and incidental to Mammoth Nominees Pty Ltd’s application to adjourn the winding up application (such costs to include 50% of the costs of the appearance on 4 October 2013 and the costs of the appearance on 25 October 2013), those costs to be taxed and paid forthwith, if not agreed.

Schedule

The orders of the Court to be made on 28 October 2013 are as follows:

(1)    WESTEND ASSET PTY LTD A.C.N. 106 132 790 be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth).

(2)    Michael Joseph Patrick RYAN of FTI Consulting, Level 6, BNZ House The Esplanade, Perth WA 6000, Western Australia, an official liquidator, be appointed liquidator of the company.

(3)    The plaintiff’s costs of the winding up application (including all reserved costs) be determined in accordance with Part 40 of the Federal Court Rules 2011 (Cth) and reimbursed in accordance with s 466(2) of the Corporations Act 2001 (Cth).

Associate:

Dated:    1 November 2013