In the matter of Substance Technologies Pty Ltd

1. [1]

   HER HONOUR: This is an application by the liquidator of Substance Technologies Pty Limited (in liquidation) (the company) against the company’s directors, Andrew Thaler and his father Christopher Thaler. Without any disrespect and to avoid confusion, I will refer to the directors by their first names. The liquidator seeks an order that the directors pay some $170,000 to the company for debts incurred to the Australian Taxation Office (ATO) and Ausgrid whilst the company was insolvent.

2. [2]

   The main issue is whether the company was insolvent when the debts were incurred, either by reason of the presumption of insolvency which arises where a company fails to comply with its obligations to keep financial records, or by reason of other evidence pointing to insolvency. Many other issues were raised, and I will endeavour to address all relevant issues.

3. [3]

   The company operated a scrap metal yard at Cooma in New South Wales and was engaged in materials recycling, logistics and consulting. Christopher was a director of the company from 8 September 2004 to 3 January 2015. Andrew was operations manager and a truck driver for the company, and took over the business from his father when he became a director on 2 January 2015.

4. [4]

   In addition to the presumption of insolvency, the liquidator relied upon the company’s tax returns and financial statements, together with the company’s running account balance with the ATO to establish actual insolvency. Financial information from these sources may be summarised in the following table:

5. [5]

   The company’s last payment to the ATO was made on 19 June 2013. The company continued to lodge BAS statements but made no payments. The company’s last tax return was filed for the year ended 30 June 2013. According to the company’s accountant, this was the final contact they had with the company.

6. [6]

   The company ceased trading in late 2013. According to Andrew, the company ceased trading in about August 2013 after a contract dispute with Essential Energy. According to Christopher, the company began to wind down and cease trading “later in 2013” as it had not been paid by Power Serve Pty Ltd and Networks NSW, which lead to a “reduction in available funds”. Power Serve owed the company over $47,000 but went into administration in June 2014 and into liquidation in July 2014; the company received no dividend from the administrator or liquidator. Networks NSW refused to return some $200,000 of goods which the company had paid for. Christopher considered that the company could likely only recover these unpaid amounts by commencing legal proceedings. According to Christopher, during the period of winding down the company and ceasing to trade, the company paid its former employees, contractors and secured creditors in full. The company lodged its last BAS statement in May 2014 for the period ended 31 December 2013.

7. [7]

   In early 2014, however, the company decided to buy scrap metal from Ausgrid, a state owned corporation. From April to December 2014, Ausgrid rendered five invoices to the company for scrap metal totalling $78,463 including GST. These purchases, along with the company’s running account balance with the ATO and 5 bank statements gathered by the liquidator, are summarised in the following table (there are no tax returns or financial statements to further populate the table):

8. [8]

   It seems to me that at the time the company agreed to buy the scrap metal from Ausgrid, it was insolvent having regard to the following pieces of evidence:

9. [9]

   As already mentioned, on 2 January 2015, Andrew was appointed a director of the company and, the following day, Christopher ceased to be a director. Andrew was thereafter the sole director of the company.

10. [10]

    In April 2015, Ausgrid commenced legal proceedings against the company in the Local Court of New South Wales for the unpaid invoices.

11. [11]

    On 2 April 2015, the ATO also wrote to the company advising that it intended to take debt collection action in respect of $23,869.96 then owing. On 30 April 2015, an ATO employee made contact with the company and was informed “the business is currently not doing much trade. … they have not lodged as they have not been able to afford to pay tax agent”. On 23 May 2015, the ATO issued a garnishee notice to Westpac for the company’s indebtedness of $24,216.19 but the garnishee was unsuccessful. The company’s bank accounts at that time held no funds.

12. [12]

    On 11 November 2015, Ausgrid’s proceedings against the company were heard by Magistrate Milledge. Andrew appeared for the company. He accepted:

13. [13]

    On 27 November 2015, Ausgrid served a statutory demand on the company in respect of the Local Court judgment. The company did not comply with the statutory demand and, on 11 March 2016, Ausgrid filed an Originating Process in this Court to wind up the company. Those proceedings came before Brereton J for directions on 9 May 2016. Andrew appeared for the company. His Honour made the following orders:

14. [14]

    The company did not comply with these orders and, on 27 June 2016, Black J lifted the stay and ordered that the company be wound up. In his Honour’s reasons, Black J noted:

