Baskerville & Anor v Crowson & Anor [2021] QSC 118

SUPREME COURT OF QUEENSLAND CITATION: Baskerville & Anor v Crowson & Anor [2021] QSC 118 PARTIES: CHRISTOPHER BASKERVILLE (IN HIS CAPACITY AS LIQUIDATOR OF DOWN TO EARTH DRILLING PTY LTD ACN 601 752 658) (IN LIQUIDATION) (first plaintiff) and DOWN TO EARTH DRILLING PTY LTD ACN 601 752 658 (IN LIQUIDATION) (second plaintiff) v MARK ANTHONY CROWSON (first defendant) and MAC DRILLING PTY LTD ACN 124 837 707 (AS TRUSTEE FOR THE MAC DRILLING TRUST) (second defendant) FILE NO/S: BS 9382 of 2019 DIVISION: Trial Division PROCEEDING: Trial ORIGINATING COURT: Supreme Court of Queensland DELIVERED ON: 27 May 2021 DELIVERED AT: Brisbane HEARING DATES: 27, 28, 29 April, 10 May 2021 JUDGE: Rafter AJ ORDERS: 1. By 4:00pm on 2 June 2021, the second defendant, by the first defendant, or its other officers or agents, are to: (a) transfer title of the Hydco 500 drilling rig mounted on 1989 Osh Kosh 8x8 carrier (“the Hydco”), and deliver up possession of the Hydco, to the second plaintiff; (b) cause any registered security it holds over the Hydco to be removed from any and all registers on which said security may be registered and provide confirmation of such removal to the plaintiffs. 2. The order of 6 September 2019 is extended until 4:00pm on 2 June 2021 -- 1 of 31 -- 2 3. By 4:00pm on 11 June 2021, the first defendant is to pay the sum of $30,308.67 to the plaintiffs, which includes the sum of $4,308.67 in interest. 4. The defendants are to pay the plaintiffs’ costs, including any reserved costs, to be agreed or assessed on the standard basis. CATCHWORDS: CORPORATIONS – WINDING UP – CONDUCT AND INCIDENTS OF WINDING UP – EFFECT OF WINDING UP ON OTHER TRANSCATIONS – UNREASONABLE DIRECTOR-RELATED TRANSACTIONS – where the second plaintiff transferred a drilling rig to the second defendant – whether the asset sale agreement was an unreasonable director-related transaction – whether the drilling rig was transferred at an undervalue – where the defendants contend that the consideration was by deeds of forgiveness of debts that the second plaintiff owed – where the plaintiffs contend that no consideration was given for the transfer of the drilling rig – whether the transfer was made in order to defeat creditors CORPORATIONS – WINDING UP – CONDUCT AND INCIDENTS OF WINDING UP – EFFECT OF WINDING UP ON OTHER TRANSACTIONS – PREFERENCES AND VOIDABLE TRANSACTIONS – INSOLVENT TRANSACTIONS – where there was an asset sale agreement where the drilling rig was transferred to the second defendant – whether the asset sale agreement was an insolvent transaction because it occurred at a time when the second plaintiff was insolvent or caused it to become insolvent – whether the second plaintiff remained solvent at all relevant times due to ongoing related party support –whether the asset sale agreement was an uncommercial transaction CORPORATIONS – MANAGEMENT AND ADMINISTRATION – DUTIES AND LIABILITIES OF OFFICERS OF COPRORATION – FIDUCIARY AND RELATED STATUTORY DUTIES – TO ACT HONESTLY where another drilling rig was purchased by a director of the second plaintiff in his own name – whether the drilling rig was made available to the second plaintiff to generate income or was made available to the defendants for their own purposes – whether the first defendant in his capacity as a director failed to discharge his duties Corporations Act 2001(Cth) ss 95A(1)-(2), 180, 181, 182 588FB, 588FC, 588FE, 588FF, 588FDA, 1317H Pearce v Gulmohar Pty Ltd [2017] FCA 660, cited Shafron v Australian Securities and Investments Commission (2012) 247 CLR 465, cited -- 2 of 31 -- 3 COUNSEL: P L Somers for the plaintiffs J K Meredith for the defendants SOLICITORS: Bennett & Philp Lawyers for the plaintiffs Lewis & McNamara for the defendants [1] The plaintiffs’ claim under ss 588FF and 1317H of the Corporations Act 2001 (Cth) (“the Act”) for: (a) the return of a mobile drilling rig that the second plaintiff, Down to Earth Drilling Pty Ltd (“DTED”), transferred to the second defendant, Mac Drilling Pty Ltd (“Mac Drilling”) on or about 2 December 2018; or alternatively, damages to the value of the drilling rig; and (b) as against the first defendant Mark Anthony Crowson (“Mr Crowson”), damages as a result of a breach of directors’ duties that he owed to DTED. [2] On 6 August 2019, this Court ordered that DTED be wound up on the just and equitable ground. The first plaintiff (“Mr Baskerville”) was appointed as liquidator to conduct the winding up.1 [3] On 6 September 2019 orders were made that Mr Crowson and Mac Drilling not dispose of or relinquish possession of the drilling rig including the removal of it from its present location at 211 Lower Mountain Road, Dundowran in Queensland. Factual background [4] In 2014 Damien Lagos (“Mr Lagos”) and Mr Crowson became aware of an opportunity to purchase a Hydco 500 drilling rig mounted on an Oshkosh Cargo 8x8 carrier (“the Hydco”) at a reduced price. [5] The Hydco was purchased by Mac Drilling for $22,000.00. The tax invoice from Hassalls Industrial Auctioneers dated 7 August 2014 states that the sale date was 15 May 2014.2 [6] Mac Drilling (formerly Mark A C Enterprises Pty Ltd) is owned and controlled by Mr Crowson. The directors are Mr Crowson and his mother, Lynette Crowson (“Ms Crowson”).3 Mac Drilling is the trustee of the Mac Drilling Trust of which Mr Crowson and Ms Crowson are the principal beneficiaries.4 [7] After the acquisition of the Hydco it was transported to Mac Drilling’s premises at Dundowran. 1 Exhibit 2. 2 Exhibit 1 at 565-566. 3 Exhibit 1 tab 38 at 517-522. 4 Exhibit 1 tab 13 at 213-237. -- 3 of 31 -- 4 [8] The company DTED was incorporated for the purpose of owning the Hydco. The Down to Earth Drilling Trust was established on 10 September 2014. DTED was incorporated and appointed as the Trustee of the Trust. Mr Crowson and Mr Lagos were appointed as directors. Mac Drilling and Mr Lagos were issued with 550 shares. [9] In about September and October 2014 Mac Drilling spent approximately $25,000.00 on repairs and refurbishment of the Hydco.5 [10] Mr Lagos paid $23,465.00 for his 550 shares in DTED. The defendants say that it had been agreed that DTED would record in its financial statements a loan from Mac Drilling of $47,000.00 representing the purchase of the Hydco and the $25,000.00 spent on repairs and refurbishment.6 [11] The ownership of the Hydco was transferred to DTED. [12] In about September 2015 there was a fire at the premises of Mac Drilling at Dundowran. There were three drilling rigs located in the shed on the premises. The fire destroyed the shed and the drilling rigs. The Hydco was parked within 2 metres of the shed and it sustained fire damage to the left side rear quarter panel, the side of the tower and hydraulic hoses. The control panel also sustained damage.7 [13] Mac Drilling made a claim on its insurance policy held with QBE Insurance. The claim was rejected. Mac Drilling then commenced proceedings in the Supreme Court of New South Wales. The dispute insofar as it related to the Hydco was resolved by Mr Baskerville in mediation and resulted in a payment of $60,000.00 inclusive of interest and costs. [14] Mr Crowson said that he and Mr Lagos agreed to refurbish the Hydco and then try to sell it. They estimated that the approximate cost of refurbishment was $80,000.00.8 On the other hand, Mr Lagos said that he did not agree to rebuild the Hydco. He believed that the individual pieces could be sold off which might realise more than $120,000.00.9 [15] Mr Lagos said that Mr Crowson insisted that the Hydco be rebuilt. He said that he told Mr Crowson he would not contribute to the cost of the repairs. Mr Lagos said that if Mr Crowson spent $120,000.00 on repairs which he could recoup from the 5 Defence of the first and second defendants filed 4 October 2019 para 8(a)(iii), amended reply filed by leave on 27 April 2021 para 3(c), although the defendants say the works were limited to stripping back the paint, repainting and servicing. 6 The balance sheet of the Down to Earth Drilling Trust as at 30 June 2015 records current liabilities consisting of loans from Mac Drilling Trust and Mr Lagos of $23,465.00, exhibit 1 tab 94 at 1487. The balance sheet as at 30 June 2016 records current liabilities consisting of a loan from Mac Drilling Trust of $37,713.00, a loan from Mr Lagos of $23,465.00 and a loan from Mr Crowson in the sum of $23,465.00. 7 T2-14 ll 1-45. 8 T2-30 ll 1-15. 