In the matter of C88 Project Pty Ltd (in liquidation)

1. [1]

   By Originating Process filed on 13 March 2025, the Plaintiffs, C88 Project Pty Ltd (in liq) (“C88”) and Mr Kugel, as liquidator appointed to C88, brought claims against Festival Corp Pty Ltd (“Festival”). The Plaintiffs sought judgment against C88 of $7,174,126 or such other amount as the Court determined and interest under s 100 of the Civil Procedure Act 2005 (NSW) or on such other basis as the Court determined. C88’s substantive claim, as set out in a very brief Statement of Claim also dated 13 March 2025, was that the amount of $7,174,126 was money payable by Festival to C88 for money lent by C88 to Festival. By that Originating Process, the Plaintiffs also sought an order under s 588FF(3) of the Corporations Act 2001 (Cth) (“Act”) extending the period in which Mr Kugel could bring a claim against Festival under s 588FF(1) of the Act to a date six months after the date of the order, or such alternative period as the Court determines. It is common ground that this application was made within the three year period specified in s 588FF of the Act.

2. [2]

   Subsequently, by a Defence filed on 1 May 2025, Festival denied the allegation that it owed a debt to C88 and pleaded that:

3. [3]

   The Plaintiffs’ application to extend the time for a claim under s 588FF of the Act was heard as a separate issue, prior to the determination of any other issue in the proceedings, by agreement of the parties. The Plaintiffs narrowed the order that they sought, in the course of the hearing of this application, and now seek:

4. [4]

   I made this order at the conclusion of the hearing of the separate issue. These are my reasons for doing so.

Affidavit evidence

1. [5]

   The Plaintiffs read the affidavit dated 13 March 2025 of Mr Kugel, who is (as I noted above) the liquidator of C88, and tendered an extensive exhibit to that affidavit (Ex SBK–1, CB 22). Mr Kugel there referred to the appointment of voluntary administrators to C88 on 14 April 2022, to his appointment as replacement administrator at the first meeting of creditors of C88 held on 29 April 2022 and to his appointment as liquidator when C88 was wound up following the second meeting of its creditors held on 31 May 2022.

2. [6]

   Mr Kugel there noted that C88 was a special purpose vehicle set up to purchase, develop and sell land in Carlingford, New South Wales, and that, at the time that C88 went into voluntary administration, it had completed the development and remained as registered proprietor of 43 units in the development, many of which were subject to encumbrances such as mortgages or caveats.

3. [7]

   Importantly, Mr Kugel also there noted that:

4. [8]

   Mr Kugel exhibited a copy of that balance sheet to his affidavit (Ex SBK–1, CB 110), which recorded a debt owed by C88 to Festival of $7,174,126, the amount now claimed by C88 as a debt against Festival in the proceedings. He also recognised the possibility that C88 received those funds as trustee of the Joseph Khattar Family Trust No 2 (“Trust”) and also referred to financial statements for the Trust which identified amounts received by the Trust from C88. I pause to note that the documents to which Mr Kugel referred were, on the face of them, kept by C88 under a requirement of the Act, namely the requirement to maintain true and fair records of C88’s financial position and were prima facie evidence of the matters stated or recorded in them under s 1305 of the Act.

5. [9]

   Mr Kugel also referred to a letter dated 30 March 2023 from the Plaintiffs’ solicitors to Festival demanding repayment of the debt (Ex SRK–1, CB 129–130), which relevantly stated that:

6. [10]

   By email dated 6 April 2023 (Ex SRK–1, CB 131), Festival’s solicitors noted the claim made in that letter and indicated that they proposed to send a substantive response by 14 April 2023. That email did not advance any suggestion that, rather than Festival owing monies to C88 as a debt, monies had been paid to Festival as either dividends or interim profit distributions and Festival’s solicitors did not subsequently provide any substantive response to the letter from the Plaintiffs’ solicitors.

7. [11]

   In his first affidavit, Mr Kugel also addressed the question of delay in the Plaintiffs’ commencing a claim for voidable transactions, although I will note a more straightforward reason for that delay below. Mr Kugel refers to the fact that, at the time of his appointment as voluntary administrator and subsequently as liquidator of C88, it was a defendant in proceedings in the Supreme Court of New South Wales commenced by its former real estate agent (“PIA”) and that, if PIA was successful in those proceedings, PIA would become a secured creditor over the vast majority of C88’s assets. Mr Kugel expressed the view that he considered that investigations into C88’s affairs, such as public examinations, should be delayed until the proceedings brought by PIA were determined and it was apparent whether C88 would have sufficient assets to fund such investigations. Mr Kugel in turn refers to the judgment at first instance in the PIA proceedings, an appeal that was promptly filed by PIA against that judgment, the judgment that was handed down by the Court of Appeal on 6 December 2023 and a further judgment handed down by the Court of Appeal on 4 March 2024, by which declaratory relief was made. Mr Kugel’s evidence is that, when the Court of Appeal determined PIA’s claim in March 2024, it became clear that C88 would have sufficient assets to conduct more costly investigations into claims it may have against its debtors and directors.

