Bovis Lend Lease Pty Ltd v Wily - [2003] NSWSC 467

No judgment structure available for this case.

Reported Decision:
(2003) 45 ACSR 612
(2003) 21 ACLC 1737

Supreme Court

CITATION: Bovis Lend Lease v Wily [2003] NSWSC 467

HEARING DATE(S): 10, 11, 12, 13 September, 15 October, 21 & 28 November 2002, 10 June 2003

JUDGMENT DATE:
17 June 2003

JURISDICTION:
Equity

JUDGMENT OF: Austin J

DECISION: Administrator's failure to chair meeting cured under s 1322; creditors' resolution set aside; deed of company arrangement terminated; liquidator replaced.

CATCHWORDS: CORPORATIONS - WINDING UP - appeal against liquidator's decision to appoint voluntary administrator - relevant considerations - VOLUNTARY ADMINISTRATION - whether administrator required to attend personally to chair creditors' decision procured by related party vote should be set aside - whether administrator's decisions as to admission of proofs of debt for voting purposes were correct - whether deed of company arrangement should be terminated for material omissions in administrator's report or on other grounds - whether administrator should be removed - whether Court should review administrator's remuneration - whether Court-ordered winding up terminated by appointment of administrator

LEGISLATION CITED: Corporations Act 2001 (Cth) ss 436B, 439A, 439B, 445D, 447A, 447C, 449B, 449E, 474, 479, 482, 530A, 530B, 530C, 600A, 1321, 1322

CASES CITED: Advance Housing Pty Ltd v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230
Allatech Pty Ltd v Construction Management Group Pty Ltd (2002) 41 ACSR 587
Aloridge Pty Ltd v Christianos (1994) 13 ACSR 99
Ampolex Ltd v Perpetual Trustee Company (Canberra) Ltd (1996) 14 ACLC 977
Bamco Villa Pty Ltd v Montedeen Pty Ltd [2002] VSC 184
Barton v Armstrong [1973] 2 NSWLR 598; [1976] AC 104
Bell Resources Ltd v Turnbridge Pty Ltd (1988) 13 ACLR 429
Byng v London Life Association Ltd [1989] BCLC 400
Cadwallader v Bajco Pty Ltd (2001) 189 ALR 370; [2002] NSWCA 328
Citrix Systems Inc v Telesystems Learning Pty Ltd (1998) 28 ACSR 529
City & Suburban Pty Ltd v Smith (1998) 28 ACSR 328
Commonwealth of Australian v Irving (1996) 19 ACSR 459
Cvitanovic v Kenna & Brown Pty Ltd (1995) 13 ACLC 1654
Dallinger v Halcha Holdings Pty Ltd (1995) 60 FCR 594
Deputy Commissioner of Taxation v Pddam Pty Ltd (1996) 19 ACSR 498
Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 156 FLR 453
Deputy Commissioner of Taxation v Portinex Pty Ltd (No 2) (2000) 34 ACSR 422
Deputy Federal Commissioner of Taxation v Foodcorp Pty Ltd (1994) 13 ACSR 796
Domino Hire Pty Ltd v Pioneer Park Pty Ltd [2003] NSWSC 496
Elfic Pty Ltd v Macks (2001) 181 ALR 1
Ernest v Loma Gold Mines Ltd [1897] 1 Ch 1
Flower & Hart v White Industries (Qld) Pty Ltd (1999) 87 FCR 134
Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301
Kalon Pty Ltd v Sydney Land Corporation Pty Ltd (1998) 26 ACSR 593
Khoury v Zambena Pty Ltd [1999] NSWCA 402
Kirwan v Cresvale Far East Ltd (2002) 21 ACLC 371
McPherson v Mansell (1994) 16 ACSR 261
Mercy & Sons Pty Ltd v Wanari Pty Ltd (2000) 35 ACSR 70
Molit (No 55) Pty Ltd v Lamb Soon Australia Pty Ltd (1996) 19 ACSR 160
Murray v Donnelly [2000] NSWSC 634
National Australia Bank Ltd v Market Holdings Pty Ltd (2000) 50 NSWLR 465
National Australia Bank Ltd v Market Holdings Pty Ltd (2001) 19 ACLC 710
National Australia Bank Ltd v Wily [2002] NSWSC 573
National Dwellings Society v Sykes [1894] 3 Ch 159
National Roads and Motorists' Association Ltd v Geeson (2001) 39 ACSR 401
Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 13 ACSR 544
NZI Capital Corporation v Lancaster (unreported, Federal Court, 3 September 1991),
Permanent Trustee Australia Ltd v Boulton & Lynjoe Pty Ltd (1994) 33 NSWLR 735
Petrochemical Industries Ltd v Dempster Nominees Pty Ltd (1994) 15 ACSR 468
Re Adam Eyton Ltd; ex parte Charlesworth (1887) 36 Ch D 299
Re Adams International Food Traders Pty Ltd (1988) 13 NSWLR 282
Re Allebart Pty Ltd [1971] 1 NSWLR 24
Re Biposo Pty Ltd (1995) 17 ACSR 730
Re Central Spring Works Australia Pty Ltd (2000) 34 ACSR 164
Re Chevron Furnishers Pty Ltd [1995] 1Qd R 125
Re Club Superstores Australia Pty Ltd (in liq) (1993) 11 ACLC 751
Re Contract Corporation; Gooch's Case (1872) LR 7 Ch App 207
Re Data Homes Pty Ltd [1972] 2 NSWLR 22
Re Denistone Real Estate Pty Ltd [1972] 3 NSWR 327
Re Depsun Pty Ltd (1994) 13 ACSR 644
Re Dunquil Pty Ltd (1985) 9 ACLR 950
Re G K Pty Ltd; ex parte Deputy Commissioner of Taxation (1983) 7 ACLR 633
Re Giant Resources Ltd [1991] 1 Qd R 107
Re Intercontinental Properties Pty Ltd (1977) 2 ACLR 488
Re Lubin, Rosen & Associates Ltd [1975] 1 WLR 122
Re National Safety Council of Australia [1990] VR 29
Re Norfolk Island & Byron Bay Whaling Co (1969) 10 WN(NSW) 351
Re Oriel Homes Pty Ltd (1997) 15 ACLC 564
Re Queensland Stations Pty Ltd (1991) 9 ACLC 1341
Re Southern Resources Ltd (1989) 15 ACLR 770
Re St George Builders Hardware Pty Ltd (1995) 18 ACSR 451
Re Timberland Ltd (1979) 4 ACLR 259
Re Vector Capital Ltd (1997) 137 FLR 201
Re Zambena Pty Ltd (1995) 13 ACLC 1020
Rodgers v Radly (2000) 37 ACSR 158
Sipad Holdings ddpo v Popovic (1995) 61 FCR 205
Smith v Paringa Mines Ltd [1906] 2 Ch 193
Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332
Velkovski v Ryan (1996) 19 ACSR 514
Vincent, White & Associates Pty Ltd v Vouris (1998) 28 ACSR 93
Williams v Spautz (1992) 174 CLR 509
Wily v Parker (1996) 14 ACLC 1432
Young v Sherman (2002) 20 ACLC 149; (2002) 20 ACLC 1559

PARTIES :

6062/01
Bovis Lend Lease Pty Ltd (P)
Andrew Wily (D1)
Thomas Javorsky (D2)
1309/02
Bovis Lend Lease Pty Ltd (P, XD)
Thomas Javorsky (D1, XC1)
Interline Interior Linings Pty Ltd (in liquidation) (administrator appointed) (D2)
Interline Interior Linings (NSW) Pty Ltd (D3)
Andrew Wily (D4)
Tui Turipa Ullrich Gilbert (D5)
David Anthony Hurst (D6, XC2)
1088/01
HIH Workers Compensation Pty Ltd (P)
Interline Interior Linings Pty Ltd (in liquidation) (administrator appointed) (D/R)
Tui Gilbert (A1)
Tui Gilbert Holdings Pty Ltd (A2)

FILE NUMBER(S): SC 1309/02, 6062,01, 1088/01

COUNSEL: P M Wood (P) 6062/01, (P, XD) 1309/02
D J Durston (D1) 6062/01, (D2, D4) 1309/02, (R) 1088/01
T D Castle (D2) 6062/01, (D1, XC1) 1309/02, (D6, XC2) 1309/02
J T Johnson (D3, D5) 1309/02, (A1, A2) 1088/01

SOLICITORS: Freehills (P) 6062/01, (P, XD) 1309/02
P W Turk & Associates (D1) 6062/01, (D2, D4) 1309/02, (R) 1088/01
Blake Dawson Waldron (D2) 6062/01, (D1, XC1) 1309/02, (D6, XC2) 1309/02
Cutler Hughes & Harris (D3, D5) 1309/02, (A1, A2) 1088/01

INDEX

Paragraphs

Introductory outline
1-10

The Company's financial difficulties
11-13

The liquidation of the Company
14-16

The development of plans to move the Company from liquidation to voluntary administration
17-24

Mr Wily's attempts to obtain books and records of the Company and Mr Gilbert's RATA
25-31

The RATA
32-38

Refinement of the proposal for a deed of company arrangement
39-42

The proposal for a creditors’ meeting
43-52

Mr Wily's report to creditors
53-54

The creditors’ meeting of 27 November 2001
55-57

Mr Wily's appointment of Mr Javorsky as administrator
58-61

The voluntary administration of the Company
62-63

The Deed Proposal and Mr Javorsky's Report to the Creditors
64-76

The second meeting of creditors of the Company in administration
77-92

The adjourned second meeting of creditors on 16 January 2002
93-101

The deed of company arrangement
102-105

Challenges to the credibility of witnesses
106-120

Principal issues in contention
121-122

(1) The "connection" of Mr Franklin with Mr Gilbert
123-172

(2) The alleged benefits of the Deed proposal to creditors as a whole
173-187

(3) The alleged prejudice or disadvantage to creditors as a whole from implementation of the Deed proposal
188-198

The issues
199

The Challenge to the Appointment of Mr Javorsky as Administrator
200-235

The Validity of the Resolution of Creditors
236

Non-attendance by Administrator
237-262

Admission of Proofs of Debt
263-298

Related creditors
299-313

Conclusion as to Validity of Resolution of Creditors
314

Termination of the Deed of Company Arrangement
315-360

Removal of Administrator
361-368

Remuneration of Administrator
369-373

Termination of Liquidation
374-382

Conclusions
383-385

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

AUSTIN J

TUESDAY 17 JUNE 2003

6062/01 BOVIS LEND LEASE PTY LTD V ANDREW WILY & ANOR
1309/02 BOVIS LEND LEASE PTY LTD V THOMAS JAVORSKY & 6 ORS
1088/01 HIH WORKERS COMPENSATION PTY LTD V INTERLINE INTERIOR LININGS PTY LTD (IN LIQUIDATION) (ADMINISTRATOR APPOINTED)

JUDGMENT

1 HIS HONOUR: The plaintiff ("Bovis") is a major construction company and was the head contractor on the Aurora Place project at 88 Phillip Street Sydney, and the adjacent Macquarie Apartments. The Macquarie Apartments were completed in May 2000 and Aurora Place in October 2000. Interline Interior Linings Pty Ltd ("the Company") was engaged by Bovis as a subcontractor to carry out plasterboard partition and suspended ceiling works.

2 Tui Gilbert is the sole director of the Company. The sole shareholder of the Company is Tui Gilbert Holdings Pty Ltd. Mr Gilbert is the sole director and shareholder of Interline Interior Linings (NSW) Pty Ltd ("Interline (NSW)") and of Puketapu Pty Ltd. He is the sole director of Tui Gilbert Holdings Pty Ltd, the sole shareholder of which is Puketapu. Therefore he is, indirectly, the owner of the Company.