9 T1-30 ll 35-45. -- 4 of 31 -- 5 insurer, he was simply restoring the Hydco to the same condition it had been in prior to the fire.10 [16] Mr Crowson said that the repairs to the Hydco cost $128,254.98.11 [17] Ms Crowson paid an invoice for $27,500.00 for repairs to the Hydco and said that she advanced $5,000.00 for wages for work done on it.12 [18] After the repairs were carried out DTED was unable to obtain insurance on the Hydco, apparently because of Mr Crowson’s association with the company. Mr Lagos said that Mr Crowson told him that he was uninsurable until his insurance claim was resolved.13 Subsequently, an insurance broker expressed the opinion that any rigs owned by DTED were uninsurable due to Mr Crowson being a director.14 [19] In August 2017 Mr Lagos acquired another drilling rig, a Hino 6x4 truck mounted with a Warman Scout 250 drilling machine (“Warman Scout”) in his own name for $25,000.00. The terms of the agreement provided that ownership would revert to the seller if the Warman Scout was not paid for within three months.15 [20] Mr Lagos said that the arrangement was that DTED could use the Warman Scout to create revenue for the company. They were to retain sufficient money in the DTED bank account until the next job was secured. The remainder of the revenue was to be split between Mr Crowson and Mr Lagos. Mr Lagos intended to use his share to pay for the machine.16 On the other hand, Mr Crowson said that Mr Lagos told him that he could use the Warman Scout until the money from the QBE Insurance claim had come through or the Hydco was sold.17 [21] The Warman Scout was used to drill a number of water bores. Mr Lagos identified eight water bore jobs that had been undertaken. Three of those jobs were undertaken jointly by Mr Lagos and Mr Crowson. Payment for one of those jobs in the amount of $4,158.00 was paid to DTED. In respect of one of those three jobs Mr Crowson caused Mac Drilling to issue an invoice. [22] There were five other water bore jobs undertaken by Mr Crowson without Mr Lagos. The bore logs record that the work was undertaken by DTED. There are invoices in respect of four of those jobs which were issued by Mac Drilling.18 10 T1-31 ll 10-15. 11 T2-32 ll 1-5, Mac Drilling Trust General Ledger for the year ended 30 June 2017 attached to the provisional liquidator’s report exhibit 16. 12 T3-53 ll 1-21. 13 T1-36 ll 20-30. 14 Letter from Capital Insurance (Broking) Group Pty Ltd dated 1 November 2018, exhibit 1 tab 7 page 30. 15 Exhibit 5. 16 T1-46 ll 40-46. 17 T2-45 ll 40-45. 18 Exhibit 1 at pages 585, 595, 596 and 598. -- 5 of 31 -- 6 [23] Mr Lagos was unable to pay for the Warman Scout and it had to be returned to the seller. Mr Crowson refused to cooperate in the return of the Warman Scout and claimed a lien over it. This led to a falling out between Mr Crowson and Mr Lagos. [24] Mr Crowson arranged for a meeting of the members of DTED to be held on 10 August 2018. At the meeting Mr Lagos was removed as a director. Mr Lagos had voted against the resolution but Mr Crowson voted in favour and used his casting vote to enable the resolution to be passed. The minutes record that: “The members resolved to acknowledge that – the Directors of the company have met with unhappy differences as to the management of the Company. There is presently a deadlock between the Directors as to how to utilise the assets of the company in the best interests of both of the Company’s creditors and the beneficiaries of the Down to Earth Drilling Trust, of which the company is trustee.”19 [25] On 2 December 2018 Mr Crowson caused DTED to transfer the Hydco to Mac Drilling for the sum of $60,000.00.20 Mac Drilling asserts that all but $6,666.25 was paid by way of forgiveness of debts DTED owed to Mr Crowson, Ms Crowson and Mac Drilling.21 The main issues [26] The plaintiffs contend that: (a) the asset sale agreement was an unreasonable director-related transaction22 and that the Hydco was sold at an undervalue; (b) the deeds of forgiveness did not provide consideration of $60,000.00 because at least in respect of Mac Drilling and Ms Crowson, DTED did not owe such debts, and the transfer was made in order to defeat creditors; (c) the evidence of Terry Kirkham, Global Business Auctioneers and Valuers, establishes that the value of the Hydco was between $120,000.00 and $250,000.00 at the date of the transaction.23 The plaintiffs say that Mr Kirkham’s valuation is supported by advertisements for sale of the Hydco, an offer to purchase it and other evidence; (d) the asset sale agreement was an insolvent transaction because it was an uncommercial transaction and occurred at a time when DTED was insolvent, or it caused DTED to become insolvent.24 Mr Baskerville’s expert insolvency report is relied upon in this regard;25 19 Exhibit 1 tab 21 pages 330-331. 20 Exhibit 1 tab 22 pages 332-385. 21 Exhibit 1 tabs 23, 24 and 25 at pages 386-403. 22 Corporations Act 2001 (Cth), s 588FDA. 23 Exhibit 1 tab 87, tab 88, pages 1026-1036. 24 Corporations Act 2001 (Cth), s 588FC. 25 Exhibit 1 tab 94. -- 6 of 31 -- 7 (e) Mr Crowson breached his duties as a director by using the Warman Scout rig to undertake drilling of water bores and issuing invoices in the name of Mac Drilling and not DTED.26 [27] The case for the defendants is that: (a) the amount of $60,000.00 represented the fair market value of the Hydco and is supported by the evidence of Cameron Johnson, All Asset Appraisals;27 (b) Mr Lagos, Mr Crowson and Ms Crowson had agreed on the repairs and refurbishment to the Hydco and that DTED became indebted for the amounts expended; (c) DTED was not insolvent at the date of transaction; (d) Mr Crowson, Ms Crowson and Mac Drilling were creditors of DTED and continued to support the company financially following the purchase of the Hydco including by paying accounting fees and legal fees in relation to the insurance claim; (e) a solvency report from Anita Owens of Vincents dated 30 March 2021 establishes that DTED was solvent at least up until 27 March 2019;28 (f) the work performed by Mr Crowson and Mac Drilling using the Warman Scout was for their own benefit and not DTED, except in respect of the one job that was accounted for. The Warman Scout was owned by Mr Lagos who expressly agreed that it could be used by Mr Crowson. Unreasonable director-related transactions [28] The asset sale agreement is a voidable transaction if it is an unreasonable director- related transaction and it was entered into between the period 2 December 2018 and the relation-back day, being at least during the six months ending on the relation-back day.29 The application to wind up DTED was filed on 18 January 2019. The relation- back day is 18 January 2019.30 It is not in issue that the asset sale agreement was entered into in the relevant period.31 [29] Section 588FDA of the Act provides: “588FDA Unreasonable director-related transactions (1) A transaction of a company is an unreasonable director- related transaction of the company if, and only if: 26 Corporations Act 2001 (Cth), ss 180, 181 and 182. 27 Exhibit 1 tab 89. 28 Exhibit 1 tab 95. 29 Corporations Act 2001 (Cth), s 588FE(6A). 30 Corporations Act 2001 (Cth), ss 9, 91 and 513A; Statement of Claim filed 2 September 2019 para 5, Defence filed 4 October 2019 para 5. 31 Statement of Claim filed 2 September 2019 para 17(c), Defence filed 4 October 2019 para 17(c). -- 7 of 31 -- 8 (a) the transaction is: (i) a payment made by the company; or (ii) a conveyance, transfer or other disposition by the company of property of the company; or (iii) the issue of securities by the company; or (iv) the incurring by the company of an obligation to make such a payment, disposition or issue; and (b) the payment, disposition or issue is, or is to be, made to: (i) a director of the company; or (ii) a close associate of a director of the company; or (iii) a person on behalf of, or for the benefit of, a person mentioned in subparagraph (i) or (ii); and (c) it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to: (i) the benefits (if any) to the company of entering into the transaction; and (ii) the detriment to the company of entering into the transaction; and (iii) the respective benefits to other parties to the transaction of entering into it; and (iv) any other relevant matter. The obligation referred to in subparagraph (a)(iv) may be a contingent obligation.” [30] It is not in issue that by the asset sale agreement DTED transferred or disposed of the Hydco to Mac Drilling.32 It is also not in issue that the disposition was made on behalf of, or for the benefit of, a director or close associate of a director.33 Mr Crowson was a director of DTED and Mac Drilling. Ms Crowson was a director of Mac Drilling. Mr Crowson and Ms Crowson are the only primary beneficiaries of the Mac Drilling Trust. They purported to forgive debts that were said to be owed to them as part of the purchase price that Mac Drilling paid to DTED for the Hydco. 32 Corporations Act 2001 (Cth), s 588FDA(1)(a)(ii). 