Background
Eastside Formwork Pty Ltd operated a formwork-contracting business before receivers were appointed in July 2020. It entered voluntary administration in October 2020 and was placed into liquidation the following month. Its liquidator, Shumit Banerjee, alleged that Connie and Dane Stojic had participated in a scheme that moved the business through successive entities while leaving substantial debts, including taxation liabilities, behind.
Although ASIC records did not identify Mrs Stojic as an Eastside director, the liquidator contended that she had acted as a de facto director or officer from the company’s incorporation. He also challenged payments made to Buildquip Pty Ltd, Eastside Holdings Pty Ltd and Mr Stojic, alleging that they lacked genuine commercial justification and involved breaches of statutory and fiduciary duties. Mrs Stojic and Buildquip were the only defendants actively contesting the proceeding.
The Court’s Holding
Needham J found that the evidence overwhelmingly established the alleged phoenixing scheme and that Mrs Stojic had been a director or officer of Eastside since its incorporation. She exercised ultimate responsibility for management decisions, handled significant day-to-day administration and financial matters, and regarded the company as her own. Eastside was presumed insolvent from incorporation because it failed to maintain the required books and records, and was actually insolvent from 20 June 2017 until liquidation.
The Court held that Mrs Stojic breached her duty under s 588G(2) of the Corporations Act 2001 (Cth) to prevent insolvent trading and contravened ss 180, 181 and 182 by permitting or facilitating improvident or uncommercial transfers. She was also liable under both limbs of Barnes v Addy. Buildquip knowingly assisted in the transfers and was liable under the second limb, and both Mrs Stojic and Buildquip were liable as accessories to breaches by Mr Stojic and the nominal director, Mohammed Zaidan.
The net payments to Buildquip were voidable transactions under Pt 5.7B of the Act. The Court was prepared to grant the plaintiffs’ requested relief, but directed the parties to submit draft orders reflecting the reasons within 14 days. Unless an application for a special costs order was made within that period, the defendants were to pay the plaintiffs’ costs.
Key Takeaways
- A person may be a de facto director despite not appearing as a director in ASIC records when that person exercises ultimate management authority and makes consequential financial decisions for the company.
- Failure to maintain statutory books and records can establish presumed insolvency, while tax defaults, inadequate financial information and other evidence may also support findings of actual insolvency and reasonable grounds for suspecting it.
- Payments to related entities without a genuine commercial foundation may support findings of directors’ duty breaches, insolvent trading, knowing assistance and voidable transactions.
Why It Matters
The judgment demonstrates that courts will examine who actually controlled a company rather than treating formal corporate appointments as decisive. Family members and related companies participating in the movement of business assets or funds cannot necessarily avoid liability by operating behind nominal directors.
It also highlights the evidentiary consequences of deficient corporate records. Reconstructed accounts and questionable invoices did not cure Eastside’s recordkeeping failures or establish a commercial basis for the related-party transfers, and the Court drew adverse inferences from the failure to call available witnesses capable of explaining the company’s management.