FEDERAL COURT OF AUSTRALIA

Copeland in his capacity as liquidator of Skyworkers Pty Limited (in Liquidation) v Murace (No 2) [2024] FCA 957

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 588M of the Corporations Act 2001 (Cth), the defendant is to pay the first plaintiff, as a debt due to the second plaintiff, the amount of $776,370.10.

2.    The parties are to seek to reach agreement as to costs and provide agreed short minutes to the Associate to Justice Halley, by 4.00 pm on Thursday, 5 September 2024, failing which the matter will be listed for case management at 9.30 am on Friday, 6 September 2024 for further directions to facilitate the determination of the costs of the proceeding.

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

REASONS FOR JUDGMENT

HALLEY J:

A.     INTRODUCTION

1    The first plaintiff, Brendan Copeland, was appointed liquidator of the second plaintiff, Skyworkers Pty Limited (in liquidation) ACN 620 193 857 (Company), by an order of this Court on 21 August 2019, pursuant to s 459A of the Corporations Act 2001 (Cth) (Corporations Act).

2    The Company operated as a provider of scaffolding services until its winding up on 21 August 2019.

3    The defendant, Paul Murace, was the sole director and company secretary of the Company from 10 November 2017 until its winding up.

4    The plaintiffs contend that Mr Murace, as a director of the Company, caused the Company to incur debts while insolvent, in contravention of s 588G of the Corporations Act (impugned debts).

5    Mr Murace initially disputed that the Company was insolvent at the time that it incurred each of the impugned debts. At the commencement of the hearing of the proceeding, however, the parties informed the Court that the question of the Company’s solvency was no longer in dispute, and that Mr Murace accepted that the Company was insolvent from July 2017, including at all times that it incurred the impugned debts.

6    The principal issues which remain to be determined in the proceedings are whether Mr Murace:

(a)    was a director of the Company at the time each of the impugned debts was incurred and whether each of the impugned debts was incurred by the Company;

(b)    was aware that there were reasonable grounds to suspect that the Company was insolvent at all times that it incurred the impugned debts or whether a reasonable person in a like position to Mr Murace would have been aware of reasonable grounds to suspect that the Company was insolvent at those times;

(c)    had reasonable grounds to expect and did expect that the Company was solvent at the time that it incurred each of the impugned debts; and

(d)    had reasonable grounds to believe and did believe that another competent and reliable person was responsible for providing him with adequate information as to the Company’s solvency, and whether the information provided was sufficient to expect that the Company was solvent at the time the impugned debts were incurred and that the Company would remain solvent after the impugned debts were incurred.

7    It is also necessary to determine the specific quantum of the impugned debts.

8    For the reasons that follow, I have concluded:

(a)    each of the impugned debts was incurred at a time when Mr Murace was a director of the Company, and the Company incurred each of those debts, other than an amount of $72,840 recorded as outstanding in the Company’s running balance account with the Australian Taxation Office (ATO) and the balance of a debt owing to ICare Workers Compensation Nominal Insurer (ICare) incurred on 17 August 2017;

(b)    a reasonable person in a like position to Mr Murace would have been aware of grounds to suspect that the Company was insolvent at the time that it incurred the impugned debts;

(c)    Mr Murace did not have reasonable grounds to expect that the Company was solvent at the time that it incurred each of the impugned debts; and

(d)    Mr Murace did not have reasonable grounds to believe that another competent and reliable person was responsible for providing him with adequate information as to the Company’s solvency, nor that the information provided was sufficient to expect that the Company was solvent at the time the impugned debts were incurred and that the Company would remain solvent after the impugned debts were incurred.

B.    EVIDENCE

B.1.     Plaintiffs

9    The plaintiffs relied on five affidavits affirmed by Mr Copeland. He was cross examined, principally about whether he had formed any view that Mohamed Kabbout was a shadow director of the Company and over what period, and that each of the impugned debts remained outstanding. Mr Copeland answered all questions directly and without prevarication. I had no reason to doubt that he was giving evidence truthfully to the best of his recollection. I accept, however, that in some minor respects his evidence with respect to the impugned debts in a table in his affidavit did not reflect the specific figures in other paragraphs in his affidavit and in the annexures to his affidavit.

10    The plaintiffs also relied on selected passages from the signed transcripts of public examinations of Mr Murace.

B.2.     Mr Murace

11    Mr Murace relied on two affidavits that he had sworn. He was cross examined about his knowledge of the financial position of the Company, in particular, the absence of any cash injection or additional funding for the Company, its outstanding taxation liabilities and the circumstances in which each of the impugned debts was incurred. Mr Murace had a tendency to prevaricate and become argumentative in the course of his cross examination when he was confronted with difficult issues.

12    By way of example, when pressed about a statutory declaration of solvency he gave at the time a major contract that the Company had with Grocon Constructors (NSW) Pty Ltd (Grocon) was novated to a new company, Mr Murace gave the following evidence:

MR SYKES: … In October, in late 2018, you had a contract with a company called Grocon, and you novated that contract to a new company. Is that right?---That’s right.

You didn’t accept any payment for that. Is that right?---We were supposed to accept – we were supposed to get payment, but we didn’t get payment, no. That’s right.

Do you accept at the time that when you novated that contract that Skyworkers was unable to meet its liabilities? Do you accept that?---Yes.

And do you accept that if you signed a – do you recall signing a statutory declaration saying that the – do you recall at the time the contract with Grocon was novated executing a statutory declaration to the effect that Skyworkers was solvent?---Yes, I think so.

Based on what you’ve said now, do you accept that what was in your statutory declaration was untrue?---No, because I still look at it and viewed it as there’s money coming in, and we – basically, we’ve been assured that we’re going to have this debt paid down, so that’s – that’s what was in my mind.

I just want to clarify that, Mr Murace. You just accepted that, in answer to a question, that the company was unable to meet its debts when you novated the contract; do you accept that? That was your evidence?---Unable to meet our debts that day, yes.

Yes. And so I suggest to you that signing a statutory declaration that says the company was solvent was untrue; do you accept that?---No, because companies go up and down all – at all times, at all different times. That it’s – you’re – you’re asking me how I – what I thought about it at that time, did I think it was – the company was insolvent. No, I didn’t.

13    I approached the evidence of Mr Murace with caution, particularly where it was not corroborated by contemporaneous documents or was not consistent with the apparent logic of events.

C.    BACKGROUND

14    On 3 July 2017, the Company was registered. The Company was in the business of providing scaffolding services to Tier 1 construction companies. The Company largely rented the scaffolds used on site for approximately $21,000 per month. The Company also rented multiple premises including an office at Lane Cove and a site in Ingleside, New South Wales.

15    Prior to Mr Murace being appointed as a director of the Company, the Company had three previous directors, including Savas Guven, who was a director and secretary of the Company from 10 July 2017 to 25 July 2017.

16    In late October 2017, Mr Murace was contacted by Paul Congdon, a partner of the accounting firm Bell Partners. Mr Murace described Mr Congdon as the “overseeing accountant for the Guvens and their companies”. Mr Murace gave evidence that Mr Congdon had contacted him to offer him the position of managing director of the Company and that Mr Congdon had obtained Mr Murace’s details from Mr Guven.

17    On 10 November 2017, Mr Murace was appointed a director of the Company with a salary of $150,000 a year and a company car, laptop and phone.

18    On 16 November 2017, Mr Murace opened an account with Westpac (Westpac Account). Mr Murace conducted all of the Company’s business through the Westpac Account.

19    The Company had two major contracts:

(a)    a contract with Grocon to provide scaffolding on a project titled “The Ribbon” in Darling Harbour, Sydney (Grocon Contract); and

(b)    a contract with Lipman Pty Ltd ACN 001 548 830 (Lipman) to provide scaffolding work on a project at Macquarie University, Sydney (Lipman Contract).

20    On 4 December 2017, Mr Murace sent an email to Mr Congdon stating that he had discovered that there had been “non-payment of Payroll, PAYG, GST and( possibly Super) [sic]”.

21    In May 2018, Simon Elias, who Mr Murace described as “my business partner” in his affidavit evidence, suggested Mr Kabbout as a prospective investor for the Company.

22    In the period between Mr Murace’s appointment as a director on 10 November 2017 and August 2018, the Company’s outstanding ATO debt and other expenses including rent for scaffolding and premises, and workers compensation insurance and consultant fees, exceeded the revenue generated by the Company.

23    By August 2018, no investment had been made by Mr Kabbout in the Company and the Company continued to trade at a loss in the period up to its winding up.

24    On 12 November 2018, the ATO issued a letter to the Company stating that the ATO had issued a garnishee notice to Grocon for a $764,832.17 debt then owed by the Company to the ATO.

25    On 19 November 2018, a new company, Skyworkers Group Pty Ltd (Skyworkers Group) was incorporated. The ASIC current and historical organisation extract for Skyworkers Group records that Mr Kabbout was appointed a director of Skyworkers Group on 19 November 2018, and ceased to be a director on the same day. Mr Murace is not recorded as a director of Skyworkers Group.

26    On 26 November 2018, Skyworkers Group and the Company executed a deed of novation which novated the Grocon Contract to Skyworkers Group.

27    On 6 December 2018, Jeremy Pidcock, an employee of Lipman, sent Mr Kabbout a deed of novation to novate the Lipman Contract to Skyworkers Group, to be signed by Mr Murace and Wissam Hamzeh, the sole director and secretary of Skyworkers Group at the time. Mr Kabbout forwarded this email to Mr Murace asking him to sign the deed of novation “ASAP and send me all the stat decs please …”.

28    On or about 7 December 2018, Skyworkers Group and the Company executed a deed of novation which novated the Lipman Contract to Skyworkers Group.

29    On 21 August 2019, a Registrar of this Court made an order winding up the Company, and appointing Mr Copeland as liquidator of the Company (Winding Up Date). The petitioning creditor was the Deputy Commissioner of Taxation.

30    As at the Winding Up Date, the Company had a tax debt of $906,579.28.

31    Between August 2019 and September 2020, Mr Copeland sought to obtain information and Company records from Mr Murace, his former legal and non-legal representatives and other third parties.

32    On 9 and 10 November 2020, Mr Murace was publicly examined by Mr Copeland and Mr S Sykes of counsel. Mr Murace attended a further examination on 9 February 2021.

33    On 3 June 2022, the plaintiffs filed an originating process to commence this proceeding. On 21 July 2022, the plaintiffs filed a statement of claim.

34    On 18 January 2023, I delivered a judgment in this matter regarding an interlocutory application for summary dismissal or strike out of the statement of claim, in which I granted leave to the plaintiffs to file an amended statement of claim repleading the plaintiffs’ claims under s 588G of the Corporations Act: Copeland in his capacity as liquidator of Skyworkers Pty Limited (in Liquidation) v Murace [2023] FCA 14.

35    On 10 May 2023, the plaintiffs filed an amended statement of claim, but described as a statement of claim, in which the debts alleged to have been incurred in contravention of s 588G of the Corporations Act were more limited and pleaded with greater specificity.

36    On 1 December 2023, at a case management hearing, the proceedings were set down for hearing on Thursday, 6 June 2024 with an estimate of two days. Ms G Adams, solicitor for Mr Murace, who appeared for Mr Murace on that day, advised the Court that she had recently been instructed to appear for him and had formed the view that Mr Murace “ought to bring” a cross claim against a third party, out of time. I advised Ms Adams that if she did make an application to file a cross claim it would have to proceed by way of an interlocutory process accompanied by a draft of the proposed cross claim.

37    On 27 May 2024, at a case management hearing conducted only 10 days prior to the hearing, Ms Adams made an application for leave to file a cross claim against Mr Congdon and his firm, Bell Partners, that she had inexplicably filed without leave in the Registry of the Court on 17 May 2024. The application was refused on the basis that it would inevitably lead to a vacation of the hearing dates and a lengthy adjournment of the proceedings in circumstances where Mr Murace could pursue, in separate proceedings, any claims he might believe he had against Mr Congdon and his firm.

D.    SECTION 588G OF THE CORPORATIONS ACT

D.1.    Statutory provisions and legal principles

38    Section 588G of the Corporations Act relevantly provides:

(1)     This section applies if:

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

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

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

(d)     that time is at or after the commencement of this Act.

…

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

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

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

Note: This subsection is a civil penalty provision (see section 1317E).

(3)     A person commits an offence if:

(a)     a company incurs a debt at a particular time; and

(aa)     at that time, a person is a director of the company; and

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

(c)     the person suspected at the time when the company incurred the debt that the company was insolvent or would become insolvent as a result of incurring that debt or other debts (as in paragraph (1)(b)); and

(d)     the person’s failure to prevent the company incurring the debt was dishonest.

39    As I stated in Stone (liquidator), in the matter of Ironbark Blacksmithing Pty Ltd (in liq) v Mizzi [2024] FCA 696 at [305], in order to establish a contravention of s 588G(2) of the Corporations Act against a person, it is necessary to prove at the time that a debt is incurred by a company:

(a)    the person was a director of the company when the company incurred the debt;

(b)    the company was insolvent or would become insolvent by incurring the debt;

(c)    there were reasonable grounds for suspecting that the company was insolvent or would become insolvent by incurring the debt;

(d)    the debt was incurred after the commencement of the Corporations Act; and

(e)    the person was aware that there were grounds for suspecting that the company was insolvent or would become insolvent by incurring the debt or a reasonable person in a similar position to the person would be so aware.

40    The section does not express an element of choice, however, Mandie J in Australian Securities and Investments Commission v Plymin (No 1) (2003) 175 FLR 124; [2003] VSC 123 at [515] made the following observations:

I would respectfully agree with Bryson J that the relevant section does not express an element of choice, but nevertheless, in my opinion, the exercise of choice will often be relevant to the question as to when a company has incurred a debt. For example, in the case of obligations imposed by revenue law, the choice will of course not be exercised in relation to incurring the taxation liability, but there will still be a choice exercised, namely, the decision to continue trading or the decision to proceed with whatever activity is likely to attract or involve the attraction of the relevant impost.

(Footnote omitted.)

41    Section 95A(1) of the Corporations Act specifies that a person is solvent if, and only if, they are able to pay all their debts as and when they fall due and payable. Mr Murace conceded that the Company was insolvent at the time each of the impugned debts was incurred.

42    The inquiry in s 588G(1)(c) of the Corporations Act is not concerned with the particular director. It is an inquiry into the objectively formed state of mind of a person of ordinary competence. The director’s knowledge of and participation in the incurring of the debts plays no part in the inquiry: Australian Securities and Investments Commission v Edwards (2005) 220 ALR 148; [2005] NSWSC 831 at [249] (Barrett J).

43    Suspecting is one of suspicion, which is something less developed and less well formulated than expectation: Edwards at [250].

44    “Reasonable” in this context imports the standard of reasonableness appropriate to a director of reasonable competence and diligence, seeking to perform their duties as imposed by law, when viewed as a whole, and capable of reaching a reasonable informed opinion as to the company’s financial capacity: Smith v Bone (2015) 104 ACSR 528; [2015] FCA 319 at [367] (Gleeson J).

45    Section 588G(2)(a) of the Corporations Act requires proof of a subjective awareness by the director of grounds, whether or not the director had a subjective suspicion of insolvency, which may be objectively characterised as reasonable grounds for suspecting insolvency. In the alternative, it must be established that a reasonable person would be aware of the existence of reasonable grounds for suspecting insolvency. It does not matter that a particular director was not so aware: Plymin at [426] (Mandie J).

46    Reasonable grounds is more than a mere idle wondering whether it exists, it is a positive feeling of actual apprehension amounting to a slight opinion, but without sufficient evidence: Plymin at [427], citing Queensland Bacon Pty Ltd v Rees (1965) 115 CLR 266 at 303 (Kitto J).

D.2.     Whether Mr Murace was a director at the time each impugned debt was allegedly incurred

47    The impugned debts are alleged by the plaintiffs to comprise the following debts in an aggregate amount of $1,093,744.98:

48    It is necessary first to address whether Mr Murace was a director at the time each of the impugned debts was incurred and whether each of those debts was incurred by the Company.

49    I am satisfied that each of the impugned debts was incurred in the period between Mr Murace’s appointment as a director on 10 November 2017 and the Winding Up Date, other than a component of the ATO running balance account of the Company (Running Balance Account), and the balance of a debt owing to ICare incurred on 17 August 2017.

50    The statement for the Running Balance Account included in the Updated Solvency Report of the Company in evidence, records a self-assessed liability by the Company on 28 August 2018 of $722,809. Mr Murace was a director of the Company as at that date but the effective dates for that self-assessed liability included a liability of $72,840 with an effective date of 21 September 2017, a date prior to Mr Murace becoming a director of the Company (initial ATO liability). Hence, in determining the proportion of the Running Balance Account incurred at a time when Mr Murace was a director of the Company it is necessary to deduct the initial ATO liability from the $637,690.28 deficit recorded in the ATO proof of debt dated 10 May 2023.

51    The proof of debt submitted by ICare concerned two debts. The first was stated to have been incurred on 17 August 2017 for $113,086.60, and the second on 17 August 2018 for $89,961.96. A payment of $103,662.72 is recorded in the ICare proof of debt, reducing the total ICare debt to $99,385.84, as reflected in the table at [47]. Mr Murace, however, was not a director of the Company when the 17 August 2017 debt was incurred, and therefore the balance of $9,423.88 ($99,385.84 - $89,961.96) (ICare Debt) must be deducted from the aggregate of the impugned debts in determining the total of the impugned debts incurred at times when Mr Murace was a director of the Company.

52    After making the deductions of the initial ATO liability and the ICare Debt (pre-appointment debts), the aggregate of the impugned debts alleged to have been incurred by the Company, at a time when Mr Murace was a director of the Company and Mr Murace concedes that the Company was insolvent, was $1,011,481.10.

D.3.    Whether each of the impugned debts was incurred by the Company

53    Mr Murace at various times and to various degrees disputed that the Company incurred the impugned debts or contended that they had been paid after the Winding Up Date.

54    In his written submissions, Mr Murace merely submitted that if the Court determined that Mr Murace had no defence to the claims advanced, then the plaintiffs “have failed to prove their quantum”.

55    In his affidavit sworn on 21 November 2023, Mr Murace claimed that the debt of $38,706.37 alleged to be owed to Safesmart Australia in the statement of claim had been paid in full on 11 January 2019 and $192,331.31 had been paid in four instalments in 2018 in respect of the Superannuation Guarantee Charge.

56    Mr Copeland exhibited to his affidavit affirmed on 22 December 2023, copies of various combinations of proofs of debt, ATO notices of assessment, invoices, account statements and aged payables reports substantiating each of the impugned debts (substantiation documents). The amounts recorded as outstanding in the table at [47] above, reflect two corrections to the amounts recorded in the table at [9] of Mr Copeland’s 22 December 2023 affidavit where the amounts were inconsistent with the substantiation documents. The corrections were to the amounts for the Energy Australia debt, that is $1,321.70, not $1,315.85, and the Premium Funding Pty Ltd debt, that is $41,204.44, not $3,558.15. I also note, that contrary to the apparent concession by Mr Copeland in cross examination that the Superannuation Guarantee Charge had been extinguished by reason of the payment of a Director Penalty Notice (DPN), the substantiation documents make plain that the payment was offset against the ATO Running Balance Account deficit of the Company that reduced from $906,579.28 as at 17 September 2019 to $637,690.28 as at 10 May 2023.

57    Mr Copeland confirmed in cross examination that each of the impugned debts remained unpaid.

58    Mr Murace gave evidence in his affidavit affirmed on 9 February 2024 that the payment to Safesmart Australia discharged the Safesmart Australia debt in full, repeated his claim that $192,331.31 had been paid with respect to the Superannuation Guarantee Charge in 2018 and otherwise claimed that Mr Copeland was “in error as to what amounts have been paid and not paid and that the amount sought as damages has not been properly pleaded or particularised accurately”.

59    In his fifth affidavit affirmed on 19 April 2024, Mr Copeland gave evidence that:

(a)    a payment of $38,706.37 made on 11 January 2019 is recorded in the Company’s bank statements and appears to be a payment of the Safesmart Australia debt;

(b)    three payments were made on 19 February 2018, 4 July 2018 and 3 September 2018 respectively in relation to the Superannuation Guarantee Charge, and while Mr Murace gave evidence of a fourth payment on 26 November 2018, this is not reflected in the Company’s bank statements and he could not find any evidence of the fourth payment; and

(c)    a Safesmart statement dated 12 March 2019 recorded a debt of $77,412.74, and the payment made by the Company on 11 January 2019 was for 50% of the overall debt, and that $38,706.37 therefore remained outstanding, as reflected in his 22 December 2023 affidavit.

60    The only impugned debt that was specifically challenged by Ms Adams in the course of her cross examination of Mr Copeland was the debt outstanding to Safesmart Australia. The challenge, however, did not extend beyond the following exchange:

I put it to you that the Safe Smart Australia debt of $38,706.37 has been paid and is no longer owed? ---That’s incorrect.

61    In the course of his cross examination, Mr Murace, however, sought to dispute or otherwise question the existence of the impugned debts to Van Deer Meer (NSW) Pty Ltd (VDM), ICare, Kings Transport & Logistics (NSW) Pty Ltd (Kings Transport) and Active Forklifts (Australia) Pty Ltd (Active Forklifts), for the first time in the proceedings beyond general denials of indebtedness. His evidence was largely argumentative and speculative. I do not accept that it raises any serious doubt that the Company incurred debts to VDM, ICare, Kings Transport and Active Forklifts as alleged by Mr Copeland.

62    Mr Murace gave the following evidence seeking to dispute the existence of the debts to VDM:

MR SYKES: Do you accept that [VDM] NSW Proprietary Limited issued invoices in the period between 18 June 2018 and 30 November 2018 in the sum of $59,345?---Yes. I remember those invoices. Yes.

Do you accept that at no stage between 18 June 2018 and 30 November 2018 was the company able to pay [VDM]’s invoices because it had insufficient funds?---No. We paid a number of their invoices, I think. I can’t remember the exact date, but there was some in dispute for that because they weren’t for Skyworkers, they were for an innovation from the owner, and it was for Skyworkers to pay, but I can’t recall how many we paid and when they were at that time, but we paid quite a few of their invoices for the jobs that we – they did for us.

You accept that some of the work in the period – that it did – that [VDM] did some work for Skyworkers between 18 June 2018 and 30 November 2018?---Possibly. I’d have to – I’d have to look at that, but I can’t even remember when we – the invoices that we did pay, when they were, so I can’t recall. Sorry.

63    His evidence with respect to the debts alleged to be owed to VDM does not rise above speculation given the extent to which it is expressed in terms of “I think”, “I can’t recall” and “I can’t even remember”. Nor is there any identification of the “some” invoices in dispute or the “quite a few” invoices that were paid.

64    Equally unconvincing was the following evidence that Mr Murace gave seeking to dispute the $89,961.96 premium charged by ICare for the renewal of the Company’s workers’ compensation policy for the period 17 August 2018 to 17 August 2019:

MR SYKES: Do you accept that on – do you accept that on 26 February 2019, icare issued a further insurance policy for the period 17 August 2018 to 17 August 2019, and that the policy amount – that the premium was $89,961.96 that has not been paid – and it was not paid at the time because the company had insufficient funds?---I can’t – when was it from? I can’t recall. I can’t recall that one. And if that was at that time, the only thing I can think of was when the contracts were novated, workers went over to that side, and we didn’t have workers then. So I – I’m – I can’t recall.

At that – you accept that the company had no funds at that time because it wasn’t really trading. You accept that?---No. I don’t accept that it had no funds, but I don’t accept that we had 33 workers at that time, I don’t believe. I can’t recall. So I would have to have a look when it exactly was.

65    No more persuasive was the following evidence given by Mr Murace seeking to dispute the alleged debt to Kings Transport:

MR SYKES: Do you accept that Kings Transport and Logistics New South Wales Proprietary Limited issued five invoices to Skyworkers in the period between 8 September 2018 and 27 October 2018?---Yes. Well, we had an issue with their invoices, if I remember right.

You haven’t given any evidence about that in your affidavit have you?---No. Because I was – no, I didn’t concentrate on that. I concentrated on those – like I said, the very large amounts that were incorrect.

I suggest to you that you didn’t put in your affidavit because you’ve only made that up now, haven’t you, Mr [Murace]?---No.

Do you accept that the total value of the invoices issues by Kings Transport & Logistics issues between 8 September 2018 and 27 October 2018 was $10,845.28?---I can’t recall the exact amount, but it – they sound about right.

I suggest to you, you didn’t pay those invoices because at no stage between 8 September 2018 and 27 October 2018 you had – the company the funds to pay them. Do you accept that?---No – we had a – I had an issue with that – the amount that were invoiced, and I spoke to the owner. And before you get to it, there’s another one, too, that I remember that we had as issue with, with Active, so.

66    Mr Murace’s reference to “Active” was a reference to the impugned debt to Active Forklifts. Mr Murace, however, had earlier given the following evidence with respect to that debt:

MR SYKES: Moving away from the tax liability, for example, Active Forklifts Australia Proprietary Limited. Do you accept that the invoices that Mr Copeland identifies in his affidavit have not been paid?---That’s right. It wouldn’t have been paid. Yes.

And they haven’t been paid because the company had insufficient funds to meet 5 those debts?---The company was liquidated, so we didn’t pay it.

In relation to - - -

HIS HONOUR: Are you talking about the period prior to liquidation?

MR SYKES: I am, yes. I mean, I - - -

HIS HONOUR: So is the reason why you didn’t pay that debt prior to liquidation is because there was insufficient funds for you to be able to make that payment, or was it for some other reason?---Yes. I guess at times, we – there’s – there’s insufficient funds due to builders not paying on time and we have to juggle things. So yes, you’re right. It didn’t get paid, but it wasn’t our intention not to pay it, but obviously as funds come in, we pay things.

67    Further, it is difficult to give any weight to the evidence of Mr Murace disputing these debts given the following evidence he gave in cross examination before being taken to each of the impugned debts:

MR SYKES: And you accept that – you’ve given evidence in your affidavit that you have read Mr Copeland’s affidavit explaining the debts said to be owing to the company; do you accept that?---Yes.

And you addressed each – you addressed in your affidavit those debts that you think have been incorrectly identified by Mr Copeland; do you accept that as a proposition?---Yes, I believe so. Yes.

And you, therefore, accept that the other debts that were included have not been paid; do you accept that?---I didn’t – I didn’t comment on them. I just – yes. But they wouldn’t have been paid. Yes. That’s right.

68    For the foregoing reasons, I am satisfied that each of the impugned debts (other than the pre-appointment debts) was incurred by the Company at a time when Mr Murace was a director of the Company, and remain outstanding, in an aggregate amount of $1,011,481.10.

D.4.    Grounds for suspecting insolvency

69    For the reasons that I explain below at [74]-[83], I am satisfied that at all times between the end of September 2017 and the winding up of the Company, there were reasonable grounds for suspecting that the Company was insolvent.

