Federal Court of Australia

Yeo, in the matter of Bradi Transport Pty Ltd (in liq) v Sklenovski [2020] FCA 1540

ORDERS

THE COURT DECLARES THAT:

1.    Between 30 June 2013 and 6 September 2018, the second defendant was a director of the third plaintiff within the meaning of s 9 of the Corporations Act 2001 (Cth).

THE COURT ORDERS THAT:

2.    The plaintiffs have leave to amend their Originating Process as follows:

(a)    The amount of $324,935 in paragraph 4 is replaced with $361,174.

(b)    The insertion of a paragraph 10 as follows: The defendants pay the third plaintiff the sum of $51,600.

3.    By 4:00pm on 23 October 2020, the plaintiffs shall file and serve an Amended Originating Process setting out the amendments identified in paragraph 2 of these orders.

4.    Pursuant to s 588M(2) of the Corporations Act 2001 (Cth), there be judgment for the plaintiffs against the defendants in the sum of $274,143.05.

5.    The defendants pay the plaintiffs interest on $274,143.05 pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) fixed in the sum of $16,633.34.

6.    There be judgment for the third plaintiff against the first and second defendants in the sum of $51,600.

7.    The first and second defendants pay the third plaintiff interest on $51,600 pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) fixed in the sum of $1,549.06.

8.    There be judgment for the third plaintiff against the first defendant in the sum of $184,458.

9.    The first defendant pay the third plaintiff interest on $184,458 pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) fixed in the sum of $31,906.68.

10.    There be judgment for the third plaintiff against the second defendant in the sum of $361,174.

11.    The second defendant pay the third plaintiff interest on $361,174 pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) fixed in the sum of $18,842.62.

12.    The defendants pay the plaintiffs’ costs of the proceeding, including any reserved costs.

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

REASONS FOR JUDGMENT

ANDERSON J:

Introduction

1    This is a proceeding commenced by the liquidators of the third plaintiff. I have reviewed all of the evidence and I am satisfied that the plaintiffs have established their claims. As a consequence, judgment will be entered for the plaintiffs against the defendants in accordance with the Orders which I made on 19 October 2020. These are my reasons for doing so.

Factual background

2    These proceedings concern the following persons.

3    The third plaintiff is Bradi Transport Pty Ltd (in liquidation) (ACN 073 124 928) (Company). The Company was wound up in insolvency on 7 December 2018 pursuant to orders of this Court. Prior to liquidation, the Company operated a business which provided concrete cartage services for a single customer, Boral Resources (Vic) Pty Ltd (Boral). Prior to liquidation, the Company was the employer of two employees, namely the second defendant (Mr Sklenovski) and Mr Ralph Jahnke.

4    The first and second plaintiffs (Liquidators) were appointed liquidators of the Company on 7 December 2018.

5    The first defendant is Mrs Sklenovski. Mr Sklenovski, is the husband of Mrs Sklenovski.

6    Several payments made by the company are relevant and are referred to further below. Attached as “Annexure A” to this judgment is a schedule of these payments made by the Company (Schedule of Payments).

7    At the hearing of this proceeding, counsel for the plaintiffs, Mr Silver, formally read the following affidavits:

(1)    the affidavit of Andrew Reginald Yeo sworn 19 February 2020 (first Yeo affidavit);

(2)    the affidavit of Andrew Reginald Yeo sworn 31 August 2020 (second Yeo affidavit); and

(3)    the affidavit of Bao-Han Ngoc Nguyen affirmed on 31 August 2020 (Nguyen affidavit).

8    I note that the defendants have not filed any affidavit material in this proceeding.

The position of the defendants

9    At this juncture, the position of the defendants should be noted. On 30 March 2020, the solicitors for the second defendant, Strategic Law Partners, filed a notice of appearance for the second defendant, Mr Sklenovski. It is not apparent that a similar notice of appearance was also filed for the first defendant, Mrs Sklenovski. However, on 28 May 2020, Strategic Law Partners filed a defence on behalf of Mrs Sklenovski and a separate defence on behalf of Mr Sklenovski.