33 The term “close associate” is defined in s 9 Corporations Act 2001 (Cth) and includes a relative of the director. -- 8 of 31 -- 9 [31] In the circumstances the transfer of the Hydco to Mac Drilling was on behalf of or for the benefit of Mr Crowson and Ms Crowson. [32] The issue is whether a reasonable person in DTED’s circumstances would not have entered into the transaction. The value of the Hydco [33] The valuation evidence called by each party was criticised by the opposing parties. [34] The defendants submit that Mr Kirkham’s evidence should not be accepted because he did not inspect the Hydco, and the plaintiffs did not request that he be given access to it for the purposes of an inspection. It was pointed out that in his first report Mr Kirkham stated that a formal on-site valuation would be required in the event that the asset realisation value was to be formalised or a dispute arose as to the valuation.34 Mr Kirkham agreed in cross-examination that the valuation stated in the first report was in effect an informal estimate.35 [35] The defendants also submit that although Mr Kirkham’s first report is addressed to the Supreme Court of Queensland, it does not contain the required expert witness statement pursuant to rule 428(3) Uniform Civil Procedure Rules 1999 (“UCPR”). [36] The defendants submit that having made no reference to comparative sales in his first report, Mr Kirkham seeks to justify his conclusions by reference to such sales in his second report dated 7 January 2021. He did not know the operating histories of the items he used as comparative sales.36 [37] Mr Kirkham based his valuation on the assumption that the Hydco was operational. He accepted that if the Hydco was not operational his conclusions would be different.37 [38] The plaintiffs submit that the valuation evidence of Mr Johnson should not be accepted because although he inspected the Hydco he did not see it functioning and did not request that it be turned on in order to confirm the assumptions that he had been instructed to make that it was not operational.38 Moreover it is submitted that Mr Johnson’s valuation is based on the incorrect assumption that the Hydco was not operational. [39] The plaintiffs submit that Mr Johnson accepted that while the Hydco drilling rig, as a whole unit, was unique in that there were only ever two made, the truck on which it 34 Exhibit 1 tab 88 page 1031. 35 T1-106 ll 37-38. 36 T1-112 ll 5-15. 37 T1-107 ll 30-35. 38 T2-112 ll 5-10. -- 9 of 31 -- 10 was mounted was quite common, yet he failed to conduct an analysis of comparative sales on that component.39 [40] It was also submitted that apart from his experience in looking at particular rigs, Mr Johnson’s methodology simply involved speaking to other auctioneers and sales agents trading in mining equipment and drill rigs.40 [41] The value of the Hydco as at the date of the asset sale agreement on 2 December 2018 is affected by whether or not it was functioning. Mr Kirkham assumed that it was operational.41 Mr Johnson’s valuation is based on the assumption that the Hydco was non-operational.42 [42] The evidence as a whole establishes that the Hydco was functioning at the relevant time. The fact that the Hydco had not been used to drill a hole does not mean that it was not functioning. The Hydco is capable of drilling holes in excess of 1000 metres. It was purchased cheaply at a time when there was a downturn in the mining industry.43 The repairs after the fire were undertaken at a time when there seemed to be an improvement in the industry.44 Mr Lagos and Mr Crowson considered tendering for jobs, but the fact that the Hydco could not be insured prevented any work being done.45 [43] After the Hydco was acquired and transported to the premises of Mac Drilling at Hervey Bay, Mr Lagos said that they performed an oil change and basic work on it and then “… fired it up and did a shakedown and, … function tested the entire machine.”46 Mr Lagos described the process of carrying out a “shakedown” as involving putting the jack legs down, standing the tower up and checking all the levers to make sure that the machine does the job that it is supposed to do.47 [44] Mr Lagos said that after the Hydco was painted they checked to make sure that it was still working. He described the Hydco as a very big, but simple machine that did not have a lot of hydraulic functions.48 Mr Lagos took photographs during this process.49 [45] Mr Lagos said that the repair works carried out following the fire were completed by mid-2017. The machine was function tested and found to be fully operational.50 Mr Lagos took a photograph showing the hydraulic arms and attachments extended.51 39 T2-121 ll 5-15. 40 T2-114 ll 25-45. 41 T1-107 ll 30-33. 42 T2-117 l 42. 43 T1-28 ll 5-15. 44 T1-30 ll 35-40. 45 T1-36 ll 19-21. 46 T1-26 ll 36-37. 47 T1-26 ll 40-45. 48 T1-27 ll 35-45. 49 Exhibit 1 tab 42 pages 555-557. 50 T1-35 ll 25-45. 51 Exhibit 1 tab 43 page 559. -- 10 of 31 -- 11 [46] Mr Crowson’s evidence in relation to whether the Hydco was functioning was evasive and inconsistent in certain respects. He agreed that the photograph taken by Mr Lagos depicted the Hydco with the legs holding it up and when asked “and this was after the fire repair, when you were giving it a shakedown on your property, wasn’t it?” he answered “Yep”.52 Yet shortly afterwards he maintained that there had never been a “shakedown” of the Hydco.53 When it was put to him that he had just said that there had been a “shakedown” Mr Crowson said “I never said we did a shakedown on it. On the little drilling rig (the Warman Scout) we did a shakedown. Never on the Hydco was a shakedown done.”54 Mr Crowson seemed to draw a distinction between whether the Hydco was working or functioning. Ultimately he agreed that the Hydco was functioning.55 He was asked “if the definition of a shakedown was to put the arm up, make sure the legs go down and hold everything up and you pull all the levers and everything works, did you do something like that?” and he answered “Yes. We did something like that …”56 [47] Mr Crowson agreed that he had advertised the Hydco for sale online on 23 January 2019 for $250,000 or near offer, describing the machine as having just undergone an extensive rebuild with all new hosing. When asked about the advertisement Mr Crowson said that he was selling the Hydco “as is where is”. He was asked “you don’t say there that it’s not working. You don’t say there that you’re selling it as is where is?” and he replied “I don’t say that it was working either”. He was asked “you certainly don’t say it’s not working do you?” and answered “I certainly don’t say it was working.”57 [48] In another advertisement58 the Hydco was described as having just undergone an extensive rebuild with all new hosing and would be sold with a warranty. When asked about that advertisement Mr Crowson maintained that the Hydco had never been working.59 He insisted that the photographs in the advertisement did not represent that the Hydco was ready to be used, saying they simply indicated that it functioned.60 [49] To the extent that there was conflict between the evidence of Mr Lagos and Mr Crowson in relation to the functioning of the Hydco, I prefer Mr Lagos’ evidence which was given clearly and consistently. [50] I have concluded that the Hydco was functioning at the relevant time. Accordingly the basis of Mr Johnson’s valuation is not established by the evidence. He 52 T2-103 l 25. 53 T2-107 l 15. 54 T2-107 l 20. 55 T2-106 ll 35-45. 56 T2-107 ll 35-37. 57 T2-102 ll 40-45. 58 Exhibit 17. 59 T2-105 l 36. 