FEDERAL COURT OF AUSTRALIA

Ford, in the matter of Fastline Logistics Pty Ltd (in liq) v Lay [2025] FCA 346

ORDERS

THE COURT DECLARES THAT:

1.    The following transactions between the Second Plaintiff and the Third Defendant during the period 20 June 2018 to 20 December 2018 constituted unfair preferences given by the Second Plaintiff to the Third Defendant, within the meaning of section 588FA of the Corporations Act 2001 (Cth):

(a)    the payment of $100,000 from the Second Plaintiff to the Third Defendant on 20 October 2018; and

(b)    pursuant to s 588FA(3), the $13,000 reduction in the Second Plaintiff’s net indebtedness to the Third Defendant from 20 June 2018 to 20 December 2018.

THE COURT ORDERS THAT:

2.    Pursuant to s 588FF(1)(a) of the Corporations Act, the Third Defendant pay to the Second Plaintiff the amount of $113,000.

3.    The Further Amended Originating Process dated 1 March 2024 otherwise be dismissed.

4.    Within 14 days of these orders, the parties are to file and serve written submissions (of no more than five pages) as to costs.

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

REASONS FOR JUDGMENT

ANDERSON J:

1    Introduction1.    Introduction

1 The first plaintiffs (Liquidators) are joint and several liquidators of the second plaintiff, Fastline Logistics Pty Ltd (in liquidation).  Fastline was incorporated in 1995.  It was operated by members of the Lay family and conducted a warehousing and distribution services business.

2 The Liquidators allege that the defendants have engaged in illegal phoenix activity twice, involving the transfer of a business between entities controlled by the defendants without the payment of true or market value, leaving the insolvent companies behind with substantial debts including taxes and employees’ entitlements.  The Liquidators allege that the defendants, by entering into various transactions, or otherwise being involved in various transactions, have breached directors’ duties, breached fiduciary duties, and otherwise contravened provisions of the Corporations Act 2001 (Cth) which entitles the Liquidators to various declarations, equitable compensation and damages.

3 The Liquidators’ claims against the defendants arise out of five particular events.  Each of the five events, and the claims arising therefrom, are considered in turn:

(1)    Fastline entering into a loan agreement dated 1 June 2016, with the fifth and sixth defendants, Tony Chia and Liza Chia respectively, as lenders, where the loan was secured by what is later defined in these reasons as the “Non-Target business”;

(2)    The transfer of the Non-Target business to the seventh defendant, Global Fashion Service Pty Ltd, on 14 June 2017 due to Fastline’s failure to repay amounts lent pursuant to the loan agreement;

(3)    The transfer to GFS of a security deposit contribution paid by Fastline in relation to the premises from which the Non-Target business was operated pursuant to a deed of variation dated 21 December 2018;

(4)    Payments made from Fastline to its accountant, the third defendant, Taxtex Pty Ltd (Tramontana Accountants), during the second-half of 2018; and

(5)    The subsequent transfer of what the Liquidators allege is the Non-Target business from GFS to the ninth defendant, Click 3PL Pty Ltd, at some time between mid-2021 and mid-2022.

4 Ultimately, having considered the evidence before me, while a number of the transactions were odd or unsatisfactorily explained, the Liquidators have only been able to establish the unfair preference claims brought in relation to the payments made to Tramontana Accounts in the second-half of 2018.

2    Relevant people and companies

5 Before turning in detail to the Liquidators’ specific claims and the evidence, it is useful to identify the people and the companies relevant to the claims and to identify their association with one another.

2.1    Individuals

6 Kenny Lay, the first defendant, established what would become the Fastline group of companies in 1979.  Kenny Lay was the sole director of Fastline until 13 April 2017, when he resigned as director.

7 Shauna Lay, the second defendant, is Kenny Lay’s daughter.  On 13 April 2017, she replaced Kenny Lay as the sole director of Fastline.  Prior to her appointment as director, Shauna Lay worked at Fastline as a payroll officer.

8 The third defendant, Tramontana Accountants, were Fastline’s long standing external accountant.  The nature of Tramontana Accountants’ relationship with Fastline is the subject of some consideration later in these reasons.

9 The fourth defendant, Because We Care Pty Ltd, was a company which was owned indirectly by Kenny Lay, and of which Kenny Lay was the sole director.  All claims against BWC were dropped by the Liquidators.

10 The fifth defendant, Tony Chia, is Kenny Lay’s brother-in-law.  Tony Chia was involved in the Fastline group until the mid-1990’s when he moved to New South Wales and started his own warehouse and logistics business, GFS, in the fashion industry.  Tony Chia was declared bankrupt on 1 April 2024.  Leave was granted to the Liquidators to proceed against Tony Chia under s 58(3) of the Bankruptcy Act 1966 (Cth).

11 The sixth defendant, Liza Chia, is Tony Chia’s wife.

12 Two further individuals who are not parties to the proceeding are also relevant to note.  Wilma Lay is Kenny Lay’s wife (and Tony Chia’s sister), and was actively involved in running Fastline’s business.  Suzie Ha was another sister of Tony Chia, whose role in the proceeding is discussed in further detail when considering the amounts advanced to Fastline under the loan agreement.

2.2    Companies

13 The seventh defendant, GFS, was incorporated on 27 September 1995, and was the entity through which Tony Chia conducted his warehouse and logistics business in NSW.  Tony Chia was the sole director of GFS, although the company was owned indirectly by his wife, Liza Chia who held the shares on trust for the Chia T Family Trust.  On 27 June 2022, GFS was placed into liquidation.  Leave was granted to allow the Liquidators to proceed against GFS pursuant to s 500(2) of the Corporations Act.

14 The eighth defendant, Automated Logistics Technology Pty Ltd provided IT services to Fastline.  ALT was deregistered on 21 January 2024.  The Liquidators did not seek to press any claims in respect of ALT at trial.

15 The ninth defendant, Click 3PL, was incorporated on 19 July 2021.  The company is owned indirectly by Kenny Lay who is also the company’s sole director.

2.3    The Fastline Group

16 The warehousing and logistics business controlled by Kenny Lay was operated through a group of companies which comprised primarily of the following, which I will refer to collectively as the Fastline Group or the Group:

(1)    Fastline, incorporated on 6 December 1995, conducted a business of providing warehousing and goods distribution services, originally predominantly in the fashion industry.  As noted above, Kenny Lay was the sole director of the company until 13 April 2017 when Shauna Lay took over.  Fastline was owned indirectly by Kenny and Wilma Lay.  Fastline was the main trading entity operating within the Fastline Group.  By July 2015, Fastline had three distinct areas of operation:

(a)    It was the tenant of Warehouse C, Saintly Drive, Truganina, pursuant to a lease dated 29 July 2013, and the sub-tenant (or occupier) of Warehouse B, Saintly Drive, Truganina (together referred to as Saintly Drive).  At the warehouses at Saintly Drive, Fastline conducted that part of its business dealing with warehousing and fulfilment of online orders by Target Australia Ltd customers (Target Online business).  The Target Online business was conducted by Fastline using a sophisticated picking machine manufactured by the German company, Knapp AG, and installed in the warehouses (Knapp 1).  Fastline also occupied premises at 8 Foundation Drive, Laverton North (Foundation Drive) at which Fastline also conducted the Target Online business as a sub-tenant of Interlogic (discussed below) since 2007.  However, the operations at Foundation Drive were transferred exclusively to Saintly Drive by March 2016;

(b)    From about 2005, Fastline was the sub-tenant (or occupier) of the property at 50 William Angliss Drive, Laverton North (William Angliss Drive).  At the warehouse at William Angliss Drive, Fastline exclusively conducted that part of its business dealing with warehousing and distribution of goods for Target’s “bricks and mortar” stores (Target DC business);

(c)    Fastline was also, from about 2000, the sub-tenant (or occupier) of the property known as 309 Fitzgerald Road, Derrimut (Fitzgerald Road) from which it conducted a warehousing and goods distribution business, for customers other than Target (Non-Target business);

(2)    On 17 October 1979, Syndrom Holdings Pty Ltd was incorporated.  Syndrom operated as a holding company, purchasing land and equipment which it made available for use by related entities in the Group.  Syndrom did not have formal contracts in place with related entities for its services but sought to recover operating expenses at cost.  Syndrom was the registered proprietor of the following properties:

(a)    Fitzgerald Road, which it owned until it was sold to the Trust Company of Australia Ltd in its capacity as the trustee of the Charter Hall Core Plus Industrial Fund (Charter Hall) around 21 November 2007; and

(b)    678 Boundary Road, Truganina (Boundary Road) which was sold in August 2016.  The sale of Boundary Road is subject to further discussion later in these reasons.

Syndrom was also the formal tenant of Warehouse B at Saintly Drive under a lease dated 21 January 2015.

(3)    Interlogic Pty Ltd (formerly known as Fastline International Pty Ltd) was incorporated on 6 July 1989.  Interlogic was a non-trading entity.  It was, however, the tenant of Fitzgerald Road under terms of a lease originally between Syndrom (as landlord) and Interlogic (as tenant) dated 14 November 2007.  Interlogic was also the formal tenant of William Angliss Drive, under a lease of that property from a third party for a 12-year period from 1 November 2005 to 31 October 2017.  Interlogic was also the formal tenant of Foundation Drive under a lease from Dexus Wholesale Mgmt Ltd dated 1 December 2007, for a 10 year period ending 30 November 2017.

17 To summarise the above, around July 2015, the Fastline Group operated from the following premises:

3    Chronology

18 A broad chronology setting out the relevant events is outlined below.

19 By 2014, the Fastline Group’s business had grown significantly.  In FY14, the Fastline Group generated revenue of $45 million and EBITDA of $5.5 million.  In FY15, the group generated revenue of $49 million and EBITDA of just under $8 million.  In 2015, the group employed around 189 full time employees across its four sites.

20 As referred to above, the Fastline Group’s business comprised of three distinct areas:

(1)    the Target DC business, under which Fastline operated the distribution centre solution for Target.  In FY15, $18.7 million (approximately 38.1%) of Fastline’s revenue was generated through the Target DC business;

(2)    the Target Online business, under which Fastline fulfilled orders from Target’s online store.  In FY15, $14.5 million (approximately 29.6%) of Fastline’s revenue was generated through the Target Online business;

(3)    the Non-Target business where Fastline provided distribution centre and online fulfilment services to other smaller customers.

21 As the above numbers indicate, Fastline’s business was heavily concentrated and reliant on its major customer, Target, which accounted for approximately 67.7% of Fastline’s total revenue in FY15.

22 In FY14, Fastline purchased Knapp 1, which became operational in FY15.  Knapp 1 was a sophisticated picking machine which was installed at the Saintly Drive warehouse and used by Fastline in the Target Online business.

23 At some time during 2015, Target gave formal notification to Fastline that it would be terminating the contract for the Target DC business from 31 October 2015.  As William Angliss Drive (leased by Interlogic until 1 Nov 2017) was used exclusively by the Group for the Target DC business, it was understood that the Group would seek to sublease the property. However, by 1 December 2015, Interlogic owed Charter Hall $753,728 in outstanding rent in relation to William Angliss Drive.

24 At the same time in 2015, the Target Online business was experiencing strong growth.  The business had experienced year-on-year growth since the Group commenced providing the service in FY13, and both Fastline and Target expected strong growth to continue over the coming financial years.

25 On 15 April 2015, in the expectation that the Target Online business would continue to grow, Syndrom entered into an agreement with Knapp AG to purchase a second Knapp system (Knapp 2).  This system was intended to be added to the existing Knapp system, Knapp 1, at the Saintly Drive warehouses, and to become operational in FY17.

26 The contracted price for Knapp 2 was €9.65 million (excluding GST), which, at the exchange rate on 15 April 2015, reflected a contract price of $13.5 million.  It was subsequently noted in the Grant Thornton report prepared in late 2015 (discussed below) that as the Group had not hedged against currency movement, the contract price as at 18 September 2015 included an additional $1.8 million.

27 On 1 July 2015, Fastline and Target entered into a services agreement in relation to the Target Online business.  The services agreement was prepared with specific regard to the acquisition by the Fastline Group of Knapp 2.  The agreement was for a three-year period, with renewal options of two further terms of 12 months each.  The agreement could be terminated by Target without cause with 90 days’ notice.

28 In order to fund the purchase of Knapp 2, the Fastline Group approached Bankwest.  On 26 August 2015, Grant Thornton was engaged by Bankwest to undertake an independent review of the Fastline Group to assist Bankwest in deciding whether it would provide funding to support the purchase of Knapp 2.

29 On 6 November 2015, the Grant Thornton independent business review was provided to Bankwest (GT IBR).  It set out Grant Thornton’s analysis of the financial position of the Fastline Group at that time, and its independent forecasts of group financial performance to the end of FY17.

30 The GT IBR made a number of key findings in relation to the Group.  Relevantly, the report noted that the Group’s management forecasted significant improvement in the financial performance of the Group, particularly in FY17 with the forecasted efficiency savings from Knapp 2.  However, Grant Thornton considered that there were two material errors in the forecasts, and overall noted that management’s forecasts were optimistic and unlikely to be achievable.  The matters particularly noted by Grant Thornton included that:

(a)    the Group’s forecast included a reduction in revenue in relation to the Target DC business, but did not incorporate the loss of the business from November 2015;

(b)    the Group’s forecasts for volume in the Target Online business for FY16 were higher than Target’s forecasts;

(c)    while the Group forecasted a reduction of 82 staff over FY16 and FY17, Grant Thornton considered the number to be optimistic.  Additionally, Grant Thorton considered that Knapp 2 might not be capable of achieving the forecasted Target Online business volumes, in which case, additional labour would be required, increasing costs; and

(d)    there was a risk that the Group would need to carry the costs of the William Angliss Drive lease to conclusion.

31 Grant Thornton forecasted that the Group’s EBITDA in FY16 and FY17 would not be sufficient to meet the Group’s cash commitments and would result in a total net cash outflow between $6 million to $11 million.

32 The GT IBR also noted the Group’s high-level plan for the repayment of bank debt, which included the sale of the Boundary Road property, the release of term deposit funds which supported bank guarantees on the exit of leased premises (Foundation Road and William Angliss Drive), and the potential release of excess funds held in term deposits.

33 On 17 December 2015, Grant Thornton produced a supplementary independent business review for Bankwest (GT Supplementary IBR).  The GT Supplementary IBR considered updated FY16 and FY17 forecasts that had been provided by the Group’s management.

34 After receiving the reports from Grant Thornton, Bankwest declined to provide additional financial support for the Fastline Group to purchase Knapp 2.  Bankwest requested the Fastline Group to seek alternative finance however, continued to provide credit in the form of existing overdraft accounts until 31 August 2016.

35 Following the closure of the Target DC business, the Fastline Group’s revenue fell significantly while the Group continued to pay rent for William Angliss Drive until November 2017.  In FY16, year-on-year revenue dropped from $45.5 million to $36.5 million.  Fastline recorded a trading loss of $459,000 in FY16.

36 It is not controversial between the parties that Fastline started experiencing cash flow difficulties in the first half of 2016.

37 Sometime following Bankwest’s engagement of Grant Thornton, Bankwest engaged a second firm, PPB Advisory to conduct an independent business review of Fastline.  Only a draft copy of PPB’s business review, dated 6 May 2016, was produced.  The report was designed to provide Bankwest with an assessment of the Fastline Group’s immediate cash requirements, short term cash flow forecasts, and its ability to meet its current arrears.

38 PPB’s draft report noted a number of matters including that Kenny Lay was seeking to obtain approximately $2 million in external funds via loans from family sources.  It was expected that the funds would be provided in July and August 2016.  The report also noted Kenny Lay’s intention to sell the Boundary Road property in September 2016 as he “understood the Bank’s position and want[ed] to reduce the Bank’s debt in a timely manner”.

39 The report identified that, around the time of the report, the Group had arrears of $13.6 million owed to Knapp AG in respect of Knapp 2, $550,000 to the ATO, and rental arrears of approximately $1.9 million.  The report stated that Fastline was seeking a letter of comfort from Knapp AG that it would not seek recovery action against Fastline.  The report also stated that Fastline was making regular weekly payments to reduce its rental arrears, and that while no formal correspondence was in place, PPB had been advised that Charter Hall remained comfortable with that arrangement.

40 The defendants claim that at some point prior to 1 June 2016, Mr Lay asked Mr Chia for a $1 million loan.  On 1 June 2016, Fastline entered into a written loan agreement with Tony Chia and Liza Chia (the Loan Agreement).  The Loan Agreement was drafted by Mr Joseph Tramontana of Tramontana Accountants.

41 The terms of the Loan Agreement are extracted later in these reasons.  At a high level, the Loan Agreement provided that the loan amount was to be between $1 million and $1.7 million, and that the loan was payable by 1 June 2017.  The Loan Agreement also provided as security, albeit imprecisely, the “Business”, defined as “309 Fitzgerald Road Derrimut Victoria Australia. Includes all plant, equipment parts, incidental materials, supplies and goodwill”. It is common ground between the parties that the security provided under the Loan Agreement was, in effect, the Non-Target business.  The security was valued under the Loan Agreement at $1 million.  It is also common ground that no valuation of the relevant business was obtained prior to entry into the Loan Agreement.

42 There is a dispute between the parties regarding the extent to which payments were made to Fastline pursuant to the Loan Agreement.  The Liquidators allege that Fastline only received a single payment of $350,000 under the Loan Agreement, which was received on 18 May 2016.  The defendants on the other hand claim that at least $1.69 million was paid under the Loan Agreement.  The amount advanced pursuant to the Loan Agreement is, naturally, a key issue in the proceeding, and is the subject of discussion later in these reasons.

43 On 26 August 2016, Syndrom entered into an agreement to sell the Boundary Road property for $14.46m (plus GST), with settlement taking place on 31 August 2016.  At settlement, $15.67 million was received as the settlement proceeds which were used, in part, to pay out Bankwest’s facilities.

44 Around 1 September 2016, the ownership of Knapp 1 was transferred from Syndrom to Fastline.  The transfer was accounted for by way of balance sheet adjustments of both Syndrom and Fastline. Around the same time, the rights in respect of Knapp 2 (which had not yet been delivered by Knapp AG) were also transferred from Syndrom to Fastline.

45 2017 saw the Group continue its downwards trajectory.  Fastline’s financial reports identified that revenue fell from $36.5 million in FY16 to $22.5 million in FY17.  Fastline recorded a trading loss of $4.246 million for FY17.

46 In February 2017, the Group was served with notices of default in connection with its failure to pay rent on the Saintly Drive warehouses.  Both leases were subsequently terminated on 10 March 2017.  However, on 14 March 2017, the landlord granted Fastline and Syndrom short-term licences to occupy Warehouse C and B respectively on a month-to-month basis.

47 On 13 April 2017, Kenny Lay resigned as director of Fastline and went to Timor-Leste.  His daughter, Shauna Lay, was appointed as the sole director of the company.

48 On 14 June 2017, just over a year after entry into the Loan Agreement, Tony and Liza Chia issued a notice of default to Fastline (the Notice of Default).  The Notice of Default identified the amount of $1.69 million having been advanced to Fastline, and declared that the “business” was now the property of the lender.  Under the terms of the notice, the “business” was leased back to Fastline for $2,700 per week.

49 Also on 14 June 2017, Tony and Liza Chia gave a notice to Fastline that all rights, title and interests in respect of the money due and payable by Fastline and the operating of the business at Fitzgerald Road were now controlled and administered by GFS (the Assignment of Rights).

50 The Notice of Default and Assignment of Rights were signed by Shauna Lay.  Both documents were drafted by Mr Tramontana.

51 On 31 March 2018, Target gave notice that it was not renewing the contract for the Target Online business, and therefore, the contract would expire on 30 June 2018.

52 On 6 June 2018, Target entered into an agreement to purchase Knapp 1 from Fastline for $4.25 million.  The sale was conditional on Target negotiating acceptable terms for a new lease for Saintly Drive with the landlord of the premises.

53 On 8 June 2018, Tony and Liza Chia issued a notice to vacate to Fastline requiring Fastline to vacate the business at Fitzgerald Road within 3 months (the Notice to Vacate). The Notice to Vacate was also signed by Shauna Lay and drafted by Tramontana Accountants.

54 On 23 July 2018, Target notified Fastline that it had failed to agree a lease of Saintly Drive on terms that were acceptable to it with the landlord.  Accordingly, Target notified Fastline that it would terminate the agreement to purchase Knapp 1.

55 On 25 July 2018, the owner of Warehouse C at Saintly Drive terminated Fastline’s licence to occupy the warehouse.

56 On the same day, Nicholas Giasoumi and Roger Grant were appointed as joint and several administrators of Syndrom.

57 Around 1 August 2018, Fastline vacated the Non-Target business pursuant to the Notice to Vacate issued by Tony and Liza Chia.

58 On 9 October 2018, Fastline and Catchoftheday.com.au Pty Ltd (Catch) entered into an asset sale agreement pursuant to which Catch purchased Knapp 1 for $875,128 (excl GST).

59 On 14 October 2018, Mr Giasoumi and Mr Grant were appointed as voluntary administrators of Interlogic.

60 On 20 December 2018, Mr Giasoumi and Mr Grant were appointed as liquidators of Fastline by resolution.

61 On 30 January 2019, Mr Giasoumi and Mr Grant provided a report to creditors of Fastline (Grant and Giasoumi Report).  The report noted that the valuation of the security in the Loan Agreement could enliven voidable transaction provisions if the valuation of Fastline’s assets ($1 million) was too little.

62 Mr Grant engaged Michael Bent of Michael J Bent Auctioneers to appraise assets situated at the Fitzgerald Road property.  Mr Bent provided a draft valuation of the plant and equipment at Fitzgerald Road on 12 February 2019 (the Bent Valuation).  He valued the items on two bases: “fair market” value of $1,364,945 and an “auction realisation” value of $445,560.

63 On 18 February 2019, at a meeting of Fastline’s creditors, the creditors resolved to replace Mr Grant and Mr Giasoumi with the Liquidators.

