Federal Court of Australia

Aquisite Pty Ltd v Moss [2023] FCA 410

ORDERS

THE COURT ORDERS THAT:

1.    The proceedings against the second and fourth defendants are dismissed.

2.    The parties are to file short submissions, of no more than three pages, to give effect to these reasons including any further applications for interest, costs or other relief, within 14 days of the publication of these reasons.

3.    Subject to any further order of the Court, all further orders will be made on the papers.

4.    The Registrar of the Court is to provide a copy of these reasons to ASIC for consideration whether there should be an investigation of the circumstances which led to the liquidation of Amici Food Manufacturer Pty Ltd (in liq).

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

REASONS FOR JUDGMENT

MCELWAINE J:

1    This proceeding is concerned with the financial consequences of the collapse of a company that was in the business of manufacturing frozen pizzas. Fortunately it is unnecessary to describe the manufacturing process in any detail as to do so would likely cause many consumers to purchase only fresh produce to make their own pizzas at home.

2    In the Italian language, an amici is a friend. The principal players Mr Pascual Gigliotti and Mr Paul Ronald Moss cannot be so described. In this case Amici Food Manufacturer Pty Ltd (Amici) is an insolvent corporation that was placed into liquidation on 31 May 2017 pursuant to a creditors’ voluntary winding up. It traded for a relatively short period between March 2016 and May 2017. It manufactured frozen pizzas from 14 Westwood Drive, Ravenshall, Victoria (the premises). It sold its product to a food distribution company, which in turn sold the product to another wholesaler for ultimate sale to supermarkets under generic brand names. Despite the relatively short trading period, Amici accumulated debts owing to unsecured creditors of approximately $600,000. It has no assets of any value.

3    The plaintiff, Aquisite Pty Ltd, is the assignee of various causes of action that the liquidator of Amici has or may have against persons who were directors of Amici pursuant to the Corporations Act 2001 (Cth) (Act), at law or in equity. The assignment of “rights to sue” means any right of the liquidator on his own behalf or on behalf of Amici to litigate claims arising out of the liquidation including any breach of duty by any director, including a shadow or de facto director, for common law or statutory liability, including liability for insolvent trading and voidable transactions pursuant to pt 5.7B of the Act.

4    Taking the assignment literally, the plaintiff asserts against four defendants various claims for breach of fiduciary duty by a person said to be a director in fact, unreasonable director-related transactions, uncommercial transactions, claims for constructive trust pursuant to Barnes v Addy (1874) LR 9 Ch App 244, voidable preference payments and liability for insolvent trading.

5    As ultimately resolved, the plaintiff seeks the following orders:

1.    The Court declares that the First Defendant was at all material times from 2 March 2016 a director of Amici Food Manufacturer Pty Ltd (in liquidation) (ACN 611 078 865) within the meaning of s 9 of the Corporations Act 2001 (Cth).

2.    The First Defendant pay the Plaintiff the sum of:

a.    $618,465.87 pursuant to s 588J and/or 588M of the Act; and

b.    $27,666.00 pursuant to s 588FF of the Act.

3.    The Second Defendant pay the Plaintiff the sum of $44,000 pursuant to s 588FF of the Act.

4.    The Third Defendant pay the Plaintiff the sum of $13,992 pursuant to s 588FF of the Act.

5.    The Second and Fourth Defendant pay the Plaintiff the sum of $227,719.30 pursuant to s 588FF of the Act.

[Alternative to 2(b) and 3]

6.    The First Defendant pay the Plaintiff damages in the sum of $27,666.00.

7.    The Second Defendant pay the Plaintiff damages in the sum of $44,000.00.

[Alternative to 5 insofar as the Second Defendant is concerned]

8.    The Second Defendant pay the Plaintiff damages in the sum of $113,859.65.

9.    The Defendants pay the Plaintiffs [sic] costs of the proceeding (including reserved costs).

6    For the reasons that follow, I have concluded that the claim succeeds in part against Mr Moss and Ms Sarah Moss and fails against the other defendants.

Dramatis Personae

7    There are numerous individuals and corporations that feature in the evidence. It is convenient at the outset to identify the principal players, briefly describe their roles and assign convenient abbreviations.

8    On the trial, Mr Petras of counsel appeared for the plaintiff and Ms Mastos appeared for each defendant in her capacity as solicitor.

The background facts in broad compass

9    Mr Gigliotti was born in Argentina and immigrated to Australia in 1979. He has worked, for more than 30 years, in the food production industry in Australia. He is very skilled and knowledgeable in all aspects of mass food production. In approximately 1997, he was employed by Emilio as the production manager at Don Emilio Pizza Bases. Emilio and Mr Gigliotti have been friends since they first met. Mr Gigliotti met Mr Moss in or about 2005, at which time he changed employment and worked for Mr Moss at a vegetable processing plant at the premises. It is unclear from the material before me the precise name of that company, so I shall refer to it as “Fresh Pac Foods” in these reasons. When Fresh Pac Foods was sold, Mr Gigliotti worked for the purchaser in Broadmeadows. Stones Bakery and later SB Food became the occupier of the premises in approximately 2012, at which time Mr Gigliotti was employed (by which entity is unclear) as the production manager for a pizza topping line. In approximately 2016, Mr Gigliotti was instrumental in securing a valuable contract for SB Food with Della Rosa by reason of his friendship with Emilio.

10    Della Rosa then became the principal customer of SB Food. In early 2016, Mr Gigliotti became dissatisfied with the salary that he was being paid as the production manager. The annual payment was approximately $90,000. He approached Mr Moss for a pay rise. What was said is in dispute, but what is not is that instead of a pay rise, Mr Gigliotti agreed to the incorporation of Amici, his appointment as its sole director and the issue of shares to Amici Food of which Mr Gigliotti and Bup are equal shareholders. The purpose of this arrangement was that Mr Gigliotti would become responsible for the production of frozen pizzas at the premises and by using all of the extant plant and equipment. Amici would sell the product to SB Food and SB Food would supply to Della Rosa under the existing contract. Mr Gigliotti was a willing participant in this enterprise because he “saw the opportunity to make money, more over that I was earning as – as a worker”. That evidence is to be understood in the knowledge, later disclosed, that Mr Gigliotti was at that time the sole director and a 50% shareholder of TCK which conducted business as a labour hire company, primarily supplying labour to SB Food. To 30 June 2015, when that arrangement was in place, TCK recorded gross income of $579,541.79, expenses of $534,598.38 and a profit before income tax of $44,943.41.

11    I pause at this juncture to mention the matter that I return to in greater detail in these reasons. Mr Gigliotti and Emilio were friends. But they did not become contracting parties. The proposal that Mr Gigliotti was keen to participate in, maintained SB Food as the intermediary between Amici and Della Rosa. Mr Poulter’s evidence is that this arrangement was artificial and lacked a proper commercial purpose. By interposing SB Food between the manufacturer and the wholesaler, the profit margin of the manufacturer is self-evidently less than it might have been if the manufacturer sold to the wholesaler directly.

12    SB Food occupied the premises as the lessee of PRM and Orthosurgical pursuant to an agreement for lease of a three-year term to conclude at the end of September 2017. No written lease agreement was produced in evidence, but I accept the evidence of Mr Luckin that there was such a lease. The monthly rental including GST was $20,507. Amici did not enter into a new lease with PRM and Orthosurgical. The date of first occupation of the premises by Amici is unclear, as is the date that it first commenced production. Amici opened three bank accounts with the ANZ bank on 7 April 2016 all with a zero balance. The only operative account was the account ending xx43 (the ANZ account). The first deposit to the ANZ account of $25,500 was made on 9 May 2016 from SB Food’s account. The MYOB records obtained by Mr Poulter, being the bank register of Amici, discloses that the first withdrawal from the ANZ account occurred on 30 May 2016 when a payment of $120,000 was made to SB Food. This caused the ANZ account to be overdrawn. A second payment was made on that day, again to SB Food, in the amount of $128,283. There were further withdrawals on that day, and then substantial sums were deposited from SB Food in the respective amounts of $18,000, $115,000 and $140,000. The end position as at 1 June 2016 is that the ANZ account was overdrawn $27,022. I return to the various explanations for these payments later in these reasons. These records did not align with the ANZ bank statements which commence with entries on 9 May 2016 and for that reason I exercise caution in making findings of fact solely on the MYOB records.

13    Mr Luckin was responsible for sending tax invoices on behalf of PRM and Orthosurgical. He did not become aware that Amici was the occupier of the premises until 2 February 2017, when Ms Kirkman advised him of that fact. Within the period 12 August 2015 (the earliest invoice produced in evidence) to 26 January 2017, Mr Luckin addressed and delivered each monthly tax invoice for rental to SB Food. The joint bank account of PRM and Orthosurgical records various deposits from Amici commencing 4 July 2016 and in irregular sums. On 2 February 2017, Ms Kirkman emailed Mr Luckin and provided him with the name of Amici and its ABN. Thereupon, Mr Luckin reissued each tax invoice for the period July 2016 to January 2017 in Amici’s name and provided those invoices to Ms Kirkman.

14    As noted earlier, an aspect of the arrangements which excites curiosity is that despite the friendship between Mr Gigliotti and Emilio, Amici did not directly supply its pizza product to Della Rosa. Rather, SB Food maintained its contract with Della Rosa, Amici produced pizzas and sold them to SB Food which in turn sold to Della Rosa. Della Rosa then sold the pizzas to large supermarkets, primarily Coles. This arrangement continued until December 2016, when the contract between SB Food and Della Rosa ended. This had a severe and adverse effect on Amici’s business. The loss of its major customer ultimately resulted in Amici’s demise.

15    Mr Gigliotti ceased to be the director of Amici on 16 February 2017 and a Mr Pastras was appointed that day. Little is known of Mr Pastras. The ASIC records state that his address is 374 Albion Street Brunswick, Victoria and his date of birth is 21 October 1970. Mr Moss denies any knowledge of Mr Pastras. Mr Gigliotti gave evidence that Mr Moss informed him that Mr Pastras was “some old man from somewhere on [sic] living in…Carramar Park”, and that Mr Dunner had identified him as a person suitable to assume the office of director of Amici. Mr Gigliotti also gave evidence that Mr Moss told him that Mr Dunner was “a friendly liquidator” who, with a new accountant, would “fiddle with the numbers or whatever”.

16    The evidence of Mr Poulter is that Mr Pastras did not take any active role in the management of Amici, was not a signatory to any of its bank accounts and did not have any involvement with the company other than to cause it to be placed into liquidation. Mr Poulter was appointed as liquidator of Amici on 31 May 2017 pursuant to a creditors’ voluntary winding up.

17    Mr Pastras signed a report as to affairs of Amici on 31 May 2017. Some insight as to how this occurred is revealed in correspondence dated 26 May 2017 from Mr Poulter to Mr Pastras, which commences with the sentence: “Thank you for allowing this firm to be of assistance to you in the proposed winding up of the abovenamed company.” Mr Poulter enclosed his consent to act as the liquidator and gave detailed advice as to the initial resolution required by Mr Pastras, the notice which was then required to be given to the members, the convening of the meeting of the members and the steps which would then follow. Returning to the report as to affairs, Mr Pastras was able to state the assets and liabilities of Amici in some detail which contrasts markedly with the evidence of Mr Poulter that he did not have any active role in the management of the company. Also on 31 May 2017, Mr Pastras filled in a standard form questionnaire for company officers. Amongst other things, he recorded that he did not deal with Amici’s suppliers, met the previous director “only a short time before agreeing to me acquiring the company” and in answer to the question when the previous director relinquished control answered: “transferred the company to me for my future use for a new business.” No evidence was given about that apparent transaction by Mr Gigliotti or Mr Moss. These facts raise a serious concern about whether Mr Pastras was inserted as a dummy director as part of a dishonest scheme. That issue is not before me for decision. It is a matter that in my view should be referred to the Australian Securities and Investments Commission.

18    On 14 August 2018, Aquisite, Amici and Mr Poulter entered into a deed of assignment (Assignment) pursuant to which for consideration of $50, and a promise to pay a proportion of any “Resolution Sum”, Mr Poulter and Amici assigned to Aquisite all of their right, title and interest in every “Right to Sue”, defined as all rights to litigate a claim at common law, in equity or pursuant to statute arising out of the liquidation of Amici including, but not limited to, a breach of duty by a director, a voidable transaction under pt 5.7B of the Act and claims for insolvent trading. A term of the Assignment obliged Mr Poulter to apply for and conduct public examinations, funded by Aquisite. The “Resolution Sum” is defined as the gross amount recovered by Aquisite in relation to any legal proceeding in exercise of the right to sue. Any Resolution Sum recovered is to be applied first in reimbursement of the public examination costs, second in reimbursement of the legal costs of any proceeding and the balance is to be equally divided between Aquisite and Mr Poulter, in his capacity as liquidator of Amici.

19    It was at one time doubted whether it was open to a liquidator to assign statutory causes of action vested in the liquidator and not otherwise assignable to a third party: see, for example UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd [1997] 1 VR 667, per Hansen J; MG Corrosion Consultants Pty Ltd v Gilmour (2012) 202 FCR 354; [2012] FCA 383, per Barker J and Anderson v Canaccord Genuity Financial Ltd (2022) 161 ACSR 1; [2022] NSWSC 58 at [1271]-[1287] per Ward CJ in Eq. Clause 100-5(1) of the Insolvency Practice Schedule (Corporations) being Sch 2 to the Act now provides that an external administrator may assign any right to sue that is conferred by the Act. The defendants admitted the Assignment and did not contend that it was ineffective. I proceed on that basis.

20    According to Mr Poulter, the plaintiff occupies a niche place in the litigation funding marketplace as a lower tier operator prepared to engage in litigation where the anticipated recovery is low.

The conduct of the case

21    I mention a number of unsatisfactory aspects of the conduct of this proceeding, which inevitably have made my task more difficult. The first is the pleadings. The plaintiff’s statement of claim is crisply pleaded in 70 paragraphs covering 21 pages. This is despite the fact that seven primary causes of action are maintained, on the ground that Mr Moss at all times was a shadow director of Amici. In summary, the separate causes of action range across breach of fiduciary duty as a director, unreasonable director-related transactions and uncommercial transactions (pleaded differently against each of the four defendants), a Barnes v Addy constructive trust claim against each of the four defendants, a voidable preference claim and the liability of Mr Moss for insolvent trading for the entire trading period of Amici. Mathematically 25 separate claims are pleaded, 13 against Mr Moss and four each against Ms Moss, PRM and Orthosurgical. The vast majority of claims are pleaded as cascading alternatives with no apparent attention having been paid to the overarching purpose to resolve this claim as efficiently as possible: s 37M of the Federal Court of Australia Act 1976 (Cth). Pleading multiple alternate claims when one will suffice is to be deprecated.

22     A further difficulty with the statement of claim is that the pleading is redolent of conclusions, with scant reference to the material facts contended to support the conclusions. By way of illustration, a claim is made against PRM and Orthosurgical for rent paid by Amici between 25 May 2016 and 18 May 2017 in the amount of $224,719.30. The date of each payment and its amount is pleaded. However, by way of bland conclusion it is said that Mr Moss “obtained, directed or procured” the rental payments and that Amici “obtained no benefits, alternatively there were no benefits referable to the respective amounts of the payments” and Amici “suffered a detriment in that it was deprived of the amount of the payments”. By way of brief particulars it is pleaded that the rental payments “were purportedly in respect of rent and outgoings for use of the [premises]” in circumstances where Amici did not have a lease for the use and occupation of the premises and did not receive tax invoices for the rental. No attempt is made to plead what benefit Amici received by reason of its occupation of the premises and its use of the plant and equipment therein, in order to produce the pizzas for sale to SB Food. And that is so, despite the fact that the plaintiff procured from the liquidator the internal management financial statements of Amici and had the benefit of a public examination of Mr Moss and the liquidator’s Insolvency Report dated 4 February 2021 (Insolvency Report). The latter report reconstructed the financial records of Amici which disclosed that gross income was $1,045,729 to 30 June 2016 and $2,708,667 to 31 March 2017. No attention was paid in the pleading as to how that revenue might have been generated if it was the case that Amici derived no benefit, or no benefit referable to the quantum of the rent, through occupation of the premises.

23    For reasons that were not explained, despite representation by the same lawyer, each defendant relied upon a separate defence, subsequently amended in the case of the second, third and fourth defendants. None of the defences are illuminating. Each defence is replete with denials, non-admissions (despite r 16.07 of the Federal Court Rules 2011 (Cth) (the Rules)) and very few positive assertions of fact are made. In multiple paragraphs it is pleaded to the effect that the defendant denies a matter but “further particulars will be provided after the completion of discovery”. Such particulars were neither sought nor delivered.

24    The second matter relates to the detailed case management orders made on 13 November 2020 for, inter alia, witness outlines of the evidence intended to be adduced orally at the trial. The outlines were required to state in brief the evidence to be given by the witness, clearly identify topics and the substance of the evidence including each important conversation. The plaintiff complied with that requirement. The defendants did not. The outline of evidence of the defendant’s principal witness Mr Moss is a mere 24 single sentence paragraphs. Very little detail is contained therein. The outline stands in stark contrast to the detailed evidence adduced orally from Mr Moss in his examination–in-chief. He provided a history of the relevant corporate entities, the operation of the business of Amici and, most importantly of all, of critical discussions that he had with Mr Gigliotti. Surprisingly, counsel for the plaintiff did not object to this evidence. Nor was his apparent case put to Mr Gigliotti in cross-examination. At the conclusion of the examination-in-chief of Mr Moss, I invited him to step outside the court room and I raised with counsel my concern that the evidence had been led by surprise and was not fairly put to Mr Gigliotti which I considered to be a serious breach of the rule in Browne v Dunn (1893) 6 R 67. I drew the attention of counsel to s 46 of the Evidence Act 1995 (Cth). Initially, counsel for the plaintiff did not apply for leave to recall Mr Gigliotti or Ms Kirkman. I expressed surprise at that tactical decision and noted that conducting the trial in that way was hardly of assistance to me in making relevant findings of fact. Eventually, counsel applied to recall each of those witnesses, which application I granted. They were recalled.

25    Compounding that difficulty is the fact that the defendants failed to comply with another procedural order which required the filing of a written outline of facts and contentions of law in advance of the trial. That document was not received until the third day of the trial. It was not illuminating in that it largely recited the claims of the plaintiff and the denials of each defendant.

26    The combined effect of these failures was that the contentions of the defendants in answer to the claims were not revealed with any clarity until part way through the trial. In one respect that counts heavily against acceptance of the evidence of Mr Moss as to a discussion claimed to have been held with Mr Gigliotti and Ms Kirkman prior to Amici’s incorporation by reference to detailed spreadsheets relevant to the intended business proposal. For the reasons that I give below, I reject that evidence of Mr Moss and it undermines his credibility as a witness on other contested facts in this proceeding.

27    The third matter concerns how the trial was conducted, despite the definition of issues on the pleadings. Positive defences that clearly took the plaintiff’s counsel by surprise (contrary to r 16.03 of the Rules) were led as part of the unnotified evidence of Mr Moss, which resulted in a lengthy adjournment so that Ms Kirkman and Mr Gigliotti could be recalled in an attempt to ameliorate the serious breach of the rule in Browne v Dunn by the solicitor for the defendants, who also assumed carriage of the trial.

28    The plaintiff did not plead a case that Mr Moss caused or induced Mr Gigliotti to participate in the formation of Amici as part of a wholly uncommercial arrangement, whereby Amici was “set up to fail”, which was the evidence of Mr Poulter and has been his overall case theory for a considerable period of time. However, in cross-examination this topic was considerably probed and expanded upon. That is one of many examples of evidence adduced through questions that ordinarily would not be asked if a case is conducted in accordance with the pleadings.

29    In these circumstances I have concluded that a significant number of the real issues in contention between the parties are not adequately disclosed on the pleadings, but as the parties permitted evidence to be led and tested on un-pleaded matters, overall fairness requires that I do not take a strict view of the scope of the issues defined by the pleadings. Rather, save for the preference claims, I will address the substance of the case that each party seeks to make out where the evidence so permits as “…pleadings are only a means to an end…”: Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in liquidation) (1916) 22 CLR 490 at 517 per Isaacs and Rich JJ. The preference claims, as I explain, give rise to particular issues of pleading and proof where I have concluded that it would be unfair and prejudicial to permit the plaintiff to rely on a case that is not fairly pleaded nor supported by direct evidence.

