In the matter of Beechworth Land Estates Pty Ltd (Admin Apt) and Griffith Estates Pty Ltd (Admin Apt) (No 3)

[2015] NSWSC 733

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

In the matter of Beechworth Land Estates Pty Ltd (Admin Apt) and Griffith Estates Pty Ltd (Admin Apt) (No 3) [2015] NSWSC 733

Hearing dates:

2 April 2015

Date of orders:

12 June 2015

Decision date:

12 June 2015

Jurisdiction:

Equity Division - Corporations List

Before:

Robb J

Decision:

The parties will be given 3 days to comment on the appropriateness of the form of the orders proposed in par 152 of these reasons for judgment

Catchwords:

PROCEDURE – applications for summary dismissal and strike out by defendants – whether the first plaintiff was a creditor for the purposes of the Corporations Act 2001 (Cth) at the time of filing of the claim - first plaintiff was not a creditor at that time – first plaintiff acquired debt for a collateral purpose – first plaintiff’s claim dismissed in relation to Beechworth

 

PROCEDURE – costs – security for costs – whether the sixth plaintiff should provide security to defendants for costs of defending proceedings concerning Beechworth – sixth plaintiff failed to produce evidence of its financial capacity or respond to a notice to produce – held there is reason to believe it may be unable to pay costs if ordered – order for security for costs

PROCEDURE – substitution of plaintiff parties to prosecute derivative claims on behalf of company – company in administration – s 237 Corporations Act 2001 (Cth) not relevant – application in the discretion of the Court – Court must be confident that the plaintiff is acting in the overall interests of company in administration – Court will not order substitution of parties – leave given to sixth plaintiff to renew its application with further evidence

Legislation Cited:

Civil Procedure Act 2005 (NSW)
Conveyancing Act 1919 (NSW)
Corporations Act 2001 (Cth)
Duties Act 1997 (NSW)
Supreme Court (Corporations) Rules 1999 (Cth)

Cases Cited:

Australian Beverage Distributors v the Redrock Co [2008] NSWSC 3
Bleyer v Google Inc [2014] NSWSC 897; (2014) 311 ALR 529
Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551; (2008) 71 NSWLR 577
DSG Holdings Australia Pty Ltd v Helenic Pty Ltd [2014] NSWCA 96; (2014) 307 ALR 143
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 33 ACSR 739
Grizonic v Suttor [2008] NSWSC 914
Helenic Pty Ltd (as trustee of Mastrantonis Family Trust) v Retail Adventures Pty Ltd (admins apptd) [2013] NSWSC
Hoath v Comcen Pty Ltd [2005] NSWSC 477; (2005) 53 ACSR 708
In the matter of Beechworth Land Estates Pty Ltd (Admin apt) and Griffith Estates Pty Ltd (Admin apt) [2014] NSWSC 1723
International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151
IPEX ITG Pty Ltd (admin apptd) (recs and mgrs. apptd) v Melbourne Water Corporation (No 4) [2008] VSC 497
Mediterranean Olives Financial Pty Ltd v Loaders Traders Pty Ltd (subject to doca) (No 2) [2011] FCA 178; (2011) 82 ACSR 300
Perak Pioneer Ltd v Petroliam Nasional Bhd [1986] AC 849
Photios v Cussen and Senatore (in their capacity as joint administrators of Beechworth Land Estates Pty Ltd (administrators appointed)) [2015] NSWSC 336
QBI Corporation Pty Ltd v Plantation Rise Pty Ltd (admins apptd) (recs and mgrs. apptd) [2010] QSC 102; (2010) 77 ACSR 573
Re Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 611
Street v Lunar Park Sydney Pty Ltd [2006] NSWSC 1317
Treadwell v Hickey [2009] NSWSC 1395
Westbourne Grammar School v Sanget Pty Ltd [2007] VSCA 309

Category:

Procedural and other rulings

Parties:

James Photios (first plaintiff)
Perri Investments No 3 Pty Ltd (second plaintiff)
Redhill Estate Developments Pty Ltd (fifth plaintiff)
First Debenture Limited (sixth plaintiff)
Neil Robert Cussen and Ezio Marco Sentore in their capacity as joint administrators of Beechworth Land Estates Pty Ltd (administrators appointed) (first defendants)
Beechworth Land Estates Pty Ltd (administrators appointed) (second defendant)
Neil Robert Cussen and Ezio Marco Sentore in their capacity as joint administrators of Griffith Land Estates Pty Ltd (administrators appointed) (third defendants)
Griffith Land Estates Pty Ltd (administrators appointed) (fourth defendant)
Vangory Holdings Pty Ltd (fifth defendant)
Vangory Services Pty Ltd (sixth defendant)

Representation:

Counsel: R Glasson (plaintiffs)
M Condon SC (first – fourth defendants)
T Orlitzki (fifth – sixth defendants)

  Solicitors: O’Neill Partners (plaintiffs)
Russells (first – fourth defendants)
Kent Attorneys (fifth – sixth defendants)

File Number(s):

2014/229138

Publication restriction:

None

Judgment

Introduction

1. I have before me three interlocutory processes for determination.

2. It will be convenient to outline the relevant aspects of the procedural history of this matter, in order to explain the effect of the orders sought in the interlocutory processes.

3. When these proceedings were commenced, the plaintiffs sought orders under s 447A and s 447C of the Corporations Act 2001 (Cth). Primarily, the plaintiffs sought orders under s 447C, that the appointment of the first defendants as administrators of Beechworth Land Estates Pty Ltd (Beechworth), and the same gentlemen (the third defendants) as administrators of Griffith Estates Pty Ltd (Griffith) were not valid. I will call the first and third defendants the “administrators”. The plaintiffs sought orders under s 447C, or alternatively s 447A, that the administration of Beechworth and Griffith is to end forthwith. The plaintiffs sought other alternative and consequential orders. In particular, if the administration of the two companies is to continue, the plaintiffs sought orders removing the administrators and replacing them with an alternative, nominated administrator.

4. The plaintiffs joined Beechworth as the second defendant and Griffith as the fourth defendant.

5. The fifth defendant, Vangory Holdings Pty Ltd (Vangory Holdings), purported to appoint the administrators as administrators of Beechworth on 14 July 2014, under s 436C of the Corporations Act, on the basis that Vangory Holdings was the holder of a security granted by Beechworth on 10 October 2013. The sixth defendant, Vangory Services Pty Ltd (Vangory Services), purported to appoint the administrators as administrators of Griffith on the same date, and on the same legal basis, acting upon a security granted by Griffiths to Vangory Services on 24 November 2013.

6. Initially, so far as is relevant for present purposes, the plaintiffs claimed that the two appointments of the administrators, as administrators of the respective companies, were invalid because the securities under which each of the appointors purported to act were invalid and of no effect because the relevant documents were invalidly executed, and each document was a sham.

7. I am part heard in these proceedings. They were heard over the period 14 – 16 October 2014, 21 – 24 October 2014, and 15 – 19 December 2014 and adjourned on 19 December 2014. The hearing is fixed to recommence on 4 August 2015 for a period of 7 days. I have dealt with a number of interlocutory applications since the hearing was adjourned. I have also, at the request of the parties, delivered reasons for judgment on 2 April 2015, in which I decided a number of issues in the proceedings: see Photios v Cussen and Senatore (in their capacity as joint administrators of Beechworth Land Estates Pty Ltd (administrators appointed)) [2015] NSWSC 336.

8. Following the opening delivered by the plaintiffs, at the commencement of the hearing, they applied to amend the points of claim that they had delivered in support of their originating process on a number of grounds, including, relevantly, to support their claim for relief on the alternative ground that the facts that supported their claim that the securities were not validly executed, and were ineffective as being mere shams, would also support an argument that the securities were granted by the companies in circumstances that constituted breaches of the duties that the companies’ directors owed to the companies.

9. I dealt with this application in reasons for judgment delivered on 3 December 2014: see In the matter ofBeechworth Land Estates Pty Ltd (Admin apt) and Griffith Estates Pty Ltd (Admin apt) [2014] NSWSC 1723. I granted the plaintiffs’ application to add a number of paragraphs to their points of claim, which raised the alternative breach of directors’ duties claim.

10. As the directors of the two companies owed their duties as directors only to the companies themselves, the plaintiffs did not have standing to bring the new claim against the administrators and the Vangory parties in their own names. Only the companies had standing to make the claims. The claims could therefore not be pursued by the plaintiffs except as derivative proceedings. Leave could not be granted to the plaintiffs to pursue the claim in the name of the companies under ss 236 and 237 of the Corporations Act, because both companies were in administration: see [24] of the judgment. The plaintiffs could only conduct the claims on behalf of the companies if the Court authorised them to bring the proceedings in its inherent jurisdiction: see [25] of the judgment. That inherent jurisdiction may be exercised by the Court in its discretion in favour of a contributory or a creditor.

11. I gave the relevant plaintiffs authorisation to bring the breach of directors’ duties claim on behalf of the companies. I did so, on the condition that the relevant plaintiffs indemnified the companies in respect of legal costs in the event that the breach of directors’ duties claim prosecuted on their behalves failed, and determined an amount for security for costs that was required to be provided.

12. Relevantly, I made the following orders on 9 December 2014.

3.   An order, pursuant to the inherent jurisdiction of the Court, that the Third and Fourth Plaintiffs be granted leave to bring in these proceedings the [directors’ duties claim] on behalf of and in the name of Beechworth Land Estates Pty Ltd.

4.   An order, pursuant to the inherent jurisdiction of the Court, that the First, Second, Third and Fourth Plaintiffs be granted leave to bring in these proceedings the [directors’ duties claim] on behalf of and in the name of Griffith Estates Pty Ltd.

13. Initially, there was little focus on the separate identities of the plaintiffs. They sued by the same solicitors and counsel, and appeared to proceed in the same interest.

14. The third plaintiff was Mr James Edward Spencer, and the fourth plaintiff, Cleary Corporation Pty Ltd (Cleary Corporation), was a company associated with Mr Spencer.

