In the matter of Sans Pareil Estate Pty Ltd (in liq)

This is an application brought by Gavin Moss (Liquidator), in his capacity as liquidator for 10 plaintiffs within the Sans Pareil Estate group of companies (Sans Pareil group companies), by way of a further amended originating process filed 19 July 2023 against the third defendant, Aaron Salvestrin, who is the sole director and secretary of the Sans Pareil group companies. The allegations in the further amended originating process are supported by the points of claim filed 19 July 2023.

The proceedings were originally brought against the first defendant, Dennis Salvestrin, and second defendant, Annette Salvestrin, as well as Aaron Salvestrin, but by leave given on 15 June 2023, the proceedings were discontinued against each of Dennis and Annette Salvestrin. As a result, the sole focus of the application is the case against Aaron Salvestrin, who I will refer to as Mr Salvestrin in light of the fact that the other defendants with that surname are no longer active in the proceedings.

In essence, the Liquidator seeks to recover the value of identified payments made by certain of the Sans Pareil group companies directly to Mr Salvestrin (or to third parties on his behalf or for his benefit) as unreasonable director-related transactions pursuant to s 588FDA of the Corporations Act 2001 (Cth). In the alternative, the Liquidator seeks to recover from Mr Salvestrin the value of those payments as damages for alleged breaches of his statutory duties under the Corporations Act as a director of those Sans Pareil companies.

The principal Sans Pareil companies on whose behalf the application has been brought by the Liquidator against Mr Salvestrin are as follows:

In this judgment, Estate, Logistics, Holdings and Enterprises are collectively referred to as the principal Sans Pareil companies.

In support of the application, the Liquidator relied on the affidavit of Gavin Moss affirmed 2 February 2024 as well as a substantial number of documents forming four folders of exhibits to that affidavit.

Mr A Martin appeared for the Liquidator, instructed by Hunts.Law.

There was no appearance by or on behalf of Mr Salvestrin.

As I have stated, Mr Salvestrin did not appear at the hearing before me. Set out below are the circumstances providing the background to Mr Salvestrin’s failure to actively defend the proceedings against him.

On 17 July 2023, Mr Salvestrin filed an appearance in the proceedings through his solicitors, Aqua Law.

On 20 July 2023, the further amended originating process and the points of claim were served by the solicitors for the Liquidator by email to the solicitors for Mr Salvestrin.

On 24 July 2023, Mr Salvestrin (by his solicitor) consented to an order that he file his points of defence by 11 August 2023.

On 14 August 2023, Mr Salvestrin (by his solicitor) consented to an order that the time for the filing of his points of defence be extended to 25 August 2023.

On 28 August 2023, Mr Salvestrin (by his solicitor) consented to an order that the time for the filing of his points of defence be extended to 15 September 2023 and an order that no defence was to be relied on if not filed and served by that date without leave.

On 25 September 2023, the solicitor for Mr Salvestrin informed the court that he proposed to give a notice of intention of ceasing to act for Mr Salvestrin.

On 6 October 2023, Aqua Law filed a notice of ceasing to act as solicitor for Mr Salvestrin. Since that time, Mr Salvestrin has not been legally represented in the proceedings.

On 9 October 2023, at a directions hearing which Mr Salvestrin did not attend, these proceedings were set down for hearing on 17 October 2023 and the Liquidator was directed to use his best endeavours to give notice to Mr Salvestrin of the directions.

On 17 October 2023, at a directions hearing which Mr Salvestrin did not attend, the hearing proposed for that day was vacated; the time by which Mr Salvestrin was required to file his points of defence was extended to 20 November 2023; Mr Salvestrin was ordered to file any affidavit on which he intended to rely by 20 November 2023; an order was made that Mr Salvestrin was not entitled to rely on any such affidavit if he had not filed points of defence by 20 November 2023; the proceedings were listed for further directions on 4 December 2023; and the Liquidator was directed to use his best endeavours to give notice to Mr Salvestrin of the directions.

On 4 December 2023, at a directions hearing which Mr Salvestrin did not attend, the time by which Mr Salvestrin was required to file his points of defence and affidavit evidence was extended to 31 January 2024, the proceedings were listed for further directions on 5 February 2024 and the Liquidator was directed to use his best endeavours to give notice to Mr Salvestrin of the directions.

On 5 December 2023, the solicitor for the Liquidator sent an email to Mr Salvestrin informing him of the orders made the previous day.