10    On 6 July 2020, I ordered that, by 17 July 2020, the defendants were to file and serve any amended defences. No amended defences were ever filed. The last documents filed by the defendants were each of the first and second defendant’s defences dated 28 May 2020. Those defences essentially recorded bare denials of the allegations in the plaintiffs’ statement of claim dated 7 April 2020.

11    On 8 October 2020, I held a pre-trial case management hearing in this matter. A solicitor of Strategic Law Partners, Ms Helen Mastos, attended that hearing as a courtesy to the Court. Ms Mastos informed the Court that Strategic Law Partners continued to act for the first and second defendants, but had not been in contact with the defendants for some time. Ms Mastos informed the Court that Strategic Law Partners had not, on behalf of the defendants, filed documents in accordance with the Court’s Orders because Strategic Law Partners had not been put in funds. Ms Mastos informed the Court that the defendants were aware that this proceeding was listed for hearing on 19 October 2020. I directed Ms Mastos to make enquiries of the defendants and confirm to the Court whether or not Strategic Law Partners continued to act for the defendants in this proceeding.

12    On 19 October 2020, Ms Mastos again attended the hearing of this proceeding as a courtesy to the Court. Ms Mastos informed the Court that Strategic Law Partners had no instructions to appear at the hearing of this proceeding, and that Ms Mastos had not heard from the defendants. Ms Mastos informed the Court that the defendants were aware of the hearing of this proceeding on 19 October 2020. Ms Mastos also informed the Court that Strategic Law Partners was reluctant to file a notice of ceasing to act because there was a prospect that the defendants would eventually instruct Strategic Law Partners in relation to this proceeding. Ms Mastos ultimately sought to be excused from further participation in the hearing of this proceeding. I granted Ms Mastos leave to be excused from further attendance at the hearing on 19 October 2020.

13    Those matters leave the defendants in an atypical position. While the proceeding was in substance uncontested, the defendants in fact had legal representation on the record.

Relevant provisions of the Corporations Act 2001 (Cth)

14    The relevant provisions of the Corporations Act 2001 (Cth) (Corporations Act) are:

(1)    s 588F (certain taxation liabilities taken to be debts);

(1)    s 588FDA (unreasonable director-related transactions);

(2)    s 588FE (voidable transactions);

(3)    s 588FF (courts may make orders about voidable transactions);

(4)    s 588G (director’s duty to prevent insolvent trading by company);

(5)    s 588M (recovery of compensation for loss resulting from insolvent trading);

(6)    s 1317H (compensation orders);

(7)    s 1332 (standard of proof).

DIRECTORSHIP OF THE COMPANY

15    Mr Sklenovski and Mrs Sklenovski are husband and wife. Mrs Sklenovski has been a director of the Company since 27 June 2005. The liquidators contend that Mr Sklenovski was, during the period from 30 June 2013 to 7 December 2018, a director within the meaning of s 9 of the Corporations Act on account of being a “de facto director”.

Principles

16    The principles upon which a person might be considered a director of a company, in accordance with s 9 of the Corporations Act, notwithstanding no formal appointment, are set out in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; 200 FCR 296 (Grimaldi) at [62]-[76]. In Grimaldi, Finn, Stone and Perram JJ stated at [64]-[68]:

For present purposes a director is a person who is not validly appointed as such if that person “act[s] in the position of a director”: s 9 “director” (b)(i). The following emerges clearly enough from the wording of the definition in its context and from Australian case law.

(i) A person may be a director even without any purported appointment of that person to that position at any time. The definition applies as much to a person who is a true usurper of the functions of a director in a company …

(ii) The formula, “acts in the position of a director” … contemplates that in some degree at least the person concerned, though not appointed a director, has been “doing the work of a director” in that company … Or to put the matter more fully, the person concerned, though not a director de jure, has been acting in a role (or roles) within the company and performing functions one would reasonably expect to have been performed by a director of that company given its circumstances.