15. It will be noted that order 3 made by the Court on 9 December 2014 only authorised Mr Spencer and his company to bring the directors’ duties claim on behalf of Beechworth.

16. Order 4 gave equivalent authorisation in respect of Griffith to Mr Spencer and his company, but it also gave the same authorisation to Mr James Photios and his company, Perri Investments No 3 Pty Ltd (Perri Investments).

17. The fifth plaintiff, Redhill Estate Developments Pty Ltd (Redhill), and the sixth plaintiff, First Debenture Ltd (First Debenture), were not given authorisation to bring a directors’ duties claim on behalf of either company.

18. In my reasons for judgment of 3 December 2014, I invited the parties to bring in short minutes to reflect those reasons. I made the orders on 9 December 2014 at the request of the parties, and on the basis that they had satisfied themselves that the appropriate parties had been given the authorisation to bring the directors’ duties claim on behalf of each of the companies.

Changes in circumstances

19. It will now be appropriate to identify the circumstances that have changed, which have led to the applications now before the Court being made.

20. The parties have collectively called the present proceedings the “removal proceedings”, for the obvious reason that they involve an application by the plaintiffs for the removal of the administrators. There were, initially, related proceedings, which the parties called the “shareholder proceedings”. The shareholder proceedings were initially heard generally at the same time as the removal proceedings. There was some contention as to the order in which the proceedings should be heard by the Court, but that is no longer material.

21. The shareholder proceedings were commenced by originating process filed on 15 July 2014 by Vangory Holdings, and two other plaintiffs. The first defendant was Beechworth. The second and third defendants were Mr Photios and Perri Investments. The third and fourth defendants were Mr Spencer and Cleary Corporation. The sixth defendant was a company called Rockliffe Pty Ltd.

22. In summary, the plaintiffs in the shareholder proceedings sought declarations to the effect that, at all times, Vangory Holdings was the beneficial owner of 95 of the ordinary shares in Beechworth, and Mr Spencer was only entitled to be the registered holder of 5 of the ordinary shares in Beechworth. Mr Spencer and Cleary Corporation responded to the claim by filing an interlocutory process in which they sought to establish that one or other of them was entitled to be the registered holder and beneficial owner of 50 of the shares in Beechworth. There was therefore a contest between the plaintiffs on the one hand, and Mr Spencer on the other, as to whether the shares in Beechworth were held 95 to 5, in favour of Vangory Holdings, or 50 to 50.

23. The plaintiffs in the shareholder proceedings also made a claim that Perri Investments became the registered holder of 95 ordinary shares in Beechworth by reason of the fraud of Mr Photios and Perri Investments. Put simply, the allegation made by the plaintiffs in their points of claim filed on 27 September 2014 was that, at the relevant time, the registered owner of the 95 shares was a company called Rockliffe Ltd, who relevantly held the shares for the ultimate beneficial ownership of Vangory Holdings. The plaintiffs alleged that Mr Photios and Perri Investments knowingly procured a similarly named company, Rockliffe Pty Ltd, which was not in fact the registered owner of the shares, to transfer the shares to Perri Investments. The plaintiffs sought a declaration that the transfer was void, and an order that the register of members of Beechworth be rectified.

24. Further, the plaintiffs sought a declaration that resolutions passed at meetings of members of Beechworth, which removed Mr Spencer as a director of the company and appointed Mr Photios as a director, were void.

25. On 23 October 2014, during the course of the hearing, the Court made a number of orders by consent in the shareholder proceedings, including a declaration that Perri Investments had never been a member of Beechworth, and a declaration that Mr Photios was not, and had never been, a director of Beechworth.

26. These orders were made without any contest on the merits by Mr Photios and Perri Investments.

27. On 26 February 2015, the Court made orders by consent in the shareholder proceedings that effectively settled the dispute between the parties who remained active in the proceedings, after the orders that the Court made on 23 October 2014. The detail of the compromise is not material to the present applications, but it involved a compromise as to the number of the shares in Beechworth that would be held by Vangory Holdings on the one hand, and Mr Spencer’s interests on the other. The settlement contained terms that are contingent on the outcome of the removal proceedings. A number of issues remain outstanding in the shareholder proceedings, including as to some aspects of the costs orders that should be made.

28. Also on 26 February 2015, Mr Spencer appeared in person at a directions hearing in the removal proceedings, to inform the Court that he had negotiated terms of discontinuance (except as to costs) for himself and Cleary Corporation, with the other parties. At the request of the remaining plaintiffs, I did not make orders for discontinuance in favour of Mr Spencer and Cleary Corporation on that date. Apparently, the remaining plaintiffs were concerned that an immediate discontinuance by Mr Spencer and Cleary Corporation might have some unexpected or irremediable effect on the ability of the remaining plaintiffs to prosecute the removal proceedings. I assured Mr Spencer that appropriate discontinuation orders would be made in due course, and that is what has happened.

29. At the request of the remaining plaintiffs, I made an order that they file and serve a further amended points of claim on or before 5 March 2015. The purpose of the grant of this leave was to permit the remaining plaintiffs to make any necessary amendments that flowed from the fact that Mr Spencer and Cleary Corporation would cease to be plaintiffs. The remaining plaintiffs were not required to inform the Court or the defendants of the precise nature of the amendments that they contemplated.

30. It can thus be seen that the circumstances of the removal proceedings changed in two material ways. First, Mr Spencer and Cleary Corporation ceased to be plaintiffs. One consequence of that occurring was that none of the remaining plaintiffs had the Court’s authority to prosecute the directors’ duties claim on behalf of Beechworth.

31. The second change was that the Court had declared that Mr Photios had never been a director of Beechworth. As will be seen, that change was significant because Mr Photios had based his claim for standing to be a plaintiff in the removal proceedings in respect of Beechworth on the basis that he was a creditor of the company because he was owed directors’ fees by Beechworth.

32. A further event that occurred that has had a significant effect on the disposition of the interlocutory processes now before the Court is the publication on 2 April 2015 of my reasons for judgment on the issue of whether the appointment of the administrators for both Beechworth and Griffith were invalid under s 436C of the Corporations Act, because, at the time of the appointment, the relevant securities were unenforceable under s 211 of the Duties Act 1997 (NSW), because the mortgage duty imposed on the securities had not been paid. I found that the appointment of the administrators in relation to Beechworth was not invalid, but the appointment for Griffith was invalid. I also found that the Court has power under s 447A of the Corporations Act to cure the invalidity. Ultimately, I did not make any orders to give effect to the reasons for judgment in this respect, because I have not yet heard the defendants’ application for relief under s 447A.

33. Consequently, the present position is that the appointment of the administrators to Griffith will be invalid unless the defendants persuade the Court to make an order under s 447A that has a contrary effect. That issue remains live, and will be one of the questions that will have to be dealt with when the hearing resumes.

Amendment of the points of claim

34. The removal proceedings were commenced by the filing of an originating process on 4 August 2014. The plaintiffs were Mr Photios, Perri Investments, Mr Spencer, Cleary Corporation and Redhill. First Debenture was not a plaintiff.

35. First Debenture was joined as sixth plaintiff by order made on 18 August 2014. The originating process was amended accordingly.

36. Points of claim were first filed on 24 August 2014. On the issue of the plaintiffs’ standing, the points of claim made the following relevant allegations:

1.   The First Plaintiff, James Photios, is a director of the Fourth Defendant, Griffith Estates Pty Ltd (“Griffith”) and a creditor of Griffith…

4.   The Sixth Plaintiff, First Debenture Ltd, is a creditor of Beechworth.

37. Amended points of claim were filed on 9 December 2014, after the orders were made in the shareholder proceedings that had the effect that Mr Photios had never been a director of Beechworth, and Perri Investments had never held shares in that company. The only relevant change made to the points of claim is that par 1 was deleted. It is not clear why that was done, because the orders in the shareholder proceedings only affected Mr Photios’ position in relation to Beechworth, and par 1 of the points of claim only alleged his standing as a director and creditor of Griffith. Relevantly, neither the points of claim nor the amended points of claim contained any allegation that would support Mr Photios having standing in relation to the Beechworth claim.

37. The further amended points of claim filed by the remaining plaintiffs on 12 March 2015 deleted all allegations concerning Mr Spencer and Cleary Corporation.

38. The only other amendments were to the terms of the paragraphs that contained allegations concerning the standing of the parties, which were as follows (additions apparently being underlined in the conventional way):

1.   The First Plaintiff, James Photios, is:

(i)   a director of the Fourth Defendant, Griffith Estates Pty Ltd (“Griffith”);

(ii)   a creditor of Beechworth Land Estates Pty Ltd (“Beechworth”); and

(iii)   a creditor of Griffith…

4.   The Sixth Plaintiff, First Debenture Ltd, is a creditor of Beechworth.

40. The change to par 1 between the amended points of claim and the further amended points of claim is inexplicable. Paragraph 1 was deleted from the former document. The manner in which par 1 has been drafted in the latter document would suggest that that was not so. The use of underlining also does not appear to be appropriate.

41. In any event, the amended points of claim introduced an allegation that Mr Photios was a creditor of Beechworth. No particulars of that allegation were provided.

42. Paragraph 25 of the further amended points of claim provides that the first, second, fifth and sixth defendants seek the relief sought in the second further amended originating process dated 9 December 2014.

43. The second plaintiff, Perri Investments, and the fifth plaintiff, Redhill, do not appear to plead the basis of their standing to seek the relief that they claim.

Correspondence concerning the standing of the remaining plaintiffs

44. The administrators’ solicitors wrote to the solicitors for the remaining plaintiffs on 13 March 2015. They referred to earlier correspondence in which they had asked that the further amended points of claim be drafted in a way that included full particulars of the grounds upon which each plaintiff relied to establish standing to bring the proceedings.