15. [15]

    On 28 June 2016, the liquidator wrote to Andrew requiring him, within 14 days, to complete a Report as to Affairs and:

16. [16]

    On 11 July 2016, the liquidator repeated his request for the company’s books and records, directing Andrew to his obligations under section 530A(1) of the Corporations Act 2001 (Cth). There was no reply. Section 530A(1) provides:

17. [17]

    On 1 September 2016, the liquidator wrote to Andrew noting that he had failed to provide any books and records. The liquidator said that he considered that the company had not complied with its obligations under section 286, giving rise to a presumption of insolvency under section 588E(4). This had the result that the company was presumed to have been insolvent from 27 June 2009, being a period of seven years before the appointment of the liquidator in which books and records ought to have been kept, entitling the liquidator to recover loss or damage suffered by the company as a result of insolvent trading. The liquidator advised that he had received creditor claims of $112,634.96 and demanded payment of this sum from Andrew. The liquidator drew Andrew’s attention to the defences in section 588H of the Act. The liquidator received no response.

18. [18]

    On 10 October 2018, the liquidator filed an Interlocutory Process seeking orders for compensation in respect of insolvent trading. In support of the application, the liquidator deposed that, apart from the tax returns and financial statements obtained from the company’s former accountant and 5 bank statements, the liquidator has obtained no books or records of the company. The liquidator has not identified any assets of the company. He has no records to indicate that the company ever held any assets from which the debts the subject of the proceedings could have been paid when due. The liquidator is without funds in the liquidation.

19. [19]

    The directors dispute that debts to the ATO and Ausgrid still exist. I take this to be a submission that the criteria which must be satisfied before a liquidator can seek to recover compensation for loss resulting from insolvent trading have not been met, in particular, section 588M(1)(b) requires:

20. [20]

    As I understand the directors’ argument so far as the ATO is concerned, it is said that there is no loss or damage because the ATO has since written off the debt. Although, on 8 July 2016, the ATO lodged a proof of debt with the liquidator, on 10 April 2017 the ATO made an entry in the running account described as “non-pursuit amount”, reducing the balance of the account to nil.

21. [21]

    The fact that a creditor makes an accounting entry to reflect the prospects of recovering a debt from an insolvent company does not detract from the fact that the creditor has suffered loss or damage in relation to the debt because of the company’s insolvency. Indeed, it rather confirms that loss or damage has been sustained and is being recognised as such by the creditor in adjusting the value of its receivables. Nor does writing off a debt extinguish a creditor’s legal entitlement to pursue that debt, although in this case the ATO is precluded from doing so by the appointment of a liquidator to the company. If a bad debt proves to be recoverable, in whole or in part, then the creditor remains entitled to payment and to adjust its accounts to reverse the write-off and recognise the income. This is consistent with accounting standards and, may I say, common sense: AASB 9: Financial Instruments (2014). Unsurprisingly, the ATO has detailed policies governing how its staff write-off and re-raise written-off tax debts: Practice Statement Law Administration 2011/17 Debt relief, waiver and write-off (online, as amended on 14 February 2019); Commonwealth Ombudsman, Australian Taxation Office Re-Raising Written-Off Tax Debts (Report No. 4 of 2009, March 2009).

22. [22]

    As I understand the directors’ argument so far as Ausgrid is concerned, the directors say that Ausgrid has been dissolved and its debts have thereby been totally extinguished: Sir William Blackstone, Commentaries on the Laws of England (1753) (Oxford University Press, 2016) at Book 1, Chapter 18, Part IV (at 472-3 of the 1765 ed.). This submission arises from the following event. On 1 December 2016, as part of the NSW Government’s sale of its electricity assets, the Treasurer made an order under clause 6(1) of Schedule 7 of the Electricity Network Assets (Authorised Transactions) Act 2015 (NSW), that the electricity network state owned corporation (SOC) known as Ausgrid be converted into a corporation constituted as a Ministerial Holding Corporation with the name Alpha Distribution Ministerial Holding Corporation: NSW Government Gazette No 103 of 1 December 2016, page 3367.