64 In March 2020, the landlord of Fitzgerald Road drew down $910,904 of the security deposit held by it in respect of the lease, following default of the lease by GFS.

65 In July 2021, GFS abandoned Fitzgerald Road and on 23 July 2021, the new landlord of Fitzgerald Road drew down the balance of the security deposit.

66 On 22 December 2021, GFS ceased to trade, and was placed into liquidation on 27 June 2022.  Craig Bolwell was appointed as liquidator of GFS.

4    Evidence

4.1    Liquidators’ evidence

67 The Liquidators tendered affidavits made by Martin Francis Ford on 17 December 2021, 31 May 2022, 26 April 2023, 18 October 2023 and 13 December 2023, together with annexures.

68 The key piece of Mr Ford’s evidence is a solvency report of Fastline prepared by the Liquidators dated May 2022 (the Solvency Report).  In the report, Mr Ford outlines the basis for his opinion that:

(a)    Fastline was insolvent from at least 30 April 2016;

(b)    Fastline remained insolvent from 30 April 2016 until the appointment of the former liquidators on 20 December 2018; and

(c)    Fastline should be presumed to have been insolvent from at least 30 April 2016 for the purposes of s 588E(4) of the Corporations Act.

69 Mr Ford was cross-examined primarily in relation to the basis of his opinion that Fastline was insolvent from at least 30 April 2016.  Mr Ford was also cross-examined regarding the basis on which the Liquidators had valued the Non-Target business.  Mr Ford’s evidence is discussed in further detail below when considering when Fastline became insolvent, and when considering the value of the security provided under the Loan Agreement.

70 Mr Ford was, in my assessment, a careful and considered witness who, during the course of cross-examination, made appropriate concessions.  Mr Ford was an honest and reliable witness whose evidence I accept, save for where in these reasons I have stated to the contrary.

4.2    Evidence of the Lay-Chia parties

71 Kenny Lay, Shauna Lay, Liza Chia, and Click 3PL (the Lay-Chia parties) tendered affidavit evidence of Kenny Lay (sworn 3 August 2023), Shauna Lay (sworn 28 July 2023), Tony Chia (sworn 2 August 2023), and Liza Chia (sworn on 8 August 2023), together with their annexures.

72 As a general observation, the evidence given by the Lay-Chia parties was wholly unsatisfactory.  Indeed, senior counsel for the Lay-Chia parties candidly accepted, in the course of closing submissions, that the evidence given by the Lay-Chia parties was unlikely to be of any assistance and that primacy should be given to what could be established by reference to contemporaneous documents.

73 The evidence of Kenny Lay and Shauna Lay was hard to follow and was difficult to reconcile with the detailed evidence in their affidavits.

74 Kenny Lay stated in his affidavit that his ability to read and write in English is limited, and that his affidavit was prepared with the help of his daughters.  However, his inability to recall events during cross-examination was in stark contrast to the detail that appears in his affidavit.  While I accept that the relevant events took place some time ago, and that Kenny Lay has had a number of health issues, I have formed the view that Kenny Lay’s affidavit was prepared for him without regard to his actual knowledge or recollections.  Kenny Lay’s repeated denials of any knowledge or memory meant that his evidence was unreliable and that, on the whole, he was an unsatisfactory witness.  For these reasons, I have not placed any reliance on his evidence, save for the admissions he has made, and I have relied upon the contemporaneous documents for the findings which I have made in these reasons.

75 Shauna Lay repeatedly denied knowledge or having a memory of events during the relevant period in which she was the director of Fastline.  Shauna Lay’s answers in cross-examination gave me the impression that she was either genuinely ignorant of the events which had taken place while she was a director of Fastline, or that she was simply not interested.  The evidence she gave in answer to questions in cross-examination lacked any knowledge of the detail of the transactions, in contrast to the detail of her affidavit.  I formed the view that Shauna Lay’s affidavit had been prepared for her without regard to her actual knowledge or recollections.  Shauna Lay’s repeated denials of any knowledge or memory resulted in Shauna Lay being an unsatisfactory and unreliable witness.  I do not place any reliance on her evidence, save for admissions she made, and have made the findings that I have made by reference to the contemporaneous documents.

76 Tony Chia was cross-examined about the content of his affidavit.  By his answers, he also professed to have no knowledge or recollection of most of what was put to him in cross-examination including matters which were in his affidavit.  The affidavit was written in English notwithstanding that he stated in evidence that he was not able to read English at all.  Tony Chia sought to attribute his lack of recollection of events to health issues which he had been suffering at the time.  Notwithstanding, I find his evidence to be not reliable and find him to be an unsatisfactory witness.  For these reasons, I place no reliance on his evidence, save for admissions he made, and rely upon the contemporaneous documents in making the findings that I have made in these reasons.

77 Liza Chia was also cross-examined regarding the content of her affidavit.  As with Tony Chia, Liza Chia professed to have little to no recollection of the matters put to her in cross-examination, including the matters in her affidavit.  As with the other witnesses of the Lay-Chia parties, I find Liza Chia to be an unsatisfactory witness.  I place no reliance on her evidence, save for the admissions she made and rely upon the contemporaneous documents in making the findings that I have made in these reasons.

4.3    Evidence of Tramontana Accountants

78 Tramontana Accountants, the third defendant, relied on the affidavit of Joseph Tramontana, sworn on 2 August 2023, together with an annexure.

79 In his affidavit, Mr Tramontana deposes to his role in preparing the Loan Agreement, Notice of Default, the Assignment of Rights, and the Notice to Vacate.  Mr Tramontana also deposes to the context in which a number of payments were made to Tramontana Accountants, which form part of the subject of this proceeding.

80 Mr Tramontana impressed me as a truthful and reliable witness who, during cross examination, was prepared to make admissions when necessary.  I accept his evidence save for where in these reasons I have stated to the contrary.

5    Entry into the Loan Agreement

5.1    Claims arising from entry into the Loan Agreement

81 As noted above, the first set of claims brought by the Liquidators relate to Fastline’s entry into the Loan Agreement.  The Liquidators bring the following claims in relation to Fastline’s entry into the Loan Agreement:

(a)    Kenny Lay: Breaches of directors’ duties.  The Liquidators claim that, in his capacity as sole director of Fastline, Kenny Lay caused Fastline to enter into the Loan Agreement in circumstances where the Loan Agreement was not in the best interests of Fastline.  The Liquidators allege that Kenny Lay’s conduct regarding Fastline’s entry into the Loan Agreement constituted a breach of his duty of care and diligence, his duty to act in good faith and in the best interests of the company, and his duty to not improperly use his position.

(b)    Tramontana Accountants: Knowing involvement, breach of fiduciary duty, and breach of duty of care.  The Liquidators allege that due to Mr Tramontana’s knowledge of the matters surrounding Fastline’s entry into the Loan Agreement, and his involvement in drafting the Loan Agreement, Tramontana Accountants were knowingly involved in the breaches of Kenny Lay’s duties.  The Liquidators also allege that due to the longstanding relationship between Fastline and Tramontana Accountants, and the heavy reliance which Fastline placed on Tramontana Accountants, a fiduciary duty was owed by Tramontana Accountants to Fastline.  The Liquidators allege that in drafting the Loan Agreement, Tramontana Accountants acted for both Fastline, on one hand, and Tony and Liza Chia, on the other hand, who had conflicting interests such that Tramontana Accountants breached its fiduciary duty to avoid conflicts.  Additionally, the Liquidators also allege that Tramontana Accountants’ role in preparing the Loan Agreement amounted to a breach its duty of care owed to Fastline.

(c)    Tony and Liza Chia: Knowing involvement and uncommercial transaction.  The Liquidators allege that Tony and Liza Chia were knowingly involved in the breaches of Kenny Lay’s duties.  The Liquidators also allege that the Loan Agreement was an uncommercial transaction that was entered into when Fastline was insolvent, and therefore, is a voidable transaction under s 588E(4) of the Corporations Act.

5.2    Findings regarding the Loan Agreement

5.2.1    Circumstances surrounding Fastline’s entry into the Loan Agreement

82 It is clear that by early 2016, Fastline was experiencing cash flow difficulties as a consequence of Target having terminated its contract with Fastline for the Target DC business from 31 October 2015.

83 I note that there were little, if any, documents produced evidencing the communications between the Lay-Chia parties during the relevant events. Given the unsatisfactory nature of the evidence given by the Lay-Chia parties, this, naturally, creates a difficulty in making particular factual findings regarding the relevant events that took place in 2016-17, including around Fastline’s entry into the Loan Agreement, and the subsequent payments made pursuant to the agreement.

84 I accept that, Fastline having failed to obtain financing through Bankwest, Kenny Lay approached Tony Chia sometime before 1 June 2016 (the particular time being unknown) about borrowing $1 million.  The loan was to be for a period of 12 months and security for the loan was to be the Non-Target business.

85 I accept the evidence of Mr Tramontana that in about May 2016, Kenny Lay called him and said he wanted to meet as he was borrowing money from Tony Chia and wanted to document the loan.  Shortly afterwards, Joseph Tramontana attended Kenny Lay’s house where Kenny Lay and Tony Chia were both present.  Joseph Tramontana was advised that Tony Chia was going to loan $1 million to Fastline for a period of 12 months.  Security for the loan was to be the Non-Target business.

86 Joseph Tramontana prepared the Loan Agreement to give effect to his understanding of Kenny Lay and Tony Chia’s intentions.

87 On 1 June 2016, Fastline entered into the Loan Agreement with Tony Chia and Liza Chia as lenders.

88 The Loan Agreement was executed on behalf of Fastline by Kenny Lay, and executed by Tony and Liza Chia as lenders.  Under cross-examination, Kenny Lay claimed that he had read the agreement when signing it.  However, this contrasts against the evidence he gave in a prior public examination conducted on 19 December 2019 during which he admitted that he hadn’t read it.

89 Tony Chia could not recall having read the Loan Agreement or having had someone read the terms of the agreement for him (given his difficulties with English).

90 It is important to note that the authenticity of the Loan Agreement was not in question.  The Liquidators did not seek to raise any allegation that Fastline did not enter into the Loan Agreement on 1 June 2016, or that there was no such agreement in place between the parties as at 1 June 2016, or that the relevant security was not offered on the terms contained in the Loan Agreement.

5.2.2    Terms of the Loan Agreement

91 The Loan Agreement is a relatively short four-page agreement. Although its terms are not clearly expressed, the relevant parts of the agreement provide as follows (reflected as in the original):

Borrower

Fastline Logistics Pty Ltd 41611904541

Guarantors;

Syndrom Holdings Pty Ltd abn 75838709651

Fastline International Pty Ltd a.b.n 38 007 275 345

Kenny LAY…

Lender:

Tony and Liza CHIA…

Date of loan:

1st June 2016

Loan

(a)    A minimum of one million dollars $1m and a maximum of one million seven hundred thousand $1.7m…

Date loan payable: 1st June 2017

The Business:

309 Fitzgerald Road Derrimut Victoria Australia. Includes all plant, equipment parts, incidental materials, supplies and goodwill.

Loan Purpose:

To provide working capital for the trading entities “Fastline Logistics Pty Ltd and Syndrom Holdings Pty Ltd.

Interest:

At the Bankwest domestic housing lending rates plus 1.5% per annum or such rate the parties agree. Late payment at the option of the lender shall incur 2% interest above the established rate until rectified.

…

A. Recital and agreement:

a)    The borrower has solicited the loan from the lender for commercial purposes.

b)    Loan advances from associated entities of the lender shall be deemed made by the lender under the terms of this agreement and secured as made by lender and the borrower shall not dispute the loan advance(s).

…

d)    For transparency, the borrower has provided the lender financial statements and has explained the cash flow difficulties caused from the unexpected closure of the Target Cross Docking at 50 William Angliss Drive which claimed loss in revenue in excess of $15m and lease payments for 2 years on the vacant warehouse costing more then $3.5m.

e)    The guarantors are associated and consent to the loan guarantee and the lender has agreed to advance the loan on such a condition.

f)    the Borrower operates an additional logistic services business from 8 and 28 Saintly Drive Truganina Victoria. This is not included as the security.

g)    The lender is aware the lease on the business premises is held by Fastline International Pty Ltd. Fastline International Pty Ltd “FI”.

h)    The borrowers to provide skilled staff capable to continue the business operations should the lender call up the security for default.

i)    Loan advances at the direction of the lender maybe paid into a nominated third party for approval and audit of payee.

j)    The borrower not to dispute loan instalments by lender. Lender and borrower accountants to certify loan amounts if dispute arises.

…

B. Rent Bond:

(1)    The rent bond as security for the business premises is provided my Wilma Lay and held under a bank guarantee provided by Bankwest.

(2)    The borrowers have advised the business property rent and outgoings are above market value to about $800,000 and the lease has 11 years left. This equate to more than $8.8m extra rent and outgoing and the rent bond to be used until termination of the lease and thereafter the bond shall be returned to Wilma LAY.

C. Default and Lender Option:

(a)    In the event borrower defaults the lender may exercise its power to take possession of the business without dispute.

(b)    The business to be considered to be valued one million dollars ($1m) or such lesser amount the lender accountants declare. Loan amount exceeding $1m to be considered unsecured.

(c)    “FI” to do all things possible and requests y the lender to effectively transfer the lease and shall remain lessee until the lease is effectively transferred.

(d)    The Lender may nominate a third party to take possession of the business transfer.

(e)    The rent bond to remain as lease security for the term of the lease or until such time the lender advises. The parties declare they are all aware the business property rental is in excess of market value and the lender deems the bond additional security for the loan.

D. Notice to take Possession:

The lender to give notice in writing of any default and its intention to take possession of business if default not rectified within 7 days. Notices to be addressed to the accountants of the borrowers or electronically.

E. Common advisers and Consultants:

The lender has requested the services of the borrower advisers and consultants to attend to relevant documentation to denote the loan and agrees not to dispute this agreement on the grounds of adviser and consultant conflict.

…

G. Borrowers Declaration::

The borrowers to do all things possible to accommodate the lenders rights within this agreement and make all attempts to mitigate costs and losses.

The Borrowers authorises the lender to rectify and attend to any matter to ensure this agreement if in force.

H. Lender Request for new agreement:

The lender may within 3 months of this agreement and at its absolute discretion request its lawyers to draft a new agreement to clarify terms and conditions expressed in the agreement.

E. Errors, Interpretation, Disputes:

The agreement is to be read in accordance to the commercial intentions of the parties and error or omission to be remedied by consent or by referring the matter to the lender’s accountants as to the intentions and or arbitration under Victorian laws.

Execution:

The parties execute this agreement with full knowledge and understanding of its terms and conditions and declare they have been given the opportunity to seek independent advice before signing.

92 It is common ground between the Parties that the relevant security provided under the Loan Agreement related to Fastline’s Non-Target business, being the business conducted at Fitzgerald Road, and that under the Loan Agreement, the Non-Target business was assigned a value of $1 million.  The more material question for the purposes of this proceeding is determining what was actually captured as part of the Non-Target business and what the value of the business was at the time.  It is uncontroversial that no actual valuation of the business was undertaken when the Loan Agreement was entered into.

93 The following can be noted regarding the terms of the Loan Agreement:

(a)    The Loan Agreement expressly provided that amounts advanced by “associated entities” of Tony and Liza Chia would be deemed to be made by Tony and Liza Chia for the purposes of the Loan Agreement.

(b)    The Loan Agreement acknowledged the cash flow difficulties that Fastline was experiencing at the time, resulting from the loss of its Target DC business.

(c)    In my view, the intended meaning of recital A(i) is to make clear that advances under the Loan Agreement may be paid to nominated third parties.  I accept the Lay-Chia parties’ submission that for the recital to make sense, the reference to “lender” should be construed as a reference to “borrower” given that it is the borrower, not the lender, who gives directions as to where advances should be paid.  In any case, I also accept the Lay-Chia parties’ submission that it is a matter of ordinary commercial practice that a loan may be advanced to a borrower by paying money to a third party at the borrower’s direction.

(d)    On default, the lender had the power to take possession of the Non-Target business.  The business was to be valued at $1 million, and loan advances over $1 million were considered unsecured.

(e)    The parties acknowledged that Tramontana Accountants was acting on behalf of parties on both sides of the Loan Agreement, and acknowledged that they were given the opportunity to seek independent advice.

5.2.3    Payments under the Loan Agreement

94 A key issue in the current proceeding is determining what amounts were actually paid to (or for the benefit of) Fastline under the Loan Agreement.

95 The following table summarises the payments which the Lay-Chia parties claim to have been made pursuant to the Loan Agreement.

96 Of the above payments, the Liquidators accept that the payment of $350,000 on 18 May 2016 was made pursuant to the Loan Agreement. However, the Liquidators argue that the remainder of the payments claimed by the Lay-Chia parties cannot be understood to have been paid pursuant to the Loan Agreement. The fact that the relevant payments were made is not in dispute; the relevant question is determining which of the payments should be properly understood to have been made under the Loan Agreement.

97 I consider each of the payments in turn below.  Again, as noted above, there was no contemporaneous material regarding communications between the parties at the relevant times which may have otherwise shed light on the intention of the parties for particular amounts advanced to be captured under the Loan Agreement.  The material that is available is largely contemporaneous records of the transfers themselves, with little context around why the transfers were made.

98 The first payment of $300,000 was made on 1 April 2016, prior to the Loan Agreement being executed.  The evidence shows that the payment was made directly by Liza Chia to Charter Hall, in respect of rent for William Angliss Drive.

99 The Liquidators do not accept that this payment was made pursuant to the Loan Agreement.  The Liquidators argue that the payment was made prior to the Loan Agreement being entered into, and further argue that the payment was made for the benefit of Interlogic (being the contracted tenant of the relevant properties) who was not a borrower under the Loan Agreement.

100 While the advance was made prior to the execution of the Loan Agreement, I am satisfied that the advance was covered by the Loan Agreement.

101 The evidence shows that the Loan Agreement was drafted to record the oral agreement which had been reached between Kenny Lay and Tony Chia.  The fact that the Loan Agreement was not formally entered into until a later time does not support a finding that the advance was not intended to be captured by the Loan Agreement.  Indeed, the Liquidators accept that the second payment of $350,000 on 18 May 2016, which was advanced prior to the Loan Agreement, is captured by the Loan Agreement.

102 The Liquidators also contend that the payment was for the benefit of Interlogic, given it was the contracted tenant of the property, and at the time of the payment, Fastline was no longer conducting the Target DC business from William Angliss Drive.  Interlogic is not a borrower under the Loan Agreement, and is not referred to in the “Loan Purpose”.  In my view however, the payment needs to be viewed in its broader context.

103 The terms of the Loan Agreement, as discussed above, allow for payments to be made to third parties, such as Charter Hall.  The payments are not required to be made directly to Fastline in order to be captured under the Loan Agreement.  As noted above, this is ordinary commercial practice.

104 Further, Fastline was the main trading entity within the Group.  Interlogic was a non-trading entity.  It was Fastline who operated the Non-Target business in Fitzgerald Road, and who had operated the Target DC business in William Angliss Drive.  Fastline had been the entity that obtained the underlying benefit of the lease, and the entity that appeared, in practice, to pay rent for the leased properties.

105 It is also relevant to note that the GT IBR, in November 2015, made a number of observations regarding the manner in which the Fastline Group operated.  The GT IBR observed that Fastline acted as the Group’s “bank”, and that funds were transferred between entities in the Group to satisfy any liabilities that fell due.  The report noted that there were no formal arrangements within the Group for the loans and that cash was viewed on a consolidated basis.  In my view, the payment of funds directly to Charter Hall in respect of rent owed by Interlogic, is consistent with a payment pursuant to the Loan Agreement, when considering how the Group operated in practice.

106 It follows that, in my view, given the terms of the Loan Agreement and the manner in which the Group operated, the initial advance of $300,000 by Liza Chia on 1 April 2016 is to be understood as forming part of the financial support which Tony Chia had agreed to provide the Fastline Group.

107 Further, it is unclear on the Liquidators’ version of events, why an amount of $300,000 would be advanced by Liza Chia to pay for rent owed by the Group.

108 The second advance was an amount of $350,000 paid by Tony and Liza Chia to Fastline on 18 May 2016.  The amount was received in Fastline’s Bankwest account with the notation “Global Fashion Service Loan”, and was then used to make a part payment to Knapp AG in respect of the Knapp 2 contract. This is the only payment which the Liquidators accept was made pursuant to the Loan Agreement.

109 The third advance was an amount of $194,648 on 16 June 2016.  The advance was made by Suzie Ha to Privitelli Solicitors in a trust account maintained in the name of Syndrom.  There is no reference to this amount being advanced pursuant to the Loan Agreement in the Default Notice.

110 According to the trust ledger maintained by Privitelli Solicitors, Suzie Ha’s payment increased the trust account balance from $13 to $194,661.  The following day, on 17 June 2016, $190,000 of the monies held on trust were paid to Charter Hall for outstanding rent.

111 It is somewhat unnecessary to determine whether this amount was intended to be captured under the Loan Agreement.  As the advance was not referred to in the Default Notice, it was not the subject of detailed submissions by the parties.  However, it follows from my observations regarding the fourth advance below that I would not accept that the $194,648 advanced by Suzie Ha was advanced pursuant to the Loan Agreement.

112 The fourth advance claimed to have been made under the Loan Agreement is an amount of $844,677 paid by Suzie Ha to Syndrom’s trust account with Privitelli Solicitors on 15 July 2016.

113 The evidence shows that Suzie Ha and her husband were offered a Business Mortgage Loan of $850,000 from ANZ on 7 July 2016.  ANZ sought a first registered mortgage over their property in Mount Vernon, NSW as security for the loan.  Suzie Ha drew down $850,000 of the loan on 13 July 2016, and transferred the balance of $844,677 to Privitelli Solicitors on 15 July 2016.