D.5.     Awareness of grounds to suspect insolvency

D.5.1.    Plaintiffs’ submissions

70    The plaintiffs submit that Mr Murace knew that the Company was insolvent at the time that it incurred each of the impugned debts. They submit that actual knowledge can be inferred from the following matters:

(a)    Mr Murace opened a bank account for the Company in November 2017 and was aware of the transactions on the account;

(b)    Mr Murace contacted Mr Congdon about the ATO debt on 4 December 2017;

(c)    Mr Murace knew about his obligations as a director, including paying tax and not trading while insolvent;

(d)    Mr Murace knew about the tax liability, including knowing that it was approximately $800,000 in or about August 2018;

(e)    Mr Murace knew that, without additional funding, the tax liability could not be discharged; and

(f)    Mr Murace knew that the ATO issued a garnishee notice to Grocon in October 2018.

71    In addition, the plaintiffs submit that a reasonable person in the position of Mr Murace would have suspected insolvency at each of the following times:

(a)    upon first being notified of the ATO debt in or about November 2017;

(b)    when allegedly promised funding failed to be provided in or about November and December 2017;

(c)    when the Company required short term cash injections to meet its obligations;

(d)    when the ATO debt continued to increase and there were insufficient funds to meet that obligation; and

(e)    when there was insufficient financial material available to assess the solvency of the Company.

D.5.2.    Mr Murace’s submissions

72    Mr Murace submits that he did not know that the Company was insolvent at the time that it incurred each of the impugned debts. He submits that:

(a)    he understood that Mr Congdon was the overseeing accountant and adviser in relation to managing the books and records of the Company and he consulted and received advice from Mr Congdon relating to the timing of submission of documents; and

(b)    he had no real control of the Company, as at all times he was acting pursuant to the instructions of shadow directors, Mr Kabbout, and Mr and Ms Guven, and significantly in that context, Mr Copeland has accepted that Mr Kabbout was a shadow director of the Company.

73    Further, Mr Murace submits that a reasonable person in his position would not have been aware that there were reasonable grounds for suspecting that the Company was insolvent because:

(a)    he only had a year 10 education, he had never run a company as large as the Company, he was not a sophisticated person, and he did not understand corporations law, directors’ duties or solvency principles;

(b)    he was of the view that he was a “manager” not appreciating that he was actually appointed as a director of the Company; and

(c)    it is evident, even on the plaintiffs’ evidence, that he was at all times under the direction of shadow directors and qualified professional advisers and was subjected to audits of the Company’s financial and project performance, contracts, tenders and cash flow, and he had reason to trust those advisers and shadow directors.

D.5.3.    Consideration

Actual awareness of reasonable grounds for suspecting insolvency

74    I am satisfied that Mr Murace appreciated that by at least May 2018, there were reasonable grounds to suspect that the Company was insolvent, for the following reasons.

75    First, contrary to the position that Mr Murace sought to convey in his written and oral submissions, Mr Murace had at least a basic understanding of taxation and financial issues, notwithstanding his limited formal education. In his public examination, Mr Murace confirmed that he had been the sole director of a company called Tri-Tech Control Pty Ltd (Tri-Tech) before being appointed as a director of the Company. He gave evidence that it had five or six employees and he was responsible for (a) paying the employees’ wages, and (b) paying Tri-Tech’s taxation obligations. He agreed that he was aware that Tri-Tech’s taxation obligations included PAYG and GST.

76    Second, notwithstanding any oral commitments that he might have received from Mr or Ms Guven, they had still not injected any further funds into the Company and Mr Murace recognised in the absence of that injection of funds the Company remained unable to pay its increasing, outstanding debt to the ATO.

77    Third, Mr Murace, by reason of his operation of the Westpac Account, was aware that the balance in the account had fallen to approximately $5,000 in April 2018. Mr Murace accepted in cross examination that at all times between when the Westpac Account was opened in November 2017 and when the Company was wound up in November 2019, he had access to the Westpac Account, he was monitoring it contemporaneously and he was aware of how much money the Company had at hand.

78    Fourth, by reason of his contemporaneous monitoring of the Westpac Account, Mr Murace must have been aware of a $50,000 deposit into the bank account on 16 May 2018. Mr Murace initially hesitated but ultimately accepted that he was aware at the time of the deposit that it was necessary to keep the Company “afloat”, as demonstrated in the following exchange with his cross examiner:

MY SYKES: Can you see the second last transaction on the page there is a credit of $50,000?---Yes.

And it’s made at the Mona Vale?---Yes. That’s right. Yes.

That – was that – do you accept that that was a deposit into the account that you made?---I can’t say. I can’t recall if that was from me.

And that it was from a personal loan obtained from a friend?---It may have been. I can’t recall if that was actually that – for that.

Do you accept now that that was not payment by, for example, a contractor in relation to a Skyworkers invoice?---Yes. I don’t think it was for that. No.

And do you accept that you formed a view at the time that it was necessary to obtain that $50,000 in order to keep the company afloat? Do you accept that?---Possibly, if it was that – at that time, but I would have to look, but, yes, that would be right.

79    Fifth, Mr Murace recognised by May 2018 that the Company needed further funding.

80    Mr Murace gave the following evidence in his public examination concerning his discussions with Mr Kabbout in May 2018:

The situation that I was in was getting increasingly difficult and we needed capital injection, we needed, desperately needed the funding that was promised to us to come through to meet our obligations that would - obviously is going to come on Skyworkers, the tax obligations, the creditorial obligations. We also needed to secure the stock, because without that, as I said, there was no business. I was trying to do what I could and where I could help, I was trying to do that, and hopefully that would go toward making this, these issues possibly by extending that assistance possibly that, you know, it could help us too, and help everyone.

81    Sixth, although he initially prevaricated, when pressed in cross examination, Mr Murace conceded that the reason why some of the impugned debts were not paid was because the Company had insufficient funds to pay them. He agreed that this was the case at least with respect to the $11,450.90 debt owed to Hopkins Project Management Pty Ltd and the $7,824.85 owed to Two Way Cranes NSW Pty Ltd. He otherwise claimed to have no recollection of why the debts had not been paid, or suggested that the debts were disputed.

82    His professed recollections were not persuasive. By way of example, he gave the following evidence with respect to the debt of $10,560 outstanding to Blue Key Services Pty Ltd:

So do you accept that Blue Key Services Proprietary Limited, its debt of $10,560 incurred on 22 September 2018 was not paid because there were insufficient funds to pay it?---That could be right. Yes. I can’t – I can’t recall that one, but - - -

and the following evidence with respect to the debt of $41,204.44 recorded as owing to Premium Funding Pty Ltd:

Do you accept that the company incurred a liability of $41,204.44 on 30 October 2018 to Premium Funding Proprietary Limited?---I can’t recall that one, sorry.

And I suggest to you that you didn’t pay – the company didn’t pay that debt because it had insufficient to be able to meet that debt as at 30 October 2018. Do you accept that?---Well, I don’t remember the debt, so I – I don’t know. I don’t know any surrounding about that. I can’t remember.

83    Seventh, Mr Murace’s claim that he believed he was only appointed as a “manager” and did not appreciate that he had been appointed as a director is not plausible and reflects poorly on his credit and the weight that I can give to his evidence more generally. As early as 4 December 2017, Mr Murace was sending emails with the signature block “Paul Murace, Managing Director”.