30    The final matter by way of introductory observation regards the court book of agreed documents. The court book contained a large number of documents, many of which neither of the parties referred to during the conduct of the proceedings. This included documents 46 to 50 which appear to be an affidavit and exhibits of Mr Michael Herman, the director of the plaintiff, relating to an entirely different proceedings in this Court against a different, unrelated defendant. This was despite Ms Mastos assuring me at the commencement of the trial that the court book documents were agreed.

31    The court book also included transcripts of public examinations of Mr Gigliotti and Mr Moss conducted in February and April 2019 pursuant to s 596A of the Act. Neither record of examination included the authentication required by s 597(14) in order to be admissible in this proceeding, despite the fact that Mr Moss claimed privilege in answer to a large number of questions pursuant to s 597(12A). When I raised this at the commencement of the trial, I was informed by Mr Petras and Ms Mastos that each was content that the transcripts be received in evidence in this proceeding.

The issues to be resolved

32    At the outset, the two primary issues concern whether: (1) Mr Moss, although not appointed as a director of Amici, nonetheless was by operation of the definition of director at s 9 of the Act; and (2) whether Amici was insolvent and if so from when. The answers then inform and determine the balance of the plaintiff’s claims for breach of fiduciary duty, unreasonable director-related transactions, uncommercial transactions, knowing receipt of funds paid out by Mr Moss in breach of duty and liability for insolvent trading. Separately, there are voidable preference claims.

33    There is a large amount of conflicting evidence and factual dispute between the parties. Some of my findings turn on my assessment of the credit of the witnesses and it is convenient to record at the outset my credit findings based on my observation of each witness and reconciliation with the contemporaneous documents, such that they exist.

Witnesses and witness credibility

34    The plaintiff relies on the oral evidence of Mr Poulter, Ms Kirkmann and Mr Gigliotti. The defendants rely on oral evidence from Mr Moss, Ms Moss and Mr Luckin.

35    The plaintiff’s claims are serious and if established have severe consequences for, in particular, Mr Moss. I approach my fact-finding in accordance with Briginshaw v Briginshaw (1938) 60 CLR 336 at 362-263, per Dixon J.

Mr Poulter

36    Mr Poulter has been a registered liquidator since 3 December 2007 and is a principal of his firm, IRT Advisory. He was approached by Mr Dunner in May 2017 with a view to accepting an appointment as liquidator in a creditors’ voluntary winding up. He stated that Mr Dunner operated as a registered liquidator for many years, but his registration was subsequently cancelled. He did not say why. Mr Dunner explained that Mr Pastras had recently acquired the shares in Amici, but shortly thereafter discovered the extent of its liabilities and decided to liquidate it. Unsurprisingly, Mr Poulter was sceptical of that information, but nonetheless agreed to be appointed if so resolved which occurred on 31 May 2017. Following his appointment, he commenced investigating the affairs of the company. He delivered requests to Mr Pastras and Mr Gigliotti for the production of books and records. He received some incomplete records and made further requests. Those requests were not answered. Eventually he made a request of Mr Long, a person who had been engaged by Amici as its accountant. He received some information from Mr Long which enabled him to obtain internal accounting records from MYOB. Under his direction, an employee of his office, Mr Fuller, prepared the Insolvency Report. Mr Poulter adopted the reasoning, analysis and conclusions of that report. In short, Amici was insolvent on and from 1 July 2016.

37    That Insolvency Report concludes with the following (and this evidence was not objected to by Ms Mastos):

Based on investigations undertaken, meetings with Jessica Kirkman and Pascual Gigliotti and evidence forthcoming from public examinations of Pascual Gigliotti and Paul Moss, it is the liquidator’s contention that the Company was set up by Paul Moss (with Gigliotti installed as a puppet director) to quarantine taxation and trading liabilities in the Company where otherwise those liabilities would ultimately be imposed on an entity controlled by Moss and for which the avoidance of payment would have been much more difficult.

It is therefore not surprising that the Company appears to have been insolvent from shortly after it commenced to trade. The intention appears to have been that the Company would fail, owing substantial sums to the ATO and trade suppliers, while wealth accrued to related entities controlled by Moss in the form of rent, consulting payments and commercial product margins that were denied to the Company.

38    That opinion is controversial in this case.

39    Mr Poulter gave his evidence clearly and largely persuasively. I do, however, have one reservation. Mr Poulter was at pains to repeatedly emphasise his case theory: that Amici was set up to fail, the arrangement was uncommercial and it follows therefore that all amounts in issue as received by the defendants must be repaid. When pressed by Ms Mastos as to the basis for that opinion, Mr Poulter gave several reasons including two which cannot be reconciled with other evidence, and one of which he subsequently withdrew. In cross-examination he said that Amici “was essentially a labour hire company” which should not have been paying rent for its occupation of the premises. When pressed about that evidence, he said that Amici “has certain characteristics of a labour hire company”. When it was pointed out to him that this could not be so because, for example, Amici purchased stock from SB Food, manufactured product, used plant and equipment and had employees, Mr Poulter withdrew this evidence. He was then challenged in his evidence that Amici should not have been paying rent. He was questioned as to what, if any, investigations he undertook in order to determine whether the rental was fair market rent for the premises. He answered as follows:

No, I didn’t, but I had no reason to think that it wasn’t fair market rent, but that wasn’t the issue. I wasn’t concerned about whether the rent was at market. I was concerned about whether Amici should have been paying it.

Why shouldn’t Amici have been paying?… Because it wasn’t making enough money due to the contrived arrangement regarding the sale of the product. It couldn’t afford it.

40    This evidence causes me to be cautious about some aspects of the evidence of Mr Poulter, and in particular his overall case theory. It is clear from the Insolvency Report that Amici was not a labour hire company. It had significant income in the form of sales revenue in 2016 and to March 2017, it purchased significant amounts of materials in order to produce product in each of those years and it sold the manufactured product to SB Food. It is difficult for me to accept how Mr Poulter, as a registered liquidator, believed that Amici was no more than a labour hire company. Further, on the rental recovery claims pleaded by the plaintiff the allegation is that Amici obtained no benefit or no benefit referable to the quantum of the rental payment. One would have thought that Mr Poulter would have made at least some form of inquiry in order to be satisfied that this pleading was reasonably based in fact.

41    I stress that these reservations do not infect my overall impression of Mr Poulter as an honest and credible witness and I accept his evidence, particularly on matters relevant to his function, being the question of Amici’s solvency, its financial accounts, the analysis of those accounts and in the evidence that he gave about the unprofitable gross margins of the business. I return to these matters in greater detail in the balance of these reasons.

Jessica Kirkman

42    Ms Kirkman is currently employed as a payroll officer with Della Rosa, a position that she has held since September 2017. Ms Kirkman was first employed by Mr Moss in approximately 2006. She remained in the employment of Mr Moss (or more particularly of various corporations with which he was involved) until 2011, when she worked for other unrelated businesses until returning to work with Mr Moss in 2014. In approximately 2015, she accepted a position at Stones Bakery (and subsequently it would seem SB Food and Amici) and she remained in that position until she took maternity leave in April 2017. When she returned to visit during her maternity leave she was informed that Amici had ceased to trade.

43    When working for Stones Bakery, Ms Kirkman performed general administration and accounts duties such as attending to accounts payable and receivable and the placement of orders. She worked in the office section of the business, with Mr Moss. She did not notice any change in the office practices or procedures following Amici’s incorporation. Shortly prior to commencement of her maternity leave, she noticed an increase in creditor demands for payment. Her evidence is principally concerned with the person or persons who were responsible for the day-to-day operations of the company and the financial affairs and higher level decision-making within Amici.

44    Ms Kirkman presented as an honest and straightforward witness, though her recollection of specific events was relatively vague. I have no hesitation in accepting her as a credible witness who genuinely gave evidence of her actual recollection, rather than a reconstruction based on documents or other evidence.

Pascual Gigliotti

45    English is not the first language of Mr Gigliotti, which partly explains why at times his evidence was somewhat discursive, difficult to follow and non-responsive to direct questions. His evidence is important though not determinative of whether Mr Moss was a de facto or shadow director of Amici. He is the plaintiff’s primary witness. He is an expert on the process of manufacturing frozen pizzas, so much so that he developed a computer programme (referred to in evidence as the Master Schedule) to precisely calculate the amount of each ingredient and the method of application to match a required recipe. He is very proud of this work. He set up TCK as a vehicle to exploit his software, but this was not financially successful. Later, TCK was employed for another purpose - it became a labour hire company initially to Stones Bakery and SB Food and then to Amici.

46    There are aspects of the evidence of Mr Gigliotti which caused me to have serious doubts about his truthfulness and overall credibility. He gave evidence that he agreed to establish Amici because he was greedy: he saw an opportunity to make more money than he was earning as an employee. I asked Mr Gigliotti whether he had ever been a director of a company before the formation of Amici. He answered that he had. He described it as “a very small business”. That business was TCK. He described that it was Mr Moss who considered that TCK should act as a labour hire company. He described that there was “nothing” in that deal because Mr Moss would simply transfer the precise amount required to pay the employees. Mr Gigliotti said that he agreed to this proposal nonetheless “[b]ecause I thought it was going to be benefit [sic]”. That benefit, on his evidence, did not materialise in that if TCK paid $1,000 in wages, it received only that sum from Mr Moss or an entity controlled by him. Very directly, Mr Gigliotti said that he derived “[n]o benefit to me whatsoever” from the business of TCK.

47    That evidence cannot be reconciled with the annual accounts for TCK to 30 June 2016 which also record the financial position as at 30 June 2015. These accounts are signed by Mr Gigliotti and dated 15 March 2017 as, inter alia, stating a true and fair view of the financial position of TCK. TCK was by no means a very small business. It derived revenue in 2015 of $579,541.79 and in 2016 of $771,361.13. It respectively paid directors fees of $30,000 and $89,885.32 in each of those years. The profit before income tax was respectively $44,943.41 and $81,194.19. In each of those years it paid wages to employees of approximately $430,000. This analysis also demonstrates that it did substantially benefit from the labour hire arrangement by reason of the profits derived and Mr Gigliotti and his wife directly benefited from the directors fees.

48    Following Amici’s financial collapse, Mr Gigliotti lodged a claim on behalf of his wife for unpaid wages and annual leave in an amount of $3,309.24. In cross-examination he admitted that his wife had never been an employee of Amici and that this claim was false. In an apparent attempt at justification, he said that he did this because Mr Moss owed him money, which he had not paid. He was unable to explain how much he was owed and why he did not make a claim for unpaid wages as an employee, save for disclosing that “honestly, at that point, actually, I didn’t care. It was in control [sic] of the friendly liquidator”, which does not explain why he knowingly made a false statement.

49    His evidence about whether he received wages as an employee was most confusing. Initially, he said that he had worked for the same wage for over three years for an amount “around” $90,000 per annum. He was aggrieved, and approached Mr Moss to request a pay rise. In his evidence Mr Moss said that he could not afford a pay rise, but had a “very good opportunity for you” being the formation of Amici with the intention that it would take over the production of pizzas from SB Food. Later, in cross-examination he denied that he had received a wage of approximately $150,000 per annum as Amici’s production manager. He could not explain, however, whether he was paid by Amici or Fresh Pac Foods or some other entity. His attention was drawn to a list of transactions between Amici and TCK between 5 December 2016 and 25 May 2017. This document was exhibited as an annexure to an affidavit of Mr Poulter made on 23 August 2018, which the plaintiff did not read into evidence. In that affidavit, Mr Poulter described the list as a printout of transactions between Amici and TCK as recorded in Amici’s bank statements. The list discloses payments of largely irregular sums on irregular days within that six month period totalling $151,471.95. Mr Gigliotti was asked whether the list was an accurate description of the money that TCK received from Amici. Mr Gigliotti was unable to answer that question. He denied that the amounts comprised his salary paid through TCK. He maintained that his salary was paid separately. He could not recall which entity was responsible for paying his salary.

50    Mr Gigliotti was next taken to a tax invoice from TCK to SB Food dated 23 May 2016 for casual labour hire for the week ending 20 May 2016. The invoice is itemised. The respective amounts are $11,436 for casual labour, $496.90 for work cover charges, $275 for support fees and $2,481 for administration fees. Mr Gigliotti was unable to explain why this invoice was addressed to SB Food as it postdates the formation of Amici on 2 March 2016, apart from stating that his wife was responsible for preparing the document. Eventually Mr Gigliotti conceded that the administration fee was his wage for each week. If that is correct, the annual wage was approximately $129,000 which amount Mr Gigliotti said was agreed with Mr Moss.

51    No explanation was provided in the evidence, and in particular in re-examination, as to why this apparently artificial arrangement was entered into for the provision of personal services by Mr Gigliotti to either Amici or SB Food. Copies of Mr Gigliotti’s personal tax returns were included in the court book and record TCK as his sole source of income, declaring a taxable income of $43,152 for 2016 and $55,548 for 2017. This amount is notably less than the wage Mr Gigliotti said that he had been receiving in his evidence, nor does it correspond to the administration fees paid by Amici, or directors fees paid by TCK. No attention was paid in the course of the trial to this discrepancy.

52    Mr Gigliotti was unable to recall when Amici assumed the responsibility of producing the pizzas, despite his hands-on role as the person responsible for production of the pizzas by Amici. He could not recall whether pizzas were being made at the premises before Amici was incorporated, despite having been shown the TCK annual accounts to 30 June 2015 which disclose gross revenue from labour hire of $579,541.79. This is one example, of many, when Mr Gigliotti resorted to the well-known answer “I don’t recall” when confronted with difficult evidence inconsistent with the version of events that he would wish me to accept.

53    Mr Gigliotti was further pressed as to his apparent lack of knowledge of the financial affairs of TCK and its relationship with SB Food. Mr Gigliotti signed the director’s report of TCK for the financial year 30 June 2016. He was questioned as to why an amount of $737,100.66 is recorded in the profit and loss statement for fees received when Amici was not incorporated until 2 March 2016. He offered no useful explanation. He was taken to the expenditure section of the profit and loss statement. He could not explain whether he received directors fees of $89,885.32 stating “I don’t recall ever getting that amount of money”. When invited to state whether the financial accounts were false, he inferred that they may have been adjusted by some other person with access to the computer records. He failed to explain how that could be so when the accounts referred to had been signed by him on 15 March 2017. I invited Mr Gigliotti to consider why in the profit and loss statement directors fees were recorded at $30,000 to 30 June 2015 when gross revenue was $579,541, but then significantly increased the following financial year. I asked him whether anything had happened in the business to justify such a significant increase in directors fees. Mr Gigliotti was unable to answer my question.

54    Next Mr Gigliotti was taken to the transcript of his public examination before a judicial registrar of this Court on 9 April 2019 where he gave sworn evidence. He accepted that he had given evidence on that occasion to the effect that he knew that Mr Moss was receiving payment as a consultant to attend to Amici’s accounts and to develop the business. On that occasion his evidence was that he would be responsible for running the production side of the business and Mr Moss “was going to run everything else. He was going to deal with the customers and he was going to come two or three times a week to do the accounts”. He claimed however that he was not aware that the monthly fee for this work paid to PRM was $4,000, until he became “suspicious something was happening”. He denied knowledge of the receipt of monthly invoices for the consultancy fee. He claimed that the extent of the verbal agreement with Mr Moss was that if Amici made money that he was going to receive “some”. In my view it strains credulity to accept that Mr Gigliotti as the director of Amici was aware that Mr Moss would perform work for the company and would be paid a consulting fee, but was unconcerned as to the quantum of that fee.

55    Mr Gigliotti was then reminded about evidence previously given to the effect that he did not find out about the quantum of the rental payment until “towards the end” of the Amici business. He accepted that he knew that rental was being paid. According to that evidence when he became aware that the rental was $25,000 per month, he suggested to Mr Moss that the business be shifted to another site, smaller in area, to reduce the rental liability. In answer to my question why, as a director, he was aware that rent was being paid by Amici to a company associated with Mr Moss, but had no idea as to the amount of the payment, he provided no satisfactory answer, despite claiming to be aware that he knew what it means to be a director of a corporation. Ms Mastos then directed the attention of Mr Gigliotti to other evidence that he had given in the course of his public examination. On that occasion he accepted that he was aware from Amici’s commencement that it was paying rent and outgoings of approximately $28,000 per month. He then explained that approximately one month after Amici commenced its business he had a discussion with Mr Moss who complained that he did not have money to pay creditors. To that Mr Gigliotti responded: “I went and I told him I said why are you paying yourself over $20,000 for this premises, the walls are falling apart, don’t you think maybe that would be one thing you should pay, you know.” When pressed as to when this discussion occurred he answered approximately three months after the incorporation date.

56    Unsurprisingly, it was then directly put to Mr Gigliotti that he was well aware of the quantum of the rent from an early stage of the Amici business, which he initially accepted, but then prevaricated in his evidence. When asked to explain whether his sworn evidence before me that he did not become aware of the rental amount until much later was correct, he resorted to “I don’t remember”. Nor did he satisfactorily explain which version of his sworn evidence should be accepted.

57    Finally, on questions of credit, Mr Gigliotti was taken to other evidence given during his public examination to the effect that Mr Moss was the decision-maker as to how many people would be employed in the manufacture of the pizzas, and how much they would receive for wages. Mr Gigliotti was reminded that all of the employees on the production side of the business were engaged by TCK as the labour hire company and that he had earlier stated that they were paid wages in accordance with a relevant award. He confirmed that he was the person who controlled the labour, which is clearly so given that he was the production manager, which is quite inconsistent with the sworn evidence that he gave during his public examination.

58    My overall conclusion, reinforced by the detailed findings of fact that I make later in these reasons, is that Mr Gigliotti was more than an unsophisticated production manager in the business of Amici. In my view he has sought to downplay his role in the conduct of the business in order to shift blame for its commercial demise to Mr Moss. I do not find that he is a witness totally without credit and that I cannot rely on the truthfulness of any of his evidence. However, the matters that I have set out in addition to my careful observation of his demeanour in the witness box cause me to hesitate as to whether I should accept his evidence in relation to material findings of fact that the plaintiff asserts in this proceeding. He is clearly a person who was prepared to make knowingly false statements to the liquidator of Amici and he gave inconsistent and at times incredulous evidence before me, some of which was demonstrated to be false by reference to contemporaneous documents.

59    I deal next with the witnesses for the defendants.

Mr Luckin

60    Mr Luckin is a director of Orthosurgical, a part owner of the premises with PRM. His primary role in this proceeding was to invoice SB Food, and later Amici, for rental and outgoings for the occupation of the premises. Although he initially continued to invoice SB Food, despite occupation of the premises by Amici, when that fact was pointed out to him he corrected and reissued the invoices. Amici did not have a written agreement for lease. He gave evidence as to how the rent was determined. Amici was charged the same monthly amount as SB Food. That amount was $18,643 plus GST. He explained that the rental was calculated partly based on the cost per square metre and partly on a similar rental that had been charged to an earlier arm’s-length tenant. Although no valuation opinion was obtained, the amount per square metre equated to the same amount for other factories in the general area of the premises. That amount was then adjusted for the fact that the premises was not “just [a] simple warehouse”, but a purpose-built food premises. The rental was adjusted by the CPI annually.

61    Despite the fact that Mr Luckin was challenged in cross-examination to the effect that there was no formal lease agreement, that challenge overlooks that there was at least a lease in equity evidenced by occupation and part performance. No other aspect of the evidence of Mr Luckin was effectively challenged.

62    I have no hesitation in accepting Mr Luckin as a credible and honest witness. In closing submissions, Mr Petras abandoned claims made against Orthosurgical relating to the receipt of rent, framed as the Barnes v Addy constructive trust claim, but maintains its claims for uncommercial transactions, unfair preferences and unfair director-related transactions. This is despite leading no evidence whatsoever on whether the rent paid was market rate or cross-examining Mr Luckin on his evidence that it was.

Sarah Moss

63    Ms Moss gave evidence that she was “employed” by SB Food and then later by Amici to provide high level HR advice. Her evidence was not very satisfactory as to what advice she provided and when, but none of that detracts from my conclusion that she honestly gave evidence before me as a credible witness.

Paul Moss

64    According to an ASIC extract of 5 March 2019, Mr Moss was then a director of seven companies and a former director of five. He has also held multiple concurrent roles as secretary of each. Despite his apparent experience he had difficulty in evidence in understanding the separate corporate personalities of SB Food and Stones Bakery, at one point asserting that the former was simply a change of name of the latter.