114 The $844,677 was recorded as being received in Syndrom’s trust account with Privitelli Solicitors on 15 July 2016.  The trust account records shows that the funds received from Suzie Ha were subsequently disbursed on 20 July 2016 to Charter Hall ($340,000), Dexus ($150,000), and Knapp AG ($350,000).  The disbursements align with an Authority to Pay signed by Kenny Lay dated 15 July 2016.

115 The Default Notice refers to a payment of $850,000 being advanced under the Loan Agreement on 7 July 2016.  I accept that this is intended to refer to the advance received from Suzie Ha (despite the difference in amount and date), given there is no other explanation for the reference.

116 The Lay-Chia parties claim that the advance by Suzie Ha must be understood as having been made under the Loan Agreement given it is referred to in the Default Notice, the Loan Agreement specifically envisions associates of Tony and Liza Chia advancing money under the Loan Agreement, and that the advances do not need to be made to Fastline itself.  I accept the submissions made by the Lay-Chia parties that the Privitelli trust ledger indicates that Syndrom’s trust account was used more generally for Group purposes, noting that it records rental payments being made to both Charter Hall and Dexus.

117 The Liquidators, on the other hand, refer to a letter from Privitelli Solicitors dated 25 October 2018 regarding Interlogic’s administration.

118 As noted above, Interlogic was placed into voluntary administration on 14 October 2018.  This was two months before Fastline entered into liquidation.  Messrs Giasoumi and Grant were appointed as voluntary administrators of Interlogic.

119 The letter from Privitelli Solicitors was sent to Mr Giasoumi in relation to Interlogic’s administration.  The letter states the following:

We have been informed that you are the Administrator of Interlogic… and that you seek confirmation of funds paid by M. & S. Ha into the Privitelli Trust Account (“the trust account”) for the company. We confirm that the amount of $844,677 was paid by M. & S. Ha into the trust account on 15 July 2016 as loan monies for the company.

The loan had been arranged between Suzi Ha and Kenny Lay, the director of the company. The loan monies were subsequently disbursed from the trust account on instructions from Kenny Lay for the company and for the payment of rental arrears owed by the company and other payments. Kenny Lay is the brother in law of Suzi Ha and he requested that the loan monies be paid to the trust account for transparency and to record the disbursement of the loan monies.

We were informed that because to the family relationship, the loan between M. & S. Ha and the company was recorded between the parties themselves and the loan was to be unsecured. We did not act for M. & S. Ha and were not instructed to prepare any loan agreement for the parties.

120 In a subsequent report to creditors prepared by the administrators on 29 October 2018, Suzie Ha was listed as an unsecured creditor of Interlogic in the amount of $844,677.

121 The Lay-Chia parties argue that the letter from Privitelli Solicitors was sent without instructions from Shauna Lay and that it is inconsistent with Mr Privitelli’s own trust statement.  They also argue that it postdates the date of the Default Notice, which is the date for assessing what payments had been made under the Loan Agreement.

122 I do not accept that the amounts advanced by Suzie Ha were advanced pursuant to the Loan Agreement.  The letter from Privitelli Solicitors clearly indicates that a direct loan was arranged between Suzie Ha and Kenny Lay.  The letter correctly identifies that the amounts advanced by Suzie Ha were disbursed by Kenny Lay for the payment of rental arrears and other payments.

123 The letter makes no reference to the amounts advanced by Suzie Ha as forming part of a broader loan arrangement between Fastline and Tony and Liza Chia.  Rather, the letter indicates the opposite, being that the amounts advanced by Suzie Ha were pursuant to a separate, undocumented loan arrangement with Suzie Ha directly.

124 While I accept that the Loan Agreement provides that amounts advanced by associates of Tony and Liza Chia will be deemed to be advances made by the Lender, that only relates to the proper construction of the Loan Agreement.  It does not, by itself, provide evidence that the advances from Suzie Ha were actually intended to be captured under the Loan Agreement, so as to be deemed to be advanced made by Tony and Liza Chia.

125 Other than the Default Notice itself, the only evidence that Suzie Ha’s advances were intended to be captured by the Loan Agreement was the affidavit and oral evidence of Tony and Liza Chia that Tony Chia borrowed money from Suzie Ha in order to lend money to Fastline.  No light was shed on how much money the Chias sought to borrow, when the amounts were borrowed, or other such details.  Tony Chia’s affidavit simply states: “I also borrowed money from my sister, Suzie Ha.  She did not ask for security.”

126 There was no evidence from Suzie Ha herself.

127 As I noted earlier in these reasons, Tony and Liza Chia were both wholly unsatisfactory witnesses.  Both professed to have little to no recollection of the matters which were put to them in cross-examination.

128 Given the matters addressed above, I am not satisfied that a separate loan arrangement existed between Suzie Ha and Tony Chia, such that the advances made by Suzie Ha should be taken to have been made pursuant to the Loan Agreement.  Such a finding would be inconsistent with the letter from Privitelli Solicitors which expressly states the contrary.

129 While Shauna Lay gave evidence in re-examination that she did not give instructions for Privitelli Solicitors to send the October 2018 letter, as I noted in relation to Tony and Liza Chia, I found Shauna Lay’s evidence to be wholly unsatisfactory, and I consider her to be an unreliable witness.  I give no weight to her evidence that she did not give instructions to Privitelli Solicitors in relation to the letter.

130 I also do not accept the Lay-Chia parties’ submission that the letter is inconsistent with the Privitelli trust ledger.  It is not precisely clear what relevant inconsistency the Lay-Chia parties are claiming.  While the trust ledger is in the name of Syndrom, as I’ve accepted above, the ledger indicates that the trust account was used more generally for Group purposes.  I do not consider that the ledger record is inconsistent with the Privitelli Solicitors’ letter.

131 It also follows that I do not accept that the earlier advance of $194,648 by Suzie Ha on 16 June 2016 should be understood as having been advanced under the Loan Agreement.  While the Privitelli Solicitors’ letter only refers to the $844,677 advanced by Suzie Ha (and therefore does not capture the earlier amount advanced of $194,648), I do not accept the evidence of Tony and Liza Chia that a separate loan was arranged between Tony Chia and Suzie Ha. This also appears to be consistent with the application form by which Suzie Ha transferred the $194,648 to Privitelli Solicitors which notes the purpose of the funds transfer as “LOAN TO KENNY LAY”.

132 The fifth payment the Lay-Chia parties claim to have been made under the Loan Agreement is an amount of $348,000 advanced on 17 August 2016 to Syndrom’s trust account with Privitelli Solicitors.

133 Privitelli Solicitors’ trust record indicates that the $348,000 was received in the trust account on 17 August 2016 from Liza Chia.  The amounts were subsequently disbursed on 22 August 2016 to Dexus ($152,563.64), Syndrom ($190,000), and to Privitelli Solicitors ($1,650) pursuant to an Authority to Pay signed by Kenny Lay.  The Default Notice appears to refer only to the $190,000 disbursed to Syndrom.  The Lay-Chia parties nevertheless claim that the entire $348,000 was advanced pursuant to the Loan Agreement.

134 The Liquidators argue that the $190,000 referred to in the Default Notice was paid by Suzie Ha, as part of the larger $348,000.  The Liquidators raise the same argument as applies in relation to the advance of the $844,677, which is that there is insufficient evidence to find that the payments made by Suzie Ha were intended to be subject to the Loan Agreement.

135 It is unclear to me on what basis the Liquidators claim that the payment was made by Suzie Ha.  The Further Amended Defence filed by the Lay-Chia parties refers to the payment having been made by Liza Chia.  Additionally, this is also consistent with Privitelli Solicitors’ trust account record which records the amount as having been received from Liza Chia, and the Authority to Pay signed by Kenny Lay which notes that the Authority to Pay relates to funds received from Liza Chia paid on 17 August 2016.  Although the Lay-Chia parties have failed to produce a bank statement, or similar document, showing that the payment was made by Liza Chia (akin to the material provided regarding Suzie Ha’s advance of $844,677), there appears little if any basis to conclude that the payment was made by Suzie Ha.  On the basis of the evidence, I am satisfied that the advance of $348,000 was made by Liza Chia to Privitelli Solicitors’ trust account.

136 For the same reasons as provided in relation to the first advance of $300,000 on 1 April 2016, I am satisfied that the entire amount of $348,000 was advanced under the Loan Agreement, notwithstanding that the Default Notice only refers to $190,000 of the total payment.

137 On this issue, it is convenient to address a further aspect of the evidence given by Tony and Liza Chia.  In their affidavit evidence, both Liza and Tony Chia referred to having to borrow money from ANZ in order to lend to Fastline.  Tony and Liza Chia allegedly borrowed $1 million from ANZ that was secured against a property owned by Liza Chia.

138 Bank statements were produced showing that a $1 million loan was drawn down by Liza Chia on 15 August 2016.  However, Tony and Liza Chia have failed to produce evidence identifying how any of that $1 million was subsequently used after drawdown, or identifying any advances received by the Group other than the advances discussed above.  In those circumstances, I am not satisfied that, other than the amounts identified above, any further amounts were advanced pursuant to the Loan Agreement.

139 It follows from the above that a total amount of $998,000 was advanced by Tony and Liza Chia pursuant to the Loan Agreement.

140 One additional point is also worth noting.  In their submissions, the Liquidators make complaints regarding the manner in which the loan advances were applied.  For example, in relation to the first payment of $300,000, the Liquidators complain that the funds were used for the benefit of Interlogic, being a company that had significant leasehold liabilities and no assets to meet its obligations.  Additionally, in relation to the advance of $350,000, the Liquidators complain that the funds were used on behalf of Syndrom to pay Knapp AG, in circumstances where Syndrom had failed to obtain funding to complete the contract, and where there was no prospect that funding to complete the contract would be obtained, or that the payment would benefit Fastline.

141 To the extent that such arguments are directed to whether particular advances should be understood to have been made under the Loan Agreement (which cannot, in any case, apply to the advance of the $350,000 which is admitted by the Liquidators), this is dealt with above.  However, the question of whether particular advances should be understood to have been paid under the Loan Agreement is quite distinct from whether the manner in which the advances were applied was appropriate.  To the extent that the Liquidators seek to impugn the conduct of Kenny Lay or other defendants by reference to the manner in which the loan advances were applied, that is not the case which was pleaded or that the defendants were required to answer.

5.2.4    Value of security provided under the Loan Agreement

142 As noted above, it is common ground between the parties that the relevant security provided under the Loan Agreement was the Non-Target business, and that at the time, no valuation of the business was conducted.

143 The terms of the Loan Agreement provided that:

(a)    in the event Fastline defaulted on the loan, Tony and Liza Chia could exercise the security to take possession of the Non-Target business;

(b)    the Non-Target business was to be considered valued at $1 million, with loan amounts exceeding $1 million considered unsecured; and

(c)    if the security was called upon, Fastline would provide skilled staff capable of continuing the business operations.

144 The value of the security provided under the Loan Agreement is a key issue relevant to the directors’ duties claims brought against Kenny Lay, and thereby, the claims against Tramontana Accountants and Tony and Liza Chia as to involvement in Kenny Lay’s breaches.

145 The Liquidators’ position is that the best evidence of the value of the Non-Target business is the value carried on Fastline’s balance sheet as at 30 June 2016.  As at 30 June 2016, Fastline’s balance sheet reflected a cost less depreciation value of its plant and equipment of $1.224 million. Before June 2017, the cost less depreciation value of Fastline’s plant and equipment was recorded as $1.245 million.

146 As the Liquidators accept that a cost less depreciation value may be different from market value in many instances, the Liquidators also rely on the Bent Valuation.  As was outlined earlier, the original liquidators of Fastline noted in their report dated 30 January 2019 that the valuation of the security in the Loan Agreement could enliven voidable transaction provisions if the valuation of Fastline’s assets was too little.  The liquidators then engaged Michael J Bent Auctioneers to appraise the assets situated at Fitzgerald Road.  Mr Bent provided a draft valuation of the plant and equipment at Fitzgerald Road on 12 February 2019, in which he valued the items on two bases.  Mr Bent assigned the items a fair market value of $1,364,945 and an auction realisation value of $445,560. The Liquidators argue, by reference to the Bent Valuation, that it was likely that, in any case, the cost less depreciation value of Fastline’s plant and equipment was likely to be lower than the market value of the items.

147 The Liquidators also argue that the plant and equipment valued in Fastline’s balance sheet was the plant and equipment situated at Fitzgerald Road.  Fastline’s MYOB data indicates that the entire value of plant and equipment of $1.245 million was removed from Fastline’s balance sheet as at 1 June 2017 (noting the Notice of Default and Assignment of Rights were signed on 14 June 2017), and that a journal entry on the same date was made which stated “Assets sold to Global Fashions Service under loan agreement”.

148 It is clear that no part of the Liquidators’ case involves an allegation that tangible assets of Fastline, other than items of plant and equipment used in the conduct of the Non-Target business, were transferred to GFS.  The Liquidators’ pleaded case is limited to the value of the plant and equipment used in the Non-Target business.

149 Mr Ford also accepted during cross-examination that the Liquidators have not sought to allege that any intangible assets, such as goodwill in the Non-Target business, were transferred to GFS.  The Liquidators have not sought to plead or otherwise prove the existence of any such goodwill in the Non-Target business.  Indeed, this appears consistent with the evidence which indicates that the Non-Target business may have been loss-making in the hands of Fastline, and subsequently remained loss-making in the hands of GFS.

150 As noted above, the Liquidators allege that the entire value of plant and equipment on Fastline’s balance sheet is referable to the Non-Target business.  The basis on which the Liquidators make this allegation is the MYOB entry which removed the entirety of Fastline’s plant and equipment as at 1 June 2017.  Mr Ford stated that the adjustment to remove Fastline’s plant and equipment was made in September 2018, and backdated to June 2017.

151 I am not satisfied, on the state of the evidence before me, that the value of the Non-Target business can be determined by reference to the entirety of plant and equipment in Fastline’s balance sheet.

152 The balance sheets for Fastline for FY14 to FY16 do not disclose any reduction in plant and equipment, despite Fastline having ceased the Target DC business by October 2015.  Mr Ford confirmed during cross-examination that the Liquidators did not have an asset register for Fastline, and that the Liquidators were otherwise unable to confirm whether any particular items of plant and equipment recorded in the balance sheet for FY16 or FY17 were located at Fitzgerald Road (and which may have formed part of the Non-Target business), or at Saintly Drive (which would not have formed part of the Non-Target business).

153 A depreciation schedule was attached to Fastline’s FY17 balance sheet, which specifically identified the individual items of plant and equipment in Fastline’s balance sheet.  Again, Mr Ford confirmed that the Liquidators were unable to confirm whether any of the particular items of plant and equipment listed in the depreciation schedule were located in Fitzgerald Road.  It is not possible to identify, from the depreciation schedule alone, which items may have been used in the conduct of the Non-Target business, and which assets may have been used in the Target Online business.

154 The Liquidators also refer to the Bent Valuation.  The Bent Valuation, dated 12 February 2019, involved an inspection of Fitzgerald Road and identifies the specific items of plant and equipment located at the premises.

155 Under cross-examination, Mr Ford stated that the Liquidators had undertaken some form of comparison between the depreciation schedule and the Bent Valuation.  However, Mr Ford was unable to give any evidence regarding the correspondence between the two.

156 The Bent Valuation itself, having been conducted in February 2019, took place 30 months after the Loan Agreement was entered into by Fastline.  Without any reference to which assets may have formed part of the Non-Target business at the time the Loan Agreement was entered into, it is difficult to assume the assets identified in the Bent Valuation formed part of the Non-Target business at the time the Loan Agreement was entered into, or even when the Non-Target business was transferred to GFS.

157 For the reasons provided above, I am not satisfied, on the state of the evidence before me, that the Non-Target business should be valued at the cost less depreciation value of Fastline’s plant and equipment reflected in Fastline’s balance sheet ($1.224 million as at 30 June 2016, $1.245 million as at 14 June 2017).  I accept that market value may differ from a cost less depreciation value.  However, on the material before me, I do not consider that it is possible to identify a specific value of the security offered under the Loan Agreement.

158 One further point should be made for completeness.  The Liquidators refer to the figure of $1,245,000, being the value of plant and equipment as at 14 June 2017 recorded in the Liquidators’ adjusted balance sheet in the Solvency Report.  Mr Ford noted the following in the report:

AASB 116 – Property Plant and Equipment (paragraph 30) states that after recognition of an asset, an item of PP&E shall be carried at cost less any accumulated depreciation and impairment losses. It does not appear that Fastline was accumulating depreciation each month (e.g. figures reported at June 2016 are continued through FY17). The Liquidators have not made an adjustment for this in previous reported periods, nor when adding the plant and equipment assets back until July 2018. Such an adjustment would, if made, reduce Fastline’s assets.

159 While Mr Ford’s statement is correct, in that Fastline did not appear to be accumulating depreciation each month, as noted above, a version of the FY17 financial reports included a depreciation schedule which included figures depreciating each item of plant and equipment for FY17.  Mr Ford’s adoption of the figure of $1.245 million expressly excluded the depreciation that would have properly applied to the items at the end of FY17.

160 I accept the Lay-Chia parties’ submission that the depreciation that would have applied at the end of FY17 to the plant and equipment in Fastline’s accounts should be taken into account, which reduces the balance sheet value of Fastline’s plant and equipment as at 30 June 2017 from $1,245,000 to $1,022,060. Again, this does not assist in identifying which of Fastline’s plant and equipment are referable specifically to the Non-Target business.

5.2.5    Sale of Boundary Road

161 Following entry into the Loan Agreement (and the payments made thereunder), the next key event was the sale of Boundary Road.  As was noted above, both Grant Thornton and PPB, in the reports prepared for Bankwest, noted Kenny Lay’s intention of selling Boundary Road for the repayment of bank debt.

162 On 26 August 2016, Syndrom entered into an agreement to sell Boundary Road to a third party for $14.46 million plus GST, with settlement taking place on 31 August 2016.  A letter from Bankwest to Fastline dated 31 August 2016 records that at settlement, $15,674,077.09 was paid to Bankwest who dispersed the funds as follows:

163 The material indicates that on 30 August 2016, the intercompany loan account between Fastline and Syndrom was credited $3,147,487.58 in respect of “proceeds from sale boundary rd” thereby reducing the intercompany loan balance owed by Syndrom to Fastline.

164 The surplus funds from the sale of the Boundary Road property were applied to Fastline’s bank account ending in 510-7.  This eliminated the overdraft on Fastline’s account with Bankwest and provided a cash surplus of $2,422,309.21.

5.2.6    When did Fastline become insolvent?

165 The question of solvency is strictly only relevant to the uncommercial transaction allegation against Tony and Liza Chia in respect of the Loan Agreement, and the unfair preference claims against Tramontana Accountants.  The unfair preference claims are discussed later in these reasons but relate to the period from June 2018 to December 2018.  The question of solvency can, however, also impact upon the considerations of whether Kenny Lay’s conduct constituted a breach of his directors’ duties.

166 As outlined above, the Liquidators allege that Fastline was insolvent from at least 30 April 2016.  The Liquidators rely upon their Solvency Report dated May 2022, and the statutory presumption of insolvency pursuant to s 588E(4) of the Corporations Act (failure to keep financial records).

167 A company is solvent if it is able to pay all of its debts as and when they become due and payable: Corporations Act, s 95A.  Whether a company is insolvent at a particular point in time is determined by a proper consideration of the company’s financial position taken as a whole, having regard to commercial realities, including consideration of the resources available to the company to meet its liabilities as they fall due: Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) NSWLR 213 at 224-225; [2001] NSWSC 621 (Palmer J).  The principles regarding the assessment of solvency were not in dispute between the parties.

168 Mr Ford’s opinion was that Fastline was insolvent from at least April 2016.  The Liquidators found there to be material deficiencies in Fastline’s books and records which, in their opinion, enlivened the statutory presumption of insolvency under s 588E(4) of the Corporations Act.  The Liquidators had no financial information available electronically on Fastline’s MYOB data for any period prior to July 2016.  The only information available for the earlier period was a comparison with FY15 in the balance sheet prepared for FY16.

169 Mr Ford’s solvency report found that:

(a)    Fastline had a working capital deficiency as at June 2015 and June 2016.  In the Liquidators’ opinion, the lack of working capital evidenced Fastline’s inability to pay its debts as and when they fell due without meaningful financing or equity being available.  Fastline also reported a net asset deficiency from at least June 2016.

(b)    Fastline had breached the limit of its overdraft facility with Bankwest of $1.5 million as at 30 June 2015.

(c)    In February 2016, the State Revenue Office issued a legal action pending letter to Fastline in respect of $7,760.23 in outstanding payroll tax.

(d)    Tramontana Accountants acknowledged the cashflow issues Fastline was experiencing in communications with the Australian Taxation Office in April 2016. Fastline entered into an eight-month payment plan with the ATO in April 2016 to pay an outstanding tax liability of $452,275.09.

(e)    Fastline reported significant overdue trade creditors from at least July 2016, including for unpaid rent and labour hire providers.  A high percentage of overdue creditors continued to be reported until liquidators were appointed.

(f)    While Fastline reported a substantial injection of cash in August 2016, those funds were largely exhausted within two months.  The Liquidators noted that the sale of Boundary Road was a one-off transaction which, in their opinion, was insufficient to restore Fastline to solvency.

(g)    Fastline was in financial difficulty from FY16 at levels which could not be sustained without meaningful financing or equity.  The company did not generate an operating profit from FY16 and was unable to restore itself to a profitable position following the termination of the Target DC Business.

(h)    After Bankwest’s facilities were paid out in August 2016, Fastline was not in a position to secure alternative funding.

(i)    In a draft of projected FY18 income statements and balance sheets for Fastline prepared by Tramontana Accountants, they stated that Fastline “has in the past 2 years entered into survival mode”.

