Clark v Perkins & LVS Meat Company Pty Ltd (in Liq) No. Scciv-99-1088

CLARK v PERKINS and ORS
[2002] SASC 382
Full Court: Perry, Williams and Gray JJ

PERRY J I am indebted to Gray J for his comprehensive exposition of the facts of this matter.
While I agree with him as to the outcome of the appeal, I add some observations of my own with respect to the appellant’s conduct in chairing meetings of the directors.
With respect to Gray J, I very much doubt whether the articles of the company contemplated that a non-director could assume the position of chair of meetings of the directors.
Article 108 provides:
“The Directors may elect any one of their number to be Chairman of their meetings and may determine the period for which he is to hold office. If no Chairman is elected or if at any meeting the Chairman is not present within fifteen minutes of the time appointed for holding the same and willing to act the Directors present shall choose some one of their number to be Chairman of such meeting.”
It is true, as Gray J points out, that the presence of the word “may” in the fist sentence suggests a permissive rather than a mandatory connotation. But the second sentence provides that if no chairman has been elected, or if the chairman is not present at a meeting, the directors who are present “shall choose some one of their number” (my emphasis) to be chairman of the meeting.
Clearly, in the situation provided for in the second sentence, only a director might be appointed chairman. Such a provision does not sit comfortably with the view that the first sentence would permit the election of a non-director as chairman.
Furthermore, Article 108 must be considered in the context of the articles as a whole. Other articles suggest that it is contemplated that the chair of a meeting of directors will be a director.
Article 90 appears under the heading “Deadlock: Meetings of Members of Directors”. It reads:
“If upon a poll there is an equality of votes for and against any motion the Chairman shall not be entitled to any second or casting vote.” (my emphasis)
It appears to be implicit in that article that the chairman will have a deliberative vote, although not a second or casting vote.
A similar provision appears in Article 72, dealing with voting at a general meeting, the chairman of which will ordinarily be the chairman of directors (see Article 66).
A non-director could not, of course, have a deliberative, let alone a second or casting vote, at a meeting of directors.
If I am right as to the construction which I would place on these provisions in the articles, it simply means that there is yet another irregularity in the conduct of the affairs of this company, in that given that the appellant was not a director, his occupation of the chair at meetings of directors was contrary to the articles of association.
I realise that if I am right in this analysis of the position, it might be said that there is a further argument in support of the view that the appellant acted as a director, in that by assuming the position of chair at meetings of directors, he was performing a role which could only be performed by a director.
However, it is unnecessary to consider those aspects of the matter further, as in any event, I agree with Gray J that the liquidator failed to prove his case under s 592 of the Corporations Law.
Before parting with the matter, I feel it appropriate to express my concern that there have been such manifest contraventions of the provisions of the Corporations Law by those responsible for the lodgement of the annual returns of the company, in that the appellant was wrongly asserted in a number of the returns to be a director.
The directors of a company must take responsibility for the accuracy of the annual returns, and their failure to do so in this case is not satisfactorily explained by the evidence. The irregularities associated with the terms of the annual returns of the company are compounded by reference to the situation which arose in 1987 when the reference to the appellant as a director was initially omitted from the 1987 annual return, but an amendment was subsequently filed confirming the appellant’s appointment as a director.
I cannot help feeling that the Court was not given a full and frank account of the circumstances which led up to these irregularities.
Certainly, it was a matter which the liquidator was entitled to take into account in determining whether to bring the proceedings, and it is a matter which is relevant to the question whether or not the appellant should have his costs of the trial, or whether the directors of the company should bear the costs of the trial.
I agree that the appeal should be allowed, the judgment against the appellant set aside, and the liquidator’s claim dismissed.
WILLIAMS J For the reasons given by Gray J I agree that the appeal should be allowed and the liquidator’s claim should be dismissed.
There must be many small companies whose directors and shareholders are accustomed to hold their meetings in the presence of the family solicitor or accountant or other disinterested person who then procedurally guides or controls the discussion of business with the acquiescence of all concerned. I consider that such a person (whether or not he also has professional responsibilities) would not by reason only of his procedural control of the proceedings of directors at their pleasure be treated as discharging the function of a director. I see nothing in the articles of LVS Meat Company Pty Ltd which would give rise to an irregularity if a stranger were to chair a directors’ meeting in such circumstances. In my opinion in light of Article 108 no conclusion as now relevant can be drawn from the single fact of the appellant’s habitual occupation of the chair at directors’ meetings.
Section 60(2) of the Corporations Law is concerned with the position of professional advisers upon matters of substance; the section does not address the procedural question. There is nothing in this case to prevent the introduction of an independent chairman with the consent of all directors as a means to resolving an impasse amongst the directors as to the conduct of an orderly meeting.
GRAY J This is an appeal against the judgment of a master of this court. The master found in favour of a liquidator in his claim against a director for loss or damage arising from alleged insolvent trading contrary to the Corporations Law[1].
[1] Post June 1993
Introduction
The LVS Meat Company Pty Ltd commenced business as an abattoir at Angaston in 1983. At that time Ronald Malcolm Viney, Graham Edger Linke and Bruce Albert Schulz were directors of the company. They all remained directors until the company was wound up on 13 May 1994.
Frederick Charles Perkins the liquidator of the company brought proceedings against Mr Viney, Mr Linke, Mr Schulz and Ian Richard Clark to recover damages for alleged insolvent trading. Before trial the liquidator settled the claim against all but one of the defendants. The only matter to proceed to trial was the claim against Mr Clark.
The Liquidator’s Case
The liquidator’s case was that the company had been in financial difficulties for considerable time. Its financial position deteriorated between 30 June 1991 and 13 May 1994. It was insolvent by 30 June 1991 as it was unable to pay all of its debts as and when they became due and payable. The company continued to trade in circumstances where the directors permitted the company to trade and incur debts when the company was insolvent and there were grounds for suspecting that the company was insolvent. It was claimed that the directors were aware that there were grounds for suspecting that the company was insolvent. Alternatively it was said that a reasonable person in a like position to the directors in a company that was in the company’s circumstances would have been aware that there were grounds for suspecting that the company was insolvent.
It was the liquidator’s case that Mr Clark was a director within the meaning of section 60 of the Corporations Law. He became a director of the company on 16 January 1987. He continued to occupy and act in the position of a director and member of the board. As chairman of the board it was claimed that he was a person in accordance with whose directions and instructions Mr Viney, Mr Linke and Mr Schulz were accustomed to act.
It was the liquidator’s case that Mr Clark contravened section 588G of the Corporations Law and the company suffered loss and damage. The loss and damage was said to result from indebtedness incurred to a number of persons and entities at various dates between 23 June 1993 and 13 May 1994.
The Defence Case
The defence case was that Mr Clark was not a director of the company. He occupied the position of chairman of the board. He acted as a mediator at directors meetings. However he was unaware that documents had been filed that appointed him a director of the company. He did more than give advice to the directors of the company. On limited occasions he provided practical assistance by carrying out minor tasks at the request of the directors of the company. Mr Clark had little to do with the company between 23 June 1993 and 13 May 1994. His attendance at directors’ meetings was irregular. He was unaware of the company incurring debts when it was alleged that there was reason to believe that the company was insolvent. It was his belief that lines of adequate financial support had been available at all times.
Mr Viney and Mr Linke gave evidence that Mr Clark did not hold the office of director. They denied that he acted in a manner that constituted him a de facto director within the meaning of section 60 of the Corporations Law. Mr Clark also gave evidence to this effect. The credibility and reliability of this evidence was challenged. However the master made no findings with respect to the credibility and reliability of the witnesses called by the defence on this critical point.
The Master’s Decision
The master observed:
“[Mr Viney, Mr Linke and Mr Schulz] all consented to be directors and the appropriate form of consent was lodged with ASIC. No consent to act as a director was lodged with ASIC in respect of Mr Clark. There is no evidence that such a consent was ever signed by Mr Clark. However, a form notifying ASIC of his appointment as a director was lodged in February 1987 and thereafter all annual returns lodged with ASIC after 1987 included [Mr Clark] as a director. Reference to him was omitted from the 1987 annual returns. This was picked up by the Commission which sought clarification as to whether or not he had resigned. Subsequently an amendment was filed with the Commission confirming Mr Clark's appointment as a director. There is no evidence that Mr Clark was either aware of or consented to these notifications to ASIC.”
Notwithstanding these observations the master found that Mr Clark was a director of the company within the meaning of Section 60 of the Corporations Law.
The master considered that the company had engaged in insolvent trading and that Mr Clark had acted in breach of section 588G of the Corporations Law. However the master also concluded that Mr Clark acted bona fide in the interests of the company. The master exercised his discretion pursuant to section 1317JA of the Corporations Law and concluded that it would be unduly onerous for Mr Clark to be responsible for all of the loss sustained. He held Mr Clark responsible for one quarter of the loss or damage sustained as a result of the insolvent trading. He entered judgment against Mr Clark for $106,312.00 inclusive of interest.
Issues on Appeal
On appeal counsel for Mr Clark raised three matters of complaint. The finding that Mr Clark was a director of the company within the meaning of section 60 of the Corporations Law was challenged. It was said that the master wrongly concluded that Mr Clark was aware of the company’s insolvency or that a person in his position would have been so aware. It was said that these conclusions were not open on the evidence. Finally it was contended that in awarding interest the master failed to take into account the issue of delay. Interest should have run from the time of the issue of proceedings until the date of judgment not from the dates of the incurring of the debts.
The liquidator cross-appealed. It was submitted that the master was wrong in his exercise of discretion pursuant to section 1317JA of the Corporation Law. He should have held Mr Clark responsible for the full amount of the damage. It was said that the rate of interest awarded was too low.
Was Mr Clark a Director?
Mr Clark’s Conduct
The critical period of the alleged insolvency was correctly identified by the master at the commencement of his reasons as 23 June 1993 to 13 May 1994 (“the relevant period”):
“Mr Clark does not dispute that the company was insolvent during the period that the debts set out in paragraph 10 of the statement of claim were incurred. That period commences on 23 June 1993 and ends with the winding up of the company on 13 May 1994.”
Later in his reasons when considering Mr Clark’s conduct the master analysed conduct during an earlier period of time. The master failed to analyse and consider Mr Clark’s conduct during the relevant period. This is particularly important having regard to the master’s finding that Mr Clark was not appointed a director but only acted as a director of the company. Later in his reasons, when separately discussing the company’s financial affairs the master again identified an incorrect period of time. He treated the relevant period on this occasion as being from June 1993 to June 1995. These errors cannot be presumed to be a result of a “slip”. On several occasions the master identified the relevant period as a two year period. These were material errors.
The master found that Mr Clark occupied the office of director and acted in that capacity with the authority of the other directors. The master based his decision on Mr Clark’s conduct ostensibly during the relevant period being between June 1993 and May 1994. The master’s reasoned:
“I mention a few examples of Mr Clark acting as a director during the period June 1993 to May 1994.
This point is taken up by the plaintiffs in counsel's written outline of argument dated 13 July 2001 (at paragraph 5). Within that written submission there are numerous references to the activities of Mr Clark as evidenced by what has been recorded in the minutes contained within Exhibit FCP5. Mr Clark referred to costs and the necessity to improve sales, to the need for an injection of capital, and he suggested changes to the invoicing system. Mr Clark attended at the premises of a company referred to as TAJ for the purposes of holding talks. He agreed to contact a Mr Don Lindner in relation to company business. He had dealings with the Commonwealth Development Bank in relation to company business. He arranged for a solicitor to be instructed in relation to one of the company matters. He ventured an opinion in relation to the proposal by another company to purchase fifty-one per cent interest in LVS. He had dealings with the Angaston Council on behalf of the company. It is not necessary to mention all of the examples referred to in the written outline. It is sufficient to say that they are supported by the evidence and constitute a clear indication that Mr Clark both occupied the office of director and acted in that capacity with the authority of the other directors. He was not, as was suggested in the evidence of Mr Clark and the first three defendants, merely a person brought into ensure that the directors' meetings were conducted in an orderly fashion. That may have been the original purpose of his appointment, but his subsequent activities were not limited to that purpose.
I find that from at least mid-1993 until early May 1994, Mr Clark acted as a director of LVS within the meaning of s60(1)(a) of the Law.”
On appeal it was accepted by counsel for the liquidator that none of the conduct identified by the master as occurring between June 1993 and May 1994 occurred during that period[2]. The conduct all occurred at some time prior to June 1993.
Inconsistent Findings
[2] “[Counsel for the respondent]: That is hard to support in the sense that those incidents relate to events that predated that period.
[Judge]:You accept [counsel for the appellant’s] analysis that all those[incidents] predate June the 3^rd.
[Counsel for the respondent]: I think there is a gap in the process. What has happened is, his Honour is going back on issues that have arisen in the past, to illustrate that he acted as a director, and the inference is during the period in question he was continuing to act as a director. I think that is the fair assumption that one should make, but his Honour hasn’t expressed it that way, which is unfortunate, we accept. But when one looks at the evidence as totality, we say that, and there’s plenty of other evidence yet to be referred to, illustrates the point.”
On the one hand the master made findings that Mr Clark did nothing more than give advice:
“He was brought in, initially, to provide calm to an unruly Board. He soon became an advisor, but no more.”
The master also concluded:
“In [Mr Clark’s] evidence he said that he was invited by Mr Viney to preside at meetings of the Board of directors in order to limit the conflict or acrimony that had sometimes arisen at Board meetings in the past. That evidence was supported by evidence from Mr Viney and Mr Linke to a like effect. I accept their evidence on that topic.”
On the other hand the master concluded that Mr Clark did more than give advice:
“... Mr Clark acted in the position of director within the meaning of Section 60(1) of the Law. He did so both factually in the sense that his contribution and activity was what a director would do. He also, as a matter of law, acted as a director in the sense that he occupied a position which could only have been held by a director under the company’s articles. He was held out to be a director.”
These findings are difficult to reconcile and demonstrate that the master proceeded under misapprehensions of fact. These misapprehensions permeated his decision.
An analysis of the minutes of board meetings discloses that there were seven meetings held during the relevant period. Mr Clark did not attend on two occasions. On those occasions a non-director occupied the position of chair. The minutes on the occasions when Mr Clark attended do not record Mr Clark as doing more than advising or raising an issue for consideration. At the last of the meetings Mr Clark resigned.
As earlier observed the master’s findings regarding Mr Clark’s activities during the relevant period were incorrect. Those activities were conducted at earlier times. There is nothing in the minutes to indicate that Mr Clark’s involvement at the meetings during the relevant period went beyond the role of mediator and adviser.
The Position of Chairman
The master found that only a director could occupy the position of chairman of directors. This finding was based on a view that the articles precluded any person from holding the office of chairman other than a director. The master reasoned:
“... Mr Clark acted in the position of director within the meaning of s60(1) of the Law. He did so both factually in the sense that his contribution and activity was what a director would do. He also, as a matter of law, acted as a director in the sense that he occupied a position which could only have been held by a director under the company's articles.
He occupied the position of director at every director's meeting he chaired because only a director could hold the position of chairman. It mattered not that he may not have been validly appointed or that he was not aware of having been appointed.”
Mr Clark’s counsel submitted that the role of chairman of the board of directors was procedural not managerial. Reliance was placed on Colorado Constructions Pty Ltd v Platus where Street J said:[3]
“It is an indispensable part of any meeting that a chairman should be appointed and occupy the chair. In the absence of some person (by whatever title he be described) exercising procedural control over a meeting the meeting is unable to proceed to business. This may perhaps require some qualification if all present are unanimous. And, in a small meeting, procedural control may pass from person to person according to who for the time being is allowed by the acquiescence of those present to have such control. But there must be some person expressly or by acquiescence permitted by those present to put motions to the meeting so as to enable the wish or decision of the meeting to be ascertained.”
[3] [1966] 2 NSWLR 598 at 600

The master’s findings allow the conclusion that Mr Clark as chairman of the board was undertaking a procedural role. The master gave no consideration to this possibility or the implication of his findings.
Counsel for Mr Clark criticised the master’s process of reasoning. It was submitted that the companies articles of association did not preclude a non-director being appointed chairman. Article 108 provided:
“The Directors may elect any one of their number to be Chairman of their meetings and may determine the period for which he is to hold office. If no Chairman is elected or if at any meeting the Chairman is not present within fifteen minutes of the time appointed for holding the same and willing to act the Directors present shall choose some one of their number to be Chairman of such meeting.
It was submitted that the use of the word “may” was permissive and that the article did not preclude a non-director from being chairman. Support for this construction was said to come from Article 105 which provided:
“The Directors may meet together for the despatch of business adjourn and otherwise regulate their meetings as they think fit. Questions arising at any meeting shall be determined by a majority of votes. Each Director present at a meeting (or if he is absent his alternate Director if any) and competent to vote shall have one vote. A Director who is an Alternate Director for one or more of the other Directors may in addition to giving his own vote at a Meeting of the Directors give one vote on behalf of each other Director whom he represents as an Alternate Director at the meeting and who is not personally present. A Director may and the Secretary shall at the request of any Director at any time summon a meeting of the Directors.”
Attention was also drawn to minutes of the company which recorded occasions when Mr Clark was not present and a non-director filled the role of chairman.
Counsel for Mr Clark also drew attention to In re Duomatic[4] where Buckley J held that no formal resolution approving the payment of directors’ salaries was necessary for it to bind the company. It was enough that the shareholder’s minds were applied to the approval of the drawing of the moneys:
“... I proceed upon the basis that where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be. The preference shareholder, having shares which conferred upon him no right to receive notice of or to attend and vote at a general meeting of the company, could be in no worse position if the matter were dealt with informally by agreement between all the shareholders having voting rights than he would be if the shareholders met together in a duly constituted general meeting.”
[4] [1969] 2 CH 365 at 373
Australian courts have approved the Duomatic principle[5] providing support for the view that an informal meeting of the minds of shareholders of a company may determine matters that would normally be decided at a general meeting. The shareholders may by this process alter the way in which a company functions. The master did not address this issue.
[5] Pascoe Ltd (In Liq) v Lucas (1999) 75 SASR 246; Sutherland v Robert Bosch (1999-2000) 33 ACSR 680
In the present case Mr Viney, Mr Linke and Mr Schulz were the principal shareholders. There was nothing in the articles to prevent the shareholders from jointly deciding to appoint a non-director as chairman. The master’s reasoning in this respect was incorrect.
Conclusion
As a result of the errors identified in the ordinary course it would be necessary that this court reconsider the question of whether Mr Clark was a director during the relevant period. Critical to this reconsideration would be the credibility and reliability of the defence witnesses. In the absence of findings by the master on the issue of credibility and reliability it is impossible for this court to fairly reconsider this question. However as the appeal is to be allowed on other grounds with the result that the liquidator’s claim is to be dismissed it is unnecessary to order a retrial on the issue of whether Mr Clark was a director.
Insolvency
The Statutory Provisions
Section 588G of the Corporations Law provides:
“(1) This section applies if:
(a) a person is a director of a company at the time when the company incurs a debt; and
(b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and
(c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and
(d) that time is at or after the commencement of this Part.
...
(2) By failing to prevent the company from incurring the debt, the person contravenes this section if:
(a) the person is aware at that time that there are such grounds for so suspecting; or
(b) a reasonable person in a like position in a company in the company's circumstances would be so aware.
Section 588H of the Corporations Law provides:
(1) This section has effect for the purposes of proceedings for a contravention of section 588G in relation to the incurring of a debt (including proceedings under section 588M in relation to the incurring of the debt).
(2) It is a defence if it is proved that, at the time when the debt was incurred, the person had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.
(3) Without limiting the generality of subsection (2), it is a defence if it is proved that, at the time when the debt was incurred, the person:
(a) had reasonable grounds to believe, and did believe:
(i) that a competent and reliable person (the other person) was responsible for providing to the first-mentioned person adequate information about whether the company was solvent; and
(ii) that the other person was fulfilling that responsibility; and
(b) expected, on the basis of information provided to the first-mentioned person by the other person, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.
(4) If the person was a director of the company at the time when the debt was incurred, it is a defence if it is proved that, because of illness or for some other good reason, he or she did not take part at that time in the management of the company.
(5) It is a defence if it is proved that the person took all reasonable steps to prevent the company from incurring the debt.
(6) In determining whether a defence under subsection (5) has been proved, the matters to which regard is to be had include, but are not limited to:
(a) any action the person took with a view to appointing an administrator of the company; and
(b) when that action was taken; and
(c) the results of that action.
The precursors to sections 588G and 588H in relevantly identical terms[6] were the subject of analysis by Gummow J in New World Alliance Pty Limited, Sycotex Pty Limited v Baseler (No 2)[7]:
“Section 592(1) requires three elements to be satisfied. The first of these is that the company must incur a debt. In the present case, New World incurred a number of debts to Sycotex between 5 July 1991 and 30 October 1991. The second element is that immediately before the incurring of the debt there must exist reasonable grounds for the relevant expectation. In the present case, each individual debt is relatively small and there is no perceptible difference in the financial position of the company before and after the incurring of each debt. Therefore, there is no need to rely upon subpar (ii) of par (b).
Where a number of debts are the subject of the proceeding, subs (1) requires each debt to be treated separately. Paragraph (b) thus requires consideration of the circumstances existing before the incurring of each debt. In the present case, it is clear that the financial position of the company worsened between 5 July 1991 and 30 October 1991. I therefore propose to consider matters as they stood at 5 July 1991. If the relevant elements give rise to a liability for the debt incurred on that date then it follows that liability is established for the debts incurred on subsequent occasions. I shall return to s 592(1)(b).
The third requirement of s 592(1) is that the company was at the time of the debt, or becomes at a later time, a company to which s 592 applies. I have dealt with this requirement earlier in these reasons when discussing s 1384(1). It is clearly satisfied in the present case.
The remaining question is whether, in terms of s 592(1)(b), on 5 July 1991 there were reasonable grounds for a director or manager of ordinary competence to expect that New World would not be able to pay all its debts as and when they became due. At the trial, a great deal of attention was focused on the level of indebtedness of New World and whether its liabilities exceeded its assets. However, this in itself does not directly answer the issue raised by par (b). The issue is not dealt with by analysing a hypothetical instantaneous liquidation: see Dunn v Shapowloff [1978] 2 NSWLR 235 at 244 per Mahoney JA, dealing with the comparable, but not identical, provision in the 1961 uniform companies legislation, s 303(3). If debts are long term, and the company is making profits, it may be that a company with a substantial indebtedness could trade its way out of difficulties. What is required is an analysis of the assets and financial resources of the company, and its likely liabilities and probable dates that these will fall due, to ascertain whether it is reasonable to expect that one or more of these liabilities will not be able to be met.”
[6] There is some variation between the sections concerned. However, for the purposes of this matter the provisions are comparable.
[7] (1994) 51 FCR 425 at 435
Counsel for Mr Clark submitted that the master had not properly addressed the requirements of sections 588G and 588H. As earlier observed the master laboured under a misapprehension as to the relevant period to be examined. The liquidator alleged that the relevant trading occurred between 23 June 1993 and 13 May 1994. However later in his reasons the master made the following observations:
“An examination of the evidence of Mr Clark and the other three defendants and of the documentary evidence, in particular the copies of the monthly statements exhibited to Mr Perkins’ affidavit and the financial statements for the financial year ended 30 June 1994, it reveals that LVS had had, for the two years from June 1993 to June 1995, considerable financial difficulties. It is also apparent from the financial details in evidence that up to 30 June 1993 the company had been experiencing financial difficulties for several years. In support of their case that Mr Clark was either aware of the company’s insolvency or a person in his position would have been so aware, the plaintiffs provided a detailed schedule of references to the evidence on this aspect of the matter. The items contained in the schedule refer to an abundance of evidence, the source of which is noted in the right-hand column, to the effect that the company was in financial difficulties from the time that Mr Clark became chairman of directors and that the position did not improve. For the purposes of this case, the crucial period is June 1993 to June 1995 to take the nearest whole financial years into account ...”
This passage demonstrates that the master was mistaken about the relevant period. His repeated reference to a “two year” period precludes the conclusion of a numerical slip. The master considered a two year period not an 11 month period. The period the master addressed is unclear. The reference to 1995 is incorrect. The company was wound up in May 1994. There was no reason for the master to address a two year period from June 1992 to June 1994. The relevant period to be considered was the period from 23 June 1993 to 13 May 1994.
There is a further difficulty. The master correctly identified the relevant question:
“I turn now to a consideration of the fourth element, namely whether or not either Mr Clark was aware that [there] were reasonable grounds for suspecting that the company was insolvent or that a person in his position would have been so aware.”
However he also concluded:
“If the evidence is reviewed as a whole, it is impossible to see how any of the directors could have done other than realize that there were grounds for suspecting that the company was insolvent or would become insolvent if further liabilities were incurred. The combination of the oral evidence given by all of the defendants and of the contents of the minutes of meetings from mid-1993 to mid-1995 lead to the conclusion that the directors, including Mr Clark, with the knowledge they had, must have realized that the company either was or was in danger of becoming insolvent. It must be accepted that between June 1993 and June 1995 there were periods when the company’s position looked more positive ...”
This finding acknowledged that there were “periods when the company’s position looked more positive”. The master then continued:
“... so that, at those times, there would not necessarily have been reasonable grounds for suspecting that the company either was or would become insolvent. However, those periods were of short duration and could not be used as a measure of the company’s performance over the relevant two years.”
The “two years” referred to by the master relate back to his earlier reference to the period from June 1993 to June 1995. This two year period includes the relevant period namely 23 June 1993 to 13 May 1994.
Counsel for the liquidator accepted that it was not possible to identify from the master’s reasons the periods of time he was referring to when he concluded that the company’s position looked more positive or whether those periods coincided with the times at which the relevant debts were incurred. The master’s finding that there were “more positive periods” was not challenged. It was also accepted that on the evidence it was not possible to identify those periods and attempt to match them to the date at which the debts were said to have been incurred.
In New World Alliance Gummow J observed that where there are a number of debts subject to the proceedings each debt must be treated separately. At the time of the incurring of each debt there must exist reasonable grounds for the relevant expectation on the part of a director. Given the master’s finding about the company’s position of appearing more positive at unspecified times during the relevant period it is not possible to make any finding about Mr Clark’s expectation at the time of the incurring of each debt.
Counsel for the liquidator conceded that this issue could not be resolved on the master’s findings. Counsel further conceded that the evidence was insufficient to establish a lack of a match between the dates on which the debts were incurred and the periods during which the company’s position looked more positive. It follows that the liquidator failed to prove his case on this aspect of the matter. This lack of proof is decisive of the case. The liquidator’s claim must be dismissed.
Other Matters
It is strictly unnecessary to address the remaining complaints. However as the matters have been argued it is appropriate to comment.
Section 1317JA
Counsel for the liquidator complained about the master’s exercise of discretion. The master concluded:
“There is no doubt, in my view, that Mr Clark acted bona fide in the interests of the company apart from its unsecured creditors. He was continually making suggestions to the Board which, if implemented, he believed would improve the company's viability. To that extent he was also acting in the interests of the creditors in a bona fide manner. There can, in my view, be no suggestion, as was the case in Powell v Fryer, that he purported to take advantage of indulgent creditors or that he was negligent in the performance of his duties. It must be remembered that, although a director, his role on the Board was at best that of an adviser. He had no financial stake in the company and, as such, he had little choice but to defer to the other directors who did. It is for these reasons that I have concluded that he acted “honestly” within the meaning of section 1317JA(2)(a) of the Law.
…
Subs(3) does not assist Mr Clark because he took no action at any time to appoint an administrator. However, the circumstances relating to his becoming a director are important. He was brought in, initially, to provide calm to an unruly Board. He soon became an adviser, but no more. He had no financial interest in the company, nor was he remunerated for his services. If the heavy responsibilities which are imposed on directors are put to one side, it could be said that it would be an unduly onerous application of the Law if Mr Clark were to be subject to a judgment in excess of $425,000.00 and costs where the other directors have settled on undisclosed terms. I think it is a question of balancing the seriousness of the duties of a director with the circumstances I have just mentioned. In my view, a proper balance is struck if Mr Clark's liability is limited to what he would have been required to contribute (as between judgment debtors) if there had been a joint judgment against all four directors. This was an alternative approach favoured by Rogers J, the judge at first instance in Daniels v Anderson (1995) 37 NSWLR 438, an approach with which the Court of Appeal did not disagree (at 525). Their Honours were then dealing with s1318 of the Corporations Law, but, in my view, it is equally applicable to s1317JA.”
Counsel’s submission amounted to a re-agitation of factual arguments put at trial. No error of principle has been identified. The master was entitled to conclude that Mr Clark had acted honestly. The master based his assessment on the finding that Mr Clark was acting as an adviser and no more, he had no financial interest in the company and received no remuneration:
“It is common ground that Mr Clark never had a financial interest in the company by way of shareholding or otherwise, he was not a signatory in respect of any company bank account and he was not paid for his attendance at directors' meetings, although he did obtain an occasional minor benefit by having his own stock slaughtered at the abattoirs and by the provision of meat on a few occasions. In his evidence he said that he was invited by Mr Viney to preside at meetings of the Board of directors in order to limit the conflict or acrimony that had sometimes arisen at Board meetings in the past. That evidence was supported by evidence from Mr Viney and Mr Linke to a like effect. I accept their evidence on that topic.”
The master concluded that in the circumstances he should exercise his discretion pursuant to section 1317JA. No error has been demonstrated.
Interest
The master ordered that interest run from the date the company was wound up to the date of judgment. Counsel for Mr Clark submitted that interest should have run from the date of the issue of proceedings until judgment.
Attention was drawn to the remarks of the Full Court in Duke Group Ltd v Pilmer[8] where the court said when addressing a claim by a liquidator:
“We consider that in such circumstances it is reasonable to say that the defendant should not have to pay interest for the period during which the liquidator chose to pursue another remedy. If that matter stood alone we do not consider that we would be entitled to say that his Honour erred. It is a matter on which views might legitimately differ. But there is another matter. In his Honour’s conclusion, which we set out above, he states that in fixing the period during which interest is to run he relied upon the fact that the three director defendants had had the use of money paid by Kia Ora since the time it was paid out. In our respectful opinion that is not a relevant matter as against NWP.”
[8] (1998-99) 73 SASR 64 at [545-550]

In Duke an explanation was offered for the delay. In the present case no explanation has been offered by the liquidator for the delay between 1994 and 1998 in issuing proceedings. As Mr Clark obtained no benefit it was unreasonable to allow interest to run from the date of liquidation. Interest should only have run from the date proceedings were issued.
Counsel for the liquidator complained about the rate of interest applied. The master selected an appropriate interest rate. No basis for a successful challenge to this exercise of discretion has been advanced. There is no substance to this complaint.
Conclusion
The requirements of section 588G of the Corporations Law were not satisfied on the evidence in this case. The appeal should be allowed. The judgment against Mr Clark should be set aside and the liquidator’s claim dismissed.
LIST OF CITATIONS AS THEY APPEAR IN THE JUDGMENT
1 Post June 1993
2 “[Counsel for the respondent]: That is hard to support in the sense that those incidents relate to events that predated that period.
[Judge]:                 You accept [counsel for the appellant’s] analysis that all those[incidents] predate June the 3^rd.
[Counsel for the respondent]:         I think there is a gap in the process. What has happened is, his Honour is going back on issues that have arisen in the past, to illustrate that he acted as a director, and the inference is during the period in question he was continuing to act as a director. I think that is the fair assumption that one should make, but his Honour hasn’t expressed it that way, which is unfortunate, we accept. But when one looks at the evidence as totality, we say that, and there’s plenty of other evidence yet to be referred to, illustrates the point.”
3 [1966] 2 NSWLR 598 at 600
4   [1969] 2 CH 365 at 373
5 Pascoe Ltd (In Liq) v Lucas (1999) 75 SASR 246; Sutherland v Robert Bosch (1999-2000) 33 ACSR 680
6 There is some variation between the sections concerned. However, for the purposes of this matter the provisions are comparable.
7 (1994) 51 FCR 425 at 435
8 (1998-99) 73 SASR 64 at [545-550]

[2002] SASC 382

21 November 2002