3 Andrew Wily was the liquidator of the Company. In contested circumstances, he purported to appoint Thomas Javorsky as the administrator of the Company. Subsequently a deed of company arrangement (“DOCA”) was purportedly entered into for the Company, and Mr Javorsky became the deed administrator.

4 There are three proceedings before the Court. Each of them is designed to test, in various ways, whether a scheme implemented by Mr Gilbert, under which he would acquire control over a claim for damages by the Company against Bovis by means of the deed of company arrangement, is valid.

5 In proceeding No 6062 of 2001, commenced on 20 December 2001, Bovis applies under ss 600A, 1321, 1322 and 447C of the Corporations Act 2001 (Cth) to set aside the purported appointment by Mr Wily, acting as liquidator of the Company, of Mr Javorsky as administrator. The plaintiff also seeks a declaration that the Company is in liquidation and not voluntary administration, and that Mr Wily remains the liquidator. The defendants are Mr Wily and Mr Javorsky. Essentially this is an appeal to the Court against a decision of a liquidator under s 1321 of the Corporations Act, together with an application for a declaration under s 447C that an administrator has not been properly appointed.

6 In proceeding No 1309 of 2002 Bovis applies under ss 445D, 447A, 449B, 449E, 600A, 1321, 1322 and 1324 of the Corporations Act and reg 5.6.26 of the Corporations Regulations for various alternative declarations and orders. The purpose of the proceeding is to challenge the validity of the second meeting of creditors of the Company in administration, at which the creditors resolved that the Company execute a deed of company arrangement, or to obtain orders terminating the deed of company arrangement, so that the company is returned to liquidation. Bovis also challenges decisions at the second creditors' meeting to admit it to vote for only $1 and to admit Interline (NSW) to vote for a substantial amount. It seeks to remove Mr Javorsky as administrator and it invites the Court to review Mr Javorsky's remuneration. The defendants are Mr Javorsky, the Company, Interline (NSW) and Mr Wily. Mr Javorsky and Mr Hurst have made a cross-claim seeking declarations of validity with respect to the meeting, or alternatively curative orders under s 447A or s 1322.

7 The third proceeding, No 1088 of 2001, is the proceeding for the winding up of the Company, under which a winding up order was made on insolvency grounds and Mr Wily was appointed liquidator. Mr Gilbert and Tui Gilbert Holdings have filed an interlocutory application in this proceeding, seeking a declaration that the winding up of the Company was terminated on Mr Javorsky's appointment as administrator, or alternatively on the passing of the resolution approving the Company's entry into the deed of company arrangement, or the execution of the deed. In the alternative, the applicants seek orders under s 482 terminating or staying indefinitely the winding up order. Strictly only Tui Gilbert Holdings, a creditor, has standing to apply under s 482.

8 Orders have been made having the effect that the first two proceedings and the application in the third be heard together, and that evidence in each be evidence in the others. Mr Gilbert and Interline (NSW) have been given leave to be heard on all aspects of the proceedings, under Corporations Rules, para 2.13.

9 The case so constituted is complex, both factually and in law. I received detailed, and in some cases lengthy, written submissions on matters of fact and law, and I also received a statement of facts prepared by counsel for Bovis and marked up with addenda and amendments proposed by counsel for Mr Javorsky. The marked-up statement of facts did not acquire the status of agreed facts admitted into evidence as such, but it is a handy summary, from which I shall sometimes borrow in my account of the facts set out below. The statement is footnoted to the evidence, so I have been able to check and consider the evidentiary sources.

10 I have done my best to identify and deal with the numerous and highly detailed submissions that were placed before me, although my doing so has made this a very long judgment. If one stands back from the detailed analysis, however, the decision that emerges is not unduly difficult. In broad summary:

· Mr Wily made a valid decision to appoint Mr Javorsky as administrator, in difficult circumstances and with limited information, after consulting creditors at the meeting of 27 November 2001;

· Mr Javorsky's consultant, Mr Franklin, acted on behalf of or in the interests of Mr Gilbert until the November meeting, helping him to prepare his report as to affairs ("RATA"), which contained a large claim for general damages that was proposed by Mr Franklin himself;

· the Deed proposal put forward in the administration was contrary to the interests of creditors of the company as a whole, because it gave Mr Gilbert and Interline (NSW) the option to choose not to provide funding; there was insufficient information for the creditors to assess the ability of Mr Gilbert and Interline (NSW) to fund the litigation; Mr Gilbert had, in any case, a statutory obligation to assist the liquidator; and (notwithstanding the supplementary Deed of 19 March 2002) the Deed effectively prevented further investigations into recoveries, and deprived creditors of the prospect of recovery under such claims;

· there were material omissions from Mr Javorsky's Report to creditors, because it gave creditors inadequate information about the claim against Bovis and the ability of Mr Gilbert and Interline (NSW) to fund the litigation; and it failed to disclose the connection between Mr Franklin and Mr Gilbert (including Mr Franklin's role in preparation of the RATA) and the arrangement between Mr Javorsky and Mr Gilbert for the payment of fees;

· Mr Javorsky failed to discharge his statutory obligation personally to chair the second meeting of creditors, but an order should be made to overcome that contravention under s 1322;

· the decision to admit Interline (NSW)’s claim for the full amount was correct, and while the decision to admit the claim for only $1 was invalid this did not vitiate the creditors’ decision;

· the creditors' resolution of 16 January 2002 to execute the proposed Deed was liable to be set aside, and should be set aside, because it would not have been passed but for the related creditor vote of Interline (NSW), and it was contrary to the interests of the creditors of the company as a whole, and unreasonably prejudicial to the interests of creditors who voted against it having regard to relevant matters;

· the DOCA should be terminated because it was contrary to the interests of the creditors of the company as a whole, and effect could not be given to it without injustice; also because of the material omissions from it; and also for "other reasons" (relating to Mr Javorsky's failure to undertake sufficient investigations into the claim against Bovis, and Mr Franklin's connection with Mr Gilbert);

· Mr Javorsky should be removed from office because Mr Franklin's connection with Mr Gilbert, as well as Mr Javorsky's arrangement with Mr Gilbert for payment of fees, would cause a reasonable observer to perceive that Mr Javorsky lacked independence and impartiality, and he should be replaced with a liquidator unconnected with any of the parties, but his remuneration should not be reduced;

· the liquidation of the Company should not be terminated.

The Company's financial difficulties

11 As I have said, the Company was a subcontractor to Bovis for plasterboard partitioning and ceiling works at Aurora Place and the Macquarie Apartments. A dispute arose between Bovis and the Company with respect to this work. Between 1 September 1999 and 30 June 2000 the Company failed to remit PAYG/PPS amounts totalling $1.163 million to the Australian Taxation Office, and it did not file returns with the Australian Taxation Office after June 2000. Mr Gilbert says that these difficulties were connected with the dispute between the Company and Bovis.

12 The Company's accountant was Stephen Kamper. In July or August 2000 Mr Kamper, acting on behalf of either Mr Gilbert or the Company, contacted Mark Franklin, an insolvency practitioner, with respect to the company's financial difficulties. Mr Kamper had been a client of Mr Franklin for four years and was one of Mr Franklin's main sources of referred work. Mr Franklin met with Mr Kamper and Mr Gilbert for about an hour, and gave advice in relation to the voluntary administration process and provided a brochure on the topic. About a week later Mr Kamper, or Mr Gilbert, requested Mr Franklin to introduce Mr Gilbert to an insolvency lawyer. Mr Franklin contacted James Marshall of Blake Dawson Waldron and gave him Mr Gilbert's telephone number, but nothing came of that introduction.

13 The Company ceased trading on 30 November 2000. In December 2000 Bovis claimed that it had overpaid the Company almost $500,000 in relation to the Aurora Place project, and the Company claimed damages from Bovis for delay and disruption. In June 2001 unsuccessful attempts were made to mediate these disputes with the assistance of a person experienced in the construction industry, Ron Murphy.

The liquidation of the Company

14 On 12 January 2001 NRMA Workers Compensation (NSW) (No 2) Pty Ltd ("NRMA") commenced a winding up proceeding against the Company in relation to underpaid workers compensation insurance premiums. The Company entered into arrangements for repayment by instalments with NRMA. Mr Franklin noticed in a bulletin that the Company was subject to a winding up application and contacted Mr Kamper. Mr Kamper told him that Mr Gilbert had done a deal with the partitioning creditor and did not need Mr Franklin's help. However, the Company defaulted in its arrangements with NRMA, and on 19 June 2001 the Court ordered that the Company be wound up and that Mr Wily be appointed its liquidator.

15 On 20 June 2001 Mr Wily wrote to Mr Kamper, asking him to package together for collection the books and records of the Company and information or files in relation to the claim against Bovis. As I shall explain, there was substantial delay in complying with this request in any respect, and in some respects it was never complied with. Mr Wily's firm made several follow-up requests for information, and also for Mr Gilbert's RATA. The delay in responding was associated with the development, by Mr Gilbert and his advisers, of proposals for the development of a deed of company arrangement under which Mr Gilbert would re-acquire control of the Company's claim for damages against Bovis.

16 On 3 July 2001 Bovis lodged a proof of debt for $494,022.90 with Mr Wily. The document provided particulars of the claim by Bovis, and the covering letter invited Mr Wily, if he required any further clarification or detail, to contact the general counsel of Bovis, Russell Bartlett. On 25 July 2001 Mr Gilbert sent a letter to Mr Wily setting out arguments as to why Mr Wily should reject that proof of debt.

The development of plans to move the Company from liquidation to voluntary administration

17 In late June 2001 Mr Gilbert telephoned Mr Franklin and requested advice as to whether there was anything he could do to stop the liquidation process. Mr Franklin advised that while the liquidator could appoint an administrator, Mr Gilbert could not, and he agreed to arrange a meeting with the liquidator.

18 On 21 June 2001 Mr Franklin and Mr Gilbert met with Alan Topp, a partner of Mr Wily, and Nicole Rynhardt of Mr Wily's firm, for about 45 minutes. They discussed Mr Gilbert's desire to have the company placed into voluntary administration, so that a deed of company arrangement could be adopted. Mr Topp said that Mr Wily would consider appointing an administrator, provided that Mr Gilbert produced a RATA and handed over the books and records of the Company, and provided also that any proposed deed was in the interests of creditors. Mr Franklin suggested the names of possible administrators, one of whom was Mr Javorsky. He offered to help Mr Gilbert prepare his RATA.

19 After that meeting, Mr Franklin advised Mr Gilbert that it would be necessary for him to work out a proposal for a deed of company arrangement, and to demonstrate that the Company's claim against Bovis was valid. He referred Mr Gilbert to Cutler Hughes and Harris, solicitors (“Cutler Hughes”).

20 On 25 June 2001 there was a meeting attended by Mr Gilbert, Christopher Nock (an employee of the Company), Mr Franklin, and Craig Higginbotham and Genevieve Staff of Cutler Hughes. The meeting lasted about one and a half hours. The subjects were the formulation of a proposal for the Company to go into administration, the assistance to be required from Cutler Hughes, and the background to the dispute with Bovis, including a review of paperwork.

21 There was a further meeting attended by Mr Gilbert, Mr Franklin, Mr Topp and Ms Rynhardt, and Mr Higginbotham, on 28 June 2001. Mr Higginbotham told Mr Topp that he had been instructed to act for Mr Gilbert to provide advice in relation to the Company's claim against Bovis, and to request Mr Wily to appoint an administrator, and to assist in the preparation of a deed of company arrangement. Mr Franklin said that Mr Javorsky would consent to act as a voluntary administrator.