170 In reaching the opinion that Fastline was insolvent from at least 30 April 2016, the Liquidators allege that Fastline was exhibiting at least six of the 16 generally accepted indicators of insolvency that have been identified by the courts.  The Liquidators state that the overall position of Fastline progressively worsened, with it exhibiting 13 of the 16 indicators by August 2018.  The six indicators the Liquidators refer to Fastline exhibiting as at May 2016 are the following:

(a)    overdue Commonwealth and state taxes;

(b)    creditors unpaid outside trading terms;

(c)    special arrangements with selected creditors;

(d)    creditor demands for payment (including reminders and overdue notices);

(e)    employees, or the company’s bookkeeper, accountant or financial controller, have raised concerns about the company’s ability to meet, and continue to meet, its financial obligations; and

(f)    inability to produce accurate and timely information to indicate trading performance financial position.

171 While it is accepted that Fastline started experiencing cash flow difficulties in early 2016, I do not accept Mr Ford’s opinion that Fastline was insolvent from April 2016.

172 The insolvency indicators which Mr Ford stated Fastline was exhibiting by May 2016 are worth considering in further detail.

173 In relation to the overdue Commonwealth and state taxes, the Liquidators identified two specific statutory creditors by April 2016.  The first, as noted above, was the ATO.  Fastline entered into a payment plan in April 2016 for the outstanding tax liability of $452,275.09, which related to GST and PAYG.  The second statutory creditor at this time was the SRO, which related to outstanding payroll tax of $7,760.23.

174 Mr Ford acknowledged during cross-examination that in the context of Fastline’s annual payroll tax which was likely to be in the range of half a million dollars per year, the outstanding payroll tax was not a significant outstanding liability.

175 In relation to the second indicator, being “creditors unpaid outside of trading terms”, the Liquidators’ solvency report notes that the indicator has been designated “yes” for May and June 2016 due to payment arrangements with statutory creditors (ie, the ATO and SRO debts noted above).  During cross-examination, Mr Ford accepted that the Liquidators had been unable to identify any creditors (other than the statutory creditors noted above) unpaid outside of trading terms for the relevant periods.  Mr Ford stated that this was due to the Liquidators not having access to books and records, or any MYOB records for Fastline predating July 2016.

176 While this may be the case, it appears clear that Fastline had, at least to some degree, other creditors who were unpaid at the time.  The draft PPB report, which had been engaged by Bankwest, noted that as at 18 April 2016, Fastline had arrears of approximately $1.9 million in relation to outstanding rent.  It was noted in the report that PPB were advised by Fastline that Charter Hall, being the landlord, was aware of Fastline’s position and remained comfortable with weekly payments that were said to have been being made in order to reduce the arrears.

177 In relation to the third and fourth indicators, being “special arrangements with selected creditors” and “creditor demands for payment”, Mr Ford also acknowledged that for May and June 2016, the only basis on which the indicators were said to be exhibited by Fastline was due to the ATO and SRO being creditors.  In this sense, the first four indicators were all a function of the amounts Fastline owed to the ATO and SRO.

178 Additionally, as at April 2016, while Fastline was experiencing cash flow difficulties and seeking to manage its existing arrears, it was not accumulating arrears without an expectation as to its ability to source further funds.  As was noted in the PPB report dated May 2016, the Group was operating, at the time, on the basis that it would obtain access to a significant sum of cash through the sale of Boundary Road later in the year (identified in the PPB report as an expectation to sell Boundary Road for $14.38m on 16 September 2016).  Fastline also expected cash security to be released on the termination of the lease for Foundation Drive, and that Fastline would be able to source around $2 million in external funds through family sources.

179 In accordance with the report, the Fastline Group was ultimately able to source the $2 million from family sources (through Suzie Ha and the Chias, as discussed above).  Additionally, as intended, following the sale of Boundary Road on 31 August 2016, the Group was able to access a significant sum of cash which was primarily used to repay creditors.

180 The expectation, and the eventual receipt of funds, from the sale of Boundary Road is an important part of the Lay-Chia parties’ case.  The Liquidators argue that when Boundary Road was sold by Syndrom, the sale crystallised a GST liability of $1,455,749.09 which remained unpaid as at the time the ATO filed a petition to wind up Syndrom on 12 July 2018.  The second report to Syndrom’s creditors in its subsequent voluntary administration notes that while Syndrom continued to make payments on its tax account ($364,343 from 26 August 2016 to 25 July 2018), due to accruing interest and other charges, Syndrom did not reduce its balance.  The Liquidators argue that had Syndrom acted as a responsible corporate citizen by meeting its GST obligations upon settlement, the $2.7 million would not have been available to Fastline in August 2016.

181 Ultimately, while this may be the case, Mr Ford acknowledged that given the manner in which the Fastline Group operated, Fastline could expect to, and in fact did, source a significant amount of cash from Syndrom following the sale of Boundary Road.

182 Mr Ford accepted that, as at 31 August 2016, following the sale of Boundary Road, Fastline had cash in excess of $4.5 million, which consisted of $2.4 million in a Bankwest account, $109,000 in a Westpac account, and a term deposit with Bankwest of over $2 million.  Mr Ford accepted that Fastline was able to deploy the funds received from the sale of Boundary Road to discharge the bulk of its outstanding aged creditors according to its records.

183 Mr Ford also accepted that as at December 2016, four months after the sale of Boundary Road, Fastline retained current assets of around $3.8 million or “closer to $4 million”.  According to Fastline’s MYOB records, this included $288,000 in a Westpac account, a term deposit of $1.211 million with Bankwest, $140,000 in an electronic clearing account, and trade debtors of $2.37 million.  Mr Ford accepted that, based on Fastline’s records as at December 2016, the company still retained a significant amount of cash and in fact, it was highly likely that its current assets exceeded its current liabilities.

184 In light of the evidence outlined above, I am not satisfied that Fastline was insolvent when it entered into the Loan Agreement on 1 June 2016.  Although Fastline was experiencing cash flow difficulties from early 2016, in my view, Fastline did not become insolvent while it had access to the funds advanced to it by Liza and Tony Chia, and Suzie Ha.  As had been Kenny Lay’s intention, Fastline was then able to access significant funds made available to it from the sale of Boundary Road on 31 August 2016, which were used to discharge a bulk of its outstanding aged creditors.

185 In my view, Fastline did not become insolvent until some point in time after 31 August 2016, after having received the proceeds from the sale of Boundary Road.

186 I also reject the Liquidators submissions relying upon the statutory presumption of insolvency under s 588E(4) of the Corporations Act.  The evidence and the findings which I have made rebut any presumption of insolvency under s 588E.

5.3    Consideration of claims arising from entry into Loan Agreement

5.3.1    Claims against Kenny Lay

187 The Liquidators allege that Kenny Lay, in his capacity as the sole director of Fastline, caused Fastline to enter into the Loan Agreement in circumstances where the Loan Agreement was not in the best interests of Fastline, and thereby breached his duty to act in good faith and in the best interests of the company, owed under s 181 of the Corporations Act and in equity.

188 The Liquidators also allege that a reasonable director in Kenny Lay’s position would have:

(a)    avoided incurring new liabilities, such as the Loan Agreement, in circumstances where Fastline was facing significant financial difficulties, and where Fastline was unlikely to be in a position to repay the loan amount by the repayment date of 1 June 2017;

(b)    read the Loan Agreement before signing it on behalf of Fastline to inform themselves about the structure and terms of the loan;

(c)    sought independent legal and financial advice on the merits of the Loan Agreement;

(d)    engaged independent representation to advise on and negotiate the form of the Loan Agreement;

(e)    sought an independent valuation of the Non-Target business before causing Fastline to offer it as security at a valuation of $1 million; and

(f)    avoided entering into a labour provision arrangement in the event of default under the Loan Agreement for no stated consideration.

189 The Liquidators allege that the above conduct constituted a breach of Kenny Lay’s duty to exercise the degree of care and diligence required under s 180 of the Corporations Act, and the equivalent obligation under general law.

190 The Liquidators further allege that Kenny Lay, by his conduct in causing Fastline to enter into the Loan Agreement, used his position in relation to the company to gain an advantage for the lenders (Tony and Liza Chia) and cause detriment to Fastline, in circumstances where Kenny Lay was related to the lenders and had an interest in promoting their financial interests.  The Liquidators allege that this constituted a breach of Kenny Lay’s duty under s 182 of the Corporations Act, and his fiduciary duty to avoid conflicts.

Relevant principles

191 The relevant legal principles were not in dispute between the parties.  The parties’ summary of the relevant principles is adopted below.

Duty of care and diligence

192 Section 180(1) of the Corporations Act provides:

A director or other officer of the corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:

(a)    were a director or officer of the corporation in the corporation’s circumstances; and

(b)    occupied the office held by, and had the same responsibilities within the corporation as, the director, or officer.

193 An equivalent duty to act with due care and diligence exists at common law and in equity: Permanent Building Society (in liq) v Wheeler (1994) 14 ACSR 109.

194 In ASIC v Adler (2002) 168 FLR 253; [2002] NSWSC 171 at [372], Santow J observed:

In determining whether a director has exercised reasonable care and diligence one must ask what an ordinary person, with the knowledge and experience of the defendant might be expected to have done in the circumstances if he or she was acting on their own behalf.

195 The “ordinary person” is a director of the corporation “in the corporation’s circumstances” and occupying the particular office held by the director, and having the same responsibilities within the corporation as the director whose conduct is impugned: ASIC v GetSwift Limited (Liability Hearing) [2021] FCA 1384 at [2527] (Lee J) citing Cassimatis v ASIC (2020) 275 FCR 533; [2020] FCAFC 52 at [27].

196 The question whether a director has exercised a reasonable degree of care and diligence can only be answered by balancing the foreseeable risk of harm against the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question: Vrisakis v Australian Securities Commission (1993) 9 WAR 395, 449.

197 Where a transaction involves a person or entity related to a director, a potential conflict of interest and duty arises.  In those circumstances, the duties imposed by s 180(1) require “special vigilance” and “scrupulous concern” on the part of officers: Adler at [372] (Santow J).

198 The care and diligence required by s 180(1) of the Corporations Act is a fixed objective standard identified by reference to:

(a)    the corporation’s circumstances; and

(b)    the office and responsibilities within the corporation that the officer in question occupied.

199 In determining whether s 180(1) has been contravened, it is necessary to balance the benefits and detriments that flow to the company from the conduct in question.  The balancing exercise requires the court to consider all of the interests of the company, including its continued existence and its interest in pursuing lawful activity.  Commercial activity, by its nature, involves uncertainty, commercial judgment and risk-taking.  Taking risks is not unlawful per se: see Cassimatis at [455]-[459] (Thawley J).

Duty of good faith

200 Section 181 of the Corporations Act provides:

A director or other officer of a corporation must exercise their powers and discharge their duties:

(a)    in good faith in the best interests of the corporation; and

(b)    for a proper purpose.

201 A parallel duty to act in good faith and in the interests of the company exists in equity: Howard Smith Ltd v Ampol Petroleum Ltd [1974] NSWLR 68.

202 Insofar as the duty to act in good faith is concerned, the test is largely subjective, however, statements by directors about their subjective intention or belief are not conclusive.  The court is entitled to look at the surrounding circumstances and at the impugned transaction in order to determine whether to accept or discount any assertions made as to the director’s subjective intentions.  If the decision is such that no reasonable board of directors could think it to be in the interests of the company, the court may intervene.

203 In Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 39 WAR 1; [2008] WASC 239, Owen J summarised the relevant principles at [4619], stating that:

1.    The test whether directors acted bona fide in the interests of the company as a whole is largely (though no means entirely) subjective.  It is a factual question that focuses on the state of mind of the directors.  The question is whether the directors (not the court) consider that the exercise of power is in the best interests of the company.

2.    Similar principles apply in ascertaining the real purpose for which a power has been exercised.

3.    It is the directors who make business decisions and courts have traditionally not pronounced on the commercial justification for those decisions.  The courts do not substitute their own views about the commercial merits for the views of the directors on that subject.

4.    Statements by the directors about their subjective intention or belief are relevant but not conclusive to the bona fides of the directors.

5.    In ascertaining the state of mind of the directors the court is entitled to look at the surrounding circumstances and other materials that genuinely throw light upon the directors’ state of mind so as to show whether they were honestly acting in discharge of their powers in the interests of the company and the real purpose primarily motivating their actions.

6.    The directors must give real and actual consideration to the interests of the company.  The degree of consideration that must be given will depend on the individual circumstances.  But the consideration must be more than a mere token: it must actually occur.

7.    The court can look objectively at the surrounding circumstances and at the impugned transaction or exercise of power.  But it does so not for the purpose of deciding whether or not there was commercial justification for the decision.  Rather, the objective enquiry is done to assist the court in deciding whether to accept or discount the assertions that the directors make about their subjective intentions and beliefs.

8.    In that event a court may intervene if the decision is such that no reasonable board of directors could think the decision to be in the interests of the company.

204 Where a company is insolvent or approaching insolvency, directors are also required to consider the interests of creditors: see Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722.  In Kalls v Balaglow (2007) 63 ACSR 557, Giles JA (with whom Ipp and Basten JJA agreed on the point) observed at [162]:

It is sufficient for present purposes that, in accord with the reason for regard to the interests of creditors, the company need not be insolvent at the time and the directors must consider their interests if there is a real and not remote risk that they will be prejudiced by the dealing in question.

205 Similarly, in Termite Resources NL (in liq) v Meadows, in the matter of Termite Resources NL (in liq) (No 2) (2019) 370 ALR 191; [2019] FCA 354, White J said at [201]:

[T]he obligation of directors to consider the interests of creditors is enlivened particularly when a company is insolvent or nearing insolvency. The Courts have avoided formulating any general test of the degree of financial instability necessary to give rise to a duty by directors of a company to consider the interests of its creditors.

206 In BTI 2014 LLC v Sequana SA [2023] 2 All ER 303, Lord Hodge stated at [247] that the duty to consider the interests of creditors requires directors:

to take into account and give appropriate weight to the interests of the company’s creditors as a body. Where the company is irretrievably insolvent, the interests of those creditors become a paramount consideration in the directors’ decision-making.

Use of position and duty to avoid conflicts

207 Section 182(1) of the Corporations Act provides:

A director, secretary, other officer or employee of a corporation must not improperly use their position to:

(a)    gain an advantage for themselves or someone else; or

(b)    cause detriment to the corporation.

208 This statutory duty is closely associated with the fiduciary duty to prevent conflicts between a director’s personal interests and that of the company.

209 The question of whether directors have “improperly” used their position for the purpose of s 182 of the Corporations Act is determined based on the viewpoint of a “reasonable person” in the same situation as the director: see Forkserve Pty Ltd v Jack (2001) 19 ACLC 299; [2000] NSWSC 1064 (Santow J).

210 Impropriety will only be found where a director breaches “the standards of conduct that would be expected of a person in his position by reasonable persons with knowledge of the duties, powers and authority” of the person’s role as director: Doyle v ASIC (2005) 227 CLR 18; [2005] HCA 78 at [35] (Gleeson CJ, Gummow, Kirby, Hayne and Callinan JJ).  The test to establish impropriety is objective, although the director’s state of mind may be relevant: Termite Resources at [193]-[194].

211 The director must have believed that the intended result would be an advantage for himself or herself or some other person or result in detriment to the corporation.  However, it is not necessary for the relevant advantage or detriment sought to be achieved to actually be attained in order for there to be a contravention of s 182: Chew v R (1992) 173 CLR 626; [1992] HCA 18 at 633 (Mason CJ, Brennan, Gaudron and McHugh JJ).

212 As a fiduciary, Mr Lay in his capacity as director of Fastline, was also under a duty to avoid conflicts of interest.  A conflict of interest will arise where there is a “sensible, real or substantial possibility of conflict”: Clay v Clay (2001) 202 CLR 410, [56].  In Ying Mui Pty Ltd v Hoh (No 3) (2017) 349 ALR 296, Vickery J observed at [406] that “where the exercise by a director of the position is ‘intended to and [does] result in significant financial benefits’ to that director or to his or her immediate family, a breach of this duty will arise”.

Application of the principles

213 While the Liquidators opened their case by describing what had occurred as “illegal phoenix activity”, as Greenwood ACJ said in ASIC v Bettles [2020] FCA 1568 at [87] there is no such thing, per se, as “illegal phoenix activity”.  “Phoenix activity” is only unlawful if the proof of the facts of the conduct make good a contravention of the Corporations Act or general law.  It is a fact-specific analysis in which it is necessary to identify particular conduct and its relationship with the legal framework with which the conduct engages so as to enable a conclusion to be reached that the conduct is unlawful, illegal or fraudulent, depending on the legal framework engaged: Bettles at [87] and [112].

214 The Liquidators contend that the Loan Agreement was not in the interests of Fastline due to a number of reasons, including because, pursuant to its terms:

(a)    the agreement provided that Tony and Liza Chia could take possession of the entire Non-Target business in the event of default;

(b)    the Non-Target business was assigned a value of $1 million in circumstances where no valuation of the business was undertaken;

(c)    Tony and Liza Chia were not required to realise the security and return any surplus to Fastline; and

(d)    Fastline was obliged to provide labour services to GFS for no stated consideration.

215 The Liquidators also argue that when the Loan Agreement was entered into, the Non-Target business was Fastline’s sole income-producing asset.  They argue that as the contract for the Target Online business was non-exclusive, terminable on 90 days’ notice and was without minimum volume requirements, Fastline had no certainty that the Target Online contract would continue in the long term.  The Liquidators also argue that by June 2016, it was clear that Syndrom was unable to fund its acquisition of Knapp 2 which the Target Online contract had been prepared with specific regard to.

216 The Liquidators further argue that when the Loan Agreement was entered into, even if Fastline was not already insolvent, it was at least in significant financial difficulties.

217 As noted above, in order to establish that Kenny Lay breached his duties as a director of Fastline, the Liquidators must establish that a reasonable director in his position would not have caused Fastline to enter into the Loan Agreement. Consideration must be given to the relative benefits and detriments that flowed through to Fastline from entering into the Loan Agreement.

218 In mid-2015, Fastline was, by all accounts, a successful and growing business under the helm of Kenny Lay.  When Target terminated the Target DC business in the second half of 2015, Fastline found itself in a more troubling position where it lost a business which had constituted over 38% of its revenue in the previous financial year, while the premises from which the business was conducted remained leased (by Interlogic) until November 2017.

219 At the same time however, Fastline’s Target Online business was expanding, having experienced significant growth since it commenced in FY13.  Both Kenny Lay and Target projected significant growth in the business to continue into FY16 and FY17.  On that expectation, Fastline entered into a new contract for the Target Online business, which was prepared with specific regard to Knapp 2.  Knapp 2 was expected to enable Fastline to expand its capacity, meeting the greater demands of the growing Target Online business, and ultimately increase Fastline’s revenue.  Knapp 2 was intended to go live by May 2016.

220 After entering into the contract to acquire Knapp 2, Fastline was unable to obtain funding from its existing lender, Bankwest.  Fastline was also unable to obtain sufficient funding from ANZ.

221 By early 2016, Kenny Lay reasonably expected the Group to receive a large influx of funds by August-September 2016 due to the intended sale of Boundary Road.  As discussed above, this was in fact received by Fastline later in the year.  Fastline also expected to relocate the operations at Foundation Drive to operate the Target Online business exclusively out of Saintly Drive, which would lead to the release of additional cash security.  Fastline also intended to reduce its overall costs through reduced head count, although I accept that no detailed cost reduction plan appears to have been prepared.

222 It also appears that the Group’s intention was to seek additional funding following the sale of Boundary Road.  An email from Joseph Tramontana on 1 September 2016 following the Boundary Road sale stated “Note, we have to be careful to ensure loans are obtainable from Westpac. I will be completing the revised projections once tax documents are finalised”.  There was however no evidence that Fastline actually made subsequent enquiries to raise further debt from Westpac following the sale of Boundary Road.

223 In the circumstances discussed above, where Fastline began experiencing cash flow difficulties in early 2016, where the business required short-term financing in order to enable the business to proceed with the intended sale of Boundary Road and to give the business time to reduce its operating costs, and where the business had otherwise been unsuccessful in obtaining financing from its existing lender, I am not satisfied that it was imprudent or commercially unreasonable for Fastline to enter into the Loan Agreement.

224 The principal and obvious benefit to Fastline of entering into the Loan Agreement was that it was able to borrow $1 million to meet its immediate cash flow needs.  It is not clear that such funding would have been available but for Fastline entering into the Loan Agreement.  The money borrowed under the Loan Agreement was used to pay creditors of the Group, mainly Charter Hall and Dexus, landlords of the premises from which the Group conducted its businesses.

225 Naturally, the detriment to Fastline of entering into the Loan Agreement was that it had provided security to the lenders, Tony and Liza Chia, in the form of a contingent right to acquire the Non-Target business for a price of $1 million if Fastline was not able to repay the monies borrowed by it on or before 1 June 2017.

226 Kenny Lay, having operated Fastline successfully since 1995, exercised his commercial judgment and determined that Fastline’s cash flow problems could be addressed by obtaining short term funding from other members of his family.  Fastline required sufficient liquidity until the sale of Boundary Road, following which the business could look to return to trading profitably through the expansion of the Target Online business.  This was clearly not a decision without risk.  As the Liquidators stated, given the terms of the new contract for the Target Online business, Fastline could have no guarantee that the Target Online business would continue in the longer term.  There was also the risk, as eventuated, that Fastline might be unable to obtain further meaningful finance or return to trading profitably.

227 While these were real risks which Kenny Lay faced, looking prospectively at the circumstances the business was in, I do not consider that it was commercially unreasonable for Fastline to enter into the Loan Agreement so as to support a finding that Kenny Lay breached his duty to act in good faith in the best interests of the company, or that Kenny Lay breached the norms that would be expected of a reasonable company director in his position.

228 It follows that I do not consider that Kenny Lay breached his directors’ duties to Fastline by failing to avoid incurring new liabilities outside the ordinary course of trading in the circumstances Fastline found itself in, or for failing to avoid entering into the Loan Agreement.

229 The Liquidators also raise a number of specific complaints regarding Kenny Lay’s conduct, alleging that he failed to exercise the required degree of care and diligence.  The Liquidators raise complaints that Kenny Lay failed to read and properly understand the structure and terms of the loan, failed to obtain independent legal and financial advice or representation regarding the Loan Agreement, failed to obtain an independent valuation before offering it as security for $1 million, and entered into an agreement obliging Fastline to provide labour services to GFS for no stated consideration.

230 I accept the submission of the Lay-Chia parties that these are all, substantively, predicated on the Liquidators’ central contention that the Loan Agreement represented a contingent sale of the Non-Target business to Tony and Liza Chia for $1 million in the event that Fastline was unable to repay the loan, where the Non-Target business was worth more than $1 million.

231 As I have outlined above regarding the value of security provided under the Loan Agreement, the Liquidators have not established that the Non-Target business was worth the $1.245 million they claim, or that the Non-Target business was worth more than the $1 million that it was assigned in value under the Loan Agreement.  While Kenny Lay did not obtain a valuation of the Non-Target business before it was offered it as security, in the circumstances and as a company director who had successfully operated the company for over 20 years, he was entitled to use his judgment to assess the value of the business.  The Liquidators have failed to establish that Kenny Lay’s valuation of the business, and subsequent offer as security, was such as to constitute a breach of his directors’ duties to Fastline.

232 Additionally, while the Liquidators sought to make much of Kenny Lay’s admission in his public examination in December 2019 that he did not read the Loan Agreement when signing the document (which Kenny Lay then contradicted under cross-examination), the context in which the Loan Agreement was signed must be considered.  Kenny Lay had already discussed the basic terms of the loan with Tony Chia who was a family member that he trusted.  Kenny Lay approached Joseph Tramontana, who had acted for Fastline since 1995, to draft an agreement to give effect to the agreement they had already reached between themselves. The nature of the transaction, being a loosely defined agreement between family, documented by a long-term advisor, explains why Kenny Lay may have failed to read the Loan Agreement.  In the context of the above finding that it was not commercially unreasonable for Fastline to enter into the Loan Agreement, and the findings regarding the value of the security provided under the Loan Agreement, I am not satisfied that a failure to read the Loan Agreement by Kenny Lay constitutes a breach of his duty to act with the requisite degree of care and diligence.

233 In relation to the provision of labour services under the Loan Agreement, the Loan Agreement states, “the borrowers to provide skilled staff capable to continue the business operations should the lender call up the security for default”.  I do not accept the Liquidators’ claim that the provision obliges Fastline to provide labour services to GFS for no consideration.  Rather, the Loan Agreement is silent as to the terms on which any such labour may be supplied to GFS.  Again, in the circumstances where the Loan Agreement was drafted to reflect a relatively informal agreement between family members, I am not satisfied that this involved a breach of directors’ duties by Kenny Lay.

234 The Liquidators also allege that at the time the Loan Agreement was entered into, the Non-Target business was Fastline’s sole income-producing asset, and therefore, Kenny Lay offering the business as security in circumstances where Fastline had no certainty that the Target Online business would continue in the longer term was not in the best interests of Fastline.  Again, in my view, this argument is substantively predicated on the assumption that the $1 million value assigned to the Non-Target business in the Loan Agreement was below the actual value of the business.

235 Additionally, I am not satisfied, based on the evidence before me, that it was actually the case that the Non-Target business was Fastline’s sole income producing asset.  The GT IBR noted, in November 2015, that the proportion of revenue for FY15 attributable to Fastline’s businesses were 38.1% for the Target DC business, 29.5% for the Target Online business, leaving 32.4% for the Non-Target business.

236 Following the termination of the Target DC business at the end of October 2015, Fastline operated at a loss for FY16 and FY17. It is unclear to what extent Fastline’s losses over those financial years can be attributed specifically to either the Non-Target business or the Target Online business.

237 The Liquidators also refer to Kenny Lay’s evidence in cross-examination where he stated that he could not recall considering the interests of Fastline’s creditors when Fastline entered into the Loan Agreement.  Again, in my view, the complaint is substantively predicated on the basis that the security provided over the Non-Target business was undervalued.  In any case, given my findings above regarding when Fastline became insolvent, and the fact that it was not commercially unreasonable for Fastline to enter into the Loan Agreement, I am not satisfied that, in the circumstances, Kenny Lay’s failure to turn his mind to the interests of Fastline’s creditors when entering into the Loan Agreement constituted a breach of his directors’ duties.

238 Lastly, the Liquidators also allege that entry into the Loan Agreement involved a breach of Kenny Lay’s duty not to improperly use his position as it involved conferring a benefit on Kenny Lay’s family (Liza and Tony Chia), at the detriment of Fastline.  Again, the complaint is substantively based on the contention that the Non-Target business was undervalued in the Loan Agreement.  Given my findings above, I am not satisfied that Kenny Lay’s entrance into the Loan Agreement constituted a breach of his duty under s 182 to not improperly use his position.

239 For the reasons given, the Liquidators’ claims that Kenny Lay breached his directors’ duties by entering into the Loan Agreement must fail.

5.3.2    Claims against Tramontana Accountants

Involvement in Kenny Lay’s breaches of directors’ duty

240 The Liquidators bring two claims against Tramontana Accountants in relation to Fastline’s entrance into the Loan Agreement.  The first claim is that, pursuant to s 79 of the Corporations Act, Tramontana Accountants were involved in Kenny Lay’s breaches of his directors’ duties.

241 Section 79(c) of the Corporations Act provides the following:

A person is involved in a contravention if, and only if, the person:

(a)    has aided, abetted, counselled or procured the contravention; or

…

(c)    has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention;

242 The principles regarding knowing involvement in a contravention were not in dispute between the parties.

243 In Adler, Santow J observed at [209] that to be knowingly concerned within the meaning of s 79, it is necessary to have knowledge of the essential events constituting the offence and that “[k]nowledge may be inferred from the fact of exposure to the obvious”. There must also be “a practical connection between the act or omission and the contravention”: ASIC v GetSwift Ltd [2021] FCA 1384 at [1793] (Lee J).  Knowledge that the relevant conduct is illegal is not required: Adler at [195].

244 I have found that Kenny Lay has not contravened ss 180, 181 or 182 of the Corporations Act.  There being no relevant contravention of the Corporations Act, an essential element of s 79 has not been made out and accordingly, the claims of knowing involvement against Tramontana Accountants must fail.

Breach of fiduciary duty to avoid conflicts

245 The Liquidators allege that Tramontana Accountants owed fiduciary duties to Fastline including:

(a)    a duty to avoid conflicts between the interests of Fastline and the interests of a third party; and

(b)    a duty to avoid conflicts between Tramontana Accountants’ own interests and Tramontana Accountants’ duty to act in Fastline’s best interests.

246 The Liquidators allege that Tramontana Accountants breached its fiduciary duties owed to Fastline by drafting the Loan Agreement, Default Notice, Assignment of Rights and Notice to Vacate, in circumstances where Tramontana Accountants were acting on behalf of both Fastline and the Chias (in relation to the Loan Agreement), and subsequently, on behalf of each of Fastline, the Chias, and GFS.  The Liquidators plead that, in doing so, Tramontana Accountants acted in circumstances where the Chias’, GFS’, and Tramontana Accountants’ interests conflicted with its duty to act in the best interests of Fastline.

247 It is not in dispute that Tramontana Accountants drafted the Loan Agreement, Default Notice, Assignment of Rights, and the Notice to Vacate.  It is also not in dispute that in doing so, Tramontana Accountants were acting for the parties on either side of the documents.

Legal principles

248 Accountants are not one of the established categories of fiduciaries.  The Liquidators must therefore first establish that a fiduciary relationship arose in the circumstances of this case.

249 In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96-97, Mason J (as his Honour then was) referred to the circumstances in which a fiduciary relationship may arise, in terms that have been frequently cited in subsequent case law as follows:

The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations (cf Phipps v Boardman [1967] 2 AC 46 at 127), viz trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners.  The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense.  The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position.  The expressions “for”, “on behalf of” and “in the interests of” signify that the fiduciary acts in a “representative” character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal.

It is partly because the fiduciary's exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed…

250 Dawson J also noted the following at 141-142 of Hospital Products:

Notwithstanding the existence of clear examples, no satisfactory, single test has emerged which will serve to identify a relationship which is fiduciary. It is usual – perhaps necessary – that in such a relationship one party should repose substantial confidence in another in acting on his behalf or in his interest in some respect. But it is not in every case where that happens that there is a fiduciary relationship.

…

There is, however, the notion underlying all the cases of fiduciary obligation that inherent in the nature of the relationship itself is a position of disadvantage or vulnerability on the part of one of the parties which causes him to place reliance upon the other and requires the protection of equity acting upon the conscience of that other.

251 In Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6, Finn, Stone and Perram JJ said at [177] and [179]:

As to who is a “fiduciary”, while there is no generally agreed and unexceptionable definition, the following description suffices for present purposes: a person will be in a fiduciary relationship with another when and insofar as that person has undertaken to perform such a function for, or has assumed such a responsibility to, another as would thereby reasonably entitle that other to expect that he or she will act in that other’s interest to the exclusion of his or her own or a third party’s interest: on who is a fiduciary…

The concept of “duty” in the “conflict of duty and interest” formula of the first of these is convenient shorthand. It refers simply to the function, the responsibility, the fiduciary has assumed or undertaken to perform for, or on behalf of, his or her beneficiary. What that function or responsibility is, is a question of fact. It may be narrow and circumscribed, as is often the case with specific agencies; it may be broad and general, as is characteristically the case with the functions of company directors; its scope may have been antecedently defined or determined; it may have been ordained by past practice; it may be left to the fiduciary’s discretion to determine; and it may evolve over time as is commonly the case with partnerships. Put shortly the actual function or responsibility assumed determines “[t]he subject matter over which the fiduciary obligations extend” for conflict of duty and interest and conflict of duty and duty purposes.

252 In Streetscape Projects Australia Pty Ltd v City of Sydney (2013) 295 ALR 760; [2013] NSWCA 2 at [121], Barrett JA (with whom Meagher and Ward JJA agreed) observed that “a fact-based fiduciary duty cannot arise unless one party undertakes, expressly or impliedly, to act in the particular factual context solely in the interests of the other”.

253 The nature and extent of any fiduciary duty will also depend on the scope of the relevant relationship and the circumstances, where the function or responsibility assumed determines the subject matter over which fiduciary obligations extend: see Birtchnell v Equity Trustees Executors & Agency Co Ltd (1929) 42 CLR 384 at 408 (Dixon J); Hospital Products above at 102 (Mason J); Grimaldi at [179] above; Sliteris v Ljubic [2014] NSWSC 1632, [41]-[46] (Black J).

254 Black J noted the following in Sliteris, at [43]:

Plainly, a fiduciary relationship can arise between an accountant and his or her client, as it may arise in other professional relationships.  In S Walmsley, A Abadee & B Zipser, Professional Liability in Australia, (2nd ed 2007, Lawbook Co) at [5.280], the authors observe that:

…an accountant may owe fiduciary duties in respect to some, but not necessarily all, aspects of services he or she provides.  Whether such duties arise depend upon the particular facts and circumstances of the relationship between accountant and client: Townsend v Roussety Co (WA) Pty Ltd [2007] WASCA 40; (2007) 33 WAR 321 at [126]… Where a fiduciary relationship is found to exist between client and accountant…, the customary duties of a fiduciary, such as duties not to disclose confidences or to use its position to obtain a secret profit or commission, will arise.

255 In Pavan v Ratnam (1996) 23 ACSR 214, the Supreme Court of NSW Court of Appeal held that in the circumstances of that case, a tax accountant did not owe fiduciary obligations to his client in respect of advice to a client to invest in a property which the accountant proposed to develop, so as to reduce the client’s tax liability.  Beazley JA (as her Honour then was), with whose judgment Meahger JA agreed, said at 223-225:

The cases establish that a number of factors may characterise a relationship as being of a fiduciary nature. They include: vulnerability, reliance and the presence of loyalty, trust and confidence. The notion of vulnerability, as used in this context, is not to be understood in the sense of any “weaker party” concept. Rather, it refers to the circumstance where another party agrees (not necessarily contractually) “to act on behalf of or in the interests of another and, as such, is in a position to affect the interests of that other person in a legal or practical sense. As such, fiduciary relationships are marked by vulnerability in that the fiduciary can abuse the power or discretion given him or her to the detriment of the beneficiary”. Reference is also usefully made to Professor Finn’s (now Justice Finn of the Federal Court of Australia) description in The Fiduciary Principle at 50–1:

…fiduciary responsibilities will be exacted where the function the advisor represents himself as performing, and for which he is consulted, is that of counselling an advised party as to how his interests will or might best be served in a matter considered to be of importance to his personal or financial well-being, and in which the adviser would be expected both to be disinterested, save for his remuneration, and to be free of adverse responsibilities unless the contrary is disclosed at the outset.

(citations omitted.)

Liquidators’ submissions

256 The Liquidators contend that Fastline depended heavily on the advice and services which were provided by Tramontana Accountants, which they say gave rise to the fiduciary relationship.

257 The Liquidators point to the nature of the relationship between Kenny Lay and Fastline on the one hand, and Tramontana Accountants on the other.  Fastline had been a client of Tramontana Accountants since around 1995.  Kenny Lay, who has limited (although it appeared to me, sufficient) English, was the sole director of Fastline from 1995 until his resignation in April 2017.

258 Kenny Lay’s own evidence was that he relied heavily upon Tramontana Accountants (Joseph Tramontana specifically) and placed a considerable degree of trust in Mr Tramontana.  In cross examination, Kenny Lay stated that:

(a)    Tramontana Accountants had been Fastline’s accountant since it began operating;

(b)    that his association with Mr Tramontana went back to the early 1980s;

(c)    that he relied heavily on Tramontana Accountants to manage the company’s financial matters since the business began operating;

(d)    specifically in relation to the drafting of the Loan Agreement, that he trusted Mr Tramontana to prepare the Loan Agreement to reflect what he had explained to him, and further stated “Me and Tony have… trusted Joe for many years since we started business back in early eighties, so we trust him.  He do the right thing for the family.”

259 The Liquidators also relied on a number of documents which evidenced both the degree of reliance placed on Tramontana Accountants over the years, and the broad scope of work Tramontana Accountants performed for Fastline, which often extended beyond the scope of a standard accounting arrangement.

260 The GT IBR, prepared in November 2015, noted that Kenny Lay relied to a large extent on Tramontana Accountants in their external accounting capacity.  The report noted that:

(a)    the Fastline Group had limited internal financial and management reporting capability, with the Group relying on the financial and advisory services of Tramontana Accountants (primarily Joseph Tramontana, and his daughter Ms Sceona Tramontana);

(b)    while there was no formal engagement in place between the Group and Tramontana Accountants, the relationship extended, by admission of both the Fastline Group’s management and Tramontana Accountants, well beyond that of a company and external accountant.  Tramontana Accountants were effectively considered part of the management structure of the Group;

(c)    there was no formal process for the review of the Group’s financial performance; and

(d)    Ms Tramontana would attend Fitzgerald Road at least weekly to review and reconcile the Group’s internal MYOB system which fed into the accounting solution used by Tramontana Accountants.

261 The report also noted that  Kenny and Wilma Lay, and Tramontana Accountants appeared to have a good commercial awareness of the Group, and in the case of Kenny Lay, a good commercial awareness of the industry sector more broadly.

262 As noted above, there was no formal engagement in place between the Group and Tramontana Accountants.  It was not until 29 August 2016 that a retainer was put in place.  The retainer noted that it was being put in place due to the services Tramontana Accountants was providing having escalated to the extent of continually including after-hours and weekend work.  A number of services were listed under the retainer which, the Liquidators argue, illustrate the extent of Tramontana Accountants’ involvement in Fastline’s business, such as:

(a)    having access to Fastline’s computers and passwords in order to make adjustments to reflect fair weekly performance;

(b)    assisting in costing for new customers, and assisting in calculation of annual customer price setting for services;

(c)    attending meetings to assist external parties to understand Fastline’s business; and

(d)    attending to union disputes, excluding legal advice.

263 The Liquidators also refer to an email from Mr Tramontana following the sale of Boundary Road.  In the email, Mr Tramontana made various suggestions as to how the business should use the funds received from the sale of the property, and how the business should be managed going forward.  In particular, Mr Tramontana made specific pricing suggestions for the business going forward, and also proposed that the business look to make some redundancies.

264 The Liquidators also argue that the reliance and involvement of Tramontana Accountants in Fastline’s business is exhibited by a number of other examples, including the fact that:

(a)    Tramontana Accountants attended meetings with ANZ in relation to Fastline’s attempts to obtain funding for Knapp 2;

(b)    Tramontana Accountants negotiated payment arrangements with the ATO; and

(c)    Tramontana Accountants negotiated with the CFMEU on Fastline’s behalf.

Consideration

265 It is clear that Tramontana Accountants had a long-standing relationship with Kenny Lay and the Fastline Group.  The relationship clearly involved the provision of advice and services which extended well beyond the scope of what one would generally expect of an external accountant, and appears to have extended to almost all aspects of the Group’s finances.

266 The evidence establishes that a number of factors which are often characteristic of a fiduciary relationship were exhibited.  For example, there was clearly a degree of trust and reliance that Fastline placed in Tramontana Accountants, and particularly Joseph Tramontana, as is evident from the GT IBR which notes that the Group had limited internal financial and management reporting capability, with the Group essentially reliant on the services of Tramontana Accountants.  This appears to have been the case since the business started operating in 1995, indicating the extent of involvement Tramontana Accountants had in the business.  As noted in the GT IBR, Tramontana Accountants were effectively seen as forming part of Fastline’s management, which is also evident from the degree of their involvement across Fastline’s business.  It also appears clear from the evidence that Kenny Lay appeared to have a limited understanding and involvement in the financial aspects of the business, which were, in turn, managed by Tramontana Accountants.

267 Having accepted the above, it remains important to remember the commercial nature of the relationship.  Tramontana Accountants ultimately provided their services in the context of a commercial relationship, as Fastline’s professional accountants.  This is, of course, not to say that commercial relationships wholly sit outside the fiduciary regime: Hospital Products at 100 (Mason J).

268 On balance, while there are a number of matters which weigh towards a finding that Tramontana Accountants owed fiduciary duties to Fastline, I am not satisfied that this was ultimately the case.  While reliance on Tramontana Accountants’ services was evident, and the relationship was closer than what one would generally expect in the context of an external accountant, I am ultimately not satisfied that in providing its services, Tramontana Accountants’ conduct was such as to indicate it would subordinate its own interests to those of Fastline, and which might otherwise have supported a finding that a fiduciary relationship existed.

269 Notwithstanding the above finding, to the extent that any fiduciary relationship may be said to exist between Tramontana Accountants and Fastline generally, consideration must still be given to the nature and extent of any such fiduciary relationship.

270 Mr Tramontana’s evidence was that, sometime in May 2016, Kenny Lay requested that he document an agreement that he had reached with Tony Chia to borrow $1 million.  The loan was intended to assist Fastline in making the Knapp 2 progress payments.  The document was intended to provide Tony Chia with protection in the form of a written record of the agreement.

271 Mr Tramontana’s evidence was that he recorded his understanding of the agreement reached between Kenny Lay and Tony Chia and subsequently drafted the Loan Agreement to give effect to his understanding of the agreement.  Mr Tramontana’s evidence was that he did not provide any advice in relation to the Loan Agreement, and that his role was effectively limited to drafting the document intended to give effect to the terms already agreed between Kenny Lay and Tony Chia.

272 The Liquidators did seek to argue that Mr Tramontana’s role in drafting the Loan Agreement was more substantive than what he had suggested.  In particular, the Liquidators directed attention to certain terms of the Loan Agreement that were included without any specific instruction from Kenny Lay or Tony Chia.  For example, this included the interest rate of the loan.  Under cross-examination, Mr Tramontana accepted that it was his suggestion for the document to include an interest rate.

273 Ultimately, I’m not satisfied that the Liquidators’ submission on this point carries much weight.  While it appears clear that certain aspects of the Loan Agreement were drafted by Joseph Tramontana without specific instruction from Kenny Lay or Tony Chia, in my view, this reflected an effort by Joseph Tramontana to give effect to the loan arrangement in circumstances where the principal terms of the agreement appear to have been agreed between Kenny Lay and Tony Chia.  Again, this is unsurprising given the nature of Kenny Lay and Tony Chia’s familial relationship.

274 The Liquidators did not substantively challenge the above evidence of Mr Tramontana.  For example, the Liquidators did not seek to contend that Mr Tramontana was in any way involved in actually procuring the loan from Tony Chia, that Mr Tramontana was involved in negotiating the principle terms of the loan between the parties, that Mr Tramontana provided any financial or commercial advice to Kenny Lay or Fastline regarding the relative costs and benefits of obtaining the loan amount from Tony Chia or providing the relevant security, which might have otherwise indicated Mr Tramontana’s conduct went beyond an attempt to give effect to the terms agreed between Kenny Lay and Tony Chia.

275 On this point, the Liquidators also made reference to public examinations of Kenny Lay in December 2019 and Tony Chia in February 2020.  In his public examination, Kenny Lay stated that he had sold the Non-Target business to Tony Chia in 2016 for $1 million.  The Liquidators also argued that Tony Chia, during his examination, was unclear as to whether he was lending money to Fastline or purchasing the Non-Target business.  The Liquidators seek to use the answers given by Kenny Lay and Tony Chia at their public examinations to, again, suggest that Mr Tramontana’s role in the Loan Agreement extended beyond simply drafting the agreement to reflect the intentions of Kenny Lay and Tony Chia.

276 Again, I am not satisfied that the Liquidators’ submission carries much weight.  Firstly, noting the observations made above, the Liquidators have not identified what the comments made by Kenny Lay and Tony Chia in their public examinations mean in relation to Mr Tramontana’s specific involvement in Fastline’s entry into the Loan Agreement, other than the general allegation that he was more involved than his evidence indicated.

277 Secondly, the contemporaneous documents at the time of the Loan Agreement indicate that it was the intention of Kenny Lay and Tony Chia for there to be loan, rather than a sale of the Non-Target business, as suggested by their answers to the public examination.  For example, as was noted in the PPB draft report dated 6 May 2016, Kenny Lay was seeking to obtain around $2 million in loans from family sources.  Additionally, the documents evidencing the advance of funds from the Chias (and Suzie Ha) also indicate that funds were advanced to Fastline as a loan.  The most evident example of this is the payment of $350,000 from the Chias to Fastline on 18 May 2016.  The payment was received in Fastline’s bank account with the reference “GLOBAL FASHION SERVICE LOAN”, and is accepted by the Liquidators as being an advance under the Loan Agreement.

278 Thirdly, it is also worth noting that in their public examination, there was a degree of inconsistent evidence given.  For example, later during Kenny Lay’s public examination, he stated that Tony Chia “took the business” because Kenny Lay had been unable to pay Tony Chia the million dollars back.  When Kenny Lay was then questioned about his earlier statement that he had already sold the business to Tony Chia, Kenny Lay stated “[m]y agreement with Tony is 12 months”. \

279 I will make one further observation regarding the Liquidators’ reference to Kenny Lay’s public examination now as it is convenient to do so.  It is unclear how the suggestion that Kenny Lay sold the Non-Target business to Tony Chia in 2016 for $1 million fits into the Liquidators’ case theory.  I do not understand the Liquidators to be suggesting that this was in fact the case, or that this was the parties’ actual intention.  As noted above, the Liquidators accept the Loan Agreement was in place and entered into by Fastline on 1 June 2016.  To the extent the Liquidators’ references to the public examination are directed towards the credit of Kenny Lay and Tony Chia as witnesses, as I outlined at the outset of these reasons, they did not impress me as reliable witnesses in any case.

280 Having noted the above, I am not satisfied that Tramontana Accountants drafted the Loan Agreement as a fiduciary.

281 The key terms of the Loan Agreement, being the amount of the loan and the security, were agreed between Kenny Lay and Tony Chia, following which, Kenny Lay requested Mr Tramontana to document the agreement in writing.  Mr Tramontana’s role in preparing the document has not been shown to be anything more than an attempt to give effect to the commercial arrangement reached between Kenny Lay and Tony Chia.

282 The drafting of the Loan Agreement contrasts against the material which the Liquidators sought to rely upon to establish that Tramontana Accountants owed fiduciary duties to Fastline.  That material evidenced that Tramontana Accountants acted effectively as part of Fastline’s management, where Kenny Lay and the Group relied almost exclusively on Tramontana Accountants’ expertise to manage certain financial aspects of the business.

283 The drafting of the Loan Agreement is not of the same character.  I am not satisfied that it exhibits the same degree of trust and vulnerability that may be said to exist in other parts of Fastline and Tramontana Accountants’ relationship.

284 Tramontana Accountants’ role was limited to documenting the terms of an agreement between Kenny Lay and Tony Chia, which had already been reached prior to Tramontana Accountants’ involvement.  In the context of such a confined request, I am not satisfied that any fiduciary relationship between Tramontana Accountants and Fastline (if one had been found to exist) extended to Tramontana Accountants’ drafting of the Loan Agreement.  To consider the language of Mason J in Hospital Products, it is unclear what “power or discretion” Mr Tramontana was undertaking to exercise in Fastline’s interests in the context of the confined work that Mr Tramontana was requested to undertake.

285 For completeness, I note that even if Tramontana Accountants owed fiduciary duties to Fastline in drafting the Loan Agreement, that would not be the end of the analysis.

286 The fiduciary duty to avoid conflicts is not an absolute rule.  A person occupying a fiduciary position can be absolved by the giving of fully informed consent to the existence of what otherwise would be a conflict: see ASIC v Citigroup Global Markets Australia Pty Ltd (No 4) (2007) 160 FCR 35; [2007] FCA 963 at [293] (Jacobson J); Commonwealth Bank of Australia v Smith (1991) 42 FCR 390, at 393 (Davis, Sheppard, Gummow JJ).

287 During cross-examination, Mr Tramontana stated that he was concerned about acting for both Fastline and Tony Chia in drafting the Loan Agreement as he understood he was “wearing two hats” and that there could be a conflict of interest. When questioned why he didn’t just not prepare the document, Mr Tramontana stated “I know it was stupid… It was one of those things that – we had been client and friends for a long time.  All they wanted – they said, ‘all we want is jot down something to say that the money has been lent’.”

288 In his affidavit, Mr Tramontana stated that he gave no advice in relation to the Loan Agreement, other than to tell Kenny Lay and Tony Chia to speak to a lawyer regarding the document.  Under cross-examination, Mr Tramontana admitted that he didn’t specifically remember saying such words, but stated that it was something he would say in the situation.

289 Whatever may be the case, the terms of the Loan Agreement indicate that Mr Tramontana was alive to the potential issue at the time of drafting and sought to address those concerns within the terms of the agreement.  The Loan Agreement relevantly provided:

E. Common Advisers and Consultants:

The lender has requested the services of the borrower advisers and consultants to attend to relevant documentation to denote the loan and agrees not to dispute this agreement on the grounds of adviser and consultant conflict.

…

H. Lender Request for new agreement:

The lender may within 3 months of this agreement and at its absolute discretion request its lawyers to draft a new agreement to clarify terms and conditions expressed in the agreement.

…

Execution:

The parties execute this agreement with full knowledge and understanding of its terms and conditions and declare they have been given the opportunity to seek independent advice before signing.

290 Given my finding above that Tramontana Accountants did not owe Fastline fiduciary duties in relation to the preparation of the Loan Agreement, whether Mr Tramontana’s conduct, and Kenny Lay’s and Tony Chia’s execution of the Loan Agreement, amounts to fully informed consent such that Tramontana Accountants would not be considered in breach of a duty to avoid conflicts is not a question I am required to express a concluded view on.

Breach of duty of care

291 Tramontana Accountants accepts that it owed a duty of care, in both contract and tort, in the provision of accounting services to Fastline.

292 The Liquidators allege that by, refusing to prepare the Loan Agreement until all parties had independent representation, and by failing to advise Fastline to obtain an independent valuation of the Non-Target business, or seek independent legal and financial advice, Tramontana Accountants breached their duty of care.

293 I am not satisfied that the Liquidators claims are established.

294 It is firstly important to note that the breaches of duty alleged do not concern the provision of accounting services.  Rather, they relate to the preparation of a legal document.

295 Additionally, as I have found above, the task Mr Tramontana was requested to undertake was a discrete task, being to give effect to the agreement that had already been reached by Kenny Lay and Tony Chia.  In the circumstances, I am not satisfied that a failure by Mr Tramontana to refuse preparing the Loan Agreement involved any breach of his duty of care, given how he limited his involvement.

296 In relation to advising Fastline to obtain legal and financial advice, Mr Tramontana stated in cross-examination that he didn’t specifically remember telling Kenny Lay and Tony Chia to speak to a lawyer, but stated that it “would be something that I would have said”. Given that the Loan Agreement specifically notes that the parties were given the opportunity to seek independent advice before signing the agreement, it appears clear that it was an issue that Mr Tramontana was alive to at the time, and likely, that Mr Tramontana had given such advice in some form to Kenny Lay and Tony Chia.  I am not satisfied that there was a relevant breach of Mr Tramontana’s duty of care.

297 Similarly, given Mr Tramontana’s limited role, I am not satisfied that a duty of care owed in respect of accounting services made it incumbent upon him to advise Fastline to obtain a valuation of the Non-Target business.  Firstly, this argument is predicated on the submission that the Non-Target business was worth more than $1 million.  As I have found above, I am not satisfied that the Liquidators have established their case in this respect.  Additionally, Kenny Lay, as an experienced director, having successfully operated the Fastline Group for over 20 years, was entitled to exercise his commercial judgment as to the value of the Non-Target business to offer it as security under the loan.

5.3.3    Claims against Tony and Liza Chia

Alleged involvement in Kenny Lay’s breaches

298 The Liquidators also bring two claims against Tony and Liza Chia in respect of Fastline’s entry into the Loan Agreement.  The first of these claims is that, pursuant to s 79 of the Corporations Act, Tony and Liza Chia were both involved in Kenny Lay’s breaches of his directors’ duties.

299 I have found that Kenny Lay did not breach his directors’ duties and accordingly, the Liquidators’ claim against Tony and Liza Chia under s 79 of the Corporations Act must fail.

Alleged uncommercial transaction claim

300 The Liquidators also bring an uncommercial transaction claim against Tony and Liza Chia.  The Liquidators claim that the Loan Agreement is a voidable transaction under s 588FE of the Corporations Act.

301 The Liquidators claim that the Loan Agreement was an uncommercial transaction under s 588FB(1) which provides:

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.

302 The Liquidators also claim that the Loan Agreement was entered into at a time when the Company was insolvent, and therefore, constitutes an insolvent transaction under s 588FC.

303 The Liquidators claim that the Loan Agreement is voidable under s 588FE(3) and/or s 588FE(4), which relevantly provide:

588FE  Voidable transactions

…

(3)    The transaction is voidable if:

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

(b)    it was entered into, or an act was done for the purpose of giving effect to it, during the 2 years ending on the relation-back day.

(4)    The transaction is voidable if:

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

(b)    a related entity of the company is a party to it; and

(c)    it was entered into, or an act was done for the purpose of giving effect to it, during the 4 years ending on the relation-back day.

304 Where the court is satisfied that a transaction is voidable under s 588FE, the court may make orders in relation to those transactions under s 588FF, including an order declaring void an agreement forming part of the transaction.

305 The principles applicable to determining whether a transaction is uncommercial within the meaning s 588FB were summarised by the Victorian Court of Appeal in Queensland Phosphate Pty Ltd v Korda [No 2] [2019] VSCA 215 as follows at [164]:

(a)    Under s 588FB, an objective standard is to be applied.

(b)    The four criteria set out in s 588FB(1) are to be considered by reference to the company’s circumstances, which must include the state of knowledge of those who were the directing mind of the company, such as its directors.

(c)    For a transaction to be uncommercial it must result in ‘the recipient receiving a gift or obtaining a bargain of such magnitude that it [cannot] be explained by normal commercial practice’ or where ‘the consideration … lacks a “commercial quality”’.

(d)    Courts have adopted a purposive approach in interpreting s 588FB by having regard to the objects and purpose of the provision.  The purpose of s 588FB is to prevent a depletion of the assets of a company which is being wound up by voiding transactions at an undervalue entered into within a specified time period prior to the commencement of the winding up.  Although s 588FB has been said to focus on transactions entered into at an ‘undervalue’, uncommercial transactions are not limited to such transactions.

(e)    It must positively appear that a reasonable person in the position of the company would not have entered into the transaction.

(f)    It has been recognised that the court must view the transaction prospectively ‘according to the circumstances at the time, including proper perception of the future, but without the influence of hindsight’.

(g)    Consideration of ‘detriment’ in s 588FB is not limited to monetary detriment, but encapsulates the broader concept of commercial detriment.

(h)    The court will have regard to the totality of the business relationship of the parties.  The court will also consider whether there is a relationship between the parties to the transaction that may require greater scrutiny.  This may include consideration of any personal relationship between the individuals involved in the transaction. (Citations omitted)

306 I have found that as at the date of the Loan Agreement, 1 June 2016, Fastline was not insolvent.  As a consequence, it follows that the Loan Agreement is not an insolvent transaction, and the Liquidators uncommercial transaction claim must fail.

6    Transfer of the Non-Target business to GFS

6.1    Claims arising from the transfer of the Non-Target business to GFS

307 The second set of claims brought by the Liquidators relate to the transfer of the Non-Target business from Fastline to GFS.  These set of claims relate primarily to the Default Notice which was issued to Fastline on 14 June 2017 and the subsequent Notice to Vacate which was issued on 8 June 2018.

308 The Liquidators make the following claims in respect of the transfer of the Non-Target business to GFS:

(a)    Shauna Lay: Breaches of directors’ duties.  The Liquidators allege that Shauna Lay’s conduct in respect of the Default Notice and the transfer of the business to GFS involved breaches of her duty to act with the requisite degree of care and diligence, her duty to act in good faith in the best interests of Fastline, and her duty to not improperly use her position.

(b)    Tramontana Accountants: Knowing involvement, breach of fiduciary duty to avoid conflicts, and breach of duty of care.  The claims of knowing involvement, breach of fiduciary duty to avoid conflicts, and the breach of duty of care are all substantively similar to the nature of the claims brought in relation to the Loan Agreement which are discussed above.

(c)    Liza Chia: knowing involvement in Shauna Lay’s breaches of her directors’ duties.

6.2    Background regarding the transfer of the Non-Target business

309 Under the Loan Agreement, dated 1 June 2016, the loan amount was due and payable on 1 June 2017.  It is relevant to understand the events which occurred prior to the loan amount falling due, which reflect the continued decline in Fastline’s financial position.

310 Fastline’s financial reports identified that the company’s revenue fell from $36.5 million in FY16 to just $22.5 million in FY17.

311 On 8 February 2017, the SRO issued correspondence to Fastline offering 10 days to finalise outstanding payroll tax of $124,027.25.

312 On 24 February 2017, default notices were issued to both Fastline and Syndrom in respect of outstanding rent and outgoings on Saintly Drive warehouses.  This was subsequently followed by a termination of the leases to both warehouses on 10 March 2017 due to failure to comply with the default notice.  The owner subsequently granted a short-term licence on 14 March 2017 to Fastline and Syndrom to occupy and use the warehouses on a month-to-month basis.

313 On 17 March 2017, two bank guarantees provided in relation to the lease of Fitzgerald Road were called upon, with the sum of $2,629,499 being paid out.  A cash security deposit of $3,590,614.50 was subsequently provided as replacement security for the Fitzgerald Road lease.  This is the subject to separate claims by the Liquidators discussed below.

314 On 12 April 2017, Fastline entered into a payment arrangement with the ATO to pay an overdue tax debt of $245,604.

315 On 13 April 2017, Kenny Lay resigned as director of Fastline.  His daughter, Shauna Lay was subsequently appointed as the sole director of Fastline.  The Lay-Chia parties state that Kenny Lay resigned as director as he went to Timor-Leste.

316 As noted above, the loan amount under the Loan Agreement was due on 1 June 2017.  The amount was not repaid by Fastline.

317 On 14 June 2017, Tony and Liza Chia issued the Default Notice to Fastline in respect of the outstanding loan amount, with the effect that the Non-Target business was transferred to GFS.  The Default Notice incorporated a leaseback model whereby the Non-Target business was leased back to Fastline in exchange for weekly payments of $2,700.

318 The terms of the Default Notice, as they appear in the original, are extracted in full below:

Default NoticeMonies Payable

The lenders herein give the borrower notice to take possession of the business for failure to pay the loan by the due date.

Schedule:

Date of this notice: 14th June 2017

Borrower and Lessee: Fastline Logistics Pty Ltd a.b.n 41611904541

Guarantors;
Syndrom Holdings Pty Ltd abn 75838709651
Fastline International Pty Ltd a.b.n 38 007 275 345
Kenny Lay of…
Wilma Lay of…

Lender and Lessor: Tony and Liza CHIA…

Date of loan: Parties accepted and deemed the loan date from 1st June 2016

Schedule of money advanced by the lender:1/4/2016    $300,000
18/5/2016    $350,000
7/7/2016    $850,000    Direct from third party.
17/8/2017    $190,000
Total    $1,690,000

Date loan payable: 1st June 2017

The Security: The Business: 309 Fitzgerald Road Derrimut Victoria Australia. Includes all plant, equipment parts, incidental materials, supplies and goodwill.

NOTICE and CONDITIONS:

(a)    The lender takes possession of the business for $1,000,000 as a going concern.

(b)    The borrower has declared trading activities for the 12 months could not produce a profit.

(c)    The lender accepts liquidation is not an option and makes the offer to the borrower to continue working the business as follows:
Pays the lender $2,700 interest per week at its direction

(d)    Vacates should the lender give 3 months notice to vacate.

(e)    The borrower by signing this agreement agrees to lease the busies for $2,700 as interest to the lender its direction. The borrower hereafter may also be referred to as the lessee.

(f)    The borrower to operate the business and do all things to preserve the business.

(g)    The borrower declares the business from the date hereof is the property of the lender who becomes the lessor.

(h)    The borrower agrees to execute all documents to effect the business transfer to the lender when and as required and will on request by the lender communicate the change of ownership with the business customers and suppliers.

(i)    The landlord to be informed when the lender commenced business.

GLOBAL FASHIONS PTY LTD:

The lessor has assigned all its rights title and interests to Global Fashions Pty Ltd. Abn 96744002812.

The lessee acknowledges requests made by “GF” shall be deemed as instructions from the lessor without dispute or otherwise.

319 The Default Notice was executed by Tony and Liza Chia, and Shauna Lay.  The document was drafted by Tramontana Accountants.

320 The Assignment of Rights was also dated 14 June 2017.  Under that document, Tony and Liza Chia sought to give notice to Fastline that all rights, title and interest in respect of the Non-Target business were not controlled by GFS.  The terms of the relatively short document are extracted below:

ASSIGNMENT OF RIGHTS TITLE AND INTERESTS

Date of this ASSIGNMENT: 14th June 2017

Borrower and Lessee: Fastline Logistics Pty Ltd a.b. 41611904541

Assignor: Tony and Liza Chia…

Assignee: Global Fashions Pty Ltd. 96 744 002 812

The assignor herein gives notice to the borrower that all rights title and interests in respect of money due and payable by the borrower and the operating of the business at 309 Fitzgeralds Road Derrimut Victoria are now controlled and administered by “GF”.

The borrower is requested to action any request made by “GF” as if authorised and or requested by the lender.

321 Again, the Assignment of Rights was executed by both Tony and Liza Chia, and Shauna Lay.  The document was also drafted by Tramontana Accountants.

322 It is again relevant to note that no evidence has been put forward regarding any communications between Fastline, Kenny or Shauna Lay, Tramontana Accountants, Tony or Liza Chia, or GFS at the relevant time the documents are dated or executed.  The documents appear in a vacuum of sorts which, again, creates difficulty in making factual findings regarding the specific events which took place at the time.

323 Separately, Fastline continued to operate the Target Online business.  The services agreement Fastline had entered into with Target on 1 July 2015 to conduct the Target Online business was for a three-year period, with renewal options of two further terms of 12 months.

324 As Fastline approached the end of the three-year contract period, on 31 March 2018, Target gave notice to Fastline that it was not renewing the Target Online business.  The letter was addressed to Kenny Lay and confirmed that the services agreement would expire on 30 June 2018.

325 On 6 June 2018, Fastline entered into an agreement with Target to sell Knapp 1 for $4.25 million.

326 On 8 June 2018, Tony and Liza Chia issued the Notice to Vacate to Fastline in respect of the Non-Target business, requiring Fastline to vacate the Non-Target business.  The terms of the Notice to Vacate are extracted below (as per the original):

NOTICE TO VACATE

Date of this notice: 8th June 2018

Date consent to operate business: 14th June 2017

Lessor: Tony and Liza CHIA… or its nominee

Lessee: Fastline Logistics Pty Ltd abn 41 611 904 541

The Business: Currently referred to as Fastline Logistics Pty Ltd at 309 Fitzgerald Road Derrimut Victoria Australia

NOTICE

Notice is hereby given that in accordance to the agreement to operate the business, the lessor hereby gives the Lessee 3 months to vacat the business.
The Lessor to be advised within 7 days pf vacatin for inspection of the business premises and equipment.

327 The sale of Knapp 1 ultimately fell through as Target was unable to negotiate acceptable terms for a new lease with the landlord of Saintly Drive.  Target provided notice on 23 July 2018 that the agreement to purchase Knapp 1 would, in turn, be terminated.

328 On 25 July 2018, the owner of Saintly Drive, Warehouse C issued a notice that Fastline’s licence to occupy the warehouse had been terminated.  The termination required Fastline to remove its property from Saintly Drive, including Knapp 1, within 28 days.

329 The Liquidators state that Fastline vacated the Non-Target business from Fitzgerald Road, pursuant to the Notice to Vacate, around 1 August 2018.  A letter was sent by Wilma Lay, dated 14 August 2018, to Fastline’s customers.  The letter stated:

We write to inform Fastline Logistics has sold its business and will be completely ceasing business at 28 saintly Drive Truganina and 309 Fitzgerald's Road Derrimut.

The new owners are Global Fashion Service Pty Ltd who will only be operating from 309 Fitzgerald Road Derrimut…

All services will continue and there will be no changes to your services as the new owners are the children of Kenny and Wilma Lay who you have had many years of communication with…

To discount any concerns we advise Kenny and Wilma wish to retire and the children desirous of continuing the business under their own identity.

6.3    Consideration of claims arising from transfer of Non-Target business

6.3.1    Claims against Shauna Lay

330 The Liquidators make a range of claims regarding Shauna Lay’s conduct regarding the transfer of the Non-Target business to GFS, which they allege, constituted a breach of her directors’ duties.

331 In particular, the Liquidators allege that Shauna Lay failed to:

(a)    take adequate steps to investigate whether Fastline, in fact, received all of the advances listed in the Default Notice;

(b)    take adequate steps to avoid causing Fastline to execute the Default Notice, where each of the advances listed therein had not been made;

(c)    take adequate steps to seek independent legal and financial advice as to whether Fastline was required to transfer the Non-Target business to GFS, and as to the additional terms set out in the Default Notice (such as the leaseback arrangement); and

(d)    take adequate steps to negotiate a payment arrangement in respect of amounts outstanding.

332 The Liquidators allege that Shauna Lay’s conduct amounted to a breach of her duty to act with the required degree of care and diligence (under s 180 of the Corporations Act and general law), and a breach of her duty to act in good faith in the best interests of the company (under s 181 of the Corporations Act and general law).

333 On the Liquidators’ version of events, the effect of the Default Notice and the Notice to Vacate was to strip Fastline of its assets, leaving it without the means to satisfy its liabilities.  The Liquidators claim that this occurred in circumstances where Fastline was insolvent, which required consideration to be given to the interests of creditors.

334 Further, the Liquidators also allege that given the transaction benefitted Shauna Lay’s aunt and uncle, as well as members of the Lay family who retained their employment with GFS, Shauna Lay acted in breach of her duty to not improperly use her position under s 182 of the Corporations Act.

335 I am not satisfied that the Liquidators’ claims are made out.

336 The claims brought by the Liquidators are substantively premised on the submission that only $350,000 was advanced pursuant to the Loan Agreement.  As I have found above, I am not satisfied that this was the case.  I have found that at least $998,000 were advanced by Tony and Liza Chia pursuant to the Loan Agreement.

337 While it is clear that this finding does not align with the advances listed under the Default Notice, the finding is ultimately fatal to the specific claims the Liquidators bring against Shauna Lay.

338 The Liquidators accept that the Loan Agreement existed.  I have found that $998,000 was advanced pursuant to the Loan Agreement, and it is not in dispute that the loan amount was not repaid.  It follows that, pursuant to the terms of the Loan Agreement, Tony and Liza Chia were entitled to exercise the security provided under the Loan Agreement to take possession of the Non-Target business.

339 Given the finding that $998,000 was advanced by Tony and Liza Chia pursuant to the Loan Agreement, it does not follow that the effect of the notices issued by Tony and Liza Chia was to strip Fastline of its assets, leaving it without the means to satisfy its liabilities.  Rather, it reflects Tony and Liza Chia exercising their contractual rights following Fastline’s failure to repay the loan amount.

340 Shauna Lay’s alleged “failure” to prevent Fastline from executing the Default Notice does not involve some breach of her directors’ duties.  The execution of the Default Notice by Shauna Lay was an acknowledgment that under the terms of the Loan Agreement, there having been a default by Fastline, Tony and Liza Chia were entitled to receive a transfer of the Non-Target business.  Any failure by Shauna Lay to execute the Default Notice would have, in turn, allowed Tony and Liza Chia to seek enforcement of their rights under the Loan Agreement.

341 Similarly, Shauna Lay’s alleged “failure” to seek independent legal and financial advice regarding the transfer of the Non-Target business does not involve some breach of her directors’ duties.  It was not incumbent upon her to obtain independent legal and financial advice where her execution of the Default Notice was pursuant to Tony and Liza Chia enforcing their contractual rights under the Loan Agreement. Additionally, to the extent the Liquidators make submissions that Shauna Lay failed to seek independent advice as to whether the Loan Agreement created an enforceable security over the Non-Target business, the Liquidators have not clearly articulated why the security would be unenforceable.  This is the case, even if it is accepted, as the Lay-Chia parties do, that the terms of the Loan Agreement were unclear in a number of ways.

342 While I accept Shauna Lay did fail to undertake steps to confirm that each of the payments identified in the Default Notice were actually advanced pursuant to the Loan Agreement, given that I have found that at least $998,000 were advanced by the Chias pursuant to the Loan Agreement, the Chias had a right to enforce the security.  In such circumstances, the failure to have confirmed that each of the payments identified in the Default Notice were actually made is of little consequence.  To the extent that the Shauna Lay’s conduct, in failing to confirm that each of the payments in the Default Notice was actually made, could be said to constitute a breach of her directors’ duties to exercise the requisite degree of care and diligence, the Liquidators have failed to establish any loss or damage that occurred as a result of the breaches.

343 Considering the additional terms in the Default Notice, particularly the leaseback arrangement, the terms could have been beneficial to Fastline if the Non-Target business generated trading profits of greater than $140,000 per annum (being the per annum cost of the leaseback arrangement).  The Liquidators have not sought to prove such an allegation because, as I have noted above, their case is effectively confined and premised on the submission that only $350,000 was advanced pursuant to the Loan Agreement, such that Shauna Lay should not have signed the Default Notice.  I am not satisfied that this was the case, and the Liquidators have not put forward a sufficient counterfactual case.

344 Similarly, even if Shauna Lay failed to negotiate a payment arrangement with Tony and Liza Chia in relation to the overdue loan amount, Tony and Liza Chia had a right to take possession of the Non-Target business and were not required to consider or grant such a payment arrangement.  I am not satisfied that a failure to negotiate a payment arrangement, in such circumstances, provides grounds to establish a breach of Shauna Lay’s directors’ duties.

345 The claim regarding Shauna Lay’s misuse of position must also fail for the same reason.  Tony and Liza Chia were entitled to exercise their contractual rights under the Loan Agreement, enabling them to take possession of the Non-Target business.

6.3.2    Claims against Tramontana Accountants

Involvement in Shauna Lay’s breaches of directors’ duty

346 The Liquidators bring a claim that, pursuant to s 79 of the Corporations Act, Tramontana Accountants were involved in Shauna Lay’s breaches of her directors’ duties.

347 As I have found that there was no relevant contravention of the Corporations Act by Shauna Lay, the Liquidators’ claim against Tramontana Accountants under s 79 of the Corporations Act must fail.

Breach of fiduciary duty to avoid conflicts

348 The Liquidators allege that Tramontana Accountants breached its fiduciary duty to avoid conflicts by acting on behalf of both Tony and Liza Chia, and Fastline, in preparing the Default Notice, the Assignment of Rights and the Notice to Vacate.  This is, in substance, the same complaint as raised in relation to the Loan Agreement.

349 For the reasons already discussed in relation to Tramontana Accountant’s preparation of the Loan Agreement, I am not satisfied that any fiduciary duty was owed to Fastline by Tramontana Accountants. It follows that the Liquidators’ claim for breach of fiduciary duty must fail.

Breach of duty of care

350 As previously noted, Tramontana Accountants accepts that it owed a duty of care to Fastline in respect to the provision of accounting services to the Company.

351 The Liquidators allege that Tramontana Accountants breached their duty of care by failing to:

(a)    refuse to prepare the Default Notice, the Assignment of Rights and the Notice to Vacate until all parties had independent representation;

(b)    advise Fastline to seek independent financial and legal advice regarding the Default Notice, Assignment of Rights and Notice to Vacate; and

(c)    advise Fastline to investigate that the advances set out in the Default Notice had actually been made, or otherwise seeking instructions to conduct such an investigation.

352 I am not satisfied that there has been a relevant breach of Tramontana Accountants’ duty of care.

353 As noted in relation to the Loan Agreement, I am not satisfied that drafting the Default Notice, the Assignment of Rights or the Notice to Vacate relates to Tramontana Accountants’ provision of accounting services.

354 In any case, regarding the preparation of the Default Notice, Assignment of Rights and Notice to Vacate, as with the case against Shauna Lay above, the Liquidators’ case is substantively premised on the submission that only $350,000 was advanced pursuant to the Loan Agreement such that the Default Notice, in effect, enabled Fastline to be stripped of its assets.

355 I have found above that Tony and Liza Chia advanced at least $998,000 pursuant to the Loan Agreement which was not repaid by Fastline by the date required under the Loan Agreement.  This entitled Tony and Liza Chia to exercise their right to security under the Loan Agreement to take possession of the Non-Target business.  In circumstances where the preparation of the Default Notice and the Notice to Vacate reflected a valid exercise of Tony and Liza Chia’s rights pursuant to the Loan Agreement, I am not satisfied that Tramontana Accountants’ role in preparing the relevant documents involved a breach of its duty of care owed to Fastline in respect of its provision of accounting services.

356 Complaints may be raised against Tramontana Accountants regarding the Default Notice including advances from Suzie Ha, which I have found were not made pursuant to the Loan Agreement.  Ultimately however, as I concluded in relation to Shauna Lay’s failure to confirm that the advances listed in the Default Notice were actually made, the Liquidators have failed to establish any loss or damage that occurred as a result of Tramontana Accountants’ conduct.

6.3.3    Claims against Liza Chia

357 The Liquidators bring a claim that, pursuant to s 79 of the Corporations Act, Liza Chia was involved in Shauna Lay’s breaches of her directors’ duties.

358 As I have found that there was no relevant contravention by Shauna Lay of her directors’ duties, it follows that the Liquidators’ claim against Liza Chia must fail.

7    Security deposit contribution

7.1    Findings regarding the security deposit contribution

359 The third set of claims brought by the Liquidators is against Shauna Lay only.  It relates to Fastline’s contribution to a cash security deposit given in relation to the Fitzgerald Road lease.

360 As has been outlined in detail above, Fastline operated from Fitzgerald Road from at least January 2000.  Fitzgerald Road was originally owned by Syndrom and leased to Interlogic under a lease agreement dated 14 November 2007 pursuant to which Interlogic provided a bank guarantee in the amount of $3,726,195.  The arrangement by which Fastline occupied Fitzgerald Road was not documented.

361 Around 21 November 2007, a week after the lease agreement with Interlogic, Fitzgerald Road was sold by Syndrom to Charter Hall.

362 The security provided under the lease in relation to Fitzgerald Road was accounted for within the Loan Agreement.  The Loan Agreement relevantly included the following terms:

B. Rent Bond:

(1) The rent bond as security for the business premises is provided my [sic] Wilma Lay and held under a bank guarantee provided by Bankwest.

(2) The borrowers have advised the business property rent and outgoings are above market value to about $800,000 and the lease has 11 years left. This equate [sic] to more than $8.8m extra rent and outgoings and the rent bond to be used until termination of the lease and thereafter the bond shall be returned to Wilma LAY.

C. Default and Lender Option:

...

(e) The rent bond to remain as lease security for the term of the lease or until such time the lender advises. The parties declare they are all aware the business property rental is in excess of market value and the lender deems the bond additional security for the loan.

363 Around 21 July 2016, MITSA Pty Ltd c/o Propertylink acquired Fitzgerald Road who replaced Charter Hall as the landlord of the premises.

364 On 17 March 2017, the bank guarantees provided by Interlogic in relation to the lease of Fitzgerald Road were called upon, with the sum of $2,557,071.63 being paid to Charter Hall.  Charter Hall confirmed that the amounts received were applied largely to outstanding arrears, with the balance being held to be applied against future costs at the property incurred as a result of Fastline’s default under the lease.

365 Following the bank guarantees being called upon by Charter Hall, around 21 April 2017, in exchange of Propertylink returning Interlogic’s original bank guarantee, a cash security deposit of $3,590,614.50 was provided to Propertylink as replacement security.

366 The $3,590,614.50 cash security provided to Propertylink was sourced from:

(a)    Fastline, in the amount of $1,211,319.42 (being Fastline’s security deposit contribution);

(b)    Syndrom, in the amount of $660,296.60; and

(c)    Lavin Holdings Pty Ltd, in the amount of $1,718,998.39.  Lavin was the parent company of Fastline, being the entity through which Kenny and Wilma Lay owned Fastline.

367 In her affidavit, Shauna Lay stated that the security deposit contribution was not in fact Fastline’s funds.  Rather, Shauna Lay stated that an amount of $2,061,319.42 was paid into a “gold term deposit” account held in the name of Fastline, following Syndrom’s sale of Boundary Road, and that the security deposit contribution was paid out of the gold term deposit.  Shauna Lay asserted that the security deposit contribution was actually paid from Syndrom’s funds. This conflicted with an earlier version of her pleading which stated that the security deposit contribution was actually paid out of Shauna Lay’s personal funds.

368 In cross-examination, it was evident that Shauna Lay had no recollection of the security deposit contribution, including who authorised the payment, or what the source of the funds was.

369 The evidence shows that Shauna Lay’s assertions as to the source of the gold term deposit from which the security deposit contribution was paid is incorrect.  The term deposit which Shauna Lay alleges was paid into following the sale of Boundary Road appears in a version of Fastline’s balance sheet as at 30 June 2016, and a version of Fastline’s balance sheet as at July 2016, before the sale of Boundary Road in August 2016.  Additionally, the evidence also shows that the surplus proceeds from the sale of Boundary Road were deposited into Fastline’s separate Bankwest account, and was accounted for by a reduction in the related party loan owed by Syndrom to Fastline.

370 I am satisfied that the security deposit contribution was paid from Fastline’s own funds.  In any case, the Lay-Chia parties’ written closing submissions appear to accept that this was the case.

371 Following Fastline’s execution of the Default Notice and the Assignment of Rights on 14 June 2017, and Fastline’s execution of the Notice to Vacate on 8 June 2018, a Deed of Variation and Assignment of lease was subsequently entered into between Mitsa, Interlogic, and GFS on 21 December 2018.  Fastline and Tony Chia also executed the deed as guarantors.  By this date, Interlogic had been placed into voluntary administration (on 14 October 2018), and Fastline had been placed into liquidation (20 December 2018).

372 Pursuant to the Deed of Variation, the lease for Fitzgerald Road was assigned from Interlogic to GFS.  Under the Deed of Variation, Interlogic also transferred its rights in the cash security provided to Mitsa.  The terms of the Deed of Variation indicate that GFS was required to source a separate bank guarantee as security for the performance of the lease, following which Mitsa would return the cash security.

7.2    Claims against Shauna Lay regarding the security deposit contribution

373 In relation to Fastline’s security deposit contribution, the Liquidators only bring a claim against Shauna Lay.  The Liquidators allege that Shauna Lay breached her duty of care and diligence owed to Fastline by failing to:

(a)    take adequate steps to avoid Fastline making the security deposit contribution;

(b)    document the sub-leasing arrangement between Fastline and Interlogic, including negotiating a contractual right to have Fastline’s security deposit contribution returned; and

(c)    negotiate the return of the security deposit contribution before executing the Deed of Variation.

374 I am not satisfied that the Liquidators have sufficiently made out their claim in relation to Fastline’s payment of the security deposit contribution.

375 In particular, the payment of the security deposit contribution was made prior to the execution of the Default Notice whereby Tony and Liza Chia exercised the security under the Loan Agreement to take possession of the Non-Target business.

376 The payment of the security deposit contribution by Fastline, on behalf of Interlogic, restored the required security deposit to Propertylink after the initial security which had been provided in relation to the lease of Fitzgerald Road, being the Bankwest bank guarantees, had been called upon by Charter Hall.  If the replacement security had not been provided, Interlogic would have been in default under the terms of the lease for the property, due to which Propertylink may have sought to forfeit the lease.

377 At the time, Fastline was conducting the Non-Target business from Fitzgerald Road, and in effect, obtaining the entire benefit of Interlogic’s lease of Fitzgerald Road.  It was squarely within Fastline’s interest to ensure that Interlogic maintained the lease of Fitzgerald Road.  This was reflected historically within the Group in which Fastline had acted as the Group’s bank, being the main operating entity within the group, and where Fastline appeared to take responsibility for meeting the financial commitments of the Fitzgerald Road lease.

378 By making the security deposit contribution, Fastline ensured that Interlogic was able to provide the security necessary to continue its tenancy of Fitzgerald Road, which in turn, enabled Fastline to continue occupying the premises and operating the Non-Target business as a going concern.  The payment of the security deposit contribution, on behalf of Interlogic, naturally, also gave rise to a right of Fastline against Interlogic in relation to the amount contributed.

379 Noting the above, the Liquidators have not proven, or sought to prove in any substantive sense, that the security deposit contribution could have been paid by Interlogic itself, or that Fastline did not obtain the relevant benefits in making the security deposit contribution.  I am not satisfied that the Liquidators have sufficiently made out their claim that Shauna Lay breached her duty of care and skill by failing to prevent Fastline from making the security deposit contribution.

380 In relation to Fastline’s execution of the Deed of Variation, the Liquidators argue that it caused Fastline to relinquish any entitlement it had to the security deposit contribution.  In particular, the Liquidators refer to cl 11(a) of the Deed of Variation which provided:

In consideration of the Assignee agreeing to assume the Assignor’s obligations under the Lease on and from the Assignment Date, on and from the Assignment Date the Assignor assigns and transfers to the Assignee all rights, interests and title that it has to or in or in [sic] connection with the Security Deposit.

381 The Assignor and the Assignee were defined in the Deed of Variation as Interlogic and GFS respectively.  The Security Deposit was also defined as “the amount held by Landlord in the amount of $3,590,614.50 as security for the performance by the ‘Tenant’ under the Lease”.

382 The Liquidators also argue that the assignment of the security deposit contribution to GFS cannot be said to have been done in accordance with the exercise of GFS’ security rights under the Loan Agreement, given that the Loan Agreement did not confer security over the security deposit contribution.  Rather, the Loan Agreement referred to the original bank guarantee that had been released in April 2017 following the payment of the cash security to Mitsa.

383 However, contrary to the Liquidators’ case, the Deed of Variation had no bearing on Fastline’s right to recover the security deposit contribution.  The security deposit contribution gave Fastline a right to recover the amount from Interlogic.  The Deed of Variation had no legal impact on that right as Fastline never had a right to recover the security deposit contribution from Propertylink directly.

384 In cross-examination, Mr Ford confirmed that the Liquidators had written to the deed administrators of Interlogic, but could not confirm any further steps taken to enforce Fastline’s rights against Interlogic to recover the security deposit contribution.

385 It should also be noted that Fastline executed the Deed of Variation specifically as a guarantor.  In doing so, Fastline guaranteed GFS’ performance under the Fitzgerald Road lease.  While this was arguably detrimental to Fastline in that Fastline was guaranteeing the performance of obligations which it previously had not, this is beyond the pleaded case.

386 For the reasons outlined above, I am not satisfied that the Liquidators have made out that Fastline’s execution of the Deed of Variation amounted to a breach of Shauna Lay’s duty owed to Fastline to exercise due care, skill and diligence, or her duty to act in good faith in the best interests of Fastline.

8    Payments made to Tramontana Accountants prior to liquidation

387 The Liquidators bring unfair preference claims against Tramontana Accountants in relation to a number of payments made to them prior to Fastline being put into liquidation.

388 Liquidators were appointed to Fastline on 20 December 2018.  Therefore, for the purposes of s 588FE(2), the six months ending on the relation back day is the period from 20 June 2018 to 20 December 2018 (the relation back period).

8.1    Findings regarding the payments made to Tramontana Accountants

389 As has been noted earlier in these reasons, around 1 September 2016, Tramontana Accountants entered into a written retainer with Tramontana Accountants, pursuant to which Tramontana Accountants agreed to accept a weekly fee of $5,000 for the provision of accounting and other services.  The retainer was prepared on the basis that the services provided by Tramontana Accountants had escalated at that time.

390 During the relation back period and thereafter, Tramontana Accountants issued the following four invoices:

(a)    invoice 220424.69 dated 18 July 2018 in the amounts of $22,000;

(b)    invoice 220424.70 dated 30 August 2018 in the amount of $55,000;

(c)    invoice 220424.71 dated 30 October 2018 in the amount of $100,000;

(d)    invoice 220424.72 dated 31 December 2018 in the amount of $33,000.

391 During the relation back period, Fastline made the following payments to Tramontana Accountants:

392 Tramontana Accountants accept that Fastline made each of the payments noted above.

393 As is clear from the table above, each of the payments made by Fastline was for an amount of $5,000 with the exception of the payment on 30 October 2018 which was for $100,000.

394 The invoice for the $100,000 amount (invoice 220424.71, being the invoice dated 30 October 2018) stated that the fees were regarding “Fees and Commissions re sale Knapp Equipment to Catch”.

395 To provide additional context to the payment, as was noted in the initial chronology, following Target’s notice to Fastline that it was not renewing the contract for the Target Online business, Fastline entered into an agreement, dated 6 June 2018, for Target to acquire Knapp 1 from Fastline for $4.25 million.  However, the sale was conditional on Target negotiating acceptable terms for a new lease for Saintly Drive.

396 After Target was unable to negotiate terms for the lease of Saintly Drive that were acceptable to it, notice of which was given to Fastline on 23 July 2018, the agreement to acquire Knapp 1 was terminated.

397 Ultimately, on 9 October 2018, Fastline entered into an agreement to sell Knapp 1 to Catch for $875,128 (excl GST).

398 Mr Tramontana claims that the $100,000 payment on 30 October 2018 was Tramontana Accountants’ commission in facilitating the sale of Knapp 1 to Catch.

399 In relation to the remainder of the payments, Tramontana Accountants raise a “running account” argument under s 588FA(3) pursuant to which Tramontana Accountants argue that the debt owed to Tramontana Accountants by Fastline over the relation back period only decreased by $13,000, from $166,042 to $153,042.

400 The Liquidators limited their unfair preference claims to:

(a)    $13,000, by way of the reduction in the running balance in the relation back period; and

(b)    $100,000, as the amount paid as commission for successfully arranging the sale of Knapp 1.

8.2    Legal principles

401 Under s 588FE(2), a transaction is voidable if it is:

(a)    an insolvent transaction of the company; and

(b)    it was entered into, or an act was done for the purpose of giving effect to it during the 6 months ending on the relation back day, or after that day but on or before the day when the winding up began.

402 There is no dispute regarding the relevant transactions having been entered into during the relation back period.

403 A transaction will be an insolvent transaction pursuant to s 588FC if, amongst other things, the transaction is an unfair preference that was entered into at a time when the company is insolvent.

404 Section 588FA identifies when a transaction amounts to an unfair preference.  Section 588FA(1) and (3) of the Corporations Act relevantly provide:

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

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

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

…

(3)    Where:

(a)    a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between the company and a creditor of the company (including such a relationship to which other persons are parties); and

(b)    in the course of the relationship, the level of the company’s net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship;

then:

(c)    subsection (1) applies in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and

(d)    the transaction referred to in paragraph (a) may only be taken to be an unfair preference given by the company to the creditor if, because of subsection (1) applying.

405 A company will be insolvent pursuant to s 95A of the Corporations Act if it is unable to pay all of its debts as and when they become due and payable.

8.3    Consideration of unfair preference claims

406 The Liquidators rely on Mr Ford’s Solvency Report to establish that Fastline was insolvent throughout the relation back period.