65    I have formed a very adverse view about the honesty and credibility of Mr Moss, not simply on the basis of his demeanour as a witness. His evidence is riddled with inconsistencies, incredulous assertions and is infected with a determination to limit his involvement with the business affairs of Amici to the very minimum in order to avoid a finding that he was a director in fact despite not being appointed as such. I explain in some detail in my analysis of the entirety of the evidence where I repeatedly reject his oral evidence on critical issues as false, inconsistent with contrary credible evidence, incredulous or implausible.

66    In summary, I base my findings on the following. Ms Kirkman gave clear evidence to the effect that Mr Moss was responsible for determining which of Amici’s creditors would be paid, when and in what amounts. She then made the payments as directed by him. Mr Gigliotti gave evidence to the same effect, though on occasions he forced Mr Moss to make payments to demanding creditors. Mr Moss insisted that Ms Kirkman was the decision-maker for all outstanding creditors. When confronted with apparently contradictory evidence given during his public examination, he changed course and sought to draw distinction between the payment of creditors on a Monday or a Tuesday, which was his decision based on his knowledge of the cash flow, though he continued to insist that he worked off a creditor filing system implemented by Ms Kirkman who was responsible for higher level decision-making by identifying the creditors who would be paid. I reject the evidence of Mr Moss, not only as inconsistent with that of Ms Kirkman, but as inherently implausible. Ms Kirkman was employed as an accounts clerk, who took direction as to the discharge of her duties from Mr Gigliotti and Mr Moss. When Amici was in financial difficulty, it is incredulous that she was responsible for deciding who would be paid and when.

67    Mr Moss also gave evidence that Ms Kirkman was responsible for determining as between Amici and SB Food, the quantum of stock manufactured and delivered because she was independent of each business, Mr Gigliotti and Mr Moss. That was not put to Ms Kirkman in cross-examination, either initially or upon her recall for the purpose of putting to her the inconsistent evidence of Mr Moss. The contention that Ms Kirkman was responsible for stock levels cannot be reconciled with the evidence of Mr Gigliotti that he was solely responsible for the production side of the business. It is also implausible that an accounts clerk would have that function.

68    Without any prior notice, either in the pleadings or the witness outline, Mr Moss gave evidence-in-chief as to a meeting attended by Ms Kirkman, Bup, Mr Gigliotti and himself at which the proposal to establish Amici was discussed in detail, including by reference to spreadsheets that Mr Moss had prepared. Mr Moss claimed that copies of the spreadsheets were given to each participant and that Ms Kirkman would have made notes of the discussion. Neither Ms Kirkman nor Mr Gigliotti gave evidence-in-chief to that effect, and it was not put to them in cross-examination that this meeting occurred. When recalled, Ms Kirkman stated that she did not attend a meeting where those matters were discussed and denied that she had taken notes as asserted by Mr Moss. Mr Gigliotti, when recalled, said there was only one meeting limited to himself and Mr Moss at which Mr Moss stated that Amici would be incorporated, and that Mr Gigliotti would be the director because Mr Moss “had too many companies”. He denied attendance at a more detailed meeting with other participants. I have concluded that this evidence was a false recent invention by Mr Moss.

69    Evidence was consistently given by Ms Kirkman, Mr Gigliotti and Mr Moss, that in December 2016, Della Rosa advised that it would no longer acquire manufactured pizzas from SB Food, because it had established its own production facility. The Della Rosa business comprised approximately 90% of the entire business of Amici. In the Insolvency Report, Mr Poulter summarises Amici’s gross revenue between May 2016 and May 2017. Up to and including November 2016, the monthly income was approximately $500,000, although in September 2016, it was approximately $380,000. The monthly income dramatically fell in December 2016 to less than $100,000, was approximately $200,000 in January of that year but thereafter was less than $50,000 until cessation of the business. Despite this dramatic decline in revenue, a consulting fee of $4,000 per month continued to be paid by Amici to PRM purportedly for business advice provided by Mr Moss. Mr Moss was certainly aware of the perilous financial state of Amici’s business from December 2016. On his evidence, he advised Mr Gigliotti to consider closing the business. He insists that Mr Gigliotti refused to accept his advice and that in consequence, he contacted Mr Dunner and arranged for him to meet with Mr Gigliotti. He claims to have had no knowledge at the time that Mr Gigliotti apparently resigned as a director and was replaced by Mr Pastras on 16 February 2017. Mr Moss insists that he had nothing further to do with Mr Dunner and that he first learned that Amici had been placed into liquidation when he received written notice to that effect from Mr Poulter. None of this evidence is plausible. Mr Moss failed to explain what consulting services he provided during the period of dramatic business decline of Amici and his knowledge of the financial difficulty then faced by the company cannot be reconciled with the fact that he considered himself entitled to receive the monthly consulting fee. It strains credulity to accept that, as a consultant to the business of Amici, Mr Moss was not made aware of the change of directors or the intention to appoint a liquidator.

70    No invoices were provided by PRM to Amici for the monthly consulting fee of $4,000. Mr Moss claimed that this was not done because the amount was fixed and agreed. Mr Moss accepted that this arrangement was unusual, but then claimed that a yearly invoice would be provided in consultation with his accountant. No yearly invoice was produced in evidence. Mr Moss said that the amount of $4,000 per month was a carryover from the consulting fee that was paid by SB Food before Amici took over the business. Mr Moss accepts that when SB Food was the manufacturer, he was the hands-on manager and was “fanatical” in his attention to the financial aspects of the business. No acceptable explanation was provided as to why the fee would continue at $4,000 per month if, on the evidence of Mr Moss, from Amici’s incorporation his role dramatically diminished when Mr Gigliotti became responsible for the management of the business.

71    I raised with Mr Moss a matter that I found troubling upon examination of the financial statements for PRM in its capacity as trustee of the Paul Moss Investment Trust, following his earlier evidence that the consulting fee was paid by SB Food to PRM commencing in August 2014. The financial statements do not disclose any consulting fee income in 2016. Initially, Mr Moss explained that this was the fault of the accountant who had included the income in his family trust, rather than the investment trust. PRM is the trustee of each. The attention of Mr Moss was then drawn to the financial statements for the Paul Moss Family Trust, for 2016 and 2017, where no amount of revenue for consulting fees is disclosed. The evidence then given by Mr Moss was inconsistent and implausible in that he initially attempted to blame the accountant, then claimed that the income would be shown in the accounts of another entity J&J Investments, but was unable to explain how that might be so given his consistent evidence that the consulting services were provided through PRM.

72    Commencing 18 April 2016, Mr Luckin prepared and delivered rental tax invoices for use of the premises addressed to SB Food, until February 2017. Mr Moss gave evidence that this was a mistake, and that Mr Luckin might not have been informed of the change of occupation or that the invoices may have been prepared in advance. Why a landlord might pre-prepare invoices over such an extended period of time was not explained. In any event, the greater difficulty that arises from the evidence of Mr Moss is that each tax invoice was sent by email and Mr Moss was included as a recipient. When questioned as to why he did not advise Mr Luckin of the error, his evidence was that he guessed that he should probably have done so. I am unable to accept that evidence: Mr Moss was aware of the takeover date, it was in his financial interest to have the rental invoices correctly addressed and paid. His claimed lack of attention to detail is implausible.

73    Amici’s internal management accounts, the MYOB accounts, comprises the bank register commence on 30 May 2016. This record was obtained by Mr Poulter from MYOB. On that day a total of $248,000 is shown as having been paid, as the first two transactions, to SB Food and $273,000 is recorded in various deposits made by SB Food. In another document, Amici’s ANZ bank statements, the account is recorded as having opened with a zero balance on 7 April 2016 followed by an initial deposit of $25,500 from SB Food on 9 May 2016. Each of the other deposits and withdrawals set out in the MYOB accounts are recorded in the bank statement along with additional deposits and withdrawals that do not appear in the MYOB accounts.

74    When questioned as to why Amici had made these relatively large payments to SB Food and why, in turn, it had made greater payments to Amici on 30 May 2016, Mr Moss explained that the Amici payments were to acquire all of the stock from SB Food in consequence of a stocktake that was undertaken. His evidence was clear that all stock was accounted for, transferred and paid for on that day. The payments made by SB Food to Amici were in consideration of the delivery of manufactured product, all of which was manufactured on that day. A little later in his evidence, the attention of Mr Moss was drawn to later entries in the MYOB accounts where other substantial amounts were paid by Amici to SB Food on 7 June and 12 and 23 July amongst others. Initially, Mr Moss could offer no explanation for these payments. Then he said that he could not recall what they were for. Without prompting by further questioning, Mr Moss said that the payments were for the rental of plant and equipment that was owned by SB Food. Payments for that purpose were not mentioned at any prior point in the evidence of Mr Moss in this proceeding, although it was mentioned in the course of his public examination. A close examination of Amici’s profit and loss statement to September 2016 reveals an expense item “Hire of plant and equipment” in the amount of $32,064.20. That would appear to correspond to a payment of approximately $11,000 a month. It does not explain other significant payments that were made by Amici to SB food.

75    There is some evidence that discloses the purpose of later payments made by Amici to SB Food. The Insolvency Report mentions loan advances and repayments “by a related entity to meet the most immediate expenses of the business.” An examination of the ANZ bank records discloses that SB Food made and received the payments. This may explain some of the subsequent transactions, but does not explain away the series of payments that I drew to the attention of Mr Moss and I do not find the answers that he gave to be credible.

76    Mr Moss explained that the agreement reached with Mr Gigliotti included that Amici would retain the entire profit to be derived from the manufacture and sale of the pizzas to SB Food. He denied offering a percentage of the profit to Mr Gigliotti. At no point however did he attempt to explain what price was agreed for the sale of product to SB Food or at what price it onsold the product to Della Rosa. Mr Gigliotti said that Della Rosa fixed the price payable to SB Food, but he did not know what it was. His objective was to minimise the cost of the production. Mr Moss confirmed that the sale price to Della Rosa was not negotiable and was agreed to by him on behalf of SB Food before the formation of Amici. It is incredulous that Mr Gigliotti would not have reached an agreement with Mr Moss on the price payable by SB Food for the various types of pizza product to be sold to it. The evidence of Mr Gigliotti that there would be a percentage division of the profits, is far more plausible in that circumstance in that he was content to leave the sales and marketing of the Amici business to Mr Moss.

77    Finally, though not exclusively (there are other matters relevant to the credit of Mr Moss that I address in these reasons) there is the email sent by Mr Moss on 2 January 2017 to Ms Kirkland and Mr Gigliotti which contains a direction to adjust the price of various products to be charged to Della Rosa and that, in turn, it would be necessary for Amici to reduce its cost of production. The email is redolent of high level decision-making by Mr Moss and is replete with references to “we”. When confronted with this document as clear evidence of high-level decision-making by Mr Moss, his evidence was unsatisfactory and implausible.

78    The consequence is that I do not accept Mr Moss as a truthful witness on any material fact in this case where his evidence is inconsistent with the contemporaneous documents or the oral evidence of Ms Kirkman. Because of the view that I have reached as to aspects of the unsatisfactory evidence of Mr Gigliotti, in approaching my fact-finding I have exercised caution before accepting the evidence of Mr Gigliotti in preference to that of Mr Moss.

The central issues

Was Mr Moss a director of Amici?

79    The pleading and presentation of the plaintiff’s case lacks precision. The definition of director in subparagraph (b) at s 9 of the Act is disjunctive:

(b)    unless the contrary intention appears, a person who is not validly appointed as a director if:

(i)    they act in the position of a director; or

(ii)    the directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes.

Subparagraph (b)(ii) does not apply merely because the directors act on advice given by the person in the proper performance of functions attaching to the person’s professional capacity, or the person’s business relationship with the directors or the company or body.

80    Paragraph (i) is generally understood as concerned with de facto directors and (ii) with shadow directors, although the concepts are not mutually exclusive: Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 (Grimaldi) at [61] and [69], per Finn, Stone and Perram JJ.

81    The plaintiff’s statement of claim pleads each limb conjunctively and by way of particulars contends that Mr Gigliotti was accustomed to act in accordance with the instructions or wishes of Mr Moss (without identification of the material facts from which that conclusion might be drawn) and that Mr Moss was a person who acted in the position of director by reference to seven facts, mostly pleaded in very general and unhelpful terms. In written opening submissions, the contention is that Mr Moss was a director or a shadow director, however in closing written submissions the only reference is to the shadow director contention. In contrast, in its written reply each limb of the definition is set out in one paragraph, but another focuses only upon the shadow director contention. In oral closing submissions, Mr Petras failed to make clear the case that is sought to be established: submitting at one point that it was open to me to find that Mr Moss was a shadow director, but also that he was actively performing the duties of a director by acting in that position; then submitted inconsistently that the case rests on the shadow director contention. Ms Mastos in her closing submission responds to each contention. In the midst of such confusion, noting that the de facto director pleading was not abandoned, I do not decide this case on the inadvertence of counsel and consistent with my remarks above, I deal with the substance of the plaintiff’s case as resting on each contention. It is also the correct approach in this case because the evidence does not permit the drawing of a “rigid distinction” between each concept: Grimaldi at [69].

82    The applicable principles are not in dispute. Commencing with de facto directors, the Full Court in Grimaldi at [62]-[76] comprehensively summarised the leading authorities to distil the principles to be applied. The test is objective. It is not determinative that Mr Moss acted as a consultant or business advisor through the vehicle of PRM. What is required is a fact intensive analysis with focus upon the duties in fact performed by Mr Moss in the context of Amici’s business and the respective roles and functions of Mr Gigliotti and Ms Kirkman. An important consideration in this case is whether there was a division between the production management function of the company and its financial affairs, particularly pricing, budgeting, invoicing, collecting payment and paying creditors. In the business of Amici it is not easy to draw a bright line distinction between higher level executive management functions that would ordinarily be attended to by an appointed director where that person is also the hands-on production manager.

83    A further important consideration in this case is whether Mr Moss took an active part in deciding and directing the financial affairs of Amici and whether Mr Gigliotti was content for him to do so without being ultimately responsible: Grimaldi at [64]. That task requires identification of what one would reasonably expect to be the work of a director in the business of Amici: Grimaldi at [65]. As further explained by the Full Court at [66]:

The roles and functions so performed will vary with the commercial context, operations and governance structure (to the extent that it is operative) of the company. Their performance by that person may well be at variance with what is permitted by the Corporations act or by the company’s constitution. Nonetheless, whether they suffice in the circumstances to constitute the person a director for the Corporations 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”.

(Citations omitted.)

84    It is also relevant to consider the extent to which, if any, Mr Moss exercised power or influence over Mr Gigliotti in his decision-making as the appointed director: Grimaldi at [69]. Amici did not have a board of directors with formal procedures in a hierarchical structure. One cannot conclude therefore that particular functions or powers were the sole or peculiar responsibility of Mr Gigliotti as the director: cf Grimaldi at [70]. The plaintiff does not plead that Mr Moss was an officer of Amici, but he was most certainly an employee in addition to his position as a consultant, and for that reason a finding that he exercised senior management functions is not determinative: Grimaldi at [71].

85    Dealing next with the general principles applicable to a finding that a person acted as a shadow director, Mr Petras and Ms Mastos each rely with different factual emphasis on the summary of Robson J in Re Akron Roads Pty Ltd (in liq) (2016) 348 ALR 704; [2016] VSC 657 at [271], in which his Honour distilled from the decision of White J in Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 77 ACSR 410; [2010] NSWSC 233 and the appeal therefrom: Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 81 NSWLR 47; [2011] NSWCA 109. The summary is:

In my opinion the following principles flow from this decision that are relevant to this case.

(a)    To establish that a defendant is a shadow director of a company it is necessary to prove:

(1)    who are the directors of the company, whether de facto or de jure;

(2)    that the defendant gave instructions or expressed wishes to those directors on how to act in relation to the company or that he was one of the persons who did so;

(3)    that those directors acted in accordance with such instructions of wishes; and

(4)    that there were accustomed so to act.

(b)    What is needed is first a board of directors claiming and purporting to act as such; and secondly a pattern of behaviour in which the board did not exercise any discretion or judgment of its own, but acted in accordance with the instructions or wishes of others.

(c)    It is not necessary that the instructions or wishes be given over the whole field of corporate activity for which the directors are responsible.

(d)    There is no inconsistency with a person being a shadow director and on the other hand and [sic] the board exercising some discretion or judgment in areas in respect of which the shadow director does not give instructions or express a wish. Rather, the test for a shadow director only requires that when the directors are given instructions or wishes, they are accustomed to act as s 9 requires.

(e)    The directors of the company must be accustomed to act as directors or [sic] the company in accordance with the person’s instructions or wishes as to how they should act. This requires habitual compliance over a period of time.

(f)    The directors who must be accustomed to act need not be all of the directors but should be a governing majority of the board.

(g)    Although it is not necessary to establish that a person is a shadow director that the directors of the company do not exercise any discretion of their own, there must be a causal connection between the instructions or wish of the shadow director and the act taken by the directors.

(h)    The fact that a person has a genuine interest of his or her or its own in giving advice to the board, such as a bank or mortgagee, the mere fact that the board will tend to take that advice to preserve it from the mortgagee’s wrath will not make the mortgagee, et cetera a shadow director.

(i)    Similarly, the fact that the governing majority of the board accepts the views and wishes of another director (who represents and acts for another company) does not by itself make the other company a shadow director. The views or wishes of that director may be sound advice that the governing majority may consider as directors should be adopted as it is in the best interests of the company.

(j)    Similarly, not every person whose advice is in fact heeded as a general rule by the board is to be classed as a de facto or shadow director.

(k)    On the other hand, if the instructions or wishes of the other director (who represented the putative director) were to carry out acts not in the best interests of the company, such as a decision to continue trading while insolvent, that might support the conclusion that the directors deferred to the decision making of the director who represents the putative director and were thus deferring to the decisions of the other company.

(l)    It is not necessary to go so far as to show that the de jure directors were subservient or had surrendered their roles.

(Footnotes omitted.)

86    I take account of this summary of principles, though mindful that what is required in this case is a fact intensive analysis.

The evidence and my findings

87    The plaintiff’s case lacks precision in the identification and proof of the material facts relied on to establish that Mr Moss was a director of Amici. The statement of claim pleads this contention as a conclusion followed by particulars of no real assistance as follows:

In the period 2 March 2016 until 16 February 2017, the sole director of the Company (according to the records of the Company kept with the Australian Investments and Securities Commission (ASIC)) was Pascual Gigliotti. He was accustomed to act in accordance with Paul Moss’ instructions or wishes in relation to the affairs of the Company.

Paul Moss was at all material times a person who acted in the position of a director of the Company in that he:

(a)     was a signatory to the Company’s bank accounts held with the ANZ Bank (ANZ accounts),

(b)     was accustomed to transacting on the ANZ accounts without reference to Pascual Gigliotti,

(c)     paid creditors of the Company without reference to Pascual Gigliotti,

(d)     directed Pascual Gigliotti to send emails,

(e)     directed Jessica Kirkman, the Company’s Finance Manager, to send emails,

(f)     decided the pay rate for the Company’s employees,

(g)     decided who were to be the Company’s suppliers, when the Company was going to pay suppliers and how the Company was going to pay suppliers,

(h)     decided how much the Company would sell its products for,

(i)     decided the Company’s production levels,

(j)     decided, directed and authorized all payments of money by the Company,

(k)     communicated with and gave instructions to the Company’s lawyers and accountants, and

(l)     decided and arranged for the Company to be placed into liquidation.

Further particulars may be provided after discovery.

88    No further particulars were forthcoming. I will address each of these matters seriatim in due course. However, in recognition of the manner in which the trial was conducted, it is more useful to set out my relevant factual findings by reference to the real issues in contention between the parties.