23. [23]

    On 9 December 2016, Ausgrid sent a letter to the company advising that the New South Wales Government had entered into a lease transaction with a consortium of investors who would now operate Ausgrid by a partnership between the members of the consortium. The partnership would operate under a new Australian Business Number. Further:

24. [24]

    It may be that, had he read more widely, Andrew would not have made the submission that Blackstone states the law as it exists today. As Sir William explains at the beginning of Chapter 18 (at 457-8):

25. [25]

    In any case, it is sufficient to note that statute overrides the common law. Section 6(2) of the Electricity Network Assets (Authorised Transactions) Act provides:

26. [26]

    That is, the Electricity Network Assets (Authorised Transactions) Act provides that, notwithstanding the changes made in respect of Ausgrid, its new persona is, for all purposes, to be a continuation of, and the same legal entity as, Ausgrid. As much was confirmed by Ausgrid’s letter to the company. As such, the company’s debt to Ausgrid was not extinguished.

27. [27]

    Therefore, it seems to me that the requirements of section 588M(1)(b) are satisfied in respect of the both the loss and damage suffered by the ATO and Ausgrid.

28. [28]

    The liquidator is entitled to recover from the directors, as a debt due to the company, an amount equal to the loss or damage occasioned by insolvent trading: section 588M(1), (2). In this case, this depends upon whether the directors have contravened section 588G, which relevantly provides:

29. [29]

    Whilst earlier authorities suggested that an obligation to pay a tax was not “incurred” by the taxpayer, more recent authorities indicate that taxes are debts incurred by the taxpayer for the purposes of this section: Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126; [2003] VSC 123; affirmed Elliott v Australian Securities and Investments Commission (2004) 10 VR 369; [2004] VSCA 54.

30. [30]

    Christopher and Andrew were directors during different timeframes. In Christopher’s case, he was a director when the company first fell behind with its tax payments and incurred the debt to Ausgrid. In Andrew’s case, he was a director when the company’s debt to the ATO and Ausgrid increased due to penalties, interest and costs orders. The requirement of section 588G(1)(a) is met. The next question is whether the company was insolvent when the debts were incurred.

31. [31]

    The liquidator relies upon the presumption of insolvency arising under section 588E(4), which provides:

32. [32]

    Section 286 sets out a company’s obligation to keep financial records:

33. [33]

    “Financial records” includes (section 9):

34. [34]

    The purpose of these provisions was explained by Siopis J in Trinick (as liquidator of Forfione Family Group Pty Ltd (ACN 009 363 464)(in liq) v Forgione (2015) 106 ACSR 600; [2015] FCA 642 at [209]:

35. [35]

    As Black J observed in In the matter of Swan Services Pty Limited (in Liquidation) [2016] NSWSC 1724 at [127]:

36. [36]

    The fact that the company’s accountant was able to prepare tax returns and financial statements for the financial years ended 30 June 2009 to 30 June 2013 suggests that, for those years, the company kept financial records in accordance with section 286(1). Whilst the financial statements were not audited, section 286(1)(b) only requires a company to keep financial records that “would enable” financial statements to be audited, not that the financial statements be in fact audited. However, the obligation to keep financial records under section 286 is twofold: firstly, to keep records which record the company’s transactions and financial performance sufficient to enable financial statements to be prepared; and, secondly, to retain those records for seven years. The records which must be retained are not simply the financial statements that were prepared from the financial records, but the underlying financial records from which the financial statements were prepared.

37. [37]

    Although the directors both said that they complied with section 286, the evidence before me suggests that the company did not. The accountant did not hold any such records. Andrew did not provide any records to the liquidator despite repeated requests.

Privilege against self-incrimination and section 530A

1. [38]

   The directors did not seek to rely on section 588E(6), which provides that the presumption does not arise where the financial records have been destroyed, concealed or removed by someone else. Rather, Andrew submitted that the company has the financial records in a storage unit in Cooma but chose not to provide them to the liquidator by reason of the privilege against self-incrimination and his inalienable common law rights, relying upon Deane J’s exposition on the privilege against self-incrimination in Refrigerated Express Lines (Australasia) Pty Limited v Australian Meat and Live-Stock Corporation (1979) 42 FLR 204 at 206-208; (1979) ATPR 40-137, followed in Re New World Alliance Pty Limited (receiver and manager appointed) (1993) 47 FCR 90; (1993) 12 ACSR 299 at ACSR 303-304 per Sheppard J.

2. [39]

   Perhaps inconsistently, the directors submitted that they did not produce the books and records to the liquidator because the liquidator did not offer to pay their expenses of doing so, but nor did they ask the liquidator to pay their expenses. Nor did Andrew seek to invoke the privilege in his dealings with the liquidator. Andrew’s one and only response to the liquidator’s repeated requests for documents made no reference to the privilege.

