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  • Unreported Judgment

McLeod v Alokaily

 

[2020] QSC 308

SUPREME COURT OF QUEENSLAND

CITATION:

McLeod & Anor v Alokaily [2020] QSC 308

PARTIES:

JONATHAN PAUL McLEOD AND BILL KARAGEOZIS AS LIQUIDATORS OF ALI ALI CONTRACTING PTY LTD (IN LIQUIDATION) ACN 620 279 183

(Applicants)

v

ESKANDER ALOKAILY

(Respondent)

FILE NO/S:

BS No 11613 of 2019

DIVISION:

Trial Division

PROCEEDING:

Trial

DELIVERED ON:

8 October 2020

DELIVERED AT:

Brisbane

HEARING DATE:

28 September 2020

JUDGE:

Bowskill J

ORDERS:

  1. The court orders that the respondent pay to the company, Ali Ali Contracting Pty Ltd, the sum of $358,683.44, in satisfaction of the director’s loan.
  2. The court declares that the following transactions  are voidable transactions under s 588FE(6A) of the Corporations Act 2001, because they are unreasonable director-related transactions of the company, Ali Ali Contracting Pty Ltd, within the meaning of s 588FDA(1) of the Corporations Act 2001:
    1. (a)
      the transfer of amounts totalling $168,000 from the company’s bank account to the Maha Contracting Pty Ltd bank account;
    2. (b)
      the transfer of amounts totalling $163,238 from the company’s bank account to the respondent’s credit card account;
    3. (c)
      the transfer of amounts totalling $80,100 from the company’s bank account to the respondent’s personal bank account; and
    4. (d)
      the withdrawal of $20,800 cash from the company’s bank account.
  3. The court directs that the applicants file an affidavit setting out the liquidators’ costs, including in relation to this proceeding, within a time frame to be determined.
  4. Further submissions in relation to the orders to be made under s 588FF(1)(a) of the Corporations Act 2001, in relation to the transactions declared to be voidable transactions, will be heard on a date to be determined.

CATCHWORDS:

CORPORATIONS – WINDING UP – CONDUCT AND INCIDENTS OF WINDING UP – EFFECT OF WINDING UP ON OTHER TRANSACTIONS – PREFERENCES AND VOIDABLE TRANSACTIONS – UNREASONABLE DIRECTOR-RELATED TRANSACTIONS – where the respondent is the sole director and shareholder of a company in liquidation – where the company has no assets or other funds to satisfy its creditors – where, prior to the appointment of the liquidators, the company made payments to the director’s personal bank account, credit card account and another bank account controlled by the director, with no records kept to substantiate the purpose of the payments being for the benefit of the company’s business – whether the payments are unreasonable director-related transactions within the meaning of s 588FDA(1) of the Corporations Act 2001 (Cth) – whether the court should make an order directing the director to pay an amount equal to some or all of the money the company paid under the transactions

CORPORATIONS – WINDING UP – CONDUCT AND INCIDENTS OF WINDING UP – COLLECTING THE ASSETS – where the financial records of the company record a director’s loan, which remains outstanding – whether an order should be made requiring the director to repay the amount of the loan

Corporations Act 2001 (Cth) ss 588FB, 588FDA, 588FF, 588FE

COUNSEL:

L Henry (sol) for the applicants

The respondent appeared on his own behalf

SOLICITORS:

Macpherson Kelley for the applicants

The respondent appeared on his own behalf

  1. [1]
    Mr Alokaily was the sole director and secretary of Ali Ali Contracting Pty Ltd (the company) from its incorporation on 6 July 2017 to the appointment of the applicants as liquidators of the company on 30 April 2019.[1]  The company conducted a labour hire business in the crop harvesting industry.  It appears to have been a modestly profitable business, having a high turnover in terms of gross receipts and “contract payments” and wages paid to the workers.[2]  The business ceased trading on 1 February 2019, when its labour hire licence was cancelled.[3] 
  2. [2]
    There are two unsecured creditors of the company, the Australian Taxation Office ($347,892) and WorkCover Queensland ($38,644).  As at the date of the liquidators’ appointment, the company had no assets, work in progress or cash on hand or at bank which could be realised for the benefit of its creditors.  The liquidators’ initial investigations revealed that the company maintained and provided inadequate records to explain or account for transactions that went through its bank account; that the respondent owed the company an amount of almost $360,000 for an unpaid director’s loan; and that during the period 1 July 2018 to 30 April 2019 the company had made payments to the respondent in excess of $676,000.[4]  Further investigations, outlined in Mr Karageozis’ second affidavit, showed there were unexplained transfers and cash withdrawals of almost $1.5 million (including internet transfers to the respondent and to an account in the name of a company previously controlled by him of about $506,000; salary payments to the respondent of $81,000; and unaccounted cash withdrawals of just over $900,000).[5]
  3. [3]
    By this proceeding, the liquidators seek declarations that certain payments made by the company to its director, Mr Alokaily, prior to their appointment on 30 April 2019, are voidable transactions because they were “unreasonable director-related transactions” within the meaning of s 588FDA(1) of the Corporations Act 2001 (Cth) (the Act) and an order requiring that Mr Alokaily pay that money to the company, under s 588FF(1) of the Act.   Alternatively, the applicants contend that the payments made by the company to the respondent were “uncommercial transactions” within the meaning of s 588FB of the Act.
  4. [4]
    The evidence in the proceeding is contained in affidavits of one of the applicants, Mr Karageozis;[6] the applicants’ solicitor, Mr Henry;[7] and the respondent, Mr Alokaily.[8]  Mr Alokaily also gave oral evidence at the hearing.  Mr Alokaily did not seek to ask any questions of Mr Karageozis or Mr Henry. 
  5. [5]
    Mr Alokaily came to Australia as a refugee from Iraq in 2000, becoming an Australian citizen in 2005.  He describes himself as having poor English.[9]  He represented himself at the hearing, and had arranged for an interpreter to be present to assist him.  He did not require the assistance of the interpreter at all times, as he is able to understand and communicate quite well in English.  But there were occasions on which the assistance of the interpreter was required.
  6. [6]
    For completeness, I record that on the evening of 23 September 2020, a few days before the hearing commenced, Mr Alokaily sent an email to Mr Henry saying that he would have “four witnesses with him on the day”.   Mr Henry responded, by email on 24 September 2020, informing Mr Alokaily that the applicants would object to any oral evidence from the four witnesses.   The objection was on the bases that r 390(b) of the Uniform Civil Procedure Rules 1999 requires that evidence in a proceeding started by application be given by affidavit (subject to another direction by the court); that although the court had made directions permitting Mr Alokaily to give evidence orally, no such direction had been sought or made at prior directions hearings in relation to any other witnesses; at previous review hearings, including on 27 July 2020, directions had been made requiring the respondent to provide a list of witnesses he proposed to call, and he had not done so by the time required; no indication had been given of the content of the evidence the proposed four witnesses would give, so as to enable the applicants to determine the relevance or otherwise of it; and the addition of four witnesses would result in the trial not being able to be heard within the revised time frame.
  7. [7]