60 T2-105 ll 40-46. -- 11 of 31 -- 12 nevertheless gave an estimate of the value of the Hydco if it was functioning of between $100,000 and $120,000.61 [51] Mr Kirkham’s methodology involved having regard to actual market sales of a similar rig and a component consisting of a drill mast. He considered the sale at auction of a Schramm T66 RC/Aircore drill rig with truck for $135,759.00. This rig was sold without a warranty and in Mr Kirkham’s opinion was not in as good a condition as the Hydco. He also considered the sale of a drill rig mast alone for $60,909.00. Mr Kirkham’s methodology provided a reliable basis for his valuation notwithstanding some differences in the items the subject of the comparative sales. [52] In my view Mr Kirkham’s evidence is not undermined by the fact that he did not inspect the Hydco and that he did not include the expert witness statement required by rule 428(3) UCPR in his first report. [53] Mr Kirkham’s evidence is supported by other evidence. Mac Drilling obtained a valuation from Davies International for the purpose of the claim against QBE Insurance which valued the Hydco at $285,000.00.62 The valuation was tendered as part of the agreed trial bundle.63 There is also a valuation from Blue Gum Asset Advisory prepared for Underwriting Agencies of Australia which valued the Hydco at $25,225.00.64 The effective date for the valuation was 12 January and 17 September 2015 which is much earlier than the date of the asset sale agreement. It must be remembered that the Hydco was able to be purchased cheaply because of the prevailing conditions in the mining industry at the time. The Blue Gum valuation was arrived at by simply adopting the purchase price of the Hydco in August 2014 and adding 25%. This valuation does not assist in determining the fair market value of the Hydco. [54] The other factors that support Mr Kirkham’s valuation are that Mac Drilling had spent $128,254.98 refurbishing the Hydco and it had been insured for $120,000.00. [55] Moreover, the balance sheet of the Down to Earth Drilling Trust as at 30 June 2018 records the value of the Hydco as $325,109.21 which was an increase from the value of $282,630.38 as at 30 June 2017.65 [56] Also, having transferred the Hydco to Mac Drilling on 2 December 2018 it was advertised for sale for $250,000.00 or near offer on 23 January 2019. The advertisement described the Hydco as having just undergone an extensive rebuild with all new hosing.66 61 T2-118 ll 26-27. 62 Exhibit 1 tab 85. 63 The index describes the report from Davies International as a category A document admitted for all purposes. The report was disclosed by the defendants and by s 227(2) UCPR is admissible as relevant and as being what it purports to be. 64 Exhibit 1 tab 84. 65 Exhibit 1 at 1509. 66 Exhibit 13. -- 12 of 31 -- 13 [57] There were other attempts to sell the Hydco for up to $350,000.00.67 [58] There is also evidence of the offer by Wayne Riddell to purchase the Hydco for $300,000.00.68 Mr Riddell’s offer made on 23 April 2021 to the liquidator is conditional on the Hydco being in a reasonably comparable state to that depicted in the photograph attached to his letter of offer and is subject to a visual inspection and confirmation that it remains in working condition. Mr Riddell said that his offer was genuine and there was no suggestion to the contrary.69 I do not accept the submission made for the defendants that Mr Riddell’s offer “is a flawed attempt by the plaintiffs to add value out of nothing in circumstances of an expert valuation witness not stacking up.”70 The fact that Mr Riddell is a friend of Mr Lagos does not provide any basis for rejecting his evidence that his offer to purchase the Hydco was genuine. [59] Mr Crowson ultimately accepted that a number of these factors were suggestive of the Hydco being worth more than $60,000.00.71 [60] I conclude that consistently with Mr Kirkham’s evidence, the value of the Hydco as at the date of the asset sale agreement was between $120,000.00 and $250,000.00. The amount of $60,000.00 for which it was transferred to Mac Drilling was significantly less than the fair market value. Did the deeds of forgiveness provide consideration of $60,000.00? [61] The asset sale agreement states that DTED acknowledged that it owed debts in the following amounts: Ms Crowson - $32,500.00; Mac Drilling - $131,768.00; Mr Lagos - $23,465.00; and Mr Crowson - $23,465.00. [62] By clause 3.2, the consideration paid by Mac Drilling was made up of a partial forgiveness of debt of $37,434.45 and by Mac Drilling procuring the partial forgiveness of debts owed by Ms Crowson ($9,233.04) and Mr Crowson ($6,666.26). [63] The plaintiffs say that contrary to the terms of the asset sale agreement, Mac Drilling has not paid DTED the sum of $60,000.00 or provided any valuable consideration for the Hydco.72 The defendants say that after the fire and between December 2016 and June 2017, Mac Drilling caused further repairs and refurbishment to be carried out on the Hydco at an approximate cost of $128,254.98.73 They also say that in or about March to May 2017, Ms Crowson lent the sum of $32,500.00 to DTED on account of labour in the sum of $5,000.00 and repairs amounting to $27,500.00 paid to Bay City 67 T2-40 ll 10-45. 68 Exhibit 14. 69 T1-119 l 35. 70 Outline of submissions of the defendants at para 66(c). 71 T2-107 ll 43-44. 72 Statement of Claim filed 2 September 2019 at para 11. 73 Defence filed 4 October 2019 at para 8(a)(xiii). -- 13 of 31 -- 14 Engineering.74 The defendants contend that the financial statements of DTED as at 30 June 2018 reflect the debts that it owed.75 [64] The plaintiffs do not admit the expenditure items.76 The plaintiffs deny that the debts were a liability of DTED because they say that Mac Drilling was bailee of the Hydco at the time it was damaged by the fire and was therefore liable for the repairs.77 [65] The plaintiffs submit that I should not accept that Mac Drilling actually incurred the amounts reflected in the financial statements in repairing the fire damage to the Hydco.78 They submit that the financial statements prepared by Walsh Accounting which are relied upon by the defendants were not proven up to verify their accuracy. The plaintiffs also submit that the schedule of expenses prepared by Ms Crowson recorded an amount different to that in DTED’s financial statements.79 [66] I am prepared to accept that Mac Drilling spent significant amounts in carrying out repairs to the Hydco. Mr Crowson said that the general ledger80 related to the work done to refurbish the Hydco after the fire.81 It was not suggested that the invoices82 did not correspond to the items listed in the general ledger. [67] Mr Crowson said that all expenses incurred throughout 2017 related to the Hydco because that was the only work undertaken in that period.83 Mr Crowson identified items on bank statements that related to expenses incurred in refurbishing the Hydco.84 [68] Ms Crowson was the bookkeeper and identified the invoices in relation to the repairs to the Hydco.85 A spreadsheet recorded the expenditure.86 [69] However, it is difficult to determine precisely what amount was spent on repairs. The spreadsheet prepared by Ms Crowson records a total amount of $182,568.23, but the balance sheet lists the loan from Mac Drilling as $139,440.03.87 Ms Crowson explained the difference of approximately $43,000.00 being on account of interest.88 Ms Crowson said she paid the Bay City Engineering invoice dated 25 March 2017 for $27,500.00.89 Mr Crowson had negotiated the amount on a previous invoice dated 74 Defence filed 4 October 2019 at para 2(a)(xiv). 75 Defence filed 4 October 2019 at para 11(c). 76 Amended Reply filed by leave 27 April 2021. 77 Amended Reply filed by leave 27 April 2021 at para 4(b). 78 Outline of Submissions for the plaintiffs at para 39. 79 T3-52 ll 1-25. 80 Exhibit 16. 81 T2-20 ll 35-40. 82 Exhibit 1 pages 665-973. 83 T2-31 ll 10-15. 84 T2-36 l 45–T2-37 l 35. 85 T3-43 ll 30-35. 86 Exhibit 24. 87 Exhibit 1 page 1509. 88 T3-52 ll 1-25. 89 Exhibit 1 page 589. -- 14 of 31 -- 15 7 March 2017 for $32,641.17.90 However there was a payment by Mac Drilling to Bay City Engineering on 15 February 2017 for $21,939.1891 which corresponds to the amount on the spreadsheet, yet there is no invoice for this item. The Bay City Engineering invoices dated 7 and 25 March were tendered in evidence. The spreadsheet also records the $27,500.00 amount. [70] The financial statements record a loan from Ms Crowson to DTED in the sum of $32,500.00. This amount includes the payment by Ms Crowson of the Bay City Engineering invoice to Mac Drilling dated 25 March 2017 for $27,500.00. The balance of the loan was said to relate to labour on the Hydco repairs. [71] It is clear that significant amounts were spent in refurbishing the Hydco; the more contentious issue is whether the amounts paid by Mac Drilling and Ms Crowson were loans to DTED. The defendants do not say that there were express loan agreements, rather they submit that “the debts are in the nature of related party loans, which are commonly debts incurred by conduct by a party incurring expenditure on behalf of a company and those expenses being recorded in the books of the company as what has occurred in the present case”.92 [72] The defendants submit that the debts were clearly provided in relation to works performed on the Hydco for the benefit of DTED and that it is not necessary for them to have pleaded defences “along the lines of a conventional estoppel or unjust enrichment”.93 However, that submission overlooks rule 150(1)(e) UCPR which does require that an estoppel be specifically pleaded. [73] Mr Crowson accepted that Mac Drilling was responsible for storing the Hydco which involved keeping it safe.94 [74] Mr Lagos said that he told Mr Crowson that he was not prepared to contribute financially to the cost of the repairs but he was willing to spend time in performing labour on it.95 His evidence in that respect is not contradicted by Mr Crowson. [75] Ms Crowson accepted that the Bay City Engineering invoice was paid on behalf of Mac Drilling.96 Mr Crowson accepted that the invoice was issued to Mac Drilling.97 [76] As bailee, Mac Drilling was required to take reasonable care of the Hydco.98 Mr Crowson accepted that Mac Drilling was responsible for storing the Hydco which 90 Exhibit 1 pages 586-588. 91 Exhibit 1 page 616. 92 Outline of Submissions for the defendants at para 118. 93 Outline of Submissions for the defendants at para 116(f). 94 T2-74 ll 44-46–T2-76 l 2. 95 T1-31 ll 10-15. 96 T3-50 ll 25-45. 97 T2-85 ll 10-40. 98 Halsbury’s Laws of Australia [40-115], Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd (1966) 115 CLR 353 at 374-375, 387-388. -- 15 of 31 -- 16 involved keeping it safe and protected to the best of his ability.99 There was limited evidence as to the cause of the fire. Mr Crowson said that he was told by the investigator that one of the wires at the back of one of the drilling rigs had shorted out and started the fire in the shed.100 I accept Mr Lagos’ evidence that Mr Crowson agreed to undertake the repairs of the Hydco. His evidence was clear and consistent in this respect and he recalled the location where the conversation occurred which was near the shed in the vicinity of a T5 drill rig.101 There is no evidence of any loan agreement between DTED and Mac Drilling in relation to the cost of repairs. Moreover, Mac Drilling did not plead that there was a loan agreement with DTED. I conclude that DTED did not owe debts to Mac Drilling and Ms Crowson. [77] I do not accept the alternative case advanced by the defendants that at the meeting between Mr Lagos, Mr Crowson and Ms Crowson in March 2017, there was an agreement that if the Hydco had not been sold or the QBE Insurance claim resolved within six months that it would be transferred to Mac Drilling.102 [78] Mr Crowson said that his mother agreed to continue paying for repairs to the Hydco until the refurbishment was completed. He said that no specific amount was set and there was no contract.103 Mr Crowson said that his mother needed some sort of guarantee and that if the potential buyer, Wayne Riddell, withdrew from buying it or the insurance claim was not finalised within six months, “it would wipe the debt to Down to Earth our money spent on the drilling rig if it was returned …”.104 In an affidavit sworn in the winding-up proceeding, Mr Crowson said that the loan was for $32,500.00.105 He maintained that he thought the loan was to be for an amount sufficient to finish the repairs but explained that perhaps they thought $32,500.00 was sufficient.106 On the other hand, Ms Crowson said that there was an oral agreement which was reduced to writing that if the Hydco had not been sold within six months or the insurance money was not received within that period, it would revert to Mac Drilling. She said that Mr Lagos and Mr Crowson both made that suggestion.107 However, no written loan agreement was in fact produced.108 [79] Mr Lagos recalled being at Ms Crowson’s home on a number of occasions. He said there was a conversation relating to whether there was a buyer for the Hydco. He said that he had not previously seen the Bay City Engineering invoice.109 During the cross-examination of Mr Lagos, it was not suggested that there was such an agreement. 99 T2-74 l 44-T2-75 l 2. 100 T2-13 ll 25-35. 101 T1-62 ll 30-35. 102 Defence filed 4 October 2019 para 15(b)(E). 103 T2-35 l 21. 104 T2-35 ll 9-15. 105 Exhibit 22. 106 T2-96 ll 15-25. 107 T3-39 ll 5-15. 108 T3-50 ll 6-7. 109 T1-65 ll 5-40. -- 16 of 31 -- 17 [80] The terms of the suggested agreement to transfer the Hydco to Mac Drilling are unclear. Mr Crowson has been inconsistent on whether the loan was for a specific amount or a sufficient sum to complete the repairs. Mr Crowson did not suggest that there was any legitimate basis for the invoices that he caused Mac Drilling to issue to Mr Lagos.110 These invoices formed the basis of his claim to have a lien over the Warman Scout which led to Mr Lambrick making a demand for its return.111 This evidence reflected adversely on Mr Crowson’s credibility. As I have said, I do not accept that there was any agreement that the Hydco would be transferred to Mac Drilling in the event that it could not be sold or the insurance claim resolved. Was the transfer of the Hydco done to defeat creditors? [81] The defendants submit that apart from the loan from Mr Lagos of $23,464.73, they were the main creditors of DTED. They say that they had the means of meeting Mr Lagos’ debt if necessary and that it is illogical to suggest that they would have made the transfer in order to defeat themselves.112 The defendants submit that the transfer of the Hydco was not unreasonable in circumstances where: there was an agreement in place that it would be transferred in the event that the loan from Ms Crowson could not be repaid within six months; the parties to whom it was sold were the main creditors; the Hydco was sold at a fair market value; that DTED retained the benefit of, and did in fact benefit from, the insurance claim; the transaction occurred when DTED was solvent; and it reduced the debt owed to its main creditor.113 [82] I have concluded that there was no agreement that the Hydco would be transferred to Mac Drilling in the event that the loan from Ms Crowson was not repaid within six months. Moreover I have concluded that the Hydco was not sold at a price that represented fair market value. I do not consider that it is relevant that the parties to whom the Hydco was sold were the main creditors. The fact remained that Mr Lagos was owed $23,464.73 and as a result of the transaction all but $6,666.25 was paid by way of forgiveness of debts, and that amount was ultimately retained by Mr Crowson in any event. Mr Crowson was certainly not acting in the interests of all shareholders. [83] Mr Crowson said that the asset sale agreement and deeds of forgiveness were entered into on legal advice as a means of protecting DTED and its assets.114 He also said that he was trying to do the best for the company and not to liquidate it.115 [84] It is true that DTED still held the potential benefit of the insurance claim with QBE. However the claim was disputed on the basis of a material non-disclosure, so its value was not easily ascertainable. 110 Exhibit 12. 111 Exhibit 1 tab 1 page 1. 112 Outline of Submissions for the defendants at paras 131-133. 113 Outline of Submissions for the defendants at para 134. 114 T2-72 ll 30-45. 115 T2-66 ll 10-15. -- 17 of 31 -- 18 [85] Mr Crowson denied that the transfer was made so that he could eventually wind up DTED, explaining “I didn’t know what was going to do with it. You know, if it could be sold to pay some of the debt off. It could be – maybe if the insurance came through there, it could have been transferred back again and help pay – I – I didn’t know, you know.”116 He was then asked how the Hydco could be sold to pay off debt if it was now in Mac Drilling’s name and he explained that “maybe Down To Earth could have bought it back again – purchased the drill rig back again.”117 When it was pointed out that DTED would have no means of paying for the Hydco, Mr Crowson said it may have been able to do so with the insurance money.118 [86] The removal of Mr Lagos as a director and the asset sale agreement were steps clearly designed to defeat creditors. Mr Crowson gave this evidence in cross-examination: “Is it right that when you sought that advice to protect the company, you were advised to remove Mr Lagos as a direction?---Yes. That was part of the advice?---Yes. And the legal advice was to enter into that set of transactions. That is, the asset sale agreement and the deeds of forgiveness?---Yes. That was the advice they gave you to protect the company?---That was the legal advice that I was given. And the advice was that these arrangements were a way of protecting the company and its assets?---It was – yes.”119 [87] In the circumstances I conclude that the transfer was made in order to defeat creditors of DTED. Whether it may be expected that a reasonable person would not have entered into the transaction [88] I consider that a person in Mr Crowson’s position as director of DTED acting reasonably would not have caused DTED to enter into the asset sale agreement. DTED was selling its only realisable asset (apart from the disputed insurance claim) for an amount considerably less than fair market value. A person acting reasonably would at the very least have obtained a valuation to ascertain the Hydco’s fair market value. Mr Crowson’s evidence as to how he arrived at the fair market value was unconvincing. He claimed that he watched websites all the time to ascertain the price that drilling rigs were selling for.120 He provided no details of any sales. A person acting reasonably would only have transferred the Hydco for valuable consideration which did not occur here. Further, a person acting reasonably would not have entered 116 T2-66 ll 20-25. 117 T2-66 ll 29-31. 118 T2-66 ll 33-34. 119 T2-72 ll 28-42. 120 T2-52 ll 20-30. -- 18 of 31 -- 19 into the transaction with the intention of defeating DTED’s creditors. There was no benefit to DTED in entering into the transaction and it suffered a detriment by the disposition of its only realisable asset for less than market value.121 Insolvent transaction [89] The asset sale agreement is a voidable transaction if it was an insolvent transaction, and was entered into during the six months ending on the relation-back day.122 It is admitted on the pleadings that the agreement was made in the relevant period.123 [90] The relevant provisions of the Act are: “588FC Insolvent transactions A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and: (a) any of the following happens at a time when the company is insolvent: (i) the transaction is entered into; or (ii) an act is done, or an omission is made, for the purpose of giving effect to the transaction; or (b) the company becomes insolvent because of, or because of matters including: (i) entering into the transaction; or (ii) a person doing an act, or making an omission, for the purpose of giving effect to the transaction.” “588FB Uncommercial transactions (1) 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 121 Corporations Act 2001 (Cth), s 588FDA(1)(c). 122 Corporations Act 2001 (Cth), s 588FE. 123 Statement of Claim filed 2 September 2019 para 17(c), Defence filed 4 October 2019 para 17(c). -- 19 of 31 -- 20 (c) the respective benefits to other parties to the transaction of entering into it; and (d) any other relevant matter. (2) A transaction may be an uncommercial transaction of a company because of subsection (1): (a) whether or not a creditor of the company is a party to the transaction; and (b) even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.” [91] The plaintiffs must establish that the asset sale agreement: (a) was an uncommercial transaction; and (b) it was entered into, and/or the transfer of the Hydco occurred at a time when DTED was insolvent, or the transaction caused DTED to become insolvent. [92] The determination of whether a reasonable person in DTED’s circumstances would not have entered into the transaction involves the same issues as those considered in relation to whether it was an unreasonable director-related transaction. For the reasons already given on that issue, I conclude that a reasonable person in DTED’s circumstances would not have entered into the asset sale agreement and it is therefore an uncommercial transaction. Did the transaction occur at a time when DTED was insolvent or did it become insolvent because it entered into the transaction? [93] By s 95A(1) of the Act, a company is solvent if, and only if, it is able to pay all of its debts as and when they fall due. Otherwise it is insolvent: s 95A(2). [94] The plaintiffs rely on the evidence of the liquidator Mr Baskerville who said that DTED was insolvent from at least 1 July 2017.124 [95] The defendants rely on the evidence of Ms Owens who said that DTED was solvent at all times prior to the appointment of the provisional liquidator and at least until 27 March 2019 due to ongoing related party support.125 [96] In Pearce v Gulmohar Pty Ltd 126 Rangiah J discussed the relevant principles: “[158] A factor which may be relevant to the assessment of solvency is the likelihood that directors or associated companies will 124 Exhibit 1 tab 94 page 1158. 125 Exhibit 1 tab 95 page 1700. 126 [2017] FCA 660. -- 20 of 31 -- 21 continue to support a company by lending it money or deferring debt. (citations omitted) … [164] There must be cogent evidence of a degree of commitment and capacity on part of a financier if the Court is to conclude that financial support sufficient to avoid insolvency was likely to be offered or continued.” [97] DTED clearly depended on related party support to remain solvent. The Hydco was not insured and remained uninsurable while Mr Crowson was a director, at least until the QBE claim was finalised. The Hydco had not generated any income. [98] Mr Crowson said in an email to Mr Lagos on 3 May 2018: “As you can see there wouldn’t be enough money left to service the debt incurred. Down to earth has no potential to get an income to service the debt ( due to the inability of obtaining insurance for the company ) Down to earth has no way of servicing on going expenses . Down to earth debts as it stands now is more then (sic) its assets are worth . Down to earth tried to get a loan from the bank but was rejected due to age of machine . You have not expressed any inclination to service the debt or general running expenses of Down to earth .”127 [99] Mr Crowson’s evidence was that notwithstanding the email, the Mac Drilling interests continued to provide financial support and intended to do so until the liquidators were appointed.128 He explained that the email was sent at a time when his relationship with Mr Lagos had deteriorated and he was trying to encourage him to contribute financially to DTED.129 [100] The defendants submit that the email is consistent with there being negotiations and “someone letting off steam”.130 They submit that continued financial support is apparent from the payment of expenses after 3 May 2018.131 The income statement for the period ended 1 February 2019 records expenses totalling $412.00.132 127 Exhibit 1 tab 5 page 17. 128 T3-24 ll 1-10. 129 T3-24 ll 12-23. 130 Outline of Submissions for the defendants at para 158. 131 Outline of Submissions for the defendants at para 159. 132 Exhibit 1 at page 1519. -- 21 of 31 -- 22 [101] The expenses consist of bank charges of $70.00 and filing fees of $342.00. The bank charges are $10.00 direct debit amounts for account maintenance fees from the Bank of Queensland account of DTED. The payment of these expenses is insufficient to support the conclusion that DTED had ongoing financial support. The Crowson interests had funded the legal expenses in the proceeding against QBE Insurance but that does not support a conclusion that DTED had related party support as at the date of the asset sale agreement. Mr Crowson’s conduct is inconsistent with such a conclusion. [102] Ms Crowson said that she was not willing to provide any further financial support to DTED.133 [103] The issue depends very much on Mr Crowson’s evidence that the Mac Drilling interests intended to continue to provide financial support to DTED. Mr Crowson was not an impressive witness. His evidence that the Mac Drilling interests intended to continue to provide financial support is inconsistent with his conduct and must be treated with scepticism. [104] Mr Crowson clearly attempted to apply financial pressure on Mr Lagos by causing invoices to be issued by Mac Drilling totalling $120,490.00 for drill pipe and hire of drill rod, and work, labour and storage of the Warman Scout, when no basis existed for such expenses.134 In an email sent by Mr Lagos on 30 April 2018, he described the invoices as “fake invoices” and that Mr Crowson “literally just started invoicing to harass (him)”.135 The first invoice which was for $42,020.00 was issued on 12 February 2018. Mr Lagos sent Mr Crowson an email on that date stating that the terms of their initial agreement had not changed and that Mac Drilling was to cover the costs of the rebuild of the Hydco. He also disputed the items in the tax invoice.136 Mr Crowson’s response on 13 February 2018 was “As for your allegation that you do not owe Macdilling (sic) $76,237.71 + interest + legal cost I believe the recorded conversation on the 05/02/2018, 06/02/2018 and 2 subsequent recorded speaker phone conversations on the 8/02/2018 might show the untruth and untrustworthiness of you (sic) allegations and show the character of the person you really are.”137 [105] In cross-examination Mr Crowson was asked about the fact that the recordings had not been produced in disclosure and he said “No, the phone was – I lost the phone, it got broken, so I couldn’t.”138 He explained that he thought the phone was broken in February and that he had tried to extract the recordings from it. He said that he had spoken to his stepson to try and extract the recordings but was unable to do so. He did not seek any professional assistance to try and extract the recordings because he 133 T3-49 ll 40-46. 