3. [40]

   Further, I note that provisions in the Bankruptcy Act 1966 (Cth) similar to section 530A of the Corporations Act were considered by the Full Court of the Federal Court of Australia to abrogate the privilege against self-incrimination: Griffin v Pantzer (as trustee of the bankrupt estate of Griffin) (2004) 137 FCR 209; [2004] FCAFC 113, per Allsop J (with whom Ryan and Heerey JJ agreed) at [175]-[177]. In particular, at [177]:

4. [41]

   Although it is not necessary to decide it in this case, it is likely that the directors’ privilege against self-incrimination has been abrogated by section 530A of the Corporations Act for the reasons stated by Allsop J.

Privilege against self-incrimination and section 588E(4)

1. [42]

   It was not clear whether the directors sought to invoke a privilege against self-incrimination in the hearing before me, but I will assume that it was invoked by Andrew’s submission in the following terms:

2. [43]

   Perhaps inconsistently with invoking such a privilege, the directors did tender four records being:

3. [44]

   The privilege against self-incrimination has not been considered in the context of section 286 or section 588E. I am reluctant to enter into any detailed consideration of the availability of the privilege in the absence of useful submissions from the parties, and will simply assume that the privilege against self-incrimination is available and has been invoked. But whilst the directors may thereby refrain from tendering “financial records”, this does not have the result of positively proving that the company in fact maintained financial records which met the description in section 9 and the company’s obligations in section 286. The Court is simply left to decide the question on the evidence which is before it. The liquidator has adduced evidence in support of the conclusion for which he contends. As I understand the directors’ position, they have refrained from adducing evidence that the company maintained such records because those records may incriminate them.

4. [45]

   The liquidator submitted that the Court should infer that the financial records do not exist as it was within the power of the directors to produce them and that such documents would not have assisted them: Blatch v Archer (1774) 1 Cowp 63 at 65; (1774) 98 ER 969 at 970; Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168 at [16]-[17] per Hodgson JA (Beazley JA agreeing); Jones v Dunkel (1959) 101 CLR 298. However, where a party relies upon a privilege against self-incrimination, it is not appropriate to draw an adverse inference as a consequence of invoking the privilege. As Spender J explained in Dolan v Australian and Overseas Telecommunications Corporation (1993) 42 FCR 206 at 215-6; (1993) 114 ALR 231 at 241-2:

5. [46]

   In this case, the evidence before me indicates that:

6. [47]

   On the evidence before me, I find that the company complied with its obligation to keep financial records under section 286(1) until the financial year ended 30 June 2013 but did not comply with this obligation thereafter. The company failed to comply with its obligation under section 286(2) for the entire period in question. Section 588E(4) makes clear that the presumption of insolvency arises where the company has failed in either its obligation to keep records under section 286(1) or section 286(2) and, in circumstances where the company has partially complied with the first obligation but entirely failed to comply with the second obligation, it seems to me that the presumption of insolvency arises for the seven year period for which records ought to have still been in the company’s possession when it went into liquidation, that is, from 27 June 2009.

7. [48]

   Importantly, section 588E(9) makes clear: (emphasis added)

8. [49]

   Whilst the liquidator relies upon the presumption of insolvency, the liquidator submits in the alternative, that the company was clearly insolvent from about November 2009. The company’s indebtedness to the ATO began in November 2009 when the company lodged a BAS statement declaring that it owed some $44,000 but did not pay that amount. Rather, from April 2010, the company made a series of small payments towards its tax obligations. Thereafter, the company continued to lodge BAS statements but, generally, to make only small payments towards the self-declared amounts. The liquidator says this indicates that the company was insolvent by November 2009 as it was unable to pay its debts as and when they fell due.

9. [50]

   The liquidator submitted that several of the indicia of insolvency described by Mandie J in Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126; [2003] VSC 123 at [386] were demonstrated in this case being continuing losses, overdue taxes, creditors unpaid outside trading terms, payments to creditors of rounded amounts not reconcilable to specific invoices, and the inability to produce timely and accurate financial information to indicate trading performance and financial position and to make reliable forecasts. Amongst other things, the liquidator pointed to the company’s inability to pay its tax debts when due over a prolonged period, and the company’s communications with the ATO advising that the company had not been able to afford to pay a tax agent.