8. [12]

   Mr Kugel notes that he then commenced proceedings in the Federal Court of Australia on 6 June 2024, relatively promptly, seeking examination orders in respect of Ms Khattar and Mr Fayad, who were directors of C88, and Mr Panta, a former accountant for C88, and seeking orders for production of documents. The Court made orders for production, some documents were subsequently produced, and Mr Panta was examined in December 2024. Ms Khattar and Mr Fayad were not examined, because Mr Kugel was not successful in his attempts to serve summonses for examination upon them. Mr Kugel expressed the view, prior to the Defence now filed by Festival in these proceedings, that:

9. [13]

   As I noted above, it is now apparent from Festival’s Defence filed in these proceedings that Festival claimed that it received monies from C88, not as a debt, but as dividends or interim profit distributions. Mr Kugel has also reduced the length of the extension of time that is sought to bring a claim under s 588FF of the Act, as noted above.

10. [14]

    By his second affidavit dated 20 May 2025, Mr Kugel referred to evidence led in other proceedings, which was admitted without objection in these proceedings, relating to an application brought by Mrs Khattar for the winding up of C88 and to evidence led and orders made in the proceedings brought by PIA. By his third affidavit dated 21 July 2025, Mr Kugel referred to PEXA settlement records and to a further general ledger recording the position between C88 and Festival, which recorded a lesser but still substantial loan balance of $6,877,353.75 owed by Festival to C88 (CB 415). Mr Kugel was cross-examined as to aspects of his conduct of the liquidation, although that cross-examination did not much advance matters, given the narrow basis on which this application can and should be decided.

11. [15]

    Festival in turn reads the affidavit dated 23 June 2025 of its solicitor, Mr Tannous and tenders a voluminous exhibit to that affidavit. Mr Tannous gives evidence on information and belief from Mrs Khattar, who is a director of Festival. He refers to the appointment of Festival as trustee of the Trust; his evidence is that Festival only acted as trustee of the Trust and he refers to its replacement by another company as trustee of the Trust on 31 May 2024. He also refers to a suggested agreement between C88, Festival and a third party to equalise distributions between Festival and that third party and to a dispute between the shareholders in C88, and to several reports issued by Mr Kugel as voluntary administrator and subsequently as liquidator of C88.

12. [16]

    The parties also referred to several reports by Mr Kugle to creditors in the course of the application. Mr Kugel’s attention was drawn in cross-examination to an administrators’ report to creditors dated 19 May 2022, where he noted that he had undertaken numerous tasks since his appointment, one of which was that he:

13. [17]

    That report also noted (Ex CT1, CB 830) that:

14. [18]

    That report also identified C88’s then property assets, and it was put to Mr Kugel that C88 then owned six units in the Carlingford development, which were not subject to a mortgage or caveat, with an estimated gross sale value in excess of $4.6 million. I accept Mr Kugel’s evidence that there were practical difficulties in realising those units and the funds available from them were needed to meet liabilities including the costs owing to solicitors in the PIA proceedings.

15. [19]

    A list of loans receivable from related parties in that document (Ex CT1, CB 855) referred to the debt owed by Festival of $7,174,126. It is plain enough that Mr Kugel then understood that such a loan existed. Importantly, there is no suggestion that Mr Kugel then knew of any claim by Festival that the relevant money was not paid to as a loan, but instead as a dividend or interim profit distribution. Mr Kugel also there referred to his estimated legal costs of several proceedings (Ex CT1, CB 864), which I accept were less than the value of the units then owned by C88. I have referred to several of those reports above.

16. [20]

    A statutory report to creditors by Mr Kugel dated 9 August 2022 also stated (Ex CT1, CB 903) that:

17. [21]

    Again, Mr Kugel then knew of the apparent loan to Festival, but there is no suggestion that he then knew of any contention by Festival that it was not a loan but instead a dividend or interim profit distribution.