134 Exhibit 12. 135 Exhibit 1 tab 5 page 21. 136 Exhibit 1 at pages 6-7. 137 Exhibit 1 at page 7. 138 T3-16 ll 46-47. -- 22 of 31 -- 23 had tried that before and it didn’t work.139 Having regard to the potential significance of the alleged recorded conversations, it is surprising that Mr Crowson did no more than ask his stepson to extract the recordings. In his evidence Mr Crowson did not seem to suggest that there were any particular telephone conversations with Mr Lagos in February 2018 where Mr Lagos made statements damaging his own creditability. This issue tends to reflect adversely on Mr Crowson. [106] Mr Crowson said that the reason the QBE Insurance claim was rejected was because of an issue relating to valuations. His evidence was that “… they finally rejected the claim due to valuations, because we had a pre-agreed value on the drilling rig and they said the pre-agreed value, which they’d insured twice, was more than the rigs were worth.”140 However it emerged in cross-examination that the claim had been refused because of a material non-disclosure by the insured.141 Mr Crowson said that he had forgotten about that because it was trivial.142 [107] Further, Mr Crowson caused Mac Drilling to lodge a proof of debt with the liquidator for in excess of $250,000.00,143 when the amount that was spent on the repairs to the Hydco was $128,254.38. Mr Crowson said that the total amount included wages.144 [108] Mr Crowson’s evidence that the purpose of the asset sale agreement and the deeds of forgiveness was to attempt to avoid DTED going into liquidation, cannot be accepted.145 He claimed that he was “trying to work in the best interests of the company, not having people or entities attacking Down to Earth Drilling”.146 When asked who was attacking the company Mr Crowson said “there was nobody but so it wouldn’t go under attack. It had obligations to pay to debt back. It had – it had a – an agreement to – to pay a loan back.”147 Mr Lagos was a creditor of DTED. It appears that his removal as a director and the transfer of the Hydco were designed to frustrate any claims he may have had. [109] Ms Owens’ opinion that DTED was solvent at least until 27 March 2019 is based on the assumption that it had ongoing related party financial support. She conceded that her opinion would be different if it did not have such support.148 [110] I conclude that DTED did not have ongoing related party financial support and consequently Ms Owens’ evidence that it was solvent cannot be accepted. 139 T3-17 ll 1-15. 140 T2-15 ll 28-30. 141 T2-75 ll 42-45. 142 T2-76 l 8. 143 Exhibit 16 Annexure 4. 144 T3-8 ll 15-20. 145 T2-65 ll 35-45. 146 T2-68 ll 10-11. 147 T2-68 ll 27-30. 148 T3-68 ll 35-45. -- 23 of 31 -- 24 [111] I accept Mr Baskerville’s opinion that DTED was insolvent at the time of the transaction. As at the date of the asset sale agreement on 2 December 2018, DTED was either insolvent or became insolvent as a result of entering into the agreement. My conclusion is not altered by the fact that I have found that the cost of repairs to the Hydco were not debts of DTED because it nevertheless owed the debt to Mr Lagos. Breach of directors’ duties [112] The relevant duties of a director to exercise care and diligence, act in good faith and not improperly use their position to gain an advantage or cause detriment to the corporation are contained in the following provisions of the Act: “180 Care and diligence—civil obligation only Care and diligence—directors and other officers (1) A director or other officer of a 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 a 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. … 181 Good faith—civil obligations Good faith—directors and other officers (1) 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. … 182 Use of position—civil obligations Use of position—directors, other officers and employees (1) 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.” -- 24 of 31 -- 25 [113] The serious nature of the allegations and the potential consequences for Mr Crowson must be considered in determining whether the evidence is sufficiently probative to establish the plaintiffs’ case.149 [114] In Shafron v Australian Securities and Investments Commission 150 French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ said: “The degree of care and diligence that is required by s 180(1) is fixed as an objective standard identified by reference to two relevant elements — the element identified in para (a): “the corporation’s circumstances”, and the element identified in para (b): the office and the responsibilities within the corporation that the officer in question occupied and had. No doubt, those responsibilities include any responsibility that is imposed on the officer by the applicable corporations legislation. But the responsibilities referred to in s 180(1) are not confined to statutory responsibilities; they include whatever responsibilities the officer concerned had within the corporation, regardless of how or why those responsibilities came to be imposed on that officer.” [115] The following facts are not in issue: (a) Mr Lagos acquired the Warman Scout in his own name on 18 August 2017 for $25,000.00; (b) the terms of the agreement with the seller, Nathan Lambrick, required that payment be made within three months. The sale was stipulated to be null and void in the event that payment was not made; (c) the Warman Scout was used to drill eight water bore holes. Mr Lagos and Mr Crowson were together for three of the jobs; on 20 August 2017,151 25 August 2017152 and 22 October 2017.153 The bore reports record Mr Lagos as the driller; (d) on 28 August 2017 payment was made to DTED Bank of Queensland account in the sum of $4,158.00;154 (e) in respect of the job undertaken on 22 October 2017, Mac Drilling issued an invoice for $5,445.00;155 149 Australian Securities and Investments Commission v Cassimatis (2016) 336 ALR 209 at 224-225 [36]- [40]. 150 (2012) 247 CLR 465 at 476 [18]. 151 Exhibit 6. 152 Exhibit 7. 153 Exhibit 8. 154 Exhibit 11. 155 Exhibit 1 at 597. -- 25 of 31 -- 26 (f) there were five other water bore jobs undertaken by Mac Drilling; on 8 October 2017, 13 October 2017, 16 December 2017, 23 January 2018 and 24 January 2018.156 The bore reports record the drill company as DTED; (g) in respect of four of those jobs, Mac Drilling issued invoices;157 (h) Mr Lagos was unable to pay for the Warman Scout and it had to be returned to Mr Lambrick. [116] The plaintiffs’ case is that Mr Lagos acquired the Warman Scout in his own name and made it available to DTED to generate income. They submit that it is inherently unlikely that Mr Lagos would have agreed that Mr Crowson use the Warman Scout for his own purposes. [117] Mr Crowson’s case is that Mr Lagos agreed that he could use the Warman Scout for his own purposes. He said that he had assisted Mr Lagos to undertake repairs on it and spent money in doing so. He said that he received an email from Mr Lagos on 13 May 2018 which referred to work being available in Maryborough without any reference to DTED. Mr Crowson says that Mr Lagos was busy with his own drilling business at the time. In respect of the job undertaken together for which payment was made to the DTED bank account, he said that Mr Lagos told him that he could use that money to help him along.158 [118] I consider that Mr Crowson’s case is implausible and cannot be accepted. [119] There is no rational reason why Mr Lagos would purchase the Warman Scout on terms that required that it be returned to the seller if it was not paid for within three months and then agree to Mr Crowson retaining all of the revenue generated by its use. [120] Mr Crowson said he was aware of the terms on which Mr Lagos purchased the Warman Scout,159 although in cross-examination he emphatically denied knowing the terms of the agreement. He added, somewhat gratuitously, that he would be very concerned about its legitimacy.160 [121] The fact that Mr Lagos acquired the Warman Scout in his own name does not advance Mr Crowson’s case as it could not have been insured if it was purchased by DTED because of Mr Crowson’s connection to the company. [122] Mr Crowson said that the agreement was that if he and Mr Lagos worked together using the Warman Scout they would “go halves” in the proceeds,161 yet that did not 156 Exhibit 10. 157 Exhibit 1 pages 585, 595, 596 and 598. 158 T2-50 ll 30-40. 159 T2-48 ll 36-37. 160 T3-9 ll 35-45. 