(iii) The roles and functions so performed will vary with the commercial context, operations and governance structure (to the extent it is operative) … Their performance by that person may well be at variance with what is permitted by the Act or by the company’s constitution. Nonetheless, whether they suffice in the circumstances to constitute the person a director for the Act’s purposes will often be a question of degree having regard to “the nature of the functions or powers which are exercised and the extent of their exercise” …

(iv) There is no reason why the relationship of a person with a company may not evolve over time into that of de facto director. It also may be the case that the person only performs the role and functions that constitute him or her a director for a limited period of time …

(v) Whether a person has acted in the position of a director is a question of substance and not simply of how that person has been denominated in, or by, the company: see s 9 “director” (a). The fact that a person has been designated a “consultant” for the performance of functions for a company will not as of course mean that person cannot be found to be a director. Whether or not he or she will be a director will turn on the nature and extent of the functions to be performed (both in and beyond the consultancy) and on the constraints imposed thereon. A limited and specific consultancy is unlikely on its own to be caught by the s 9 definition. Not so, a general and unconstrained one which permitted taking an active part in directing the affairs of the company even if not necessarily on a full-time basis … Though we do not consider that the question actually requires determination in this case and thus we do not need to express a concluded view on it, we consider that if a consultant is a corporation and what it does through its own directors or officers results in “acting in the position of a director”, then, and consistently with the policy of s 201B (which requires a director to be a natural person), it will be a question of fact as to which director (or officer) in the consultant company is (or are) the de facto director(s) of the corporation.

(Citations omitted.)

Relevant facts

17    From the affidavit material filed, it is apparent that Mr Sklenovski advised the first plaintiff, Mr Andrew Yeo, that Mr Sklenovski controlled the operation of the Company’s business and affairs from at least 27 June 2005. Mr Gabi Gerges, the Company’s pre-liquidation accountant, advised the liquidators’ staff that:

(1)    the Company was, in effect, controlled by Mr Sklenovski;

(2)    Mr Sklenovski was the responsible mind of the Company and ran the Company’s business; and

(3)    Mrs Sklenovski’s involvement in the Company’s business was extremely limited.

18    In addition, it is apparent that Mr Sklenovski was the Company’s representative with its sole customer, Boral. Mr Jahnke, the only employee of the Company other than Mr Sklenovski, took instructions from Mr Sklenovski in the course of his employment with the Company, not from Mrs Sklenovski.

19    Based on the affidavit material provided to the Court, I am satisfied that the nature of the Company's business, being the provision of services to one customer with limited staff other than Mr Sklenovski, and Mr Sklenovski’s admission against interest (referred to above), leads to the conclusion that Mr Sklenovski was the controlling mind of the Company on a day-to-day basis, and a director of the Company for the purposes of the Corporations Act.

Insolvent Trading

Statutory provisions

20    In order to establish a claim pursuant to s 588M of the Corporations Act, the liquidators must satisfy the Court that s 588G of the Corporations Act applies (as per s 588G(1)), that s 588G has been contravened (as per s 588G(2)) and that s 588M applies (as per s 588M(1)).

21    Sections 588G(1) and (2) of the Corporations Act provide:

588G     Director’s duty to prevent insolvent trading by company

(1)     This section applies if:

(a)     a person is a director of a company at the time when the company incurs a debt; and

(b)     the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and

(c)     at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and

(d)     that time is at or after the commencement of [the Corporations Act].

…

(2)     By failing to prevent the company from incurring the debt, the person contravenes this section if:

(a)     the person is aware at that time that there are such grounds for so suspecting; or

(b)     a reasonable person in a like position in a company in the company’s circumstances would be so aware.

22    Section 588M of the Corporations Act provides:

588M     Recovery of compensation for loss resulting from insolvent trading

(1)     This section applies where:

(a)     a person (in this section called the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and

(b)     the person (in this section called the creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company’s insolvency; and

(c)     the debt was wholly or partly unsecured when the loss or damage was suffered; and

(d)     the company is being wound up;

whether or not:

(e)     the director has been convicted of an offence in relation to the contravention; or

(f)     a civil penalty order has been made against the director in relation to the contravention.

(1A)     This section also applies if:

(a)     a person (the director) has contravened subsection 588GAB(1) or (2) or 588GAC(1) or (2) relating to disposition of property by a company; and

(b)     one or more creditors of the company have suffered loss or damage because of the disposition and the company’s insolvency; and

(c)     the company is being wound up.

This section applies whether or not the director has been convicted of an offence relating to the contravention or a civil penalty order has been made against the director for the contravention.

(2)     The company’s liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage.

