Brazen and audacious phoenixing defeated by prohibition against creditor-defeating dispositions
Re Intellicomms Pty Ltd (in liq)  VSC 228
The proceeding was brought by the liquidators of Intellicomms Pty Ltd (the Company) seeking relief in relation to a Sale Agreement dated 2021 between the Company and the defendant, Tecnologie Fluenti Pty Ltd (the Purchaser), involving the sale of certain business assets of the Company to the Purchaser.
Relevantly, the liquidators alleged that the Sale Agreement was a creditor-defeating disposition under s 588FDB of the Corporations Act 2001 (Cth) (the Act) and that it was a voidable transaction within the meaning of s 588FE(6B) of the Act.
The ultimate question for consideration was whether the liquidators had established that the amount payable under the Sale Agreement was less than the lesser of the market value and the best price reasonably obtainable for those assets within the meaning of s 588FDB, and, if so, whether the relief sought by the liquidators should be granted.
There was no dispute that the Company was insolvent at the time of entry into the Sale Agreement. From around early 2021, QPC, a shareholder in the Company and one of its major creditors, had been seeking to enter into an arrangement in relation to the debts owed to it by the Company, which were continuing to accrue.
On or around 3 February 2021, Ms Rebecca Haynes, the sole director of the Company, provided QPC with a valuation of the Company giving it a value of $11,277,346 as at 30 June 2020.
On or around 26 July 2021, Ms Haynes obtained a further valuation of the Company as at 30 June 2021, which gave it a value of between $117,456 and $683,559.
On 17 August 2021, QPC sent a statutory demand for the debt in the amount of $923,310. The day for compliance with the statutory demand was 8 September 2021.
On 25 August 2021, the Purchaser was incorporated. The sole director and shareholder of the Purchaser is Ms Michelle Gigliotti, a sister of Ms Haynes, who was employed by the Company at the time.
On 30 August 2021, Ms Haynes obtained a valuation of the goodwill in the business of the Company which valued it at $101,000.
On 8 September 2021, Ms Haynes obtained a revised valuation of the goodwill in the business of the Company which valued it at $57,000.
Also on 8 September 2021, the Company entered into the Sale Agreement to sell the Assets to the Purchaser. The effective consideration paid under the Sale Agreement by the Purchaser was $20,727.18.
A short time afterwards on 8 September 2021, a meeting of the Company was convened at short notice at the behest of Ms Rebecca Haynes and the Company was placed into creditors’ voluntary liquidation. Ms Haynes did not inform the participants in the meeting of the Company of the fact that she had entered into the Sale Agreement only minutes before.
Interpretation of s 588FDB
The Honourable Associate Justice Gardiner noted that s 588FDB was introduced into the Act by the Treasury Laws Amendment (Combatting Illegal Phoenixing) Act 2020 (Cth). This legislation took effect from 18 February 2020 and his Honour noted that there were no authorities dealing with its operation.
The Purchaser submitted that in order for the Sale Agreement to be characterised as a creditor-defeating disposition, the liquidators had to adduce sufficient evidence upon which the Court could determine an actual monetary value as at 8 September 2021, going to each of: (a) the market value of the assets in question; and (b) the best price reasonably obtainable for the assets. In each case it was said that the actual value so assigned had to be higher than the consideration payable to the Company for the assets.
The liquidators submitted in response that there is nothing in the wording of s 588FDB that mandates such a prescriptive approach, but that in any case there was sufficient evidence before the Court to enable it to undertake that task and to determine the question in the liquidators’ favour.
The Court rejected the Purchaser’s submission and found that the liquidators were required to establish that, on the balance of probabilities, the consideration payable under the Sale Agreement was less than both of the limbs contained in s 588FDB.
The Court concluded that the Sale Agreement was a “brazen and audacious example” of a phoenix transaction and made, inter alia, the following observations.
- No explanation had been given as to why it was necessary to urgently sell the business rather than leave the process of the sale of what assets the Company had to the liquidators.
- Instead, Ms Haynes with her advisors, de Jonge Read, executed a plan designed to place the assets of the Company beyond the reach of its creditors.
- There was no attempt to sell the assets on the open market and, to the contrary, the sale was negotiated in secret.
- In obtaining the various valuations for the Company, Ms Haynes varied the forecasted inputs at her whim in an attempt to arrive at what she considered to be an acceptable valuation.
The Court found that the best price reasonably obtainable for the assets was not less than the market value, and QPC had expressed interest in purchasing them for an amount that was significantly higher than the sale price under the Sale Agreement. The value of the assets was illustrated by the fact that QPC was willing to fund the liquidators for conducting the proceeding and the same observation could be made in relation to the Purchaser’s willingness to apply significant resources to maintain its rights under the Sale Agreement.
On this basis the Court concluded that the Sale Agreement was contrary to s 588FDB(1) and voidable pursuant to s 588FE(6B) of the Act. As such, the jurisdiction of the Court was attracted under s 588FF. In the circumstances, the Court found that, notwithstanding the potential inconveniences and difficulties, a declaration that the Sale Agreement was void and the necessary ancillary orders were warranted. This included requiring the Purchaser to transfer back the assets.