Awareness of a reasonable person

84    In my view, a reasonable person in the position of Mr Murace would have been aware that there were reasonable grounds for suspecting that the Company was insolvent at all times between becoming aware of the outstanding ATO debt in or about November 2017 and the absence of the alleged injection of funds in or about November or December 2017 to enable that debt to be paid. A reasonable person in the position of Mr Murace would not have been satisfied with an oral representation that funds would be provided to enable the Company to meet its outstanding liability to the ATO. In the absence of the provision of the represented funds or an enforceable written commitment to provide the necessary funding, a reasonable person in the position of Mr Murace would have been aware that there were grounds for suspecting that the Company was insolvent, at least by the end of December 2017.

85    The reasonable person in a “like position” to that of Mr Murace for the purposes of s 588G(2) of the Corporations Act is a person who has the same duties and responsibilities in a company in similar circumstances. They are a person who may have access to the same information but they are not a person who might make the same erroneous assumptions or have the same educational qualifications as Mr Murace.

86    Moreover, the existence of any alleged shadow directors or professional advisers giving directions to Mr Murace is not relevant for the purposes of s 588G(2) of the Corporations Act. There was no suggestion that any person other than Mr Murace caused the Company to incur each of the impugned debts and, in any event, any evidence of direction was limited to advice about dealings with the ATO.

87    Given my conclusion that a reasonable person in a like position to Mr Murace would only have been aware that there were grounds for suspecting the Company was insolvent from the end of December 2017, it is necessary to deduct from the Running Balance Account all liabilities that are incurred with effective dates prior to 31 December 2017. Hence, in addition to the $72,840 liability incurred with an effective date of 21 September 2017, it is necessary to deduct from the Running Balance Account figure of $637,690.28 the amounts of $77,708.00 (with an effective date of 21 November 2017), $82,546.00 (with an effective date of 27 November 2017), and $74,857.00 (with an effective date of 21 December 2017).

88    The quantum of the impugned debts for which the plaintiffs have established were incurred in contravention of s 588G of the Corporations Act is thus $776,370.10 ($1,093,744.98 less the aggregate of $72,840.00, $77,708.00, $82,546.00 and $74,857.00 (the deductions from the Running Account Balance) and $9,423.88 (the ICare Debt)).

D.6.     Conclusion

89    In my view, each of the elements necessary to establish a contravention of s 588G(3) of the Corporations Act against Mr Murace have been satisfied:

(a)    Mr Murace was a director of the Company at the time the Company incurred each of the impugned debts, other than the pre-appointment debts;

(b)    Mr Murace has conceded that the Company was insolvent at the time that it incurred each of the impugned debts;

(c)    there were reasonable grounds for suspecting that the Company was insolvent at the time that it incurred each of the impugned debts after 31 December 2017;

(d)    each of the impugned debts were incurred after the commencement of the Corporations Act;

(e)    Mr Murace was aware that there were grounds for suspecting that the Company was insolvent, from at least May 2018, and a reasonable person in a similar position to Mr Murace would have been aware that there were grounds for suspecting that the Company was insolvent at all times after 31 December 2017.

90    Having reached that conclusion, it is necessary to consider the defences advanced by Mr Murace pursuant to s 588H(2) and s 588H(3) of the Corporations Act.

E.    REASONABLE EXPECTATION OF SOLVENCY

E.1.    Statutory provisions and legal principles

91    Section 588H(2) of the Corporations Act provides:

It is a defence if it is proved that, at the key time, the person had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent despite all its debts incurred, and dispositions of property made, at that time.

92    The defence is both a subjective and objective test. Unlike the objective test in s 588G(1)(c) and (2), s 588H(2) of the Corporations Act is directed not at a suspicion of insolvency but rather on an expectation of solvency.

93    An expectation of solvency requires a belief that availability of funds to meet liabilities is “certain” or “probable”, not “possible”, “no way of knowing”, or “no way of knowing yet when we have the information to make a decision”: Hall v Poolman (2007) 215 FLR 243; [2007] NSWSC 1330 at [269]-[275] (Palmer J). It requires “an actual expectation that the company was and would continue to be solvent, and that the grounds for so expecting are reasonable”, a “mere hope or possibility” or “suspecting” is not sufficient: Tourprint International Pty Ltd (in liq) v Bott (1999) 32 ACSR 201; [1999] NSWSC 581 at [67] (Austin J).

E.2.    Submissions

94    Mr Murace did not seek to rely on any defence pursuant to s 588H(2) of the Corporations Act in his defence or written submissions but sought to rely on a s 588H(2) defence in his closing oral submissions. The plaintiffs did not object to the late additional reliance on s 588H(2) of the Corporations Act.

95    Mr Murace submits that the assurances that he alleges he had received from Mr and Ms Guven and Mr Congdon at a meeting on or about 5 November 2017, to the effect that Ms Guven would meet all the liabilities of the Company together with (a) the alleged offer of an indemnity and provision of a draft indemnity deed, and (b) the subsequent alleged agreement in mid-2018 by Mr Kabbout to make a substantial investment into the Company, were sufficient to constitute reasonable grounds to expect, and he did expect, that the Company was solvent at the time that it incurred each of the impugned debts and would remain solvent despite incurring the impugned debts.

96    The plaintiffs submit that the matters relied upon by Mr Murace were not sufficient to establish a reasonable expectation of solvency defence pursuant to s 588H(2) of the Corporations Act. They submit that they were equivocal at best, the alleged promises to provide funds were only oral and Mr Kabbout’s alleged involvement with the Company does not take Mr Murace’s case anywhere because by September 2018, the “horse had bolted” and the Company’s bank account was overdrawn.

E.3.    Consideration

97    In my view, Mr Murace has not established that he had reasonable grounds to expect, and did expect, that the Company was solvent at that time it incurred the impugned debts and would remain solvent despite incurring those debts. The evidence that Mr Murace seeks to rely upon does not rise above a mere hope or possibility that additional funds might be provided to enable the Company to meet its debts, including most significantly its outstanding and increasing indebtedness to the ATO.

98    The only evidence, other than the evidence that Mr Murace gave in cross examination, of the alleged assurances given to Mr Murace at the meeting on 5 November 2017 that Ms Guven would meet all the liabilities of the Company, was contained in the following paragraphs of Mr Murace’s 21 November 2023 affidavit, that were admitted only into evidence as to his state of mind:

On or around 5 November 2017 I met with Jade Guven (JG, Savas Guven’s wife) and Paul Congdon (PC) the overseeing accountant for the Guven's and their companies and a partner at Bell Partners. This meeting was organised by PC as I was recommended to manage [the Company] by the owners JG and SG (Savas Guven).

