Carrello v Health Resorts of Australasia Pty Ltd
[2008] WASC 50
•13 MARCH 2008
CARRELLO -v- HEALTH RESORTS OF AUSTRALASIA PTY LTD [2008] WASC 50
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2008] WASC 50 | |
| 10/04/2008 | |||
| Case No: | COR:17/2008 | 10 & 12 MARCH 2008 | |
| Coram: | MASTER SANDERSON | 12/03/08 | |
| 17 | Judgment Part: | 1 of 1 | |
| Result: | Administrator's appointment confirmed | ||
| A | |||
| PDF Version |
| Parties: | GIOVANNI MAURIZIO CARRELLO as administrator of HEALTH RESORTS OF AUSTRALASIA PTY LTD (Administrators Appointed) (Receivers and Managers Appointed) (ACN 090 389 647) HEALTH RESORTS OF AUSTRALASIA PTY LTD (Administrators Appointed) (Receivers and Managers Appointed) (ACN 090 389 647) LAURENCE ROBERT SHORTLAND MYRA PTY LTD |
Catchwords: | Corporations law Retrospective validation of appointment of administrator to company in circumstances where purported board appointment questionable Principles to be applied |
Legislation: | Corporations Act 2001 (Cth), s 436A(1), s 447A |
Case References: | Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 156 FLR 453 Re Pasdonnay Pty Ltd (Administrators Appointed) [2005] FCA 335 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
HEALTH RESORTS OF AUSTRALASIA PTY LTD (Administrators Appointed) (Receivers and Managers Appointed) (ACN 090 389 647)
First Defendant
LAURENCE ROBERT SHORTLAND
Second Defendant
MYRA PTY LTD
Third Defendant
- <Party Name1="GIOVANNI MAURIZIO CARRELLO as administrator of HEALTH RESORTS OF AUSTRALASIA PTY LTD (Administrators Appointed) (Receivers and Managers Appointed) (ACN 090 389 647)", Type1="Plaintiff", Name2="HEALTH RESORTS OF AUSTRALASIA PTY LTD (Administrators Appointed) (Receivers and Managers Appointed) (ACN 090 389 647)", Type2="First Defendant", Name3="LAURENCE ROBERT SHORTLAND", Type3="Second Defendant", Name4="MYRA PTY LTD", Type4="Third Defendant",>
Catchwords:
Corporations law - Retrospective validation of appointment of administrator to company in circumstances where purported board appointment questionable - Principles to be applied
Legislation:
Corporations Act 2001 (Cth), s 436A(1), s 447A
Result:
Administrator's appointment confirmed
Category: A
Representation:
Counsel:
Plaintiff : Mr K L Christensen
First Defendant : No appearance
Second Defendant : Mr B H Taylor
Third Defendant : Mr M J Hawkins (10/03); Mr M F Holler (12/03)
Solicitors:
Plaintiff : Christensen Vaughan
First Defendant : No appearance
Second Defendant : Talbot Olivier
Third Defendant : Galic & Co
Case(s) referred to in judgment(s):
Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270
Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 156 FLR 453
Re Pasdonnay Pty Ltd (Administrators Appointed) [2005] FCA 335
(Page 3)
1 MASTER SANDERSON: By originating process filed 26 February 2008, the plaintiff applied, inter alia, for the following orders:
1. A declaration the Plaintiff was validly appointed as administrator of the Defendant on 7 February 2008;
2. In the alternative to 1 above, an order Pursuant to s 447A of the Corporations Actthat s 4368A(1) [sic] of the Corporations Act operates so the appointment of the Plaintiff as administrator dated 7 February 2008 is valid.
2 At the first return date on 4 March 2008, the present-named second and third defendants were added as parties to the proceedings. The matter then came on for hearing on 10 March and, after limited argument, was adjourned to 12 March for further submissions. On 13 March, I made orders in terms of par 2 of the originating process (as amended). I indicated to the parties I would publish reasons for that decision. These are those reasons.
3 The application was supported by an affidavit of the plaintiff sworn 25 February 2008. Annexed to that affidavit was an ASIC search of Health Resorts of Australasia Pty Ltd (Health Resorts) undertaken on 18 February 2008 (annexure JC1). It showed as the directors of Health Resorts Terrence Allden Walsh (Terrence Walsh) and Donna Emelia Walsh (Donna Walsh). Terrence and Donna Walsh control the third defendant. The second defendant is shown as being a previous director of Health Resorts. According to the record, he had ceased to be a director on 5 February 2008. The record also shows that Terrence and Donna Walsh were appointed directors on that date. Terrence Walsh is also shown as having been appointed a director on 12 February 2007 and having ceased to be a director on that same date. The secretary of Health Resorts is shown as Donna Walsh. She was appointed (according to the search) on 5 February 2008. The previous secretary was the second defendant. He was appointed on 2 November 1999 and, according to the record, ceased to be the secretary on 5 February 2008.
4 Appearing as annexure JC2 to the plaintiff's affidavit is a series of documents described as 'Copies of documents obtained from the search of Health Resorts of Australasia Pty Ltd'. These were the documents that were lodged with ASIC which led to the change in the register. For instance, at pages 15 and 16 of the affidavit is a document entitled 'Change to company details'. It shows that the second defendant ceased to be the secretary of Health Resorts on 5 February 2008. The document is purported to be signed by Donna Walsh in her capacity as a director. The
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- document shows on its face that it was lodged by Master Settlements, a firm that is an ASIC registered agent.
5 I was advised by counsel from the bar table (and it was common ground) that ASIC now allows documents to be lodged electronically which have the effect of changing a company's records. So a document such as the one to which I have been referring is prepared by an ASIC agent - in this case Master Settlements - and is lodged electronically. Although it is said to be signed by Donna Walsh, the document lodged with ASIC being in electronic form is not so signed. Once the document is lodged, the records of the company are amended accordingly. This is done without any action on the part of ASIC. Presumably someone - perhaps the ASIC registered agent - is required to hold the original signed copies of the change to company details. But those original signed copies are not available from a search of the ASIC register.
6 This is a matter of some significance in the context of this application.
7 This is a case where there are three lines of intersecting narrative, each of which must be detailed to understand the nature of the issues between the parties. It is convenient to begin with the plaintiff. What he has to say is largely uncontroversial and sets out the relevant background to his appointment.
8 The plaintiff says that just prior to 4 December 2007, he was contacted by one Syd Chesson (Chesson) who said that he had clients Terrence and Donna Walsh who wished to see him regarding the financial affairs of a company he subsequently learnt was the first defendant. On 4 December, the plaintiff, in company with an associate, Mr Chris Daws (Daws), met with Terrence and Donna Walsh and Chesson. The financial affairs of the first defendant were discussed. The plaintiff was advised that the first defendant was building a seven storey building in Halls Head. The top floor would consist of penthouses and the other six floors would be motel type accommodation which would be run by a third a party. Terrence Walsh was a builder and was undertaking the construction work on the project. The plaintiff was advised that the principal funding for the undertaking was from St George Bank. Terrence and Donna Walsh had guaranteed the borrowings from St George Bank and had given a mortgage over property they owned to the bank. At this meeting, the plaintiff was advised that the other director of the first defendant was the second defendant. He was also advised that Terrence
(Page 5)
- Walsh and the second defendant had fallen out and could not work together anymore.
9 At that meeting, Chesson provided the plaintiff with a company search of the first defendant. A copy of that search extracted on 12 February 2007 is annexure JC3 to the plaintiff's affidavit. That search showed there were two directors of the company - the second defendant and Terrence Walsh. According to the search, Terrence Walsh was appointed a director on 12 February 2007. It did not show that Terrence Walsh had ceased to be a director on that same day as is indicated in the search conducted on 18 February 2008 to which I have referred above. The secretary of the company was shown as the second defendant. The shareholders were shown as the second and third defendants - each of these parties holding one share.
10 Either at the time of the meeting with Chesson and Terrence and Donna Walsh or shortly after, the plaintiff telephoned the second defendant. The second defendant said he would call back. At a subsequent telephone call, the second defendant advised the plaintiff that he had provided a Ms Suzanne Siranovic with his power of attorney. The plaintiff then spoke to Ms Siranovic. He discussed various issues with her and he told her that he did not think she could act as a director under a power of attorney from the second defendant.
11 On 10 December 2007, the plaintiff, with Terrence Walsh and Chesson, met with St George Bank to discuss the financial affairs of the first defendant. On 11 December, the plaintiff wrote to the first defendant advising, inter alia, that they should appoint an administrator. In this letter the plaintiff canvasses a number of issues including the need to obtain further funds, the dispute between Terrence Walsh and the second defendant and the first defendant's lack of liquidity. In my view, that letter indicates the plaintiff was across all of the issues confronting the first defendant and his advice was sound based upon the information he had available to him.
12 The plaintiff then heard nothing until 5 February 2008. On that day, he was contacted by Chesson who advised him that he had learned that St George Bank were going to appoint receivers and managers to the first defendant. Chesson said that the directors of the first defendant wished to appoint the plaintiff as administrator. During that discussion Chesson told the plaintiff that the second defendant was no longer a director of the first defendant and that Terrence and Donna Walsh were now directors of the company. Chesson also advised that there had been a transfer of the
(Page 6)
- second defendant's share to Terrence and Donna Walsh. During the course of the conversation, the plaintiff indicated that he was prepared to act as administrator of the first defendant.
13 A day or so later Daws advised the plaintiff that he had received from the first defendant a letter appointing him (the plaintiff) as administrator of the first defendant. A copy of that letter, together with a copy of the minutes of the meeting of directors of the first defendant, appears as annexure JC5 to the plaintiff's affidavit. The minutes indicate that a meeting of directors took place on 5 February 2008 at 3.30 pm at 33 Ragamuffin Point, Halls Head, WA. That is the residential address of Terrence and Donna Walsh. The minutes note that there was a discussion between the directors with respect to the solvency of the first defendant. It was then resolved unanimously:
That the company is insolvent or likely to become insolvent at some future time, and an administrator of the company should be appointed.
14 The minutes then go on to detail a resolution that appointed the plaintiff as administrator of the first defendant. The minutes are signed by Terrence Walsh as chairman.
15 On 7 February 2008, the plaintiff accepted the appointment as administrator. Some time later Daws advised the plaintiff that he had received a document which purported to be the minutes of a meeting of members of the first defendant which appointed Terrence and Donna Walsh as directors. Daws expressed concern to the plaintiff as to whether there had been a valid appointment of Terrence and Donna Walsh as directors.
16 A copy of the purported minutes of meeting of shareholders of the first defendant appears as annexure JC7 to the plaintiff's affidavit. It shows that a meeting of shareholders of the first defendant was said to have taken place at 2.30 pm on 5 February 2008 at 33 Ragamuffin Point, Halls Head. (The typed version of the minutes show the date of that meeting as 3 February 2008. That has been amended to read 5 February 2008. The amendment is initialled, presumably by Terrence Walsh.)
17 Those present at the meeting were said to be the third defendant represented by Terrence Walsh. Donna Walsh was present by invitation. Terrence Walsh acted as chairman for the purposes of the meeting. Under the heading 'Share Capital', there appears the following:
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- It was noted that correspondence from Clement & Co lawyers for Mr Shortland contains a claim that there is only one share issued in Health Resorts of Australasia Pty Ltd.
It is further noted that Mr Shortland had caused a form 484 to be registered at ASIC notifying that the share capital of the company consisted of one share.
18 The minutes then continue under the heading 'Transfer of Share' as follows:
Myra Pty Ltd tabled a copy of a Share Transfer form signed by Mr Shortland dated 16 May 2006 transferring one share from Mr Shortland to Myra Pty Ltd.
19 Terrence and Donna Walsh then resolved (presumably in their capacity as the representatives of Myra Pty Ltd) that the company would register the transfer of one share in the company from Mr Shortland to Myra Pty Ltd 'as at 16 May 2006'. Terrence and Donna Walsh then went on to appoint themselves as directors of the first defendant with Donna Walsh appointed as secretary of the company. They then purported to remove the second defendant as a director of the company. Having resolved to change the registered office of the company, they then dealt with the ASIC agent. They purported to remove one Stephen Vining as the ASIC agent and replace him with Master Settlements. All of that took 30 minutes and the meeting closed at 3.00 pm. These minutes are signed by Terrence Walsh (in his capacity as 'chairman') and are dated 5 February 2008.
20 It is hardly surprising that when Daws saw these minutes he had his doubts about who was properly in control of the company and whether or not Terrence and Donna Walsh had the capacity to appoint the plaintiff as an administrator. Numerous questions are raised by Terrence and Donna Walsh's actions, but for the moment these can be left to one side while the narrative is completed.
21 On 6 February 2008, St George Bank Ltd appointed receivers and managers to the assets of the first defendant. On 13 February 2008, Daws, together with Chesson and Terrence and Donna Walsh, had a meeting with the receivers. The receivers indicated that they were prepared to deal with any party who was prepared to discharge the liability to St George Bank. Nothing surprising there. Beyond that general advice, nothing has to date been resolved between any party and the receivers.
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22 Subsequent to this meeting, Chesson provided to the plaintiff what he (Chesson) said were the accounts of the first defendant. The plaintiff says in his affidavit that he is uncertain whether the accounts are accurate. However, he does say that it is his preliminary view, from an examination of the first defendant's affairs, that there is nothing which is not picked up in these accounts.
23 The accounts forwarded by Chesson appear as annexure JC12 to the plaintiff's affidavit. The balance sheet shows that the first defendant has net assets of $85,099.62. However, this puts the value of the fixed assets - that is, the partially constructed building at Halls Head - at $2,624,521.19. The mortgages to St George Bank Ltd are shown as being a liability in an amount of $2,427,000. The balance sheet shows that there is no cash presently available to the first defendant, nor is there any indication that lines of credit are available which would allow the first defendant to meet any future liabilities. To that extent at least, the balance sheet is consistent with what the plaintiff says he was told by Chesson and Terrence and Donna Walsh.
24 On 19 February 2008, the plaintiff convened a first meeting of creditors of the first defendant. A copy of the minutes of that meeting appears as annexure JC14 to the plaintiff's affidavit. With the approval of the plaintiff, Daws acted as chair of the meeting. The minutes show that Terrence Walsh, Donna Walsh and Chesson attended the meeting along with other individuals who were creditors of the first defendant. The second defendant did not attend the meeting.
25 Subsequent to receiving a copy of the minutes of the shareholders meeting allegedly held on 5 February 2008, the plaintiff took legal advice. He says he was advised that the validity of his appointment was open to doubt. It was that advice that led to this application.
26 The second defendant opposed the application in general terms. However, his primary submission was that the application should be adjourned for 21 days to enable him to explore the possibility of obtaining finance so that St George Bank could be paid out with sufficient funding in place to allow the project to be completed. Counsel for the second defendant indicated that if alternative funding could not be arranged, then his client might - but not necessarily would - consent to the application. The plaintiff and the third defendant both opposed any adjournment. They maintained that there was no real prospect of the second defendant obtaining alternative finance and even if there was, the best course would be for him to enter into a deed of company arrangement (DOCA) to put
(Page 9)
- the first defendant on a sound footing. It was said by the plaintiff and the third defendant - and it was not disputed by counsel for the second defendant - that while the receivers were prepared to deal with anyone who could discharge the liability to St George Bank, they wanted the question of whether the administrator was validly appointed determined before they would talk to any of the parties to this action.
27 In support of his application for the adjournment, the second defendant relied on two affidavits: the first sworn 7 March 2008 and the second sworn 11 March 2008. In his first affidavit, the second defendant claims that he was, as at the date of swearing that affidavit, the sole director and secretary of the first defendant. He then details his relationship with Terrence and Donna Walsh. He says that he met the couple in December 2005 and soon after he engaged Terrence Walsh as the builder of the Halls Head development. He says that his conflict with Terrence and Donna Walsh began in October 2007. The second defendant then refers to the 'Change to company details' which shows his removal as the sole director of the first defendant and the appointment of Terrence and Donna Walsh as directors. He says that he had no knowledge of any such meeting and that the first he saw of the document was when a copy of it was shown to him by his solicitors on 8 February 2008. The bulk of the affidavit (pars 25 through to 53) is taken up with the second defendant's efforts to refinance the project and details of 'presales' of units in the project. Without summarising these paragraphs in any detail, it is worthy of note that the second defendant requires an amount of approximately $17,500,000 to complete the development. It is not entirely clear whether this amount includes, or is in addition to, the $2,500,000 presently owed to St George Bank. In any event, it seems that to adequately fund the completion of the development, finance in an amount approaching $20,000,000 will be required.
28 The second defendant, through his agent Ms Siranovic, is making strenuous efforts to obtain the refinancing. But there is nothing in the material which indicates that the second defendant is close to achieving his aim. That is not to say that it could not be achieved. But there is nothing in the correspondence which inspires confidence. Nor is the evidence as to 'presales' of much assistance. It comprises, in large measure, documents described as an 'expression of interest' from certain parties. It may be that these documents would provide some comfort to a prospective lender. But taken together they certainly could not be seen as so compelling to make it inevitable that a financier would support the project.
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29 Terrence Walsh, in his capacity as a director of the third defendant, filed an affidavit in support of the plaintiff's application. (He initially attempted to file an affidavit sworn on 9 March 2008. He subsequently filed a document entitled 'Amended Affidavit of Terrence Allden Walsh in Support of Application by the Plaintiff' also sworn 9 March 2008. It is not clear what the difference is between the two affidavits and counsel for the third defendant was unable to explain the position.) During the course of the hearing and for the purpose of these reasons, I have relied upon the 'amended' affidavit. In his affidavit Terrence Walsh identifies himself as a director of the third defendant and says he is a director of the first defendant. He then details his relationship with the second defendant. He confirms that they met in the latter half of 2005 and he says the discussions concerned him acting as builder of the project and becoming a joint venture partner. He says that in early 2006 the second defendant was having financial difficulties and asked him (Terrence Walsh) to provide financial assistance. He says that the parties entered into a joint venture agreement. A copy of that agreement appears as annexure TAW1 to the amended affidavit. The written agreement is somewhat cryptic and is doubtless open to a myriad of interpretations. What it does not do is make any reference to the first defendant or give Terrence Walsh any right to a shareholding in the first defendant. That is perhaps not surprising, because the written agreement anticipates that the land on which the project was constructed was in the name of the second defendant. Terrence Walsh says that it was not until mid-May 2006 that he became aware that the property was in fact registered in the name of the first defendant.
30 Terrence Walsh says that on 15 May 2006, he, Donna Walsh and the second defendant met in his offices at Halls Head. Relevantly, he says that it was agreed that the third defendant would become a 50% shareholder in the first defendant in exchange for him foregoing the normal builder's margin on the project. This, he says, was an agreement generally in line with the terms of the previously agreed joint venture agreement. (In par 8 of his amended affidavit, he actually refers to the third defendant becoming a 50% shareholder in the second defendant. Clearly, that is a typographical error and must be read as a reference to the first defendant.) Terrence Walsh says that during the course of that meeting, the second defendant spoke to an accountant who was then appointed ASIC agent for the first defendant. He says that the second defendant instructed the newly appointed agent to draw up the necessary documents to appoint Terrence Walsh as a director of the first defendant and to transfer one share in the first defendant to the third defendant.
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- Terrence Walsh says that these documents were drawn up and duly signed by all parties. He refers to annexures TAW2 through to TAW6.
31 TAW2 is a document which appoints a new ASIC agent to the first defendant. It is signed by the second defendant and dated 15 May 2006. Document TAW3 is a Resolution of Director. Under the heading 'Share Issue' it says:
RESOLVED that an additional Ordinary Share of $1.00 would be issued for the Company for sale to Myra Pty Ltd (ACN: 009 389 495) as Trustee for the Walsh Investment Trust.
- This also was signed by the second defendant and dated 15 May 2006.
32 Document TAW4 is an Application for Shares. The application is made by Myra Pty Ltd and is addressed to the directors of the first defendant. It is signed by Donna Walsh and dated 16 May 2006. Document TAW5 is a Share Transfer Form. It shows a transfer of one share in the first defendant for a consideration of $1 from the second defendant to the third defendant. It is signed by the second defendant and by Donna Walsh as a director of the third defendant. Document TAW6 is a form lodged with ASIC and is entitled 'Change to company details'. It shows a change in share structure with the total number of shares on issue being two, and the holder of the newly created share being Myra Pty Ltd. All of the documents are entirely consistent with what is said by Terrence Walsh in his affidavit.
33 Terrence Walsh also says that he recalls signing a consent appointing him as a director of the first defendant as at 16 May 2006. He concedes that no such document was lodged with ASIC. However, he says that as from 16 May 2006, he has at all times conducted himself as if he was a director of the first defendant. In pars 14 through to 20 of his affidavit, Terrence Walsh details the progress of the development and the way in which it is financed. Eventually St George Bank became the financier and Terrence and Donna Walsh became guarantors of the loan. They were required to put up a property they owned in Dwellingup as collateral security for the loan. Terrence Walsh says at the time of signing the documents with St George Bank in February 2007, it was brought to his attention that the ASIC records did not show him as a director of the first defendant. He says the second defendant signed the documents as sole director and informed those present that he (Terrence Walsh) was a director and the records would be corrected. Further finance facilities were required and, in July 2007, more documents with St George Bank were signed. Again, it was brought to Terrence Walsh's attention that he
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- was not shown as a director of the first defendant. On this occasion he actually signed the St George Bank documents as a director of the first defendant: see annexure TAW11. Thereafter, Terrence Walsh says that the second defendant signed an ASIC form confirming his position as a director. Annexure TAW12 is an ASIC form entitled 'Change to company details'. The document is shown as being lodged on 12 July 2007. The electronic signature is that of the second defendant. The document shows that Terrence Walsh was appointed a director of the first defendant as at 12 February 2007. The document was lodged by an ASIC agent other than the one appointed in May 2006.
34 By late 2007/early 2008, it was apparent that the project was in financial difficulty. St George Bank refused to extend further credit and efforts were being made to refinance the project. Further, the relationship between the second defendant and Terrence Walsh had broken down completely. At a meeting with St George Bank on 14 January 2008, a solicitor for the second defendant advised that an application was being made to ASIC to withdraw the form 484 lodged on 25 May 2006 advising ASIC of the third defendant's shareholding in the first defendant. Terrence Walsh was also advised that application was being made to amend the register to show that Terrence Walsh was not a director of the first defendant.
35 What in fact appears to have happened is that on 15 January 2008, two forms were received by ASIC. One provided a notice of removal of the third defendant as a shareholder in the first defendant and a reduction in the share capital of the first defendant as at 16 May 2006. The other showed the resignation of Terrence Walsh or his removal as a director on 12 February 2007. Copies of the relevant forms appear as annexures TAW18 and TAW19 to Terrence Walsh's affidavit.
36 Terrence Walsh then goes on to explain events occurring on 5 February 2008 and the alleged meeting of shareholders and subsequently the meeting of directors of the first defendant. It is worth quoting pars 43 and 44 of his affidavit in full:
43. On 5 February 2008 I caused the ASIC record of the First Defendant to be altered to reflect that Myra was the sole shareholder of the First Defendant. I acknowledge that the Second Defendant should be recorded as a shareholder however the solicitors for the Second Defendant maintain that there is only one share in the First Defendant. I took the view that as the Third Defendant holds a transfer of the share it must therefore be the sole shareholder of the First Defendant. On the same day I caused the
- ASIC record of the First Defendant to be altered to show the appointment of myself and my wife Donna Walsh as the directors of the First Defendant. I took the view that the self stated mental incapacity of the Second Defendant precluded him from being a director of the First Defendant …
- 44. Immediately after altering the ASIC records my wife and I held a director's meeting of the First Defendant. We considered that the First Defendant was insolvent or likely to become insolvent and resolved to appoint the Plaintiff as the administrator of the company …
37 The remainder of Terrence Walsh's affidavit deals with the financial position of the first defendant and the liability of Terrence and Donna Walsh to St George Bank. Terrence Walsh says that he is confident it will be possible for him to put together a DOCA to allow the project to be completed. He gives some detail as to the cost of completing the project and how he intends to raise finance. Two points can be made. First, he appears to have a realistic understanding of both the costs involved in completing the building and difficulties in obtaining finance to allow the building to proceed. Second, he does seem to have assets which might enable him to achieve his aim. There is, however, nothing in the evidence which shows any progress on refinancing and no prospective lenders are mentioned. Put simply, there is nothing in the evidence which suggests that Terrence Walsh will be able to rescue this company.
38 The second defendant's second affidavit was filed in response to the affidavit of Terrence Walsh. He disputes much of what Terrence Walsh says in his affidavit. It is not entirely clear from the second defendant's affidavit whether he disputes having signed all of the documents lodged with ASIC on which his signature appears. On a number of occasions he says that he does not recall signing such documents. He maintains that he is the sole director and shareholder of the first defendant.
39 At the resumed hearing of this matter on 12 March, counsel for the plaintiff advised that he would not persist with the declarations sought in par 1 of the originating process. He conceded - and in my view conceded quite rightly - that on the material presently before the court it would not be possible to make a declaration that the plaintiff was validly appointed as administrator. To make that declaration I would have had to conclude that the directors meeting convened on 5 February 2008 purporting to appoint the plaintiff as administrator was validly convened. As an outline of the facts shows, that would have required a detailed examination of all the evidence, cross-examination of the deponents to the various affidavits and perhaps evidence from ASIC agents, among others. Counsel for the
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- plaintiff submitted that the position of the plaintiff had to be clarified and he also submitted that the situation the company found itself in was such that whatever may have happened to date, the proper course was for the plaintiff to continue as administrator. Counsel for the third defendant supported that view.
40 As I have indicated above, the second defendant's primary position was that the matter should be adjourned so that he could pursue refinancing. But if no adjournment was to be granted, then it was submitted that the position of the plaintiff as administrator should not be confirmed. Counsel submitted that I should proceed on the basis that the plaintiff was not validly appointed, but more to the point, the plaintiff had been installed in circumstances which overrode the wishes of the company. Counsel submitted that his client was the sole director of the first defendant and in that capacity he did not want to appoint an administrator. Even if there were two directors of the company - and counsel submitted that putting the best gloss possible on the third defendant's case that is all that could be concluded - there would still have been a deadlock between the directors meaning the plaintiff would not have been appointed administrator. So, in effect, what had happened was that Terrence and Donna Walsh by 'falsifying' (counsel's term) the ASIC record, an administrator had been imposed upon the first defendant and now as a consequence of Terrence and Donna Walsh's 'fraud', their aim was achieved and all this was to be done with court sanction.
41 All parties agreed that s 447A of the Corporations Act 2001 (Cth) gives the court wide powers to make orders under pt 5.3A of the Act: see Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270. There would also now appear to be no doubt that the court can make orders with retrospective operation: see Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 156 FLR 453. All parties also agreed that what was of primary importance was the interests of shareholders and creditors. The parties were at odds as to whose interests should be paramount - counsel for the plaintiff and the third defendant maintained that the interests of the creditors were paramount, while counsel for the second defendant maintained that each deserved equal attention.
42 All parties made reference to the decision of Gyles J in Re Pasdonnay Pty Ltd (Administrators Appointed) [2005] FCA 335. The facts in that case were somewhat different to the facts here, but they did involve an irregularity in the appointment of an administrator and, to that extent, the case is relevant. Taken from the headnote, the facts were as follows:
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- The company (Pasdonnay Pty Ltd) was governed by two ordinary shareholders, Ian Graeme Rear (Ted) (T) and Rosemary Anne Rear (R). Three other non-cumulative redeemable preference shares, which had no voting rights, were issued and jointly held by Andrew and Sharon Gilbert. T and R were the directors of the company and T effectively controlled the company's activities.
Prior litigation with SDS Corp Ltd (SDS) had resulted unfavourably against the company. As a result, the company was potentially liable for a substantial sum of damages. The company also had outstanding debts to the Australian Taxation Office.
On 16 February 2005, T was admitted to hospital and subsequently signed minutes of a meeting of the company appointing Geoffrey David McDonald (McDonald) and Kimberly Andrew Strickland (Strickland) as administrators of the company. These minutes and associated documents were handed to Laurie Fitzgerald (Fitzgerald), a consultant of the company. On 18 February, McDonald and Strickland signed an undated consent to act as administrators of the company.
On 1 March 2005, the company resolved to repeal its constitution and adopted another that permitted the minimum number of directors to be reduced to one. R resigned as a director on that day.