45. In relation to Mr Photios, the administrators’ solicitors observed that he had previously claimed to be a creditor of Beechworth in respect of directors’ fees, but that claim could no longer be sustained. They asserted that Mr Photios’ claim to be a creditor of Griffith in respect of directors’ fees and costs paid on behalf of the company “is very weak”. They also asserted that the claim by Perri Investments and Redhill should be dismissed, as they had not alleged any facts that would give them standing. As to First Debenture, there was an allegation in the further amended statement of claim that it was a creditor of Beechworth, but no such allegation in respect of Griffith. The solicitors observed that there was apparently some evidence that First Debenture claimed to be a creditor of both of the companies in respect of legal fees and costs, and certain business-related costs. That evidence was described as being “weak” and “highly contestable”.

46. The Vangory parties’ solicitors sought further particulars on 16 March 2015. They asked for details of why Mr Photios was a creditor of Beechworth and Griffith, and First Debenture a creditor of Beechworth.

47. The plaintiffs’ solicitors responded to the administrators’ solicitors on 19 March 2015 on the issue of the plaintiffs’ standing. They acknowledged that Mr Photios no longer asserted that he was a creditor of Beechworth, or an interested person by reason of his being a director of Beechworth. They said that Mr Photios was a creditor of Beechworth as an assignee of debts owed by Beechworth to a company called EDM Group Pty Ltd. A notice of assignment under s 12 of the Conveyancing Act 1919 (NSW) was enclosed. The notice was dated 19 March 2015. It related to a total debt of $9016.25. Copies of invoices from the assignor to Beechworth to support the debts assigned were also enclosed.

48. It was said by the plaintiffs’ solicitors that Mr Photios is an interested person in relation to Griffith because he is a current director of Griffith. The claim was made that it was in that capacity that he was granted leave to bring the derivative claim in the name of Griffith. It was also said that Mr Photios was a creditor of Griffith because of his claim for directors’ fees, and the payment of “LPI fees on behalf of Griffith”.

49. The plaintiffs’ solicitors said in relation to Perri Investments that the assertions made on behalf of the administrators “are simply wrong and are expressly contradicted by orders already made in the proceedings”. This was a reference to order 4 made on 19 December 2014, by which Perri Investments was authorised to bring the directors’ duties claim on behalf of Griffith. It was said that for the same reasons Perri Investments was “clearly an interested person within section 447A, being a registered shareholder in Griffith”.

50. The plaintiffs’ solicitors did not contest the assertions made in relation to Redhill.

51. The comments made in relation to First Debenture met the response: “We note your comments, which do not require a response”.

52. It was in these circumstances that the three interlocutory processes that are now before the court were filed.

The interlocutory processes

53. Mr Photios and First Debenture filed an interlocutory process on 20 March 2015 that sought the following relief:

1.   An order that order 3 made on 9 December 2014 be varied so as to substitute the words “the First and Six Plaintiffs” for the words “Third and Fourth Plaintiffs” in that order.

2.   Alternatively, an order pursuant to the inherent jurisdiction, that the First and Sixth Plaintiffs be granted leave to bring in these proceedings the [directors’ duties claim] on behalf of and in the name of Beechworth Land Estates Pty Ltd.

54. Mr Photios and First Debenture therefore seek an order that they be substituted for Mr Spencer and Cleary Corporation in respect of the discretionary authorisation that the Court gave to those plaintiffs to prosecute the directors’ duty claim on behalf of Beechworth.

55. On 27 March 2015, the administrators and the companies filed an interlocutory process that sought relief, which I will summarise as follows:

1. That the further amended points of claim be struck out under UCPR rule 14.28, or alternatively that it be struck out in so far as it propounds claims by the remaining plaintiffs in relation to Beechworth.

2. That the remaining plaintiffs be removed as parties under UCPR rule 6.29 in the proceedings in relation to Beechworth.

3. That the proceedings be dismissed under UCPR rule 13.4, or alternatively that they be dismissed in so far as they concern claims by the remaining plaintiffs in relation to Beechworth.

4 That under UCPR rule 42.21 and s 1335 of the Corporations Act the plaintiffs provide security in favour of the applicants:

(a)   in the amount of $250,000 for past costs; and

(b    in the amount of $130,000 for future costs;

or such other amounts as the Court determines.

5.   That the plaintiffs’ claim be dismissed or permanently stayed if they fail to provide security as ordered.

56. The Vangory parties filed an amended interlocutory process on 30 March 2015. They sought orders under UCPR rule 13.4 that the claims made by each of the remaining plaintiffs be dismissed. Alternatively, they sought orders under UCPR rule 42.21 and s 1355 of the Corporations Act that each of the remaining plaintiffs provide security for costs.

57. The interlocutory processes were heard together on 2 April 2015.

Applications for summary dismissal and striking out

58. It will be convenient to deal first with the defendants’ applications for the summary dismissal or striking out of the further amended points of claim, and the associated claims for relief in the second further amended originating process.

Griffith

59. I will address the position concerning Griffith first. At the hearing, the defendants did not pursue their summary dismissal or strike out applications in relation to the remaining plaintiffs’ claims concerning Griffith. The defendants took that course for two apparent reasons. First, the effect of the publication of my reasons for judgment on 2 April 2015, which post-dated the filing of the interlocutory processes, was that the remaining plaintiffs have succeeded in establishing that the administrators’ appointment in respect of Griffith will be invalid, unless the defendants persuade the Court to make an order under s 447A of the Corporations Act that has a contrary effect. The defendants accept that it would not be appropriate for the Court to dismiss the proceedings, in so far as they concern Griffith, in those circumstances.

60. Secondly, the defendants apparently accept that each of the remaining plaintiffs, other than Redhill, has an arguable claim that he or it has standing to seek relief under s 447A and s 447C of the Corporations Act in relation to Griffith. The defendants did not contest the plaintiffs’ contention that Perri Investments has standing, even though the basis of its standing is not pleaded in the further amended points of claim, and the only basis relied upon is that the company is a shareholder in Griffith.

61. Before I leave the proceedings concerning Griffith, I should note a submission made by the Vangory parties to the effect that the only issue that remains to be determined in respect of this part of the proceedings is whether an order should be made under s 447A that validates the appointment of the administrators to Griffith. That is, with respect, not correct. All of the issues that arise on the further amended points of claim will remain alive. Even if the defendants succeed in persuading the Court that an order validating the appointment should be made under s 447A to cure the effect of the securities being unenforceable because of the failure to pay the requisite mortgage duty, the defendants will still have to face the remaining plaintiffs’ claims that the security granted by Griffith is invalid, or should be set aside. That will include a claim that relief should not be granted to the defendants under s 447A if the security in relation to which the administrators were appointed was invalid.

Beechworth

62. I will now consider the defendants’ summary dismissal and strike out applications in relation to the proceedings concerning Beechworth.

63. First, the defendants accepted at the hearing that First Debenture has a sufficiently arguable claim that it was a creditor of Beechworth at the time the proceedings were commenced for it to have standing to claim relief under s 447A and s 447C of the Corporations Act in relation to that company.

64. The defendants say that no standing has been demonstrated for Perri Investments and Redhill, and the remaining plaintiffs do not appear to have contested that claim. The issue in contest was whether Mr Photios had standing to make the claim in relation to Beechworth, and, if not, whether his claim should summarily be dismissed.

65. Before I consider the parties’ submissions, I will set out the facts relevant to Mr Photios’ present claim that he has standing to bring his claim in relation to the validity of the appointment of the administrators in respect of Beechworth.

66. To have standing to make the application under s 447A, Mr Photios must show that he was a creditor of Beechworth or “any other interested person”: s 447A(4)(b) and (f). To have standing under s 447C, Mr Photios must show that he was a creditor of Beechworth. Mr Photios only asserted standing in relation to the Beechworth claim on the basis that he was a creditor of the company.

67. At the time the initial originating process was filed, Mr Photios claimed to be a creditor of Beechworth on the basis that Beechworth owed him directors’ fees (albeit that he only pleaded standing in relation to the Griffith claim). The effect of the orders made in the shareholder proceedings, which I have described above, was that Mr Photios has never been a director of Beechworth, so he could not be owed directors’ fees by that company. The basis upon which Mr Photios originally claimed standing in respect of both sections became unsustainable.

68. At the hearing, Mr Photios tendered a deed of assignment of debt dated 11 March 2015 between EDM Group Pty Ltd, as assignor, and Mr Photios, as assignee, of three debts owed by Beechworth with a total value of $9016.25, for a consideration of $2000. Notice of the assignment was given to Beechworth on 19 March 2015. The defendants accepted for the purposes of the application that the assigned debt was a valid debt of Beechworth. Mr Photios, therefore, became an equitable assignee of the debt on 11 March 2015, and became entitled to enforce the debt at law in accordance with s 12 of the Conveyancing Act on 19 March 2015. The further amended points of claim was filed on 12 March 2015, one day after the assignment, and seven days before Mr Photios became entitled to sue on the debt, in his own name.

69. In their submissions, the administrators put their argument first on the basis of a pleading point. The administrators argued that, as Mr Photios only became entitled to personally enforce the debt after the further amended points of claim was filed, the proper course was for the Court to strike out that pleading in so far as it contained a claim by Mr Photios, and that when Mr Photios sought leave to file a second further amended points of claim to plead in the proper way the current basis of his claim to standing, the administrators would resist that claim.

70. With respect, I do not entirely understand the significance of this submission. The question is whether Mr Photios has standing to seek the relief sought in the originating process, as amended from time to time. The first time Mr Photios has made an allegation in support of his standing to seek that relief in relation to Beechworth is in the further amended points of claim. He did not provide particulars of how or when he became a creditor of Beechworth. Those particulars have now effectively been provided by means of the evidence that was tendered at the hearing of the interlocutory processes. The question is not one of the adequacy of the allegations in the points of claim, or the sufficiency of the particulars that have been given, but it is the substantive question of whether Mr Photios has established the necessary standing.