    Essentially accepting that the applicants’ objections meant he could not call the four witnesses, Mr Alokaily did not bring the four witnesses to court on 28 September 2020.  Although conscious of Mr Alokaily being unrepresented, and having some language difficulties, I determined that it was appropriate to proceed with the trial on 28 September 2020, in the absence of the proposed four witnesses, for the following reasons. 
  8. [8]
    The objections by the applicants to the late notification of four witnesses to give oral evidence for the respondent were fairly raised. 
  9. [9]
    In addition, the objections are supported by the following procedural history.  The originating application was filed on 22 October 2019.  The application was originally to have been heard in December 2019.  Orders were first made on 25 November 2019 requiring the respondent, Mr Alokaily, to file any affidavits upon which he intended to rely at the hearing, by 9 December 2019.  The affidavit of Mr Alokaily, which is in evidence, was filed on that day.  At that time, Mr Alokaily was represented by a lawyer.  The hearing was adjourned to February 2020 and then to April 2020.  Mr Alokaily gave notice that he was acting in person in March 2020.  On 27 March 2020 I made orders further adjourning the hearing of the application, as a consequence of the COVID-19 restrictions then in place.  I also made an order on that day requiring that the respondent provide to the applicants’ solicitor, by 30 March 2020, “a document setting out any further evidence he wants to give in relation to this case, and any more documents he wants to show the Applicant”.  The question of Mr Alokaily giving oral evidence at the hearing was discussed at this time.  The purpose of ordering that he provide a document setting out any further evidence he wanted to give was to give the applicants notice of the content of that proposed evidence.  On 27 July 2020, Boddice J made orders listing the application for hearing to commence on 28 September 2020; requiring the respondent to provide certain bank statements and documents provided to the company’s accountant; requiring the parties to file any further affidavit material on which they seek to rely by 31 August 2020; and requiring the respondent to file and serve a list of witnesses he proposes to call at the hearing by 14 September 2020.  I reviewed the matter on 16 September 2020, in advance of the hearing commencing on 28 September 2020.  Again, the question of Mr Alokaily giving oral evidence at the hearing was discussed and the applicants did not object to that.  But there was no mention of the four witnesses later identified.
  10. [10]
    At the hearing, Mr Alokaily said that he had not previously understood what was meant when he was asked to provide “evidence”, and it was not until the week before the hearing that he understood this meant “witnesses”.[10]  But as can be seen, the direction made by Boddice J on 27 July 2020 did refer to witnesses.
  11. [11]
    In addition, the evidence of Mr Karageozis demonstrates that the applicants have gone to quite considerable lengths to try to obtain information about the various transactions, including asking Mr Alokaily to provide that information himself and, when he did not do so, requesting the issue of subpoenas (for example, to various banks) to obtain the requisite documents.
  12. [12]
    In those circumstances, even allowing for the difficulties faced by a person in Mr Alokaily’s position, without the benefit of legal representation and having some language difficulties, it would not have been appropriate to permit the respondent to call four previously unidentified witnesses at the trial, from whom no statement or affidavit had been provided and without any notice of the content of their evidence being given.  Nor would it have been appropriate to delay the trial further to enable that to be addressed.  That would be inconsistent with rule 5 of the Uniform Civil Procedure Rules 1999The respondent has had every opportunity to provide documents or other information to the applicants to explain the challenged transactions and to provide or identify any evidence, or witnesses, he wished to rely upon at the hearing of the application.
  13. [13]
    The challenged transactions the subject of this proceeding fall into two categories:
    1. (a)
      a director’s loan (of $358,683.44) which is said to be due and payable by the respondent to the company; and
    2. (b)
      payments by the company which are said to be voidable transactions, in particular, unreasonable director-related transactions, comprising internet transfers and cash withdrawals from the company’s bank account (totalling $432,138).

