FEDERAL COURT OF AUSTRALIA

Trenfield, in the matter of ACN 089 008 668 Pty Ltd (in liq) v JMD Park Pty Ltd [2019] FCA 2154

ORDERS

THE COURT ORDERS THAT:

1.    It is declared that the payment made by the second plaintiff to the defendant in an amount of three hundred and fifty-eight thousand, seven hundred and seventy-eight dollars ($358,778) on or about 21 October 2014 is an unfair preference within the meaning of s 588FA of the Corporations Act 2001 (Cth) (the Act), an insolvent transaction within the meaning of s 588FC of the Act and a voidable transaction within s 588FE(2) of the Act.

2.    Pursuant to s 588FF of the Act, the defendant pay to the second plaintiff the amount of three hundred and fifty-eight thousand, seven hundred and seventy-eight dollars ($358,778).

3.    It is declared that the payment made by the second plaintiff to the defendant in an amount of one hundred and seventy-five thousand, seven hundred and sixty-nine dollars and fifty-four cents ($175,769.54) on or about 21 October 2014 is an unfair preference within the meaning of s 588FA of the Act, an insolvent transaction within the meaning of s 588FC of the Act and a voidable transaction within s 588FE(2) of the Act.

4.    Pursuant to s 588FF of the Act, the defendant pay to the second plaintiff the amount of one hundred and seventy-five thousand, seven hundred and sixty-nine dollars and fifty-four cents ($175,769.54).

5.    The matter be listed on 30 January 2020 not before 10.00 am, for further hearing on the questions of interest and costs.

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    This action has been commenced by Ms Kelly-Anne Trenfield and Mr John Park as the joint and several liquidators of the company formerly known as “Aluminium Boats Australia Pty Ltd” (ABA) to recover payments totalling $548,189.43 made by it to the defendant, JMD Park Pty Ltd (JMD Park), between August 2014 and November 2014. The liquidators allege the payments are voidable transactions within the meaning of s 588FF of the Corporations Act 2001 (Cth) (the Act) and, if that be established, claim that appropriate remedial orders should be made. A number of matters which might normally be disputed in proceedings of this nature have been resolved such that only relatively few remain in issue.

The facts

2    Although most background facts are not contentious, the key issue in dispute is the knowledge of JMD Park of the financial position of ABA at the time of the making of payments by that latter company to it. This significant matter is considered at length later in these reasons.

3    ABA operated a ship building and vessel refurbishment business from premises located at 45 Barku Court, Hemmant, Queensland (the premises) which comprised three warehouse areas or work sheds (referred to as “the sheds”) and an office space.

4    Mr Roy Whitewood was a director of ABA from 1999 to 19 January 2015 and his former wife, Ms Karen Whitewood (Ms Whitewood), was also a director between 1999 and 17 July 2006. From 2009, Ms Whitewood was employed as ABA’s administration manager.

5    The premises were leased to ABA by Marine Holdings Brisbane Pty Ltd (MHB), which also leased adjoining premises to JMD Park. Mr David Seth Price (Mr Price) was the director of both MHB and JMD Park. JMD Park operated its business under the name of “The Yard Brisbane” from premises at 44 Barku Court. It provided ship berthing facilities, straddle carrier facilities and hardstand services and offered marine and logistics related services. There existed something of a symbiotic relationship between the businesses of ABA and of JMD Park, in that the former utilised the latter’s services in the course of its operation. In that way, the continuation of ABA’s business was an advantage to JMD Park as well as to Mr Price’s other company, MHB. The relevance of this becomes more apparent later in these reasons. For present purposes it can be observed the evidence reveals that, from around 7 May 2014, ABA was invoiced by JMD Park for services it received (although services had also previously been received and paid for). Those invoices were not paid, and, as at 8 August 2014, about $70,000 was owing in respect of those services. ABA continued to acquire services from JMD Park and further invoices were delivered. Many, if not all, went unpaid and ABA’s indebtedness on unpaid invoices continued to grow over the relevant period.

6    Similarly, MHB also provided services of a nature to ABA. The evidence shows that, as at August 2014, ABA owed MHB $23,080 in respect of those invoices.

The fire on 11 August 2014

7    On 11 August 2014, a fire occurred at the premises. It started on board the naval vessel, HMAS Bundaberg, on which ABA was undertaking maintenance work. At the time the vessel was located in the area known as “Shed 2”, within the area of ABA’s lease. In the words of Mr Price, “the fire caused quite significant damage to both the vessel and to a number of the sheds located at the premises.” Thereafter, ABA was prevented from accessing various parts of the premises for some time.

8    The immediate consequence of the fire was that ABA was prevented from using the whole of the leased area for the purposes of carrying on its business operations. The parties agree that the fire and resulting damage caused disruption to ABA’s operations.

9    On the day of the fire, Mr Whitewood was in the process of departing Australia for an overseas holiday with the result was that he was absent from the business for the following 10 days. He was, however, in regular contact with those who had management of the business in his absence, and he maintained regular telephone contact with Mr Price about the situation.

10    It was uncontroversial that, as at the date of the fire, ABA had a number of projects underway (including work on HMAS Bundaberg) as well as prospective projects in the pipeline. They were the manufacture of at least two new Queensland Police Service vessels (the QPS vessels); repairing a larger commercial vessel, including undertaking a refit, for the company Sealink; work on a project for the company Bombardier; and developing a project with the company “Thames River Clipper”. The precise nature of these projects and the extent to which they were productive of income or likely to be so productive, as at August 2014, was somewhat uncertain, save in relation to the QPS vessels. Their construction was nearly complete and they were due to be launched within a few months, after which time the final payments would be made in relation to them.

11    Mr Whitewood gave evidence that the timely completion of those vessels was important as, if there were delays, ABA would be liable for damages. He said that although most of the demised area, save for Shed 2, was restored to an operational state within a number of weeks following the fire, that time was vital to the fulfilment of the then current projects, and particularly the construction of the QPS vessels.

12    Subsequent to the fire, the majority of the demised premises used by ABA remained unavailable for various periods. Shed 2 had been secured by the Department of Defence whilst an investigation was undertaken as to the fire’s cause. Consequently, work on HMAS Bundaberg had to cease. That was significant to ABA as that was its major project and it was devoting substantial resources and employees towards completing it. Mr Whitewood said in the course of his evidence that he was focusing on this project as he believed he could secure further similar work from the Royal Australian Navy (the Navy) in the future.

13    Unfortunately, it is apparent that the fire had an immediate detrimental effect on the likelihood of ABA receiving any such future work. Whereas ABA had previously secured maintenance work in relation to another naval vessel, HMAS Wollongong, that arrangement was terminated by the Navy on about 2 October 2014. At that time the Navy’s investigation as to the cause of the fire on the HMAS Bundaberg was continuing.

Insolvency

14    The immediate consequence of the occurrence of the fire on 11 August 2014 and temporary cessation of work was that ABA became insolvent. That is admitted on the pleadings and it was established by the evidence before the Court.

Post fire consequences

15    In the period after the fire much of the communication between ABA and JMD Park relating to the use of the premises and to ABA’s obligations occurred through Ms Whitewood, for ABA, and Ms Cook, the then CFO of JMD Park. Ms Cook is now the CEO of JMD Park, although that change occurred after the presently relevant period.

16    Given the pressing need to continue with its projects, ABA took additional short term tenancies from MHB of two work sheds located near to the premises. This had the consequence that it was obliged to pay additional rent whilst continuing to pay the usual rent for the premises, even though a significant part of the leased area was not capable of being used.

17    Nevertheless, within a short period after the fire, ABA regained access to its office facilities and, on 19 August 2014, it was given unrestricted access to “Shed 1”. At that time, ABA could then work in approximately 60% of the total available shed space at the premises. Additional shed space did not became available at the premises until about 20 October 2014, when “Shed 3” was remediated. Relevantly, ABA did not regain access to the area where HMAS Bundaberg was located, as it had been secured by the Navy.

18    After 11 August 2014, ABA continued to receive services from JMD Park. Whilst the previous invoices to 8 August 2014 remained unpaid, JMD Park delivered further invoices totalling slightly over $100,000 for further services provided. As at 17 October 2014, ABA was indebted to JMD Park in the sum of $175,769.54. The terms of JMD Park’s invoices required payment within 14 days but, at that point in time, approximately $155,000 of the indebtedness was outside of the stated trading terms. As is discussed later in these reasons, Mr Price asserted that the non-payment of accounts in accordance with their terms was not unusual for ABA or in the boat building industry generally.

19    ABA was also apparently obliged to pay rent to MHB on the first day of each month. It had failed to pay its rent on either 1 September or 1 October 2014 in respect of the premises. As at 20 October 2014, it owed $77,000 to MHB in this regard. The amount of the invoices delivered by MHB to ABA prior to August 2014, in the sum of $23,080, remained outstanding, such that the total indebtedness to MHB was $100,080.

20    The lease arrangements between ABA and MHB were subject to an incentive deed which made provision for an amount of $200,000 which ABA could call upon to be paid to it. By the terms of the deed, ABA was only entitled to be paid $50,000 per month, although not in consecutive months and not in more than two months in any year. On 18 September 2014, Ms Whitewood sent an email to Mr Price and Ms Cook requesting payment of an incentive amount in the month of October 2014 of $50,000.00. It is relevant that this was an entitlement under the lease arrangements between ABA and MHB, and it is apparent that Ms Cook also undertook work for the latter company as well as performing her duties as the CFO of JMD Park. ABA had sought and obtained an amount of $50,000 under the incentive deed earlier in the year.

21    At the time of the fire ABA held a policy of insurance with CGU which included business interruption cover. It made a claim on the policy shortly after the occurrence of the fire and Mr Price was informed of that. CGU appointed a Mr Ballinger as its claim representative in relation to the claim and he attended the premises on about 24 August 2014, where he met with both Mr Whitewood and Mr Price. At around this time, Mr Price sought a copy of ABA’s insurance policy. Although there is a dispute about when and how a copy of the policy was first given to Mr Price, there is no doubt he received a copy by email on 16 October 2014.

22    ABA subsequently appointed Mr Murray Rowley as a consultant to manage its claim under the CGU policy.

23    It was not in contest that Mr Rowley and Mr Whitewood met with Mr Price from time to time and that, in the several conversations, Mr Price asked to be kept informed of what was happening in relation to the insurance claim. Mr Rowley, with the consent of Mr Whitewood, agreed and, in the period from August to October 2014, he had a number of telephone calls and meetings with Mr Price. It is relevant that during one meeting Mr Rowley said to Mr Price words to the effect that he was of the opinion that the insurance claim made by ABA would cover the loss which it had suffered.

24    Mr Price was kept abreast of the progress of ABA’s insurance claim (or lack thereof), and under cross-examination he accepted that ABA had comfort that they would be indemnified, but when that was going to happen “was becoming a question”. He was generally aware, as around late September 2014, that CGU was not making any further payments to ABA under the policy and CGU had cited the absence of information as the reason for that. He acknowledged that he received telephone calls and emails from Mr Rowley in relation to the insurance claim and that it was around late September when he was told that there was potential for some delay in paying the claim. Although acknowledging the fact of CGU delaying payment to ABA, Mr Price’s evidence was that he was confident that ABA’s claim would be successful. The basis for that confidence was not entirely apparent.

Meeting on 30 September 2014

25    At a meeting which occurred between Mr Whitewood and Mr Price in or around late September 2014, an arrangement was entered into whereby JMD Park agreed to lend the sum of $200,000 to ABA. The circumstances surrounding this are discussed later in these reasons. It is not in dispute that the meeting occurred and, in general terms, the essence of what happened at the meeting is also not in dispute, namely that JMD Park agreed to lend ABA the sum of $200,000. There is no diary note of the conversation and no written record of the agreement, nor any written confirmation of it or the terms on which it was made. On any view that is most unusual and not reflective of sound business management. However, that can possibly be explained by reference to Mr Price’s cavalier approach to conducting business of this nature. His evidence was to the effect that he was a very successful businessman who engaged in deals involving many millions of dollars. He also gave evidence that he engaged in business or management at a high or general level whilst his CFO, Ms Cook, would attend to the particulars. Whilst that may be generally true, in this case the recording of the loan or its terms did not occur at any level. The impression Mr Price gave, and seemingly intended to give, was that the making of the loan and its repayment were of little consequence to him.