10. [51]

    The directors denied that the company was insolvent. Christopher said the company could have paid the entire balance of the ATO running account by borrowing funds from himself and his wife. However, I note that the company continued to owe monies to the ATO from November 2009 for the next seven years until the company went into liquidation without obtaining such a loan.

11. [52]

    The directors contended that the company had assets from 2009 on in the form of accumulated tax losses. But accumulated tax losses are simply a potential tax deduction contingent upon the company making a profit. Accumulated tax losses are not an asset that can be sold by the company to pay its debts as and when they fall due. Indeed, the Income Tax Assessment Act 1997 (Cth) contains very detailed provisions limiting the rights of a taxpayer to transfer accumulated losses to anyone else: Divisions 36, 165. From the point of view of assessing solvency, accumulated tax losses do not have the result of transforming the company’s negative equity from 2009 on into net assets or, more relevantly, net liquid assets.

12. [53]

    The directors submitted that, notwithstanding the balance sheets, the company had assets that were not necessarily recorded. Beyond this assertion, there was no evidence before me that this was so and I do not accept this submission.

13. [54]

    Even if the presumption of insolvency did not arise, it is apparent from the evidence which I have already set out that the company became insolvent by November 2009. Having sustained losses in the year ended 30 June 2009 and with a deficiency of assets over liabilities, the company fell behind in its payment obligations to the ATO in November 2009 and never managed to ‘catch up’. The company incurred losses in 2010, made a tiny profit in 2011 and made losses in 2012 and 2013 before ceasing to trade in August 2013 due to problems with being paid by its customers.

14. [55]

    The next question is whether, when the debts were incurred, there were reasonable grounds for suspecting that the company was insolvent, or would so become insolvent by incurring the debt: section 588G(1)(c). In this regard, the liquidator relied upon Barrett J’s exposition of the approach in Australian Securities and Investments Commission v Edwards (2005) 54 ACSR 583; [2005] NSWSC 831 at [249]-[250]:

15. [56]

    The observations of Goldberg J in McLellan, Re Stake Man Pty Ltd v Carroll (2009) 76 ACSR 67; [2009] FCA 1415 also assist, at [144]:

16. [57]

    Having regard to the available financial information from July 2009 on, which I have already summarised, it seems to me that there were reasonable grounds for a director of ordinary competence to suspect that the company was insolvent.

17. [58]

    The next question is whether the directors actually knew, or should have known, that there were such grounds: section 588G(2)(a) or (b). As to actual knowledge, Christopher and Andrew both deny suspecting insolvency at the relevant times. Christopher said that he did not suspect insolvency at all “because the information I had been given during my life as a director indicated otherwise”. I do not accept this evidence. The information available to Christopher from 2009 to 2013 pointed strongly to insolvency. I reject his evidence that he had “no idea”. Nor do I accept his evidence that he and his wife could, at any time, have lent money to the company to pay its tax debts. If that were so, it is odd that such a loan was not obtained from 2009 until a liquidator was appointed in 2016.

18. [59]

    By the time the company decided to purchase scrap metal from Ausgrid, the company had been insolvent for a considerable amount of time, likely some four years. The director of the company at the time, Christopher, cannot reasonably have thought that the company would have been able to pay Ausgrid’s invoices given such a prolonged period of insolvency.

19. [60]

    In any event, I need only be satisfied that the directors were either aware that there were grounds for suspecting insolvency, or that a reasonable person in their position would be so aware. I am comfortably satisfied that a reasonable director would have kept appraised of the company’s bank account balances, its payment of its tax obligations and its financial position as recorded in its financial statements. Reviewing these basic sources of information, a director would have been left in no doubt that the company was insolvent from November 2009 on.

20. [61]

    The directors rely on the defence in 588H(2) of the Corporations Act, being:

21. [62]

    Given the prolonged period of insolvency leading up to the Ausgrid invoices, I am not prepared to accept that Christopher had reasonable grounds to expect, or did expect, that the company was solvent when it bought scrap metal from Ausgrid. Further, the Ausgrid invoices required payment within about three weeks of issue. Whilst Christopher may have hoped that purchasing the scrap metal from Ausgrid would have produced profits for the company, there is no evidence that the company expected to earn such profits before the invoices were due for payment, nor that the company had other means of paying the invoices, for example, sufficient funds in its bank account. The defence has not been established.