T spoke to his daughter Catherine O'Brien (O'Brien) on 2 March expressing his intention to reach a settlement with SDS, and if this failed, to enter into administration. O'Brien conveyed her father's instructions to Fitzgerald on 4 March 2005. Fitzgerald then rang McDonald and purportedly gave instructions to agree to the administration.
T died on 6 March 2005 and this was communicated to Fitzgerald. On 7 March 2005, Fitzgerald handed all documents to McDonald and McDonald dated them 6 March 2005 in his presence.
On 10 March 2005, the solicitors for SDS wrote to the solicitors for the administrators raising concerns about the appointment of the administrators. The plaintiff sought a declaration under s 447A that the administrators had been validly appointed by T.
43 In the course of his judgment, Gyles J had this to say about the administrator's appointment:
However, the circumstances of the appointment are troubling. McDonald made a deliberate decision to date the documents on the day of the death of Ted Rear. That gave the impression that the documents were signed, or at least became operative, on that day and during the lifetime of Ted Rear. That impression would tend to deflect inquiry as to the validity of the appointment. The inference is open that the matter would not have come into the open or this application made had it not been for the questions raised by the solicitor for SDS. There is much to be said for the view that
(Page 16)
- it would be wrong to give the imprimatur of the court to such conduct, particularly in the absence of a contradictor [19].
44 In this case there is no suggestion that the plaintiff has acted improperly. He was put on notice of the murky position with respect to the directors and the circumstances of his appointment when Daws received the copy of the minutes of the alleged shareholders meeting. He thereafter took legal advice and he brought this application. He was not in possession of all of the facts and he could not have been expected to simply cease to act after he had accepted the appointment. It was not submitted on behalf of the second defendant that the plaintiff had acted improperly.
45 In Re Pasdonnay, in concluding that it was appropriate to confirm the appointment of the administrator, Gyles J had this to say:
The company was trading but there was a real possibility that it was insolvent. That was not desirable. It may well be that sale of the business as a going concern would be in the best interests of all concerned. Administration under Pt 5.3A serves that purpose by enabling business to continue while the position is urgently investigated and analysed and alternatives proposed for the future of the company. That process is well advanced. The second meeting of creditors will take place in the near future. There has been no suggestion from any creditor (including SDS) that the plaintiffs are not carrying out their duties in a competent and professional manner. It would be potentially disruptive to the affairs of the company for there to be the capacity to challenge the validity of that which has occurred in the administration to date [20].
46 As counsel for the third defendant pointed out, virtually all of those criteria specified by Gyles J are present in this case. The essential difference is that the first defendant here is not trading. But there is a partially completed building and the main assets and undertakings of the company are in the hands of receivers. That adds a sense of urgency to the situation which perhaps can be likened to the circumstances where a company is trading.
47 In the end, it is a matter of looking at the practical realities of this situation. First, there has been a breakdown of the relationship between the individuals directly involved in the administration of this company. There is no hope of the second defendant and Terrence and Donna Walsh resolving their differences so that the first defendant can be administered in a proper fashion. Furthermore, there is scope for litigation between the parties as to who are the shareholders and who are the directors of the company. Apart from being a waste of everyone's time and money, the
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- delay occasioned by that litigation would undoubtedly have adverse consequences for the company. The receivers will not wait forever before taking steps to allow St George Bank to recover their investment. The circumstances are such that if application was made, a provisional liquidator would almost certainly be appointed to the company. But, in all respects, to have an administrator acting is in the best interests of all concerned.
48 Second, there are real difficulties standing in the way of the second defendant obtaining finance to finish this project. There is no direct evidence on this issue. Such evidence as there is, is directed by the second defendant and Terrence Walsh at what efforts they are making to secure finance. But the reality is that the credit market has tightened, and financial institutions have sharpened their pencils. Credit is not as easily available as it has been in the recent past. It is very difficult to see that the second defendant would be able to refinance the project.
49 As I have mentioned above, if either party is able to refinance the project, then they can put up a DOCA. Having the company in administration facilitates such a course. It offers protection for everyone concerned. It certainly offers, in my view, the best hope for salvaging something out of what at the moment looks suspiciously like a wreckage.
50 For these reasons, I made orders substantially in terms of par 2 of the originating process. I will hear the parties as to the precise form of orders and as to costs.
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