Director’s loan

  1. [14]
    The company’s balance sheet for the financial year ended 30 June 2018, prepared by the company’s accountants, Conrad Carlile, shows an unsecured director’s loan in the sum of $358,683.44 to Mr Alokaily.[11]
  2. [15]
    According to Mr Karageozis, the company’s bank statements for the period 1 July 2018 to 13 March 2019, the date on which the account was closed, do not record repayment of the loan.[12]  The loan therefore remains outstanding.
  3. [16]
    Mr Alokaily completed a questionnaire at the request of the liquidators, on the date of their appointment.[13]  In relation to a question about directors’ remuneration, Mr Alokaily identified his salary of $117,000 in the 2017-2018 year,[14] and a loan of $360,000.
  4. [17]
    The applicants rely upon this as an admission by Mr Alokaily as to the existence of the loan.
  5. [18]
    In his affidavit at [7], Mr Alokaily says he was unaware that “Katie” (who was his accountant at Conrad Carlile) had recorded a loan from the company to him to account for withdrawals from the company bank account.   This explanation for the loan appears in Mr Karageozis’ first affidavit, on the basis of a conversation which took place between an employee of the liquidators’ firm and Katie, in which Katie apparently said the respondent had withdrawn money from the company account at will, resulting in the large outstanding loan owed by him as at 30 June 2018.[15]  Notably, in his affidavit, Mr Alokaily does not say that he did not withdraw money from the company account; only that he was not aware his accountant had recorded a loan from the company to him to account for such withdrawals. 
  6. [19]
    Also, in his affidavit at [9], Mr Alokaily says “I believe the amount said to be a loan to me is either moneys paid as cash wages to employees [or] payments to contractors for the financial year 2018/19”.  He provides no basis for that belief in his affidavit.  That part of his evidence was objected to by the applicants as inadmissible on that basis.  I accept that the mere statement of a belief, without any foundation, is of little or no probative value; as to whether it is entirely inadmissible, it is not necessary to decide.[16]  From his oral evidence, it is apparent that this is Mr Alokaily’s purported explanation for most of the moneys transferred or withdrawn from the company’s account – that it was to pay his workers.  But in the profit and loss statement which forms part of the financial report for the year ended 30 June 2018 there is included, as part of the expenses, “contract payments” of $1,834,042.24 and “wages – employees” of $1,207,773.00, as well as “wages – director” of $117,000.  In the context of substantial payments of those kinds, it is reasonable to infer that, if the true explanation for the additional $358,683.44 was that it was either for contract payments or wages, that would have been reflected in the records as prepared by the accountant. 
  7. [20]
    In his oral evidence at the hearing, Mr Alokaily denied he had received any loan from the company.  In relation to the answer he gave to the questionnaire, he said he was told to write that by a person working at the liquidation company.  I do not place much weight on that evidence, including because Mr Karageozis did not have the opportunity to respond to it (as he was not required for cross-examination).  But in fairness to Mr Alokaily as well, I would not base my findings on the answer he gave as an admission of the loan, if that were the only evidence. 
  8. [21]
    The financial report for the company for the year ended 30 June 2018 is admissible in evidence in this proceeding and, by s 1305 of the Act, is prima facie evidence of any matter stated or recorded in the reports.
  9. [22]
    There is overwhelming evidence before the court about Mr Alokaily regularly transferring money from the company’s bank account to his own personal credit card account, his own bank account or the bank account of a previous company controlled by Mr Alokaily (Maha Contracting).  In Mr Alokaily’s own words, “I mix everything”.[17]  It is reasonable to infer, from the evidence of the director’s loan in the financial report and the evidence of regular transfers (and cash withdrawals) that, in preparing the financial report for the year ending 30 June 2018, in dealing with reference in the bank statements to transfers or withdrawals by Mr Alokaily, for which a company purpose or benefit could not be identified, the company’s accountant totalled the amounts and recorded them as a loan to the director. 
  10. [23]
    Mr Alokaily said, in his oral evidence, that he had not seen the financial report before.  That is surprising, given his role as the sole director of the company.  But he also said that he paid his accountant to do everything, that was her job, and if she provided the financial report to the liquidators (which it seems she did), then he accepts that the document is correct:  as Mr Alokaily said, “everything from my accountant, she’s right”.   But he maintained she did not tell him about the loan.[18]
  11. [24]
    Mr Alokaily also said that his accountant told him he could transfer money from the company’s bank account to any account.[19]  I infer there may have been some misunderstanding on the part of Mr Alokaily about what he was told by the accountant.  It is implausible that an accountant would advise a director of a company that they were free to use the company’s money for any purpose, including purposes unrelated to the company’s business and of no benefit to the company.   As discussed further below, it was clear from the evidence in this case, including Mr Alokaily’s oral evidence, that he did not appreciate the distinction between himself and the company of which he was a director.
  12. [25]
    Mr Alokaily’s denial of receipt of a loan in the amount of almost $360,000 is in all likelihood genuine, on the basis that he did not receive the loan in a lump sum amount.  Rather, it is reasonable to infer, and I find, that it represents the appropriate accounting treatment of amounts withdrawn from the company’s account by Mr Alokaily, which were not able to be identified as relating to an expense of the company.
  13. [26]
    I am satisfied, on the evidence before the court, that as at 30 June 2018 Mr Alokaily owed the company $358,683.44 by way of an unsecured director’s loan.  I am also satisfied, on the basis of Mr Karageozis’ evidence, that he has not repaid that money to the company and that it remains due and owing.
  14. [27]
    It follows that it is appropriate that an order be made that the respondent pay to the company $358,683.44, being the amount of the unpaid loan.
  15. [28]
    In the originating application, the applicants also claim this amount on the basis that the payments made by the company to the respondent, which together add up to the amount of the director’s loan, are voidable transactions by reason of each of those payments being an “unreasonable director-related transaction” within the meaning of 588FDA(1) of the Act.   It is unnecessary to address this alternative basis to the claim, as I have found that, on the evidence before the court, this money was the subject of a director’s loan, which remains outstanding and repayable to the company.