22. [63]

    Further, the directors say that they ought fairly be excused for any insolvent trading under section 1317S(2), which provides that the Court may relieve a person, either wholly or partly, from liability for insolvent trading if in the proceedings it appears to the Court that the person has acted honestly, and having regard to all the circumstances of the case the person ought fairly to be excused: Smith (in his capacity as liquidator of ACN 002 864 002 Pty Ltd (in liq) (formerly known as Petrolink Pty Ltd)) v Boné (2015) 104 ACSR 528; [2015] FCA 319 at [393]ff per Gleeson J; Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209; [2016] FCA 1023 at [785]ff per Edelman J. For the reasons I have already given, I am not satisfied either that the directors acted honestly or that they ought fairly be excused having regard to all the circumstances of the case.

23. [64]

    For these reasons, it is appropriate to order the directors to compensate the company for loss resulting from insolvent trading. What should the amount of compensation be? As Barrett J explained in Edenden v Bignell [2007] NSWSC 1122 at [30], the creditor’s debt is distinct from the loss and damage suffered in relation to the debt because of the company’s insolvency. In some cases, the loss and damage will be the same as the debt but it may be less, for example, where the creditor has received a distribution from the liquidator, or may even exceed the debt. As Brereton J put it in In the matter of Salfa Pty Limited (in liquidation) [2014] NSWSC 1493 at [21]-[24], the original amount of the debt will be the starting point but is not necessarily the amount of the loss or damage. See likewise In the Matter of Swan Services Pty Limited (in liquidation) [2016] NSWSC 1724 at [216] per Black J.

24. [65]

    As to what the amount of compensation should be, in Christopher’s case, the liquidator submitted that it comprised two elements:

25. [66]

    In Andrew’s case, the liquidators submitted that the amount of compensation was:

26. [67]

    The liquidator’s approach would have the effect that the whole amount of interest and costs incurred after Christopher ceased to be a director would be an amount for which both Christopher and Andrew would be liable. This would have the result that the liquidator may be over-compensated for the loss and damage, and is, I think, contrary to principle.

27. [68]

    Where the company has a series of directors during a period of insolvent trading, how should the Court determine the amount of compensation to be paid by each? Christopher should pay compensation for the debts which the company incurred during his directorship as those debts stood at the end of his directorship. As to increases in the ATO and Ausgrid debts after Christopher was replaced by Andrew, two approaches present themselves:

28. [69]

    What favours the former approach is that only a director “at the time when the company incurs a debt” may be liable to pay compensation for insolvent trading: section 588G(1)(a). A director contravenes their duty to prevent insolvent trading by failing to prevent the company from incurring the debt: section 588G(2). What could Christopher have done, after he ceased to be a director, to prevent the ATO and Ausgrid debts further increasing? Any failure was no longer his.

29. [70]

    What favours the latter approach is that, the company having incurred the ATO and Ausgrid debts whilst the company was insolvent under Christopher’s directorship, the ‘die was cast’. It was inevitable that those debts could not be paid when due and would increase until the company ultimately went into liquidation. Further accretions to the debts were a direct result of Christopher’s contravention of his duty to prevent insolvent trading. Andrew’s subsequent contravention of his duty to prevent insolvent trading contributed to the loss and damage as he took no action to stop the debts increasing further. The situation is akin to successive independent tortfeasors. Where the interaction of several, independent, wrongful acts produces a single indivisible result, each is answerable for all the damage, though the plaintiff is of course not entitled to more than his or her loss. But where each of several defendants causes only part of the total damage and it is practically feasible to split up the aggregate of the loss and attribute identifiable parts to each of them, liability will ordinarily be confined to the portion for which is separately responsible: Fleming’s The Law of Torts (10th ed., Lawbook Co., 2011) at [9- 50].

30. [71]

    Although the precise question before me does not appear to have received judicial consideration, it seems to me that the former approach is to be preferred, for three reasons. First, it is consistent with the language of section 588G, which is directed to those who are directors “at the time when the company incurs a debt”. When a debt is incurred depends on the nature of the transaction. For example, a company incurs a debt when it enters into a lease and not when periodic payments of rent are due under the lease. But a company only incurs a debt for interest on unpaid rent when the failure to pay rent gives rise to the liability for interest: it is the company's failure to pay rent, rather than entry into the lease, which, as a matter of substance and commercial reality, renders the company liable to pay interest and the company incurs the debt for interest from day to day as it continues its default: Standard Chartered Bank of Australia Ltd v Antico (No 1) (1995) 38 NSWLR 290 at 315; (1995) 18 ACSR 1 at 57-8; Bans Pty Ltd v Ling (1995) 16 ACSR 404. In this case, interest was incurred, from day to day, on debts owing by the company to the ATO and Ausgrid throughout the period of Christopher and Andrew’s directorships.