26    Mr Price and Mr Whitewood each gave evidence, both orally and in their affidavits, as to the conversations which resulted in the making of the $200,000 loan. Although there was some inconsistency, some matters can be safely accepted as having been said or agreed. Firstly, that Mr Whitewood indicated to Mr Price that ABA was having cashflow problems as a result of the occurrence of the fire. It can also be accepted that there was discussion around that. Given that JMD Park’s list of Aged Receivables (as that list was produced on 20 October 2014) disclosed that, as at 30 September 2014, ABA was indebted to it in excess of $150,000, with much of that debt being outside the trading terms, the identification of ABA as having a cashflow problem could not have come as a surprise to Mr Price or JMD Park. It also had an outstanding indebtedness to MHB in an amount in excess of $60,000.

27    Secondly, it was not in dispute that Mr Whitewood expressed concern that CGU had delayed in making payments to ABA on its insurance claim. In his evidence Mr Price said that he was quite incredulous about CGU’s failure or delay in making the payments. Although Mr Price also suggested that he was comfortable that CGU would continue to indemnify ABA, he seemingly based that on conversations which he had with Mr Rowley, who had expressed the view that ABA had good policy coverage. However, any reasonable businessperson would appreciate that, if an insurer which has previously been making instalment payments ceases doing so, there is likely to be an issue with the insurer’s determination to provide cover. At the very least, there would be a risk that the insurer may be considering its position. In these circumstances, Mr Price’s assertion that he had no concerns about the insurance coverage would normally be regarded as either naïve or disingenuous. In this case I do not find that Mr Price was either. His misplaced confidence can be put down to his being very busy at the time and pre-occupied by his other major dealings, and he paid relatively little attention to ABA’s position. On the other hand, a reasonable person faced with these facts would have appreciated the existence of a significant risk as to whether the insurer would eventually pay the claim.

28    Thirdly, there is relevant consensus that Mr Whitewood expressed to Mr Price concern as to how, given its cashflow position, ABA could complete its projects and so receive the final progress payments. It seems that ABA was not able to meet the demands of creditors who needed to be paid so that ABA could complete its several projects, and that Mr Price was informed of this. Ultimately, Mr Price accepted he had been told of this, however, under cross-examination on this topic he demonstrated a reluctance to acknowledge what was obviously correct, and a propensity to say what he thought would advance JMD Park’s case. It is relevant to set out the following part of the transcript:

And Mr Whitewood expressed some concern because the insurance policy was lagging in its tranche payments?---And I was quite incredulous to that.

And, as a consequence of that, did Mr Whitewood express some concern about ABAs inability to pay amounts which were then outstanding to various creditors?---No. That conversation was never had.

So on what basis did you loan to $200,000 to ABA?---He rattled off a couple of creditors that needed to have payments immediately, so that the boat could get launched, and I did exactly what I would do all over again today, which I said, “No problem. We’re in control. The boat can’t get launched unless we launch it. So why wouldn’t I help the situation out?”

So there was a discussion about creditors that ABA had to pay, but it couldn’t?---No. They told us they needed payments made to certain creditors, and could they borrow $200,000. I said, “Yes. I – I have no problem with that.”

You understood that request to be that ABA couldn’t otherwise make payment in respect of those creditors?---I understood that there was a – a stopgap in cashflow, and they needed help. That’s what I understood.

Because if they couldn’t pay those creditors, then the project, that particular project, couldn’t progress; that’s correct?---That’s correct.

29    Mr Price’s initial reluctance to admit that Mr Whitewood had said that ABA had a number of creditors which it was not able to pay was an attempt to deny that he was aware of its difficult financial position. In the light of the concession ultimately made by Mr Price, I find that Mr Whitewood’s evidence as to what was said at the 30 September meeting to be the more accurate account. I accept that he said that he had suppliers which he needed to pay in order to allow important projects to be completed, that ABA needed to pay a portion of the payroll and WorkCover expenses, and that it needed $200,000 for those expenses which it did not have. I accept that Mr Price offered to assist ABA financially. I also accept that Mr Whitewood indicated that the QPS vessels would be completed in a number of weeks and that once final payment was received ABA would repay the $200,000.

30    I further accept that there was no agreement made at this meeting between Mr Whitewood and Mr Price as to the payment by ABA of its outstanding indebtedness to JMD Park arising as a result of the rendering of invoices to it. Nor was there any discussion about the existing indebtedness to MHB.

The making of the $200,000 loan

31    JMD Park transferred the sum of $200,000 to ABA on 30 September 2014.

32    A curious aspect of these financial arrangements was the lack of any written evidence of it. No written agreement was put in place. There was no email confirmation of its making or of the obligation to repay it. JMD Park, which carried on a substantial business which required the engagement of a CFO, a financial accountant and other staff, produced no document indicating that the money had been lent, the terms on which it was lent, or when it would be repaid.

ABA sends JMD Park a draft cashflow

33    On 29 September 2014, Ms Whitewood sent to Ms Cook an email which attached a partially completed cashflow schedule. Ms Whitewood stated in her email that she had spoken to the project manager of the QPS vessels about the payments which were to be received in relation to it, and that she would extend the cashflow schedule when that information was received. It would seem that this cashflow had a relationship to the receipt of the payment from the QPS and to the timing of ABA’s ability to repay the $200,000 loan. The difficulty with this conclusion is, however, that the email was sent the day prior to the meeting which Mr Price and Mr Whitewood agreed occurred on 30 September. Neither party was able to explain this discrepancy. Perhaps the most logical answer is that there existed some preliminary discussions about the possibility of a loan which required ABA to indicate when it would be in a position to repay it, and that is the reason for Ms Whitewood’s email.

34    Ms Whitewood gave evidence that she sent an email to Mr Price and Ms Cook at 2.34 pm on 30 September 2014, which had the subject heading “Cashflow” and said “Hi, I will be over shortly”. This indicated that she would soon attend at the offices of JMD Park, which were a short walk from ABA’s offices. Originally, Ms Whitewood said that she attached a cashflow spreadsheet to the email, but the evidence suggests that she was mistaken about this. That is probably due to the time which has lapsed since the events in question.

Sending of the DCF and list of outstanding creditors

35    It is not in contest that, on 1 October 2014 at approximately 6.55 pm, Ms Whitewood sent a further email to Mr Price and Ms Cook attaching what she described as an “updated” Daily Cash Forecast. Also attached was a list identifying the creditors which required payment and the dates on which they were to be paid, as was a list identifying aged creditors and amounts owing to the value of $78,000. That latter list had dates against the amounts owing, and those dates suggested that the debts were overdue and, in some cases, by a number of months. It would have been obvious to anyone reading it that ABA had, at least, a significant cashflow problem extending back to April or May of that year. That position could only have been made worse by the occurrence of the fire and the disruption to the business. The other creditors identified were listed under the heading “Pre-payments to be done”. Ms Cook said in evidence that these related to work to be done on vessels which were in the process of being built and the loan was to be used for making payments to them so the vessels could be completed and progress payments received.

36    The email of 1 October stated, amongst other things:

There are two sheets that explain payment details for Purchase orders requiring pre payment and other supplier payments.

I have tried to cull this as best I can.

37    The statement that Ms Whitewood had “culled” the list is not unimportant, and is suggestive of her prioritising the creditors and identifying which will be paid with the funds received.

The 1 October 2014 daily cashflow

38    The Daily Cash Forecast (DCF) attached to that email became exhibit 9 in the proceedings and assumed some importance. It is to be recalled that it was received after the loan had been provided. Neither party provided any clear explanation as to why the document was provided by ABA to JMD Park. Mr Price said that he did not understand it and Ms Cook gave no explanation for its provision. In the context of the circumstances which existed, it is likely that it was provided to JMD Park by ABA to indicate its financial position and to identify when it would have cash inflows from which the loan could be repaid.

39    On its face, the DCF purported to provide information about the financial future of ABA over the following weeks and it included anticipated income and receipts, the application of the $200,000 loan and the anticipated cash position. Although there is a question surrounding the veracity of the financial position demonstrated by the DCF, by its terms it disclosed:

(a)    that ABA would receive income from Sealink, Bombardier and in respect of the QPS vessel in the forthcoming weeks;

(b)    how the loan money of $200,000 received from JMD Park would be disbursed;

(c)    that the loan money had been or was intended to be applied to pay rent on the “Main shed”;

(d)    that ABA was paying weekly instalments to the Australian Taxation Office pursuant to an “arrangement”;

(e)    that ABA had payment plans in place with at least five suppliers other than JMD Park;

(f)    that ABA anticipated its bank balance would be in debit until payments were received following completion of the QPS vessel project;

(g)    that no provision was made for the repayment of the $200,000 loan upon completion of the QPS vessel project; and

(h)    that the bank balances did not account for any repayment of invoices then outstanding to JMD Park.

40    In her evidence, Ms Cook said that the DCF did not make mention of about $300,000 worth of other trade debtors which Ms Whitewood had mentioned to her. The identity of those debtors remained unspecified, as were the dates on which money would be received. She acknowledged that it also did not make provision for the repayment of the $200,000 loan and failed to include the rent payable for the additional sheds which were then being leased from MHB. Ms Cook also acknowledged that there was no provision for any further loans from JMD Park, although that was not anticipated at the time the DCF was received.

41    Ms Cook refused to accept that the DCF provided an adequate tool to gauge the financial position of ABA. She was of the opinion that it was flawed in many respects, including that it omitted cash inflows and cash outflows. In the former respect, it did not include revenue from CGU or from work to be done on HMAS Wollongong, the receipt of which was expected around 20 October 2014.

Meeting on 2 October 2014 about the DCF

42    On 2 October 2014, a meeting took place between Mr and Ms Whitewood on the one hand and Mr Price and Ms Cook on the other. The matters discussed in that meeting are somewhat vague. Neither Mr Whitewood nor Ms Whitewood was able to recall it.

43    At 7.04 am on 2 October 2014, Ms Cook sent to Ms Whitewood an email which stated:

Hi Karen,

Would you like to come over this morning at 8:45 to meet with David with the budget so we can walk through it together?

Regards Julie

44    It seems that the meeting occurred approximately one and three quarter hours after that email was sent. The “budget” referred to was a reference to the DCF and the “David” mentioned was a reference to Mr Price.

45    Mr Price asserted in his affidavit of 25 February 2019 that he does not recall the words which were spoken at the meeting. He said that his concern was about “what Mr Whitewood and Ms Whitewood had to say at the meeting about their funding requirements”, but, somewhat unusually, Mr Price makes no statement as to what was actually said about that topic and nor did he indicate why he does not address it. Ms Cook also said in her affidavit that the short term funding requirements of ABA were discussed but does not identify the content of that discussion. She said in her affidavit that the DCF was only a small part of the discussion, but did acknowledge that the DCF was discussed.

46    It is strange that the meeting was called by Ms Cook and Mr Price specifically for the purpose of discussing the “budget” or DCF which had been provided, yet neither acknowledge it was pursued in any detail. They each sought to give the impression that the meeting was a general meeting, of the type which they often had with tenants. Mr Dietz, who appeared for the liquidators, submitted that this should not be accepted, even though there was no contradictory evidence from Mr and Ms Whitewood. Although it is a relatively small point in the scheme of the case, Mr Dietz’s submission should be accepted. It is inherently unlikely that Mr Price and Ms Cook, in their positions in JMD Park, would not have sought to understand ABA’s financial position given that an unsecured loan of $200,000 had just been made to it. In the context of the disruption caused by the fire, the substantial outstanding liabilities owing to JMD Park, and Mr Whitewood’s statement to Mr Price that ABA did not have sufficient funds to complete the QPS vessel, it would be unusual if some due diligence as to the ability of ABA to repay the loan was not undertaken. As the facts above suggest, it may have been that the process of putting the loan in place was started prior to 30 September 2014, but it had not progressed far as ABA had not demonstrated any ability to repay it. Nevertheless, the loan was made on 30 September and it is likely that a responsible CFO in position of Ms Cook’s position would seek to understand ABA’s financial position so as to assess its ability to repay it. In these circumstances, I accept the submission that the DCF was discussed in some detail at the meeting specifically called for that purpose. Even if it were identified that the DCF was deficient in some respects, to someone as astute as Ms Cook it would have been evident that ABA was in a difficult if not precarious financial position following the occurrence of the fire.

