Federal Court rejects liquidators’ $2.6 million intercompany claim

The Federal Court has dismissed an attempt by the liquidators of Empire Consortium Group Pty Ltd to recover up to $2.64 million from related company Nationwide Plant Hire Pty Ltd, finding that suspicious accounting entries made shortly before Empire’s collapse were not enough to establish that a debt remained owing.

Justice Derrington held that Empire’s MYOB ledger established the existence of a running intercompany loan account between the companies, but also recorded a closing balance of nil. The liquidators failed to prove that entries crediting Nationwide Plant Hire should be removed from the account or that they did not reflect genuine transfers of value.

The dispute focused on two entries of $795,450 and $842,253.84 recorded in June and August 2022, which reduced Nationwide Plant Hire’s apparent indebtedness to zero. The final entry was made six days before Empire entered voluntary administration, while Christopher Hodgers was sole director of both companies.

Justice Derrington said the timing and circumstances created “a great deal of suspicion”, particularly because Empire was insolvent and Nationwide Plant Hire benefited from the extinguishment of the debt. However, suspicion did not establish on the balance of probabilities that the entries lacked a legitimate explanation.

The entries carried the identifier “ecg2nwcp,” which appeared to refer to another related company, Nationwide Concrete Pumping (Qld) Pty Ltd. The Court said the credits could have reflected an arrangement under which Nationwide Plant Hire assumed or discharged an Empire liability, entitling it to a corresponding credit in the intercompany account.

The Court also found that the liquidators had not established whether source documents were attached to the disputed MYOB entries. Justice Derrington recognised that their decision to advance a relatively confined evidentiary case was likely influenced by cost considerations, describing that course as understandable. However, Justice Derrington said an adverse inference arising from Nationwide Plant Hire’s failure to produce further evidence could not be used to fill gaps created by the liquidators’ “slim presentation” of the case.

The Court consequently found that the ledger continued to evidence a nil balance and that no debt had been established. It also dismissed the liquidators’ alternative uncommercial transaction claim because they had not shown that Empire paid more to or for Nationwide Plant Hire than it received in return.

The liquidators were ordered to pay Nationwide Plant Hire’s costs.

Read the decision here.

Benjamin Murphy of Foley’s List and Moray & Agnew acted for Nationwide Plant Hire.

Mitchell Downes of Level 10 Inns of Court and Century Legal acted for the liquidators.