31. [72]

    Second, it is consistent with the social purpose sought to be achieved by these provisions was explained by Barrett J in Woodgate v David (2002) 55 NSWLR 222; [2002] NSWSC 616 at [36]:

32. [73]

    An incoming director must familiarise themselves immediately with the company for which they are now responsible and, if they discover that the company is trading whilst insolvent, must act promptly to wind up the company. Sharing the liability for any increase of debts incurred by former directors detracts from this purpose.

33. [74]

    Third, under statutory compensation schemes, someone who is liable under the scheme is liable for the whole loss in the absence of a statutory power of apportionment, although they may subsequently be entitled to seek equitable contribution: In the matter of Solar Shop Australia Pty Ltd [2017] FCA 1219 at [52] per Besanko J in respect of section 1317H of the Corporations Act; I&L Securities Pty Ltd v HWT Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; [2002] HCA 41 in respect of section 82 of the Trade Practices Act 1974 (Cth). Whilst there are some proportionate liability provisions in the Corporations Act — Division 2A of Part 7.10 for misleading and deceptive conduct in relation to a financial service or product — there are no similar provisions in respect of compensation for insolvent trading. As Middleton J explained in Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd (2007) 164 FCR 450; [2007] FCA 1216 at [33]:

34. [75]

    Accordingly, in respect of the ATO debt, from 1 July 2009 to when Christopher ceased to be a director, the balance of the running account increased from nil to $23,083.09. Thereafter, it continued to increase under Andrew’s directorship by a further $3,564.71.

35. [76]

    In respect of the Ausgrid debt, the whole of the principal debt was incurred when Christopher was a director, in the amount of $78,463. Ausgrid did not, in its invoices, impose interest charges. Ausgrid was, however, entitled to pre-judgment interest. This interest crystallised when judgment was given on 11 November 2015 but represented the failure to pay for the whole period since the invoices were rendered. Relying on the calculations made in the Statement of Claim in the Local Court proceedings, the portion of the pre-judgment interest awarded on 11 November 2015 which had accrued by 2 January 2015 was $2,162.71. Thereafter, interest continued to increase under Andrew’s directorship, both pre-judgment and post-judgment, and costs were awarded to Ausgrid.

36. [77]

    The liquidator submitted that post-judgment interest should continue to be calculated on the Local Court judgment to the present. However, consistent with my approach to assessing the amount of compensation based on the directors’ respective periods of directorship, I consider it more appropriate to truncate this interest calculation at the date of liquidation when the continuing accretion of interest debts could not be halted by Andrew. As Bryson J explained in Bans Pty Ltd v Ling at 419:

37. [78]

    Adopting this approach, the total pre- and post-judgment interest and costs incurred with respect to the Ausgrid debt under Andrew’s directorship is $9,677.30.

38. [79]

    Interest should be added to these amounts in accordance with section 100 of the Civil Procedure Act 2005 (NSW). For ease of calculation, interest should run from when each ceased to be a director of the company. It was then that the directors’ contravening conduct ceased and the loss and damage suffered by reason of their contraventions can be tallied.

39. [80]

    For these reasons, the Court makes the following orders:

    1. (1)

       Order pursuant to section 588M(2) of the Corporations Act 2001 (Cth) that the first respondent, Andrew Thaler, pay to the company $13,242 together with interest pursuant to section 100 of the Civil Procedure Act 2005 (NSW) from 27 June 2016 to date in the amount of $2,135.

    2. (2)

       Order pursuant to section 588M(2) of the Corporations Act 2001 (Cth) that the second respondent, Christopher Thaler, pay to the company $103,709 together with interest pursuant to section 100 of the Civil Procedure Act 2005 (NSW) from 3 January 2015 to date in the amount of $25,192.

    3. (3)

       Order the first and second respondents to pay the applicant’s costs of the Interlocutory Process filed on 10 October 2018.