The incorporation of Amici

89    SB Food was incorporated on 25 August 2014 and Peter Reed was appointed as the sole director. The majority shareholder is SJJC Pty Ltd, of which Mr Moss is a director and shareholder. It occupied the premises pursuant to a lease with Orthosurgical and PRM for a three year term with an expiry date of the end of September 2017. The annual rent was approximately $220,000 plus outgoings. Initially Stones Bakery manufactured pizza toppings at the premises for another company, Chevalier, which sold the pizzas to Coles supermarkets which comprised approximately 90% of its business. Later, at a point in time that is not clear, SB Food became responsible for the manufacturing business and supply to Chevalier. That supply arrangement concluded in 2015, when Coles supermarkets decided to change the brand of frozen pizza that it offered for sale to customers and SB Food failed to secure a contract to make those pizzas. Coles supermarkets gave notice of its decision to take effect in six months. Mr Moss considered closing down the business of SB Food at the end of that period as the business was not viable without the Coles volume, and his efforts to secure other supply arrangements with major supermarkets were not successful. In early 2016, Mr Gigliotti who at that time was working as the production manager for SB Food advised Mr Moss that he had spoken with Emilio at Della Rosa who offered an opportunity to manufacture pizza toppings.

90    Mr Gigliotti arranged for Mr Moss to meet Emilio, which he did. Mr Gigliotti did not attend that meeting. With Emilio there was his son Luca and another business partner, Piero. The arrangement was discussed. Emilio was not prepared to negotiate on the price of the pizza product to be supplied. Despite that, Mr Moss formed the view that “the deal wasn’t a bad deal. I knew, from the deal, that the deal was okay for us”, which I take to mean that he considered that a profit could be made. No formal agreement was entered into. Mr Moss states that he was not informed at that meeting that the arrangement would be short term or for a fixed period. Conversely, Mr Gigliotti states that Emilio advised him that the offer would be for “a short period of time” and he conveyed this information to Mr Moss. Mr Gigliotti and Emilio were well known to each other. He explained that Emilio contacted him, rather than Mr Moss, because of an absence of trust between Emilio and Mr Moss. After Mr Moss had met with Emilio, Mr Gigliotti states that Mr Moss told him that the opportunity would be good for the company, but temporary. He further states that Mr Moss was aware that the arrangement would conclude once Della Rosa completed construction of its own factory. In accordance with my credit findings, I prefer and find conformably with the evidence of Mr Gigliotti that Mr Moss was aware from the outset that the Della Rosa contract was a short term arrangement.

91    TCK was incorporated on 16 May 2012. Mr Gigliotti was appointed as the sole director on that day and he and his wife are the shareholders. TCK was initially incorporated as a vehicle to exploit the intellectual property that Mr Gigliotti claimed to own in the Master Schedule. Ultimately that venture was not very successful. Later TCK became a labour hire company, exclusively providing labour to Stones Bakery, SB Food and later to Amici. To 30 June 2014, TCK derived revenue of approximately $85,000 from labour hire. In 2015 that figure was $571,000 and in 2016 was $737,000. That business was profitable. In 2015 it derived a net profit of $45,000 and in 2016 of $82,000, in addition to directors fees paid to Mr and Mrs Gigliotti of $30,000 and $89,885.32 respectively.

92    Mr Gigliotti explained that TCK became the labour provider at the request of Mr Moss. He further stated that Mr Moss informed him that there would be “no money in it” for him in that TCK would only be paid the actual wage cost plus superannuation and GST. From that Mr Gigliotti assumed that he would not receive any benefit whatsoever from this arrangement although it might help him to exploit the intellectual property in the Master Schedule. I reject that evidence of Mr Gigliotti. It is not credible that Mr Gigliotti assumed the burden of a labour hire corporation, with all of the attendant insurance and employee responsibilities, unless he thought he could make money from the deal, which he in fact made as demonstrated by the director fees paid in the profits generated by TCK. I also reject further evidence given by Mr Gigliotti to the effect that TCK was “a very small business”, which cannot be reconciled with its gross revenue and profit.

93    In early 2016, Mr Gigliotti was displeased with the salary that he received for his work as the production manager at the premises. He asserted that he had “never” had a pay rise, which I find difficult to accept. His evidence was totally unclear as to which entity was the employer or whether, in fact, his remuneration comprised the director fees and profit generated by TCK, although Mr Gigliotti’s personal tax returns for 2015 to 2018 record TCK as his sole source of income, although the amounts reported as taxable income differ from, and in the case of 2016 is considerably less than, the TCK directors fees. In any event, he gave evidence that he approached Mr Moss and requested a pay rise and in response Mr Moss stated that he could not afford or give one. At that time Mr Gigliotti thought that he was earning approximately $90,000 per annum. Of that discussion, Mr Gigliotti said in his evidence in chief:

And then what happened? Well, what were the discussions in relation - - -?---And then he came back to me. He said, “Look, I can’t give you a pay rise, but I’ve got a good – very good opportunity for you. I – I want to open up another company, but because I’ve got so many companies, I can’t be the director. Would you like to be the director? And the first thing I ask is how much money. I want to know how money – I can’t put any money. He say, “No, nothing. You don’t have to put anything. It’s just I will put you as the director, and then we are going to make money, and, you know, I give you a percentage. If – if it’s any profit, which it will be, we will give you a percentage.”

And greed took over, to be honest, your Honour. Greed took over. At my age – I was over 58 ..... and my wife. I saw the opportunity to make money, more over that I was earning as – as a worker.

94    Emboldened by his enthusiasm, Mr Gigliotti agreed to the incorporation of Amici and chose the name. Amici was incorporated online on 2 March 2016, Mr Gigliotti was appointed as its sole director and a related corporation, Amici Food, became the shareholder of all of the issued capital. Amici Food had been incorporated on 29 July 2015. Despite its name, Mr Gigliotti incorporated this company with the intent of operating a cleaning business, which did not come to fruition. Mr Gigliotti and Bup were appointed as the directors and were the equal shareholders.

95    The act of incorporating Amici was explained by Mr Gigliotti in evidence–in-chief as follows:

- - - when Mr Moss discussed with you about becoming a director - - -?---Mmm.

- - - who registered the company?---He did it online. I was sitting next to him while he did it.

What did he do while you were sitting next to him?---He was doing it online.

Did he require you to say anything or do anything?---No. He was asking me questions, but he was doing it.

What questions did he ask you?---Your name, address, and just phone number and – I can’t remember now, but it was not very complicated to start it – to do it, and then he print it out and made a folder, and then I sign it, and that’s it.

And then what happened in terms of your work duties?---Nothing changed. It was exactly the same thing.

Even the very day after?---Exactly the same. The same thing.

Was there ever a contract in relation to being a director of Amici?---No contract as such, no.

Was there every a discussion of what profit you were to take?---Not in a percentage or in money. It was always the assumption that he was going to make a profit and he was going to give me some.

HIS HONOUR: Did he tell you that he was going to be a director of Amici?---No, he – he said that he was going to be a ..... shareholder.

MR PETRAS: Did he say why he was not going to be?---Because he had too many companies.

96    In contrast, Mr Moss gave conflicting and more extensive evidence concerning Amici’s incorporation and its purpose, which was not set out in his outline witness statement or put to Mr Gigliotti or Ms Kirkman in their initial cross-examination. According to Mr Moss, he attended a meeting with Mr Gigliotti, Ms Kirkman and Bup at which the proposal was discussed in detail. In chief, his evidence was:

…I had Jessica there as an overall witness arbitrator in what we were agreeing to do. And we all wrote it down on paper, we put out spreadsheets who got what, we put out what the rent was, what the rent for the equipment was going to be – because he had to pay for rental of the equipment – and that it was all covered under the overhead allowance on the pizza which was 24 cents.

When you say, “Spreadsheets”, were they printed out spreadsheets?---Most of them would have been my handwritten documents and I don’t recall any P&Ls necessarily but just handwritten documents on efficiencies. When you do 60,000 pizzas, 70,000 pizzas, 100,000 pizzas, all that sort of stuff.

And when did you set all of that out in writing. Why did you do that?---Well, just to explain to him, here’s an opportunity to make some really good money for you. So once you get over a certain amount of pizzas, the profits really start to – really start to escalate. But you need - - -

Did he ask you to set that out for him?---Well, he – no. He didn’t ask me to set it out, but I thought it was part of the discussion we needed to have. So it’s quite obvious for him that if we set the deal correctly that he would make substantial money.

And do you know where those handwritten notes are now?---I would assume that the liquidator - - -

No, don’t assume. Do you know - - -?---Sorry. No, I don’t know where they are. No.

97    Mr Moss denied having anything to do with Amici’s incorporation. On his evidence, Mr Gigliotti incorporated Amici online and he had no input to that process.

98    When Ms Kirkman was recalled and this version of the evidence was put to her, she did not recall this discussion, adding “that doesn’t sound like something I would be involved in, if there was discussions of that nature. That may have happened with me not there, or in another meeting, but I don’t recall a meeting for that.” She then denied, in answer to a direct question from me, any recollection of being present at a meeting with Mr Moss, Mr Gigliotti and/or Bup whereby the proposal that Mr Gigliotti would take over the running of the business was discussed.

99    When Mr Gigliotti was recalled, he accepted that there was a pre-incorporation discussion in his office with Mr Moss which he disclaimed was a formal meeting. He confirmed his earlier evidence to the effect that he had requested a pay rise, and in answer Mr Moss had offered him a business opportunity.

100    I reject the evidence of Mr Moss that this meeting occurred and was the subject of discussion in accordance with his evidence. It is directly contrary to the evidence of Ms Kirkman and Mr Gigliotti which I accept. The discussion is not mentioned in the witness outline of Mr Moss, and there is no reference to it in his public examination. It was not, at least initially, put to Ms Kirkman or Mr Gigliotti. One would have thought that if there were spreadsheets that were produced and discussed, those documents would have been adduced in evidence by Mr Moss or produced by Mr Poulter. I conclude that this evidence is the product of a recent invention by Mr Moss.

101    I find that there was limited discussion between Mr Gigliotti and Mr Moss prior to Amici’s incorporation, that Mr Gigliotti requested a pay rise, Mr Moss responded that he could not afford one but that he could offer Mr Gigliotti the business opportunity of taking over and being responsible for the manufacturing business then conducted by SB Food. Mr Gigliotti agreed to become responsible for the manufacture of pizzas through a corporate vehicle, to occupy the premises for that purpose and to sell the product to SB Food. Mr Gigliotti agreed because he considered that being responsible for the manufacturing enterprise would likely provide an increased economic return for him.

102    I also reject the evidence of Mr Moss concerning who took the necessary steps to incorporate Amici online. Despite my reservations about aspects of the evidence of Mr Gigliotti, I accept his version of this event as more likely viewed in the context of my conclusion that Mr Moss was primarily responsible for the decision that SB Food would cease to manufacture product and that Mr Gigliotti, through a corporate entity, would do so as a business opportunity and instead of granting Mr Gigliotti’s request that he receive a pay rise.

Early trading by Amici

103    Amici appears to have commenced trading on 9 May 2016 when it received a deposit to one of its ANZ bank account of $25,500 from SB Food. The purpose of the deposit was not explained in the evidence, though by inference from the Insolvency Report it may have been an initial loan to fund working capital. There is some evidence in Amici’s balance sheet that to 30 June 2016 it had received loan funds of $29,500 from SB Food. By March 2017, that loan had been reduced to $2,000. The plaintiff made no attempt to explain in evidence the purpose of the initial bank deposit of $25,500 nor a further deposit made on 13 May 2016 from SB Food in the amount of $2,000. As early as 9 May 2016, Amici commenced making payments to TCK in the amount of $20,116.64. Whether this was for labour hire was not explained. The bank statements disclose further debits and credits to Amici’s ANZ account to 31 May 2016, which is the date of commencement of Amici’s MYOB bank register. These debits and credits were not explained in oral evidence.

104    I express a note of caution relating to Amici’s MYOB accounts. Mr Poulter in the Insolvency Report states that while the MYOB accounts “appear to have been well maintained, the lack of source documents renders a meaningful analysis of the adequacy of books and records problematic.” He was not challenged on that evidence, and I accept it. The more accurate banking record in my view comprise Amici’s ANZ account statements. Where I make findings of fact based on the MYOB bank register, I do so only if the transactions reconcile with the ANZ account statements.

105    The MYOB bank register discloses payments of $120,000 and $128,283.20 from Amici to SB Food on 30 May 2016 and payments from SB Food to Amici on that day in the respective amounts of $18,000, $115,000 and $140,000. When Mr Moss was questioned about these payments in the course of his cross-examination, he first gave evidence that the payments from Amici were in consideration of the transfer of stock in order to manufacture the pizza products. He said there would have been a stocktake which preceded the transfer. He explained the deposits from SB Food to Amici as payments by it for manufactured product. His evidence, at least at that point, was clear: all of the stock held by SB Food was transferred to Amici on 30 May 2016. In part he said:

What stock was transferred?---All the cost – cost of goods. Amici when starting up would have to pay – would have to pay for the stock that’s available to make the product for that stock.

But the money came back in the same day?---That’s right. So we did it all on the – all on the one day. So it’s bit of a – a bit of a search. Was all done on the one day. That’s right.

Right. Would have been a very busy day?---Well, there’s not a lot – there’s not a lot – well, it was a busy day, because if you have a look at the amounts – so they would have manufactured a whole lot of pallets of stock, which SB Food had to pay for, but Amici had to pay for that stock to manufacture that – that – that product. So it’s all done on the one – it’s – it’s all done on the one day. Do you understand?

106    At a later point in cross-examination I directed the attention of Mr Moss to later entries which disclose other payments made by Amici to SB Food in June and July 2016. For example, $158,250 on 7 June, $11,500 on 12 July and $26,574.63 on 23 July 2023. Initially, Mr Moss was unable to explain what those payments were for. Later he said that he could not recall the purpose of the payments. Later still, he claimed that the payments were for the rental of plant and equipment by Amici owned by SB Food. I questioned Mr Moss as to whether the rental amount had been agreed. Initially he said it was around $11,500, but then experienced difficulty in explaining a further payment on 23 July 2016 in the amount of $26,574.63, save for the off-the-cuff remark that “there might have been an adjustment there”. As I have noted, there is some basis for inferring from the Insolvency Report that the initial pattern of deposits and withdrawals between Amici and SB Food represented an advance and repayment of loan funds to assist initially with working capital, but that is not the evidence given by Mr Moss.

107    I reject this evidence of Mr Moss. Although Mr Gigliotti accepted that Mr Moss ensured that a monthly stock take was undertaken for SB Food, it was not put to him or to Ms Kirkman that a stocktake was undertaken in order to determine the value of stock transferred by SB Food to Amici. No evidence was adduced from any witness to the effect that there was an agreed value for the stock transfer. The claim that Amici manufactured product on 30 May 2016, with a wholesale value of $273,000 cannot be reconciled with the monthly sales figures of approximately $450,000 between May 2016 and March 2017, which at peak was $550,000 in May 2016. On the assumption of a seven day working week, the daily average is approximately $17,500, if a six day week it is $22,900 or if a five day week it is $27,500. It is common ground that Mr Moss was, in May 2016, in control of SB Food, was a signatory to Amici’s bank account and had access to Amici’s MYOB accounts. Mr Gigliotti gave evidence, which I accept, that he did not have input as to the sale price of the goods to be sold by Amici to SB Food, that Mr Moss did all of the costings and that he did not have access to Amici’s financial accounts, in particular to the MYOB accounting system. Although the plaintiff failed to adduce any evidence as to the price at which Amici sold manufactured product to SB Food, or the price that SB Food then sold the product to Della Rosa, the inference which I draw is that Mr Moss is the person who determined what payments would be made, initially, by Amici to SB Food and by SB Food to Amici. I further infer that he is the person who caused the initial deposits and withdrawals to be made as between the two corporate entities and that he did so without consulting Mr Gigliotti.

108    I pause to observe that it is difficult to understand why the plaintiff did not focus particular attention on this issue, save for evidence given by Mr Poulter that the gross margin achieved by Amici on its manufactured product at between 5% and 8% “was so low as to be wholly uncommercial”. In his view a margin of between 20% and 30% was required in order to cover all of the fixed operating costs of Amici’s business. That evidence does not address the basis for any price agreement between Amici and SB Food to acquire stock or to sell the manufactured product. The only finding open to me on the evidence is that large sums of money were initially transferred between Amici and SB Food and that the person responsible for determination of the amounts and who caused the transfers to be made was Mr Moss. Making such significant financial decisions is indicative of high level management decision-making redolent of the function of a director of Amici. It matters not for that finding whether the purpose of the transfers is unexplained or can be reconciled with the advance and repayment of loans to fund working capital.

Sales made to SB Food

109    SB Food regularly deposited large amounts of money to Amici’s ANZ account, which I find were payments for manufactured product, consistently with the incorporation purpose of Amici and the common evidence that it was the responsible manufacturing entity between May 2016 and February 2017, whilst Mr Gigliotti was the appointed director.

110    According to the ASIC records, Mr Gigliotti ceased to be the director on 16 February 2017. Amici did not cease to manufacture product on that day. Mr Gigliotti continued to work in the business producing pizzas, though at significantly decreased volumes from December 2016. The last recorded sales revenue was in May 2017 of approximately $20,000 received from SB Food. Mr Gigliotti gave evidence, which for the reasons below I accept, to the effect that he was informed by Mr Dunner that he should not remain as the director of Amici and that another person would be appointed in his place. His evidence as to when he ceased to work in the business is somewhat vague. Mr Gigliotti states that he left Australia to visit Argentina in early July 2017. Whilst he was away, he was informed by Mr Moss that the business would be closed down. That evidence cannot be correct as Mr Poulter was appointed on 31 May 2017.

111    The fact that I find by inference from the ANZ account statements is that Mr Gigliotti must have continued to work in the business at least until 1 March 2017 as that is the advised date for vacation of the premises according to an email sent by Mr Gigliotti to Mr Luckin on 2 February 2017. What is left unexplained in the evidence is that between 6 March and 25 May 2017, Amici continued to receive payments from SB Food, and in relatively large sums. For example, $29,000 on 6 March, $52,032.64 on 14 March, $35,000 on 3 April and $10,000 on 8 May 2017. I did not have the benefit of any forensic accounting evidence adduced by the plaintiff to assist me in understanding what these later payments were for if Amici in fact vacated the premises on or before 1 March 2017.

112    A further difficulty concerning sales made by Amici to SB Food is that the plaintiff did not produce any tax invoice for any sale and did not explain why, save for the reference to the absence of supporting documentation in the Insolvency Report, despite including hundreds of pages of third party supplier tax invoices in the court book, which were barely mentioned in the evidence. This lacuna does not assist me in making findings of fact consistent with the plaintiff’s case that Mr Moss was responsible for interposing Amici as an operating entity to absorb expenses that were formerly the responsibility of SB Food and that there was no genuine commercial purpose for Amici’s existence. No evidence was adduced as to the prices charged for individual products manufactured by Amici and sold to SB food. The evidence is limited to the annual, and in some cases monthly, sales revenue.

113    For these reasons I am not able as a consequence to make any relevant finding about the prices charged by Amici to SB Food for product manufactured and sold by Amici.

Occupation of the premises

114    When Amici conducted its business it did so from the premises. I accept the evidence of Mr Luckin that the rental that was charged to SB Food of approximately $223,000 per annum plus GST was determined by reference to comparable rentals at the time for a purpose built food premises. I find that it was fair market rental, determined on comparable rates per square metre. There was a lease in place, though not produced in evidence, that was due to conclude at the end of September 2017. Mr Luckin was not initially informed that Amici was the occupier. He invoiced SB Food monthly for rental and proportionate outgoings between 18 March 2016 and 26 December 2016. In early February 2017, he spoke with Ms Kirkman and was informed that he had invoiced the wrong entity. He requested the name of the correct entity and was advised that it was Amici by email on 2 February 2017. He then amended the previous invoices and reissued each addressed to Amici. Mr Gigliotti emailed him on that day to advise that Amici would vacate the premises with effect from 1 March 2017.

115    Orthosurgical and PRM maintained a bank account with the Commonwealth Bank. According to statements of that account, Amici paid rent and outgoings from 4 July 2016 in irregular amounts. By way of example, the payment made on 4 July was $4,158.06, and two further payments of $6,000 were paid on 25 and 28 July. The final payment of $6,000 was received on 21 March 2017. Mr Gigliotti accepted that he was aware that rent was required to be paid by Amici, but claimed to be unaware of the quantum of approximately $25,000 per month until “towards the end” of Amici’s business, by which he explained as meaning one month prior to the close of business. I reject that evidence. It is incredulous that Mr Gigliotti as the director of Amici would cause the company to become the occupier of the premises, to his intended financial benefit as director and shareholder, as lessee without inquiry as to the amount of the rent. His evidence is also inconsistent with the version he provided during his public examination that within one month of commencement he complained to Mr Moss that creditors were not being paid in a timely manner, in contrast to Mr Moss who was paying himself “over $20,000 for these premises”. When confronted with that inconsistency and directly challenged that his evidence of apparent lack of knowledge was false, the only answer he gave was “I can’t remember,” which I simply do not accept.

