Federal Court of Australia

1297 KRL McMillans Pty Ltd v Whizmo Creates Pty Ltd, in the matter of 1297 KRL McMillans Pty Ltd (in liq) [2025] FCA 209

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 588FF(1) of the Corporations Act 2001 (Cth), the first respondent pay the first applicant the sum of $744,100.

2.    The first respondent pay the first applicant pre-judgment interest upon the sum in paragraph 1 pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) in the amount of $55,884.70.

3.    Pursuant to s 588FF(1) of the Corporations Act the second respondent pay the first applicant the sum of $150,435.

4.    The second respondent pay the first applicant pre-judgment interest upon the sum in paragraph 3 pursuant to s 51A of the Federal Court of Australia Act in the amount of $11,298.23.

5.    The respondents pay the applicants’ costs of and incidental to the proceeding as agreed or assessed.

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

REASONS FOR JUDGMENT

MCEVOY J:

1    Before the court is an originating process filed 29 August 2024, in which the applicants seek relief including:

(a)    an order that the first respondent, Whizmo Creates Pty Ltd (Whizmo), pay the applicants the sum of $744,100; and

(b)    an order that the second respondent, Christopher Pinzone (Mr Pinzone), pay the applicants the sum of $150,435.

2    This relief is sought on the basis that payments made by the first applicant, 1297 KRL McMillans Pty Ltd (in liquidation) (the Company), to each of Whizmo and Mr Pinzone were voidable transactions within the meaning of s 588FE(3) of the Corporations Act 2001 (Cth).

3    Further, or in the alternative, the applicants allege that the Company is entitled to recover the value of the payments as debts or monies had and received. Although the applicants did not abandon these alternative claims, at the hearing of the matter they pressed only for the following orders:

1.    Pursuant to s 588FF(1) of the Corporations Act 2001 (Cth), the first respondent pay the first applicant the sum of $744,100.

2.    The first respondent pay the first applicant pre-judgment interest upon the sum in paragraph 1 pursuant to s 51A of the Federal Court Act 1976 (Cth) [sic] in the amount of $55,884.70.

3.    Pursuant to s 588FF(1) of the Corporations Act 2001 (Cth), the second respondent pay the first applicant the sum of $150,435.

4.    The second respondent pay the first applicant pre-judgment interest upon the sum in paragraph 3 pursuant to s 51A of the Federal Court Act 1976 (Cth) [sic] in the amount of $11,298.23.

5.    The respondents pay the applicants’ costs of and incidental to the proceeding as agreed or assessed.

4    For the reasons that follow, I have determined that the payments made by the Company to Whizmo and Mr Pinzone were voidable transactions pursuant to s 588FE(3) of the Corporations Act, insolvent transactions pursuant to s 588FC, and uncommercial transactions pursuant to s 588FB. There will therefore be orders substantially in the terms sought by the applicants. In these circumstances it is unnecessary to consider the applicants’ alternative clams, although I record that I accept that the applicants would also have been entitled to recover the value of the payments made to Whizmo and Mr Pinzone as debts, or monies had and received.

THE CONDUCT OF THE PROCEEDINGS BY THE RESPONDENTS

5    It should be noted at the outset that notwithstanding the filing of a notice of appearance, the respondents took no effective part in the proceedings. The court made orders on 11 October 2024 which provided for the respondents to file submissions and affidavit material which were responsive to the application. There having been non-compliance with those orders, and no explanation for that non-compliance, the respondents were provided with a further opportunity to file responsive material in orders dated 6 December 2024. Still not having done so, they were then provided with a third opportunity to file responsive material in orders dated 19 February 2025. There was non-compliance with these further orders also, and at no time did the respondents offer any explanation, on affidavit, as to their reason for non-compliance with the court’s orders. The respondents also failed to comply with an agreement reached separately between the parties for the filing of responding material out of time.

6    The orders which were made on 6 December 2024 giving the respondents their second opportunity to file answering material also provided that if they did not do so by the date and time specified then they would not be permitted to file any submissions or further material on which they intended to rely without leave, and that if they did not file submissions or otherwise obtain leave to do so the proceeding would be listed for hearing in the absence of any substantive material filed by them.

7    Subsequently, when the respondents were given their third opportunity to file responsive material on 19 February 2025, the court ordered that the matter be provisionally listed for trial on 13 March 2025. When the respondents failed yet again to file material the trial date was confirmed.

8    The proceeding duly came on for hearing on 13 March 2025 in circumstances where no material whatsoever had been filed by the respondents and the court had not been informed that the respondents would even appear.