22 On 4 July 2001 Mr Gilbert wrote to Mr Murphy, the mediator, advising him that Mr Wily had been appointed as liquidator of the Company and stating:

23 The evidence indicates that the accounting advice referred to in the letter was provided by Mr Franklin. In relation to voting, Mr Franklin gave evidence that he did not know who all the creditors were at the time, nor which way they would vote, and therefore he did not tell Mr Gilbert that he and his associated company, Interline (NSW), had the majority voting power at any creditors' meeting. But Mr Gilbert’s evidence was that Mr Franklin may possibly have advised him on voting.

24 On 9 July 2001 there was a meeting attended by Mr Gilbert, Mr Franklin, Mr Higginbotham and Ms Staff, to discuss the merits of the Company's claim against Bovis and a proposal for a deed of company arrangement. According to Mr Franklin’s file note, the outcome of the meeting was that Mr Franklin would prepare a draft of the RATA, a proposal for the liquidator and a letter in relation to the Bovis claim. Cutler Hughes were to advise whether the case was sufficiently viable that such a proposal would be worthwhile.

Mr Wily's attempts to obtain books and records of the Company and Mr Gilbert's RATA

25 As I have said, Mr Wily wrote to Mr Kamper on 20 June 2002, asking him to assemble the books and records of the Company, including files relating to the claim against Bovis. At the meeting of 21 June 2001, convened to explore avenues for stopping the liquidation process, Mr Topp handed Mr Gilbert a notice to submit a report as to affairs under s 475(2), a notice requiring delivery of the books and records to which he would be entitled if an order were made under s 483(1), a questionnaire for directors and officers, and a notification to corporate officers of their responsibilities on liquidation.

26 After the meeting, Mr Franklin advised Mr Gilbert that he needed to prepare the report as to affairs, and to collect the books and records of the Company. He arranged with Mr Gilbert that he would check the RATA as to affairs.

27 On 5 July 2001 Mr Franklin, at the request of Mr Gilbert, wrote to Mr Wily seeking an extension of time for completion of the RATA. In that letter Mr Franklin described Mr Gilbert as "my client". On 6 July 2001 Mr Wily wrote to Mr Franklin, granting an extension of time until 12 July 2001, requiring that Mr Gilbert provide the RATA and the books and records of the Company (including the complete file in relation to the proceedings against Bovis) by that date.

28 At the meeting on 9 July 2001, called to discuss the Company's claim against Bovis and the proposal for a deed of company arrangement, it was agreed that Mr Franklin would assist Mr Gilbert to prepare his overdue RATA.

29 On 12 July 2001 Mr Franklin wrote to Mr Wily requesting a further extension of time for Mr Gilbert to complete the RATA. On 13 July 2001 Mr Wily wrote to Mr Franklin declining that request and requiring Mr Gilbert to surrender immediately all books and records of the company, including the mediation and legal files and a completed RATA. On 16 July 2001 Mr Franklin sent a blank form of director's questionnaire to Mr Gilbert.

30 On 18 July 2001 Mr Wily wrote to Mr Franklin inquiring when he could expect Mr Gilbert to deliver the documents he had required. The letter said that Mr Wily had attended a meeting with Bovis and had spoken to the mediator, and wished to review the Company's files prior to deciding upon his course of action.

31 These requests for books and records and information were less than wholly successful. On 16 July 2001 Mr Wily received two mediation files regarding the Company's dispute with Bovis, but they were supplied by Mr Bartlett rather than by Mr Gilbert. One small box of documents was provided on behalf of Mr Gilbert on 13 September 2001. On 23 October 2001 Mr Gilbert provided 35 boxes of company records. It appears, according to Mr Wily's evidence, that the boxes did not contain payment vouchers, journals, ledgers, profit and loss statements on contracts, history of trading payments with major suppliers, or the substantial documentation concerning the claim against Bovis. Cutler Hughes had 34 lever arch files concerning the Company's claim against Bovis, but they were not provided to Mr Wily.

The RATA

32 On 19 and 20 July 2001 Mr Gilbert sent to Mr Franklin the completed director's questionnaire, a letter from Bovis, a payment reconciliation for the Aurora Place project, and a summary of the Company’s claim on the sub-contract, which had been previously provided to Bovis. The summary recorded a total claim by the Company of $7,702,849.67, of which $4,023,080.51 had been paid, leaving a net claim of $3,679,769.18. This figure included a delay and disruption claim of $3,292,983. It did not include any general claim for damages.

33 On 24 July 2001 Mr Franklin sent Mr Gilbert and Mr Higginbotham a first draft of Mr Gilbert's RATA. In his covering note Mr Franklin asked Mr Higginbotham to look at and settle the claim against Bovis. He said, "I have used 'damages' as a balancing figure to eliminate deficiency."

34 A schedule to the draft RATA summarised the claim against Bovis. It recorded a total claim of $7,459,766.64, and payment received of $3,830,379.51. The total claim included a delay and disruption claim of $3,830,379.51, and also a damages claim of $3,521,758.53. The damages claim was described as follows:

"This is a balance figure only. CHH to settle exact figure."

35 Another schedule to the draft RATA listed the claims of unsecured creditors, the total amount claimed being $7,444,486.69. The claim by Bovis was not included. Presumably this figure was the "deficiency" referred to by Mr Franklin in his covering note, and the damages claim was introduced so that the value of the Company's asset, namely its claim against Bovis, would slightly exceed the value of the claims against the Company.

36 Counsel for Mr Javorsky submitted that Mr Franklin's involvement in the preparation of the RATA was limited to inserting figures provided to him by Mr Gilbert in an appropriate format, subject to the damages figures. He submitted that upon his review of the RATA following the appointment of Mr Javorsky as administrator, Mr Franklin assumed that Mr Higginbotham had agreed with the figure for the damages claim, on the basis that he had not been advised to the contrary.

37 On 25 July Mr Gilbert sent the final RATA to Mr Wily, Mr Franklin and Cutler Hughes. The report showed:

38 Mr Gilbert sent a copy of the RATA to Mr Franklin and Cutler Hughes. Mr Franklin gave evidence that he did not pay much attention to the RATA at that time and put it into a manila folder.

Refinement of the proposal for a deed of company arrangement

39 On 25 July 2001 Mr Gilbert wrote to Mr Wily (copying the letter to Mr Franklin and Cutler Hughes) setting out a proposal for voluntary administration and a deed of company arrangement. Under the proposal Mr Gilbert and Interline (NSW) would be excluded as participating creditors; the deed administrator would be empowered to enter into a litigation funding agreement for funding to pursue the Company's damages claim against Bovis; and a deed fund would be established, consisting of 30% of the recovery from Bovis less funding and legal costs. The proposal nominated either Mr Javorsky or Antony de Vries as the deed administrator.

40 There is some disagreement as to Mr Franklin's role at this stage. The Javorsky interests submitted that the letter was copied to Mr Franklin solely to keep him informed as to the progress of any appointment of an administrator, or to keep him "in the loop", and that at all times Mr Franklin saw his role as being to act as a representative of any potential administrator.

41 In early September 2001 Mr Higginbotham telephoned Mr Franklin to invite him to attend a meeting with the liquidator, for the purpose of requesting the liquidator to convene a meeting of creditors to appoint a voluntary administrator. A meeting was held on 7 September 2001, attended by Mr Franklin, Mr Higginbotham, Ms Staff, Mr Gilbert, Mr Nock, Mr Wily and Ray South (from Mr Wily's firm). Mr Higginbotham said that Mr Gilbert wanted to propose a deed of company arrangement, with either Mr Javorsky or Mr de Vries as administrator, and that he wanted Mr Wily to convene a meeting of creditors to consider the appointment of an administrator. Mr Higginbotham said that the deed had not been finalised, but in general terms it would involve either Mr Gilbert or the deed administrator taking proceedings against Bovis. Mr Higginbotham said that the claim against Bovis had strong prospects of success. He said that although Mr Gilbert understood his obligation, as a director of the Company, to assist the liquidator, the involvement of Mr Gilbert in a proceeding against Bovis under a deed fund would far exceed his involvement in discharge of his statutory obligations as a director. Mr Wily said he would consider the matter.

42 On 14 September 2001, Mr Higginbotham wrote to Mr Wily. He said that Cutler Hughes were instructed by Mr Gilbert and Interline (NSW). He confirmed the opinion he had expressed at the meeting that the Company's claim against Bovis was validly based and had more than reasonable prospects of success. He said that Interline (NSW), a creditor in the amount of $3.1 million, was prepared to fund the proceeding against Bovis on the condition that an administrator was appointed. He said that a benefit of the proposed deed of company arrangement was that the Company would continue trading, this being important because (he contended) the Company had considerable goodwill, which would be extinguished if it remained in liquidation. He said that while Mr Gilbert would fulfil his obligations as a director, he did not have the financial resources to fund the litigation, and was not able to spend the hundreds of hours that would be needed in instructing lawyers on the claim. The letter proceeded to request Mr Wily to call a creditors' meeting to consider the appointment of an administrator so that such a deed could be proposed. The letter enclosed some letters of support, written in standard form, from Mr Nock, Interline (NSW), Coversafe Insurance Brokers Pty Ltd, Kamper & Co and PlastaMasta.

The proposal for a creditors’ meeting

43 Mr Higginbotham's demand, that Mr Wily convene a meeting of creditors under s 479(2) to ascertain their wishes concerning the proposal, was pursued over the ensuing weeks.

44 On 25 September 2001 Mr Higginbotham wrote to Mr Wily's solicitors, PW Turk & Associates, referring to s 479(2) of the Corporations Law and noting that the liquidator's obligation to call a meeting was mandatory where 1/10 in value of creditors requested in writing. The letter foreshadowed an application to the Court, in which a personal costs order would be sought against the liquidator.

45 PW Turk replied on 26 September 2001, stating that the liquidator was not at that time disposed to call a meeting of creditors for five reasons:

46 The letter pointed out that creditors could not make an informed decision without being provided with all relevant information, and the liquidator could not report to them until he received information from the Company and had the opportunity to consider it and take advice.

47 Mr Higginbotham sent copies of his letters of 14 and 25 September, and the letter by PW Turk dated 26 September, to Mr Franklin. Mr Franklin began to work part-time as a consultant to Jones Condon, Mr Javorsky's firm, in October 2001, and he became a full-time consultant for the firm in December 2001.

48 On 31 October 2001 Mr Higginbotham replied to PW Turk. He said he was instructed that all of the Company's books and records had been supplied to the liquidator. Except in that respect, the letter did not seek to meet Mr Wily's concerns. Rather, it asserted (to summarise the argument) that those concerns were rendered irrelevant by s 479(2), which imposes statutory obligation on the liquidator to call a meeting in response to a requisition by at least 10% in value of the creditors, regardless of whether the liquidator or the creditors were or would be adequately informed in respect of the proposed subject matter of the meeting. Mr Higginbotham said that a court application would be made if the liquidator did not call a meeting of creditors under s 479(2) within seven days, and that a personal costs order would be sought against the liquidator.

49 Mr Franklin had a meeting with Mr Javorsky and Mr Higginbotham in October or November 2001, during which they discussed the proposal for a deed of company arrangement. Mr Higginbotham explained that Mr Gilbert wanted the Company to avoid the stigma of liquidation, and that was why he would only fund the proceeding against Bovis if the Company was moved out of liquidation and placed into voluntary administration. He said that Mr Gilbert and Interline (NSW) would fund the voluntary administration, as well as the proposed deed and the litigation against Bovis. Mr Javorsky indicated his willingness to act as administrator.

50 After some further correspondence between Cutler Hughes and PW Turk, on 13 November 2001 Mr Wily convened a meeting of creditors, to be held on 27 November 2001. Mr Higginbotham telephoned Mr Franklin and invited him to attend that meeting. Mr Franklin arranged for Mr Javorsky to sign a consent to act as administrator, and he attended the meeting, described as Mr Javorsky's representative.

51 There is some evidence indicating that the list of names and addresses of creditors generated in Mr Wily's office originally did not included Bovis, nor two former employees, Raymond Greathead and Samuel Wood, but the printed list of names and addresses was endorsed with a handwritten instruction to add those names, and the addresses were given in handwriting. There is a computer printout of names and addresses in which the name and address of Bovis, as well as the names and addresses of Mr Greathead and Mr Wood, appears.

52 At about 5pm on 26 November 2001 Mr South telephoned Mr Bartlett, informing him that a meeting of the Company's creditors had been fixed the following morning, and apologising for omitting to give Bovis notice of the meeting. Mr South explained that Mr Gilbert wanted to fund the Company's litigation against Bovis on the basis that the Company be released from liquidation and that an administrator be appointed and a deed of company arrangement adopted by the creditors. Mr Bartlett told Mr South that he would be unable to attend. In fact, not only did Mr Bartlett not attend the creditors' meeting, but he did not arrange for anyone else to attend on behalf of Bovis.

Mr Wily's report to creditors

53 Mr Wily prepared a report to creditors, which was dated 27 November 2001. It was not circulated to creditors prior to the meeting, but it was tabled at the meeting. Mr Bartlett did not receive a copy of it until 17 December 2001.

54 The following are some relevant statements in the Report:

"I am unable to comment further on the company's trading as all the company's books and records have not been delivered to me. These records include Payment Vouchers/Journals, Profit and Loss Statements on Contracts, amongst other records." He then noted that Mr Gilbert as director attributed the Company's failure to Bovis not fully paying for services rendered at Aurora Place/Macquarie Apartments.

$7,459,766.69

"I have been provided with a proof of debt from an associated company Interline NSW supported by a reconciliation of payments between the company and Interline NSW. I note that payments totalling $1.556 million are listed as having been made by Interline NSW to the company and/or its creditors since 1 December 2000. In the same time period payments totalling $418,821 are listed as having been made by the company to Interline NSW. Given that Mr Gilbert has stated the company ceased trading on 30 November 2000, I consider further inquiries are necessary to investigate and quantify the claim of Interline NSW against the company."

(d) Under the heading "Liabilities" Mr Wily also referred to a proof of debt for $760,000 from Chris Nock (‘Nock’), general manager of the Company, based on his employment contract, which provided a profit share entitlement of 20% of the company's net yearly profit. Mr Wily said he thought the claim was excessive, and noted that most of the claim was contingent on recovery from Bovis.

(e) Additionally, under the heading "Liabilities" Mr Wily referred to the proof of debt from Bovis in the sum of $494,022.29. He noted that Mr Gilbert claimed that the Company had an action against Bovis for over $7 million, and that there was substantial documentation in support of the Company's claim. Mr Wily said that, without all the company's books and records, he was unable to adjudicate on the proof of debt claim by Bovis. He said, “I understand that [Bovis] will strongly defend their claim and oppose the company's alleged claim against it."

The creditors’ meeting of 27 November 2001

55 The creditors’ meeting held on 27 November 2001 was attended by:

· Mr Wily and Mr South;

· Mr Franklin, described as an "observer";

· Mr Higginbotham as proxy for Mr Nock, Mr Greathead and Mr Wood (all employees of the Company), Interline (NSW), Kamper & Co, PlastaMasta and Coversafe Insurance Brokers;

· Mr Dunne as proxy for the ATO;

· Mr Gilbert;

· Ms Staff from Cutler Hughes.

56 At the meeting Mr Dunne from the ATO said that the company's PAYE/PPS returns had not been lodged since 30 June 2000. Mr Franklin responded that if the Deed of Company arrangement proceeded, Mr Gilbert would arrange for processing the outstanding returns. Mr Franklin gave evidence in cross-examination that he responded in this way because he wanted to take a practical approach; although he attended the meeting on Mr Javorsky's behalf, Mr Franklin was concerned, he said, to ensure that the things that had to be done were in fact done.

57 Mr Higginbotham moved that Mr Wily be directed to appoint Mr Javorsky as voluntary administrator. The motion was declared carried on a show of hands. Mr Higginbotham voted for it as proxy for the creditors I have mentioned. Their debts were as follows:

· Mr Greathead $8,750

· Coversafe Insurance Brokers $2,175

· Mr Nock $760,000

· PlastaMasta $445,172

· Kamper & Co $12,980

· Interline (NSW) $3,659,677

· Mr Wood $6,530.

Mr Wily's appointment of Mr Javorsky as administrator

58 On 28 November 2001 Mr Wily wrote to Cutler Hughes saying he would appoint Mr Javorsky as administrator of the Company provided he received a bank cheque for $33,485.78 for his fees and legal costs. On 29 November 2001, Mr Wily appointed Mr Javorsky as administrator of the Company, under s 436B of the Corporations Act. It appears that Mr Wily's fees were paid by Mr Gilbert, or a company associated with him.

59 Following a request by the solicitors for Bovis made on 21 December 2001, Mr Wily stated in a letter dated 15 January 2002 that he considered seven matters regarding the appointment of an administrator to the Company. He listed these matters as follows:

· "Initial investigations indicating that there were no real assets of the Company.

· The likelihood that any insolvent trading claim would be strongly defended by Tui Gilbert ('Gilbert'). An issue of establishing a date to base insolvent trading taking into account the company's claim against Bovis.

· The scenario of a return to creditors resulting from successful litigation against Bovis. Gilbert had informed me that any support (either financial or in the provision of documentation) with regard to the litigation process would only occur under a VA administration.

· My inability to make a proper determination over the merit of the claim against Bovis, without access to substantial records relating to the claim.

· My inability, from the books and records presented, to ascertain whether or not any unfair preference/uncommercial transaction actions were available to me.

· An urgent request to call a meeting of creditors by at least 10% of the creditors.

· A resolution passed at the creditors meeting on 27 November 2001 which indicated that the creditors supported and requested the Liquidator to appoint an Administrator."

60 Mr Wily also confirmed that he had taken legal advice concerning his decision to appoint an administrator, but he did not disclose the content of that advice. His letter did not directly address the question, raised in the letter of PW Turk dated 26 September 2001, why it was of benefit to the general body of creditors to appoint an administrator in circumstances where he as liquidator was capable of conducting any proceedings against Bovis. Nor, indeed, was that question directly addressed in his report to creditors.

61 Mr Wily took into account the resolution of the creditors, without expressly addressing the doubts he had stated in his report about the debts of Interline (NSW) and Mr Nock, whose debts were by far the largest of the creditors voting in favour of the resolution. At the time when he made his decision to appoint Mr Javorsky as administrator, Mr Wily had not obtained all of the books and records of the company. He had received a substantial volume of material, but he maintained that it was seriously deficient. He had not received the substantial documentation of Mr Gilbert relating to the claim against Bovis, which was the only alleged asset of the Company. He had evidently not sought to rectify the situation by exercising any of his powers as liquidator to compel the delivery up and inspection of the books and records. Indeed, nothing had happened after 26 September 2001 to change the position as outlined in the letter of PW Turk of that date.

The voluntary administration of the Company

62 Upon his appointment on 29 November 2001, Mr Javorsky acted as administrator with the assistance of David Hurst (the sixth defendant), a senior manager of Jones and Condon, and of Mr Franklin. Mr Franklin attended to the day-to-day running of the administration, overseen by Mr Hurst.

63 The first creditors’ meeting of the Company in administration was held on 6 December 2001. The meeting was attended by Mr Hurst (who chaired it), Mr Franklin and his assistant Padmini Saheb (who were described as "assisting administrator"), Ms Staff representing Mr Higginbotham as proxy for the same seven creditors who had appointed Mr Higginbotham as proxy for the meeting convened by Mr Wily, Mr Willats as proxy for NRMA, and Mr Gilbert. Mr Javorsky did not attend. Although Bovis was sent notice of the meeting in the ordinary course, Mr Bartlett did not personally receive it and there was no attendance on behalf of Bovis at the meeting. Mr Javorsky signed a written authority to Mr Hurst, authorising Mr Hurst to be his representative for the purpose of chairing the meeting. The meeting decided not to appoint a committee of creditors, nor to replace Mr Javorsky as administrator.

The Deed Proposal and Mr Javorsky's Report to the Creditors

64 On 12 December 2001 Mr Gilbert, as director of the Company, formally proposed a deed of company arrangement for the consideration of creditors at their next meeting. The letter was addressed to Mr Javorsky as administrator of the Company. The proposal set out in the letter is sufficiently important that it should be set out substantially in full:

65 On the same day Mr Javorsky sent notices to creditors convening the second meeting of creditors, to be held on 20 December 2001. The notices were accompanied by Mr Javorsky's Report to Creditors, which enclosed Mr Gilbert's letter setting out the Deed proposal, and also a separate document entitled "Administrator's Statement of His Opinion Regarding the Three Possible Alternatives for the Company's Future". The Report and the Statement were prepared by Mr Franklin and Ms Saheb, and were settled and signed by Mr Javorsky.

66 The Report gave a brief account of the nature of the Company's business and its history, saying that the Company ceased trading on approximately 30 November 2000 following its dispute with Bovis. Under the heading "Reasons for Difficulties", the Report noted that Mr Gilbert had attributed the failure of the Company solely to the dispute with Bovis, stating that according to Mr Gilbert, the Company had a claim against Bovis for $7,459,766.64. The Report noted that Mr Gilbert had incurred substantial costs personally and through another company in preparing the claim and in preparation for the mediation, and it said that Cutler Hughes had advised Mr Javorsky that they were in a position to provide advice to the deed administrator to obtain litigation funding, if required, and that their advice would confirm that there were reasonable prospects for success in bringing action against Bovis.

67 Under the heading "Financial Information", the Report set out a balance sheet and profit and loss account and noted that the Company had a significant operating loss for the period ending 30 June 2001, and a substantial shortfall of assets to liabilities for the same period, with the Company's position deteriorating by $4,304,435 in the period of 12 months. Mr Javorsky then said: "I am of the opinion that the claim against [Bovis] for the sum of $7,459,767 would explain the Company's substantial decrease in contractual earnings and result in an operating loss for the period ending 30 June 2001".

68 Under the heading "Report as to Affairs/Asset and Liability Position", Mr Javorsky referred to the RATA provided by Mr Gilbert as at 29 November 2001, which showed both assets and liabilities at $7,459,767. Mr Javorsky said:

"The liabilities on the RATA total the same as the assets due to the amount noted for Interline Interior Linings (NSW) Pty Ltd as $3,100,000 and not the actual Proof of Debt amount which is $3,659,677.16". He then noted that the only asset shown in the RATA was the claim against Bovis for $7,459,767.

69 As to liabilities, Mr Javorsky listed the claims of various creditors amounting to $7,459,767, including the claim by Mr Nock for $760,000 and the claim by Interior (NSW) for $3,659,677.16. He made no comment on Mr Nock's claim. As to the claim by Interline (NSW), he noted that this was an associated company and that he had been provided with a reconciliation of payments between it and the Company. He expressed the opinion that further inquiries would be necessary to investigate and quantify the claim by Interline (NSW).

70 No mention is made in the Report of the claim by Bovis to be a creditor in the sum of $494,022.90.

71 Under the heading "Voidable Transactions", the Report gave a brief summary of the statutory provisions and then pointed out that recovery would not be available if the company executed a deed of company arrangement. The Report noted the difficulty of funding proceedings for recovery, and identified payments to NRMA totalling $60,000 as potentially recoverable.

72 Under the heading "Insolvent Trading", the Report referred to potential liability of directors under s 588G, and then said:

"At this stage I have not been able to undertake a detailed analysis in respect of possible insolvent trading as I have only been able to conduct a limited review of the company's books and records. At this stage my review in this regard has been principally limited to an analysis of the company's financial statements, creditors records, cheque books and bank statements that have been provided to me. As a result of my review I consider that it is likely the director would have available to him certain defences which would make any actions for insolvent trading doubtful. It will require considerable investigation to draw any final conclusions and determine a specific date at which the director should have been aware of this situation. Furthermore, at this stage I am unable to establish whether any recovery may be possible in this regard as I am not aware of the financial position of the Company's director and whether he is in a position to satisfy any judgment that may be able to be obtained against him."

73 Under the heading "Dividend Prospects upon Liquidation", the Report said:

"At this stage I am unable to establish the likely return to creditors in the event that the company remains in liquidation as I consider that there are numerous matters that require further investigation to establish whether there may be avenues for the recovery of funds for the benefit of the company's creditors and it may be necessary to pursue legal action to recover the company's debtors and other assets disclosed in the company's Balance Sheet. Furthermore, creditors may be required to provide the Liquidator with funding to conduct these investigations and commence any warranted legal actions. Failing that the Liquidator would be required to obtain Insolvency Litigation Funding."

74 Under the heading "Deed of Company Arrangement", the Report said

"The director has provided me with a proposed Deed of Company Arrangement, the details of which are attached as annexure A. In summary however, the Deed provides for: -

· A moratorium of up to five (5) years; and

· Control of the company to be returned to the director for the purposes of commencing litigation against BLL;

· The director is to provide regular reports on the progress of the litigation and when requested by the Deed of Administration;

· If in the opinion of the Deed Administrator it is in the creditors' interests, he is to take control of the litigation;

· The Deed Administrator be empowered to obtain litigation funding if in the Deed Administrator's opinion it is in creditors' interests to do so;

· The legal fees to be paid as a priority out of funds received from the litigation;

· The director to obtain a priority in respect of any dividend in the Deed of Arrangement for time spent in the preparation and hearings of the Litigation to be calculated at the rate of $100 per hour;

· All other creditors to be paid in accordance with the priorities set out in Section 556 of the Corporations Act; and

· Creditors to accept the amounts recovered in the litigation up to 100 cents in the dollar (which is not guaranteed to be paid) in the full satisfaction of their debts and thereafter release the company."

75 The Statement enclosed with the Report commented on the three alternatives put forward by s 439A(4) and then made a recommendation, as follows:

Execution of Deed of Company Arrangement

Administration to end

Company to be wound up

· The recovery of funds from Litigation against [Bovis] which in the absence of the director's considerable assistance would be difficult; and

· The possibility of funds in respect of voidable transactions.

Recommendation

76 Neither in the Report nor the Statement did Mr Javorsky refer to whether it would be in the interests of creditors for the Company to remain in liquidation so that the liquidator could seek to obtain litigation funding in order to pursue the claim against Bovis. A fortiori, there was no discussion of the comparative advantages and disadvantages of the alternatives of continuing with the liquidation and adopting a deed of company arrangement, except to the limited extent contained in the last quoted paragraph.

The second meeting of creditors of the Company in administration

77 Mr Bartlett of Bovis found out about the appointment of Mr Javorsky as administrator when he had a telephone conversation with Mr South, from Mr Wily's firm, on 13 December 2001. He immediately contacted Jones Condon, and was told that a creditors’ meeting was scheduled for 20 December 2001.

78 On 14 December 2001 Bovis wrote to Jones Condon stating that it was a creditor of the Company and that a proof of debt for $494,022.29 had been lodged with the liquidator on 3 July 2001. On the same day Jones Condon sent a facsimile to Bovis enclosing a notice of the creditors’ meeting and a copy of his Report to Creditors and Statement, and Mr Gilbert’s proposal dated 12 December 2001.

79 On 18 December 20001 Bovis wrote to Mr Javorsky, stating:

80 The proof of debt and attached particulars provided a breakdown of the components of the claim.

81 On 20 December 2001 Mr Javorsky wrote to Bovis advising that he had no intention of omitting Bovis as a creditor and explaining that the list of creditors in his Report was taken from Mr Gilbert's RATA.

82 Prior to the meeting on 20 December 2001, Mr Javorsky and Mr Hurst met to discuss matters relating to the meeting and the adjudication of proofs of debt. They agreed that the appropriate adjudication of the claim by Bovis was to admit it for $1 for voting purposes, on the basis that the Company's claim against the Bovis swamped the latter's claim against the Company. In relation to the Interline (NSW) proof of debt, Mr Hurst had received from Mr Franklin a description of the audit process conducted by himself and Ms Saheb, and on that basis Mr Hurst and Mr Javorsky decided that sufficient investigation of the claim had been undertaken to enable them to admit it for its full amount, for voting purposes only.

83 The meeting was held on 20 December 2001. It was attended by:

· Mr Hurst (who chaired it, purportedly as the representative of Mr Javorsky, under written authority);

· Mr Franklin and Ms Saheb (described as "assisting Administrator");

· Mr Higginbotham, representing the same seven creditors whom he represented at the creditors meeting convened by Mr Wily;

· Phillip Hoser, a solicitor of Freehills, as proxy for Bovis, together with Mr Bartlett and Ms Fellows (from Freehills) as observers;

· Mr Dunne, as proxy for the ATO;

· Mr Donald as proxy for NRMA, and Mr Willats representing that company;

· Mr Gilbert;

· two other observers, Mr Coghran and Mr Smith.

84 Mr Javorsky did not attend. He explained that he was working on another matter of a pressing nature.

85 At the meeting Mr Hoser asked why a liquidator would not be able to pursue any cause of action against Bovis as easily as a deed administrator. Mr Hurst initially said that Mr Gilbert's co-operation would be more likely under the proposed Deed than in winding up, and later he said that the Deed would enable more funds to be available to pursue the litigation, and that a liquidator would have no funds. Mr Hoser asked what information the administrator had about the financial worth of Mr Gilbert. Mr Hurst initially said that he did not know whether that was a matter for the meeting, but he later said that the administrator did not have any information. A question by Mr Hoser as to whether the administrator had made any investigations as to the worth of Interline (NSW) was not answered.

86 Mr Hurst said that the administrator had not himself obtained legal advice on the merits of the Company’s claim against Bovis, but instead he had relied on the advice of Cutler Hughes acting on behalf of the director. When Mr Hoser asked whether the administrator could explain the basis of the claim against Bovis, Mr Hurst said he was not able to do so, but he referred Mr Hoser to Mr Higginbotham, who responded to the question, noting that the claim had been explained to Bovis in the course of a mediation between the parties.

87 Mr Hoser asked whether the proposed Deed could result in Mr Gilbert's conduct not being investigated by a liquidator. Mr Hurst replied that the conduct had already been investigated by the liquidator when he issued his report. That was obviously incorrect. Mr Wily had made it clear in his report that he had insufficient information to reach relevant conclusions. Mr Hoser referred to the lack of co-operation and lack of access to documents under which the liquidator had laboured, and claimed that there were matters, including insolvent trading, which required further investigation. Mr Franklin pointed out that if the litigation were unsuccessful, the administrator would have to consider terminating the Deed and winding the company up, and at that stage insolvent trading and the possibility of pursuing preferences could be investigated.

88 After further discussion, the meeting was adjourned to 16 January 2002 for the purpose of allowing Bovis and the ATO additional time to consider Mr Javorsky's Report. After the meeting, in response to an inquiry by Mr Javorsky as to whether the creditors required him to make any further investigation, Mr Hurst told him that the meeting had been adjourned and that he had not been asked to do anything. On 20 December 2001 Bovis commenced one of the three proceedings currently before the Court, No 6062 of 2001, against Mr Wily and Mr Javorsky.

89 On 11 January 2002 Freehills, on behalf of Bovis, wrote to Mr Javorsky, asserting that Mr Wily's decision to appoint an administrator should be reversed and that his appointment should be declared invalid, for reasons set out at length in the letter. They claimed that if a deed of company arrangement were to be executed, it would be open to challenge on several grounds, which they stated. They insisted that Bovis’ proof of debt be admitted in full for voting purposes at the adjourned meeting. They drew attention to Mr Wily's comments to the effect that Mr Nock's claim appeared excessive, and the comments of both Mr Wily and Mr Javorsky in their reports that the Interline (NSW) claim required investigation. They gave information about some potential claims of the Company, including a possible claim against Puketapu.

90 Mr Javorsky did not respond to that letter. Between 12 December 2001 and 16 January 2002 Interline (NSW) provided Mr Javorsky with no further information on its alleged debt, and no further investigation was undertaken into that debt by Mr Javorsky's staff.

91 However, Mr Franklin, having read Freehills' letter, became concerned regarding the Puketapu claim. He obtained some documents from Mr Gilbert, and having reviewed those documents, he decided that further investigation was warranted to determine whether the Company had made payments for the benefit of Puketapu, which might be recoverable in the event that the Company was wound up. Mr Gilbert told him that the Company had made payments of interest on a CBA bill facility granted to Puketapu, because the Company was the tenant of premises of which Puketapu was the landlord, and the payment was made by way of payment of rent. Mr Franklin informed Mr Higginbotham of the position by telephone on 15 January 2002. Mr Higginbotham suggested that the proposed deed be amended to include a provision that the Puketapu transaction be investigated by the deed administrator.

92 On the morning of 16 January 2002, in a conference prior to the adjourned second meeting of creditors, Mr Higginbotham told Mr Franklin that the deed would be amended to remove the proposed remuneration of $100 per hour payable to Mr Gilbert. Apparently the reason for removing that provision was to avoid any criticism to the effect that creditors would not be treated equally under the deed.

The adjourned second meeting of creditors on 16 January 2002

93 The adjourned second meeting of the Company in administration occurred on 16 January 2002. The meeting was attended by:

· Mr Hurst, who chaired it, with written authority from Mr Javorsky to represent him for that purpose;

· Mr Franklin and Ms Saheb (described as "assisting Administrator");

· Mr Higginbotham, as proxy for the same seven creditors;

· Mr Smith, a solicitor of Freehills, as proxy for Bovis, together with Mr Bartlett and Ms Fellows (from Freehills), as observers;

· Mr Dunne, as proxy for the ATO;

· Mr Willats, as proxy for NRMA;

· Ms Staff from Cutler Hughes

· Mr Gilbert.

94 Mr Hurst advised the meeting that Bovis had commenced a proceeding challenging Mr Wily's decision to appoint an administrator. He also said that Bovis had drawn attention to some investigations by Mr Wily's firm concerning transactions between the Company and Puketapu. Mr Higginbotham told the meeting that there would be two changes to the proposed Deed, namely deletion of the proposal for Mr Gilbert to receive remuneration, and inclusion of a provision authorising the deed administrator to pursue Puketapu in respect of any claim the Company may have against it, on the basis that any recovery would form part of the deed fund.

95 Mr Hurst ruled, as chairman, that Bovis be admitted for voting purposes for $1, as a result of uncertainty as to the existence of its debt and the Company's claim for approximately $7.5 million against it. He ruled that Mr Nock be admitted for voting purposes for $1, because his claim included an amount relating to a share of profits that would only eventuate if the Company's claim against Bovis were to be pursued successfully. He ruled that Interline (NSW) be admitted, for voting purposes, for $3,659,677.16, saying that he had been provided with a reconciliation of the account and on the basis of the information supplied to the administrator there was no reason to dispute the validity of the claim.

96 The meeting resolved that the Company execute the proposed Deed. The motion was proposed by Mr Higginbotham, as proxy for Coversafe Insurance Brokers, and seconded by him as proxy for PlastaMasta. Seven creditors with a value of $4,135,285.13 voted in favour of it, and three creditors with a value of $3,124,640.62 voted against it.

97 The seven creditors voting in favour were:

· Interline (NSW) $3,659, 677.16

· Mr Nock $1

· Mr Greathead $8,750

· Mr Wood $6,530

· Kamper & Co $12,980

· Coversafe Insurance Brokers $2,175

· PlastaMasta $445,172.07

98 The three creditors voting against were:

· Bovis $1

· Australian Taxation Office $3,009,000

· NRMA $115,480

99 As counsel for Bovis pointed out, there was no disclosure to the meeting of any association between Mr Franklin and Mr Gilbert prior to the commencement of the administration.

100 A resolution was passed to fix the remuneration of the administrator for the period from 29 November 2001 to 16 January 2002 at $20,000 plus GST, that amount to be paid immediately subject to the availability of funds. The meeting was not told that Mr Gilbert had agreed to pay the account in the absence of Company funds. On 16 January 2002 Mr Javorsky rendered an account to the Company for his remuneration as administrator up to 16 January 2002, in the sum of $23,448.37. That amount was paid by Mr Gilbert on about 29 January 2002.

101 On 30 January 2002 Bovis commenced the second of the proceedings now before the Court, No 1309 of 2002, against Mr Javorsky, the Company, Interline (NSW) and Mr Wily.

The deed of company arrangement

102 The DOCA, which had been prepared by Cutler Hughes, was entered into on 6 February 2002. The parties were the Company, Mr Javorsky, Mr Gilbert and Interline (NSW). The Deed contained relatively standard provisions with respect to such matters as the identification of claims by creditors, the extinguishment of claims and the discharge of debts upon distribution of entitlements under the Deed, limitation of the administrator's liability, the administrator's reporting obligations and right to remuneration, and termination of the deed upon performance. It also contains the following less usual provisions:

[ Recital C ] "The Company, Tui Gilbert, Interline (NSW) and the Administrator have agreed to enter into this Deed which is to operate for the Moratorium Period."

[ Clause 1.1, definitions ] " the Bovis Proceedings means the legal proceedings commenced by the Company against Bovis for, inter alia, breach of contract by Bovis in relation to the construction of the building known as the Aurora Place and Macquarie Apartments Project and shall include any ancillary proceedings arising out of or related to the principal proceedings."

[ Clause 1.1, definitions ] " the Puketapu Proceedings means proceedings commenced, now or at any time hereafter, by the Administrator against Puketapu Pty Ltd."

[ Clause 1.1, definitions ] " Related Party/Related Parties means those parties and/or entities as defined in Section 9 of the regulations of the Corporations Act and referred to in the Corporations Act as 'related body corporate,' 'related entity' or 'related party'."

"2.2 Purpose
The purpose of this Deed is to provide for a composition of the debts of Participating Creditors, to enable the continuation of the Bovis Proceedings until settlement or final judgment and thereby facilitating the ongoing business of the Company."

"6.1 Creation of the Administration Fund
The Administration Fund shall be created by payments made in the following manner:
(a) the Company must pay to the Deed Administrator the net proceeds of any monies received on an interim or final basis in satisfaction of:
(i) any judgment or settlement (including any portion of such judgment or settlement attributable to legal costs) received by the Company in relation to the Bovis Proceedings; and only
(ii) after the deduction from the amount referred to in (i) above and re-imbursement to Tui Gilbert and Interline (NSW) of all legal and other related costs paid by Tui Gilbert and/or Interline (NSW) in respect of the Bovis Proceedings; and
(iii) if either the Administrator or the Company has obtained litigation funding in accordance with either Clause 9.2(c)(ii) or Clause 9.2(d) respectively, after deducting all amounts owing to such funder under the terms of any agreement for funding between the Administrator and/or the Company with such funder;
(b) the Administrator agrees to pay into the Administration Fund any monies received by the Company on an interim or final basis recovered by the Administrator on behalf of the Company in relation to the Puketapu Proceedings as defined herein."

"6.2 Payments from the Administration Fund
The Administration Fund is to be distributed at the Deed Administrator's discretion and the Administrator shall distribute the Administration Fund in the following order of priority:

340 In the present case a proper legal assessment of the Bovis claim would have involved review of a substantial volume of material. I have said that Cutler Hughes and Harris had 34 lever-arch folders relating to the Bovis claim. Such a review would have taken time, and would have involved substantial cost. As I have said, Mr Javorsky's Report was completed only about two weeks after his appointment.

341 Although it was important for Mr Javorsky to put fairly before the creditors, to the extent that he was able, sufficient information about the Bovis claim to permit them to reach their decision, he was not required to commission and disclose a necessarily rushed, costly and time-consuming legal assessment of the Company's prospects of success. It would have been reasonable for him to inform the creditors of the contents of Mr Higginbotham's opinion, combined with some information about Mr Higginbotham's qualifications and experience and the extent to which his opinion was a considered opinion after a detailed review, as opposed to a "kerbside" assessment. Alternatively, Mr Javorsky might have set out his own summary of the factual circumstances and the legal propositions underlying the Company's causes of action, sufficient to indicate the nature of those causes of action. Whatever method of disclosure was adopted, it would have been essential for Mr Javorsky to draw attention to the fact that the legal assessment of the Company's prospects had been provided by Mr Gilbert's lawyer. His disclosure of these matters fell well short of what was required, as I have held.

342 If those matters of disclosure had been properly addressed, there would have been no basis for a reasonable observer to form the opinion that Mr Javorsky was biased in favour of Mr Gilbert or was lacking in independence, notwithstanding the absence of an independent legal assessment.

343 Fifthly, Bovis submitted that, as the Report had been prepared by Mr Franklin, a full-time consultant to Jones Condon who had the day-to-day-conduct of the administration, the Report should have disclosed the connection between Mr Franklin and Mr Gilbert. Under the heading "(1) The 'connection' of Mr Franklin with Mr Gilbert", I analysed the facts and law concerning Mr Franklin's relationship with Mr Gilbert, concluding that Mr Franklin gave Mr Gilbert advice and assistance going beyond general advice about the administration process, by participating in meetings in which the Deed proposal was developed and by assisting in the preparation of the RATA. There was, I found, a continuing professional relationship between Mr Franklin and Mr Gilbert over the period from June to November 2001.

344 As I have said, that connection between Mr Franklin and Mr Gilbert was highly material to the decision the creditors were being asked to make. The RATA was the principal exposition of Mr Gilbert's claim, on the Company's behalf, to damages against Bovis. Schedule C to the RATA was prepared by Mr Franklin, whose draft was adopted by Mr Gilbert after advice from Mr Higginbotham. When Mr Franklin subsequently became responsible for the day-to-day conduct of the administration, he came under a duty to investigate the claim in the RATA. But as the draftsman of the most important parts of the document, on behalf of or in the interests of Mr Gilbert, he had an interest in defending the RATA.

345 Section 445D(1)(c) directs attention to whether there was in fact an omission from the administrator's report of a material matter. The issue does not depend upon the administrator's state of knowledge, and ignorance of the material matter on the part of the administrator is no defence to an application to terminate the deed. In any event, all relevant matters concerning his connection with Mr Gilbert were, of course, well-known to Mr Franklin, who had the day-to-day carriage of the administration within Jones Condon. Consequently the Report's failure to disclose the connection between Mr Franklin and Mr Gilbert provided a ground for termination even though Mr Javorsky was not aware, according to my findings, of the full facts concerning the connection.

346 Sixthly, Bovis submitted that the Report, whilst referring to Mr Javorsky's remuneration of $20,000 and the proposal to seek approval for those fees, failed to refer to the fact that Mr Gilbert had agreed to pay Mr Javorsky $20,000 in advance for his remuneration.

347 Mr Javorsky gave evidence that he told Mr Franklin or Mr Higginbotham, before accepting appointment as administrator, that $20,000 should be paid to Jones Condon to be held in trust in respect of future fees. He said he expected that the money would be provided by Mr Gilbert or entities controlled by him. He was subsequently under the impression that the $20,000 had been paid into his firm's trust account, but he was wrong. After the creditors approved payment of his fees on 16 January 2002, Mr Gilbert paid that amount to Jones Condon.

348 Mr Gilbert gave evidence that he could not recall being approached to pay $20,000 on account of costs of the administration before Mr Javorsky's appointment, but when pressed he did not deny that some arrangement had been made. He said that he was aware that there were going to be some costs, and when it was put to him that he paid Mr Javorsky's fees after the creditors' meeting because he had given a commitment to pay them, he said he believed he was obliged to pay something because there was no money in the company.

349 It seems to me more probable than not that there was some form of agreement or looser arrangement made before Mr Javorsky accepted appointment as administrator, to the effect that Mr Gilbert would provide the funds to pay Mr Javorsky's fees, including an advance payment to be held in trust, given that there was no other ready source of funds.

350 I agree with Bovis that an arrangement for a director or creditor to pay an administrator's fees, made in advance of appointment or at least before the second meeting of creditors, is likely to be material to the creditors' decision and therefore should be disclosed to the creditors before they make their decision at the second meeting. The only circumstances where disclosure might perhaps be avoided would be where the person agreeing to pay the fees has no interest whatsoever in the propounding of the Deed proposal that the administrator is asked to support. That, I take it, will be a very rare situation.

351 Mr Javorsky gave evidence that it should be read into the Report that Mr Gilbert would be funding the entire administration, and he said he assumed that creditors would have been aware that Mr Gilbert was funding his fees. He said that, in circumstances where he was being appointed to an insolvent company with no assets and a scheme was to be propounded which would involve funding by the director, it was reasonable for him to ask the director to show good faith and his ability to put money up-front by making a payment on account of future costs. He denied that this was unusual.

352 It may be that if a creditor with experience of insolvent administration had considered the position, he or she would have concluded that Mr Gilbert had accepted responsibility for Mr Javorsky's fees. But the likelihood that such an inference might be made by commercially-aware creditors did not remove Mr Javorsky's obligation to disclose the fees arrangement to creditors in express terms.

353 In summary, my findings are that the Report was deficient in failing to disclose information about the ability of Mr Gilbert and Interline (NSW) to fund the Bovis litigation, information about the nature of and basis for the Bovis claim and its prospects of success, information concerning the connection between Mr Franklin and Mr Gilbert, and information concerning the arrangement between Mr Javorsky and Mr Gilbert concerning payment of $20,000 on account of fees. These were material omissions for the purposes of s 445D(1)(c). I would regard those findings as sufficient to justify an order terminating the DOCA.

Termination for other reason

354 Under this heading Bovis relied on three related factors: Mr Javorsky's failure to undertake sufficient investigations of the Deed proposal in comparison with liquidation; his failure to take independent advice about the claim against Bovis, or the other possible claims of the Company; and Mr Franklin's impermissible connection with Mr Gilbert. There is some overlapping between these submissions and the submissions on material omissions, but here the point is that the matters complained of are circumstances of injustice that provide reasons for termination, rather than merely obligations of disclosure.

355 In my view the first and third of these factors are made out, but the second is not. As the second factor, I have already expressed the opinion that in the circumstances, Mr Javorsky had no obligation to take independent legal advice about the claim against Bovis. I have also held that Mr Javorsky provided adequate information to creditors with respect to the recovery claims against Mr Gilbert and the related parties, and therefore by implication he had no duty to obtain independent advice on those claims.

356 As to the first factor, I agree with Bovis that Mr Javorsky and his employees obtained very little information about the nature of and basis for the damages claim against Bovis. Mr Hurst was unable to explain the basis for the damages claim at the creditors' meeting on 20 December 2001. The almost complete absence of information about the claim in Mr Javorsky's report also suggests an inadequate investigation.

357 Similarly, there was inadequate investigation of the financial position of Mr Gilbert and Interline (NSW), confirmed by the content of the Report, by Mr Hurst's recognition at the meeting of 20 December 2001 that the administrator was not aware of the financial position of Mr Gilbert; and by his failure to answer the question raised at the meeting on 20 December 2001 as to whether the administrator had investigated the financial worth of Interline (NSW).

358 I acknowledge that Mr Javorsky prepared his Report within about two weeks of his appointment. Even the so, on matters as basic as these, he should have some basic investigations, at least by requiring further information from Mr Gilbert. A basic understanding of the nature of the damages claim, and of the financial resources available to prosecute it, were absolutely essential to informed decision-making.

359 I agree with Bovis that this lack of investigation was compounded by Mr Javorsky placing Mr Franklin in charge of the day-to-day conduct of the administration, and of the preparation of the Report, when Mr Franklin had been closely aligned for six months with Mr Gilbert, and also with Mr Gilbert's lawyers. I have discussed this matter at length. I also agree that the absence of independence and impartiality was exacerbated by the fact that Mr Gilbert had arranged to pay $20,000 to Mr Javorsky in advance for costs of the administration.

360 Considered together, these matters warrant the conclusion that the DOCA should be terminated for "some other reason" under s 445D(1)(g). I do not regard it as material to this decision that Interline (NSW) acquired other debts by paying out the creditors, because the evidence does not show it did so for the purpose of strengthening its position in the context of the Deed proposal.

Removal of Administrator

361 Section 449B permits the Court, on the application of a creditor, to remove a deed administrator from office and appoint someone else as administrator of the deed. Having regard to the matters I have considered in respect of s 600A, Bovis is a creditor for this purpose. Therefore the Court has the power to remove and replace Mr Javorsky under s 449B. Obviously the power is available only if Mr Javorsky is still the deed administrator when the order for removal is made. An order for removal of Mr Javorsky as administrator would be pointless after the Court has terminated the DOCA under s 445D.

362 I have set out the principles governing an application for removal of a deed administrator earlier in these reasons (under the heading "(1) The 'connection' of Mr Franklin with Mr Gilbert"). I have also set out under that heading my conclusions as to the connection between Mr Franklin and Mr Gilbert. During the course of the administration Mr Franklin was a consultant to Jones Condon and therefore to Mr Javorsky as administrator. He remained in that position at the time of the hearing.

363 If a person in Mr Franklin's position is found to have "crossed the line" and acted on behalf of or in the interests of the director prior to the commencement of the administration, and that person works for the administrator during the administration of the company, a perception arises from the viewpoint of a reasonable bystander that the administrator lacks independence and impartiality. If, as in the present case, the administrator is unaware of the degree of connection between the consultant and the director, it may be that the administrator has not personally lost his or her independence and impartiality. But lack of knowledge of the activities of the consultant is no answer to the claim that there is a reasonable perception of lack of independence and impartiality on the part of the administrator. That, in effect, is the approach that I took in Cadwallader v Bajco Pty Ltd (2001) 189 ALR 370, where the person lacking in independence was an employee of the administrator. Nothing in the Court of Appeal's judgment ([2002] NSWCA 328) is inconsistent with that approach.

364 In my opinion the perception of lack of independence and impartiality created by Mr Franklin's role in the administration and his previous assistance to Mr Gilbert provides an adequate basis for terminating Mr Javorsky's office as deed administrator. There is a suggestion in some cases (for example, in the Dallinger case, 60 FCR at 599-600) that there may be a difference between the test for removal applied by Hayne J in the Network Exchange case (13 ACSR at 550), that the question is whether it has been "demonstrated that such an order would be for the better conduct of the administration", and the approach of Santow J in the Advance Housing case (14 ACSR at 234) that the question is whether there is a "reasonable apprehension by any creditor of lack of impartiality". In my respectful opinion there is no inconsistency between these two formulations. The formulation adopted by Santow J is an application, in a case where the problem is lack of independence and impartiality, of a more general formulation adopted by Hayne J (see the City & Suburban case, 28 ACSR at 336; and the Citrix Systems case, 28 ACSR at 536).

365 In the present case, it makes no difference whether there are two alternative tests, or single test and a sub-test. This is a case where in the perception of lack of independence and impartiality went to the heart of the issues that were to be addressed by Mr Javorsky as administrator, for (as I have said) it related to the ability of Mr Javorsky, advised by Mr Franklin, to form a proper assessment of the Company's claim against Bovis for the purpose of making a recommendation to creditors on the Deed proposal. This is therefore a case where the requisite lack of independence and impartiality was present to satisfy Santow J's observations, and it has been demonstrated (in terms of Hayne J's formulation) that the order to remove Mr Javorsky would be for the better conduct of the administration of the affairs of the Company, which is about to move into liquidation once the DOCA is terminated.

366 Although Mr Franklin's connection with Mr Gilbert provides the primary basis for Mr Javorsky's removal, I have made some findings adverse to Mr Javorsky that should also be taken into account. I have held that there were material omissions from Mr Javorsky's Report, in particular that there was insufficient information about the Company's claim against Bovis and the ability of Mr Gilbert and Interline (NSW) to fund the litigation. These were matters upon which Mr Javorsky could have provided more information even in the limited time available to an administrator. Additionally, I have found that there was an arrangement between Mr Javorsky and Mr Gilbert for the payment of fees, which should have been disclosed to creditors but was not.

367 Taking all of these matters into account, I have decided that it is appropriate to make an order under s 449B to remove Mr Javorsky as deed administrator.

368 It will be necessary for me to appoint someone else in his place. Mr Wily has the requisite quality of independence, but I have decided (without meaning to convey any criticism of him) that would be wise to appoint someone totally unconnected with any of the parties. Mr Wily's conduct as liquidator of the Company was extensively criticised by Bovis, and the evidence indicates that Mr Gilbert was uncomfortable with him and insisted on someone else as administrator. I shall therefore direct the parties to negotiate, over a short period of time, to select a qualified liquidator to act as the administrator (for a few instants of time) and then as the liquidator of the Company. If they cannot agree, then I shall select an official liquidator at random, to be approached for his or her consent to act.

Remuneration of Administrator

369 Mr Javorsky's remuneration was fixed at $20,000 plus GST by resolution of the Company's creditors passed on 16 January 2002. Section 449E(2) authorises the Court, on the application of a creditor such as Bovis, to review remuneration so fixed, and confirm, increase or reduce it.

370 Bovis submitted that the approach that the Court should take to the review of Mr Javorsky's remuneration is similar to that taken on applications to make administrators pay costs of proceedings personally, without any right of indemnity against the assets of the company. Counsel for Bovis referred to my decision in Cresvale Far East Ltd v Cresvale Securities Ltd (No 2) (2001) 29 ACLC 622. I should note that the principles I stated in that case must now be read subject to the observations of the Court of Appeal: sub nomKirwan v Cresvale Far East Ltd (2003) 21 ACLC 371, esp at paragraphs [413] to [439] per Young CJ in Eq.

371 I have reached the conclusion that there is no ground for reducing Mr Javorsky's remuneration as approved by creditors. I am not sure that it is appropriate for the Court to apply, except by general analogy, the complex principles regarding liquidators' and administrators' liability to pay costs, when it exercises the statutory discretion to review the administrator's remuneration as fixed by creditors. My decision is one that I would reach whether upon the application by analogy of the costs principles or in the exercise of a more general discretion.

372 I accept the submissions of Bovis that it is relevant to take into account Mr Franklin's connection with Mr Gilbert. Also relevant is my finding that the decision to admit the Bovis claim at $1 for voting purposes was tainted by this perceived lack of independence and impartiality. I have found that Mr Javorsky's Report was deficient because there were material omissions from it, reflecting the absence of adequate investigations into the Bovis claim and the funding capacity of Mr Gilbert and Interline (NSW). More significantly for present purposes, the Report failed to disclose Mr Javorsky's arrangement with Mr Gilbert for the payment of his fees. And I have found that the DOCA, though recommended by Mr Javorsky, was contrary to the interests of the creditors.

373 On the other hand, it is plain from the evidence that Mr Javorsky and his staff have done a substantial amount of work and it has not been suggested in submissions that $20,000 was an excessive amount for the work required to be done in this administration. I have found that Mr Javorsky was not aware of the full extent of Mr Franklin's involvement with Mr Gilbert. Mr Javorsky's mistakes do not reflect on his honesty or even, in my view, on his overall conscientiousness. In my opinion Bovis' submission that Mr Javorsky should be denied his remuneration should be rejected.

Termination of Liquidation

374 Mr Gilbert's interlocutory application in proceeding No 1088 of 2001 seeks declaratory orders under s 447A to the effect that the winding up by the Court was terminated when Mr Javorsky was appointed administrator, or when the creditors resolved to enter into the DOCA, or when the DOCA was executed. In the alternative, Mr Gilbert seeks an order for the termination or indefinite stay of the winding up by the Court under s 482.

375 In my opinion liquidation by order of the Court is not automatically stayed or terminated by the appointment of an administrator under s 436B. I so held in Mercy & Sons Pty Ltd v Wanari Pty Ltd (2000) 35 ACSR 70. It is unnecessary to repeat my reasoning. The submissions in the present case have not shed new light on the issue.

376 I received submissions as to whether s 447A would permit the making of the declarations that Mr Gilbert seeks. On the view I take in the present matter, it is unnecessary for me to decide that point, which was also left undecided in Mercy v Wanari.

377 I also received submissions from the parties as to the grounds upon which I might or might not make an order terminating the winding up under s 482, but I think they were all premised on the assumption that I had not already decided to make orders having the effect of putting the company back in liquidation. I think those submissions have no relevance now, and the only issue is how best to achieve an effective winding up of the Company.

378 Section 482 gives the Court a broad discretion to terminate or stay a winding up by the Court. In the present case, the conclusions I have reached will mean that the company will pass into liquidation upon the making of my orders. It is arguable (extrapolating from the reasoning in Mercy v Wanari at paras [22] to [28]) that, once an order is made terminating the DOCA, the Company will revert to Court-ordered winding up, notwithstanding reg 5.3A.07, on the ground that a double winding-up cannot have been intended by the drafters of the regulation. If, contrary to that argument, the company will be in winding up by the Court and also in a creditors' voluntary winding up upon the termination of the DOCA, such an unsatisfactory situation should not be allowed to continue.

379 As far as I can see, the relation-back day would be the day upon which the application was filed that led to the Court ordering that the Company be wound up, whether the liquidation continues as a winding up by the Court, or becomes a creditors' voluntary winding up, or is both of these (see s 513A(e), 513B(a) and (b), 513C(a) and the definition of "relation-back day" in s 9).

380 In the circumstances, I am inclined to make an order terminating the new creditors' voluntary winding up (if any) that may arise upon the termination of the DOCA (as I can, under ss 482 and 446A(6) and (7)), by order operating immediately after my other orders, so that as a result, it will be clear that the company will be left in winding up by the Court. I shall invite Mr Wily to resign as Court-appointed liquidator, and appoint in his place the new liquidator under s 473(1). Given that some difficult issues will have to be addressed by the new liquidator with respect to the Bovis claim and recovery claims, it seems to me generally the preferred outcome that the winding up should proceed as a winding up by the Court, rather than as a creditors' voluntary winding up: see Mercy v Wanari at para [39].

381 This is somewhat untidy. It would be simpler to make orders terminating the DOCA without first removing Mr Javorsky as administrator, and then immediately terminating any resulting creditors' voluntary winding up, and then replacing Mr Wily with the new liquidator. I think it is important, however, that an order be made for the removal of Mr Javorsky as administrator on the grounds that I have set out, rather than dissolving his office by terminating the DOCA and then terminating any ensuing creditors' voluntary winding up.

382 There may be some other practical considerations that I have overlooked. I shall therefore invite the parties to make submissions as to whether, given the conclusions I have reached, the best way to give effect to my intentions is to make orders, in sequence, removing Mr Javorsky as administrator, appointing a new person administrator, terminating any creditors' winding up that arises from termination of the DOCA, and replacing Mr Wily with that new person as liquidator in the winding up by the Court.

Conclusions

383 These reasons for judgment lead to the following conclusions:

384 Since I am not sure whether orders (b)(ii), (iv) and (v) are the best method of achieving my objectives, I shall invite the parties to make submissions on that point. I shall also invite submissions with respect to costs. I shall appoint a time for the hearing of those submissions.

385 I should mention, finally, that my decision does not depend on making the findings as to motivation urged upon me by Bovis and Mr Javorsky respectively. Bovis submitted that Mr Gilbert proposed the DOCA for the purpose of regaining control the company in circumstances where further investigation of recovery claims would cease. On balance, I have decided that the evidence does not establish that Mr Gilbert actually had that motive. His own evidence is that he wished to avoid the stigma of being associated with a failed company, and I have decided to accept that evidence. Mr Javorsky submitted that Bovis was motivated in pursuing these proceedings by the desire to protect itself from litigation rather than by the interests of creditors generally. My acceptance of Mr Bartlett's evidence implies that I reject this contention. Even if Bovis had acted for self-interested reasons, that fact alone would not have excluded relief.

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Last Modified: 06/18/2003

Citations

Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467

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CITATION:	Bovis Lend Lease v Wily [2003] NSWSC 467
HEARING DATE(S):	10, 11, 12, 13 September, 15 October, 21 & 28 November 2002, 10 June 2003
JUDGMENT DATE:	17 June 2003
JURISDICTION:	Equity
JUDGMENT OF:	Austin J
DECISION:	Administrator's failure to chair meeting cured under s 1322; creditors' resolution set aside; deed of company arrangement terminated; liquidator replaced.
CATCHWORDS:	CORPORATIONS - WINDING UP - appeal against liquidator's decision to appoint voluntary administrator - relevant considerations - VOLUNTARY ADMINISTRATION - whether administrator required to attend personally to chair creditors' decision procured by related party vote should be set aside - whether administrator's decisions as to admission of proofs of debt for voting purposes were correct - whether deed of company arrangement should be terminated for material omissions in administrator's report or on other grounds - whether administrator should be removed - whether Court should review administrator's remuneration - whether Court-ordered winding up terminated by appointment of administrator
LEGISLATION CITED:	Corporations Act 2001 (Cth) ss 436B, 439A, 439B, 445D, 447A, 447C, 449B, 449E, 474, 479, 482, 530A, 530B, 530C, 600A, 1321, 1322
CASES CITED:	Advance Housing Pty Ltd v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 Allatech Pty Ltd v Construction Management Group Pty Ltd (2002) 41 ACSR 587 Aloridge Pty Ltd v Christianos (1994) 13 ACSR 99 Ampolex Ltd v Perpetual Trustee Company (Canberra) Ltd (1996) 14 ACLC 977 Bamco Villa Pty Ltd v Montedeen Pty Ltd [2002] VSC 184 Barton v Armstrong [1973] 2 NSWLR 598; [1976] AC 104 Bell Resources Ltd v Turnbridge Pty Ltd (1988) 13 ACLR 429 Byng v London Life Association Ltd [1989] BCLC 400 Cadwallader v Bajco Pty Ltd (2001) 189 ALR 370; [2002] NSWCA 328 Citrix Systems Inc v Telesystems Learning Pty Ltd (1998) 28 ACSR 529 City & Suburban Pty Ltd v Smith (1998) 28 ACSR 328 Commonwealth of Australian v Irving (1996) 19 ACSR 459 Cvitanovic v Kenna & Brown Pty Ltd (1995) 13 ACLC 1654 Dallinger v Halcha Holdings Pty Ltd (1995) 60 FCR 594 Deputy Commissioner of Taxation v Pddam Pty Ltd (1996) 19 ACSR 498 Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 156 FLR 453 Deputy Commissioner of Taxation v Portinex Pty Ltd (No 2) (2000) 34 ACSR 422 Deputy Federal Commissioner of Taxation v Foodcorp Pty Ltd (1994) 13 ACSR 796 Domino Hire Pty Ltd v Pioneer Park Pty Ltd [2003] NSWSC 496 Elfic Pty Ltd v Macks (2001) 181 ALR 1 Ernest v Loma Gold Mines Ltd [1897] 1 Ch 1 Flower & Hart v White Industries (Qld) Pty Ltd (1999) 87 FCR 134 Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301 Kalon Pty Ltd v Sydney Land Corporation Pty Ltd (1998) 26 ACSR 593 Khoury v Zambena Pty Ltd [1999] NSWCA 402 Kirwan v Cresvale Far East Ltd (2002) 21 ACLC 371 McPherson v Mansell (1994) 16 ACSR 261 Mercy & Sons Pty Ltd v Wanari Pty Ltd (2000) 35 ACSR 70 Molit (No 55) Pty Ltd v Lamb Soon Australia Pty Ltd (1996) 19 ACSR 160 Murray v Donnelly [2000] NSWSC 634 National Australia Bank Ltd v Market Holdings Pty Ltd (2000) 50 NSWLR 465 National Australia Bank Ltd v Market Holdings Pty Ltd (2001) 19 ACLC 710 National Australia Bank Ltd v Wily [2002] NSWSC 573 National Dwellings Society v Sykes [1894] 3 Ch 159 National Roads and Motorists' Association Ltd v Geeson (2001) 39 ACSR 401 Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 13 ACSR 544 NZI Capital Corporation v Lancaster (unreported, Federal Court, 3 September 1991), Permanent Trustee Australia Ltd v Boulton & Lynjoe Pty Ltd (1994) 33 NSWLR 735 Petrochemical Industries Ltd v Dempster Nominees Pty Ltd (1994) 15 ACSR 468 Re Adam Eyton Ltd; ex parte Charlesworth (1887) 36 Ch D 299 Re Adams International Food Traders Pty Ltd (1988) 13 NSWLR 282 Re Allebart Pty Ltd [1971] 1 NSWLR 24 Re Biposo Pty Ltd (1995) 17 ACSR 730 Re Central Spring Works Australia Pty Ltd (2000) 34 ACSR 164 Re Chevron Furnishers Pty Ltd [1995] 1Qd R 125 Re Club Superstores Australia Pty Ltd (in liq) (1993) 11 ACLC 751 Re Contract Corporation; Gooch's Case (1872) LR 7 Ch App 207 Re Data Homes Pty Ltd [1972] 2 NSWLR 22 Re Denistone Real Estate Pty Ltd [1972] 3 NSWR 327 Re Depsun Pty Ltd (1994) 13 ACSR 644 Re Dunquil Pty Ltd (1985) 9 ACLR 950 Re G K Pty Ltd; ex parte Deputy Commissioner of Taxation (1983) 7 ACLR 633 Re Giant Resources Ltd [1991] 1 Qd R 107 Re Intercontinental Properties Pty Ltd (1977) 2 ACLR 488 Re Lubin, Rosen & Associates Ltd [1975] 1 WLR 122 Re National Safety Council of Australia [1990] VR 29 Re Norfolk Island & Byron Bay Whaling Co (1969) 10 WN(NSW) 351 Re Oriel Homes Pty Ltd (1997) 15 ACLC 564 Re Queensland Stations Pty Ltd (1991) 9 ACLC 1341 Re Southern Resources Ltd (1989) 15 ACLR 770 Re St George Builders Hardware Pty Ltd (1995) 18 ACSR 451 Re Timberland Ltd (1979) 4 ACLR 259 Re Vector Capital Ltd (1997) 137 FLR 201 Re Zambena Pty Ltd (1995) 13 ACLC 1020 Rodgers v Radly (2000) 37 ACSR 158 Sipad Holdings ddpo v Popovic (1995) 61 FCR 205 Smith v Paringa Mines Ltd [1906] 2 Ch 193 Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 Velkovski v Ryan (1996) 19 ACSR 514 Vincent, White & Associates Pty Ltd v Vouris (1998) 28 ACSR 93 Williams v Spautz (1992) 174 CLR 509 Wily v Parker (1996) 14 ACLC 1432 Young v Sherman (2002) 20 ACLC 149; (2002) 20 ACLC 1559
PARTIES :	6062/01 Bovis Lend Lease Pty Ltd (P) Andrew Wily (D1) Thomas Javorsky (D2) 1309/02 Bovis Lend Lease Pty Ltd (P, XD) Thomas Javorsky (D1, XC1) Interline Interior Linings Pty Ltd (in liquidation) (administrator appointed) (D2) Interline Interior Linings (NSW) Pty Ltd (D3) Andrew Wily (D4) Tui Turipa Ullrich Gilbert (D5) David Anthony Hurst (D6, XC2) 1088/01 HIH Workers Compensation Pty Ltd (P) Interline Interior Linings Pty Ltd (in liquidation) (administrator appointed) (D/R) Tui Gilbert (A1) Tui Gilbert Holdings Pty Ltd (A2)
FILE NUMBER(S):	SC 1309/02, 6062,01, 1088/01
COUNSEL:	P M Wood (P) 6062/01, (P, XD) 1309/02 D J Durston (D1) 6062/01, (D2, D4) 1309/02, (R) 1088/01 T D Castle (D2) 6062/01, (D1, XC1) 1309/02, (D6, XC2) 1309/02 J T Johnson (D3, D5) 1309/02, (A1, A2) 1088/01
SOLICITORS:	Freehills (P) 6062/01, (P, XD) 1309/02 P W Turk & Associates (D1) 6062/01, (D2, D4) 1309/02, (R) 1088/01 Blake Dawson Waldron (D2) 6062/01, (D1, XC1) 1309/02, (D6, XC2) 1309/02 Cutler Hughes & Harris (D3, D5) 1309/02, (A1, A2) 1088/01

Paragraphs
Introductory outline	1-10
The Company's financial difficulties	11-13
The liquidation of the Company	14-16
The development of plans to move the Company from liquidation to voluntary administration	17-24
Mr Wily's attempts to obtain books and records of the Company and Mr Gilbert's RATA	25-31
The RATA	32-38
Refinement of the proposal for a deed of company arrangement	39-42
The proposal for a creditors’ meeting	43-52
Mr Wily's report to creditors	53-54
The creditors’ meeting of 27 November 2001	55-57
Mr Wily's appointment of Mr Javorsky as administrator	58-61
The voluntary administration of the Company	62-63
The Deed Proposal and Mr Javorsky's Report to the Creditors	64-76
The second meeting of creditors of the Company in administration	77-92
The adjourned second meeting of creditors on 16 January 2002	93-101
The deed of company arrangement	102-105
Challenges to the credibility of witnesses	106-120
Principal issues in contention	121-122
(1) The "connection" of Mr Franklin with Mr Gilbert	123-172
(2) The alleged benefits of the Deed proposal to creditors as a whole	173-187
(3) The alleged prejudice or disadvantage to creditors as a whole from implementation of the Deed proposal	188-198
The issues	199
The Challenge to the Appointment of Mr Javorsky as Administrator	200-235
The Validity of the Resolution of Creditors	236
Non-attendance by Administrator	237-262
Admission of Proofs of Debt	263-298
Related creditors	299-313
Conclusion as to Validity of Resolution of Creditors	314
Termination of the Deed of Company Arrangement	315-360
Removal of Administrator	361-368
Remuneration of Administrator	369-373
Termination of Liquidation	374-382
Conclusions	383-385