On 2 February 2024, the solicitor for the Liquidator sent an email to Mr Salvestrin to which was attached the affidavit of Gavin Moss affirmed 2 February 2024, advising that the Liquidator intended to inform the court on 5 February 2024 that the proceedings were ready for hearing.

On 4 February 2024, Mr Salvestrin sent an email to the solicitor and counsel for the Liquidator and the court in which he referred to correspondence he had received on behalf of the Liquidator, concluding by saying:

Mr Salvestrin has not provided any medical evidence to support the assertions made in the email of 4 February 2024 or any further details about them.

On 5 February 2024, at a directions hearing which Mr Salvestrin did not attend, the proceedings were listed for hearing before me on 6 March 2024. Also on 5 February 2024, the solicitor for the Liquidator sent an email to Mr Salvestrin informing him of the hearing date of 6 March 2024.

On 5 March 2024, the solicitor for the Liquidator sent a text message to Mr Salvestrin asking him if he intended to appear at the hearing on 6 March 2024. There was no response received from Mr Salvestrin.

Mr Salvestrin has not filed any points of defence, has not filed any evidence, has not taken any active step in the proceedings, and did not appear at the hearing before me.

I am satisfied that Mr Salvestrin was put on notice of the hearing before me and has been provided with the evidence on which the Liquidator relied.

In those circumstances, I was content to proceed with the hearing of the application in the absence of Mr Salvestrin.

Estate was incorporated on 1 March 2018, Logistics was incorporated on 14 July 2020, Holdings was incorporated on 13 December 2019, and Enterprises was incorporated on 12 August 2021. In each case, Mr Salvestrin was appointed the sole director and sole secretary of the principal Sans Pareil companies on incorporation and has remained so at all relevant times since.

On 4 September 2017, the Salvestrin Enterprises Trust was established by deed with Mr Salvestrin as trustee and appointor. At a subsequent unspecified date, Mr Salvestrin was removed as trustee and Enterprises was appointed as sole trustee of the Salvestrin Enterprises Trust in his place.

On 16 December 2019, the Sans Pareil Estate Holdings Trust was established by deed with Holdings as trustee and Mr Salvestrin as the appointor.

On 25 October 2022, an audit position paper of an audit of Estate for the period from 1 July 2020 to 30 September 2022 conducted by the Australian Taxation Office (ATO) was issued to Mr Salvestrin. In summary, the ATO found that during the period from 1 January 2021 to 30 September 2022, Estate had lodged Business Activity Statements (BAS) with the ATO which incorrectly claimed input tax credits (ITCs) for goods and services tax allegedly paid by overstating them in the total sum of $17,161,679.

The audit position paper details the analysis conducted by the ATO which revealed that fictitious tax invoices had been provided to the ATO in relation to alleged purchases of wines by Estate which had never taken place, totalling in excess of $200 million. In summary, in the audit position paper the ATO concluded at [116]–[117]:

On 27 October 2022, the Liquidator was appointed to each of the Sans Pareil group companies. From that time, the Liquidator has conducted investigations of all of the Sans Pareil group companies and continues to do so.

Upon the appointment of the Liquidator, he requested that Mr Salvestrin, as sole director of the Sans Pareil group companies, provide him with a Report on Company Activities and Property (ROCAP). A ROCAP from Mr Salvestrin has not been received by the Liquidator in relation to any of the Sans Pareil Group Companies.

The Liquidator has indicated that in the first few days of the liquidation of the Sans Pareil group companies, Mr Salvestrin gave some assistance to him but, since late October 2022, Mr Salvestrin has not assisted the Liquidator with his investigations.

Since his appointment, the Liquidator has conducted his investigations into the Sans Pareil group companies by reviewing such of their business records that he has in his possession, as well as responses given to him by third parties to notices he has issued. The Liquidator has also had access to the records of the bank accounts held by the Sans Pareil group companies with National Australia Bank (NAB), Australia and New Zealand Banking Group (ANZ) and the Commonwealth Bank of Australia (CBA), as well as statements of account from American Express (Amex) for accounts held in the name of Mr Salvestrin.

Based on the Liquidator’s investigations, he has concluded that:

On 9 November 2023, the Liquidator was appointed as receiver and manager of the property of the Salvestrin Enterprises Trust by order of this court.

The Liquidator has identified all transactions that appear to involve a payment by each of the principal Sans Pareil companies to, on behalf of or for the benefit of Mr Salverstrin, and in respect of which the companies collectively seek to recover $8,457,203.09 from Mr Salvestrin pursuant to the operation of ss 588FDA, 588FE(6A), and 588FF(1) of the Corporations Act. There are hundreds of such transactions.