407 I am satisfied that, based on the Solvency Report, Fastline was insolvent throughout the relation back period.  By such time, the financial position of the company had worsened materially relative to when Fastline entered into the Loan Agreement on 1 June 2016.  Tramontana Accountants have not sought to substantively challenge that Fastline was insolvent during the relation back period.

408 The material question that remains to be determined is whether the relevant payments amount to an unfair preference under s 588FA.

$100,000 commission payment on 30 October 2018

409 The commission payment was a one-off payment outside the ordinary course of Fastline’s business with Tramontana Accountants.  It stands outside any continuing business relationship or running account.

410 Tramontana Accountants seeks to defend this preference claim on the following two bases:

(1)    the ultimate effect of the transaction in question was to increase the company’s asset value; and/or

(2)    Tramontana Accountants were owed the commission as a secured debt.

Doctrine of ultimate effect

411 Tramontana Accountants argue that under the doctrine of ultimate effect, one must look to the transaction in question and its effect on the net value of the company’s assets.  It argues that in circumstances where the commission paid to it was $100,000, and where the sale price of Knapp 1 was $875,128 (excl GST), the transaction increased the net value of Fastline’s assets.

412 Tramontana Accountants first relies on VR Dye & Co v Peninsula Hotels [1999] 3 VR 201, a case in which the ratio of the decision is that a pre-payment into a trust account, from which a debt is later paid, must be examined as an entire transaction and, once the totality of the transaction is viewed as a whole, there is no preference.

413 Ormiston JA considered how the avoidance regime is intended to operate, despite its amendment in 1993 to altered wording.  His Honour said at [35]:

… Against that broad principle [of equal treatment of creditors], however, there has been recognised the necessity of ensuring that a company facing winding up must have some capacity to live out and possibly survive its feared fate.  It is in the interests of the body of unsecured creditors that there should remain a business which can be sold as a running concern, so long as its liabilities are not increased in the mean time. So it has been accepted for many years that, as long as the company does not pay out existing creditors without obtaining an effective corresponding advantage, then it should be allowed to acquire goods and services by prepayment or on cash on delivery terms.  The rationale behind the “exception” (more precisely, the non-inclusion within the general rule) is that the company gains goods and services to an equivalent value (in broad terms) to that which it pays out to obtain them, so that the existing creditors cannot in theory be prejudiced by the payment. I say “in theory” because the “rule” assumes that there is an equivalence between price and benefit obtained, which may not always occur, but to engraft some further exception upon the exception would tend to commercial impracticability.

414 Tramontana Accountants also refer to Beveridge v Whitton [2001] NSWCA 6 at [27], in which Heydon JA stated:

The fact that the defendant’s intervention was, in that sense, ultimately detrimental to the creditors is not determinative, though the trial judge appeared so to treat it. This is because the "doctrine of ultimate effect" does not depend on an evaluation of whether the overall result of the impugned transaction, taken with all other circumstances affecting the company, was to improve or worsen the company's position.  Rather, the doctrine looks to the "ultimate effect" of the particular transaction.  If a company gives up $1,000 in cash, but gains goods which are unquestionably worth $1,000 or more, the ultimate effect has not been to decrease the net value of the assets.

415 Tramontana Accountants seek to apply the doctrine of ultimate effect in circumstances where it cannot apply.  The analysis that the commission payment of $100,000 was less than the Knapp 1 sale price, such that Fastline’s net value of assets increased, is misguided and incorrect.

416 In this case, Fastline did not pay the purchase price of an asset, which would be assumed to be of equal or greater value than the price paid, so that the result would be at least neutral effect on the company’s assets.  This is also not a case in which the Court is left to assume that any services provided ought to be taken as having been received at face value.  This is because the commission represented a success fee on achieving the sale of Knapp 1 and was not a fee for services rendered.

417 In those circumstances, the comparison between the services provided and the value of those services received cannot be said to be equivalent.  Fastline agreed to pay and paid an amount for commission of $100,000.  The commission was agreed and paid without specific reference to the value of what services were being provided.  There is no specific evidence of the hourly rates applied or the amount of time at which the work was carried out.  There can be no meaningful comparison between the value of the services provided and the amount of the commission.  As a consequence, the doctrine of ultimate effect cannot apply to the commission payment.

The commission was a secured debt

418 Tramontana Accountants alternatively argue that the commission payment was owed to it by Fastline as a secured debt.  The argument is reliant on the fact that the definition of an unfair preference under s 588FA (extracted above) refers to a creditor receiving an amount in respect of an unsecured debt.  Therefore, to the extent that the commission payment was in respect of a secured debt owed to Tramontana Accountants, it could not be considered to constitute an unfair preference.

419 Tramontana Accountants argue that an agreement was made between Fastline and Tramontana Accountants, for Tramontana Accountants to effect a sale of Knapp 1 on the promise of a commission.  In circumstances where the subject of the work was specifically identified, Tramontana Accountants submit that equity would regard it as unconscientious if Fastline had completed the sale of Knapp 1 and not paid Tramontana Accountants its relevant commission, such that an equitable lien in favour of Tramontana Accountants arose.

420 Tramontana Accountants rely on Hewett v Court (1983) 149 CLR 639. The case concerned a builder of prefabricated houses who agreed to construct a house for a purchaser and to transport it to his land on practical completion.  The price was to be paid by a deposit on the execution of the contract, a second instalment on the pitching of the roof, a third instalment seven days before delivery, and the balance on practical completion on site.  The contract stated that the house was to be at the builder’s risk until practical completion on site and was to remain its property until payment of the price in full.  If the purchaser purported to cancel the contract, the builder was to be entitled to recover a proportion of the total price equivalent to the work and labour done.  The first two payments were made, however the builder then became insolvent.  The builder entered into an agreement shortly before the commencement of winding up for the purchaser to take the unfinished house on payment of the value of the work done in addition to that already paid for.  The liquidator sought to recover the value of the house immediately before the agreement on the ground that the transaction involved a preference. The purchaser asserted an equitable lien to secure the progress payments under the contract.

421 Gibbs CJ, Murphy and Deane JJ (Wilson and Dawson JJ dissenting) held that the purchaser had an equitable lien over the house for the amount of the purchase money paid.  The court therefore found that the purchaser’s acquisition of the unfinished house was not a preference.

422 Gibbs CJ, discussing the concept of an equitable lien, stated (at 645):

Equitable lien does not depend either upon contract or upon possession. It arises by operation of law, under a doctrine of equity “as part of a scheme of equitable adjustment of mutual rights and obligations”… A vendor's lien for unpaid purchase money has been said to be founded on the principle that "a person, having got the estate of another, shall not, as between them, keep it, and not pay the consideration"… The lien of a purchaser for the purchase money that he has paid to the vendor on a sale that has gone off through no fault of the purchaser may perhaps rest on the converse principle that he who has agreed to convey property in return for a purchase price will not be allowed to keep the price if he fails to make the conveyance… In each of these cases the vendor or the purchaser, as the case may be, is treated as a secured creditor… the lien is the security for the money which is justly due.

423 Deane J, considering the circumstances in which an equitable lien may be said to arise, stated at 668:

It is adequate for present purposes that I identify what I consider to be the circumstances which are sufficient for the implication, independently of agreement, of an equitable lien between parties in a contractual relationship… They are: (i) that there be an actual or potential indebtedness on the part of the party who is the owner of the property to the other party arising from a payment or promise of payment either of consideration in relation to the acquisition of the property or of an expense incurred in relation to it… (ii) that that property (or arguably property including that property…) be specifically identified and appropriated to the performance of the contract… and (iii) that the relationship between the actual or potential indebtedness and the identified and appropriated property be such that the owner would be acting unconscientiously or unfairly if he were to dispose of the property (or, if it be appropriate, more than a particular portion thereof) to a stranger without the consent of the other party or without the actual or potential liability having been discharged.

424 Tramontana Accountants also refer to Re Universal Distributing (in liq) (1933) 48 CLR 171.  The case concerned priority to a fund which had been realised.  In that case, it was recognised that a secured creditor would rank in priority behind a person who had incurred expenses in the care, preservation and realisation of property.  Tramontana Accountants refer to Dixon J’s statement at 174:

If a creditor whose debt is secured over the assets of the company come in and have his rights decided in the winding up, he is entitled to be paid principal and interest out of the fund produced by the assets encumbered by his debt after the deduction of the costs, charges and expenses incidental to the realization of such assets… The security is paramount to the general costs and expenses of the liquidation, but the expenses attendant upon the realization of the fund affected by the security must be borne by it... The debenture-holders are creditors who have a specific right to the property for the purpose of paying their debts. But if it is realized in the winding up, a proceeding to which they are thus parties, the proceeds must bear the cost of the realization just as if they had begun the suit for its realization or had themselves realized it without suit…

(Citations omitted.)

425 Dixon J further stated, at 174-175:

In applying this principle, only those expenses appear to have been thrown against the fund belonging to the debenture-holders which have been reasonably incurred in the care, preservation and realization of the property. In the present case the liquidator has employed a material part of his time and energies in recovering moneys, both uncalled capital and debts, which enure for the debenture-holder, and in so far as these services increase the remuneration which he receives, I see no reason why the burden should not be thrown upon the proceeds. The question is not whether moneys available for unsecured creditors should be relieved at the expense of the security. In such a case it may be said that the service of collecting enough to discharge the debenture must in any event be performed in order that a surplus may then arise in which the unsecured creditors may participate. The question in the present case is whether the liquidator can charge against the fund passing through his hands as between himself and the person to whom it is payable, so much of the remuneration fixed for work done in the winding up as is referable to the calling in and conversion of the assets producing the fund. I see no reason why remuneration for work done for the exclusive purpose of raising the fund should not be charged upon it.

426 I am not satisfied that Tramontana Accountants had an equitable lien, such that Fastline’s commission payment was in relation to a secured debt.

427 It is unclear how Tramontana Accountants seek to rely on the authorities discussed above.  The circumstances discussed in Hewett regarding a purchaser’s lien have little application to the facts before me.

428 The Liquidators do not dispute that Tramontana Accountants carried out work to facilitate and effect the sale of Knapp 1 to Catch, or that there was an agreement between Fastline and Tramontana Accountants for the payment of the commission on Knapp 1’s successful sale.  However, Tramontana Accountants appear to argue that, largely due to the fact that such an agreement was in place, and that the work was conducted in relation to an identified asset, it would be unconscientious if Fastline completed the sale and failed to pay Tramontana Accountants the agreed commission.

429 I am not satisfied that the circumstances of the case are such to give rise to an equitable lien (presumably in the proceeds from the sale of Knapp 1, although Tramontana Accountants have failed to clearly specify this). While Tramontana Accountants carried out work to effect the sale of Knapp 1, there is no clearly articulated reason as to why an equitable lien would be necessary or appropriate to protect Tramontana Accountants’ right to receive the relevant commission from the proceeds of the sale.  It is also relevant to note that the commission payment was a “global success fee”, rather than an amount paid for specific expenses that were reasonably incurred in realising Fastline’s assets.  Tramontana Accountants have also failed to identify any authority which provides support to the finding that they seek to be made in the circumstances of this case.

430 It follows that the payment of the commission was a transaction in respect of an unsecured debt.  I am also satisfied that it resulted in Tramontana Accountants receiving more from Fastline than it would receive if the payment of the commission were set aside and Tramontana Accountants required to prove for the debt in a winding up of Fastline.  The payment of the commission fee therefore constitutes an unfair preference under s 588FA.  As it was entered into at a time when Fastline was insolvent, it constitutes an insolvent transaction under s 588FC.

431 It follows that the $100,000 commission payment to Tramontana Accountants is voidable pursuant to s 588FE(2).  It is appropriate to make orders pursuant to s 588FF directing Tramontana Accountants to pay the sum of $100,000 to Fastline, reflecting the commission payment it received.

$13,000 reduction in running balance

432 As noted above, Tramontana Accountants relied on s 588FA(3) in relation to the remainder of the payments made during the relation back period, arguing that the payments made to Tramontana Accountants were made as part of a continuing business relationship, and that the net effect of the running account was that any preference could only be for the sum of $13,000.  The Liquidators have, in turn, limited their claim to the $13,000 reduction in the running balance.

433 In relation to the $13,000 reduction in the running balance, Tramontana Accountants then seek to rely on the doctrine of ultimate effect.  Tramontana Accountants argues, by reference to the reasons in Beveridge, that the doctrine of ultimate effect is not just about the monetary effect of a transaction, but can also extend to matters such as the payment of fees to an accountant.  Tramontana Accountants argue that, in this case, the payments made to it were for accounting services that Fastline required in order to trade.  Tramontana Accountants argue that the ultimate effect of the payments did not disadvantage other creditors of Fastline, and therefore, there was no unfair preference.

434 In my view, Tramontana Accountants’ submissions on this point fail to address the key issue which arises in relation to its reliance on the doctrine of ultimate effect.  The key issue is not whether the doctrine is sufficiently flexible to account for the payment of accounting fees, where such fees are required for the ongoing operation of a business.

435 Rather, the issue for Tramontana Accountants is that they rely on the doctrine of ultimate effect in addition to their running account defence under s 588FA(3).  Section 588FA(3) already provides that where a company’s net indebtedness to a creditor, in the context of an integral continuing business relationship, increases and reduces from time to time due to a series of transactions forming part of the relationship, then all transactions forming part of the relationship are constituted together as a single transaction for the purposes of determining whether it constitutes an unfair preference.

436 In this sense, s 588FA(3) already accounts for the ongoing payment of services rendered as part of an integral continuing business relationship.  That is why, for the purposes of determining whether there has been an unfair preference, attention is then directed to the ultimate change in the running account by constituting all of the individual transactions together as a single transaction.  Section 588FA(3) is, in effect, a codification of the exception to unfair preferences as to running accounts: see VR Dye & Co at [26], [32] (Ormiston JA, Winneke P and Tadgell JA agreeing).

437 It is illogical to accept that, under s 588FA(3), there was a reduction in the running account during the relation back period of $13,000, and to then seek to apply the doctrine of ultimate effect in relation to that $13,000.  The fact that there was a reduction in the running account of $13,000 is representative of the fact that, during the relation back period, Tramontana Accountants was paid $13,000 more than the value of services rendered.

9    Transfer of business from GFS to Click 3PL

9.1    Background to transfer of business from GFS to Click 3PL

438 Following the transfer of the Non-Target business from Fastline to GFS, and Fastline’s insolvency, GFS ran into its own financial difficulties.  In March 2020, the landlord of Fitzgerald Road drew down $910,904 of the security deposit held by it in respect of Fitzgerald Road, following default under the terms of the lease by GFS.

439 Mr Craig Bolwell, who was appointed as liquidator of GFS on 27 June 2022, noted in his report to GFS’ creditors dated 26 September 2022 that GFS was experiencing difficulties in complying with its rental obligations from around January 2019.  GFS was in a dispute with the landlord of Fitzgerald Road.  GFS sought to negotiate a rent reduction due to the company’s deteriorating income.  While an agreement appeared to have been reached in relation to a rent reduction, the parties remained in dispute regarding the value and nature of the security deposit required to be paid by GFS.  Additionally, despite the rent reduction, GFS did not pay the rent and outgoings required under the new arrangement.

440 Ultimately, the landlord of Fitzgerald Road re-entered the property on 7 February 2021.  A notice of re-entry was served on GFS on the basis that GFS had outstanding rent for the period of 1 April 2020 to 1 February 2021 in the amount of $843,478.54.  Legal action between the entities progressed, with the landlord claiming over $2 million in outstanding rent and outgoings by August 2021, while GFS filed a counter-claim seeking damages for lost revenue.  GFS claimed it had lost a number of customers as a result of being deprived of its possession of Fitzgerald Road.

441 Ultimately, GFS abandoned Fitzgerald Road around 23 July 2021.  GFS subsequently relocated to new premises at 57 Barclay Road, Derrimut in July 2021.

442 Around the same time, on 19 July 2021, Click 3PL was incorporated.  As has been noted above, Click 3PL is indirectly owned by Kenny Lay, who is also the company’s sole director.

443 The Liquidators allege that, at some time between mid-2021 and mid-2022, while these proceedings were already on foot against GFS, the Non-Target business was again transferred by GFS to Click 3PL.

444 Ultimately, GFS ceased to trade around 22 December 2021 and was placed into liquidation on 27 June 2022.

445 There is no material evidencing the transfer of “the business” to Click 3PL – for example, there are no documents evidencing communications between Tony Chia and Kenny Lay regarding the transfer, sale agreements, or other similar material.  There is also no evidence to suggest that any consideration was given in turn for the transfer, nor any commercial explanation provided for the transfer.  The suggestion raised by the Liquidators is that the transfer was motivated by GFS’ poor financial position, alongside the legal proceedings brought by the landlord of Fitzgerald Road.

446 In order to establish that what was transferred to Click 3PL was the same “Non-Target business” that was transferred to GFS by Fastline, the Liquidators rely primarily on a section of Kenny Lay’s affidavit sworn on 3 August 2023.  In his affidavit, Kenny Lay states the following:

In or around mid-2021, the family made a decision that, due to Tony’s poor health and the fact that the Fastline business was not doing well, GFS would transfer the Fastline business to one of my companies to reduce the stress on Tony and Liza.

The Fastline business has had little to no value since Target pulled out of the agreement.

447 The “Fastline business” is not defined in Kenny Lay’s affidavit.  However, the Liquidators submit that Kenny Lay’s affidavit should, in effect, be understood as an admission that GFS transferred a business to Click 3PL, and that the business was understood to be “the Fastline business”.

448 During cross-examination, Tony Chia also gave the following oral evidence regarding the transfer:

COUNSEL:    I suggest to you, and you can agree or disagree, that the purpose of the transfer to Click 3PL was so that your extended family could retain possession and ownership of the Fastline business. Do you agree or disagree?

TONY CHIA:     That time, I ask them to make decision, you know. To pass onto him, to run it.

COUNSEL:    So it could remain in the ownership of your extended family, correct?

TONY CHIA:     Yes. Think so.

449 The Liquidators also refer to a number of screenshots taken from Click 3PL’s website which they submit reflects that Click 3PL operates, in effect, the same business previously operated by GFS.  In particular, the Liquidators refer to the following pieces of information:

(a)    Click 3PL’s place of business is at Barclay Road, which was the same as GFS’ registered principal place of business since 22 June 2021;

(b)    Click 3PL’s phone number is the same as that which had been listed on GFS’ website; and

(c)    Several of the customers listed on Click 3PL’s website were also said to have been GFS’ customers.

9.2    Claims arising from transfer of business from GFS to Click 3PL

9.2.1    Claim against Click 3PL

450 The Liquidators bring a claim of knowing receipt against Click 3PL.  The Liquidators allege that Tony Chia, as director of GFS, transferred the Non-Target business to Click 3PL in breach of his duties to act in good faith and in the best interests of GFS and his duty to not improperly use his position.  Click 3PL had knowledge of, was wilfully blind to, wilfully and recklessly failed to make such inquiries as an honest and reasonable person would make regarding, or had knowledge of circumstances which would indicate to an honest and reasonable person of, the fact that the business constituted property transferred in breach of Tony Chia’s duty.  On that basis, the Liquidators allege that Click 3PL’s knowing receipt of the business means that it holds the business on constructive trust, and that Fastline would be entitled to trace the business into the hands of Click 3PL and to an account of profits derived by Click 3PL.

451 I have found that Kenny Lay and Shauna Lay did not breach their duties as directors of Fastline in causing Fastline to enter into the Loan Agreement, offering the Non-Target business as security, or executing the subsequent Default Notice and Assignment of Rights.  It follows that any transfer of those assets offered as security after Fastline’s default cannot give rise to equitable claims of knowing assistance or knowing receipt.

452 Additionally, while I accept that Kenny Lay and Tony Chia’s evidence indicates an intention to transfer what they understood to be the same business, it is not possible to identify with any precision what actually constituted “the business” at that time.  The Liquidators have not identified any particular assets or any other particular items which are said to constitute the business transferred to Click 3PL.  This was evident by the fact that, during cross-examination, Mr Ford was unable to positively identify a single asset which was once owned by Fastline and said to have been transferred to Click 3PL, or positively confirm a single customer of the Non-Target business that was now a customer of Click 3PL.

453 Given the relevant deficiencies in the evidence before me, I am not in a position to determine if the Non-Target business continues to meaningfully exist in the same form to connect it to Click 3PL.  I am not satisfied that the Liquidators’ claim against Click 3PL has been established.

9.2.2    Claim against Kenny Lay

454 The Liquidators also bring a claim against Kenny Lay, alleging that Kenny Lay knowingly assisted GFS in breaching its duties as a constructive trustee of the Non-Target business, by causing Click 3PL to receive the Non-Target business from GFS.  The Liquidators allege that the transfer constituted a dishonest and fraudulent design on Tony Chia’s part as it was intended to defeat the interests of GFS’ creditors.

455 As noted above, in circumstances where I have found that the Liquidators’ claims against Kenny and Shauna Lay in relation to breaches of directors’ duties owed to Fastline are not made out, it follows that how GFS subsequently disposed of the assets cannot give rise to equitable claims in knowing assistance.

456 Additionally, in the absence of material before me regarding what actually constituted “the business” at the time of transfer to Click 3PL, I am not satisfied that I am in a position to make findings as to Kenny Lay’s alleged knowing involvement in Tony Chia’s alleged dishonest and fraudulent design to transfer “the business”, or in any case, findings as to any liability that could be attributed to Kenny Lay’s conduct.

10    Disposition

457 I will make the orders sought by the Liquidators in relation to the unfair preference claims brought against Tramontana Accountants, namely declarations that the relevant transactions constituted unfair preferences within the meaning of s 588FA of the Corporations Act, and an order under s 588FF for the payment of the unfair preferences to Fastline.

458 The Further Amended Originating Process dated 1 March 2024 will otherwise be dismissed.  I will make orders for the parties to file submissions as to costs.

Associate:

Dated:    10 April 2025

SCHEDULE OF PARTIES