9    When the matter was called a Mr Fronis of the Queensland Bar announced an appearance for the respondents. Mr Fronis sought leave to file in court an affidavit which had apparently been sworn that day by Mr Pinzone, the second respondent, on behalf of himself and the first respondent. Although no application had been filed, in the affidavit Mr Pinzone deposed that the respondents sought an adjournment of the hearing so as to allow the respondents another opportunity to file material. Mr Pinzone deposed at a high level that his reasons for doing so were that his solicitors had failed to appear in court on his behalf, follow his instructions, prepare the matter for hearing or tell him that it had been listed for hearing, and that in consequence he had been compelled to obtain new solicitors on 11 March 2025 (two days earlier).

10    Mr Pinzone also deposed that if an adjournment were to be granted he would file material that would “raise the fact” that he had paid some $170,302.99 on behalf of the Company and that he had paid farm workers on behalf of the Company in cash in the amount of $60,000. Notably, there were no invoices or receipts exhibited to Mr Pinzone’s affidavit in support of this claim, although he deposed that he intended to adduce such evidence in due course. Mr Pinzone claimed in his affidavit that he had paid these sums out of his own pocket and was then reimbursed by the Company when it was able to do so. Mr Pinzone deposed that he would defend the application on the basis that he had a running account with the Company, or alternatively that he had a right of set-off in respect of amounts paid to him that were by way of reimbursement of monies he had expended from time to time for and on behalf of the Company.

11    Insofar as the first respondent is concerned, Mr Pinzone deposed in his affidavit that the payments that were made to it by the Company were for the purposes of “investing in a cheese factory”. Mr Pinzone claimed that there was an agreement between the two companies in this regard, which represented a continuation of a business relationship between them. Mr Pinzone did not exhibit the agreement or any other evidence of it to his affidavit, nor did he exhibit any other material relating to the suggested investment in the cheese factory.

12    Counsel for the applicants did not resist the respondents having leave to file the affidavit, but the respondents’ application for an adjournment was opposed by the applicants on the following bases. First, that Mr Pinzone’s affidavit did not provide an adequate or credible explanation for the absence of the respondents or their failures to have filed responsive material in the proceeding. Secondly, even if the court were to accept the explanation given by Mr Pinzone for the respondents’ failure to file material, that there is nothing in his affidavit which gives rise to a sustainable defence which could otherwise have been relied upon by the respondents in the proceeding.

13    In relation to the first point, the applicants submitted that not only was the respondents’ application not properly made by an interlocutory application, it was made at unsatisfactorily late notice at the time the hearing was due to commence. They submitted that the explanation for the failure to file material given on the basis of a number of serious allegations made by Mr Pinzone against the respondents’ previous solicitor was inadequate and concerning. It was the applicants’ position that the court should not accept Mr Pinzone’s claims in circumstances where his former solicitor had appeared at case management hearings which were conducted in the proceeding, and had informed the court that he was progressing the matter on behalf of his clients and preparing for the hearing. Those representations, the applicants’ submitted, are on transcript and there was no affidavit sworn by the solicitor nor any correspondence at all between him and Mr Pinzone before the court which supported the claims which were made.

14    In relation to the second point, the applicants submitted that Mr Pinzone’s affidavit did not realistically suggest there was any actual defence to the applicants’ claims because there were no documents or other material exhibited to the affidavit in support of the matters he claimed. For example, Mr Pinzone did not exhibit any of the invoices on which he sought to rely, no bank statements showing any withdrawals he had made, or any evidence whatsoever regarding the investment he deposed was made in a cheese factory. In this regard the applicants submitted that Mr Pinzone had been on notice that such evidence would need to be adduced in the event he wished to defend the applicants’ claims from April 2024, being the time a letter of demand was sent to him by the applicants. They submitted that the liquidator, as deposed to on affidavit, had specifically requested that he produce documents of this nature and Company records, both directly and through the applicants’ solicitors, and despite responses from Mr Pinzone to the effect that they would be, no documents were ever produced. The applicants noted also that the adjournment application was the first time that the liquidator had notice of any possible investment in a cheese factory.

15    In the circumstances I accepted the applicants’ submissions in opposition to the respondents’ adjournment application and dismissed the application. I did not accept, as the applicant submitted, that there was an adequate or credible explanation by the respondents for the failure to file material prior to the hearing. In particular I did not accept, for the reasons submitted by the applicant, that Mr Pinzone’s allegations against the solicitor with carriage of the matter were established on the material which was before the court. I also did not accept that there was anything in Mr Pinzone’s affidavit which realistically indicated the nature of any defence that the defendants may have in the proceeding, in particular due to the lack of supporting documentary evidence produced in circumstances where Mr Pinzone and the first respondent had had multiple opportunities to file and serve such material. I did not accept, therefore, that it was appropriate to grant an adjournment of the hearing in all of the circumstances: see for example, van Eps v Child Support Registrar [2024] FCAFC 127 at [17]-[32] (Rangiah, Goodman and McElwaine JJ), and the cases there cited.

16    The hearing therefore proceeded in the absence of any responsive material filed by the respondents. I record that the balance of these reasons rely significantly on the applicants’ written submissions filed on 24 October 2024, there having been no answering submissions filed by the respondents.

17    The applicants tendered and rely on the affidavit of the second applicant, Mr Mathew Gollant, the Company’s liquidator, dated 29 August 2024 (Gollant Affidavit) together with the affidavit of Ms Michelle Ang, the applicant’s solicitor, dated 5 December 2024. In the absence any material filed by the respondents the applicant’s evidence is uncontradicted and I accept it for the purposes of these proceedings.

Background to the proceedings

18    The Company was incorporated on 7 June 2022 for the purpose of purchasing and running a farm located at McMillans, Victoria (the Premises). Prior to about January 2024, the Company conducted a dairy operation at the Premises.

19    On 12 February 2024 a creditor of the Company issued winding up proceedings against the Company in this court.

20    The second applicant was appointed liquidator of the Company on 20 March 2024 pursuant to orders of a Registrar of this court in proceeding VID105/2024.

21    The relation-back day in respect of the winding up is 12 February 2024 (Relation-Back Day).

22    On 29 August 2024 the applicants commenced this proceeding against the respondents.

The APPLICANTS’ claims

23    Under s 95A(2) of the Corporations Act, a person is insolvent if they are unable to pay all their debts as and when they become due and payable: see, for example, Powell & Duncan (Noelex Yachts Aust) v Fryer (2001) 159 FLR 433 at [74]-[75] (Olsson J, Duggan and Williams JJ agreeing); Australian Securities & Investments Commission v Plymin (No 1) (2003) 175 FLR 124 at [368]-[380] (Mandie J).

24    In the present circumstances, despite making inquiries of the director and former directors, the liquidator has been able to source only limited books and records from the Premises and his investigations. The records include:

(a)    bank statements;

(b)    extracts from the Company’s Australian Taxation Office portal; and

(c)    documentation relating to the purchase of the Premises.

25    Most unsatisfactorily, it is also the case that the Company’s director has not provided the liquidator with details of the Company’s business operations and nor has the liquidator been provided with any financial reports for the Company.

26    The liquidator has not received a completed Report on Company Activities and Property from the director or former directors of the Company, and I note that the liquidator is receiving assistance from the Australian Securities and Investment Commission in this regard.

27    It would seem that the liquidator was advised by a former director that books and records of the Company were kept at an office at the Premises along with digital data, however the liquidator did not find any substantive books and records or financial information concerning the Company at the Premises.

28    The evidence, based on the liquidator’s investigations and information from creditors is that the Company has secured creditors with a value of $7.49 million and unsecured creditors with a value of some $653,920.

29    The Premises owned by the Company are mortgaged to Thera Capital, and the liquidator does not expect any return to unsecured creditors from the sale of the Premises.

30    Further, as a consequence of the absence of financial records and what appears to have been asset stripping from the Premises, the liquidator has been unable to determine what assets were owned by the Company and the nature of their disposal. Creditors have provided some details of the assets of the Company, but most of those assets were removed from the Premises before the liquidator’s appointment.

31    As a consequence of the absence of financial records, the liquidator has not been able to identify any of the debtors of the Company, save for Australian Dairy Farmers Corporation Limited.

32    It is the applicant’s position, which I accept, that the Company failed to satisfy the requirement of s 286(2) of the Corporations Act to keep written financial records which correctly record and explain its transactions, financial position and performance and would enable true and fair financial statements to be prepared or audited for a period of seven years: see, for example, Fisher v Divina Homes Pty Ltd [2011] NSWSC 8 at [24] (Barrett J); In the matter of Swan Services Pty Ltd (in Liquidation) [2016] NSWSC 1724 at [124] (Black J). Accordingly, I accept that the Company is presumed to have been insolvent pursuant to s 588E(4) of the Corporations Act from its incorporation on 7 June 2022.

Whizmo Payments

33    Whizmo was incorporated on 2 April 2012. Mr Pinzone is the sole director and shareholder of Whizmo.

34    During the period 16 December 2022 to 2 June 2023, the Company made net payments totalling $744,100 to Whizmo as set out in Schedule A to the Gollant Affidavit (Whizmo Payments).

35    The Whizmo Payments were made from the Company's Australia and New Zealand Banking Group Limited (ANZ) Business account number ending in 773 to Whizmo's ANZ account number ending in 035. A bank trace from ANZ has confirmed that this ANZ account number is a bank account belonging to Whizmo.

36    I accept that the Whizmo Payments are voidable transactions pursuant to s 588FE(3) of the Corporations Act because they are insolvent transactions which are also uncommercial transactions of the Company that were entered into during two years ending on the Relation-Back Day.

37    I accept also that the Whizmo Payments were insolvent transactions pursuant to s 588FC of the Corporations Act in that the Company was presumed to be insolvent pursuant to s 588E(4) of the Corporations Act from its incorporation on 7 June 2022.

38    The Whizmo Payments were uncommercial transactions pursuant to s 588FB of the Corporations Act in that a reasonable person in the Company's circumstances would not have entered into the Whizmo Payments, having regard to the four matters set out in s 588FB(1): see Capital Finance Australia Ltd v Tolcher (2007) (2007) 164 FCR 83 at [129] (Gordon J, Heerey J agreeing). To date, and despite multiple requests to Mr Pinzone, Whizmo has not provided any satisfactory explanation for the Whizmo Payments. I accept, having regard to the state of the evidence that there were no benefits to the Company in entering into the Whizmo Payments, and that the Whizmo Payments only resulted in a detriment to the Company.

Pinzone Payments

39    During the period of 13 January 2023 to 6 November 2023, the Company made net payments totalling $150,435 to Mr Pinzone as set out in Schedule B to the Gollant Affidavit (Pinzone Payments).

40    I accept that it is appropriate to characterise the Pinzone Payments as having been paid in three tranches, as follows.

41    The first tranche of the Pinzone Payments (payments totalling $94,700 between 13 January 2023 and 16 May 2023) was paid from the Company’s ANZ Business Account number 773 to Mr Pinzone’s ANZ account number ending 409. A bank trace from ANZ has confirmed that this ANZ account number is a bank account belonging to Mr Pinzone.

42    The second tranche of the Pinzone Payments (payments totalling $43,735 between 17 July 2023 and 31 October 2023) was paid from the Company’s ANZ Business Account to Mr Pinzone. The recipient bank account number is not apparent. However, the narrations for the transactions refer to Mr Pinzone. Traces for the transactions provided by ANZ also confirm that the payments were made to an ANZ bank account in the name of Mr Pinzone.

43    The third tranche of the Pinzone Payments (payments totalling $12,000 between 2 November 2023 and 6 November 2023) were paid from the Company’s Westpac Business One Account number ending in 173 to Mr Pinzone. The narrations indicate that they were paid to Mr Pinzone. Traces for the transactions provided by Westpac also confirm that the payments were made to Mr Pinzone’s ANZ account number ending in 409.

44    I accept that the Pinzone Payments are voidable transactions pursuant to s 588FE(3) of the Corporations Act because they are insolvent transactions which are also uncommercial transactions of the Company that were entered into during two years ending on the Relation-Back Day.

45    I accept also that the Pinzone Payments were insolvent transactions pursuant to s 588FC of the Corporations Act in that the Company was presumed to be insolvent pursuant to s 588E(4) of the Corporations Act from its incorporation on 7 June 2022.

46    The Pinzone Payments were uncommercial transactions pursuant to s 588FB of the Corporations Act in that a reasonable person in the Company's circumstances would not have entered into the Pinzone Payments, having regard to the four matters set out in s 588FB(1) of the Act: Tolcher at [129]. To date, and despite multiple requests, Mr Pinzone has not provided any satisfactory explanation for the Pinzone Payments. Once again, Mr Pinzone’s affidavit filed in support of the respondents’ adjournment application does not do so in any meaningful way. I accept that there were no benefits to the Company in entering into the Pinzone Payments. The Pinzone Payments only resulted in a detriment to the Company.

Determination

47    Having concluded that the Whizmo Payments and the Pinzone Payments were uncommercial transactions pursuant to s 588FB, insolvent transactions pursuant to s 588FC, and voidable transactions pursuant to s 588FE of the Corporations Act, it is appropriate for there to be orders substantially in the terms sought by the applicants.

48    The applicants also sought their costs of the proceeding. I accept that in all the circumstances there is no reason why costs should not follow the event. There will also be an order therefore that the applicants have their costs of and incidental to the proceeding.

Associate:

Dated:    17 March 2025