71. The defendants all relied upon observations made by Nettle JA (as his Honour then was) in Westbourne Grammar School v Sanget Pty Ltd [2007] VSCA 309 at [8] and [9]. Barrett J (as his Honour then was) gave further consideration to the issue in Treadwell v Hickey [2009] NSWSC 1395 at [85] to [100]. I do not think those authorities are helpful to the disposition of the applications that are before the Court. They decide that an assignee of a debt does not have title to sue to enforce the debt in his or her own name, until the requirements of s 12 of the Conveyancing Act have been satisfied; including that notice of the assignment has been given to the debtor. Prior to that time, the assignee only has an equitable title to the debt, and so must commence proceedings in the name of the assignor, or in the absence of the agreement of the assignor to lend his or her name to the commencement of the proceedings, the assignee must join the assignor as a defendant. If an equitable assignee commences proceedings contrary to this rule, the proceedings are not an absolute nullity, and the failure can be corrected by joining the assignor before judgment is given.

72. In the present case, Mr Photios is not suing Beechworth to recover the debt that has been assigned to him by EDM Group Pty Ltd. The question is when Mr Photios became a creditor for the purposes of the relevant provisions of the Corporations Act. It is not when Mr Photios became entitled to sue Beechworth in his own name to recover the debt.

73. As Austin J said in Australian Beverage Distributors v The Redrock Co [2008] NSWSC 3 at [42]:

[42] Since the assignment to ABD was for valuable consideration, the consideration being the promise of payment by two instalments, ABD became an equitable assignee of the debt upon the execution of the deed of assignment. An equitable assignee of a debt is a creditor within the meaning of s 459P(1)(b), entitled to apply for a winding up order (Australian Beverage Distributors Pty Ltd v The Redrock Co Pty Ltd [2007] NSWSC 966 at [18] per White J, citing Re Steel Wing Co Ltd [1921] 1 Ch 349; Re Allebart Investments Pty Ltd (1969) 92 WN (NSW) 726; and Rohan Trading Co Pty Ltd v Glengor Pastoral Co Pty Ltd [2003] NSWSC 1265 at [14]).

74. See also Reale Bros Pty Ltd v Reale [2003] NSWSC 666 (Young CJ in Eq, as his Honour then was) at [57]; and Rohan Trading Company Pty Ltd v Glengor Pastoral Company Ltd [2003] NSWSC 1265 (Palmer J) at [14]. The same meaning of “creditor” applies where that term is used within Part 5.3A. The question is, therefore, not when Mr Photios became entitled to enforce the debt in his own name against Beechworth, but when he became a creditor because he was an equitable assignee of a debt. That leads to the question whether the time that Mr Photios became an equitable assignee was sufficient to give him standing to seek the relief under s 447A and s 447C of the Corporations Act.

75. The real problem is that Mr Photios has paid $2000 to EDM Group Pty Ltd for an assignment of a debt of $9016.25 owed by Beechworth. Mr Photios has not given evidence to the Court about his reason for taking the assignment, or more generally his reasons for prosecuting the claim against the defendants, in relation to the appointment of the administrators in respect of Beechworth. There is no evidentiary basis for the Court to conclude that Mr Photios’ commercial purpose is to make a profit $7016.25 from his prosecution of the claim. Given the inevitable costs of maintaining the proceedings on a solicitor and client basis, even if Mr Photios’ claim succeeds, and the defendants are ordered to pay his costs on the usual basis, he will be out of pocket. The only inference available is that, in the first instance, Mr Photios acquired the debt to cure his loss of standing that followed the making of the order in the shareholder proceedings. As First Debenture is also a creditor of Beechworth, that step by Mr Photios was not necessary to ensure that the remaining plaintiffs could continue to prosecute the claim in respect of Beechworth. First Debenture had standing to do that. Two possibilities emerge. The first is that Mr Photios has taken the assignment of the debt for the purpose of avoiding a costs order being made against him consequently upon the dismissal of his claim on the basis that he has never had standing to bring it. The second is that Mr Photios is trying to maintain his standing as a personal plaintiff, against whom an order for security for the defendants’ costs will not be made, to shield the remaining corporate plaintiffs against the possibility that a security for costs order will be made against them, if there ceases to be any personal plaintiff who has a right to prosecute the proceedings.

76. In either case, Mr Photios will have acquired the debt for what I consider to be a purpose that is collateral to the maintenance of the rights of the creditors of Beechworth in relation to the issues the subject of the present proceedings.

77. The defendants relied upon the decision of Barrett J in Hoath v Comcen Pty Ltd [2005] NSWSC 477; (2005) 53 ACSR 708. His Honour was relevantly concerned with an application made for an order terminating a deed of company arrangement. Under s 445D(2), such an order “may be made on the application of” a creditor. Also, under s 445G(1), on an application of a creditor of the company, where there is doubt, on a specific ground, whether a deed of company arrangement was entered into in accordance with Part 5.3A of the Corporations Act, or complies with that part, the Court may make an order under ss (2) declaring the deed, or a provision of the deed, to be void or not to be void, as the case requires. There was also an application under s 600A of the Corporations Act for an order setting aside the resolution of the company’s creditors concerning the execution of the deed of company arrangement. Standing to bring that claim required proof that the plaintiff was a creditor of the company.

74. Barrett J held at [12]: “It follows that a person filing an originating process embodying an application for an order under ss 445D, 445G or 600A must be a creditor when the filing is made”.

75. The defendants submitted that, accordingly, the claim made by Mr Photios in the second further amended originating process, and the further amended points of claim, should be dismissed, as on no view was he a creditor of Beechworth at the date the proceedings were commenced.

76. Mr Photios accepted the authority of Hoath’s Case, but sought to distinguish it. The case has been accepted, or cited without adverse comment, in a number of cases: see International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at [42] (Gleeson CJ); QBI Corporation Pty Ltd v Plantation Rise Pty Ltd (admins apptd) (recs and mgrs. apptd) [2010] QSC 102; (2010) 77 ACSR 573 at [35]; Mediterranean Olives Financial Pty Ltd v Loaders Traders Pty Ltd (subject to doca) (No 2) [2011] FCA 178; (2011) 82 ACSR 300 at [183]; Hellenic Pty Ltd v Retail Adventures Pty Ltd (admins apptd) [2013] NSWSC 1973 at [175]; and on appeal DSG Holdings Australia Pty Ltd v Helenic Pty Ltd [2014] NSWCA 96; (2014) 307 ALR 143 at [89].

77. Mr Photios sought to distinguish Hoath on the basis that his application is made under s 447A and s 447C of the Corporations Act, and not under any of the three sections considered by his Honour.

78. His Honour based his reasoning first, at [12], on the requirement of rule 2.2(1) of the Supreme Court (Corporations) Rules 1999 (Cth) that: “Unless these Rules otherwise provide, a person must make an application required or permitted by the Corporations Act to be made to the Court…by filing an originating process…” Barrett J read this rule as meaning that only a person permitted by the Corporations Act could file an originating process for relief available under that Act, and accordingly, the person must satisfy the criteria relevant to the permission at the date of filing. That reasoning would apply to applications made under s 447A and s 447C, as much as to applications made under the sections considered in Hoath.

79. Barrett J did not address the issue of whether the conclusions that he reached would apply to applications under other sections within Part 5.3A. He only compared the position under the sections that were relevant to the case before him to the situation that obtains in the different statutory context of an application for a winding up order, where s 465B of the Corporations Act permits the Court to substitute for the original applicant “a person or persons who might otherwise have so applied for the company to be wound up”: see [13]. In that context, because of the special statutory authorisation, the Court may make an order for substitution in favour of a creditor, who only becomes a creditor after the commencement of the winding up proceedings. Plainly, there is no equivalent of s 465B that is applicable to an application for relief made under any of the sections contained in Part 5.3A.

80. At [14], Barrett J considered the effect of the decision of the Privy Council in Perak Pioneer Ltd v Petroliam Nasional Bhd [1986] AC 849. It was decided that there is no general rule that the Court will not make a substitution order in favour of a creditor who was not a creditor at the date of the commencement of winding up proceedings, but rather that the Court would not sustain a winding up claim “founded on a debt purchased pendent lite for the very purpose of acquiring the right to petition” for a winding up.

81. Relevantly, however, it is to be noticed that in Perak Pioneer, Lord Brightman at 854 said: “It is clear that a person, who is not a creditor of the company at the time when the petition is presented and does not fulfil any other of the qualifications mentioned, has no status to present a petition”. Where winding up proceedings are commenced by a plaintiff who claims standing on the basis that the plaintiff is a creditor of the company, the plaintiff must actually be a creditor at the time the winding up summons is filed. In this respect, Perak Pioneer, albeit in the context of a winding up application, supports the conclusion that the plaintiff must in fact satisfy the criterion upon which standing is claimed at the time the proceedings are commenced. The considerations that permit the making of an order for the substitution of a new creditor for the plaintiff on a winding up application have no relevance to the case of applications made under Part 5.3A.

82. In Hoath, Barrett J said:

[15] In the present case, each originating process can now be seen to have been filed by a person without standing to make the relevant application. Each was, at the time of filing, liable to be dismissed or struck out because doomed to failure. Each was, in the sense, an abuse of process. It makes no difference, in my opinion, that Mr Hoath may later have become a creditor and thereby acquired the standing that he should have had to ground his applications in the first place. This is because of the class or group of creditors that each provision clearly has in contemplation.

[16] Sections 445D, 445G and 600A, unlike the provisions allowing any creditor at any time to seek winding up, are concerned with creditors in a particular context and for particular purposes. Sections 445D and 445G enable a creditor to seek the intervention of the court in a way that causes a deed of company arrangement to become inoperative. Section 600A, as it applies in relation to a deed of company arrangement, enables a creditor to seek the intervention of the court to vary the outcome of a resolution of creditors where, among other things, it has produced a particular type of adverse effect upon the interests of “the creditors as a whole”, “that class of creditors as a whole” or “the creditors who voted against the proposed resolution”.