18. [22]

    The Plaintiffs also tendered (Ex P1) documents produced in response to a notice to produce for inspection issued by Festival. By his report to creditors dated 14 August 2023, Mr Kugel advised creditors as to the position in respect of the appeal brought by PIA and as to a dispute with another party, referred to difficulties arising from the unlawful occupation of one of the units owned by C88 and difficulties with the sale of the other units owned by C88, and provided a further update as to the amount of $12,320,840 which he then understood was owed to C88 by C88’s directors or their respective companies, including Festival and noted that no satisfactory responses had been received in relation to those demands. He also there noted that:

19. [23]

    The Defendants also tendered a report to creditors issued by Mr Kugel dated 20 February 2024 (Ex D1, CB 1174) which provided a report as to C88’s success in the PIA appeal; referred to the related party loans owed by companies associated with C88’s directors, implicitly including Festival; and to the issue of demands to various related parties in respect of their debts owing to C88. Mr Kugel there referred to his statutory report to creditors dated 9 August 2022 and observed that:

The applicable principles, submissions and determination

1. [24]

   There was no substantial contest between the parties as to the applicable principles.

2. [25]

   Mr Neggo, who appears for the Plaintiffs, refers to the observations of White J in New Cap Reinsurance Corp Ltd (in liq) v Reaseguros Alianza SA [2004] NSWSC 787 at [56] that:

3. [26]

   Mr Neggo also refers to my observation in Re Octaviar Ltd (recs and mgrs apptd) (in liq) (2012) 271 FLR 413; [2012] NSWSC 1460 at [64] that:

4. [27]

   Mr Condon, with whom Mr Smith appears for Festival, also drew attention to the Court of Appeal’s decision in Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher (2014) 87 NSWLR 728; [2014] NSWCA 148 and to my summary of the applicable principles in Re Franklyn Scholar (Australia) Pty Ltd [2020] NSWSC 1902 at [10]ff as follows:

5. [28]

   In submissions in chief, Mr Neggo refers to the chronology of earlier shareholder disputes in respect of C88; C88’s engagement of PIA to market and sell units in the development; the proceedings which Mrs Khattar and Festival applied for an order that C88 be wound up; and the voluntary administration and liquidation. He refers to information provided by Mr Kugel to C88’s creditors, to which I have referred above, and notes that the figure of $6,877,353.75 recorded in C88’s general ledger (to which I referred above) as owed by Festival to C88 was made up of numerous payments from C88 to Festival between 8 November 2019 and 17 September 2021, less two apparent partial repayments in February and August 2020, and that 13 or possibly 14 of those payments corresponded to sales of units owned by C88 in the development between June and September 2021, where part of the net proceeds were paid to Festival. Mr Neggo also refers to the matters in issue in the PIA proceedings, to the liquidator’s demand sent to Festival on 30 March 2023 (to which I referred above) and to Festival’s response foreshadowing a substantive response which was never provided. Mr Neggo also addresses aspects of the position in respect of the Trust, but I need not address that matter further where Festival does not press any claim for prejudice arising from matters concerning the Trust.

6. [29]

   Mr Neggo also outlines, in some detail, the claims which the Plaintiffs now wish to advance. In short, they propose to contend that, against the contingency that the payments by C88 to Festival were not loans, C88 made those payments to Festival at a time that it was experiencing cash flow problems and could not pay commissions due to PIA; that it had not prepared financial statements for the relevant financial years or lodged income tax returns or paid income tax for those years; that it paid part of the proceeds of the sale of units to Festival where there was no commercial justification for its doing so; and that the relevant transactions were uncommercial transactions, unreasonable director-related transactions or creditor defeating transactions within the scope of s 588FF of the Act.

7. [30]

   Mr Neggo also submits that relevant matters include:

8. [31]

   Mr Condon, in response, drew attention to the risk that justice deteriorates with delay. That is a risk, generally speaking, but it seems to me that risk is minimal here, where Festival deployed the characterisation of the payments as dividends or interim profit distributions and the claim under s 588FF of the Act is consequential upon Festival’s characterisation of the transactions. Mr Condon submits that the Court should not grant an indulgence to a party which has failed to act without explanation; but, here, the explanation for the Plaintiffs’ inability to advance a claim under s 588F of the Act is obvious, namely that they did not have a proper factual basis to do so, until Festival contended it the payments were something other than a debt.

9. [32]

   Mr Condon also submits that:

10. [33]

    I do not accept this submission. First, there was more than a “suggestion” that the payments to Festival were loans, where C88’s financial records recorded that they had that character and there was no evidence to the contrary. Second, the fact that, as Mr Condon submits, there was no document to suggest that the payments were discharging a liability to Festival is consistent with, rather than inconsistent with, a characterisation of those payments as a loan to Festival. Third, the mere possibility that, if the payments were not loans, then they were likely uncommercial transactions, did not provide sufficient basis for the Plaintiffs to contend that they were not loans, or were uncommercial transactions, where they then had had no factual basis for doing so.

11. [34]

    Mr Condon also submits:

12. [35]

    That submission overstates the position as to the evidence supporting a characterisation of the payments as loans and misstates the position as to the liquidator’s understanding that there would be a defence to a claim in debt where, notably, Festival had not disclosed such a defence, or any contention that payments to it were dividends or interim profit distributions in response to the liquidator’s demand.

