The liquidators of Marathon Imaging Limited (Marathon) brought a claim against the company's director, Mr Greenhill, for a prejudicial disposition of property under section 346 of the Property Law Act 2007 and a breach of director's duties under the Companies Act 1993. Marathon had begun defaulting on its tax commitments from 2008 onwards and became insolvent shortly after. The Greenhill Family Trust (Trust), a secured creditor of Marathon, appointed receivers and the Commissioner of Inland Revenue had Marathon placed into liquidation just three days later.
Downs J held that Mr Greenhill, in orchestrating a transaction on the eve of liquidation whereby Marathon reversed his personal indebtedness to the company, had sought to hinder, delay, or defeat Marathon's unsecured creditors' rights of recourse. Consequently, Mr Greenhill was held to have breached his duties as director for promoting his own interests at Marathon's expense, reckless trading, using Marathon's funds for personal expenditure and in respect of related party lending.
It was also held that the Trust had surrendered its secured creditor status by failing to respond to a notice issued by the liquidator under section 305 of the Companies Act 1993. The Trust's appointment of receivers without anything further was insufficient to indicate its response to the notice. Despite finding that the Trust was likely the alter ego of Mr Greenhill, Downs J did not deny its ability to prove in the liquidation as an unsecured creditor.
The Court awarded compensation to restore Marathon to the position it would have been in but for Mr Greenhill's actions and additional compensation for breach of director's duties.
See the judgment here.