Internet transfers

  1. [29]
    The next category of challenged transactions is referred to as the internet transfers.  These transfers fall into three sub-categories:
    1. (a)
      transfers to the bank account in the name of Maha Contracting Pty Ltd (Maha);
    2. (b)
      transfers to the respondent’s credit card account; and
    3. (c)
      transfers to the respondent’s personal bank account.
  2. [30]
    Each of these transactions are challenged by the liquidators as being voidable transactions under s 588FE(6A) of the Act, because they are unreasonable director-related transactions within the meaning of s 588FDA(1) of the Act.
  3. [31]
    Under s 588FDA(1), a transaction of a company is an “unreasonable director-related transaction” of the company if and only if, relevantly:
    1. (a)
      the transaction is a payment made by the company;
    2. (b)
      the payment is made to:
      1. a director of the company; or
      2. a close associate of a director of the company; or
      3. a person on behalf of, or for the benefit of, a person mentioned in subparagraph (i) or (ii); and
    3. (c)
      it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to:
      1. the benefits (if any) to the company of entering into the transaction; and
      2. the detriment to the company of entering into the transaction; and
      3. the respective benefits to other parties to the transaction of entering into it; and
      4. any other relevant matter.
  4. [32]
    Mr Alokaily does not challenge the fact of the payments having been made, in the manner and amounts the applicants contend.   That was a reasonable position for him to take because evidence of the payments to the Maha account, Mr Alokaily’s credit card account and Mr Alokaily’s personal bank account appears in the bank statements which are annexed to Mr Karageozis’ third affidavit.
  5. [33]
    From the bank statements for the account held by the company with the National Australia Bank,[20] the total amount of money transferred to each of these accounts in the period from September 2018 to 13 March 2019 (when the account was closed) was:
    1. (a)
      $263,000 to an account in the name of Maha;
    2. (b)
      $163,238 to the respondent’s personal credit card account;
    3. (c)
      $80,100 to the respondent’s personal bank account.[21]
  6. [34]
    Transfers to the Maha account.   Maha was incorporated on 22 May 2015 and deregistered on 14 October 2018 (under s 601AB of the Act).  Mr Alokaily was the director and secretary of Maha.[22]
  7. [35]
    Mr Alokaily described the bank account, in the name of Maha Contracting Pty Ltd, as “my account”.[23]  In his affidavit, Mr Alokaily said he transferred money to the Maha account so that he could keep track of direct debits to the ATO.[24]  In his oral evidence, the reason he gave for transferring money from the company’s account, into Maha’s account, was because there was a weekly maximum amount he could withdraw out of the company’s account, as cash (of $70,000).  That was not enough to pay his workers, and so he transferred money from the company’s account, to the Maha account, so that he could withdraw additional cash.[25]
  8. [36]
    The transactions in the Maha account from September 2018 to March 2019 have also been analysed in the evidence, by reference to the bank statements and preparation of a summary of transactions.[26]  Mr Alokaily accepted that the summary was correct.  That summary shows that, out of a total of $296,764.72 which was paid out of the Maha accounts, among other payments:
    1. (a)
      $95,000 was paid to the ATO;
    2. (b)
      $95,000 was withdrawn as cash; and
    3. (c)
      $79,379.61 was the subject of linked account transactions – that is, internet transfers to a linked account.
  9. [37]
    The applicants submit that the court should find that the $263,000 which was transferred from the company’s account to the Maha account comprised payments by the company, to the director, Mr Alokaily.  I accept that the payments should be regarded as made to Mr Alokaily, given his frank concession that the Maha account was his account. 
  10. [38]
    Next, the applicants submit the court should find that the $95,000 withdrawn as cash, and the $79,379.61 transferred to linked accounts, was not for the company’s benefit; that is, that the court should reject Mr Alokaily’s evidence, that he withdrew this cash from the Maha account to pay his workers.
  11. [39]
    In support of that submission, the applicants point to:
    1. (a)
      the evidence, in the pay records annexed to Mr Alokaily’s affidavit, that the total amount paid out in wages (not including the PAYG withholding amount) in the period 1 July 2018 to 30 June 2019, was $1,015,149.95;
    2. (b)
      the evidence that the total cash withdrawals from the company’s account, in the period 1 July 2018 to 13 March 2019 (when the account was closed) was $1,915,800 (which does not include the payments made by internet transfer to the Maha account and to Mr Alokaily’s personal bank account and credit card);
    3. (c)
      this leaves a difference of about $900,000 which is unexplained by reference to the pay records; and
    4. (d)
      in addition to the amount recorded as paid to Mr Alokaily in the pay records, a further $81,000 was also paid to him as wages.[27]
  12. [40]
    Mr Alokaily’s evidence was that about four months was missing from the pay records annexed to his affidavit.[28]  Although the pay records identify the report period as 1 July 2018 to 30 June 2019, a review of the document shows that for most of the workers identified, payments are recorded only up to the end of September 2018.   Payments continue to late November for one other worker and also for Mr Alokaily himself.   The evidence is that the business ceased to operate on 1 February 2019.  To that extent there is support for Mr Alokaily’s contention.
  13. [41]
    For the purposes of the present proceeding, the applicants have given Mr Alokaily the benefit of the doubt in relation to the difference of approximately $900,000 – that is, the applicants do not pursue recovery of that amount, notwithstanding there are no records to substantiate the assertion that it was used to pay the company’s workers.
  14. [42]
    But having taken that approach, the applicants submit it is not reasonable to also accept that the transfers to the Maha account, which were then the subject of cash withdrawals, were also for the purposes of paying workers.
  15. [43]
    In order to determine whether Mr Alokaily’s explanation is supported by the evidence, I have compared the dates of some of the cash withdrawals from the Maha account, with the activity occurring around that time on the company’s bank account.  For example, on 10 January 2019 there is a cash withdrawal from the Maha account of $35,000.  That followed an internet transfer from the company’s account to the Maha account of that amount on 9 January 2019.[29]  Going to the company’s bank account statement for that date, the internet transfer of $35,000 on 9 January 2019 appears.  But there is no reference to any cash withdrawals in the month of January from the company’s bank account.[30]  The bank statements do not support Mr Alokaily’s explanation that he was transferring money to Maha, in order to get around the cap on the amount of cash withdrawals permitted from the company account.  In addition, the withdrawals continue in February, after the business ceased to operate, including a withdrawal of $20,000 on 15 February 2019.[31]
  16. [44]
    I did not form the view that Mr Alokaily was being deliberately dishonest in giving his evidence.  Rather, it was clear that prior to his involvement with the liquidation process he had very little appreciation for the distinction between the company and himself; the company’s money and his own money.  As he said, he mixed everything.  I accept that he was paying his workers in cash, and that the wages records produced do not include all wages paid to workers to the time the business ceased to operate.  The applicants do not contend otherwise, as is apparent from the fact that they do not pursue the approximately $900,000 of cash withdrawn which is also unexplained in any records.  That position is on the basis of a pragmatic, fair and generous acceptance of Mr Alokaily’s explanations about how he paid his workers.
  17. [45]
    But there is a limit to the benefit of the doubt which can be afforded to Mr Alokaily about the money transferred at will from the company’s account to himself.
  18. [46]
    On balance, I am persuaded that it is more probable than not that the money transferred to Maha and which was then withdrawn in cash from the Maha account, was not for the benefit of the company.  
  19. [47]
    Mr Karageozis says the following, at [15] of his second affidavit, after referring to his relevant qualifications:

“Having regard to my experience practicing (sic) as Liquidator and based on the investigations I conducted in this matter following my appointment on 30 April 2019, I consider the quantum and frequency of the transfers made by the Respondent to himself and to Maha, a related unregistered entity over which he had exclusive control, as unusual and not consistent with ordinary commercial practice, particularly with regards to the size of the Company and the nature of its trade.  The transfers made by the Respondent to himself and Maha remains unaccounted for and unexplained due to the Respondent’s failure to cause the Company to maintain proper records from which it appears that the Respondent preferred himself and Maha over the Company’s creditors in making these transfers.”

  1. [48]
    I accept Mr Karageozis’ evidence in that respect.  I find that the cash withdrawals from the Maha account, totalling $95,000, and the transfers to linked accounts, totalling $79,379.61 (for which no explanation was given) were not for any expense related to the company, or for the company’s benefit.  It is clear that $95,000 was transferred to the ATO, which was for the benefit of the company.  I am satisfied, therefore, that the payment by the company, to the respondent (by transfer to his Maha account) of the amount of $168,000[32] comprised unreasonable director-related transactions, in the sense that it is made up of payments made by the company, to the director (albeit into an account in the name of a deregistered company, Maha, controlled by the respondent and regarded by him as his account), in respect of which it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to the lack of benefit for the company.
  2. [49]
    In light of my findings above, it is unnecessary to consider the applicants’ alternative claim, that the payments to the Maha account were uncommercial transactions, as I am satisfied the payments to the Maha account were payments to the respondent, as director, for his benefit.
  3. [50]
    Transfers to the respondent’s credit card.  In the period from September 2018 to March 2019 an amount of $163,238.00 was transferred from the company’s account to Mr Alokaily’s credit card account.[33]    In the same period, a total of $347,278.68 was paid out of the credit card account.[34]  The bulk of that comprises transfers to what is described as “RWS-CMS Singapore”, totalling $307,702.79, together with international transaction fees of $6,958.50.  There are also transfers to linked accounts totalling $12,359.21.[35]  The transfers to RWS-CMS Singapore were foreign currency transactions, in Singaporean dollars, each accompanied by an international transaction fee.[36]
  4. [51]
    RWS-CMS refers to Resorts World Sentosa (a holiday resort and casino development on Sentosa Island, Singapore) and Casino Management System or Customer Membership Services System.  The payments were made to a casino in Singapore.[37]
  5. [52]
    Mr Alokaily insisted that was his money, which came from the proceeds of sale of a property in Gatton.  He also said he gave this money to his brother; and that having transferred the money to Singapore, he then brought the money back to Australia as cash, through the airport, which he then also used to pay his workers.[38]
  6. [53]
    I do not accept Mr Alokaily’s evidence in this regard as providing a plausible explanation which could support a finding that the money transferred from the company’s bank account, to his personal credit card, was for the purpose or benefit of the company. 
  7. [54]
    Clearly there was other money available in the credit card account – as the payments out of the credit card account are far more than the amount transferred in from the company’s account.  But it is reasonable to infer, and I find, that the money transferred to the credit card account, from the company’s account, was used for Mr Alokaily’s own personal purposes.  I therefore accept the evidence of Mr Karageozis, and find, that no reasonable person in the company’s position would have made those payments.[39]  The payments to the respondent’s credit card are also unreasonable director-related transactions.
  8. [55]
    Transfers to the respondent’s bank account.  In the period September 2018 to March 2019 a total of $80,100 was transferred from the company’s account to the respondent’s personal bank account.[40]   In the same period, a total of $254,487.42 was paid out of the respondent’s personal bank account.[41]  That included internet transfers to linked accounts (including the credit card just discussed) of $102,471.72, cash withdrawals of $58,000, payments to another credit card account (not the one just discussed) of just over $20,000 and further payments to RWS-CMS Singapore of just over $20,000, as well as a range of other payments.
  9. [56]
    To take one example, the bank statements for the respondent’s personal bank account record a transfer of $55,000 into the account on 12 November 2018.  That money was transferred from the company’s bank account.  The same amount was then transferred out on the same day to a “linked account” in the name of Mr Alokaily.  Reference to the credit card account statements shows a transfer in of $55,000 on that day.[42]  Mr Alokaily accepted these facts.[43]
  10. [57]
    In respect of the payments made to the respondent’s personal bank account I also find that they were unreasonable director-related transactions, on the basis that a reasonable person in the company’s circumstance would not have made the payments, because they were not for the benefit of the company.

Cash withdrawals

  1. [58]
    The last category of challenged payments is cash withdrawals from the company’s account of $22,800.[44]  The amounts withdrawn in cash, between July 2018 and March 2019, range from $500 up to $2,000.
  2. [59]
    Mr Alokaily’s explanation for these withdrawals was, again, that they were to pay the workers.  He said he paid the workers on Friday afternoons.  But if they were late, or did not come until the next day, over the weekend, he would go the ATM and take money out to pay them.  That explanation does not withstand scrutiny.  If money had been withdrawn on or before Friday, to pay the workers, and they were not there to receive it, logically Mr Alokaily should still have the cash to pay the worker the next day, without needing to withdraw more from an ATM.  It is reasonable to infer from the evidence before the court, and I find, that the cash withdrawals were made by Mr Alokaily, from the company’s bank account, for his own purposes.  As the evidence shows, Mr Alokaily was also paid a fairly substantial salary (which is not challenged in this proceeding).  It was not suggested by Mr Alokaily that the cash withdrawals formed part of his salary.  I find that these payments are also unreasonable director-related transactions.

Summary of conclusions and orders

  1. [60]
    In summary, the court finds that:
    1. (a)
      the amount of $358,683.44, being the subject of the unsecured director’s loan, is due and payable by the respondent to the company; and
    2. (b)
      the following are voidable transactions, because they are unreasonable director-related transactions:
      1. payments of $168,000 from the company’s bank account to the Maha account;[45]
      2. payments of $163,238 from the company’s bank account to the respondent’s credit card account;
      3. payments of $80,100 transferred from the company’s bank account to the respondent’s personal bank account; and
      4. $20,800 withdrawn as cash by the respondent from the company’s bank account;

which together add up to $432,138; and

  1. [61]
    It is appropriate that an order be made requiring the respondent to repay to the company the amount of the loan – $358,683.44.
  2. [62]
    In relation to the voidable transactions, it is appropriate that a declaration be made that they are voidable transactions because they are unreasonable director-related transactions. 
  3. [63]
    Under s 588FF(1)(a) of the Act, where, on the application of a company’s liquidator, a court is satisfied that a transaction of the company is voidable because of section 558FE, the court may make an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction.
  4. [64]
    It has been held that the court’s task, under s 588FF(1), is to make an order which gives effect to the statutory scheme under Pt 5.7B of the Act, which is concerned with the recovery of property or money for the benefit of creditors of an insolvent company.[46]
  5. [65]
    In this case, the amount owing to creditors is $386,536.[47]   That is only about $28,000 more than the amount of the director’s loan.  Depending upon the amount of the liquidators’ costs, it may therefore be just and equitable to order the respondent to pay only part of the money the company paid under the voidable transactions, rather than all of it.   Mr Alokaily is the only shareholder of the company, so any surplus left over, after satisfying the creditors and paying the costs of the liquidators would be returned to him.
  6. [66]
    There is no material presently before the court dealing with the liquidators’ costs, so I am not in a position to determine what amount would be appropriate.  I will therefore give the applicants an opportunity to provide material in relation to the liquidators’ costs, and hear further submissions from the parties about the appropriate form of order to be made under s 588FF(1), before making any order about payment of an amount of money.

Footnotes

[1]  See the company search at pp 7-8 of Mr Karageozis’ affidavit filed 22 October 2019 (Karageozis #1).