Estate seeks to recover the sum of $7,727,177.07 from Mr Salvestrin. The classifications of those transactions that give rise to the claims of the Liquidator on behalf of Estate are as follows:

Logistics seeks to recover the sum of $116,421.38 from Mr Salvestrin. The classifications of those transactions that give rise to the claims of the Liquidator on behalf of Logistics are as follows:

Holdings seeks to recover the sum of $412.70 from Mr Salvestrin. The classification of the transactions that give rise to the claim of the Liquidator on behalf of Holdings is as follows:

Enterprises seeks to recover the sum of $613,191.94 from Mr Salvestrin. The classifications of those transactions that give rise to the claims of the Liquidator on behalf of Enterprises are as follows:

The application by the Liquidator invokes the definition provision relating to unreasonable director-related transactions contained in s 588FDA(1) of the Corporations Act, which is in the following terms:

Where a transaction is found to be an unreasonable director-related transaction, the transaction is voidable under s 588FE(6A) of the Corporations Act, provided the other conditions in that section and s 588FE(1)(b) are met. Sections 588FE(1)(b) and (6A) respectively provide:

Relevantly, once the court is satisfied that a transaction of the company is voidable because of s 588FE, under s 588FF(1) of the Corporations Act the court then has a number of powers which may be exercised, including the power to direct a person to make a payment of the amount paid under the transaction. Section 588FF(1)(a) states:

By operation of s 588FF(3) of the Corporations Act, an application under s 588FF(1) can only be made during the period beginning on the relation-back day and ending 3 years after the relation-back day or 12 months after the first appointment of a liquidator in relation to the winding up of the company (whichever is the later) or within such longer period as the court orders.

There is also a limitation on the amount that can be recovered from a voidable transaction solely because it is an unreasonable director-related transaction. Section 588FF(4) provides:

The operation of these legislative provisions has been the subject of considerable judicial analysis.

In Vasudevan v Becon Constructions (Australia) Pty Ltd (2014) 41 VR 445; [2014] VSCA 14, Nettle JA at [28] analysed the legislative purpose of s 588FDA, holding that:

In Vasudevan, Nettle JA at [21]–[30] discussed and ultimately held that a broad view of the expression “for the benefit of” as used in s 588FDA(1)(b)(iv) should be given, stating at [22]–[24] (references omitted):

In Weaver v Harburn (2014) 103 ACSR 416; [2014] WASCA 227, McLure P at [91]–[93] considered what is required to satisfy the test of unreasonableness in s 588FDA(1)(c):

In Smith v Starke (No 2) (2015) 109 ACSR 145; [2015] FCA 1119, Gleeson J [104]–[111] conducted an extensive review of the case law on s 588FDA:

In Crowe-Maxwell v Frost (2016) 91 NSWLR 414; [2016] NSWCA 46, the Court of Appeal of this court (Beazley P, with whom Macfarlan and Gleeson JJA agreed) referred to the judgments in Vasudevan (at [72]), Weaver (at [71]) and Smith (at [70]) with approval and at [74]–[79] surveyed some of the authorities concerning “uncommercial transactions” under s 588FB of the Corporations Act to assist in identifying circumstances that may constitute unreasonable director-related transactions.

The important matters of the burden of proof and the evidentiary onus as they apply to unreasonable director-related transactions were also addressed in Frost, Beazley P at [89]–[91] stating:

Finally, more recently in Cooper v CEG Direct Securities Pty Ltd [2024] FCA 6, O’Sullivan J at [25] referred to the judgment of Anastassiou J in Aviation 3030 Pty Ltd (in liq) v Lao [2022] FCA 458 at [286]–[320], [358]–[360] and [407], summarising the principles stated in Aviation 3030 as follows:

In summary, the evidence demonstrates that payments were made by each of the principal Sans Pareil companies to Mr Salvestrin, on his behalf or for his benefit, in circumstances where the overwhelming source of funds for those payments was money received by Estate from the ATO as a result of BAS which had been lodged with the ATO containing claims for ITCs arising from fictitious transactions.

Applying Weaver, Smith, and Aviation 3030, the insolvency of the principal Sans Pareil companies is not a necessary requirement of s 588FDA, nor is it necessary to prove any impropriety or breach of directors’ duties by Mr Salvestrin for any particular transaction to come within s 588FDA.

In this case, it is alleged that each of the transactions is a payment made by one of the principal Sans Pareil companies to, on behalf of or for the benefit of the director of the companies, Mr Salvestrin, which brings them within s 588FDA.