[17] The effect and operation of a deed of company arrangement, as it relates to the company’s creditors, are as specified in s 444D. By s 444D(1) (which operates subject to qualifications and exceptions in ss 444D(2) and 444D(3)), such a deed “binds all creditors of the company”, so far as concerns claims arising on or before the day specified in the deed under para 444A(4)(i). Creditors having claims satisfying that temporal specification are thus affected by the deed, as are the respective claims satisfying that temporal specification. One of those temporal requirements, it seems to me, is that the person concerned had, at the time the deed of company arrangement became binding, a claim that had arisen on or before the relevantly specified day. The effect of the statutory provisions is that creditors within that class are, in respect of those claims, entitled to the benefits and subject to the detriments created by the deed.

[18] In the case of s 600A and its focus on the interests of creditors, it is in my view plain that the section is concerned with persons who were creditors when the resolution was passed. The section is concerned with circumstances pertaining at and in relation to the meeting and the passing of the resolution and thus has in contemplation the creditor constituency as it existed at that time.

87. The observations of Barrett J at [15], in my opinion, have the same force in relation to applications made under s 447A and s 447C, as they have in respect of the sections that were considered by his Honour. It is arguable that the effect of the making of a deed of company arrangement on the creditors of a company in the course of administration is more immediate and direct in relation to the interests of the company’s creditors, in so far as it will usually place limitations on the ability of the creditors to pursue the debts owed by the company, than the general effect on the rights of creditors that arise from the entry of a company into an administration under Part 5.3A. However, the appointment of administrators under Part 5.3A does have a number of significant consequences on the rights of the company’s creditors. Creditors cannot enforce a security interest against the company (s 440B); they cannot sue the company without consent of the administrator or leave of the Court (s 440D); they cannot enforce any process in relation to the property of the company (s 440F); and they become contingently liable to their debts being affected by the resolution of other creditors in respect of a deed of company arrangement (Division 10).

88. In my view, the degree of equivalence between the impact on creditors of the company entering into a deed of company arrangement, and the initial entry of the company into administration, is sufficient to justify the conclusion that only parties who are creditors at the time of the commencement of proceedings for orders under s 447A and s 447C have standing to commence the proceedings. (It is not necessary for me to consider the possibility that the wide powers vested in the Court by s 447A may permit the Court to authorise proceedings of the present nature to be prosecuted by a party who was not a creditor at the time of the commencement of the proceedings. No such order was sought in the present case, and it would not be appropriate in any event, given the circumstances in which Mr Photios acquired the debt).

89. It will therefore be appropriate for the Court to make an order dismissing Mr Photios’ claim in so far as it relates to the administration of Beechworth.

90. I add, as an additional ground for making that order, that in my view Mr Photios acquired the debt upon which he relies for standing for a collateral purpose, which disqualifies him from being a person upon whose application the Court should order that the appointment of the administrators was invalid. As I have recorded above, Mr Photios has not offered to the Court any good reason for his acquiring the debt at a discount for the sole purpose of giving him standing to pursue the claim that he makes in these proceedings. The Court should be careful not to encourage parties to acquire debts in insolvent companies for no good commercial purpose, other than to give them some collateral advantage.

91. The Vangory parties put an additional submission that the proceedings concerning the validity of the appointment of the administrators of Beechworth should be dismissed on the basis that they are an abuse of process, because the amount of Mr Photios’ claim, being $9016.25, “is but a microscopic portion of the total creditor claims, which are in the region of $11 million”. The Vangory parties called in aid ss 56 to 60 of the Civil Procedure Act 2005 (NSW), and relied upon authorities such as Grizonic v Suttor [2008] NSWSC 914 and Bleyer v Google Inc [2014] NSWSC 897; (2014) 311 ALR 529.

92. Quite apart from shortcomings in proof, I do not accept that the present case is an apt one in which to consider the application of the principles discussed in these authorities. If being a creditor for the amount of $9016.25 was otherwise sufficient to give Mr Photios standing to bring his claim in relation to Beechworth, it would not be a proper approach to compare the amount of the debt claimed by Mr Photios to the amount of the debts owed to all of the creditors of Beechworth, for the purpose of determining whether Mr Photios’ claim is so inconsequential in comparison to the total that the proceedings amount to an abuse of process. The proceedings are not primarily to allow Mr Photios to recover his debt from Beechworth. The existence of the debt would give him standing to pursue the making of orders under s 447A or s 447C, having the effect that the appointment of the administrators to Beechworth is invalid. That is not an inconsequential matter. It is not necessary in the circumstances to consider in any detail the other matters that would have to be established before the Court would dismiss a claim such as the present, on the ground that it is an abuse of process, because the amount claimed is out of all proportion to the costs to the parties, and the inconvenience to the Court, in dealing with the claim. I have observed during argument on a number of occasions that it is difficult, if not impossible, to discern the commercial purpose of the plaintiffs in pursuing these proceedings. If that observation is true, it does not have the same meaning as a conclusion that the claims made in these proceedings are so insignificant as to be entirely disproportionate to the costs of adjudicating upon the claim.

The security for costs application

93. The next question is whether the Court should make an order that any of the remaining plaintiffs provide security to the defendants for their costs of defending the proceedings.

94. The defendants have accepted that, as Mr Photios remains a plaintiff in the proceedings in respect of the claims concerning the appointment of the administrators as administrators of Griffith, they will not succeed in an application that the remaining plaintiffs provide security for the defendants’ costs in relation to that aspect of the claim. The defendants maintain their claim for security for costs against First Debenture, which will be the only remaining plaintiff in the claim concerning the validity of the appointment of the administrators for Beechworth, after the orders are made on the present application.

95. In their letter to the solicitors for the remaining plaintiffs dated 13 March 2015, the solicitors for the administrators asserted that there was no evidence that any of the corporate plaintiffs had the capacity to meet any adverse costs orders. The solicitors referred to enclosed ASIC records in relation to First Debenture, that suggested that, on about 1 October 2012, First Debenture was suspended from trading on the National Stock Exchange (which the solicitors claimed on the basis of “other information in the public domain”, which was not attached, was because of First Debenture’s prolonged failure to release financial reports). The solicitors also noted that, on about 6 August 2013, First Debenture was delisted from trading on the NSX. The solicitors sought provision by 17 March 2015 of tax returns, balance sheets, profit and loss statements, bank statements and loan agreements in respect of First Debenture for a number of years.

96. On 16 March 2015, the solicitors for the Vangory parties sought from the solicitors for the remaining plaintiffs substantially the same financial information as the administrators had sought in relation to the corporate plaintiffs.

97. The solicitors for the remaining plaintiffs responded to the solicitors for the administrators on 19 March 2015. They asserted that “because of the long, unexplained delay of your clients in seeking security for costs, such information is unlikely to be required or material”. They said that any application for security for costs would be “hopeless, more so in respect of past costs which you specifically assert will be sought”. They pointed out that the proceedings had been commenced over seven months earlier, and that the plaintiffs had incurred the costs of at least 14 hearing days. The solicitors responded to the claim that there was no evidence that the corporate plaintiffs have the capacity to meet any adverse costs orders by saying that the threshold question was whether the administrators were able to produce credible evidence of the plaintiffs’ inability to pay costs. They asserted that the demand for financial information was “merely fishing”. Finally, the plaintiffs asserted that “there is a real question of the utility of seeking any such security given the existence of Mr Photios as a personal plaintiff who seeks effectively the same relief as the corporate plaintiffs and against whom security will not be ordered”.

98. Also on 19 March 2015, the solicitors for the remaining plaintiffs gave a response in virtually identical terms to the solicitors for the Vangory parties.

99. On about 30 March 2015, the solicitors for the Vangory parties served a notice to produce on the solicitors for the remaining plaintiffs, that required them to produce to the Court on 2 April 2015 the following categories of documents, in relation to each of the remaining corporate plaintiffs:

(a)   financial statements, including profit and loss statements and balance sheet for the financial years ended 30 June 2013 and 30 June 2014;

(b)   tax returns for the financial years ended 30 June 2013 and 30 June 2014;

(c)   management accounts, including profit and loss statements and balance sheets prepared at any time during the period 1 July 2013 to date;

(d)   documents recording assets and/or liabilities of the relevant company at any point in time during the period 1 July 2013 to date;

(e)   documents within paragraphs (a) to (d) in relation to any trust of which the relevant company as a trustee.

100. None of the corporate plaintiffs produced any documents within these categories when the notice to produce was called at the hearing of the interlocutory processes. The notice to produce became exhibit AX-3.

101. The remaining plaintiffs did not call any evidence to explain the circumstances disclosed by the ASIC records as at 13 March 2015, being, in relation to First Debenture, that on 28 June 2010 a deed of company arrangement was apparently entered into in relation to the company; the deed administrator resigned or was removed on 10 September 2010; and the company was suspended from official quotation on the NSX on 1 October 2012. First Debenture was recorded as being an unlisted public company. Its paid-up capital was $1,872,409.

102. The plaintiffs did not tender any evidence relevant to establishing that First Debenture could meet any costs orders that might be made against it in respect of its prosecution of these proceedings, in so far as relief is sought concerning the appointment of the administrators to Beechworth.

103. The administrators’ solicitor gave evidence that the administrators’ costs to date total approximately $350,000 (plus GST) in respect of their solicitors’ costs, and approximately $175,000 (including GST) in respect of counsel and other disbursements. The solicitor estimated the administrators’ costs to the end of the hearing as being $196,099, including GST.

104. The solicitor for the Vangory parties estimated their costs for completing the hearing as being $124,330, and did not claim GST. The Vangory parties have advised the Court that they will not retain counsel for the completion of the proceedings. The solicitor estimated that the Vangory parties were likely to recover costs of between $75,000 and $100,000, on an assessment of their costs on the ordinary basis for the balance of the proceedings. The Vangory parties did not provide evidence of their costs to date.

105. Neither the administrators nor the Vangory parties provided any dissection of the costs that they asserted had been incurred, or would be incurred, in respect of the plaintiffs’ claims in so far as they related to Beechworth on the one hand, and Griffith on the other. Counsel for the administrators frankly admitted that such a dissection was not possible, and he submitted that, given the nature of the claims, and in particular the fact that the claims concerning each of Beechworth and Griffith substantially mirrored the other in relation to the nature of the claims, and the evidence that was likely to be relevant to their resolution, the most appropriate course was for the Court to attribute 50% of the cost to the proceedings in so far as they involved each of the companies.

106. The defendants’ explanation for the delay in seeking security for costs against the plaintiffs was that such an application would have been futile so long as Mr Spencer and Mr Photios remained as personal plaintiffs. That was particularly so in relation to Mr Spencer who, to all appearances, was the plaintiff with the greatest interest in the proceedings. That was so because of the personal guarantees that he claimed to have given in respect of the companies’ debts, his asserted shareholdings, and the fact that he was the principal protagonist in the contest of fact concerning the circumstances in which he was replaced as a director of the companies by the director who executed the two securities on behalf of the companies. Mr Photios, and the corporate plaintiffs, appeared to have a subsidiary role to Mr Spencer.

100. Mr Spencer only informed the Court of his discontinuance of his claim as a plaintiff in the removal proceedings on 26 February 2015. The defendants made enquiries and wrote their letters to the solicitors for the plaintiffs on 13 and 16 March 2015.

101. The authorities that have considered the circumstances in which the Court will make an order for security for costs are legion. I will confine the consideration to the cases upon which the parties relied.

102. In Street v Lunar Park Sydney Pty Ltd [2006] NSWSC 1317 Brereton J said:

[2] The proceedings now have a relatively lengthy history, the details of which can be seen from my judgment of 6 April 2006 [Street v Luna Park Sydney Pty Ltd [2006] NSWSC 230]. Relevantly, the third and fourth defendants were joined by an order made on 6 April 2006. By notice of motion filed on 12 July 2006 they seek security for their costs of the proceedings against the fourth plaintiff Glen 8 Pty Ltd, which is the developer of a property at 8 Glen Street, Milsons Point. They seek security on the ground which may be described, somewhat compendiously and imprecisely, as corporate impecuniosity, referred to in Corporations Act 2001 (Cth), s 1335(1), and the Uniform Civil Procedure Rules 2005 (NSW), r 42.21(1)(d).

[3] Corporations Act, s 1335(1), provides as follows:

(1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.

[4] Uniform Civil Procedure Rules r 42.21(1)(d), relevantly provides as follows:

42.21 Security for costs…

(1)   If, in any proceedings, it appears to the court on the application of a defendant:

…

(d)   that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so, …

the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant’s costs of the proceedings and that the proceedings be stayed until the security is given.

[5] On an application for security for costs under s 1335 or under r 42.21(1)(d), three issues generally arise: the first is whether the ground referred to in the section or the rule is established; the second is whether, if the ground has been established, as a matter of discretion an order for security should be made; and the third is the quantum of and terms upon which any order for security is to be made.

[6] I turn then to consider whether the ground which I have described as corporate impecuniosity, has been established. In Beach Petroleum NL v Johnson (1992) 7 ACSR 203, Von Doussa J said at [205]:

In my opinion the power of the court under s 1335 arises if credible evidence establishes that there is reason to believe there is a real chance that in events which can fairly be described as reasonably possible the plaintiff corporation will be unable to pay the costs of the defendant on service of the allocatur, if judgment goes against it. This will be so even if in other events which can also be fairly described as reasonably possible the plaintiff corporation would be able to pay the costs. The degree of likelihood of the plaintiff corporation being unable to pay the costs along with all the circumstances, actual and possible, about its financial position, would be then taken into account in the exercise of discretion, and in framing the orders of the court if the decision is to order security.

[7] This test has been applied in this Court [Hurworth Nominees Pty Ltd v ANZ Banking Group Ltd [2005] NSWSC 1360, [25] (White J); see KDL Building Pty Ltd v Mount [2006] NSWSC 474, [5]]. In Hurworth Nominees, White J — correctly, in my respectful opinion — described it (at [41]) as an undemanding test.

110. Two members of the Full Court of the Supreme Court of Western Australia have made helpful observations concerning the significance of the expression “if it appears by credible testimony that there is reason to believe” in s 1335, and “there is reason to believe” in rule 42.21. After a detailed consideration of the history of the provisions, including from their source in English law, Pidgeon and Owen JJ said in FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 33 ACSR 739:

[17] There have been few cases on the point in Australia. In Churchills Ltd v Pilcher [1940] NSW Weekly Notes at 108 the Full Court of New South Wales considered an appeal from a refusal by Bavin J to make the order where there was evidence of a company being unable to meet an order as to costs. There was no answering affidavit by the company. Bavin J said, "All the cases that I have had under this section have been cases where the company was either in liquidation - that seems to be itself a ground - or cases where there were admissions by the company itself or unquestionable evidence from the books of the company, or facts relating to the company which show that it could not pay." Jordan CJ said, on appeal, that to restrict the jurisdiction to cases of the types enumerated is to tie the hands of the tribunal in a way not contemplated by the legislature. He thought for that reason that the learned Judge acted on a wrong principle. Jordan CJ, in reasons to which the other Judges agreed, considered that the material before the court did supply reason for believing that the company would be unable to pay the costs if it was unsuccessful. His Honour said, "No doubt the evidence is not conclusive, but it is my opinion amply sufficient to make out a prima facie case." He went on to say that the plaintiff company, which is in possession of the whole of the facts, had thought it prudent to offer no explanation of the material which has been placed before the court by the defendant. He continued:

"The material to which we have been referred by Mr Lloyd does appear to me to supply, by credible testimony, evidence that there is reason to believe that the plaintiff company will be unable to pay the costs of the defendant if successful in his defence."…

[21] We consider that the wording of the section and the weight of the authorities supports the proposition that there is initially the jurisdictional question as to whether it appears by credible testimony that there is reason to believe that the corporation had been able to pay the costs. Once the Court has jurisdiction there is an unlimited discretion.

[22] The learned Master said in his reasons (AB 12):

"What the section requires is that the applicant produce credible testimony that the respondent would not be able to meet any costs order made against it. This test has been described as "the threshold hurdle.""

His Honour then referred to the decision in Tipperary Developments Pty Ltd v State of Western Australia. The learned Master was correct in saying that there was the threshold hurdle which was required to be cleared to give the Court jurisdiction. We consider however, with respect, that the learned Master placed the hurdle too high. He said that there must be credible testimony "that the respondent would not be able to meet any costs order made against it". The applicant is required to establish no more than that there is "reason to believe". The Master's final question and answer is a further indication that he was requiring the applicant to prove the fact that the company now would not be able to meet a costs order. The Master said "Does the fact that in 1995 the first plaintiff would not have been able to meet any costs order made against it, mean that it would not be able to meet such a costs order in 1999? To conclude that it does would, in my view, be nothing more than speculation". In order to determine whether he had jurisdiction he was required to do no more than judge the quality of the evidence to see if it objectively gave rise to a "reason to believe"...

[24] It becomes necessary now to determine whether there was before the Master the necessary credible testimony to give him jurisdiction. In view of the history of the section we would, for our part, see no requirement to attempt to define further the expression. The words speak for themselves and in that sense the expression is similar to expressions such as "beyond reasonable doubt". For the reasons we have set out we are not in accord with one proposition referred to by Lee J in Warren Mitchell Pty Ltd v Australian Green Offices Union when his Honour said at 1241 "qualification of the word 'testimony' by the word 'credible' suggest that evidentiary burden is undertaken by the parties seeking the order". We would not see any burden as nothing is sought to be proved. The legislature that first enacted the words, used them to replace words referring to proof and in our view, were dispensing with a requirement to prove a matter. What is required is an evaluation of the evidence led by the applicant to see whether that leads to a reason to believe that the corporation will be unable to pay the costs of the defendant.

111. In Re Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 611, Black J made the following useful observations concerning how the Court should go about determining the amount of the security that should be provided, as well as the need for the applicant to move promptly in making the application. The only issue before the Court was the quantification of the appropriate amount of the security that should be provided:

[66] The Court should take “broad brush” approach to the quantum of an order for security for costs: Allstate Life Insurance Co v ANZ Banking Group Ltd (1995) 134 ALR 187 at 199–201; Ashington Capital Pty Ltd v Parissen Capital (Project X) Pty Ltd [2012] NSWSC 410 at [17]–[18].

[69] It is well established that an application for security for costs should be brought promptly and, where that is done, an order for security for costs may extend not only to future costs but also to costs already incurred: Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd (1984) 8 ACLR 818 at 820; Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 514; Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 563 at [35]ff; Szanto v Bainton [2011] NSWSC 985. Conversely, the court is less likely to order security for past costs where there has been significant delay in bringing the relevant application: Karl Suleman Enterprises Pty Ltd (in liq) v Pham [2010] NSWSC 886 at [50]. There has been significant delay in this matter in progressing the Defendants’ application for further security for costs, filed over 7 months ago, and substantial costs have been incurred during the period of delay. The Defendants submit that the Plaintiffs have been on notice of the Defendants’ intention to apply for further security for costs since the further security for costs application was made on 31 August 2012. While that is correct, it is not an answer to the proposition that that application should have been, and was not, pursued promptly. That delay tends strongly against an order in respect of past costs and I do not consider that security should extend to past costs in the matter:

112. I am satisfied that the defendants have established that there is reason to believe that First Debenture will be unable to pay the defendants’ costs, if its claim in these proceedings in relation to Beechworth fails, and it is ordered to pay the defendants’ costs. Plainly, there is very little positive evidence at all concerning the financial circumstances of First Debenture, let alone positive evidence that it will not be able to pay the defendants’ costs measured in terms of multiple hundreds of thousands of dollars. The only positive evidence consists of the three statements in the ASIC records that have been set out above. Those statements are barely informative, and the latest event, being the suspension of the company from official quotation on the NSX, occurred on 1 October 2012.

113. However, in my view, in cases where the amount of the legal costs that a plaintiff company may be ordered to pay is substantial in relative terms, and there is some evidence that gives rise to concern as to the financial capacity of the company, it is relevant for the Court to have regard to the response of the company to a reasonable request by the defendants that the company provide, on a proper basis, adequate evidence to confirm its financial capacity. I regard the requests made by the defendants’ solicitors in this case as being reasonable. Not only did First Debenture decline to provide any positive response at all to these requests, but it failed to produce the documents, that it was required to produce to the Court, by the notice to produce that was served by the Vangory parties. First Debenture did not apply to set aside the notice to produce. It did not give evidence to explain why it did not produce the documents required. It simply did not respond at all. It is not therefore simply a matter of First Debenture not tendering evidence available only to it to displace some appearance of financial incapacity that may be inferred from other evidence available to the Court. First Debenture has denied the defendants the ability to consider and rely upon that evidence by reason of its unexplained and unwarranted failure to comply with the notice to produce. That is a considerably more potent reason for the Court to decide that there is the necessary “reason to believe” than if First Debenture had simply not tendered evidence of its own financial records.

114. While it is necessary for the defendants to persuade the Court that the evidence justifies a conclusion that there is reason to believe that First Debenture will be unable to pay their costs if ordered to do so, the Court should not permit a plaintiff company to avoid an order for the provision of security for costs by ‘stonewalling’ the defendants, by refusing to comply with a notice to produce returnable at the hearing of an application for an order for security for costs.

115. It will be the case for a substantial number of corporate plaintiffs that the only source of proof of their financial capacity will be their own financial records, which are solely within the knowledge of the companies. The capacity of defendants to obtain orders for security for costs should not always be dependent upon the happening of events, such as the filing of winding up applications, execution of securities, or non-payment of debts, which may provide objective evidence to defendants of the likely financial incapacity of the companies. There is a point where, in the face of some evidence that casts doubt on the financial capacity of a plaintiff company, a point-blank refusal to provide adequate internal documentary evidence of the financial capacity of the company, will justify a finding that the necessary reason to believe exists.

116. The next question is whether the defendants are precluded from being entitled to an order for security for costs because of the time that has elapsed since the proceedings were commenced by the filing of the originating process on 4 August 2014 .

117. In my view, the defendants were justified in not pursuing an application for security for costs as long as Mr Spencer was an active plaintiff, and also Mr Photios appeared to be a plaintiff, albeit that his claim to standing has been found to be baseless. It is common practice for defendants to decide not to seek security for costs from corporate plaintiffs in cases where there is a personal plaintiff whose claim overlaps entirely with that made by the companies. It is usually considered to be futile for defendants to seek security for costs in such cases. The plaintiffs made that assertion in their solicitors’ correspondence to the defendants’ solicitors.

118. The defendants have commenced their application for security for costs within a reasonable time of their learning that Mr Spencer would discontinue his claim in respect of Beechworth.

119. It would not be justified, however, in the present case, for the Court to order First Debenture to provide the administrators security for their past costs (and, as I have noted above, the Vangory parties appear not to have made an application for security for past costs, as their solicitor has not given an estimate of those costs). It does not seem to me that it would be proper in a case such as the present, which is part heard in the circumstances that I have described in outline above, and where all parties may be presumed to have incurred substantial costs, to order First Debenture to provide security for past costs, where the only trigger for the late application by the administrators has been the discontinuance by Mr Spencer of his claim, and the dismissal of the claim made by Mr Photios. In a sense, First Debenture got the benefit of a shield against an application for security for costs by reason of the concurrent existence of identical claims by two personal plaintiffs. The existence of that shield, or its removal, is not the responsibility of First Debenture, and it should not now be placed in the position where it cannot continue to prosecute its claim in respect of Beechworth, without first meeting an unexpected obligation to provide security for the past costs of the administrators.

120. The question is whether the Court should exercise its discretion in favour of making an order against First Debenture that it provide security for the future costs of the administrators and the Vangory parties.

121. That question should be answered in the affirmative. First Debenture did not tender any evidence in opposition to the applications made by the defendants. The Court has concluded that the threshold that requires the existence of a reason to believe that First Debenture will be unable to pay the defendants’ costs has been satisfied, and the company has not put before the Court any evidence that would reasonably cause the Court to exercise its discretion against ordering that an appropriate amount of security be provided.

122. The administrators’ evidence was that the estimated costs to complete the hearing of the proceedings will be slightly less than $200,000, inclusive of GST. The equivalent estimate for the Vangory parties was about $125,000, exclusive of GST. The estimate for the administrators allowed for senior and junior counsel for the hearing, but only senior counsel for the purposes of preparation. I am satisfied that the administrators’ solicitor has appropriate expertise to make a reasonable estimation of the likely legal costs. I am also satisfied that it is reasonable for senior counsel to provide the limited assistance in preparation that has been allowed for, as generally senior counsel has appeared where possible in this matter without a junior. I am also satisfied that the solicitor for the Vangory parties has the expertise to justify the Court accepting the estimate that he has made. As I have noted above, it is less than the estimate for the administrators, as the Vangory parties have for some time dispensed with the benefit of representation by counsel. In any event, the plaintiffs did not provide contrary evidence in relation to the estimates of costs, and did not challenge the basis upon which those estimates were made in submissions.

123. The Vangory parties’ solicitor estimated the likely recovery of costs assessed on the ordinary basis as being within the range of between 60% and 80%. The solicitor for the administrators did not give evidence on this subject. In the circumstances, it will be reasonable to assume that the defendants will recover 70% of their costs and disbursements if they succeed in these proceedings, following an assessment of their costs on the ordinary basis. (I have not ignored the possibility that the administrators may recover more than 70% in relation to their disbursements, including counsels’ fees, but there is no evidence to that effect). The amount of the recoverable costs may therefore be assumed to be $140,000 in the case of the administrators and $87,500 in the case of the Vangory parties.

112. It is then necessary to consider how the Court should accommodate the fact that the defendants have only sought security for costs from First Debenture in respect of its claim concerning Beechworth, and not in respect of the claim by the remaining plaintiffs in respect of Griffith.

113. A review of the further amended points of claim shows that the structure of the claims made by the relevant remaining plaintiffs in respect of Beechworth and Griffith is almost identical in each case. The facts relevant to each case will be different, although in many respects related. The rights of action that the relevant remaining plaintiffs seek to enforce in respect of each of Beechworth and Griffith are sufficiently similar that it is reasonable to conclude that the defendants are likely, in broad terms, to incur equal amounts of costs and disbursements in the defence of the claims involving Beechworth on the one hand, and Griffith on the other.

114. That proposition is subject to the exception that will arise if the Court does not authorise First Debenture to pursue the directors’ duties claim in respect of the grant of the security by Beechworth, as is sought in the remaining plaintiffs’ interlocutory process. If that authorisation is not granted, then, again in broad terms, the defence of the claim in relation to Beechworth should incur less costs than the claim concerning Griffith.

115. It will, therefore, be appropriate for me to deal with the remaining plaintiffs’ interlocutory application before I make any final determination of the amount of security for costs that First Debenture should be ordered to provide, in respect of its Beechworth claim.

Claim in respect of derivative proceedings

128. By their interlocutory process, Mr Photios and First Debenture sought an order that order 3 made on 9 December 2014 be varied so as to delete the authorisation given to Mr Spencer and Cleary Corporation to prosecute the directors’ duties claim, and to substitute the names of Mr Photios and First Debenture. Alternatively, they seek a new order in the Court’s inherent jurisdiction that has the same effect.

129. As I will order that Mr Photios’ claim in relation to Beechworth be dismissed, I will proceed upon the basis that the application now being considered has been made by First Debenture alone.

130. First Debenture points, first, to the fact that order 4 made by the Court on 9 December 2014 was made in favour of Mr Photios, Perri Investments, Mr Spencer and Cleary Corporation, and that the order was equivalent to order 3, but in respect of authorising the pursuit of the directors’ duties claim in relation to Griffith. The suggestion is that there should be no reason now why the Court should not substitute First Debenture for Mr Spencer and Cleary Corporation in relation to the claim involving Beechworth.

131. The company then points to the Court’s reasons for judgment delivered on 3 December 2014, particularly at [23] to [41], and says that nothing has changed that would justify the Court not making the orders sought in favour of First Debenture. In particular, First Debenture submits that the three matters that the Court identified at [25], which were taken from the decision of Barrett J in Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551; (2008) 71 NSWLR 577 at [34], are satisfied in respect of the making of an order in favour of First Debenture.

132. I accept the submission that the three criteria identified by Barrett J are satisfied. However, his Honour also noted at [36] that, unlike the case where an order is sought under s 237 of the Corporations Act, in the present case the Court is called upon to exercise a general equitable jurisdiction which is discretionary. First Debenture accepted in submissions that the Court has a discretion as to whether or not to make the order.

133. The question, therefore, becomes whether any events have occurred since 9 December 2014, or any relevant differences exist as between Mr Spencer and Cleary Corporation on the one hand, and First Debenture on the other, which could justify the Court exercising its discretion to decline to make the orders sought by First Debenture.

134. All the Court knows about First Debenture is that it is an unlisted public company, which has a paid-up capital of is $1,872,409, and whose directors are gentlemen of the names Richard Anthony Licardy, John Joseph Foley, and Mr Photios. Mr Photios gave evidence that he is the chief executive officer of First Debenture, but he did not otherwise say anything at all about the nature of the company’s business activities, or why it is engaged in the present proceedings. First Debenture is also a creditor of Beechworth in the claimed amount of $30,000, plus additional fees charged by ASIC to Beechworth that appear to total less than $1000.

135. The Court now knows that Mr Photios was the subject of a claim in the shareholder proceedings, pleaded in the alternative, that he procured a transfer of shares in Beechworth to Perri Investments in a manner that was fraudulent. That claim that the transfer of shares was invalid was compromised before Mr Photios provided evidence in response, and the Court has not made any finding on the merits concerning the validity of the claim.  Orders were made by consent of all interested parties that reversed the effect of the transaction.  The Court must be careful not to impermissibly draw conclusions concerning Mr Photios’ conduct from those events. The fact remains, however, that they have not been explained.

136. Additionally, the Court now knows that Mr Photios sought to sustain his personal standing to pursue the claim in the present proceedings concerning Beechworth by acquiring a small debt at a discount after the proceedings had been commenced.

137. Order 3 made on 9 December 2014, concerning Beechworth was made in favour of Mr Spencer and Cleary Corporation. I have referred, above, to the interest claimed by those parties in the affairs of Beechworth. Mr Spencer swore substantive affidavits that were read in the proceedings, and he was cross-examined, before the Court made the orders on 9 December 2014. The defendants accepted that Mr Spencer, in particular, had a material interest in prosecuting the removal proceedings as a plaintiff. As appears from [39] and [41] of my reasons for judgment, the argument between the parties focused on the entitlement and suitability of Mr Spencer to be given authorisation to pursue a derivative breach of directors’ duties claim on behalf of the two companies.

138. Notwithstanding the doubts that I expressed at [28] to [30] concerning the third matter identified by Barrett J in Carpenter v Pioneer Park Pty Ltd, I concluded that authorisation should be given to the “plaintiffs”, including Mr Spencer. In reality, separate consideration was not given to the position of the other plaintiffs. At [50], I noted that it would be necessary for the relevant plaintiffs in the case of each of the companies to be identified, and at [51], I gave the parties leave to bring in short minutes.

139. The parties provided to the Court short minutes that led ultimately to the Court making order 4 on 9 December 2014, which authorised the first, second, third and fourth plaintiffs to bring the directors’ duties claim on behalf of Griffith. Thus, Mr Photios and Perri Investments were included in the list of authorised plaintiffs, with Mr Spencer and Cleary Corporation. Separate consideration was not given to the suitability of Mr Photios and Perri Investments. It appears that the defendants were content for those plaintiffs to be included, once the Court had made a positive decision in relation to Mr Spencer and Cleary Corporation.

140. To date, the Court has not made any order authorising First Debenture to bring a directors’ duties claim on behalf of either company. First Debenture’s suitability to be given that authority has not been the subject of separate evidence or consideration.

141. I recognise that there are factors that favour the making of an order that has the effect of substituting First Debenture for Mr Spencer and Cleary Corporation in order 3 made on 9 December 2014, in relation to Beechworth. In principle, the considerations concerning the first and second requirements identified in Carpenter v Pioneer Park Pty Ltd continue to apply. If both Beechworth and Griffith have good claims for breach of directors’ duties, it may be undesirable for the creditors of Griffith to enjoy the benefit of success on that claim, while the creditors of Beechworth do not, if the only reason for the different position is the discontinuation of the proceedings by Mr Spencer and Cleary Corporation, and the happenstance of which plaintiffs were named in orders 3 and 4 made on 9 December 2014.

142. Notwithstanding this concern, as the jurisdiction the Court is called upon to exercise is discretionary, I do not think it is proper to exercise the discretion at this stage in favour of a company, First Debenture, which is not known to the Court, other than in respect of its existence, and a handful of insignificant facts. In my view, the Court should hesitate to make an order of the type sought in the present application, which merely involves a convenient swap of one authorised plaintiff for another. The alternative plaintiff should come forward and present evidence concerning its identity, its business, its interest in the proceedings, and its objectives. The Court should not, in general, authorise a plaintiff to prosecute proceedings on behalf of a company without first having a comfortable degree of confidence that the plaintiff is acting properly in the overall interests of the company. In this respect it must be remembered that the only reason why the application is not being made under ss 236 and 237 of the Corporations Act is that the companies are under administration. The fact of the administration, and the probable insolvency of the companies, requires that the Court exercise particular care before it authorises a plaintiff to prosecute a claim on behalf of one of the companies. The circumstances in which the Court made the orders that were made on 9 December 2014 were in fact borderline, and I do not think the order swapping First Debenture for Mr Spencer and Cleary Corporation should be made at this stage, when in practical terms the Court knows nothing about First Debenture.

143. I will, therefore, decline to make the orders sought by First Debenture in its interlocutory process at this stage. I will give leave to First Debenture to renew its application, provided it supports that application with evidence suitable to satisfy the requirements I have outlined above.

Determination of amounts of security to be provided

144. It is now necessary for me to return to the determination of the appropriate level of security for costs that First Debenture should be required to provide, in respect of its claim concerning the appointment of the administrators to Beechworth.

145. At this stage, the exercise must be carried out on the basis that First Debenture has not been given leave to prosecute the directors’ duties claim on behalf of Beechworth. That should reduce the amount of the costs that the defendants will incur in defending the claim concerning the appointment of the administrators for Beechworth. None of the parties have led any evidence that would assist in quantifying the amount of the reduction. Although the reduction will not be insignificant, it is unlikely to be substantial. The evidence relevant to the breach of directors’ duties claim is substantially the same as that which will be relevant to the claims that the securities were not validly executed and that they were immediate shams.

146. It is also necessary to have regard to the fact that, on 9 December 2014, I ordered that the plaintiffs provide security for the costs of the companies in respect of the likely additional costs of their being given authorisation to prosecute the directors’ duties claims on behalf of both companies. The amount of the security was $40,000 in total. (I reduced the amount of the required security from the $50,000 referred to at [50] of my reasons for judgment, because I had determined the larger sum on the basis of an incorrect understanding of what evidence had been tendered on the application).

147. The $40,000 in security for costs that has been provided to the two companies will effectively protect both the administrators and the Vangory parties, to the extent of the available security, if they defeat the directors’ duties claim that may be made against them on behalf of both Beechworth and Griffith.

148. As I understand it, the provision of the $40,000 of security still stands, notwithstanding the discontinuance of the proceedings by Mr Spencer and Cleary Corporation. Of the amount of $40,000, $20,000 may be attributed to the claim in respect of Beechworth. (The Court did not make separate orders for $20,000 security for the costs of each of the companies. I do not know whether the interested parties will seek any variation of the order as a result of the orders that I will make on the present applications).

149. As I have set out above, the amount of the recoverable costs for the balance of the proceedings may be assumed to be $140,000 in the case of the administrators and $87,500 in the case of the Vangory parties. It is necessary to halve each of these amounts to calculate an appropriate sum for the proceedings concerning Beechworth. That gives $70,000 and $43,750. Each of those amounts should further be reduced by half of the $20,000 of the security already provided by the plaintiffs under the order that I made on 9 December 2014, which is attributable to Beechworth. That is, the $20,000 should be distributed equally between the administrators and the Vangory parties.

150. I will therefore make orders that First Debenture provide security for costs in the amount of $60,000 to the administrators and $33,750 to the Vangory parties.

151. The hearing of the proceedings is fixed to recommence on 4 August 2015. It will be appropriate for the security for costs to be provided 3 weeks before the recommencement of the hearing, on 14 July 2015.

Proposed orders

152. I propose to make the following orders. Given the fog of war that surrounds these proceedings, I will not make the orders now, but will give the parties a brief opportunity to comment on the orders in relation to the manner of their formulation.

1. Order pursuant to rule 13.4 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) that the claims made by the first plaintiff, the second plaintiff and the fifth plaintiff in pars [1] – [3], [5] – [8], [10] – [13] of the second further amended originating process be dismissed.

2. Order pursuant to rule 42.21(3) of the UCPR and s 1335 of the Corporations Act 2001 (Cth) (the Act) that the sixth plaintiff provide security for the costs of the first, second, third and fourth defendants in respect of the sixth plaintiff’s claims in pars [1] – [3], [5] – [8], [10] – [13] of the second further amended originating process in the amount of $60,000.

3. Order pursuant to rule 42.21(3) of the UCPR and s 1335 of the Act that the sixth plaintiff provide security for the costs of the fifth and sixth defendants in respect of the sixth plaintiff’s claims in pars [1] – [3], [5] – [8], [10] – [13] of the second further amended originating process in the amount of $33,750.

4. Order that the security required by orders (2) and (3) be provided by 14 July 2015.

5. Order that the security required by orders (2) and (3) be provided in such manner as the parties to those orders may agree, or failing agreement in such form as a registrar of the Court may determine.

6. Order that the sixth plaintiff’s claims in pars [1] – [3], [5] – [8], [10] – [13] of the second further amended originating process be permanently stayed if it fails to provide the security required by orders (2) and (3) in accordance with orders (4) and (5).

7. Reserve the question of costs in the event that the sixth plaintiff’s claims are permanently stayed under order (6).

8. Order that the first, second, third and fourth defendants’ interlocutory process filed on 27 March 2015 be otherwise dismissed.

9. Order that the fifth and sixth defendants’ amended interlocutory process filed on 2 April 2015 be otherwise dismissed.

10. Order that the fifth and sixth plaintiff’s’ interlocutory process filed on 20 March 2015 be dismissed, without prejudice to the right of the sixth plaintiff to renew its application for the relief claimed in the interlocutory process upon the provision of further evidence in accordance with the reasons for judgment.

11. Reserve the costs of the three interlocutory applications to the hearing of the proceedings.

153. I direct the parties to deliver to my associate any comments that they wish to make concerning the proper formulation of the orders that should be made in accordance with these reasons for judgment within 3 days, failing which I will make the orders set out in the preceding paragraph.

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Amendments

18 June 2015 - Par 135 amended

added to first sentence "pleaded in the alternative";

Deleted from second sentence "That claim was not defended, and Orders" and replaced with "The claim that the transfer of shares was invalid was compromised before Mr Photios provided evidence in response, and the Court has not made any finding on the merits concerning the validity of the claim"

Added to third sentence "Orders" ...... of all interested parties"

Decision last updated: 18 June 2015