161 T2-48 l 45. -- 26 of 31 -- 27 occur in respect of the amount of $4,158.00 which formed part of the sum of $8,000.00 transferred to Mac Drilling on 27 December 2017.162 [123] Moreover the bore reports record the driller as being either Mr Lagos or DTED. [124] Mr Crowson published on social media, including on DTED’s Facebook page, that it was performing drilling work with the Warman Scout. In one Facebook post there is a photograph with the comment “the Ward Boys and the Down To Earth Drilling team”.163 [125] After Mr Lagos had undertaken some investigations he asked Mr Crowson how business was going and he said that Mr Crowson was vague.164 There was no reason for Mr Crowson to be vague if the agreement was as he claimed. [126] The fact that Mr Lagos mentioned in his email to Mr Crowson on 21 May 2018165 that there was a job available in Maryborough without making any express reference to DTED is not inconsistent with the Warman Scout having been made available to DTED rather than Mr Crowson personally. [127] Overall I consider that Mr Crowson was an unreliable witness. On the other hand Mr Lagos was clear and consistent in his evidence. The defendants were critical of Mr Lagos’ credibility and I have taken those matters into consideration.166 The offer to purchase the Hydco by Mr Riddell was genuine and does not in any way effect Mr Lagos’ credibility. I do not accept that Mr Lagos was indifferent to the subject of discussions at Ms Crowson’s house. [128] I am satisfied to the requisite standard bearing in mind the seriousness of the findings and consequences that Mr Lagos’ version of the agreement is truthful, accurate and reliable. Moreover, I am satisfied that Mr Lagos did not agree to the transfer of the revenue of $4,158.00 deposited to the DTED bank account on 28 August 2017 to be transferred to Mac Drilling. [129] By his conduct in using the Warman Scout for his own purposes, causing Mac Drilling to issue invoices and retaining revenue generated by the Warman Scout, Mr Crowson failed to discharge his duties with the degree of care and diligence that a reasonable person would exercise; failed to act in good faith in the best interests of DTED and for a proper purpose; and gained an advantage for himself or Mac Drilling and caused detriment to DTED. [130] By s 1317H of the Act the Court may order compensation for a contravention of a civil penalty provision. 162 DTED bank statement, exhibit 1 tab 94 page 1536. 163 Exhibit 9. 164 T1-42 ll 20-25. 165 Exhibit 1 tab 5 page 19. 166 Outline of submissions for the defendants at paras 206-207 -- 27 of 31 -- 28 [131] The uncontested evidence is that the average rate for the bore invoices issued by Mac Drilling was $157.00 per metre. Mr Lagos said that the cost of drilling a 21 metre hole is no more than $1,000.00. [132] The calculation made on behalf of the plaintiffs is that DTED suffered a loss of $34,972.75 (including GST) as a result of his breach of duties as a director. The details are as follows: Income Job Date Bore log Depth Amount based on depth (@ $157 p/m) ex GST Invoice amount (ex GST) 1 20/8/17 Ex 6 21m $3,297.00 2 25/8/17 Ex 7 21m $3,297.00 3 8/10/17 Ex 10 46m $7,222.00 $7,130.00 4 13/10/17 Ex 10 37m $5,809.00 $5,550.00 5 22/10/17 Ex 8 31m $4,867.00 $4,950.00 6 16/12/17 Ex 10 19m $2,983.00 $2,912.00 7 23/1/18 Ex 10 21m $3,297.00 8 24/1/18 Ex 10 46m $7,222.00 $7,425.00 Total $37,994.00 Total Inc GST $41,793.40 Costs Job Date of hole Bore log Depth Amount based on depth ex GST 1 20/8/17 Ex 6 21m $1,000.00 2 25/8/17 Ex 7 21m $1,000.00 3 8/10/17 Ex 10 46m $2,000.00 4 13/10/17 Ex 10 37m $1,500.00 5 22/10/17 Ex 8 31m $1,500.00 6 16/12/17 Ex 10 19m $1,000.00 7 23/1/18 Ex 10 21m $1,000.00 8 24/1/18 Ex 10 46m $2,000.00 Total $11,000.00 [133] Mr Crowson submits that there is no supply for GST purposes and that a profitability rate of 50% based on Mr Lagos’ evidence results in an effective loss of $24,500.00. However Mr Lagos actually said that profitability was at least 50% and he assumed that it would be more than that.167 167 T1-74 l 45 – T1-75 l 2. -- 28 of 31 -- 29 [134] It is not clear how the plaintiffs’ calculation of $34,972.75 was arrived at. Mr Crowson’s calculations adopt $49,000.00 as a starting point for the plaintiffs’ claim which is somewhat higher than the actual amount. [135] The evidence and submissions present some difficulties in assessing compensation. Neither counsel referred to any authorities on the issue of whether GST should be included. Apart from that, Mac Drilling issued tax invoices in respect of jobs 3,4,5,6 and 8 which included GST. The evidence does not reveal whether Mac Drilling remitted GST to the Australian Taxation Office. There is the possibility that it claimed input tax credits. Another issue not addressed in the submissions is that the tax invoice for job 3168 states that the bore was drilled to 46 metres and that at $155.00 per metre the cost was $7,130.00, but Mr Crowson applied a discount of $4130.00 resulting in a total amount of $3000.00 including GST. The reasons for the discount were not explored in the evidence. In respect of jobs 1, 2 and 7, there are no tax invoices in evidence. [136] In the circumstances I conclude that the preferable course is to adopt the actual invoice amounts in respect of jobs 3,4,5,6 and 8. The amounts are: Job Invoice amount ex GST 3 $2727.27 4 $5550.00 5 $4950.00 6 $2912.00 8 $7425.00 Total $23,564.27 [137] One of the other jobs resulted in the payment of $4158.00 which presumably included GST. There is no reason why the whole of that amount which was ultimately transferred to Mac Drilling should not be taken into account. In respect of the other jobs the average rate of $157.00 per metre results in an amount $6994.00 excluding GST (42 metres at $157.00 per metre). [138] The total potential income is $34,316.27. [139] Mr Lagos said that the cost of drilling at 21 metre hole is no more than $1000.00. He was asked specifically about job 1, and said “I don’t even think it would cost $1000.00 to do that job.”169 That does not necessarily mean that a 46 metre hole would have 168 Exhibit 1 at 595 169 T1-81 ll 33-34. -- 29 of 31 -- 30 cost $2000.00. In respect of job 3 for example, the income excluding GST was $2727.27. It would seem unlikely that the costs of undertaking the job would have been $2000.00. I propose to adopt an average of $1000.00 per job as representing the expenses. [140] Having regard to the limitations resulting from the evidences and submissions I assess compensation caused by Mr Crowson’s breach of duties as a director at $26,000.00. I have not included GST except in respect of the amount of $4158.00 paid to DTED for the reasons I have outlined. Summary [141] In summary, I assess compensation as follows: [142] A number of items are based on estimates. I have rounded the amount of compensation to $26,000.00. The parties have liberty to apply if they wish to raise any issue in relation to the calculations. Orders [143] I have concluded that the asset sale agreement was a voidable transaction. Accordingly the appropriate order pursuant to s 588FF(1)(b) is to direct that Mr Crowson and Mac Drilling transfer the Hydco to Mr Baskerville and DTED. [144] I have concluded that Mr Crowson breached his duties as a director resulting in a loss to DTED of $26,000.00. [145] I would make the following orders: 1. That the defendants cause the Osh Kosh Hydco 500 drilling rig mounted on 1989 Osh Kosh Gorgo 8x8 carrier to be transferred to the plaintiffs. 2. That the first defendant pay compensation of $26,000.00 to the plaintiffs. [146] The transfer of the Hydco may involve formal requirements that should be incorporated in the orders. I therefore direct that the parties provide draft minutes of judgment which give effect to these reasons. Amount paid to DTED transferred to Mac Drilling $ 4,158.00 inc GST The other two jobs Lagos/Crowson $ 6,594.00 ex GST Amounts invoiced by Mac Drilling $23,564.27 ex GST Total Income $34,316.27 Less approximate costs $ 8,000.00 Total $26,316.27 -- 30 of 31 -- 31 [147] I will hear submissions in relation to costs. Formal orders [148] After hearing submissions the following orders were made: 1. By 4:00pm on 2 June 2021, the second defendant, by the first defendant, or its other officers or agents, are to: (a) transfer title of the Hydco 500 drilling rig mounted on 1989 Osh Kosh 8x8 carrier (“the Hydco”), and deliver up possession of the Hydco, to the second plaintiff; (b) cause any registered security it holds over the Hydco to be removed from any and all registers on which said security may be registered and provide confirmation of such removal to the plaintiffs. 2. The order of 6 September 2019 is extended until 4:00pm on 2 June 2021 3. By 4:00pm on 11 June 2021, the first defendant is to pay the sum of $30,308.67 to the plaintiffs, which includes the sum of $4,308.67 in interest. 4. The defendants are to pay the plaintiffs’ costs, including any reserved costs, to be agreed or assessed on the standard basis. -- 31 of 31 --