At this meeting I was given assurances that they wanted me to only manage the company, and that I would be indemnified from any issues that should arise and all debts of the company would be met by JG as and when they arose. l was given a Deed of Access Indemnity and Insurance from JG drawn up by PC. Exhibited hereto and marked “PM -2” are true and correct copies of the Indemnity lnsurance ( later revoked by a Deed of Revocation)

99    Mr Murace gave the following evidence when pressed in cross examination about the ability of the Company to discharge its monthly liabilities and its indebtedness of approximately $600,000 to the ATO, on or about 18 December 2017. I note that All Round Access Pty Ltd was Ms Guven’s company:

And do you accept that the income being generated by the Skyworkers contracts was insufficient to discharge its monthly liabilities and the tax debt; is that correct?---No, I don’t – I don’t believe that. I believe that the contracts we had in place would have covered that, but that wasn’t responsibility that – or not a responsibility – that wasn’t a payment that I needed to make. It – I was given and told and confirmed by Paul [Congdon] and Jade Guven at those first few meetings that they would use the funds that were available in that accounts receivable to – to pay for those type of debts – any type of those debts as they arose.

And that agreement you just referred to in your answer then, that was never documented, was it?---I believe it’s documented. Well, it is – there is emails that show that a bit later on when we found out about this, and we – we contacted them about the – the amount that was owing and asked for the funds to be made available.

I put – suggest to you that there were no – there was no agreement that AllRound Access would transfer money for that tax debt to you?---Yes, there was.

And that no – it was – that no such agreement was ever committed to writing; do you accept that? I withdraw that. No such agreement was ever documented in a contract that was executed by Skyworkers, on the one hand, and AllRound Access on the other hand; do you accept that?---I can’t recall if I put anything in writing specifically for that, no. There may be something that covers that, but I can’t recall at this stage. But there’s no doubt in my mind that that was to be paid by Jade Guven at that stage.

That – no money was ever given to pay that tax liability, was it?---Once that amount was found and we made them aware of that, we – they asked for us to give them figures of the exact amount, and then they agreed to – they agreed to an amount to pay and then they reneged on that.

100    The evidence of any commitment by Mr Kabbout to invest funds in the Company in or about mid-2018 did not rise above the following evidence given by Mr Murace in his 21 November 2023 affidavit:

[22]     Around May 2018 SE suggested a potential investor for Skyworkers- Mohamed Kabbout (MK)

…

[25]    With a prospective Investor on board I was very relieved, and at no point did any of my professional advisers or accountants say to me I should consider winding up the company due to insolvency.

…

[27]     Around August 2018 MK had made it clear that he did not want to invest into SW, and suggested we open a new company together where we would move forward with and pay down the Skyworkers debt of the tax and loan as we went.

[28]     It was not what we had initially agreed to, but I was running out of options and needed to secure fund one way or another in order to pay the liability - which both PC, JG had promised but failed to pay.

[29]     MK had made it clear we would draw up the new agreement. and it would outline his responsibility now as the investor that the Tax liability would be taken care of by him and his investment and the existing loan for the scaffold paid in full for a 50% share of the new company.

[30]     We discussed the terms and the roles we would take in the new JV company called Skyworkers Group Pt y Ltd (SWG)

(The word in italics were admitted only as to Mr Murace’s state of mind.)

101    There was no evidence that the alleged commitments made by Ms Guven to meet the Company’s liabilities and Mr Kabbout to inject funds into the Company were ever reduced to writing. Nor was there any admissible and cogent evidence adduced from which any binding commitment by either of them to do so could be found. On no view could the evidence relied upon by Mr Murace be sufficient to establish that he had reasonable grounds to expect that the Company was solvent at the time that it incurred each of the impugned debts during the period in which he was a director of the Company. It may have been sufficient to give rise to a suspicion or hope that the Company would be able to meet its debts as and when they fell due and payable and thus be solvent. It was not sufficient to give rise to a belief that the provision of the funds would be “certain” or “probable” and thus give rise to an expectation that the Company would be able to meet its debts as and when they fell due and thus be solvent.

102    Nor could the alleged offer of a personal indemnity to Mr Murace nor the provision of a draft deed of indemnity constitute reasonable grounds to expect that the Company was solvent. The offer and provision of the draft deed were directed at Mr Murace’s personal liability to third parties rather than constituted measures from which it would be possible to infer reasonable grounds to expect the Company was solvent. Further, and in any event, there is no evidence that the draft deed was ever executed by Ms Guven.

103    Mr Murace has not established his s 588H(2) defence.

F.    RELIANCE ON COMPETENT AND RELIABLE PERSON

F.1.    Statutory provisions and legal principles

104    Section 588H(3) of the Corporations Act provides the following defence to a contravention of s 588G(2):

(3)     Without limiting the generality of subsection (2), it is a defence if it is proved that, at the key time, the person:

(a)     had reasonable grounds to believe, and did believe:

(i)     that a competent and reliable person (the other person) was responsible for providing to the first‑mentioned person adequate information about whether the company was solvent; and

(ii)     that the other person was fulfilling that responsibility; and

(b)     expected, on the basis of information provided to the first‑mentioned person by the other person, that the company was solvent at that time and would remain solvent despite all its debts incurred, and dispositions of its property made, at that time.

105    The test in s 588H(3) of the Corporations Act is both objective and subjective. In order to make good a defence under s 588H(3), a director must establish that they had reasonable grounds to believe, and did believe that:

(a)    another person (informant) was responsible for providing adequate information to them as to the company’s solvency;

(b)    the informant was competent and reliable;

(c)    the informant was providing them with information that was adequate to an assessment of the company’s solvency; and

(d)    the information was sufficient to expect that the company was solvent at the time that debts were incurred and would remain solvent once the debts were incurred.

106    In Manpac Industries Pty Ltd v Ceccattini (2002) 1 NSWLR 786; [2002] NSWSC 330, Young CJ in Eq made the following observations regarding circumstances in which a person may be characterised as an “other person” in regard to s 588H(3) at [52]-[54]:

It is extremely difficult for a person to say that a person is responsible for providing adequate information about solvency and was fulfilling that responsibility when the person allegedly relying on the other person was the source of the supply of information and that supply of information was not completely full.

The subsection arises from the recommendations made in para 211 of the Law Reform Commission's Discussion Paper No 32 as fleshed out in [303] and following of the Harmer Report. In [307] it was said:

The Commission considers that the defence is clearly necessary in the case of larger companies in which it cannot be expected that directors will have control over every action taken in the conduct of the company’s business. Additionally, a defence of this nature may encourage a proper system of financial management.

Thus the prime thrust of the defence is to cover the situation where there is a large corporation with bulky accounts and where there is a system in place of competent accountants, credit controllers and financial management and the board has a regime whereby those people, provided they are competent and responsible, will report to the board any problems that the board may pick up. The prime thrust of the exception is not to deal with the situation where a small company with directors who have little idea of accountancy, bring in a trouble shooter, supply the trouble shooter with information which may not be complete, receive reports back from the trouble shooter and then intend to rely on a report which is incomplete because they have provided incomplete information.

F.2.    Submissions

107    Mr Murace sought to rely on a s 588H(3) defence in his written and oral submissions.

108    Mr Murace submits he relied on Mr Congdon as “the overseeing company accountant and adviser”. He submits that Mr Congdon can be considered a competent and responsible person, who had been previously overseeing and advising on a conglomerate of companies owned by Mr and Ms Guven, and it was reasonable in all the circumstances for him to have relied upon him. Further, he gave evidence that he had been personally invited to take over the management of the Company by Mr Congdon.

109    Mr Murace submits that as a qualified accountant, Mr Congdon should have pointed out to him that the Company was insolvent and should have been wound up.

110    The plaintiffs submit that Mr Murace’s assertion that he relied on Mr Congdon as the Company’s accountant must fail because (a) there is an unresolved dispute as to whether Mr Congdon was a person providing adequate information, given that he has written in correspondence to Mr Copeland that he had “never been engaged personally by Skyworkers” and had no involvement in maintaining the Company’s financial records or maintaining the Company’s books, (b) the evidence of the information that was provided to Mr Murace was not adequate to say whether the Company was insolvent, and (c) there is no evidence that Mr Murace was provided any adequate information that would allow him to determine that the Company was solvent.

F.3.    Consideration

111    It was not in dispute, and I accept, that for the purposes of s 588H(3) of the Corporations Act, Mr Congdon was a “competent and reliable person”.

112    I am not satisfied, however, that (a) Mr Congdon was responsible for providing advice to Mr Murace on the solvency of the Company, (b) Mr Congdon provided Mr Murace with information that was adequate to an assessment of the Company’s solvency, or (c) any information provided by Mr Congdon was sufficient to expect that the company was solvent at the time that the impugned debts were incurred and would remain solvent once the debts were incurred.

113    In his oral submissions, Mr Murace principally relied on two emails sent by Mr Congdon to establish his s 588H(3) defence.

114    On 4 December 2017, shortly after Mr Murace was appointed as a director of the Company, he emailed Mr Congdon asking him to (a) clarify from the commencement of trading all expenses paid on behalf of the Company from other sources so “that we can correctly compile an accurate balance ASAP”, (b) confirm the internal balances from entities associated with the Company and (c) ensure funds are available to meet unpaid “Payroll, PAYG, GST and( possibly Super) [sic]” as soon as “we submit paperwork and have an accurate total to submit to you”.

115    Later that day Mr Congdon provided the following response to Mr Murace’s email (first Congdon email):

I’ll try and look at this this evening on my phone so that I can advise Jade [Guven] to sign off, we were talking about it earlier.

I’m out in the morning at another round of seemingly endless school events in the morning, so won’t be able to check it on a PC otherwise, until lunchtime.

I’ll also ask Jeremy if he has completed the Peter [H]owman bank rec work and other entity records so that we can provide the inter-group Skyworkers account with each other entity you’ve listed to complete the balance of the info you need.

I’ll have to confer with [J]ade on the PAYG-W as that’s an unexpected hefty liability to all concerned, it appears.

Did you get a chance to review the one pager cashflow forecast I left with you to confirm whether the PAYG featured on that please, just so I can understand whether Peter and Steve were aware it was accruing?

116    The email exchange between Mr Murace and Mr Congdon on 4 December 2017 reveals the extent to which Mr Murace was concerned to ensure that he was in a position to understand the financial position of the Company that he had just been appointed as the sole director, in particular, the extent of its outstanding taxation liabilities. It was a request for information relevant to an assessment of solvency but was not a request for advice on solvency. Nor, in any event, did the first Congdon email provide information that was adequate to enable an assessment of the Company’s solvency to be undertaken.

117    The highwater mark of the evidence relied upon by Mr Murace in support of his s 588H(3) defence was an email chain that included an email from Mr Congdon to Paul Cachia, a contract accountant with the Company, and Mr Elias, (at a Company email address), sent at 1.55 pm on 24 May 2018 (second Congdon email), that was subsequently provided to Mr Murace by Mr Elias in an email sent later in the email chain at 11.10 am on 28 May 2018. The second Congdon email was entitled “FW: Payroll Tax and BAS numbers” and contained the following text:

Hi both

Those figures all look eminently sensible and in line with those we discussed a couple of weeks ago with Paul Murace and Simon, no problem. And your comments ref Payroll Tax are also noted.

I think that all we need from our side, as we ran through with Simon, are some timetables for intended disclosure of the employer status and guidance as to the “deposit” that the ATO will look to extract up front. Following that, it is intended that Skyworkers will attempt to keep to the repayment schedule and ongoing lodgement program, but of course Jade and I are here as a potential backstop. On the payments are completed, getting accurate BASs and IASs lodged for FY2019 should then remove all risk from Paul M of DPNs being issued, one less thing for him to stress over!

Keep in touch gents.

Warm regards

Paul Congdon

Executive Director

118    The second Congdon email was written in response to the following email sent by Mr Cachia to Mr Congdon, copied to Mr Elias and Mr Murace, at 12.14 pm on 21 May 2018 (Cachia email):

Hi Paul

As discussed with Simon, please find attached

•    Payroll Tax due till end April

•    Bas numbers till end of March QTR with April Month alone

We expect payroll tax will be paid up to date in one instance, however, would appreciate your input regarding a payment schedule for the Bas lodgement.

Thank you

Paul Cachia

Contract Accountant

119    It can readily be accepted that the second Congdon email establishes that Mr Murace received advice from Mr Congdon about the Company’s taxation liabilities to the ATO, particularly with respect to payroll tax and business activity statements and the negotiation of a payment schedule for the lodgement of business activity statements. At the same time, the email reveals an apparent concern by Mr Murace about the risk of receiving a DPN with respect to the Company’s outstanding taxation liabilities.

120    The second Congdon email does not, however, establish any provision of advice as to the solvency of the Company nor does the Cachia email constitute any request for the provision of such advice. Further, on no plausible view does the second Congdon email provide information that was adequate to enable an assessment of the Company’s solvency to be undertaken. There is no consideration or reference to available funds, current assets or current liabilities. The reference in the second Congdon email to “of course Jade and I are here as a potential backstop” is inherently uncertain but is expressed in the most general of terms, appears to be confined to the payment schedule for BAS lodgements and is expressed only as a “potential” backstop.

121    Mr Murace was not a director of a large corporation with extensive accounts and where there is a system in place of competent accountants, credit controllers and financial management and the board has a regime whereby those people are competent and responsible and report to the board any problems that the board may pick up. Mr Murace was the director of a small company who obtained discrete advice from time to time on the Company’s taxation liabilities from Mr Congdon. Mr Murace was the sole director of the Company and his email exchanges with Mr Congdon demonstrate that he had at least a basic understanding of financial matters, the taxation obligations of the Company and his potential DPN liabilities. They do not disclose, however, the provision of sufficient information to Mr Congdon to provide any information sufficient to make an assessment of the solvency of the Company.

122    Mr Murace has not established his s 588H(3) defence.

G.    DISPOSITION

123    Orders are to be made pursuant to s 588M(2) of the Corporations Act that Mr Murace is to pay as a debt due to the Company, the amount of $776,370.10. The parties will be given an opportunity to make submissions as to costs, if costs cannot be agreed.

Associate:

Dated:    23 August 2024