13. [36]

    In oral submissions, Mr Condon retreated somewhat to a submission, first, that the Plaintiffs have not provided sufficient information to Festival as to the claim that they seek to bring and should have provided a proposed Statement of Claim at the time this application was heard. While I accept that that would have been helpful, it seems to me that Mr Neggo’s submissions gave a sufficiently detailed explanation of the nature of the proposed claim and I have no doubt that Festival’s legal advisers have a full understanding of that claim. Second, Mr Condon suggested that, in the relevant circumstances, the liquidator could have commenced the proceedings at an earlier point, so that any defence brought by Festival might have been raised within that three year limitation period, so as to allow the Plaintiffs to bring a claim under s 588FF by reference to the matters raised by that defence within that period. I accept that the liquidator could have taken that step, subject to the other matters that were being addressed in the liquidation including the PIA proceedings; but, equally, Festival could have disclosed the affirmative defence that it would advance in response to the letter of demand, having foreshadowed that it would provide a substantive response, and that would have allowed the liquidator a factual basis to advance a claim under s 588F of the Act at the time these proceedings were commenced. This matter does not seem to me to have significant weight in the exercise of the Court’s discretion in these circumstances.

14. [37]

    As I noted above, notwithstanding the breadth and subtly of Counsels’ submissions, this matter can be determined on a narrow basis. I accept that Mr Kugel has given a reasonable explanation of his delay in commencing the proceedings for debt against Festival, given the need to give priority to the defence of the proceedings brought by PIA, the range of other issues arising in the liquidation and the lack of available financial records. However, the question that arises here is a narrower one, namely whether there is a reasonable explanation for the delay in his advancing a claim for relief under s 588FF of the Act on the basis that the payments of dividends or interim profit distributions by C88 to Festival were uncommercial transactions, unreasonable director-related transactions, or creditor-defeating transactions. There is a straightforward and compelling explanation for Mr Kugel’s delay in bringing that claim, namely that the only records available to Mr Kugel at the time these proceedings were commenced recorded a debt owed by Festival to C88; those records were prima facie evidence of the matters which they recorded; and he had no evidentiary basis to advance an allegation that those records were incorrect. While Mr Kugel, at the highest, recognised the possibility that Festival might contend that the financial records of C88 did not accurately reflect the nature of those payments, that did not allow him a proper basis on which to advance an allegation to the contrary of that position recorded in those records at that point. In those circumstances, there was a proper course for him to commence the proceedings within the limitation period under s 588FF of the Act, advancing the allegation that could then properly be advanced having regard to the information recorded in C88’s financial records, and seek an extension of time to bring any further claims under s 588FF of the Act if further information emerged within a relatively short period, including, relevantly, from Festival’s Defence.

15. [38]

    A second relevant matter, in determining whether to grant the extension of time sought, is a preliminary review of the merits of the proposed proceedings, which is directed to the question whether it would be unfair to expose Festival to the continuing prospect of suit under s 588FF(1) of the Act. Plainly, there is question whether Festival will be able to establish, as it contends, that the relevant payments were a dividend or interim profit distribution, contrary to C88’s financial records; but neither party contended that Festival’s defence was not properly raised; and, on that basis, it seems to me that the Plaintiffs plainly have a serious case to be tried that the relevant payments would amount to uncommercial transactions, unreasonable director-related transactions of creditor defeating transactions. I did not understand Mr Condon to contend to the contrary.

16. [39]

    It also seems to me that the Court’s discretion is here properly exercised in favour of granting the extension of time that is sought, where Mr Kugel had done all that he could possibly do to identify the basis of the claim, before it was brought; Festival had not advanced any suggestion that the payments were a dividend or interim profit distribution in response to the demand issued to it; and Festival cannot be caught by surprise by its own contention as to the character of the payments, or by the proposition that payments of the kind for which it contends would be within the scope of s 588FF of the Act.

17. [40]

    I note, for completeness the Plaintiffs did not here seek to amend the proceedings to introduce the relevant claim, on the basis that they had commenced the proceedings within the three year limitation period specified in s 588FF(3) of the Act, and it is therefore not necessary to address the question whether they could have done so: Re Cardinal Group Pty Ltd (in liq) (2015) 110 ACSR 175; [2015] NSWSC 1761; affirmed on appeal, Sydney Recycling Park Pty Ltd v Cardinal Group Pty Ltd (in liq) (2016) 93 NSWLR 251; (2016) 118 ACSR 15; [2016] NSWCA 329.

18. [41]

    For these reasons, I made the orders sought by the Plaintiffs at the conclusion of the hearing on 1 August 2025.