Cancellation of the HMAS Wollongong project

47    At 12.14 pm on 2 October 2014, Mr Price and Mr Whitewood were advised that the Navy vessel, HMAS Wollongong, would no longer be serviced by ABA. That was not insignificant, as work on naval vessels had been identified as a significant part ABA’s business, with the work on HMAS Bundaberg being ABA’s most substantial project at the time of the fire.

No further insurance payments to ABA

48    In the period after the meeting on 2 October 2014, ABA did not receive any further income by way of payments from CGU. Although not formally denying liability, it had ceased making any payments. This would have been known to JMD Park, as Mr Price was being kept informed of the insurance situation by Mr Rowley. Similarly, on becoming aware that HMAS Wollongong would not be docking for maintenance work, JMD Park and Mr Price would have known that no revenue would be received from that source. It follows that, as at early October, JMD Park would have been aware that the limited revenue identified on the DCF provided on 1 October was now more or less accurate (save for some unidentified trade debtors), but that the liabilities were substantially understated.

Additional loans to ABA

49    As at 10 October 2014, the QPS vessels were incomplete, however, ABA had insufficient funds to continue to operate. That day, Ms Whitewood had a telephone conversation with Mr Price, in the course of which she requested JMD Park make a further loan to ABA in the sum of $30,000.00. Ms Whitewood said that the loan would be repaid on receipt of the funds payable on the completion of the QPS vessel.

50    Although it was suggested that JMD Park was asked for these funds in order to make a payment to the Australian Taxation Office pursuant to a payment plan which had been entered into, in an affidavit Mr Price denies that was mentioned. He said that he was not aware of the payment arrangements with the ATO other than what is referred to in the affidavits of Ms Trenfield filed in this action. Whilst that latter assertion may be correct, the existence of the payment plan was certainly identified in the DCF of 1 October which Mr Price received. Even if it is accepted that Mr Price was unaware of the payment plan, it would have been apparent to Ms Cook.

51    Subsequent to the telephone conversation of 10 October, the sum of $30,000 was transferred by JMD Park into ABA’s account. Other than the emails referring to the request for a transfer and confirmation of the same there was no documenting of this loan and no security.

52    Mr Whitewood was cross-examined as to the circumstances of the request for this loan and it was put to him that it was not sought by Ms Whitewood on her own initiative. Mr Whitewood agreed with that and said that, at around that time, he had been having a number of discussions with Mr Price and Ms Cook about the financial difficulties which ABA was experiencing as a result of the fire, the subsequent disruption to the business in terms of cashflow, and the cancellation of contracts. Mr Whitewood said that Mr Price offered to make a further advance to ABA. Mr Price denied this, and said that ABA had sought the loan. On this issue as well, the evidence of Mr Whitewood ought to be accepted, even though it does not weigh heavily in the matter. However, at this point in time it would have been apparent to JMD Park that unless ABA completed the QPS vessel and discharged the creditors relating to it, the final progress payment in relation to that vessel would not be made and ABA would not have funds to discharge the $200,000 loan or the other outstanding indebtedness to JMD Park and MHB.

53    On 14 October 2014, by email, Ms Whitewood made a further request to Mr Price for additional finance in the sum of $55,509.40. She indicated that the money was needed to pay for seating installed in a “Reef Cat” which was being constructed. It appears that payment was required so that the vessel could be transferred to the purchaser. Attached to the email were two invoices which were then both overdue.

54    A further loan in the sum of $73,268.89 was sought by ABA from JMD Park on around 19 October 2014. Mr Whitewood sent a text to Mr Price on that day advising that he needed assistance to get certain PPSR security released, and Mr Price replied positively. The money was advanced the next morning. Otherwise, the evidence surrounding the making of this loan is sparse, although Mr Price did depose that he was advised that it was required in order to meet creditors’ demands to allow PPSR securities over the QPS vessel to be released. The amount was advanced on 20 October 2014. In an email to Ms Cook at 11.00 am that day, Ms Whitewood advised as follows:

Payment received with thanks.

Suppliers paid and a remittance emailed, so all going well the PPSR letters should be on their way to our Lawyer. The Lawyer has been notified to keep an eye out for the letters.

55    These comments referred to the fact that the letters releasing the security over the QPS vessel were being delivered by the security holders. The consequence would be that title could be provided to the QPS and the final payment made to ABA. It is obvious that it was in the interests of JMD Park for that to occur, given that it was necessary to allow ABA to repay the loan and other indebtedness.

56    In summary, the following loans were made by JMD Park to ABA:

(a)    on 30 September 2014, JMD Park loaned ABA $200,000;

(b)    on 10 October 2014, JMD Park loaned ABA $30,000;

(c)    on 14 October 2014, JMD Park loaned ABA $55,509.40;

(d)    on 20 October 2014, JMD Park loaned ABA $73,268.89.

Dinner meeting on 20 October 2014

57    An important meeting occurred on 20 October 2014 at the premises of JMD Park. There is consensus that it was attended by Mr Price, Ms Cook, Mr and Ms Whitewood, Mr Rink and Mr Rowley and the latter’s assistant, a person by the name of Shirley, although her surname is unknown. In some ways this meeting is pivotal to the outcome of this matter.

58    Mr Whitewood’s evidence was to the effect that quite late in the evening, when only he, Ms Whitewood, Mr Price and Ms Cook remained, there was a discussion about the financial problems facing ABA, including that it was prioritising the payments which were being received towards the large volume of outstanding creditors. He claimed he also said to Mr Price that ABA was not in a position to repay its indebtedness to JMD Park. Mr Whitewood said that, in response to this, Mr Price demanded that JMD Park be paid immediately from the incoming proceeds, and at one point said words to the effect of “if you think I’m going to stand in line with everyone else waiting for payment, you’re dreaming.” Mr Whitewood said that, during this discussion, Ms Whitewood became upset and broke down in tears and left the room.

59    In an initial affidavit, Ms Whitewood gave substantially the same evidence, although she did so after having read Mr Whitewood’s affidavit. Subsequently, Ms Whitewood gave a further affidavit in which she claimed that these relevant conversations occurred the following day at another meeting. The evidence surrounding this following meeting is discussed below, however, for the reasons identified there, I accept that the events narrated by Mr Whitewood ought to be accepted over those of the other relevant witnesses.

60    Mr Price and Ms Cook gave a different version of events relevant to the alleged conversation at the meeting on 20 October 2014 and, although they both initially appeared to be credible on some aspects of their evidence, when considered in light of the surrounding circumstances, their version is far less coherent with those matters than the scenario advanced by Mr Whitewood and supported to some extent by Ms Whitewood.

Sending of the aged receivables spreadsheet

61    On 21 October 2014 at about 11.32 am, Ms Cook sent Ms Whitewood an email (copied to Mr Price and Mr Whitewood) attaching a spreadsheet entitled “ABA Receivables.xls”. Mr Price acknowledged that this was sent on his instructions to inform ABA of the total amount due to JMD Park and MHB. The attached spreadsheet itemised a large number of unpaid invoices from JMD Park dating from 7 May 2014, the amount of the loans made to ABA, and unpaid invoices from MHB dating from January 2014 (which included invoices for rent payable with respect to the additional sheds leased from MHB).

62    The liquidators observe that the spreadsheet included amounts which had only been invoiced to ABA shortly before 21 October 2014, such that they were not yet payable under JMD Park’s trading terms.

63    In his initial affidavit, Mr Price said that he caused the spreadsheet to be sent to ABA because he understood that it would shortly complete the QPS vessel and it would then be in a position to pay its creditors including JMD Park and MHB.

64    The liquidators submit that the spreadsheet was sent as a demand to ABA to pay all amounts due to JMD Park and MHB, even if some was not yet owing, because Mr Price had been informed that ABA was not able to repay its debts to JMD Park. Whilst this is dealt with in detail below, it is evident that the request for payment of all amounts owing, including the outstanding invoices, was motivated by a concern that ABA would not repay the loan or other debts if those liabilities were not discharged out of the money received in relation to the QPS vessel.

Repayment of loans

65    At about 2.00 pm on 21 October 2014, ABA paid to JMD Park the sum of $358,778.29, being the total of the amount of the loans made to it, and Ms Whitewood informed Ms Cook and Mr Price of that a short time later.

Meeting on 21 October 2014

66    A further meeting took place on 21 October 2014, just after about 2.00 pm. It was attended by Mr and Ms Whitewood, Mr Price, Ms Cook and Mr Wheeley. Mr Rink had been invited to attend this meeting, but it is not clear whether he did so.

67    The reference to this meeting is somewhat important as Ms Whitewood, in her revised version of events, asserted that it was at this meeting that she became upset at Mr Price’s demand for payment and left it crying. The liquidators, who called Ms Whitewood as a witness, do not support that version of events, and submit that she is mistaken about the occasion on which the relevant discussion occurred. That submission should be accepted. The events in question were obviously traumatic for Mr and Ms Whitewood, as the business of which they had been part and which they had managed for a significant period of time had suffered as a result of the fire, become insolvent and would apparently fail. Not only were the events traumatic, but much was occurring in an attempt to save the business, including attempting to complete the outstanding contracts.

The payment of JMD Park’s and MHB’s invoices

68    After the meeting on 21 October 2014, Ms Whitewood returned to her office at ABA and caused the outstanding indebtedness arising from the invoices delivered by JMD Park to be paid. An amount of $275,850.44 was transferred to JMD Park’s account. Evidence of the remittance was sent by email by Ms Whitewood to Ms Cook at 6.08 pm that day. That amount included the outstanding rent owing by ABA to MHB in relation to the premises and the additional sheds which had been leased after the fire, and other amounts invoiced by MHB to ABA from about January 2014. In total, $100,800 of the amount paid was paid in relation to money owed to MHB. No claim is made against MHB in relation to the amounts received by it.

69    Part of the case initially advanced by JMD Park was that the payment of the outstanding indebtedness on the invoices owing to it (and the amount owing to MHB) was pursuant to an arrangement which had been agreed between Mr Whitewood and Mr Price. This was repeatedly put to both Mr Whitewood and Ms Whitewood throughout their cross-examination. Indeed, it was sought to be put in a number of ways although each strongly denied its existence. That such an arrangement existed was important to JMD Park’s case because it would explain the discharge of all indebtedness by ABA on 21 October 2014. On the other hand, the absence of such an arrangement would support Mr Whitewood’s assertion that, on the evening of 20 October, Mr Price demanded payment of the debts owing to his companies after being told that ABA was unable to meet the claims of its creditors.

70    On this issue the evidence supports the conclusion that no such prior arrangement existed. As was submitted on behalf of the liquidators, the existence of any such arrangement did not appear in the first, second or third affidavits of Mr Price. Indeed, the evidence at paragraph 80(a) of his first affidavit was not consistent with the existence of such an arrangement. If there were an occasion to mention its existence, it was at that part of the narrative in that affidavit. Nothing was mentioned and, indeed, a different reason as to why the aged receivables list was given to ABA was advanced. Similarly, in Mr Price’s second affidavit there was an appropriate opportunity to mention the alleged arrangement relating to the payment of the outstanding invoices, and nothing was said.

71    Under cross-examination, Mr Price was somewhat evasive in his answers in relation to this topic, although ultimately he admitted there was no such arrangement. That is obviously at odds with the instructions which must have been given by him to his solicitors and counsel in relation to what was to be put to Mr and Ms Whitewood.