116    I find that Mr Gigliotti was content for Amici to occupy the premises on the same rental terms as SB Food. He made that decision as the director of Amici. The evidence does not support a finding that Mr Moss also determined the terms of occupation on Amici’s behalf, as distinct from his separate role as a director of PRM.

117    The next issue concerning the lease is who determined which amounts would be paid for rent and outgoings and when? Mr Gigliotti’s evidence must be treated with caution because I have rejected as incredible his claim that he was not aware of the amount of rental payable by Amici until one month before the liquidation. His evidence is also inconsistent. In examination-in-chief he was asked whether he had any knowledge about rental payments made by Amici. He stated that he knew that Mr Moss was charging a prior business occupant, Salad Fresh, approximately $25,000 per month adding he was also aware that Amici would be required to pay rent and that Mr Moss would “withdraw around the same amount of money from Amici for rental”. He next made the incredulous claim, that I reject, that he was not so aware until “towards the end” of Amici’s trading life.

118    In cross-examination, Mr Gigliotti stated that he did not have an “exact idea” of how much rent was being paid and when directly challenged that he knew from the outset the rental amount, claimed not to remember this detail.

119    Mr Moss, as I have earlier noted, claimed that at the pre-incorporation meeting he attended with Mr Gigliotti, Ms Kirkman and Bup, rent was a matter that was discussed and agreed by reference to the spreadsheets that he claimed to have produced. For the reasons that I have given, I entirely reject his evidence that this meeting occurred.

120    It was Mr Luckin who was responsible for preparing and delivering the rent and outgoings invoices, ordinarily monthly. As I have explained, erroneously those invoices were each addressed to SB Food despite occupation of the premises by Amici. The invoices were sent by email to Ms Kirkman, and copied to Mr Moss. Despite the erroneous reference to SB Food, Mr Moss took no step to advise Mr Luckin that Amici had assumed occupation as the tenant and that it was responsible for paying the rent. When challenged as to that in cross-examination he offered no credible explanation as to why he permitted invoices to be erroneously addressed to SB Food between May 2016 and February 2017 beyond stating: “I guess – and I should have probably communicated to him that he was doing them incorrectly at the time.”

121    Despite this failure to act, the ANZ bank statements and the MYOB bank register each record that Amici paid rent to Orthosurgical and PRM in irregular amounts throughout that period. Mr Gigliotti denies being responsible for the decision-making which caused those payments to be made. Ms Kirkman gave evidence that Mr Moss would direct her to enter invoices into the MYOB system, including rental invoices. Mr Moss stated that Ms Kirkman implemented a paper system whereby she would sort and place into separate folders outstanding accounts that required payment, including for rent. Those folders would be presented to Mr Moss, and he would sometimes cause creditor payments to be made, but in accordance with a priority order as directed by Ms Kirkman.

122    In contrast, Ms Kirkman’s evidence was that Mr Moss handled most of the outstanding accounts and he determined which accounts would be paid and when. She would act pursuant to his direction and enter the data into the MYOB system but it was Mr Moss who “would make payments, so physically through the bank to suppliers”. Her evidence continued:

So you said that you handed – handled accounts payable?---Yes.

Who directed that?---With accounts payable, I dealt with Paul direct.

Only Paul or Pasquel as well?---No, no. Pasquel had – unless I had to pass on a message from a supplier but it was mainly Paul.

And what was the process when Paul would direct you to enter amounts as accounts payable. Would you simply just get a direction without any context and you would just do it or - - -?---Yes. Most of our – the invoices that I would enter, if they were raw materials, would have, you know, proof of delivery which were entered. But if they were invoices that would require authorisation, it would come from Paul’s – to be before anything was entered.

And did you ever have to review those transactions other than entering them?---There was the reconciliation before the accountant, so just – I would receive a printout of the bank statement. I can’t recall whether that was weekly or daily, and just cross-referencing to make sure that everything was entered.

123    Ms Kirkman was not shaken in that evidence during cross-examination. I accept it and I find accordingly. Although this evidence was not specifically directed to the issue of rental payment, I find that the procedure for the payment of rent was not different to the payment of other creditor accounts. That finding is also consistent with evidence given by Mr Luckin relating to discussions that he had with Mr Moss, when rental was outstanding which was:

Did you ever speak to Mr Moss about lateness of rent?---Yes. When it was late, I would say, “Could you speak to Pascual,” and he said “yes”.

124    Despite that evidence, Mr Luckin did not give specific evidence of any particular discussion that he had with Mr Gigliotti relating to rental arrears, for the reason that his preference was to email Mr Gigliotti in order to avoid heated conversations.

125    Overall, my finding is that Mr Moss determined that Amici would pay rent for occupation of the premises on the same terms as SB Food, was aware that Mr Luckin erroneously invoiced SB Food but was unconcerned to disabuse him of that error for the reason that Mr Moss determined that the rent would be paid from Amici’s ANZ account and for that reason the change in the operating entity and lessee did not concern him. These findings point to a relatively high level of decision-making relating to Amici’s affairs without any, or any substantive, consultation with Mr Gigliotti in order to obtain his approval in his capacity as the appointed director.

Plant and equipment and other unexplained payments

126    Another claim made by Mr Moss, which I have rejected, is that at the pre-incorporation meeting there was discussion about the payment of a separate rent for use of the plant and equipment. It is common ground that when Amici occupied the premises, it used all of the plant and equipment that was previously used by SB Food in order to manufacture product. Apart from some vague evidence that the equipment comprised a production line and a topping machine, no attempt was made by the plaintiff to identify the plant and equipment used by Amici or to trace its ownership. Mr Moss gave evidence that in 2015 and through to March 2016, Stones Bakery was the manufacturing entity at a different address, limited to the production of pizzas. He then stated that Stones Bakery “turned into” SB Food when manufacturing commenced at the premises. When it was pointed out to him that each is a separate company, he qualified that evidence stating that the business of Stones Bakery was “moved to” SB Food. He then gave very confusing evidence when questioned about a winding up application that had been presented against Stones Bakery in October 2016. At first Mr Moss stated that this was not brought against Stones Bakery, but concerned an unrelated corporation. His attention was then drawn to the fact that the ABN for each company is the same to which he responded “no, you’re right. No, agreed.” In my view his first answer was opportunistic, and an attempt to avoid any suggestion that he had been a director of a company faced with a winding up application.

127    The plaintiff did not adduce any evidence as to the plant and equipment owned by SB Food, for example in the form of a balance sheet or a depreciation schedule. In contrast, the plaintiff produced evidence in the form of a profit and loss statement and balance sheet for Stones Bakery to the period April 2015 to March 2016. In the balance sheet the assets include property plant and equipment at a written down value of $942,919. The paucity of evidence does not permit a finding whether that plant and equipment was transferred by Stones Bakery to SB Food, when the business was “moved” to the latter.

128    Mr Gigliotti did not give evidence of any agreement to the effect that Amici would separately pay rental to SB Food (or to Stones Bakery) for use of the plant and equipment and nor was that proposition put to him in cross-examination. As I have explained, Amici’s profit and loss statement to 31 March 2017 (which includes the accounts to 30 June 2016) does mention the payment of plant and equipment rental as a separate expense of the business, however what is left unexplained is numerous other payments that were made by Amici to SB food within these periods.

129    The inference which is open, and which I draw, is that Mr Moss caused Amici to make payments of relatively significant sums of money to SB Food commencing with a payment of $158,250 on 7 June 2016 and concluding with a payment of $11,402.49 on 10 February 2017, which payments were in addition to a regular monthly instalment of $2,000 labelled “loan repayment”. Some of these transactions were round robins. For example, the payment made on 7 June 2016 was immediately followed by a deposit from SB Food to Amici of $158,519.97. On 20 June 2016, $50,000 was paid to SB Food, followed by a further payment of $90,000 on 27 June 2016. On those same dates, SB Food deposited $84,912.96 and $135,543.68 respectively. Consistently with the broad scope of the arrangement between the corporations, it might be thought that the latter deposit comprised a payment by SB Food for manufactured product sold and delivered to it by Amici. But that fails to explain why Amici paid to SB Food a total of $140,000, in the seven days before that deposit. It was not put to Ms Kirkman or to Mr Gigliotti that either had caused these payments to be made by Amici to SB Food. It is common ground that Mr Moss had access to Amici’s bank accounts. The only logical inference is that he is the person who caused these payments to be made between SB Food and Amici. Control over Amici’s financesto that extent is redolent of decision-making by a person who acts as a director of Amici.

130    That finding holds even if by inference from the Insolvency Report loan funds were advanced to Amici by SB Food, and repaid at irregular intervals, in order to fund working capital. That proposition was not put to any witness in oral evidence. If it is the case that this explains the payments, the logical inference is that Mr Moss, as the manager of the business of SB Food determined that funds would be advanced to Amici from time to time and repaid when cash flow permitted repayments to be made. Correspondingly, the logical inference is Mr Moss made important decisions on behalf of Amici that it would borrow money from SB food and make repayments from time to time. This is indicative of high-level management decision—making.

Financial decision-making

131    That finding logically leads to another issue that was significantly addressed in the evidence. It is whether Mr Moss in fact was responsible for the financial decision-making relating to Amici, and whether he acted alone or in conjunction with Mr Gigliotti. In short, the plaintiff’s case is that Mr Moss controlled the banking and payment of funds, aged creditors, was responsible for high-level correspondence and determined the sale price of products manufactured by Amici and delivered to SB Food.

132    Conformably with my earlier findings, I am satisfied that Mr Moss was primarily responsible for control of Amici’s bank. This is not to say that Mr Gigliotti did not ever perform that function as the director of Amici: it is not necessary to find that management of the bank accounts and control of the flow of funds was exclusively the province of Mr Moss, in order to conclude that he performed that function as a director in fact.

133    Considerable evidence was given to the effect that Mr Moss determined which creditors would be paid, in what sums and when. Ms Kirkman’s evidence was that Mr Moss is the person who would receive and deal with telephone calls from creditors and suppliers, demanding payment. She stated that Mr Moss “handled most of the accounts and Pascual was production.” She was not shaken in her account. In particular she said:

What was Paul’s role?---Paul’s role – well, working with myself, we would run through accounts day to day. To my knowledge, he had control with – if new 25 customers came onboard, overseeing finance. So I would – he would deal with any major supplier concerns or customer concerns.

Did Paul have to seek authorisation from anybody?---Not to my knowledge, no.

And would he give you direction?---Yes.

And did you exercise any discretion as to how you carried out his direction?---No.

…

Did – was there ever a time that Pasquel needed to seek authorisation from Paul?---To my knowledge, yes.

And was that the case the whole time you worked there?---Yes.

And what matters would he need to seek authorisation in relation to?--- ..... not sure. Mainly, if there were suppliers chasing funds. They would always go to Paul for that. Anything else, I’m not sure.

134    Ms Kirkman also gave evidence that there was no noticeable change in the operation of the office when SB Food ceased and Amici commenced the production of pizzas. She also stated that from time to time Mr Moss would access the MYOB accounting system in order to make entries.

135    Mr Gigliotti’s evidence is to the same effect. For the entirety of his working life, he has been a production manager in various food businesses. His role did not alter following Amici’s incorporation. He was responsible for organising the production process, production planning and procurement of resources by placing orders with suppliers. Mr Moss was responsible for determining who would be a supplier. Mr Gigliotti’s involvement with the financial affairs was limited to delivering documents to Ms Kirkman for processing. Mr Moss on his evidence had full control of Amici’s finances and was responsible for financial management. Mr Moss would authorise employee leave, despite that TCK was the employer. Mr Gigliotti did not decide on the sale price of manufactured product from Amici to SB Food – the price was decided by Mr Moss. He denied having access to the MYOB accounting system or access “to the finances in any way”. He explained the MYOB accounting software was password protected, which he never used. To place orders he used an Excel spread sheet.

136    Despite the utility of his Master Schedule, Mr Gigliotti explained it did not calculate overhead expenses which were determined and apportioned by Mr Moss. The schedule controls production and is not a profitability budgeting tool. Mr Moss was also responsible for reviewing and approving the payroll reports. Mr Gigliotti went so far as to say that Mr Moss determined the pay rates of the employees (despite that he acknowledged that only award rates were paid), which I cannot accept as objectively consistent with the role of TCK as the labour hire provider of employees to Amici.

137    In cross-examination, Mr Gigliotti accepted that to an extent he did make decisions as to which suppliers would be paid and in what amounts and that on occasion he, by employing strong language, forced Mr Moss to pay pressing categories of creditor.

138    In contrast, Mr Moss gave evidence to the effect that his role was limited to that of adviser to Mr Gigliotti from Amici’s commencement. In his evidence-in-chief, Mr Moss stated that Mr Gigliotti requested that he be involved in the Amici business to “help him through the business analysis and all that sort of that [sic] and help with some sales because I obviously had some old customers that we brought through.” He further stated that he would receive payment of “no more, no less” than he was receiving from SB Food for “what I was doing on the books at the moment and he agreed.” He said that payment was $4,000 per month as a consulting fee in addition to a wage. On his evidence he received the wage for “doing the books”. His evidence was vague and unsatisfactory as to what he was required to do in order to receive the consulting fee. He described that he would assist with sales and contracts for Amici. When asked whether his role changed following the cessation of business by SB Food his evidence was:

So after Amici was incorporated, how did your role change in terms of what you were doing at the premises?---Well, instead of – instead of presenting all their – all the data and looking at the data for – for me, I’ve presented that data to – to Pascual on a fairly regular basis so [he] understood what was happening from a, you know – a higher level. So that was my advice. And then I – I would go in and I would – I would look at what has been happening in the business to then help him, guide him, to either reduce costs or – or try and change his ways.

139    Mr Moss said that he would only spend a couple of days in each week working at the Amici office, although he did not distinguish between his consulting role and his employee role. He described his function as an advisor and business mentor to Mr Gigliotti to assist him with the transition from SB Food to Amici. Mr Moss further explained that on occasion he would give advice to Mr Gigliotti that the cost of production had increased, and was required to be reduced in order to maintain profitability. For that purpose he had access to the profit and loss statements in the form of internal management accounts of Amici. He stated that he undertook some form of “analysis” by reference to those documents, but failed to explain just what he did and when. He further explained that he would give advice to Mr Gigliotti if he considered that the wages component of production was too high – by which he meant if it exceeded 18.5 cents for each pizza produced. He also gave advice to Mr Gigliotti to reduce his cost of goods sold, when necessary. He conceded that he paid “the bills of most of the suppliers”, as a physical act but denied being responsible for determining which creditors would be paid, when and in what amounts. On his evidence this was the responsibility of Ms Kirkman, who would prepare folders of accounts to be paid, the order in which they were to be paid and would present those folders to Mr Moss.

140    He further gave evidence to the effect that Mr Gigliotti “in the beginning” would “let” Mr Moss pay as the folder came through, but later Mr Moss would present the list of creditors to be paid to Mr Gigliotti, who would determine which creditors were to be paid, and Mr Moss would then act in accordance with his instruction. By December 2016, Mr Moss became concerned as to Amici’s financial viability. This coincided with advice from Della Rosa that it would no longer require the supply of product from SB Food. Mr Moss conveyed that advice to Mr Gigliotti and advised him:

I just said, “We need to shut down. We need to – we need to close ..... – we need to – we need to close the business down because it’s not sustainable without – without that large volume coming through.”

Why do you say, “We need to shut it down”?---Sort of – sort of in it together, I guess.

Is that how you also referred to it at SB Foods?---Yes.

141    Mr Moss then explained an attempt to engage a business broker in order to obtain new business for Amici, which was unsuccessful. Despite his advice, and the failure to secure new business, Mr Moss gave evidence that Mr Gigliotti did not wish to close Amici in the expectation that he may secure new contracts. He described the discussions with Mr Gigliotti at this time as “robust”. At that point, he spoke with Mr Dunner.

142    At the conclusion of the evidence-in-chief of Mr Moss, I raised a concern that a substantial portion of his evidence had not been directly and fairly put to Ms Kirkman or Mr Gigliotti. Mr Petras foreshadowed an application for leave to recall Ms Kirkman and Mr Gigliotti following the completion of his cross-examination of Mr Moss.

143    In cross-examination, Mr Moss relevantly gave evidence as follows. He maintained that the pre-incorporation meeting proceeded as a discussion with Mr Gigliotti, Ms Kirkman and Bup by reference to spreadsheets and that Ms Kirkman as “an independent person” made notes, copies of which were given to each participant. He confirmed that he had access to Amici’s MYOB accounting system, but insisted that Ms Kirkman “did all the inputs without any direction from me”. He denied being the person responsible for determining which creditors would be paid and when. On his evidence his function was limited to causing the payments, as determined by Ms Kirkman, to be made. He gave unsatisfactory evidence in an attempt to reconcile evidence that he gave at his public examination where he accepted that he would “suggest” which creditors would be paid and in which order. Before me he characterised his role in the payment process as limited to which creditors were to be paid on any particular day, but as directed by Ms Kirkman. That evidence was not referenced in his outline witness statement, was not put to Ms Kirkman, is inconsistent with her clear evidence to the contrary and I reject it for that reason, but also by reason of the contorted attempt of Mr Moss to explain away his earlier sworn evidence given during his public examination.

144    Mr Moss denied that Mr Gigliotti routinely acted in accordance with advice that he provided to him. On his evidence he would give advice and Mr Gigliotti would make his own decisions. When pressed to explain the difference between his consulting role and his status as an employee, he said that the employee wage was “to do the more clerical work” which he categorised as “to come in and just do the payments and some books”. The consulting work, on his evidence, was limited to research and development, sales “and then business advice and those sorts of things”. It was put to Mr Moss that this distinction was a recent invention to which he answered:

Well, it wasn’t discussed, but that’s how we thought of it, just a little bit of clerical work. Because I need to be covered for the WorkCover. So if you wanted to combine the two, then you could combine them.

145    In my view this evidence was the product of a recent invention, in an attempt to draw an artificial distinction between the role apparently performed by Mr Moss as a consultant and his status as an employee for workers compensation purposes. Mr Moss was then pressed to explain what research and development work was undertaken by him. He gave very vague evidence by reference to ill-defined new products and “different things”. When asked by me what new products were introduced, he referred to a proposal to prepare ham and cheese sandwiches, which was apparently too difficult with the existing machinery. He did not give any other evidence about research and development work which he undertook for Amici. He did not explain what he meant by bringing in “different things”. He explained that he was not required to account for time spent by him at the Amici office and did not keep records as evidence of time spent.

146    Towards the end of his cross-examination, Mr Moss gave plainly incredulous evidence of an additional role performed by Ms Kirkman that was not set out in his outline witness statement and was not put to her in cross-examination. He was questioned about various payments made by Amici to SB Food, insisting that the payments were for transfer of stock, which evidence I have rejected for the reasons explained above. He denied that the difference between the amounts transferred between SB Food and Amici represented the profit component of SB Food. The questions and answers then proceeded as follows:

Well, they don’t have the same pattern as above, do they? Because the amounts aren’t the same?---The amounts were different, because it was different on what has been manufactured. Jess used to do all these entries. She controlled between SB Food and Amici Foods.

Are you saying that Jessica controlled how – controlled whether the payments were made?---Well, no. She made sure that between the two companies, that the right amount of pallets and stock was being – was being transferred correct.

So Jessica Kirkman has a logistical role, on your evidence?---Was not logistical. She knows how many is manufactured, and she would make sure that the – same ones got ..... to SB Foods. She was independent between the two of us.

Right. And you’re aware that that’s not consistent with the evidence that I referred to you earlier from Jessica Kirkman?---On what? On - - -

On Jessica Kirkman specifically said that she did not exercise any discretion in her role that she performed at your direction?---Well, she’s incorrect. Because she also said she didn’t understand Stones Bakery, she didn’t understand SB Foods, and she understood all of those.

You understand that Jessica Kirkman gave evidence that she took direction from you, and she exercised no discretion in the way that she performed her role. Do you understand that that’s the evidence that Jessica Kirkman gave?---Yes. Yes.

And that is inconsistent with what you’re saying now, isn’t it?---No. She consistently – with the stock that was being manufactured – she consistently knew the stock that was being manufactured. She would put the sale in Amici, and then she would put – put the other side into SB Foods.

You’re saying she would exercise no discretion in doing that?---No. She – well, I don’t know what your definition of discretion. But that – that’s what she was asked to do.

147    I reject that evidence as simply not credible and inconsistent with evidence from other witnesses. Mr Gigliotti is the person who, as production manager, was responsible for the production side of the Amici business. He is the person who ordered stock from suppliers. He ran the production line. He caused the product to be produced in order to be sold to SB Food. He did so in accordance with the production requirements of Della Rosa. He is the person who determined how much stock was produced and transferred to SB Food. Further, when Ms Kirkman was recalled so that the substance of material evidence given by Mr Moss could be put to her for response, none of this evidence was, although she did say in answer to a question concerning her attendance at the pre-incorporation meeting that:

Most of the meetings that I was present for, that I can recall, were basically to do with accounts payable or receivable. The production side of things, I didn’t really have much involvement in. Whether they were discussions in the meeting and I was present – but that wasn’t what I was directly involved with, production-wise.

148    I conclude that Mr Moss unsuccessfully attempted before me to cast his role as very limited in order to avoid a conclusion that in fact he performed high-level decision-making in the Amici business that, having regard to the size of the company and the respective roles of Mr Gigliotti and Ms Kirkman, one would expect to be performed by an appointed director. Mr Moss was responsible for financial decision-making relating to debtors and creditors, monitoring of the cost of goods sold and the profitability margin of the business, dealing with supplier requests (and demands) for payment, deciding which creditors would be paid and in which amounts and when and that overall he monitored the financial performance of the business. He was also responsible for deciding that large sums of money would be transferred between Amici and SB Food, perhaps by way of loan funds and repayments to fund working capital. This is not to say that Mr Gigliotti did not, from time to time, concern himself with one or more of these matters. The question is not whether Mr Gigliotti in fact performed some of the functions of his office as director, but whether Mr Moss did so as well.

Production decision-making

149    The preponderance of evidence is that Mr Gigliotti was primarily responsible for the production side of the Amici business. Mr Moss’s role in that aspect of the business was limited to monitoring the costs of goods sold and to providing advice and direction to limit certain aspects of the production costs. That clear division of responsibility between Mr Gigliotti and Mr Moss is not inconsistent with a finding that Mr Moss in fact performed other functions in the Amici business within the ordinary scope of director decision-making.

An absence of commercial purpose

150    The plaintiff did not plead the case which Mr Poulter laid out in the Insolvency Report, which I have set out above. This evidence was not objected to as irrelevant and was the subject of cross-examination. In evidence, Mr Poulter emphasised that in his assessment Mr Moss was the primary beneficiary of the arrangement. When pressed to explain why, his evidence was:

In what way?---Well, that the way the arrangement was structured was uncommercial and that it was designed to benefit Mr Moss or entities that he controls.

What arrangement are you referring to?---Well, for example, the – that Amici was paying rent to PRM Investments and Orthosurgical.

…The circumstances were that SB Food was the sole buyer of the product and it seemed to me that Amici had been interposed between SB Food and TCK to, in effect, take on liabilities that it should not have if it was a wholly commercial arrangement.

Well, how would anyone benefit out of that?---Well, by allowing liabilities to build up in Amici that would otherwise be payable by SB Food.

Well, SB Food, you say, was the customer, where was it selling – on selling the product to?---SB Food was on selling to Della Rosa as I understand it.

Well, why wouldn’t SB Food just be manufacturing on its own behalf?---Well, precisely.

But that doesn’t make any sense. What you’re suggesting is that Mr Moss set up another company, put in somebody else to run it, incur liabilities and then walk away from it. Does that really make sense? It doesn’t, does it?---Well, it does. It makes sense to me.

…the benefit is that liabilities that would otherwise have been incurred by SB Foods resided and remained with Amici and it is my belief that it was always intended for Amici to fail.

So it was set up to fail?---That’s my belief.

151    It is difficult to understand why those questions were put to Mr Poulter, and more so why his evidence as set out in the Insolvency Report was not objected to as irrelevant. In any event, I do not find that the arrangement was wholly uncommercial as an indicia of the exercise of the functions by Mr Moss as a director of Amici. I have explained why I do not accept the two reasons relied upon by Mr Poulter for reaching his conclusion. Further, I have accepted evidence to the contrary being that Mr Gigliotti was enthusiastic about the proposal that was put to him by Mr Moss, he was driven by greed and in the belief that he could derive more income from the arrangement than he was deriving as SB Food’s production manager and through the labour hire arrangement between TCK and SB Food. From Mr Gigliotti’s perspective, he believed that the arrangement would be profitable and commercial. And, to an extent it was, by reason of the significant increase in the profitability of TCK from $44,943.41 in 2015 to $81,194.19 in 2016, together with the increase in directors fees from $30,000 to $89,885.32 in those years. The fact that the venture ultimately failed does not require the conclusion that it was uncommercial or artificial from the outset.

The Della Rosa contract and setting of prices

152    For a period of time that was not precisely identified, Mr Gigliotti worked in a business operated by Emilio making pizza bases. He then worked for other businesses, including some operated by Mr Moss. Emilio telephoned Mr Gigliotti to inquire as to whether he was interested in manufacturing a product for Della Rosa for a short period of time. He did so rather than speak with Mr Moss, who apparently Emilio did not trust. Mr Gigliotti conveyed this discussion to Mr Moss. Mr Gigliotti at least understood that the proposed arrangement was short-term – until Della Rosa constructed its own manufacturing facility. Mr Gigliotti stated that he was not involved in further negotiations with Emilio. That task was assumed by Mr Moss which is consistent with the fact that at that time SB Food was the manufacturing entity.

153    According to Mr Moss, SB Food was producing a line of pizza for sale by Chevalier to Coles, Chevalier lost that business and Della Rosa became the appointed supplier. He accepted that Mr Gigliotti relayed to him the substance of the discussion which he had with Emilio. Mr Moss was immediately interested in continuing manufacturing for a short period. Mr Moss met with Emilio, Luca and Piero in early 2016. They discussed the proposed arrangement. Mr Moss said that the price offered by Della Rosa was not negotiable. Despite that, he considered that SB Food could profitably manufacture the product. The terms of the contract were not specified in any detail by Mr Moss in his evidence. The agreement was wholly oral. At the conclusion of the meeting participants shook hands and agreed that they would organise a date in the future for the commencement of production.

154    Mr Moss denied any knowledge that the contract with Della Rosa would likely be a short-term arrangement, between six and 12 months. He explained that Della Rosa was “quite big in the pizza industry”, at least inferring that he believed that there may be other business opportunities to be exploited with Della Rosa. Mr Moss did not give evidence as to the price for the sale of any product that was agreed for supply to Della Rosa. Mr Gigliotti said that he did not have any knowledge of the prices charged by SB Food to Della Rosa. There was no cross-examination of Mr Moss with the objective of exposing any difference between the sale price from SB Food to Della Rosa and the purchase price from Amici. The plaintiff did not produce in evidence any financial accounts of SB Food, which is curious in that the plaintiff did produce financial accounts of Stones Bakery in the form of profit and loss statements and balance sheets for a time when it was not the relevant manufacturing entity. Mr Moss also gave evidence during cross-examination that SB Food had produced profit and loss statements as well as tax reports during the period April 2015 to March 2016

155    The plaintiff did not produce any tax invoice for any sale of manufactured product by Amici to SB Food, despite producing hundreds of pages of third-party invoices.

156    Mr Gigliotti did not give evidence as to the sale price of manufactured product from Amici to SB Food.

157    The oral evidence did not precisely address when Amici assumed the production function from SB Food in order to supply Della Rosa. I infer from the ANZ Account bank statements that production commenced in early May 2016. Mr Moss insisted that his initial meeting with Emilio was in his capacity as a director of SB Food, and for its benefit. Mr Moss in cross-examination gave evidence that I regard as implausible and reject. It was put to him that there was no need to structure the arrangement by including SB Food when Amici could have just supplied the pizzas directly to Della Rosa. Mr Moss accepted that this could have been done but “Pascual didn’t want it that way”. He then said:

Pascual didn’t want Emilio to know that he was running a manufacturing – a manufacturing company against – against Emilio. So SB Foods – SB Foods, which ..... Emilio knew and then Pascual ran Amici.

158    On the short-term arrangement that was proposed, it could not possibly have mattered to Emilio whether the pizzas were manufactured by SB Food with Mr Gigliotti as the production manager from the premises, or by Mr Gigliotti as the operator of a separate business in the premises. That evidence cannot be reconciled with the fact that Emilio chose first to discuss the proposed arrangement with Mr Gigliotti and that each had a long history of work and friendship. Nor can it be reconciled with earlier evidence given by Mr Moss in examination-in-chief that he allowed Mr Gigliotti to assume responsibility for the production of product because:

So he was really keen to get into the pizza manufacturing business. And mentor him or whatever, we both sat down and said, “This is an opportunity”, because all the relationships with Della Rosa were through him – was not through me, and they were 90 per cent of the business. So all the information I got, all the relationships I got from Della Rosa was through Pascual - - -

And you didn’t - - -?---Emilio would never ring me or contact me, I did talk to Piero from time to time.

And you had never met them before; is that right?---Not before I was introduced to them, no – by Pascual.

And is it the case that you wanted to step away from the industry at that stage?---Well, I had had a fair dip at the at the industry. I’ve done the pastizzis and the quiches and I’ve done pizzas - - -

159    Mr Moss expanded on the latter statement and explained that when Chevalier lost the contract to supply pizzas to Coles he considered himself “done” as an industry participant, and was content to step away from the industry in order to pursue other business interests, primarily property development.

160    Despite my overall adverse credit finding, I am at least prepared to accept and I find that Mr Moss initially negotiated the Della Rosa contract for the benefit of SB Food, but shortly thereafter concluded that he, through SB Food, did not wish to continue in the manufacturing business and for that reason suggested to Mr Gigliotti he should assume that function. He was content nonetheless to continue the business of SB Food as a wholesaler of product to Della Rosa. I reject however his evidence to the effect that SB Food remained the supplier to Della Rosa in order to disguise the fact that Mr Gigliotti was engaged in the business of manufacturing the product for his own benefit or that of a related entity. I find that Mr Moss determined that SB Food would no longer manufacture product for supply to Della Rosa, that Mr Gigliotti would become responsible for the manufacturing enterprise and SB Food would be interposed as the wholesaler to reduce the financial risk to it and to derive profit.

161    I also find that once Amici was incorporated and commenced manufacturing, that Mr Moss unilaterally determined the price that Amici would pay to SB Food for stock then on hand and the price that it would charge SB Food for finished product. This finding is consistent with the evidence of Mr Gigliotti that he was not involved in the determination of the sale price to SB Food or from it to Della Rosa. It also flows from my earlier finding that Mr Moss is the person who effected the transfer of the initial stock from SB Food to Amici. The determination of the stock and product prices is a function that would normally be performed by the director of Amici as price is essential to the profitability of its business.

162    There is other evidence of pricing decisions made by Mr Moss for Amici without reference to Mr Gigliotti. On 2 January 2017, Mr Moss emailed Ms Kirkman and Mr Gigliotti in consequence of a meeting that occurred on 16 December 2016. Regrettably the document in the court book, comprising only the first and third pages, is incomplete. The email reads, omitting formal parts:

Jess,

Please adjust the prices from SB Food Co L to Della Rosa as per the email below.

The prices for the Coles Meat Lovers from Amici to SB Food Co needs to be adjusted (reduced) by $0.06 per unit.

Can you please check that Della Rosa pays another 2 invoices early this week. Pascual tells me Emilio will pay last weeks invoices early this week.

We need to pay Pacific and Origin.

Please call if you have any queries.

Pascale,

For the cost saving to be achieved we now need to work on your Option B as discussed previously.

We need to keep the pressure on Piero for the cost savings in the packaging and ingredients he has agreed to negotiate with suppliers.

Please check all ingredients coming in as per my email 21/12/2016.

On the 3 days we plan to manufacture each week, it should be all hands on deck. That means that our most experienced production people including Bup need to be in production making sure all procedures and efficiencies are being met. If that means working on the line then so be it. We need to hit that target of 36 pallets per day. I know you have taken 2 others off the line but the sooner we can return to profits the faster we can recover and improve cashflow.

The other 2 days should be used for making samples, production planning and ingredients ordering. I think we can use myself and Jess (sales forecasting) to be more involved in production planning and ordering with yourself.

Things need to change and we need to all look for savings and other inputs.

…

I also appreciate your understanding of the position you and I have in the wellbeing of staff in our businesses at this time of year.

I just want to confirm our offer to you, and thankyou for the opportunity to remain as an excellent supplier to Della Rosa.

In the interest of continuing this good relationship and maintaining an experienced crew of people at Ravenhall we are prepared to offer the following adjustments to the business arrangement.

Stone will reduce the cost to Della Rosa on all Coles products supplied to you.

The $0.04 cent Profit Margin for Stones will be removed on all Coles pizza products.

In addition to that, we will reduce the Coles MeatLovers by another $0.06 (discussions between Piero and Pascual on supply arrangements).

In addition to that we will take on the cost of transport of the bases from Della Rosa to Stones and the return of those bins, which will save you a further $2000-$2500 per week.

The overall saving to you are;

    Haw    0.04 per unit

    Sup    0.04 per unit

    Marg    0.04 per unit

    M/L    0.10 per unit

    Plus the transport cost Della Rosa to Stones and return.

I would like to thank you for listening to Pascual and myself this morning.

We are also focused in exploring other opportunities in the near future.

163    Objectively the email commences with an instruction from Mr Moss to adjust the sale price for certain product sold by SB Food to Della Rosa and to correspondingly adjust the wholesale price for those product sold by Amici to SB Food. Next, it contains advice from Mr Moss to Mr Gigliotti that certain steps should be implemented in order to achieve cost savings. A notable feature of the email is the consistent use by Mr Moss of the normative plural. A page is missing between the sentences commencing “Things need to change” and “I also appreciate your understanding” where the latter as explained in the evidence is a part of an email sent by Mr Moss to an unidentified third person, whom Mr Moss was unable to recall. The references in the email to “Stones” were not explained in the evidence.

164    In cross-examination, Mr Moss consistently denied the proposition that this email evidenced a direction given by him concerning Amici’s business and of overall control of the pricing of the product sold by Amici to SB Food. Rather, he sought to characterise the wording of the email as “advice” and the consistent reference to “we” as a poor choice of words, preferring to characterise his grammar that “when you’re in there together as a team, you – you – you do probably get a bit mixed with your words.”

165    In re-examination, Mr Moss said Mr Gigliotti had organised a meeting with Della Rosa in order to discuss proposed cost reductions and that he attended the meeting as a representative of SB Food with Mr Gigliotti attending as a representative of Amici, though he immediately qualified the last statement with “I mean, they didn’t know that it was Amici”. He said that at the meeting Emilio explained that the price paid to SB Food must be reduced, with a consequent reduction of the prices paid by SB Food to Amici. He stated that Mr Gigliotti agreed to the reduction.

166    I questioned Mr Moss as to what was meant by “option B” as referred to in the email. He said that he did not know exactly what it was and that I should ask Mr Gigliotti. That answer points to a fundamental difficulty in accepting any of the evidence given by Mr Moss in relation to this email. Mr Gigliotti did not mention this email in his evidence-in-chief. Nor did he mention any meeting he attended with Mr Moss and Emilio at which a reduction in price was discussed and agreed to. That evidence was not foreshadowed in the outline witness statement of Mr Moss, was not put to Mr Gigliotti in his cross-examination either initially, or when he was recalled as a witness. Those reasons are sufficient enough to reject the evidence of Mr Moss concerning the email. Additionally, his evidence plainly amounted to a retrospective attempt to re-characterise the plain objective meaning of the document.

167    I find that this email is contemporaneous written evidence from Mr Moss to the effect that he was responsible for making high-level decisions on Amici’s behalf concerning its production costs and the price that it would charge for its products upon sale to SB Food. Decision-making of that character is ordinarily the province of the director of Amici as a sole director and shareholder corporation.

Payments for the benefit of Mr Moss, Ms Moss and a related entity

168    Between 4 July 2016 and 18 May 2017 Amici paid a monthly amount of $4,000 to PRM and from 30 May 2016 until 30 May 2017 it paid weekly amounts of $522 to Mr Moss and $264 to Ms Moss respectively.

169    Mr Moss described the $4,000 payment as a consulting fee that was paid at the same rate that he received for consulting services that he provided to SB Food. On his evidence, this amount was agreed with Mr Gigliotti and in return Amici would be provided with sales advice. Mr Gigliotti was not questioned about any agreement to that effect. In consequence I do not find that Mr Gigliotti was aware of the payments. It is clearly open to infer and find (and I do) that Mr Moss was instrumental in implementing the consulting arrangement and in setting the fee each of which point to a significant degree of financial decision-making by him in the conduct of Amici’s business.

170    Why that is so is demonstrated by the following. The payments to PRM were not made in response to any invoice, let alone a tax invoice. When I raised that matter with Mr Moss he stated that no invoice was sent because the amount was fixed as a monthly fee. My next question and his answer was:

Would you regard it as unusual for you to be providing consulting services on a regular basis without a documentary trail of invoices?---I admit now that’s unusual. Yes. I did do earlier but we used to a one year invoice, which I did with my accountant, but not during this time. I just continued them through.

171    No annual invoice was produced in evidence. The consulting fee is, however, recorded in the 2017 profit and loss statement for the Paul Moss Investment Trust of which PRM is the trustee in the amount of $44,000. No consulting fee is recorded in that document to 30 June 2016 where, on the evidence of Mr Moss, for most of that financial year he provided consulting services through PRM to SB Food at the agreed rate of $4,000 per month and which arrangement, according to his evidence, seamlessly transferred to Amici when it commenced the business. When I questioned Mr Moss about the omission of consulting fee income to 30 June 2016 he told me that originally the accountant recorded the income receipt in his family trust accounts, and not the investment trust accounts. He explained that PRM is the trustee of each trust. I then directed the attention of Mr Moss to the profit and loss statement of the Paul Moss Family Trust to 30 June 2017, which does not disclose the receipt of any consulting fee income in 2016 or 2017. I asked Mr Moss whether he had any explanation, given his earlier evidence to me. He said he would have to ask his accountant or the income may be recorded in another entity.

172    The financial accounts of the trusts do not evidence the prior consulting fee arrangement that Mr Moss claimed had historically existed between PRM and SB Food and which was continued between Amici and PRM. And there is a further difficulty with this evidence of Mr Moss. It was put to him in cross-examination that the purpose of the arrangement whereby SB Food would pay $4,000 per month to PRM for Mr Moss’s consulting services was not immediately clear. In answer, Mr Moss said: “no, it’s fairly clear that there is an arrangement of shareholders and I need to be paid for the work that I do and that was the arrangement.” The difficulty with that evidence is that Mr Moss consistently maintained that he undertook a significantly reduced role, as an advisor and not a hands-on day to day manager, once Amici commenced to operate the production business. If Mr Moss’s role materially decreased, why is it that he was paid the same amount for less work?

173    It is also significant that Mr Moss did not give evidence with any degree of precision as to what consulting work he undertook for Amici’s benefit and nor did he maintain any record of how much time was spent.

174    For these reasons I regard as incredulous the evidence of Mr Moss that the $4,000 per month fee was the continuation of an existing arrangement, I specifically find that it was not, and I further find that it is an amount that he unilaterally determined that he would cause to be paid to his associated entity for his active involved in Amici with the obvious financial advantage that accrued to PRM and indirectly to himself.

175    Next there is the weekly payment of $522 to Mr Moss in his capacity as an employee. I have noted the evidence of Mr Moss that this amount was in consideration of his attendance at the premises in order to undertake work tasks. What is significant however is evidence given by Mr Moss when cross-examined where at first he stated that this weekly payment “would be” discussed with Mr Gigliotti in February 2016, which was then immediately corrected by Counsel to February 2017 before Mr Moss conceded that the payment was not at all discussed. I reject entirely his evidence that the payment was discussed, I find it was not and this is further evidence of unilateral financial decision-making by Mr Moss in the Amici business and, in the case of this payment, specifically without reference to the appointed director.

