In the matter of ACN 092 745 330 [2017] NSWSC 241

Thursday, 20 July 2017

In this case, ACN 092 745 330 (Company) and its Liquidator commenced proceedings against an employee of the Company (Mr Vince Battaglia), his wife and their family company, in connection with payments made to them by the Company.

The case sought to be made by the Company and its Liquidator was that:

  • Mr Battaglia breached statutory and fiduciary duties owed by him to the Company under sections 181 and 182 of Corporations Act 2001 (Act); and
  • The payments made by the Company were "unreasonable director related transactions" for the purposes of section 588FDA of the Act and "voidable transactions" for the purposes of section 588FE(6A) of the Act.

In order for the claims to succeed, the Court would have to make a finding that Mr Battaglia was a director (or officer in the case of the statutory duties claim) of the Company as defined in section 9 of the Act at the time that the payments were made.

Was Mr Battaglia a director of the Company? 

The Company and its Liquidator adduced evidence in support of the proposition that Mr Battaglia performed tasks within the Company that would typically be performed by a director, which included a printout of Mr Battaglia's LinkedIn profile (he is there described as "the founder and Director" of the Company), correspondence sent by Mr Battaglia in which the words "Managing Director" appear after his name in the sign-off, contracts signed by Mr Battaglia above a line for "Director Signature" and an affidavit in Local Court proceedings affirmed by Mr Battaglia, in which he deposed that he was a "director" of the Company.1

Justice Barrett of the Supreme Court of New South Wales was not persuaded that the evidence, taken as a whole, supported a finding that Mr Battaglia acted in the position of a director of the Company and while he obviously occupied a responsible position and was a key operative for the Company, his activities and responsibilities did not extend beyond those of a senior manager. In its finding, the Court drew a useful distinction between the responsibilities of a senior manager as opposed to a director, observing that:

  • On the few occasions on which Mr Battaglia purported to sign as a director or managing director of the Company, he may have done so through carelessness or under a misapprehension as to which company was involved (he was a director of other related companies);
  • Mr Battaglia operated under the superior authority of the two appointed directors;
  • His access to finance was through the intermediation of the Company's accountant;
  • There was no holding out of Mr Battaglia as a director either by himself or by the Company;
  • No evidence was given by any outsider that they thought Mr Battaglia was a director; and
  • There is nothing to suggest that anyone believed Mr Battaglia to occupy the position that the corporations legislation classifies as a director.

The Court did however find that during the relevant period, Mr Battaglia was a person who participated in making decisions that affected a substantial part of the business of the Company and was therefore an Officer of the Company under section 9 of the Act. The business involved contracting for construction projects and retaining sub-contractors to provide the necessary services. The evidence shows that it was Mr Battaglia who made these arrangements on behalf of the company.

Mr Battaglia was also found to be a fiduciary of his employer by virtue of the senior position that he held.2 It cannot be said, as a general proposition, that an employee is a fiduciary of his or her employer, however the position may be otherwise if the employee's seniority and duties are such as to make the employer vulnerable to adverse consequences if it becomes the victim of a lack of fidelity or unfair dealing by the employee.3

The Court held that Mr Battaglia did not breach statutory or fiduciary duties owed by him to the Company as there was no evidence that Mr Battaglia "directed, authorised or otherwise caused" the payments to be made.

Further, the case under section 588FDA and section 588FE(6A) of the Act also failed as Mr Battaglia was not found to be a director.4

The Court dismissed the claims by the Company and its Liquidator and ordered costs against it.

Onus of Proof

In the present case, the Company and its Liquidator, while agreeing that they must, in the usual way, prove the elements of the causes of action alleged on the balances of probabilities, pointed to special considerations where liquidators with no first hand knowledge of relevant events seek recovery for the benefit of a company's estate. 

In its decision, the Court observed a distinction between a liquidator's onus of proof and onus of adducing evidence, citing the judgment of Campbell J in Hawksford v Hawksford [2005] NSWSC 463 (a case concerning challenge to a solicitors retainer): 

"The distinction between an onus of proof and an onus of adducing evidence is of particular relevance in the present situation. Where party A has the legal onus of proving a negative proposition, and relevant facts are peculiarly in the knowledge of party B or where party B has the greater means to produce the evidence relating to those facts, then provided party A establishes sufficient evidence from which the negative proposition may be inferred, party B then comes under an evidential burden, or an onus of adducing evidence." 

Relevant to the present circumstances, the judgment of Beazley P in Crowe-Maxwell v Frost (2016) 91 NSWLR 414 concerning uncommercial transactions and unreasonable director related transactions, is also helpful in identifying  the circumstances in which a defendant may be said to bear an 'onus' or 'evidentiary onus' of raising some commercial explanation for the transaction. 

This article was written by Wayne Jenvey, Partner and Laura Morrissey, Solicitor, in our Brisbane office. Publication Editor: Grant Whatley. 

Important disclaimer: The material contained in this publication is of a general nature only and is based on the law as at 20 July 2017. It is not, nor is intended to be, legal advice. If you wish to take any action based on the content of this publication we recommend that you seek professional advice.

_____________________________________________________________________________________________

In the matter of ACN 092 745 330 at [66] - [77].

2 Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2013] FCA 1341.

In the matter of ACN 092 745 330 at [122].

Note: A more complete analysis of these provisions can be found in Vasudevan & Ors v Becon Constructions (Australia) Pty Ltd & Anor [2014] VSCA 14, wherein the Court considered the interpretation of the phrase "for the benefit of" within s 588FDA, and rejected the notion that the benefit had to be one of a direct nature.