72    Under cross-examination, Ms Cook sought to support the case advanced and claimed that such an arrangement for repayment of the debt had been put in place. She said that she was told this by Mr Price, although it is now clear that Mr Price was not cognisant of any such arrangement. Her evidence in that respect is unsupported by Mr Price’s. It is not insignificant that Ms Cook did not mention the existence of any such arrangement in any of her four affidavits. Ms Cook’s credibility was damaged by her evidence on this topic.

73    Again, it is a matter of concern that there was no document evidencing the existence of the alleged arrangement. If the arrangement existed it might have been expected that Ms Cook, who as the CFO had responsibility for ensuring the payment of outstanding debts, would have recorded or confirmed it in writing with ABA. Ms Cook appeared to be knowledgeable and thorough in what she did, and the failure to produce any writing recording the agreement at all suggests that none existed.

74    In all of the circumstances, Mr and Ms Whitewood’s evidence that there was no prior agreement about the discharging of the indebtedness to JMD Park on the receipt of funds from the QPS should be accepted over the contrary evidence of Ms Cook.

Subsequent appointment of administrators and liquidators

75    On 4 November 2014, Ms Trenfield and Mr Park were appointed as administrators of the Company and, subsequently, on 9 December 2014, they were appointed as its liquidators.

76    For the purposes of the insolvency provisions in the Act it is accepted that the relation-back day is 4 November 2014, and the relation-back period is that between 4 May 2014 and 4 November 2014.

Statutory provisions

77    The liquidators claim that the amounts paid by ABA to JMD Park were voidable transactions and seek an order that JMD Park now pay an equal amount to ABA. That may be appropriate if the impugned payments were both insolvent transactions and unfair preferences.

78    The relevant provisions of the Act are as follows:

588FA    Unfair preferences

(1)    A transaction is an unfair preference given by a company to a creditor of the company if, and only if:

(a)     the company and the creditor are parties to the transaction (even if someone else is also a party); and

(b)     the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company;

even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.

…

588FC     Insolvent transactions

A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and:

  (a)    any of the following happens at a time when the company is insolvent:

 (i)    the transaction is entered into; or

 (ii)    an act is done, or an omission is made, for the purpose of giving effect to the transaction; or

(b)    the company becomes insolvent because of, or because of matters including:

 (i)    entering into the transaction; or

 (ii)    a person doing an act, or making an omission, for the purpose of giving effect to the transaction.

    …

588FE    Voidable transactions

(1)    If a company is being wound up:

(a)    a transaction of the company may be voidable because of any one or more of subsections (2) to (6) if the transaction was entered into on or after 23 June 1993; and

…

(2)    The transaction is voidable if:

(a)    it is an insolvent transaction of the company; and

(b)    it was entered into, or an act was done for the purpose of giving effect to it:

(i)    during the 6 months ending on the relation-back day; or

(ii)    after that day but on or before the day when the winding up began.

…

588FF    Courts may make orders about voidable transactions

(1)    Where, on the application of a company’s liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:

(a)    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;

…

The payments were voidable transactions

79    The liquidators accepted that they carried the onus of establishing each element of the sections which had to be satisfied to enliven the Court’s power to make orders under s 588FF: Richardson v Commercial Banking Company of Sydney Ltd (1952) 85 CLR 110, 135.

Transaction — s 588FA(1)

80    The parties initially disputed the identity of the facts and circumstances constituting the “transaction” for the purposes of ss 588FF(1), 588FE, 588FC and 588FA.

81    The definition of “transaction” in s 9 of the Act is as follows:

transaction, in Part 5.7B, in relation to a body corporate or Part 5.7 body, means a transaction to which the body is a party, for example (but without limitation):

           (a)    a conveyance, transfer or other disposition by the body of property of the body; and

           (b)    a security interest granted by the body in its property (including a security interest in the body’s PPSA retention of title property); and

(c)    a guarantee given by the body; and

(d)    a payment made by the body; and

(e)    an obligation incurred by the body; and

(f)    a release or waiver by the body; and

(g)    a loan to the body;

and includes such a transaction that has been completed or given effect to, or that has terminated.

82    The liquidators submitted that, despite the apparent breadth of that definition, for the purpose of s 588FA(1) the “transaction” must be “given by the company to the creditor”. They relied upon the decision of Sheahan v Carrier Air Conditioning Pty Ltd (1997) 189 CLR 407. However, that case turned on the construction of an entirely different provision and, also, on s 122(1) of the Bankruptcy Act 1966 (Cth), which had derivative effect in the Corporations Law at the time. The liquidators also relied upon Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281, although that decision also does not support the proposition for which the liquidators contend. At 288, the Full Court held:

While s 9 does not define “transaction”, it does through the process of exemplification typify the forms of conduct or dealing engaged in by a company that will be characterised as a transaction for its purposes – “a conveyance… of property”, “an obligation incurred”, “a release or waiver” etc. Common to the examples is the characteristic that the conduct or dealing engaged in by the debtor company has the consequence of effecting a change in the rights, liability or property of the company itself.

83    The concept of a “transaction of a company” was discussed at length in Walton Construction (Qld) Pty Ltd (in liq) v QHT Investments Pty Ltd [2018] FCA 1986 at [102]-[115]. There, reliance was placed on the observations of Gordon J in Capital Finance Australia Ltd v Tolcher (2007) 164 FCR 83 at 107-108 [120], where her Honour said:

As the trial judge said (at [25] and [26]), the term “transaction” is a word of wide connotation. It may include a series of events in a course of dealings initiated by a debtor intended to extinguish a debt: Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557 at [103], [211]; Australian Kitchen Industries Pty Ltd v Albarran (2004) 51 ACSR 604 at [24], [30] and Re Emanuel (No 14) 147 ALR at 287-289. The events can occur at different times and in different forms: Mann v Sangria Pty Ltd (2001) 38 ACSR 307 at [31], [41]. The categories are not closed. It is not confined to transactions that are lawful or enforceable. The complexity of modern business relations necessarily requires the court to look objectively at the totality of the relationship between the parties in identifying and characterising the “transaction” for the purposes of the relevant provisions of Pt 5.7B of the Corporations Act: Mulherin v Bank of Western Australia Ltd [2006] QCA 175 at [126]; VR Dye & Company v Peninsula Hotels Pty Ltd (in liq) [1993] 3 VR 201 at [39] and Airservices Australia v Ferrier (1996) 185 CLR 483 at 502.

84    As was observed in Walton Construction, the task of identifying the “transaction of the company” can be a difficult evaluative one, which must be approached by a consideration of all of the circumstances of the case. It can be a composite transaction involving a number of actors and a collection of dealings.

85    That being so, it is not possible to accept the liquidator’s submission that in all cases a transaction must necessarily be “given by the company to the creditor”. Indeed, the definition in s 9 includes at (g) “a loan to the body”, and that indicates the relevant transaction does not need to have that characteristic.

86    The liquidator submitted that, as a matter of law, the advances made by JMD Park to ABA cannot constitute part of the “transaction”, because they were not sufficiently connected with the giving of the loan repayments by the Company to JMD Park. It was said that that would only occur if the very same funds advanced by JMD Park were used to make the loan repayments.

Concessions by the defendants

87    In the written submissions filed prior to the hearing, the defendants conceded that each of the payments made by it was a “transaction” within the meaning of s 9 of the Act. It was also conceded that each was an “insolvent transaction”. It is assumed the latter concession is to the effect that, if the liquidator establishes that the transactions were unfair preferences, the relevant steps were taken when ABA was insolvent.

88    On the basis of these concessions, there is now no need to consider those issues any further.

Unfair preference

89    The defendant initially put the liquidators to proof on the issue of whether the payments were “unfair preferences within the meaning of section 588FA of the Act”. At the completion of the evidence, JMD Park conceded that the payments to it had the necessary prejudicial effect. That concession was also properly made given the evidence relied upon by the liquidators. Further, each of the payments was made to JMD Park which, as the recipient, was a party to each transaction. That satisfied the requirement in s 588FA(1)(a).

90    The affidavits of Ms Trenfield established that, if JMD Park were to prove in the liquidation for each of the impugned payments, it would not receive 100 cents in the dollar. As at 1 March 2019, the liquidators had made net realisations of $191,939.55. Although proofs of debt have not been called for, and putting aside the debt of $17.371m claimed by MHB, the claims of ABA’s other creditors total around $4 million. Ms Trenfield identified that, even in the absence of proofs, there was no doubt that ABA was indebted to the Deputy Commissioner of Taxation for $874,874.87, to WorkCover Queensland for $640,008.96 and to the Office of State Revenue Queensland for $99,371.96. Those debts are consistent with the Report as to Affairs and there is no relevant dispute that they existed. It follows that any creditors, let alone these undoubted creditors, would recover little, if anything, in a winding up.

91    In the circumstances, there is no reason to doubt the veracity of Ms Trenfield’s opinion that the unsecured creditors will receive a dividend substantially below 100 cents in the dollar in the liquidation of the company. As JMD Park has received full value for the debts which were paid by the impugned transactions, its notional participation in that winding up would put it in a worse position. This demonstrates the preferential effect of the payments: Federal Commissioner of Taxation v Kassem (2012) 205 FCR 156.

92    The liquidators have established that the payments made by ABA to JMD Park were unfair preferences within s 588FA of the Act.

The s 588FG(2) defence — good faith and no reasonable belief in insolvency

93    The main issue in dispute at trial was whether the JMD Park had established a defence under s 588FG(2) of the Act. That section provides:

588FG Transaction not voidable as against certain persons

    …

(2)     A court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company, or an unreasonable director-related transaction of the company, and it is proved that:

(a)     the person became a party to the transaction in good faith; and

(b)     at the time when the person became such a party:

(i)     the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and

(ii)     a reasonable person in the person’s circumstances would have had no such grounds for so suspecting; and

(c)     the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction.

94    It was not relevantly disputed that JMD Park carried the onus of establishing the defence and, indeed, each cumulative element of it: Hussain v CSR Building Products Ltd (2016) 112 ACSR 507, [190]ff. It has been said that this onus is somewhat demanding, as it requires establishing two negatives.

95    The operation of s 588FG was recently assayed by the Court of Appeal in Western Australia in White v ACN 153 152 731 Pty Ltd (in liq) (2018) 129 ASCR 182 (Murphy and Mitchell JJA and Allanson J) (Port Village). The Court (at 185 [6]) observed that the section provides that an order is not to be made against a person who proves that they took the benefit of the transaction, or became a party to it in good faith, at a time when they had no reasonable grounds for suspecting insolvency, and a reasonable person in their circumstances would have had no reasonable grounds for suspecting insolvency. Their Honours also noted (at 202 [107]) that the application of the statutory test requires the matter to be “considered through the contemporary eyes of the parties in the commercial circumstances then prevailing, and without the benefit of hindsight.”

96    In relation to s 588FG(2)(a), the Court (at 202 [108]-[110]) identified the test for good faith was wholly subjective, and that a person acts in good faith if they act with propriety or honesty. So, a creditor who receives payment knowing or actually suspecting insolvency on reasonable grounds would not be said to be acting in good faith: Sutherland v Eurolinx Pty Ltd (2001) 37 ACSR 477, [38]. Further, a failure to make enquiries when the occasion calls for them to be made may be significant in rejecting a claim of good faith: Cussen v Commissioner of Taxation (2004) 51 ACSR 530 (Cussen), [123].

97    The Court also identified (at 203 [111]), in relation to s 588FG(2)(b), that both limbs require consideration of whether there were grounds for suspecting the company was insolvent or would become insolvent, and that suspicion was something more than “mere idle wondering whether a matter exists or not” and requires a positive feeling or actual apprehension or mistrust, falling short of a positive conclusion. In so observing, the Court referred to Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266. In that case, Kitto J (at 303) identified the requirements of suspicion in the following manner:

A suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust, amounting to “a slight opinion, but without sufficient evidence”, as Chambers’s Dictionary expresses it. Consequently, a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence. The notion which “reason to suspect” expresses in sub-s. (4) is, I think, of something which in all the circumstances would create in the mind of a reasonable person in the position of the payee an actual apprehension or fear that the situation of the payer is in actual fact that which the sub-section describes—a mistrust of the payer’s ability to pay his debts as they become due and of the effect which acceptance of the payment would have as between the payee and the other creditors.