[2]  Karageozis #1 at p 96 (profit and loss statement for the year ended 30 June 2018).

[3]  Karageozis #1 at [9(b)].

[4]  Karageozis #1 at [7] and [9].

[5]  Affidavit of Mr Karageozis filed on 31 January 2020 (Karageozis #2) at [13].

[6]  See the applicants’ list of material (CFI 42); the affidavits are CFI 4, 17 and 40.

[7]  CFI 39 and 44.

[8]  CFI 14.

[9]  Affidavit of Mr Alokaily filed on 9 December 2019 (Alokaily) at [16]-[17].

[10]  Transcript p 1-11.

[11]  Karageozis #1 at p 98.   References to page numbers in this and the other affidavits is to the page number of the exhibit (as distinct from the page numbers of the court book which was prepared for the hearing).

[12]  Karageozis #1 at [30].

[13]  Addressing the requirement in s 497(4) of the Act for the director of the company to provide a report to the liquidators.

[14]  Which appears in the profit and loss statement, Karageozis #1 at p 96.

[15]  Karageozis #1 at [16].  This evidence, being hearsay, is not admissible as to the truth of the statement.  I refer to it only in order to make sense of what Mr Alokaily says in his affidavit.

[16]  It may be admissible, for example, as an indication that even if misconceived, Mr Alokaily’s conduct was not deliberately dishonest.  But the court is not asked to make any such finding in this case, and so it is not necessary to address this further.

[17]  Transcript p 1-57.

[18]  Transcript p 1-40.

[19]  Transcript p 1-35 and 1-57.

[20]  Affidavit of Mr Karageozis filed 15 September 2020 (Karageozis #3) at pp 26-46.

[21]  Karageozis #3 at [8]-[11] and the summary at p 25 (noting that there is a discrepancy between the figure in [11(c)] of the affidavit and the figure in the summary – the figure above is taken from the summary at p 25).

[22]  Karageozis #1 at [23]-[25].

[23]  Transcript p 1-44.

[24]  Alokaily at [13].

[25]  Transcript p 1-35 and 1-45.

[26]  Karageozis #3 at pp 48-60 (statements) and p 47 (summary).

[27]  Karageozis #2 at [9]-[13].

[28]  Transcript p 1-53.

[29]  Karageozis #3 at p 56.

[30]  Karageozis #3 at p 41.

[31]  Karageozis #3 at p 58.

[32]  The total amount transferred from the company to Maha ($263,000), less the $95,000 paid to the ATO.

[33]  Karageozis #3 at p 25 (summary, based on bank statements also included within the exhibit).

[34]  Karageozis #3 at pp 101-131 (credit card bank statements) and pp 98-101 (summary).

[35]  Karageozis #3 at p 98 (summary, based on bank statements also included within the exhibit).

[36]  Karageozis #3 at [26].

[37]  Karageozis #2 at [28] and Mr Alokaily’s evidence at transcript p 1-57.

[38]  Transcript at p 1-57.

[39]  Karageozis #2 at [15] and Karageozis #3 at [30].

[40]  Karageozis #3 at p 25 (summary, based on bank statements also included in the exhibit).

[41]  Karageozis #3 at pp 164-177 (bank statements) and pp 161-162 (summary of payments).

[42]  Karageozis #3 at p 37 (company’s bank account), 170 (respondent’s personal bank account) and 108 (respondent’s credit card).

[43]  Transcript p 1-68.

[44]  The figure referred to in Karageozis #1 at [21] is said to be $34,100.  This is described in the applicant’s submissions at [28(a)] as an arithmetic error, with the correct figure being $22,800.  Although in oral submissions Mr Henry for the applicants said this was explained in Karageozis #3, I can find no reference to that.  The summary schedule which is exhibited to Karageozis #1, at p 149, shows the total of cash withdrawals was $22,100.   But adding up the numbers which appear on p 149 of Karageozis #1 (excluding the figures which say “entry not recorded”) does amount to $22,800.

[45]  This figure is the total amount transferred to the Maha account ($263,000) less the $95,000 which was transferred from Maha to the ATO.

[46]  Cussen v Sultan (2009) 74 ACSR 496 at [96]-[97]; Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48 at [83].

[47]  Comprising $347,892 owing to the ATO and $38,644 owing to WorkCover.

Close

Editorial Notes

  • Published Case Name:

    McLeod & Anor v Alokaily

  • Shortened Case Name:

    McLeod v Alokaily

  • MNC:

    [2020] QSC 308

  • Court:

    QSC

  • Judge(s):

    Bowskill J

  • Date:

    08 Oct 2020

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.
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