176    As to the weekly payment of $264 to Ms Moss, this was explained in evidence by Mr Moss as a payment to her in her capacity as an employee of Amici in the form of a retainer for her to be available to give human resources advice as and when required. However, Mr Moss was unable to give any evidence as to any specific advice that was sought from or provided by her. Similarly, when Ms Moss gave evidence I directed her attention to her income tax return to 30 June 2017 which records a gross wage paid by Amici of $12,408. I asked her what did she do for that wage? She answered that she offered “HR advice, general advice. So I didn’t have to write anything specifically down, but there was conversations.” She said those conversations were with Mr Gigliotti and Mr Moss and that she did not have set working hours.

177    In cross-examination Ms Moss was unable to elaborate upon any advice that she provided to Amici in her capacity as an employee. That evidence is consistent with evidence given by Mr Gigliotti to the effect that Ms Moss rarely attended the workplace, when she did it was for social visits, and that he never sought or received employment or industrial relations advice from her. He further stated that he did not become aware that Ms Moss was an employee or that she was paid a wage until after the expiry of the Della Rosa contract in January 2017. Mr Gigliotti added that Mr Moss was solely responsible for employing his wife in the business of Amici.

178    I accept the evidence of Mr Gigliotti on this issue as consistent with the inability of Mr Moss or Ms Moss to explain just what Ms Moss was employed to do and if in fact she did any work. I find by inference that Mr Moss was the person solely responsible for the decision to “engage” Ms Moss as an employee of Amici and to cause her to be paid a weekly salary when he knew that Mr Gigliotti was not aware of this arrangement and that Ms Moss was not expected to perform any work as an employee. This is further evidence of financial and management decision-making, which in the context of the Amici business, was within the responsibility of Mr Gigliotti as the appointed director.

Liquidation of Amici

179    How Amici came to be placed into liquidation and in consequence of whose decision-making is obscure. Ms Kirkman was on maternity leave between April and July 2017. When she returned for a visit in July 2017, the business had closed. Mr Gigliotti and Mr Moss each deny being responsible for the decision to liquidate Amici, and respectively attributed that decision to the other. My fact-finding task is not assisted by the failure to call Mr Long the former external accountant of Amici as a witness. I doubt that I would have received much assistance if Mr Dunner had been called as a witness for the reason that it was common ground before me that he was banned from acting as a liquidator for a period of five years by this Court on 30 August 2013: Australian Securities and Investments Commission v Dunner (2013) 303 ALR 98; [2013] FCA 872, Middleton J. Self-evidently despite that ban, as these reasons will show, he did give some form of insolvency advice relating to Amici whilst that ban was in place.

180    Justice Middleton summarised the central case, that he found proven, against Mr Dunner at [46]:

Among other things, ASIC alleges that Mr Dunner has failed to investigate the circumstances of companies to which he was appointed, paid remuneration to himself which was not validly approved, and communicated inaccurately or unsatisfactorily with creditors, including as to the work done and anticipated to be charged. The amount of remuneration alleged to have been paid to Mr Dunner in relation to these companies when not validly approved totals $613,737.90. There is also alleged to be an additional amount of $48,500 which was paid to Mr Dunner as receiver and manager of Regen Polymers, which ASIC asserted Mr Dunner was not entitled to retain, as it was paid to him pursuant to a void charge.

181    Mr Dunner was introduced to Mr Gigliotti by Mr Moss. What happened thereafter is unclear save for the fact that Mr Poulter was appointed as liquidator of Amici on 31 May 2017.

182    Mr Gigliotti’s evidence is that in early 2017, he became aware of financial difficulties then faced by Amici. He said that he had received complaints of non-payment from suppliers. He raised this with Mr Moss. His evidence is that Mr Moss said to him: “look, things are not going good. I think we have to close down.” His evidence in chief continued:

And around the time that you were having – or had that conversation with Mr Moss about the company potentially needing to be shut down, did you take any steps in relation to that potential danger?---Yes. I asked – first, I asked why. You know, I wanted to know why we were in that position. And then, second, I said, you know, that because the – I think the agreement that the company had with the Della Rosa people was that it was going to be a temporary agreement. Maybe six or 12 months. But they set up the line, and then that’s it. We didn’t produce for them any more. But in those – in that time, no attempt was made to go and look for more business. You know, and knowing that was a temporary agreement that they had – or he had. And then I was asking question, why didn’t we get all the business? Why didn’t we go out and look for business? You know. And then – and then the answer was, obviously, if you want to stay, you put the money. I don’t have money to pay anybody.

183    Following an objection, Mr Gigliotti was asked whether he saw any other person give advice to Mr Moss at this time. He said that he noticed “a friendly liquidator in there” and his evidence continued:

What do you mean a friendly liquidator?---Well, Paul Moss suggested that he was going to get the friendly liquidator to come and assist with the closing of the business.

When did he suggest that?---Please don’t ask me for dates because - - -

Well - - -?---Sorry.

We need approximately?---Yes. Around that time. So all happened in such a short time.

Was it after Mr Moss told you that there was a danger - - -?---Yes, yes.

Yes?---Yes.

And did he express a reason for why - - -?---Yes, because he said I was no money to pay the bills, and, you know, he gave me a list of supplier and he suggested what he was going to pay, and then – I don’t know if – at the end of the day, I don’t know who he pay or who he didn’t pay, but the only ones that the – I was – it was one in particular that wouldn’t supply us until I signed the guarantor myself. And, you know, I was concerned about that, too. You know. At that time, everything – I was concerned about everything, you know, and so that one was paid, that one, and – and then from the moment that friendly liquidator came, the only thing I know that friendly liquidator suggested that I shouldn’t be the director any more, and he was going – they were going to appoint another director for the company.

HIS HONOUR: Who was the friendly liquidator?---His name is Andrew Dunner.

184    Mr Gigliotti then gave further evidence about the attendance of an accountant, Mr Long, at the Amici premises whom he claimed he had never met. Mr Gigliotti then gave some very vague evidence that he attended a meeting with Mr Dunner and Mr Moss. When asked what occurred at the meeting he said:

Well, like I said, Andrew Dunner and Paul, they say that they – they were going to put a new director in the company; that I was going to – I don’t – I didn’t – I wasn’t going to be the director any more, and – and that they were going to put the – an accountant to take over the MYOB system, and that this accountant was going to fiddle with the numbers or whatever. You know.

185    Mr Gigliotti expressed his understanding that it was the intention to install another person as a director of Amici which he described as “some old man from somewhere on [sic] living in…Carramar Park” which information he said was conveyed to him by Mr Moss. He said that he never met the intended new director.

186    Mr Gigliotti went on holidays to Argentina which he claimed was around early July 2017, and that whilst on holiday he received a telephone call from Mr Moss to the effect that Amici was to be closed down. When he returned from holiday in late July 2017, it had been. Mr Gigliotti denied any involvement in the taking of any steps to cause Amici to be wound up.

187    The ASIC records state that Mr Gigliotti ceased to be the director and secretary on 16 February 2017 when Mr Pastras was appointed to each office. The documentation to effect these changes cannot be verified as it comprises unsigned forms, apparently lodged electronically by Mr Gigliotti, which he denies. Virtually no attention was paid in the evidence to the role of Mr Pastras. He was not called as a witness. According to Mr Poulter, he does not believe that Mr Pastras undertook any active role in Amici’s management other than by causing it to be placed into liquidation. He apparently told Mr Poulter that he acquired Amici for a future business purpose, which did not materialise.

188    No attention was paid in the evidence or in submissions to a document included in the court book as part of the material relied upon by the plaintiff, apparently signed and dated by Mr Pastras on 2 June 2017 and in the form of a questionnaire issued by Mr Poulter. In that document Mr Pastras states amongst other things that he did not deal with any suppliers, that he “acquired” Amici “for my future use for a new business” and that he ceased trading of the company in May 2017 following the issue of a creditors’ statutory demand. No witness in this case gave evidence to the effect that the business was transferred to Mr Pastras for that intended purpose.

189    Returning to the evidence of Mr Gigliotti, he stated that he was not informed that he had been removed as a director of Amici with apparent effect from 16 February 2017. Despite that, he continued to work in the business until he went on holiday to Argentina, which I find could not have been in July but must have been in May 2017 before Mr Poulter was appointed as the liquidator. Mr Gigliotti could not provide any evidence as to the process engaged in to liquidate the company, save for the limited meeting that he attended with Mr Dunner and Mr Moss.

190    Mr Moss in evidence explained that he contacted Mr Dunner in order to convey to Mr Gigliotti the precarious financial position that Amici was in in early 2017. He knew Mr Dunner from prior involvement in the liquidation of an unrelated business. To the extent that he was involved in the decision to liquidate Amici, it was limited to contacting Mr Dunner and arranging the first introductory meeting with Mr Gigliotti. Mr Moss denied contacting Mr Dunner for the purpose of liquidating Amici. Rather, on his evidence, he approached Mr Dunner to have him independently explain Amici’s financial position, as Mr Gigliotti had refused to listen to his advice. His evidence continued:

Why – you’ve just given evidence that you only brought Mr Dunner in for the purpose of general advice?---Yes.

Why didn’t you bring him in to facilitate the liquidation?---Well, administrators – liquidation – he got advice. He was one before, so I assumed he would give advice. I didn’t know that he had been deregistered. That, I didn’t know.

…

You heard evidence from Mr Gigliotti that he, yourself and Mr Dunner met in a meeting together. And that was described in terms that did not indicate a referral meeting or an introductory meeting. It was described as a substantive meeting?---Well, it was certainly an introduction. Now, as I said before, he needed advice. I thought that was the way to go. You’re now telling me it was the wrong way to go. I just thought he needed advice about what can happen if you don’t seriously look at shutting down.

Well, what I’m putting to you is that you, in fact, sat down and met with Dunner and Mr Gigliotti and actively planned for what would happen in deciding the company’s future. That’s what Mr Gigliotti has deposed to?---No, that wouldn’t be correct. That wouldn’t be correct. Once I had done the introductions, I needed to remove myself out of there. I didn’t want to be involved. Pascual needed to talk to him and get advice from him. That’s what I thought. Rightly or wrongly, that’s what I thought at the time. And I thought he had had experience in these matters.

191    There is no other evidence which explains what steps were taken or what advice was given which led to the decision to liquidate Amici save for oral evidence given by Mr Poulter that he was contacted by Mr Dunner, with whom he formerly had a professional relationship, and was told:

Well, he said that the director of the company who he named as Michael Pastras wished to wind up the company. That Mr Pastras had acquired the shares in the company and it was his intention originally to conduct a business through that company, but he had soon discovered that the company had extreme value of liabilities that it was unable to meet. And so he had backed away from that decision and wished to now liquidate the company.

And did you have a view about what you were told?---I was let’s say, carried a healthy scepticism regarding the facts or the alleged facts that I was provided with but I kept an open mind and I accepted the appointment, knowing that I would be investigating all the circumstances of the company and forming my own independent view.

And did you form a view about Michael Pastras?---Yes. It became fairly obvious early in the appointment that Mr Pastras didn’t take any active role in the management of the company.

192    On 26 May 2017, Mr Poulter sent correspondence to Mr Pastras acknowledging a request for assistance in the proposed winding up of Amici and he enclosed a consent to act as liquidator. He then advised Mr Pastras as to the steps necessary to effect a creditors voluntary liquidation.

193    Despite my reservations about some of the Mr Gigliotti’s evidence, I accept his evidence and find that he was not involved in the decision to liquidate Amici, save for his attendance at an initial meeting with Mr Dunner and Mr Moss. I also find that although he was made aware of an intention that he be removed as the director of Amici, he was not further involved in the taking of steps to effect his removal, and he was removed and Mr Pastras was appointed without his knowledge or consent.

194    I am further satisfied that Mr Moss was instrumental in taking steps to effect a liquidation of Amici. He is the person with responsibility for the financial affairs of the business, who became very concerned in late 2016 about the financial performance of the business in consequence of the loss of the Della Rosa contract. He is the person who initially advised Mr Gigliotti to take steps to close down the business, but which advice was not accepted. He is the person who contacted Mr Dunner for the purpose of putting the company into liquidation. The evidence does not permit me to make any other finding, despite my suspicions, as to why Mr Pastras was selected to be the director or how he apparently took advice to place Amici into liquidation. It is sufficient to find that Mr Moss was instrumental in taking steps necessary and preliminary to effect the liquidation of Amici, and that the decision to implement those steps were clearly for the director of the company to take.

195    I have formed the view that these reasons should be provided to ASIC for investigation of the circumstances in which Mr Moss, Mr Dunner and Mr Pastras apparently decided to liquidate Amici.

Did Mr Gigliotti customarily act in accordance with the instructions or wishes of Mr Moss?

196    There is some evidence that on occasion Mr Gigliotti acted in accordance with directions given by Mr Moss. However, the evidence is somewhat vague and imprecise, save for the plain instruction that is expressed in the email of 2 January 2017.

197    In short I am not satisfied that the evidence is sufficiently precise or focused to found a conclusion that Mr Gigliotti was accustomed to act in accordance with the instructions or wishes of Mr Moss within the meaning of subparagraph (b)(ii) of the definition of director at s 9 of the Act. I further observe that the plaintiff, in its reply submissions, frames this aspect of the case is resting on the overall conclusion that Mr Moss “exercised executive functions without requiring authorisation from Mr Gigliotti” which is a contention that rests on subparagraph (i) of the definition.

Conclusion: Mr Moss acted in the position of director of Amici

198    For these detailed reasons, I have concluded that in combination the evidence that I have referred to and the findings that I have made lead to the conclusion that although Mr Moss was not validly appointed as a director of Amici, nonetheless he acted in the position of a director within the meaning of subparagraph (i) of the definition in s 9 of the Act. He was, in the language of the cases, a de facto director because he assumed and discharged duties and exercised powers that in the context of the Amici business , were duties and powers that were for exercise by Mr Gigliotti as the appointed director. On my findings there was a distinct division of responsibility, with Mr Gigliotti managing the production side of the business and Mr Moss managing the financial affairs and undertaking unsupervised responsibility for higher level decision-making. Within the framework of the Amici business, my conclusion is that Mr Moss did the work of a director (Grimaldi at [65]) and that he did so from the commencement of its business until Mr Poulter was appointed as the liquidator on 31 May 2017. Mr Moss actively participated in decision-making and management ofAmici well beyond the role of a part-time consultant and business advisor and at a high-level of responsibility.

199    Mr Moss’s decisions had the capacity to, and did, significantly affect the business operations beyond external business advice and mentoring. He was actively engaged in managing the financial affairs of the business, controlled creditor payments, effected large inter-company transfers of funds between Amici and SB Food, negotiated the principal supply contract between SB Food and Della Rosa and thereby the direct supply arrangement between Amici and SB Food. He was the person responsible for agreeing the supply price to Della Rosa and the price at which Amici would sell the manufactured product by wholesale to SB Food. Mr Moss directed Ms Kirkman in relation to all aspects of the discharge of her employment duties. He is the person who arranged for an initial advance of loan funds from SB Food to Amici, and determined the repayment amounts and the frequency of repayment. He monitored Amici’s financial performance, and he is the person who was alert to its perilous financial state following the conclusion of the Della Rosa contract.

200    Mr Moss is also the person who was instrumental in arranging for steps to be taken to place Amici into liquidation, without any substantive input from Mr Gigliotti.

201    It follows that Mr Moss was in fact a director by reason of him acting in that position at all times between 2 March 2016 and 31 May 2017.

The solvency issue

202    The plaintiff pleaded the insolvency of Amici from formation to the appointment of Mr Poulter on 31 May 2017 relying in the alternative on the failure to keep financial records as required by s 286(1) of the Act, where insolvency is presumed pursuant to s 588E(3) or that as a fact Amici was unable to pay all of its debts as and when they became due and payable: s 95A of the Act. It would seem that not being cognizant of the effect of r 16.07(2) of the Rules, the failure to keep financial records was denied, the presumption of insolvency was not admitted and the factual insolvency contention was denied (noting that there is a clear clerical error in the defence of Mr Moss, where one paragraph is pleaded to twice, and another is omitted). Given this rather confusing pleading, I do not accede to the plaintiff’s submission that insolvency must be taken to be presumed in the case against Mr Moss.

203    On the factual question, the plaintiff relies on the factual and expert evidence of Mr Poulter as contained in the Insolvency Report. Insolvency is a question of fact which may be informed (though not determined) by expert evidence: Fryer v Powell (2001) 159 FLR 433; [2001] SASC 59 at [75] per Olsson J, Duggan and Williams JJ agreeing. Section 95A adopts a cash flow test but does not preclude consideration of any deficiency of assets as disclosed in the company’s balance sheet as a factor: Quin v Vlahos (2021) 64 VR 319; [2021] VSCA 205 (Quin) at [45], per Kyrou, Kennedy and Walker JJA. For my present purposes Quin contains a comprehensive summary of the relevant principles at [36] – [63], which I do not replicate but have had regard to. There is no dispute between the parties as to the principles that apply.

204    I am positively satisfied that the plaintiff has established factual insolvency for the entire period that Amici operated its business. The defendants did not adduce expert evidence contrary to the opinions and analysis of Mr Poulter. There was some questioning of Mr Poulter in cross-examination to the effect that at one or more identifiable points in time, Amici derived modest profits from the conduct of its business. In the view of Mr Poulter those small profits were insufficient to negate the accumulated losses of Amici. Mr Poulter was not shaken in his overall opinion that Amici “was insolvent right from the get-go, in my opinion.”

205    That opinion is anchored by the Insolvency Report. In summary the report discloses the following:

(1)    the current asset ratio consistently declined between May 2016 and May 2017. From the outset the ratio was 1.75% and in May 2017 it was 0.3%. That ratio is derived by dividing total current assets by total current liabilities, in each month during that period. On that analysis, Amici was insolvent from June 2016;

(2)    an analysis of monthly income and monthly profitability discloses that in 12 out of the 13 trading months, a loss was recorded. The only month in which a profit was derived was November 2016 and in an amount less than $50,000. The accumulated quantum of loss over the 13 month period was $432,325.30;

(3)    the gross margins were insufficient to cover the operating expenses of the business;

(4)    to 30 June 2016, Amici recorded a loss of $40,797 and 2 March 2017 a loss of $339,757;

(5)    a significant decline in sales revenue occurred in December 2016, when the Della Rosa contract ended. The decline was in the order of 85%, or $393,862;

(6)    the reported losses as at 31 May 2017 are understated by approximately $208,000 by reason of an overstatement of the book value of finished goods, when in fact there was no such goods on hand as at the date of appointment of Mr Poulter;

(7)    on a balance sheet analysis, the primary assets were trade debtors and raw and finished goods. The majority of liabilities comprised amounts owed to trade creditors and to the Australian Taxation Office. The total liabilities varied between approximately $800,000 upon commencement of the business, increased to approximately $900,000 in November 2016 and declined to approximately $600,000 in May 2017. Cash flow was strained as at June 2016, by reason of the repayment of a related party loan which left Amici unable to satisfy its current creditors “in a timely manner or at all”. This resulted in an increase in indebtedness to trade creditors to approximately $350,000. The opinion of Mr Poulter is that Amici “never held sufficient assets to discharge its liabilities at any point in time. A compelling indicator of insolvency since May 2016”;

(8)    the accumulated debt to the Australian Taxation Office was $159,817.12 for unpaid GST and PAYG liabilities. Although Amici paid its first business activity statement in full, albeit 55 days late, thereafter it consistently failed to discharge its taxation obligations in a timely way. In December 2016 it entered into a repayment arrangement, but failed to make the agreed instalment payments commencing in January 2017. In the opinion of Mr Poulter non-payment of the statutory debts owed to the Australian Taxation Office is “a strong indicator of insolvency from not later than October 2016”;

(9)    from October 2016, trade creditors increased on average to more than 60 days overdue, which is indicative of the deteriorating trending cash flow from that time;

(10)    from June 2016, Amici commenced a pattern of paying categories of trade creditors in round sum amounts when there was insufficient funds to discharge the debts then owed. In the opinion of Mr Poulter this practice is indicative of “the on-set of financial difficulties” from that time;

(11)    a related entity (which I find to be SB Food) advanced approximately $370,000 to Amici to assist it with satisfying immediate business expenses in May 2016. By 30 June 2016, Amici had repaid $340,750 of that debt, and repaid the remaining balance of $29,500 by 30 April 2017. Although Mr Poulter is critical of this arrangement, based on his overall theory that there was no legitimate commercial purpose for Amici, for the reasons that I have explained I do not accept that proposition. This analysis is however evidence to the effect that for a period of time Amici did have an alternative source of finance that it employed in order to satisfy short-term liabilities: financial arrangements of that character may be considered when assessing insolvency as it is not a requirement of s 95A that Amici must be able to pay its debts from its own resources (Lewis v Doran (2004) 184 FLR 454; [2004] NSWSC 608 at [116], per Palmer J).

206    These facts were not questioned in the cross-examination of Mr Poulter and he maintained his opinion that Amici was insolvent during the entire period of its business operation. I accept that factual analysis together with the opinions of Mr Poulter.

207    I am satisfied that the plaintiff has established that Amici was insolvent from May 2016 until Mr Poulter was appointed as the liquidator on 31 May 2017. What is clear from the facts set out in the Insolvency Report is that Amici suffered continuing losses from commencement, its liquidity ratio fell below 1 as at 30 June 2016 and further deteriorated to 0.3% by May 2017. Within the period of its trading, it did not have the ability to raise further equity capital, trade creditors were not satisfied in full within the usual trade terms of 30 days, taxation obligations were not met in a timely way, accumulated losses significantly increased between June 2016 and March 2017 and there was an overall balance sheet deficiency for the entire period of trading. Accordingly, I am satisfied that Amici was at all material times insolvent between May 2016 and May 2017 in that it was not able to pay all of its debts as and when they became due and payable, notwithstanding that for a period of time it was able to pay some of its debts, though not in full, with the assistance of loan funds from SB Food between May and June 2016. This short term financial arrangement assisted Amici in meeting its obligations to trade creditors, but was plainly insufficient to enable it to pay all of its debts when due and payable in that period.

The PRM Investments payments claim

208    The plaintiff asserts multiple causes of action against Mr Moss and PRM to recover the total amount of $44,000 paid by Amici to PRM between for July 2016 and 18 May 2017 each in the amount of $4,000. The claims are framed as:

(1)    Unreasonable director-related transactions: s 588FDA of the Act;

(2)    Uncommercial transactions: s 588FB of the Act;

(3)    A breach of fiduciary duty by Mr Moss;

(4)    Knowing receipt by PRM of funds paid in breach of fiduciary duty; and

(5)    Limited to the period from 30 November 2017 (relation-back day), unfair preferences: s 588FA of the Act.

209    Apart from the pleading of broad conclusions, the plaintiff paid very little attention to the elements required to be established to support these claims in its evidence or submissions. The primary difficulty faced by the plaintiff in relation to claims (1) – (4) is the inherent tension between the plaintiff’s primary claim that Mr Moss in fact acted as a director of Amici, and in that capacity was substantially responsible for the financial management and financial control of the business, and the un-particularised assertion which it pleads at paragraph [24] of the statement of claim that Amici in making these payments (and indeed all of the impugned payments): “obtained no benefits, alternatively there was no benefits referable to the respective amounts of the payments” and that in consequence it “suffered a detriment in that it was deprived of the amount of the payments”. There is no pleading of any material facts relied upon in support of those contentions beyond several conclusions set out in the form of particulars to the effect that no consultancy services were provided, alternatively no consultancy services to the value of the payments were provided and Amici did not receive any tax invoices from PRM. The plaintiff did not adduce any evidence as to whether Amici derived any benefit by making the consulting payments to PRM save for cross-examination of Mr Moss as to why he considered it appropriate for Amici to continue to pay Mr Moss the same consulting fee that he claimed to have received whilst managing the business of SB Food, an arrangement that counsel expressed difficulty in understanding.

210    In closing submissions I raised with counsel for the plaintiff whether there was any evidence to support the contention that Amici received no benefit from the consulting fees paid to PRM. In answer, counsel submitted:

Similarly, as I addressed your Honour on earlier, it flows entirely from the proposition that Amici was never created for a legitimate commercial [purpose], and that finding will fall over if the commercial purpose finding falls over.

211    I do not accept that the evidence establishes that Amici derived no benefit from the consulting fees paid to PRM. An essential element of the claim pursuant to s 588FDA(1)(c) is that:

(c)      it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to:

(i)    the benefits (if any) to the company of entering into the transaction; and

(ii)    the detriment to the company of entering into the transaction; and

(iii)    the respective benefits to other parties to the transaction of entering into it; and

(iv)    any other relevant matter.

212    Conformably with my finding that Mr Moss was in fact a director of Amici, it follows that Amici did receive a benefit from the consulting arrangement: primarily, management and oversight of its financial operations. The plaintiff made no attempt to adduce any factual or expert evidence in support of the alternative pleading that there were no benefits referable to the respective amounts paid for the consultancy services provided by Mr Moss. At a very minimum, one would have thought that having pleaded that alternative, the plaintiff might have adduced some evidence about whether the services provided by Mr Moss were charged at market rates for corresponding value. Although the absence of any invoice or tax invoice from PRM to Amici is a relevant matter, of itself it does not outweigh the failure by the plaintiff to adduce necessary evidence in support of this claim.

213    For these reasons claim (1) fails.

214    As to claim (2), s 555FB provides:

(1)    A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to:

(a)      the benefits (if any) to the company of entering into the transaction; and

(b)      the detriment to the company of entering into the transaction; and

(c)      the respective benefits to other parties to the transaction of entering into it; and

(d)      any other relevant matter.

(2)      A transaction may be an uncommercial transaction of a company because of subsection (1):

(a)      whether or not a creditor of the company is a party to the transaction; and

(b)      even if the transaction 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.

215    The relevant elements are identical to those in s 588FDA and this claim fails for the same reason.

216    Claim (3) is pleaded as follows. A statement of the uncontroversial fiduciary duties of a director is pleaded at paragraph [16] including to act in the exclusive interests of Amici, to avoid conflicts between the company’s interests and any personal interests and not to make profits at the company’s expense (implicitly without fully informed consent). At paragraph [21] it is said that Mr Moss directed or procured the making of the PRM consultancy payments. And then at paragraph [37] four broad conclusions are pleaded, without identification of any material facts, namely that Mr Moss breached his fiduciary duty in that he: failed to act in the exclusive interests of Amici, failed to act with absolute and disinterested loyalty to it, failed to avoid conflicts between its interests and his own or those of others and made profits at its expense. The pleading fails to illuminate how it is said that in making the consulting payments, each of these breaches is established.

217    In any event, resolution of this claim does not turn on a critical analysis of the pleading. Of greater importance is how the plaintiff puts the breach of fiduciary duty in its closing submissions. In written submissions, there is no reference to the breach of fiduciary duty case, not even by way of abandonment. In oral submissions I observed to counsel for the plaintiff that the rolled up fiduciary duty and breach pleadings are not very helpful, and I then invited him to articulate just how the case is put. The following was the exchange:

HIS HONOUR: - - - I don’t want to be overly critical, but you can see how, at the pointy end of the case, a rolled-up plea is not very helpful.

MR PETRAS: Yes.

HIS HONOUR: But let’s pass over that and let’s dissect it. So we have to go back to each of the separate payments that are pleaded commencing at paragraph 17. So there’s the PRM payments. There’s Paul Moss weekly. There’s Sarah Moss weekly, and then there’s the rent.

MR PETRAS: Yes.

HIS HONOUR: So breach of fiduciary duty is – how is it put in relation to – let’s deal with the last one first – rent?

MR PETRAS: With rent, it’s entirely the same analysis as with respect to the uncommercial and - - - HIS HONOUR: So if I’m against you as to your overarching point - - -

MR PETRAS: Yes.

HIS HONOUR: - - - you don’t press that?

MR PETRAS: Yes.

HIS HONOUR: So the PRM payments, again, you would say to me, well, no real value, enacted in the interests of PRM rather than the company; that’s your case?

MR PETRAS: Yes, yes.

218    In that exchange my reference to the overarching point is to the plaintiff’s contention that there was no real commercial purpose that justified the incorporation of Amici. I have found against the plaintiff on that point.

219    In any event, counsel at the very end of the case at least made it clear that the breach of fiduciary duty claim turns on the factual assertion that Amici derived no benefit or no benefit proportionate to the quantum of the consulting fees. On that basis, the breach of fiduciary duty claim fails for the same reasons as the unreasonable director-related transaction and uncommercial transaction claims.

220    Claim (4) as framed in the pleadings contends that PRM received $44,000, being the property of Amici, in circumstances where it knowingly participated in and assisted the breach of fiduciary duty by Mr Moss and thereby knowingly received the money within the meaning of the first limb of Barnes v Addy. Necessarily, this claim fails because the plaintiff has failed to establish that Mr Moss acted in breach of his fiduciary duty to Amici.

221    Claim (5) is different. The relation-back day as pleaded commenced on 30 November 2016. A curious and unexplained aspect of this case is that the plaintiff did not plead reliance upon the extended relation-back day of four years for related party transactions at s 588FE(4) of the Act. As pleaded consulting fees were paid to PRM from 30 November 2016 to 18 May 2017 totalling $20,000. Each payment is said to be a payment to PRM as an unsecured creditor of Amici and which resulted in it receiving: “in respect of an unsecured debt or debts which [Amici] owed to [it], more than [it] would receive from [Amici] in respect of the debt or debts if the preferences were set aside and [PRM] was to prove for the debt in the winding up of [Amici]…within the meaning of s 588FA of the Act”.

222    Apart from summarising the effect of this pleading in written closing submissions, once again counsel for the plaintiff failed to focus on the essential elements of the statutory claim, particularly whether the evidence establishes that by reason of the consulting payments (the transaction within the meaning of the statutory provision), the result was that PRM received from Amici “in respect of an unsecured debt” that Amici owed to PRM, more than it would receive if the transaction were set aside and it was required to lodge a proof of debt in the winding up.

223    Ms Mastos emphasises in her closing submissions that the plaintiff has failed to adduce any evidence as to whether the consulting fee payments were made in respect of an unsecured debt owed, from time to time, by Amici to PRM. It is elementary that the recipient of the impugned payment must be a creditor when the transaction is entered into: Mann v Sangria Pty Ltd (2001) 38 ACSR 307; [2001] NSWSC 172 at [32], Bryson J. There is no statutory definition of creditor in the Act. Justice Gordon in Capital Finance Australia Ltd v Tolcher (2007) 164 FCR 83; [2007] FCAFC 182 at [122] observed:

The Second Deed, in its terms, imposed an obligation on LSE to make certain payments to Capital Finance on specific dates: see [102] and [103] above. It specified a liquidated sum in money as presently due and owing on a particular date – by LSE to the Capital Companies. "Creditor" is not defined in the Corporations Act. Its meaning is flexible and varies according to its context: see, by way of example, Environmental & Earth Sciences Pty Ltd v Vouris (2006) 152 FCR 510 at [40]- [41] and Dimos v Willetts (2000) 2 VR 170 at [106]- [108]. In the present context, it can be taken to include persons who had existing rights in relation to monetary claims against LSE and who would be entitled to prove in a winding up of LSE under s 553 of the Corporations Act. The relevant date for ascertaining which persons or entities were creditors who might prove in the winding up was the date the administration commenced: Re Crawford House Press Pty Ltd (1995) 17 ACSR 295 at 298 and Environmental & Earth Sciences at [41].

224    There was no agreement in writing for the provision of the consultancy services by PRM to Amici. I have found that Mr Moss unilaterally implemented the arrangement at a time when he was acting as a de facto director of Amici. PRM provided no invoices for the fee. No questions were put to Mr Moss designed to expose any particular terms of the arrangement. A simple question might have been one to the effect: Mr Moss, were the consultancy fees payable in advance or in arrears? However, despite the plaintiff’s failure to interrogate this issue, I am satisfied that the payments were made in arrears. Accepting the evidence of Mr Moss, as contrary to his interests, the consulting fee agreement was entered into shortly after Amici was incorporated and at or about the time that it commenced to manufacture pizza product. The agreed fee was $4,000 per month. The first payment was made on 4 July 2016. Thereafter two more payments were made in July, on the 18th and the 20th, a payment was made in August, no payment was made September, payments were made in October and November but not in December 2016, two payments were made in January 2017, and one in each of February, April and May 2017.

225    The inference that is open, and which I draw, is that two of the payments in July 2016 are likely to have been for services provided in May and June and the subsequent irregular pattern of payments in 2016 satisfies me that each payment was made to discharge a pre-existing liability. Thus on each occasion, Amici and PRM were in a debtor/creditor relationship when each transaction, being each payment, was entered into. I am satisfied therefore that the first element of s 588FA has been established by the plaintiff. I pause to observe that there is no pleading of and no mention was made of the commercial transactions exemption at s 588FA(3) of the Act.

226    The second requires that, for each transaction, in result PRM must have received from Amici payment in respect of an unsecured debt which is more than it would receive if each transaction was set aside and PRM lodged a proof of debt in the liquidation. No attention was paid by Mr Petras or Ms Mastos to the question whether the hypothetical transaction analysis is to be undertaken at the time of each transaction said to be a preference (Airservices Australia v Ferrier (1996) 185 CLR 483 at 501) or as at the date of the winding up. The decision of the Full Court in Federal Commissioner of Taxation v Kassem (2012) 205 FCR 156; [2012] FCAFC 124 at [80]-[84] holds that the comparison is between the amount received by the creditor from the impugned transaction and what would probably be received in the actual winding up.

227    The plaintiff did not adduce any evidence from the liquidator as to the likely dividend to unsecured creditors or in particular to PRM in the winding up. When I raised this with Mr Petras in closing submissions he answered: “The solvency report indicates there are no dividend creditors [sic].” The Insolvency Report does not mention a likely dividend to unsecured creditors and nor does it address potential recovery proceedings, likely liquidation costs or recovery scenarios. When I pressed Mr Petras further to identify evidence which establishes the pleaded dividend conclusion, he could not.

228    There is no report to creditors which calculates or estimates a likely dividend, if any, to unsecured creditors. There is no expert report from the liquidator or any forensic accountant which expresses an opinion on this issue. No submission was put to me as to what evidence might be considered to find this fact, even by inference.

229    The Insolvency Report discloses that to 4 February 2021, Mr Poulter estimated the total assets, comprising debtors at $7,000, priority creditors at $34,919, secured creditors at $149,775 and unsecured creditors at $427,788. Overall, the net deficiency was estimated to be $605,482. These estimates did not address the liquidator’s fees and charges. An attachment to the report is a schedule of creditors, which is undated, in the total sum of $585,896.02. No evidence was adduced by the plaintiff about potential recovery proceedings that may result in a surplus in the winding up: Re Pacific Steelfixing Pty Ltd [2021] NSWSC 655 at [93]-[97], per Williams J.

230    In this proceeding, when commenced, the total amount sought to be recovered exceeded $926,000. The schedule of creditors includes the demonstrably false claim made on behalf of Mrs Gigliotti, a claim by SB Food for “supplies” for $34,200 and another supply claim by TCK for $1,500. There is no evidence from Mr Poulter as to whether creditor proofs of debt have been called for or assessed. There is no evidence as to how SB Food or TCK could have valid claims for the provision of supplies to Amici. The ATO lodged a claim with the liquidator on 13 June 2017 for $159,817.12, attached a dividend expectation advice and requested that the document be completed and returned within 30 days. There is no evidence that it was. The profit and loss statement for Amici to March 2017, as prepared by its external accountant, records a payment of management fees of $133,716 and there is no reference to consulting fees. No explanation was provided as to who received this money, even assuming that some of it was paid to PRM as consulting fees.

231    There is some evidence from Mr Poulter that was adduced in cross-examination to the effect he did not investigate potential recovery proceedings against Mr Gigliotti or TCK. No evidence was given by him about other potential recovery proceedings that would likely affect a likely dividend to creditors. When questioned as to whether Mr Gigliotti was treated differently to Mr Moss as the focus of recovery proceedings, Mr Poulter agreed, for the reason that he concluded that Mr Moss was the primary beneficiary of, what he considered to be, the artificial and uncommercial arrangement which had as its centrepiece the incorporation of Amici for the purpose of manufacturing the product. I have rejected that premise. The likely dividend to unsecured creditors turns not only on this proceeding but also other potential recovery proceedings which emerge in the documentary evidence, but which have not been mentioned by the plaintiff. Most notably, large payments were made to SB Food within the relation-back period, including after Amici ceased to manufacture product.

232    Mr Poulter also stated under cross-examination that he entered into the Assignment with the plaintiff because the winding up “was unfunded and I had no other sources of funding available to me to provide for the costs of public examinations and any litigation that might be necessary.” No evidence was adduced as to those actual or likely costs.

233    The plaintiff did not adduce evidence as to the actual or likely priority payments, including the costs of the winding up, that have priority status pursuant to s 556 of the Act, in the event that recovery is effected in whole or in part by this proceeding, or any other proceeding that may thereafter be commenced by a liquidator with funds. No attempt was made to explain how the Assignment affects the hypothetical dividend calculation where the entitlement of the liquidator is limited to 50% of any Resolution Sum, after deduction of the public examination and liquidation costs. It is not easy to understand why that calculation is affected to the detriment of the defendants by a commercial decision taken by the liquidator to assign the causes of action upon the terms of the Assignment. The failure of the plaintiff to address the likely dividend question under a range of assumptions in order to address the hypothetical calculation that is required by s 588FA(1)(b) has deprived the defendants of the opportunity to interrogate this issue which is unfair and prejudicial.

234    The plaintiff carries the onus of proof of each of the elements at s 588FA(1)(b) of the Act. I am not satisfied that the onus is discharged where the plaintiff has failed to plead the material facts that it relies on, did not address this issue in the evidence and failed to put any submission as to how this claim is made out. It is not open to me in those circumstances to arrogate to myself the role of forensic accountant or to engage in speculation based on the difference between the net deficiency of assets and the potential dividend that might ultimately be declared. Proceeding in that way is also unfair and prejudicial to Mr Moss.

235    For these reasons this claim fails.

The Paul Moss weekly payments claim

236    It is not in dispute that Amici made weekly payments to Paul Moss between 30 May 2016 and 30 May 2017 each in the sum of $522 and totalling $27,666. I have found that this payment was not discussed between Mr Moss and Mr Gigliotti. The purpose of the payment in accordance with the evidence of Mr Moss, was to ensure that he was recorded on the books of the company is an employee for WorkCover insurance purposes. These payments were recorded as taxable income in the annual returns of Mr Moss in 2016 and 2017. I am prepared to accept this evidence of Mr Moss and I find accordingly.

237    Four claims are pleaded by the plaintiff, in reliance of the same causes of action maintained against PRM. Fortunately, they may be addressed somewhat more briefly.

238    I am not satisfied that the unreasonable director-related transaction or uncommercial transactions claims succeed because the plaintiff has failed to establish that Amici received no benefit from the payments or no benefits preferable to the respective amounts paid. The evidence is that this separate payment was made in consideration of Mr Moss attending to book keeping tasks. The plaintiff accepts that he did, indeed this work forms a component of the contention that he was a de facto director. Accordingly, Amici did receive benefit for these payments and no attempt was made to adduce evidence in support of the contention that the benefits received were not referable to the amounts paid.

239    The breach of fiduciary duty claim fails for the same reason that it fails against PRM: there was a commercial purpose to the establishment and operation of Amici. Furthermore, the plaintiff failed to articulate any submissions to me as to how it was said in this case that a de facto director who receives a relatively modest weekly wage for bookkeeping, did so in breach of his fiduciary duty to Amici.

240    The Barnes v Addy knowing assistance claim fails because it is misconceived: self-evidently, Mr Moss could not have engaged in a knowing participation of his own breach of duty. This highlights the danger of a rolled up plea of multiple claims when insufficient attention is paid to the factual basis for individual claims.

241    Finally in relation to the unfair preference claim, for payments after 30 November 2016, I do not find it necessary to resolve the submission of Ms Mastos, unsupported by reference to any authority, that wages paid to an employee in regular instalments do not give rise to a debtor and creditor relationship, as this claim also fails for the reason that I have given in relation to the PRM consulting payments: the plaintiff’s case fundamentally fails to address the elements or proof required and it would be distinctly unfair and prejudicial for me to draw the necessary inferences from the paucity of evidence relied on.

The PRM and Orthosurgical rental payments

242    As pleaded the plaintiff claims all amounts of rent paid by Amici to PRM and Orthosurgical between 25 May 2016 and 18 May 2017, in total $224,719.30. As fully particularised the claim is:

Further, in the period 25 May 2016 to 18 May 2017, the Company paid to PRM Investments and Orthosurgical a total of $224,719.30 (PRM and Ortho payments).