98    A failure to pay a debt or to pay it in a timely way, the Court in Port Village said, may not, of itself, ground a suspicion of insolvency. It may simply identify a temporary lack of liquidity or a possibility that the debtor was insolvent. That, however, may not be a sufficient foundation for the formation of an actual suspicion that the debtor is insolvent. The failure to pay or the late payment must be considered in its context, including the history of dealings between the parties. The size of the debt and the length of time over which it has been wholly or partially unpaid are generally significant considerations in determining whether there were grounds for suspecting insolvency.

99    There was no dispute between the parties that, in order to satisfy the section, the creditor must be exposed to facts which point to the fact of insolvency and not the mere possibility of it.

100    The Court in Port Village also considered, at length, the requirements of the two limbs of s 588FG(2)(b). It held that the first limb, being s 588FG(2)(b)(i), appeared to be directed to the facts and matters actually (subjectively) appreciated by “the person”. Therefore, if the facts and matters actually appreciated by the person to whom the section is directed were sufficient to induce a suspicion of insolvency in the mind of a reasonable person, the first limb of the section could not be satisfied. More importantly, their Honours observed (at 204 [120]) that the negative must be shown, such that if the creditor is unable to prove that the facts and matters appreciated by them were insufficient to induce suspicion of insolvency in the mind of any reasonable person, the defence will fail. It is not enough to show that they did not have any actual suspicion of insolvency, and that is not something which they must there establish. It may be, however, that if the creditor did suspect insolvency, that could provide evidence that a reasonable person aware of the facts known to the creditor would also be of that mind.

101    In relation to the second limb, s 588FG(2)(b)(ii), being whether a reasonable person in the creditor’s position would suspect insolvency, the Court (at 205 [123]) relied upon the principles set out in Cussen, although slightly adapted:

1.     The words ‘in the person’s circumstances’ refer to the actual circumstances as they exist at the time they entered into the relevant transaction, and denote external, objective factors or circumstances rather than factors personal to the person concerned, such as their particular perspicacity, financial acumen and the like.

2.     The reference to whether a ‘reasonable person’ in the person’s circumstances ‘would have had’ reasonable grounds for suspecting that the company was insolvent is a reference to the ‘reasonable person’s’ assessment of the information in fact in the possession of the creditor.

3.     In this context, the information in the possession of the creditor includes the fact (if it be the fact) of the absence of enquiries, but not information which a ‘reasonable person’ would theoretically have obtained had enquiries been made and responded to.

4.     The test is an objective test, and the standard of measurement is that of a hypothetical person who is assumed to have the knowledge and experience of the ‘average business person’. It does not require an examination of whether the particular creditor, with their skills, training and experience, acting reasonably, would have had reasonable grounds for suspecting insolvency.

(footnotes omitted)

102    The adaption or modification was that, in relation to proposition 1, the Court added (at 205 [124]) that the objective circumstances may include the nature and practices of the industry in which the relevant transaction occurred, but not merely the creditor’s subjective views of what they were.

Section 588FG(2)(b)(ii) — no reasonable grounds for suspecting that the company was insolvent

103    It is appropriate to first ascertain whether JMD Park has satisfied the requirements of s 588FG(2)(b)(ii), namely whether a reasonable person in JMD Park’s circumstances would have had no reasonable grounds for suspecting that ABA was insolvent when the payments were made or would become insolvent by the making of the payments. In the circumstances of this case, the answer to this question will inform the answer the question of whether JMD Park acted in good faith.

The point in time to be considered

104    The parties agreed that the point in time for the application of the above tests is when the transactions were entered into. In this case that was 21 October 2014.

Corporate attribution

105    When the question requires consideration of a corporate state of mind, it is necessary to identify those natural persons whose knowledge can be attributed to it. On occasion that may be a difficult question. That is not so in the present case. Mr Price was the only director of JMD Park. His knowledge of the circumstances was obviously that of the company. Similarly, Ms Cook was JMD Park’s CFO, and she was held out by it to deal with ABA in relation to financial matters. There was no dispute to the contrary. That becomes relevant in the context of the financial information which was provided by ABA to JMD Park in the DCF and which indicated that ABA was in financial difficulties.

106    Although Mr Hay for JMD Park suggested that, as Mr Price was the only director, it was only his mind which was relevant, he ultimately acknowledged that the matters known to Ms Cook as the CFO would also be material to identifying the circumstances known to the parties. That acknowledgment was correctly made, as Ms Cook was the person who handled the day to day matters involving the payments to and from JMD Park. Mr Price claimed that he had little or no involvement in or knowledge of that side of the business.

Cumulative impact of the known factors

107    The parties also accepted that it is not necessary that a ground for suspecting insolvency had to exist solely by reference to one indicium. The existence of reasonable grounds for suspecting insolvency can arise by reference to some or all of the known circumstances. Indeed, it must often be the case that the cumulative effect of the known circumstances will be determinative.

Disruption caused by the fire

108    An underlying factor which was present at all relevant times was the disruption to ABA’s business caused by the fire. The evidence indicated that the disruption was significant. Indeed, it must be kept in mind that, regardless of whether it was apparent to ABA or JMD Park, from around the time of the fire, ABA was insolvent and at no time did it recover its solvency. It is also now clear that the fire was the cause of that insolvency. Prior to that the business had been operating relatively well. As a matter of cause and effect, the consequences of the fire were substantial even if that were not fully appreciated at the time.

109    Mr Whitewood’s evidence that the fire had a significant impact on his business and that this would have been apparent to JMD Park should be accepted. Although Mr Price suggested that he did not really pay a lot of attention to the work that was being conducted by ABA, on the balance of probabilities, JMD Park, through either him or Ms Cook, would have been aware of it.

110    Firstly, JMD Park was aware of the extent of the damage to the sheds leased by ABA and which belonged to MHB, of which Mr Price was the sole director. Although some substantial parts of the demised premises were restored to working order within a relatively short period of time, from 11 August 2014 to 20 October 2014 ABA only had access to 60% of its premises. Whilst it is correct that it was able to secure additional sheds from MHB on adjoining land (collectively referred to as “Shed 65”), it was required to continue paying the full rent on the demised premises as well as rent on the additional premises. Shed 2 was not remediated until ten months after the fire occurred, being well after the appointment of administrators. That was significant as ABA’s major project at the time was being undertaken in that shed. In evidence Mr Whitewood said that the work on the naval vessel was a large part of ABA’s business and the fire caused extensive damage to the area where that work was being done. Mr Whitewood’s evidence as to the significant disruption to ABA’s business caused by the fire should be accepted. Although he was cross-examined on this topic, nothing arose from that which suggested his evidence was not credible. Given the proximity of ABA’s business to that of JMD Park and the close interaction between the businesses, including that JMD Park provided lifting, hoisting and other services for ABA, it is inconceivable that JMD Park would not have been aware of the substantial disruption to ABA’s business.

111    Second, JMD Park would have become aware of the substantial reduction in ABA’s workforce shortly after the fire. Within four to six weeks after the fire, the number of ABA’s employees substantially decreased. Again, although Mr Whitewood was cross-examined on this issue, his evidence should be accepted. The number of persons employed and the impact on the wages bill would have been a central element of the business and he would have been generally aware of the number of employees at any one time. The reduction in ABA’s workforce would also have been observed by Mr Price, who acknowledged that after the fire he had several phone calls with Mr Whitewood so as to remain informed of what ABA was doing to manage the impact of the fire, and that, generally, Mr Whitewood would keep him appraised of ABA’s work. It would also have been most apparent to Mr Price and Ms Cook that substantially fewer people were attending at ABA’s premises after the fire had occurred. The evidence before the Court is that ABA’s premises were in clear view of JMD Park’s office. The front doors of Shed 2 were probably no more than 100 metres from JMD Park’s office, with a large apron in between.

112    Third, it would have been clear to Mr Price and JMD Park that the fire had the consequence that ABA lost the work on naval patrol boats. Mr Price admitted that he was told on 2 October 2014 that ABA would no longer be carrying out the maintenance work on HMAS Wollongong. As mentioned, the maintenance work on naval vessels was a substantial part of ABA’s business, and the loss of the work must have been recognised as significant. It should be observed that Ms Cook identified that, when she perused the DCF in early October 2014, she considered that it was partially deficient because it did not include income to be obtained from work on HMAS Wollongong as well as payments from CGU. Her ability to detect that is important as it demonstrated that JMD Park maintained a vigilant watch on ABA’s business operations. The fact that Ms Cook could read the DCF and identify the failure to include revenue from CGU and from work to be performed on HMAS Wollongong evidences that she and JMD Park had an intimate understanding of ABA’s business operations. JMD Park did not stand in relation to ABA as an arm’s-length third-party creditor. That is by no means a criticism. Given the interaction of the businesses it would have been imprudent for JMD Park and Ms Cook not to pay close attention to the work which ABA was undertaking or intending to undertake.

113    Fourth, from September 2014 JMD Park became aware that ABA was having difficulty with CGU, with whom ABA had both business interruption and ship repairer’s insurance. Mr Price requested a copy of ABA’s insurance policy and one was provided to him. Although there was some discrepancy in the evidence about when the policy was provided, there is no doubt that it was. That is not insignificant, as Mr Price’s request for a copy of the policy was apparently not regarded as unusual or strange, and that must necessarily have been a consequence of the closeness of the businesses. It was not denied by JMD Park that it was involved in or concerned in the recovery of insurance payments by ABA, and nor is it denied that it was aware that CGU had not completely indemnified ABA and had delayed in committing to fully meet the claim. Mr Price acknowledged that he talked about insurance issues with Mr Whitewood regularly. It is also not denied that Mr Price was aware that, after receiving some payments from CGU under the insurance policy, the payments subsequently stopped, although CGU had not formally denied indemnity. Mr Price acknowledged that the need for the loans made to ABA arose as a result of CGU’s failure to continue to make insurance payments. In the period between the fire and the making of the loans, Mr Price had been involved in discussions concerning the insurance claims made by ABA with Mr Whitewood and Mr Rowley, ABA’s insurance consultant. Mr Price had asked Mr Rowley to keep him informed as to the progress of ABA’s claim with CGU, and he did. From that it can be accepted that Mr Price was aware of the continuing reluctance of CGU to grant indemnity. In the course of evidence, Mr Price said that he was “quite incredulous” about CGU’s delay, and that CGU was playing games with them. If that were so, it would seem that he had a fairly accurate picture of CGU’s failure to indemnify ABA. As JMD Park was required to advance funds to ABA, it can be easily inferred that Mr Price was also aware of the detrimental impact of the cessation of CGU making payments.

ABA encounters significant cashflow difficulties

114    The matters identified above had the consequence that, as at around late September 2014, ABA experienced significant cashflow difficulties. It did not have funds to meet debts which were becoming due. In particular, it did not have available cash to pay suppliers and creditors in relation to the work being done on the QPS vessel and the “Reef Cat”. In the absence of funds to complete these vessels, ABA would not be able to secure any further progress payments and, in particular, the final payments. Although, as has been referred to above, Mr Price was reluctant to accept that he was aware that the circumstances had these consequences, he ultimately admitted as much. He accepted that ABA required a loan of $200,000 to meet the creditor’s claims so that the QPS vessel and the Reef Cat could be completed and payments received. On this topic Mr Whitewood’s evidence is to be preferred to that of Mr Price where inconsistency arises, and it should be accepted that Mr Whitewood told Mr Price that certain suppliers needed to be paid in order to allow the QPS vessel and the Reef Cat to be completed. It should also be accepted that Mr Price was told that ABA needed to use a portion of the loan to meet payroll and WorkCover expenses.

115    At around the end of September 2014, JMD Park was concerned to consider ABA’s cashflows in some detail, and Ms Whitewood sent draft cashflows to Ms Cook. Although Mr Price and Ms Cook did not accept that either sought them, that is not probable. JMD Park was intending to lend ABA some $200,000, and the circumstances suggest that it would seek to ascertain when ABA would receive money to repay it and what might be competing debts. It is not likely that ABA would prepare and send cashflows to JMD Park if they had not been requested. At around this time the employee of ABA who had previously prepared its cashflows had departed and Ms Whitewood was attempting to perform that task, although she had little experience in doing so. It is unlikely that, at a time when the business was struggling, she would expend time and effort attempting to prepare these documents for no apparent reason.

116    The sum of $200,000 was transferred to ABA by JMD Park on 30 September 2014, being the day on which it seems Mr Price agreed to extend that finance. The next day, on 1 October 2014, the email referred to above was sent to Mr Price and Ms Cook attaching a further cashflow and two additional sheets. Ms Whitewood wrote in the email that she had “tried to cull this as best I can”. The documents attached showed the suppliers which required pre-payment and the amounts to be paid, which totalled approximately $115,000, as well as “Aged Creditors” in the amount of about $78,000. These amounts seem to relate to the use to which the $200,000 loan would be put. The identified aged creditors had associated dates which, on any reasonable reading, were the dates on which the payments were due. Those dates revealed that some payments had been due in April, May and June of that year.

117    The two sheets of listed creditors or suppliers were important in the circumstances. They disclosed that ABA had not paid a significant number of other creditors for a substantial period of time and was not able to do so without the loan from JMD Park. The statement that the list had been “culled” strongly suggested that there existed other aged creditors, but that Ms Whitewood was prioritising the most important. It is relevant that the list of aged creditors did not include JMD Park or MHB when, at that time, ABA owed JMD Park approximately $150,000 in relation to the outstanding invoices, most of which were well outside the trading terms, and was also indebted to MHB for about $60,000, which was also overdue.

118    Although Mr Price said that he did not open the attachments to Ms Whitewood’s email, it is difficult to accept that evidence, in the sense that it is inherently unlikely. He had, the previous day, caused JMD Park to advance $200,000 to ABA without security, and it is not likely that a person in his position and with his understanding of ABA’s business would not consider the list of identified creditors which ABA intended to pay. Moreover, Mr Price’s evidence was that he was told that the loan was to be used for “essential suppliers that [ABA] needed to pay in order to allow certain critical work to be completed”, but the lists attached to Ms Whitewood’s email included an aged creditors list which had been “culled”. That would suggest the loan was being used to pay outstanding creditors rather than suppliers in relation to the vessels which were nearly complete. If the agreement as to the use to which the loan was to be put was as Mr Price asserted, it is passing strange that he would not then consider the list of suppliers and creditors whose debts were to be discharged by use of the loan money.

119    Similarly, it is unlikely that he would not have opened and considered the DCF which was sent to him. He said in relation to the cashflow:

I don’t do Excel, and I don’t do anything having to do with that. It’s not in my realm. Nor is it something that I’m capable of.

120    Later, when told that he would be asked questions about the DCF he said:

---Sir, you’re welcome to ask my any questions. I’m sitting here, willing to answer. But I do not understand that type of a document.

Okay?---So I can regurgitate – if you draw me to a particular cell, I can tell you what it means, but I can’t tell you anything else.

121    Subsequently the following exchange occurred:

Would you accept that, on the face of it, that particular schedule [the DCF] sets out or purports to set out information concerning some aspect of the financial affairs of ABA?---No. I cannot say that. I have no understanding of what it’s about.

122    This evidence is most difficult to accept. The cashflow document is simple enough and not of any complexity. It is not likely that Mr Price could have succeeded in business in the manner in which he has without having some exposure to documents of that nature. It may well be that he did not have the ability to create a cashflow, however, I do not accept that he would not understand the simple matters which can be gleaned from one. It is apparent that JMD Park and MHB operated substantial businesses and that Mr Park, by his own assertions, is involved in multi-million dollar deals. A person in his position would have the bare minimum of financial literacy necessary to understand a cashflow. Moreover, when taken to the document, it was apparent that he understood it well enough, and later in his evidence he volunteered that the cash inflows appeared to have omitted revenue received from the Navy. If he was able to ascertain that such was the case, his evidence about his inability to understand it was not credible. Ultimately, I consider that he denied any ability to understand a DCF because he perceived that it would advance JMD Park’s case if that were so.

123    Mr Price presented as a confident and articulate witness, but one who was aware of the nature of JMD Park’s defence, which he sought to promote where he could. Whilst initially his evidence appeared to have a degree of credibility, when it is considered in the context of the surrounding documentary evidence, its lack of veracity is revealed. By comparison, Mr Whitewood presented as a person more uncertain of his recollection in some respects, which he was prepared to acknowledge, but his evidence on the whole was more credible and it was clear that he attempted to truthfully respond to the questions asked of him.

124    The concern as to the accuracy of Mr Price’s evidence is heightened when the evidence relating to the meeting on 2 October 2014 is analysed. At 7.04 am on that day, Ms Cook sent ABA an email which invited Ms Whitewood and Mr Whitewood to meet with her and Mr Price to “walk through” the “budget”, the latter being a reference to the DCF. That email is a piece of contemporaneous evidence which illuminates what probably occurred at the meeting which followed, even though the evidence of Mr and Ms Whitewood about it is vague. Mr Price said that the meeting was to allow him to consider what “Mr Whitewood and Ms Whitewood had to say at the meeting about their funding requirements”. That is not consistent with the purpose of the meeting as identified in the email. Somewhat unusually, Mr Price makes no statement as to what was actually said at the meeting about that topic, and nor did he indicate why he does not address it. Ms Cook also said in her affidavit that the short term funding requirements of ABA were discussed, but does not identify the content of that discussion. She said in her affidavit that the DCF was only a small part of the discussion. In her oral evidence she acknowledged that the DCF was discussed at the meeting.

125    In the circumstances where JMD Park had probably requested the production of the DCF, as I have found, and a meeting was called to discuss it with Mr Price, it is somewhat implausible that the discussion did not occur. The email of 7.04 am sought the meeting at 8.45 am, and it is not likely that anything altered the purpose of the meeting in the interim. Certainly, there was no suggestion from any witness that anything occurred to alter the meeting’s agendum.

126    Mr Price said in his evidence that, if there were discussion at the meeting on 2 October 2014 about the DCF, it was not a conversation to which he was a party, even if he were in attendance. Again, this seems unlikely. If Mr Price had no capacity to read and understand cashflows, one wonders why Ms Cook arranged a meeting whereby the Whitewoods and he could go through it with him. Although Mr and Ms Whitewood were not able to give any real evidence as to the content of the meeting, it is not likely that the DCF was not discussed and considered.

127    The DCF disclosed, at the very least, that ABA was in a difficult financial situation. Significantly, it disclosed that ABA was on a payment plan in relation to its indebtedness to the Australian Taxation Office, pursuant to which it was required to pay $22,500 each Friday. That would identify to any reasonable business person that ABA had, at some earlier point in time, been unable to meet its taxation obligations such that it was required to reach an arrangement whereby it would discharge that indebtedness by part payments. In Mr Price’s cross-examination on this topic, the following exchange occurred:

And is that – objectively again looking at the document, is that suggestive to you that there are regular payments anticipated as being made to the ATO in respect of some sort of arrangement on a weekly basis from forecast on or about 3 October?---I can’t confirm that because I simply don’t understand the – what the term “arrangement” means. I – to my best endeavours, I don’t understand what the Australian Taxation Office allows you to do or doesn’t allow you to do. So I can’t confirm that or deny that. I have no idea.

Well, do you accept that, on the face of the schedule, there is a payment which is being made on a regular basis in respect of something that’s described as ATO Arrangement?---I accept the fact that there’s a payment being made – I don’t even know if the payments are being made. I accept - - -

No. Forecasts have been made – forecast to being made. This - - -?---They have – there’s a number on a piece of paper that documents something on a particular day. I’m not trying to be difficult. I just don’t understand what it’s in reference to.

Despite his exhortations to the contrary, Mr Price was indeed “trying to be difficult”, in the sense of seeking to avoid the obvious inference to be derived from the fact that the DCF disclosed the payment plan with the ATO. Although it is not necessary to decide, it is likely that any reasonable businessperson engaged in commerce in Australia would be familiar with the basics of Australian taxation laws.

128    The DCF also disclosed that ABA had entered into other payment plans with five suppliers. These included a plan with “EMS Wayne Beak” which required the making of fortnightly payments of $25,000 from 3 October 2014 through until 10 December 2014, and weekly payments of $10,000 to Australian Recruiting through until 28 November 2014. Again, these suggested that ABA was experiencing substantial cashflow difficulties.

129    In addition, the DCF disclosed that the loan of $200,000 had been or was possibly to be applied to the payment of rent for the demised premises, rather than in payment of the creditors identified in the lists accompanying Ms Whitewood’s email of 1 October 2014. It also failed to disclose the repayment of the loan at any time, including in that period after ABA was paid for the QPS vessel and the Reef Cat. The DCF showed a notional bank balance for ABA, but at no time did that take into account the obligation to repay the $200,000 loan.

130    Ms Cook also identified that, at the beginning of the meeting on 2 October 2014, Ms Whitewood advised that the DCF did not include “about three hundred … thousand dollars’ worth of trade debtors”. Those debtors were not identified nor were the dates on which payments might be made. She also identified that the DCF did not include ABA’s rent obligations to MHB in relation to Shed 65 which had accrued and were due and payable.

131    Ms Cook’s evidence regarding the DCF was somewhat difficult to follow and she may have been mistaken as to when she first considered the document. In any event, it is clear that she was able to understand it and what it indicated. Aside from identifying the absence of the trade debtors referred to by Ms Whitewood and creditors identified on the accompanying lists, Ms Cook observed that the DCF did not include future insurance payments from CGU that she said were being settled. She considered that this was the most important omission. However, the evidence before the Court is that CGU had not finally agreed to indemnify ABA in relation to the loss arising from the fire and, given that Mr Price was being kept informed of the progress of the insurance claim, that would have been apparent to JMD Park. Additionally, over the course of October 2014, JMD Park would have become aware that no further insurance payments were made by CGU and that at no time did it agree to indemnify. Under cross-examination Mr Whitewood indicated that, by 20 October, they were all aware that CGU was trying to get out of its responsibilities. In other words, CGU’s failure to pay had gone beyond mere delay to an indication that it did not regard the policy as responding to the claim. It follows that, by 21 October 2014, JMD Park would have been aware that the inflows in the DCF had been roughly correct (apart from the unidentified trade debtors) and that there existed substantially more creditors than were disclosed. On the basis of Ms Cook’s evidence, the other creditors included JMD Park which was then owed $534,547.83 (being the total of the loan and outstanding invoices), and $100,080.90 owed to MHB.

132    Ms Cook further sought to discredit the DCF as a source of financial information on the basis that it did not disclose the existence of payments to be received in relation to the maintenance contract with respect to HMAS Wollongong. Whilst that may have been an omission from the DCF at the date it was created, by lunchtime on the day of the meeting on 2 October, JMD Park was aware that no revenue would be received by ABA in relation to that contract as it had been cancelled by the Navy.

133    Ms Cook, like Mr Price, attempted to diminish the impact of the DCF, and generally sought to advance JMD Park’s interests where possible. As JMD Park’s CFO one might have expected Ms Price to have paid greater attention to the financial ability of ABA to repay an unsecured loan, and it may be due to some embarrassment on her part that she sought to minimise the effect of the information which she had to hand.

134    Whilst it may be that Ms Cook initially dismissed the DCF due to the absence of income from the contract to do work on HMAS Wollongong and insurance payments, it was not reasonable for her to do so. The document provided substantial information as to ABA’s financial position, its difficult cashflow position, the fact that it had been required to enter into payment plans with several creditors and at least some of its future liabilities. It was indicative of ABA’s financial position and, with her intimate knowledge of ABA’s business, Ms Price could easily have perceived the overall dire financial position. At the very least, by 20 October 2014, with the additional information about the lack of further revenue, that picture would have emerged to Ms Cook.

Additional loans were required

135    Despite the rationale for the initial loan of $200,000 being to pay creditors or suppliers in relation to the QPS vessel and Reef Cat, such that those vessels could be completed, additional loans were required for that to occur. They totalled $158,778.29, with the last payment being made on 20 October 2014. Again, the rationale for making the loans was such that the vessels could be finished and the final progress payments released to ABA. Whilst there was very little evidence surrounding the circumstance of the making of these additional loans, I accept that Mr Whitewood approached Mr Price about his continuing cashflow difficulties and indicated that the further funds were required. It would have been obvious to Mr Price that, if the vessels were not completed, it was unlikely that JMD Park would be repaid its loan and outstanding invoices.

The “dinner meeting” on 20 October 2014

136    There is no doubt that a meeting occurred in the evening on 20 October 2014. There is, however, a debate and conflicting evidence as to what was said at it. On the one hand, Mr Price and Ms Cook claimed that nothing was said about the repayment of debts owed to JMD Park. Conversely, Mr Whitewood said that he told Mr Price that ABA was unable to repay JMD Park the money it owed, in response to which Mr Price became agitated and demanded that JMD Park be paid all outstanding amounts. The content of the discussions at this dinner meeting became a strenuously contested part of the case. That is because if Mr Whitewood told Mr Price that ABA was unable to repay its debt to JMD Park, that would be a clear and unequivocal indication of insolvency. It would effectively prevent JMD Park relying on either limb of the defence in s 588FG(2) as it would establish that there were reasonable grounds for Mr Price and JMD Park to suspect that ABA was insolvent.

137    Although I have preferred the evidence of Mr Whitewood and, to an extent that of Ms Whitewood, over that of Mr Price and Ms Cook, based on an assessment of their credibility, the content of the conversation as identified by Mr Whitewood has an inherent consistency with the events which had occurred to that point in time and those which followed.

138    The preceding events which have been detailed above disclose that there had been several discussions concerning ABA’s continued poor cashflow following the occurrence of the fire and the subsequent decline of ABA’s business. The initial $200,000 loan had been made on the basis that it was needed to complete the QPS vessel and the Reef Cat, and there was an agreement to repay the loan on receipt of the final payments on the QPS contract. However, two weeks later, a further $85,509.40 was required, and six days after that a further $73,268.89 was required. It would be remarkable if, when the QPS payments were about to be received, the topic of the repayment of JMD Park’s loans did not arise between Mr Price and Mr Whitewood. Although Mr Price claims that he had no concerns about being repaid, that evidence ought not to be accepted. At that time ABA owed JMD Park $534,547.83, which was unsecured, and around $150,000 of it was in respect of invoices which were well outside of the trading terms. ABA also owed MHB $100,080.90, which was also unsecured. The aged receivables document prepared by JMD Park also disclosed amounts which would soon become payable, including $213,000 in rent which ABA would be required to pay in ten days’ time for the premises and the additional premises. In these circumstances, it would have been extraordinary for Mr Price not to discuss with Mr Whitewood payment of ABA’s debts to JMD Park. As Mr Whitewood said in evidence, there were detailed discussions between himself and Mr Price about ABA’s financial problems for days and days prior to the 20 October meeting.

139    In addition, it is difficult to believe that Ms Cook would not have been aware of ABA’s precarious financial position given that, according to Mr Price, it was she who dealt with creditor issues. She had considered the DCF and considered it to be deficient because it failed to identify income from insurance payments from CGU and for work to be done on HMAS Wollongong, and it also failed to include the repayment of the loans to JMD Park and the payment of the invoiced amounts. By the 20 October meeting, she would have been aware that ABA had received no revenue by way of payments from CGU nor any amounts in respect of the maintenance of HMAS Wollongong, as that contract had been cancelled. Her evidence indicated that she was acutely aware of ABA’s business and its dealings, and by 20 October it is difficult to believe that, as JMD Park’s CFO, she would not have been very concerned about ABA’s ability to repay the loan. The evidence of the relationship between Ms Cook and Mr Price makes it difficult to believe that he was not aware of that concern. In brief, the circumstances at the time of the 20 October meeting were such that ABA’s repayment of its outstanding obligations and liabilities was an issue which would have been of substantial importance to JMD Park, Mr Price and Ms Cook. Indeed, given that the securities over the QPS vessel were being released, it would have been most imprudent for Mr Price or Ms Cook not to raise the issue of ABA’s outstanding liabilities.

140    Following the 20 October meeting, Mr Price caused Ms Cook to send to ABA the aged receivables document which identified all the amounts owing by ABA to JMD Park, as well as to MHB. Although Mr Price claimed that the sending of that document was innocuous, that ought to be rejected. It was, in the circumstances, a demand for payment of the amounts identified. It was not merely a reminder of what was outstanding. Mr Price admitted that, as the PPSR securities on the QPS vessel were being removed and the progress payments were to be received, the occasion had arrived for the repayment of the loan. Obviously the aged receivables document was intended to identify the amount of the loan to be repaid as well as the obligation to pay the outstanding invoices. Unless there had been some discussion at the 20 October meeting that other amounts were to be repaid, the demand for those amounts was effectively unannounced. As I have found, there was no prior arrangement that the invoices would be paid on the receipt of the payments in respect of the QPS vessels. Mr Whitewood denied there was and there was no cogent evidence to the contrary.

141    In addition to the above, the fact that all the amounts in the aged receivables document were paid in full at a time when ABA was not in a position to pay its other creditors supports the view that Mr Price had demanded all the amounts outstanding. There was no other reason that ABA would treat JMD Park any differently to its other creditors in the circumstances, and none were put to Mr Whitewood. Indeed, a number of other creditors were on payment plans and it would seem to follow that, absent a demand from JMD Park, that may have also been a possibility in respect of the aged invoices from JMD Park.

142    It was submitted by JMD Park that the email from Ms Whitewood to JMD Park advising that the invoices had been paid did not disclose any animosity or tension. The email said, “Hi, David. Balance paid as per Julie’s spreadsheet. Thank you.” I accept Mr Whitewood’s evidence that the civility in the letter was appropriate given that ABA could not do anything about the position at that stage. Similarly, Mr Whitewood gave evidence that there was no point in contesting Mr Price’s demand, as that would have made no difference. By that stage he had resigned himself to the fact that his company would fail.

143    By the time of the meeting on 20 October, ABA was not then in a position to repay JMD Park, in that it did not have sufficient funds to pay it and all of its other creditors. That appears from the content of the DCF and the existence of other debts which were not identified on it. By the end of September 2014, Ms Whitewood had been “culling” the aged creditors and prioritising payment of the important creditors with the loans which were to be received from JMD Park. The conclusion that ABA was unable to meet its debts is fortified by the fact that ABA’s total outstanding taxation liability to the ATO of $884,764.02 as at 20 October 2014 (which is set out in Ms Trenfield’s affidavit) does not appear on the cashflow. Whilst some of it did, being a small portion of the approximately $500,000 which was subject to a payment plan entered into on 10 September 2014, the remainder was due and owing. These matters, even if not all known to JMD Park, would obviously have been known to Mr Whitewood, who had realised at around that time that his company was beyond saving. His evidence in court was that he could see no way to save the company. It follows that he had good reason to tell Mr Price, at the 20 October meeting, of his attempt to prioritise the large volume of outstanding creditors and that ABA was not able to repay the loan. There was no evidence to suggest that Mr Whitewood would attempt to keep from Mr Price the true circumstances of ABA’s financial position. It had been openly discussed on several prior occasions.

144    The result is that Mr Whitewood’s evidence as to the matters he raised with Mr Price at the 20 October dinner meeting should be accepted. I accept that they discussed ABA’s ongoing financial difficulties, that ABA was prioritising payments being received towards the numerous outstanding creditors and that ABA was not in a position to repay the loan. I also accept that Mr Price responded with a comment to the effect that JMD Park would not stand in line with the other creditors waiting for payment. Mr Whitewood was adamant this was said, and he recalls it particularly because the demand for immediate payment by JMD Park had the consequence that he was certain ABA would not recover from its position. The evidence shows that conclusion to have been correct.

145    Under cross-examination it was suggested to Mr Whitewood that he was not telling the truth about what was said at the meeting because he was jealous of Mr Price’s and JMD Park’s businesses surviving after the fire, when his did not. He rejected that suggestion, and it had no merit. Mr Whitewood expressed no enmity towards Mr Price and there was nothing in his demeanour which suggested that he was antagonistic towards him in any way.

146    I also accept that Ms Whitewood heard the demand by Mr Price that ABA pay all of its debts to JMD Park and that, at that point, she realised that ABA could not continue if that were to occur. I accept that she left the meeting in tears and returned to ABA’s offices. It is possible that the statement that JMD Park would not stand in line with other creditors was made after she had left. It ought to be kept in mind that Ms Whitewood’s evidence surrounding this meeting was unsatisfactory in a number of respects and she was confused about the occasion on which Mr Price said the words which upset her. Her evidence was, ultimately, that Mr Price said those words in a meeting on the following day and that she had a particular recollection of it. Although she was attempting to tell the truth about these events, it is obvious that she was under a great deal of stress at the time and that there were numerous meetings and matters to deal with. Albeit that she may have been in error about when Mr Price made his comments, I accept her evidence as to the substance of what was said to upset her.

147    A matter of substantial concern is the manner in which Ms Whitewood’s original affidavit was prepared, in that she obtained a copy of Mr Whitewood’s affidavit and considered it before preparing hers. She did not attempt to hide this fact and, indeed, she acknowledged it in her first affidavit. Her consideration of his evidence obviously had an impact upon her, with the consequence that her first affidavit substantially mirrored his. In her subsequent affidavit, which was filed during the course of the hearing, she recanted the content of her first affidavit in relation to the 20 October meeting, and deposed that the events in question occurred the following day at a later meeting. As mentioned, I accept the liquidators’ submission that I ought not to accept this part of Ms Whitewood’s evidence. Although she attempted to tie the events to her recollection of other matters, and seemed certain of her evidence, it is not coherent with other established facts. Her original reliance on Mr Whitewood’s affidavit has confused her as to the events in question to the extent to which they are actually recalled by her. This case exemplifies why the preparation of witnesses and affidavits must be attended to carefully, and with the witness initially identifying in their own words their own recollection of events, untainted by the views of others.

148    Although Ms Whitewood was misguided in reading Mr Whitewood’s affidavit before preparing hers, there was nothing which suggested that she was not attempting to tell the truth in her later affidavit or when she gave evidence. Whilst she was not sufficiently diligent when swearing her original affidavit, that may have been because she no longer has any substantive interest in the proceedings, and the events which occurred involved unpleasant experiences for her. Although she was subsequently mistaken about some matters, I nevertheless accept that she was attempting to convey her actual recollection. Indeed, she swore her second affidavit knowing that it was not consistent with Mr Whitewood’s evidence.

149    Although the meeting had been called to consider the insurance position and, for that reason, Mr Rink, Mr Rowley and his assistant — only known by the name Shirley — were in attendance, I accept that Mr Whitewood did not raise the financial difficulties being endured by ABA in their presence. He said that the relevant discussion occurred after they had left, and that is credible as the indebtedness between the companies would not usually be raised in front of third parties. Mr Rink gave evidence by affidavit although, quite naturally, he did not have a recollection of the discussions or when he left or who remained after he had left. His affidavit is dated some four years and eight months after the event, and the prospect of him recalling the identity of the persons at the meeting or what occurred was minimal. Neither Mr Rowley nor Shirley were called to give evidence, but nothing turns on that.

150    Mr Price denied that the conversations took place, however, his recollection about those matters is in error. It may well be that because, on his own assertion, he was not greatly concerned with day-to-day management issues — such as outstanding creditors and the like — but with the bigger picture and other much larger transactions, he did not recall the events in question. He gave evidence that at around the time of the dinner meeting he was engaged in the sale of property worth $36 million, and it may well be that the issues surrounding ABA were, to him, relatively trifling.

151    Mr Price’s evidence of the 20 October meeting was that there was no discussion about ABA’s financial problems or the repayment of the outstanding loans. Although perhaps not topics to be discussed in front of the insurance consultants, as I have indicated, it would be strange were those topics not to arise. I do not accept his denials about the meeting. He claimed to have a clear recollection of the meeting, which is strange given that the evidence suggests that he was called upon to recall the events over four years after they occurred and that he did not have a clear recollection about other meetings he attended around this time. Mr Price was obviously aware of the import of the meeting in relation to the issues in the litigation, and he sought to advance JMD Park’s arguments on this issue where possible.

152    Mr Price was also less than forthcoming about whether he made a demand upon ABA about payment on the invoices. The following exchange took place:

So you dispute anything that Mr Whitewood and Ms Whitewood say in relation to you making any demand at any point in time to pay invoices in addition to repaying the loan?---I couldn’t speak to what I may have done in years previous, but certainly at that meeting there was no demands made on them.

153    In the context of his evidence that was a somewhat unusual response. It suggests that he may have made a demand for payment of the invoices, but his recollection was that it did not occur at that meeting. He did not proffer any suggestion as to when he might have made a demand for payment. Neither did he advance any cogent explanation as to why ABA would discharge all ABA’s debts and MHB’s debts at a time when it was struggling financially and was prioritising other creditors. Mr Price did not assert that there was any arrangement in place that the outstanding invoices would be paid on the receipt of funds in respect of the QPS vessels. That too was somewhat unusual, given that it appeared from the cross-examination of Mr Whitewood that JMD Park was advancing such a case. In any event, Mr Price’s suggestion that there was no discussion as to the payment of the outstanding invoices should be rejected. It was something that was likely in the circumstances and was consistent with what followed.

154    Ms Cook gave evidence in accordance with her affidavit that the 20 October meeting was a convivial event and some type of celebration, due to the completion of the QPS vessel and the release of securities. Her evidence in this respect is not substantially dissimilar from that of Mr Price. Although she was the CFO of JMD Park at the time of the fire and thereafter, she is now the CEO of that company. I also find that she has an erroneous recollection of the 20 October meeting. Her view that the meeting was an amiable affair does not sit well with ABA’s deteriorating financial position at the time. For some time it had been in default with many of its creditors, been put on payment plans by the ATO and other creditors, been required to borrow to deal with cashflow difficulties, been unable to secure indemnity on its insurance with CGU, and had lost substantial business as a result of the fire. By the time of the meeting, it had been insolvent for about two months, and the impact of that was clearly apparent to Mr Whitewood and Ms Whitewood. They were facing a very difficult time and it is not likely that, on 20 October 2014, when ABA faced collapse, they were engaged in any type of celebration. As mentioned earlier, the suggestion that there was no discussion at the meeting as to ABA’s financial hardship and JMD Park’s demand for repayment of the debt is not consistent with the surrounding circumstances. In the result I do not accept Ms Cook’s evidence on this point.

155    It was submitted on behalf of the liquidators that it was not coincidental that Ms Cook’s evidence closely mirrored that of Mr Price, and I accept that is so. They each sought to advance JMD Park’s interests in substantially similar ways.

Whether Mr Price was told that Mr Whitewood had spoken to insolvency practitioners

156    In his affidavit evidence, Mr Whitewood said that, prior to ABA repaying the loans, he told Mr Price that he had been speaking to insolvency practitioners about ABA. This was not a matter on which there was much cross-examination from either side, and the evidence of Mr Whitewood is not entirely consistent on this point. In his affidavit he says that he had spoken to Mr Price from his lawyer’s office and told him that he would be appointing Ms Trenfield as a voluntary liquidator. In the course of his evidence he seemed to suggest that the insolvency practitioner he referred to was Mr David Clout.

157    Mr Whitewood said that Mr Price was told of the impending appointment of administrators prior to the 20 October meeting. That was denied by Mr Price. In the circumstances referred to, I can accept Mr Whitewood’s evidence. Certainly it supports the likelihood of Mr Price stating that JMD Park would not be standing in line with other creditors, as that is something which occurs on winding up. Although I am concerned with the absence of contemporaneous evidence of Mr Whitewood’s meeting with other insolvency practitioners, I accept that such documents could belong to him and would not to ABA, and thus would not necessarily be in the control of the liquidators. As I have observed there was curiously very little cross-examination on this. Nevertheless, I accept that Mr Whitewood was a witness who tried his best to give an honest account of his recollection, and I prefer his evidence to that of Mr Price. That being so I accept his statement that such comments were made. However, despite that, I am also of the opinion that the existence of the comment does not alter the outcome of this case. Even in the absence of that comment, JMD Park could not have been said to have had no reasonable grounds to suspect ABA’s insolvency.

Application of s 588FG principles

158    The parties recognised that this case turns largely on the findings of fact and, in particular, as to what was said at the 20 October meeting. To some extent, that is correct, although Mr Dietz for the liquidators submitted that it was not necessary for the Court to accept Mr Whitewood’s evidence that at the meeting he informed Mr Price of ABA’s inability to pay. He submitted there was more than sufficient other information known to JMD Park which had the consequence that it could not satisfy the requirements of s 588FG(2)(b)(ii). Whilst that submission appeared to be doubtful when initially made, when the material is analysed and the making of the payments by JMD Park is contextualised, it is not without substantial force.

159    In general terms the evidence available to JMD Park as to ABA’s financial difficult position accumulated over time such that, by 20 or 21 October 2014, there was sufficient to establish reasonable grounds to suspect that ABA was insolvent, in the sense used in s 588FG(2). The evidence available to any reasonable person would have indicated that ABA’s cashflow difficulty was more that transitory and had become systemic, that it was carrying substantial unpaid debts, and that its sources of prospective revenue had dissipated.

160    A consideration of the issues must necessarily occur in the context of the occurrence of the fire at the premises and the subsequent interruption to ABA’s business. Whilst Mr Price attempted to minimise that impact or, at least, his perception of it, there can be little doubt that it was substantial. It brought a halt to ABA’s major project and rendered Shed 2 unusable. That leased area remained unusable until well after the administration of ABA commenced. In the period from the fire to 20 October 2014, ABA only recovered the use of a maximum of 60% of its total floor space. The rental in respect of the shed did not abate, and ABA was required to lease additional premises to continue with other parts of its business. The amount of productive work in which ABA was engaged was dramatically reduced, and the coinciding reduction in the size of its workforce was apparent to Mr Price and JMD Park.

161    It could not have been reasonably thought by Mr Price and Ms Cook that ABA’s cashflow difficulties were temporary. Putting aside the loans which were made, as at 21 October 2014, many of JMD Park’s invoices to ABA had been outstanding for some time. They dated back to May. Similarly, its aged receivables list, sent on 20 October, disclosed that ABA had not paid invoices given to it by MHB in January. JMD Park was also aware that the ABA was not paying its other creditors on time. From the email correspondence and discussions in early October it was aware that ABA was prioritising payment to its creditors, and on the basis of their importance to the completion of the projects rather than according to the length of time they had been overdue. It was also aware or had information which made it aware that ABA had entered into payment plans with the ATO and a number of other creditors.

162    The receipt of the DCF and the information known to JMD Park surrounding ABA’s lack of revenue would also have indicated a lack of solvency. Ms Cook was aware that the DCF disclosed more than a bleak outlook for ABA despite it being incomplete. That, of itself, should have indicated that ABA’s cashflow would not recover. However, when she and or Mr Price became aware that work would no longer be undertaken on HMAS Wollongong and that CGU had ceased making payments on ABA’s claim, the lack of cash inflows must have rendered it more than obvious that ABA would not be able to pay its creditors out of its own resources and nor could it trade its way out of its financial predicament.

163    Although Mr Price sought to portray himself as ignorant of the effect of the DCF, that has been rejected above, and he also was aware that it revealed ABA’s very difficult financial position.

164    Similarly, the lists of ABA’s outstanding creditors which were sent with the DCF underscored ABA’s inability to meet its creditors. The aged creditors list identified amounts which had been outstanding for some months, including some dating to April 2014. The indication by Ms Whitewood of the list having been culled revealed that other creditor demands were not being met or were not intended to be met by use of the funds to be borrowed from JMD Park.

165    The failure by CGU to fully accept liability pursuant to ABA’s policy was a significant factor in ABA’s subsequent insolvency. The company had ongoing operational costs, including rent and wage obligations, which had to be met in the immediate aftermath of the fire despite an interruption to cash inflows. It would be surprising if a business the size of ABA’s could continue for long without those inflows. This would have been apparent to any reasonable person in the position of Mr Price and the evidence indicates that he was cognisant of it. He showed a more than passing interest in ABA’s insurance position. He sought and was given the ability to be kept appraised of the progress or otherwise of ABA’s claim and he had several conversations with ABA’s insurance consultant, Mr Rowley, in furtherance of that. The fact that Mr Price so positioned himself was unusual. It was surely not a mere matter of curiosity. His concern must necessarily have been driven by a major concern as to the financial viability of ABA which was a significant tenant of MHB and acquirer of services from JMD Park. It could not be said that his close scrutiny of an insurance claim by ABA was an ordinary part of business. He indicated that he had some apprehension about the timing of payments by CGU to ABA and proclaimed that he was “incredulous” about the delays. It would have been clear to JMD Park and him that ABA required loans as a result of CGU failing to make payments under the policy in September 2014, and he was aware that this continued during October. Although Mr Price professed his confidence that CGU would pay ABA under the business interruption policy, he identified nothing that actually supported that confidence. Whilst that confidence was not necessarily naïve nor disingenuous, it was lacking any reasonable basis. By 20 October he was aware that CGU had continued to refuse to pay and that ABA was not able to fund its usual operating costs as a result. This must necessarily have had the result that a number of ABA’s creditors were going unpaid. Mr Price eventually acknowledged that he was aware of this when he first made the loans to ABA, and it must necessarily have been significantly more acute by 20 October.

166    ABA’s inability to meet the claims of other creditors must also have been palpable by the subsequent necessity for JMD Park to afford it further funding. The initial loan was intended to accommodate ABA through to the completion of the QPS vessels, however the requirement for additional funding in order for the project to be finalised must necessarily have indicated a worsening financial position.

167    The cumulative effect of these matters must have led a reasonable person to suspect that ABA was insolvent by 20 October 2014. The knowledge of the ongoing unpaid liabilities to substantial creditors, including JMD Park, and of the cessation of sufficient revenue from ongoing projects and insurance policies must have caused a reasonable person to suspect that the failure to pay so many creditors represented insolvency. That was underscored by the requirement for additional loans. Whatever may have been the nature of the fluctuating revenues of ABA as a boat builder in the past, the chronic lack of revenue by late October 2014 had surpassed the status of a temporary lack of liquidity.

168    In the above context, the advice to Mr Price at the dinner meeting on 20 October 2014, that ABA was not able to repay its loan to JMD Park, could not have come as a surprise. He was aware that ABA had several large outstanding creditors, apart from JMD Park and MHB, with the consequence that, if the funds to be received from the QPS were not used to discharge the indebtedness to JMD Park, it would never get paid. In that context, he demanded repayment of all outstanding indebtedness, and not merely the repayment of the loan. His statement to the effect that he would not be standing in line with other creditors was indicative of his awareness that ABA was insolvent and that the creditors would have to participate in a winding up. These circumstances show that he had more than reasonable grounds to suspect ABA was insolvent: he actually perceived that it was.

169    The above establishes that, as at 21 October 2014 when ABA repaid the loans and outstanding invoices to JMD Park, the latter, through Mr Price and Ms Cook, had reasonable grounds for suspecting that ABA was insolvent, and a reasonable person in JMD Park’s circumstances would have had reasonable grounds for such a suspicion. It follows that it has failed to satisfy the requirements of the defence under s 588FG.

Conclusion

170    The necessary result of the above is that each of the challenged payments was an unfair preference, and the plaintiffs are entitled to declarations to that effect and to orders that equivalent amounts are paid to the second plaintiff. Those declarations and orders appear at the commencement of these reasons.

171    The parties will be heard on the questions of interest and costs.

Associate:    

Dated:    20 December 2019