Accordingly, adapting the words of s 588FDA to apply to a payment as the relevant transaction, it is necessary for me to address each of the three conditions stated in s 588FDA, being:

As stated in Weaver and Smith, the focus of the inquiry to be made is the objective one of what a reasonable person in the circumstances of each of the Sans Pareil companies would be expected not to do. As stated in Vasudevan and Smith, I should interpret the expression “for the benefit of” broadly. Applying Aviation 3030, I should regard “detriment” as meaning commercial detriment. Further, as outlined in Frost and Aviation 3030, the catch-all expression “any other relevant matter” means the facts, circumstances, and context which existed at the time of the payment.

In this regard, the vast amount of evidence reveals that the payments were either made directly to Mr Salvestrin or were payments on his behalf or for his benefit, being his personal expenses on items such as supermarket products, food, alcohol, entertainment, motor vehicles, accommodation, travel, gifts, social media, health care and credit cards. The payment of the personal liabilities of Mr Salvestrin on his Amex accounts were particularly substantial.

In this case, I am satisfied, based on the evidence, that:

I am particularly mindful that the Liquidator has put evidence before the court which indicates such of the circumstances of each payment as is available to him by way of his access to the records of the Sans Pareil group companies, and documents provided to him by third parties. In my view, applying the matters stated in Frost, given the Liquidator’s evidence demonstrating an absence of records capable of indicating that the transactions were a proper business expense or were for the benefit of the principal Sans Pareil companies, Mr Salvestrin bears the evidentiary onus to provide a commercial explanation of each payment, in circumstances where such matters are peculiarly within his knowledge and where he has the means to produce any evidence which could support that explanation. He has not done so, having failed to take part in the hearing. In those circumstances, I am satisfied on the evidence before me that I can infer that a reasonable person in the circumstances of the principal Sans Pareil companies would not have made each of the payments which are the subject of the claims.

As a result, I am satisfied that each of the payments claimed are unreasonable director-related transactions within the meaning of s 588FDA of the Corporations Act.

I am also satisfied that each of the unreasonable director-related payments claimed is voidable pursuant to s 588FE(6A) of the Corporations Act, as they have all occurred within the period during four years ending on the relation-back day (calculated pursuant to ss 91(23) and 513B(c) of the Corporations Act, so being 27 October 2018 to 27 October 2022), and they occurred after the commencement of the Corporations Amendment (Repayment of Directors’ Bonuses) Act 2003 (Cth) (which was 11 April 2003), as required by s 588FE(1)(b) of the Corporations Act.

The consequence is the enlivenment of the court’s power in s 588FF(1)(a) of the Corporations Act to make an order directing Mr Salvestrin to pay to each of the principal Sans Pareil companies an amount equal to some or all of the money that the particular company has paid under the transaction. This power is conditioned by s 588FF(4) of the Corporations Act, which states that the court may make orders under s 588FF(1) only for the purpose of recovering for the benefit of the creditors of the company the difference between the total value of the benefits provided by the company under the transaction and the value (if any) that it might be expected that a reasonable person in the company’s circumstances would have provided having regard to the matters in s 588FDA(1)(c).

I am satisfied that the total value of the benefits provided by each of the principal Sans Pareil companies under each transaction was equal to the amount paid by that company and that there was no value that it might be expected that a reasonable person in the company’s circumstances would have provided having regard to the matters in s 588FDA(1)(c). As a result, the s 588FF(4) amount is $7,727,177.07 for Estate, $116,421.38 for Logistics, $412.70 for Holdings and $613,191.94 for Enterprises.

Finally, as the application under s 588FF(1) was made on 19 July 2023, which is within the period running from the relation-back day (27 October 2022) and ending 3 years after the relation-back day (27 October 2025), the conditions in s 588FF(3) are satisfied so as to enable the application under s 588FF(1)(a) to proceed.

I propose to make an order under s 588FF(1)(a) that Mr Salvestrin pay each of those amounts to the respective principal Sans Pareil companies.

I do not consider that it is necessary for me to consider the Liquidator’s alternative ground that the making of each of the payments by Mr Salvestrin was done in breach of the statutory duties contained in ss 180, 181, 182 and 183 of the Corporations Act. This is in light of:

For the reasons set out above, I make the following orders:

(1) Payments made by the second plaintiff:

(2) Payments made by the fourth plaintiff:

(3) Payment made by the fifth plaintiff:

(4) Payments made by the tenth plaintiff: