Cadwallader v Bajco Pty Ltd

Cadwallader v Bajco Pty Ltd concerned a dispute brought by Mr Cadwallader, a director and shareholder of Bajco Pty Ltd, against the company and its other directors. Mr Cadwallader alleged that the directors had breached their duties by improperly placing the company into voluntary administration and by passing resolutions to increase their remuneration shortly before this occurred. The case was heard in the Court of Appeal of the Supreme Court of New South Wales.

The central legal issues before the Court of Appeal were whether the directors' resolution to place Bajco Pty Ltd into administration was invalid due to an improper purpose, and whether the directors' subsequent resolutions to pay themselves increased fees were also improper and thus voidable. The court also considered whether the administrators were aware of any alleged improper purpose by the directors and the implications of such knowledge for accessorial liability. Further questions arose regarding the validity of notices for meetings and the appropriateness of remedies, including the setting aside of resolutions and the potential application of section 447A of the Corporations Act 2001 (Cth) to deem the company to have entered voluntary administration.

The Court of Appeal applied established principles of directors' duties, including the duty to act in good faith in the best interests of the company and for a proper purpose. The court considered the evidence to determine the true purpose behind the directors' decision to enter administration, drawing inferences where appropriate, including the application of the rule in *Jones v Dunkel*. The court also examined the requirements for valid notice of meetings and the equitable doctrines of waiver and unclean hands as potential defences. The court's reasoning focused on whether the directors' actions were motivated by a desire to benefit themselves at the expense of the company or its creditors, and whether the administrators' conduct was affected by any knowledge of such improper purpose.

The Court of Appeal ultimately made orders concerning the validity of the resolutions and the administration of the company, the specifics of which are detailed in paragraph 274 of the judgment.