(3)     The creditor may, as provided in Subdivision B but not otherwise, recover from the director, as a debt due to the creditor, an amount equal to the amount of the loss or damage.

(4)     Proceedings under this section may only be begun within 6 years after the beginning of the winding up.

23    To enliven s 588G of the Corporations Act, the Company must have incurred a debt. The liquidators contend that, while there are minor differences in how courts have sought to define the incurring of a debt, it is generally accepted that a debt is incurred when the debtor does something that renders them liable to pay (whether now or in the future): Hawkins v Bank of China (1992) 26 NSWLR 562, 572 (Hawkins); Harrison v Lewis [2001] VSC 27 at [27]-[28]; Re Overgold Pty Ltd [2019] VSC 624 (Re Overgold) at [9]-[19].

24    In Hawkins, Gleeson CJ stated at 572:

The words “incurs” and “debt” are not words of precise and inflexible denotation. Where they appear in s 556 they are to be applied in a practical and commonsense fashion, consistent with the context and with the statutory purposes.

“Debt” is capable of including a contingent liability. The word was used in that sense in s 291 of the Companies Act 1961, which referred to “debt payable on a contingency”. That expression did not involve a contradiction in terms. Dictionaries define “debt” as a liability or obligation to pay or render something. Such a liability may be conditional as well as present and absolute. In Williams v Harding (1866) LR 1 HL 9, there was an issue as to the effect of a statute dealing with insolvency which made a debt incurred by a non-trader insufficient to found an adjudication of bankruptcy unless it was contracted after a certain date. The debt in question in that case was a liability to pay calls made by a joint stock company. The question was whether the appellant’s debt was contracted when he signed the deed of settlement making him a shareholder, or when the calls were made. It was held that the former was the case. Lord Cranworth LC said (at 21) that the date of the appellant's debt was when he executed the deed, and Lord Chelmsford (at 24) referred to the amount of the calls as a debt to which the appellant was “antecedentally liable”.

Similarly, the word “incurs” takes its meaning from its context and is apt to describe, in an appropriate case, the undertaking of an engagement to pay sum of money at a future time, even if the engagement is conditional and the amount involved uncertain. Once it is accepted that “debt” may include a contingent debt then there is no obstacle to the conclusion that, in the present context, a debt may be taken to have been incurred when a company entered a contract by which it subjected itself to a conditional but unavoidable obligation to pay a sum of money at a future time …

25    Kirby P stated at 576 and 578:

The act of “incurring” happens when the corporation so acts as to expose itself contractually to an obligation to make a future payment of a sum of money as a debt. The mere fact that such sum of money will only be paid upon a future contingency does not make the assumption of the obligation any less “incurring” a “debt”.

…

I agree in the conclusion of Gleeson CJ that once it is accepted that a “debt” in s 556(1)(a) may include a contingent debt, there is no difficulty in the present facts, in holding that a “debt” may be taken to have been incurred when [a certain corporation] entered a contract by which it subjected itself to a conditional, but unavoidable, obligation to pay a sum of money at a future time.

26    Sheller JA stated at 578:

Upon its execution the covenantor incurred a debt in the sense of an obligation to pay a liquidated amount contingent upon demand by the lender after the borrower’s default in performance or observance of any of its obligations in respect of the financial accommodation. For the reasons given by the Chief Justice and the President I agree that in the expression “incurs a debt” in s 556(1)(a) of the Companies (New South Wales) Code “debt” includes a contingent debt. In my opinion on execution of this guarantee the covenantor incurred such a debt.

27    In Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717, Middleton J stated at [137]:

… a company incurs a debt when, by act or omission, it is rendered liable for a debt, even one imposed by a statute: Standard Chartered Bank of Australia Ltd v Antico [Nos 1 and 2] (1995) 38 NSWLR 290 at 314, 317 (Hodgson J); Commissioner of State Taxation v Pollock (1993) 11 WAR 64 at 233-234 (Ipp J). A debt may include a contingent debt (Hawkins v Bank of China (1992) 26 NSWLR 562) …

28    The liquidators also contend that taxation liabilities are considered debts even if they are not yet the subject of determination – i.e. if the tax payer has performed such transactions that would give rise to a tax liability even if they have not yet disclosed it to the tax office and thereby been assessed for it: Commissioner of State Taxation v Pollock (1993) 11 WAR 64; Re Overgold at [12]-[16] (and the authorities there cited).

Relevant debts

29    The plaintiffs’ affidavit material shows that the Company incurred the following debts (Debts) between 1 July 2013 and 7 December 2018:

(1)    the following debts to the Australian Taxation Office (ATO):

(a)    debts incurred on the Company's running balance account in the sum of $185,602.12;

(b)    debts incurred on the Company’s income tax account in the sum of $4,093.98;

(c)    debts incurred on the Company’s superannuation guarantee charge account in the sum of $63,474.38;

(2)    a debt to HCC Fleet Services Pty Ltd in the sum of $16,280.57;

(3)    a debt to Mr Ralph Jahnke on account of wages in the sum of $4,692.00, which was paid out by the Department of Jobs and Small Business pursuant to the Fair Entitlements Guarantee.

30    Each of the Debts remains unpaid in the liquidation of the Company.

31    The taxation liabilities and the wages are prima facie unsecured liabilities. There is no evidence to displace that position. There is also no evidence to suggest that the HCC Fleet Services Pty Ltd liability was secured.

32    Each of the creditors the subject of the Debts have necessarily suffered loss or damage in relation to the debt because of the Company’s insolvency, given each of the Debts remains unpaid at the time of liquidation.

The Company’s insolvency

33    The decision in Re Overgold at [24]-[27] provides a useful summary of the notion of insolvency for the purposes of a claim pursuant to ss 588G and 588M of the Corporations Act.

34    The liquidators rely upon the solvency assessment set out in exhibit “ARY-14” to the second Yeo affidavit in respect of the legal principles and the factual circumstances of the Company.

35    The solvency assessment and an analysis of the bank statements of the Company reveal that, at all times, Mr and Mrs Sklenovski’s practice was to withdraw whatever funds were available in the Company with no intention to repay. This was done while the Company’s liability to the ATO, which was primarily the only creditor of the Company, was ever increasing.

36    It is clear from an analysis of the payments to Mr and Mrs Sklenovski identified in the Schedule of Payments (when considering the bank statements of the Company) that withdrawals by Mr and Mrs Sklenovski were almost universally made on the day funds were paid to the Company by Boral, leaving only nominal money in the Company's bank account.

37    The proof of debt submitted by the ATO to the liquidators in respect of the Company summarises the Debts in respect of the ATO. For the purpose of a solvency analysis, it should be noted that it includes sums in respect of:

(1)    unpaid income tax;

(2)    an unpaid running balance account in respect of BAS (including non-payment of tax withheld from employee wages);

(3)    superannuation guarantee charges from 1 July 2014 in respect of unpaid superannuation of staff;

(4)    penalties and interest.

38    The fact that the Company was able to continue trading for several years notwithstanding the liquidators’ assessment of insolvency is exemplified by the Company’s failure to comply with a creditor’s statutory demand, issued by the ATO on 24 March 2015. Notwithstanding the act of insolvency committed by failing to comply with the demand, the Company was able to delay winding up proceedings for a further 2.5 years.

Reasonable grounds to suspect insolvency and awareness thereof

Grounds to suspect insolvency

39    The test to be applied in relation to s 588G(1)(c) of the Corporations Act is objective: Fryer v Powell [2001] SASC 59 at [76]; Re Overgold at [29]. 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 …”: Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266, 303 (Kitto J; internal quotations omitted).

40    In Hayden Leigh White in his capacity as Joint and Several Liquidator of Port Village Accommodation Pty Ltd (in liq) v ACN 153 152 731 Pty Ltd (in liq) [2018] WASCA 119; 53 WAR 234; 129 ACSR 182, Murphy JA, Mitchell JA and Allanson J stated at [111]:

Both limbs of s 588FG(2)(b) involve a consideration of whether there were grounds for ‘suspecting’ that the company was or would become insolvent. In Queensland Bacon Pty Ltd v Rees [(1966) 115 CLR 266], Kitto J referred to a ‘suspicion’ as something more than a mere idle wondering whether a matter exists or not; but rather a positive feeling of actual apprehension or mistrust, ‘a real apprehension though with insufficient warrant for a positive conclusion’.

41    The liquidators contend, and, based on the liquidators’ affidavit material, I accept that:

(1)    the Company’s taxation obligations had continued to enlarge over multiple years, including prior to 30 July 2013; and

(2)    the Company’s only means of satisfying that escalating liability was from free cashflow, which was regularly withdrawn by Mr and/or Mrs Sklenovski without any repayment to the Company.

42    In these circumstances, based on the affidavit material relied on by the liquidators, I accept that there were sufficient grounds for a reasonable person in the directors’ position to have suspected that the Company was unable to meet its taxation obligations as and when they fell due after 30 June 2013.

Awareness of grounds by the directors or a reasonable person

43    The liquidators contend that a reasonable person in the position of director of the Company would have been aware there were grounds for suspecting the Company was insolvent because:

(1)    they would have been aware that, year upon year, the tax liabilities remained unpaid and escalated in size (the tax liability was recorded in the Company’s running balance account – that is, it is not the case that, because of accounting errors/mis-reporting, the Company’s tax ledger showed no liability);

(2)    they would have been aware that the Company’s cash was being regularly transferred out of the Company to the director/shareholder and her husband;

(3)    they would have been aware that the financial position and the current account position of the Company were the subject of financial statements, prepared each year.

44    The liquidators contend, and I accept, these matters give rise to a suspicion that the Company was insolvent.

45    As a consequence, and based on the liquidators’ evidence, I accept the liquidators’ contention that Mr and Mrs Sklenovski contravened s 588G of the Corporations Act on account of failing to prevent the Company from incurring each of the Debts. I also accept that, based on the matters I have set out above, it necessarily follows that Mr and Mrs Sklenovski knew, or ought to have known, that the Company was not in a position to meet its taxation obligations, given they were continuously withdrawing money from the Company.

46    By reason of these matters, the liquidators may recover from Mr Sklenovski and Mrs Sklenovski, as a debt due to the Company, an amount equal to each of the Debts.

PAYMENTS MADE while insolvent

The loan to Mrs Sklenovski

47    As at 30 June 2017, the Company’s balance sheet disclosed a loan to “E Sklenovski” in the sum of $184,458. It should be inferred that “E Sklenovski” refers to Mrs Sklenovski. This was the last financial statement prepared for the Company prior to liquidation.

48    There is no evidence of any repayment of the loan account.

49    Based on the affidavit material filed, I accept Mrs Sklenovski is indebted to the Company in the amount of $184,458.

Overpayment of Mr Sklenovski

50    The Company completed PAYG payment summary – individual non-business forms for Mr Sklenovski’s wages for the financial years ending 30 June 2016, 2017 and 2018. They reveal that Mr Sklenovski was entitled to gross payments totalling $178,815. They also reveal that, of those gross payments, the Company retained $36,439 on account of tax withheld.

51    Between 1 July 2015 and 30 June 2018, the Company made payments to an account ending “6958”. The payments total $503,750.

52    On 7 December 2018, being the date of liquidation, a transfer of $12,000 was made from the Company’s bank account to an account ending in “6958”, and those payments had an identical reference to each of the other payments to that account. When the liquidators referred Mr Sklenovski to this payment, Mr Sklenovski admitted that this bank account ending “6958” is his personal bank account, and I find that this was Mr Sklenovski’s bank account.

53    The difference between the amount paid to Mr Sklenovski between 1 July 2016 and 30 June 2018 (being $503,750) and the amount payable to Mr Sklenovski for wages (being $178,815 less $36,439 in tax withheld) is $361,174 (the overpayment).

54    The overpayment is not accounted for in the books of the Company and therefore the liquidators contend that the Court should find the overpayments constitute payments by mistake.

55     In Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662, Mason CJ, Wilson, Deane, Toohey and Gaudron JJ stated at 673:

… receipt of a payment which has been made under a fundamental mistake is one of the categories of case in which the facts give rise to a prima facie obligation to make restitution, in the sense of compensation for the benefit of unjust enrichment, to the person who has sustained the countervailing detriment … However, notwithstanding that the grounds of the action for recovery are framed in the traditional words of trust or use and that contemporary legal principles of restitution or unjust enrichment can be equated with seminal equitable notions of good conscience, the action itself is not for the enforcement of a trust or for tracing or the recovery of specific money or property. It is a common law action for recovery of the value of the unjust enrichment and the fact that specific money or property received can no longer be identified in the hands of the recipient or traced into other specific property which he holds does not of itself constitute an answer in a category of case in which the law imposes a prima facie liability to make restitution. Before that prima facie liability will be displaced, there must be circumstances (e.g., that the payment was made for good consideration such as the discharge of an existing debt or, arguably, that there has been some adverse change of position by the recipient in good faith and in reliance on the payment) which the law recognizes would make an order for restitution unjust.

The prima facie liability to make restitution is imposed by the law on the person who has been unjustly enriched. In the ordinary case of a payment of money, that person will be the payee.

(Citations omitted.)

56    The liquidators contend, and I accept that, even if the overpayments were not payments made by mistake, then they are properly characterised as:

(1)    loans to Mr Sklenovski, repayable at will; or

(2)    as there is no identifiable purpose for the overpayments, unreasonable director related transactions within the meaning of s 588FDA of the Corporations Act and voidable transactions within the meaning of s 588FE of the Corporations Act.

Payments to Mr and Mrs Sklenovski

57    The liquidators have identified additional payments totalling $51,700 to ANZ Bank Account numbered 4629-99461 (ANZ account) from the Company's bank account maintained with the Commonwealth Bank of Australia and numbered “10373062”. The ANZ account is held in the name of both Mr Sklenovski and Mrs Sklenovski.

58    As to these transactions, they are not recorded in any loan ledger. The lack of any record occurs in circumstances where the Company had the opportunity to prepare end of year statements for the 2018 financial year (noting the Company was not wound up until 7 December 2018). There is no employment or payment arrangement or other adequate identifiable basis for the Company to be making payments to Mrs Sklenovski of this kind. There is no identifiable basis for the payments to Mr Sklenovski, particularly given the overpayment referred to above.

59    As a consequence, the liquidators contend that the Court should find, and I do find, that the payments to the ANZ account constitute payments by mistake, as per the overpayments. Alternatively, I accept that, even if the payments to the ANZ account were not payments by mistake, then they are properly characterised as either:

(1)    loans to Mr and Mrs Sklenovski; or

(2)    given there is no identifiable purpose for the payments to the ANZ account, unreasonable director-related transactions within the meaning of s 588FDA of the Corporations Act and voidable transactions within the meaning of s 588FE of the Corporations Act.

Conclusion

60    For the reasons set out above, there will be judgment for the plaintiffs in this proceeding.

61    In summary, my findings are:

(1)    Between 30 June 2013 and 6 September 2018, the second defendant was a director of the third plaintiff within the meaning of s 9 of the Corporations Act.

(2)    There were sufficient grounds for a reasonable person in the directors’ position to have suspected that the Company was unable to meet its taxation obligations as and when they fell due after 30 June 2013.

(3)    Mr and Mrs Sklenovski contravened s 588G of the Corporations Act by failing to prevent the Company from incurring each of the Debts.

(4)    Mr and Mrs Sklenovski knew or ought to have known that the Company was not going to be able to meet its taxation obligations as they were continuously withdrawing money from the Company.

(5)    Pursuant to s 588M(2) of the Corporations Act, there is a debt due to the plaintiffs by the defendants in the sum of $274,143.05, being the total or collective amount of the Debts referred to above.

(6)    There is a debt due to the third plaintiff by the first defendant in the sum of $184,458, being the amount of the loan to Mrs Sklenovski referred to above.

(7)    There is a debt due to the third plaintiff by the second defendant in the sum of $361,174, being the overpayment referred to above.

(8)    There is a debt due to the third plaintiff by the first and second defendants in the sum of $51,600, which is referable to the payments to the bank account of Mr and Mrs Sklenovski from the Company’s bank account, referred to above.

62    I have made the Orders sought by the plaintiffs.

Associate:

Dated:    22 October 2020

Annexure A

Payments made from Company bank account to account ending 6958

Payments made by the Company to account 4629-99461 post 30 June 2017