In the matter of Joe and Joe Developments Pty Ltd (subject to a Deed of Company Arrangement)

[2014] NSWSC 1444

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Joe & Joe Developments Pty Ltd (subject to a Deed of Company Arrangement) [2014] NSWSC 1444
Hearing dates:	5 - 8 and 12 - 13 August 2014 (further submissions 13 October 2014)
Decision date:	22 October 2014
Jurisdiction:	Equity Division - Corporations List
Before:	Black J
Decision:	Parties to bring in short minutes of order to give effect to judgment.
Catchwords:	CORPORATIONS - voluntary administration - deeds of company arrangement - application for relief by contributories under Corporations Act 2001 (Cth) s 447E - where deed of company arrangement contemplated, inter alia, effecting of share buy-back and in specie transfer of property subject to mortgage to shareholders and payment of monies by shareholders in two tranches - where disputes arose between shareholders in respect of implementation of deed of company arrangement - whether company's affairs managed by deed administrators in a way that was prejudicial to the interests of some or all of the company's creditors or members - whether established that plaintiffs accepted deed of company arrangement in reliance on alleged representations of deed administrators - whether deed administrators failed to give effect to share buy-back and to transfer property in breach of deed of company arrangement - whether deed administrators engaged in unequal treatment of transfers and security between plaintiffs and other shareholders - whether delay in sale of property caused by deed administrators - whether deed administrators failed to complete the deed of company arrangement - engagement of solicitors by deed administrators - whether deed administrators took adequate steps to conduct review of invoices for legal services - third party payment - whether relief should be granted in respect of relevant payments made by deed administrators - whether deed administrators should be removed. ESTOPPEL - where consent orders made by parties in earlier proceedings arising out of conduct of deed of company arrangement- res judicata - whether causes of action sued on in earlier proceedings merged into judgment - issue estoppel - whether issue estoppels established - whether consent orders gave rise to Anshun estoppel in respect of relevant issues.
Legislation Cited:	- Bankruptcy Act 1966 (Cth) s 178 - Corporations Act 2001 (Cth) ss 9, 180, 181, 182, 232, 233, 234, 438A, 439A, 445F, 447A, 447E, 449B, 449E, 461, 462, 536 - Corporations Regulations 2001 (Cth) Sch 8A - Evidence Act 1995 (NSW) s 136 - Legal Profession Act 2004 (NSW) ss 302, 309, 310(1), 312(1)(c)(iv), 350(5)
Cases Cited:	- AMP Music Box Enterprises Ltd v Hoffman [2002] BCC 996 - Australian Securities and Investments Commission v Dunner [2013] FCA 872; (2013) 95 ACSR 76 - Australian Securities and Investments Commission v Edge [2007] VSC 170; (2007) 211 FLR 137 - Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345 - Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279 - Blair v Curran [1939] HCA 23; (1939) 62 CLR 464 - Blatch v Archer (1774) 1 Cowp 63; 98 ER 969 - Chamberlain v Deputy Commissioner of Taxation [1988] HCA 21; (1988) 164 CLR 502 - Cook's Constructions Pty Ltd v Brown [2004] NSWCA 105; (2004) 49 ACSR 62 - Correa and the Spanish Club Ltd (Subject to Deed of Company Arrangement) v Whittingham (No 3) [2012] NSWSC 526; (2012) 267 FLR 120 - Ekes v Commonwealth Bank of Australia [2014] NSWCA 336 - Habib v Radio 2UE Sydney Pty Ltd [2009] NSWCA 231 - Haulotte Australia Pty Ltd v All Area Rentals Pty Ltd (in liq) [2012] FCA 615; (2012) 90 ACSR 177 - Henderson v Henderson (1843) 67 ER 313 - Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572 - Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 234 ALR 765 - Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 - Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395; (2002) 44 ACSR 21 - Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361 - Mirror Group Newspapers v Maxwell (No 2) [1998] 1 BCLC 638 - MSPR Pty Ltd v Advanced Braking Technology Ltd [2013] NSWCA 416 - Naumoski v Parbery [2002] NSWSC 1097; (2002) 171 FLR 332 - Nguyen v Pattison [2005] FCA 650; (2005) 142 FCR 561 - Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) [1998] HCA 30; (1998) 195 CLR 1 - Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589 - Re AAA Financial Intelligence Ltd (in liq) [2014] NSWSC 1270 - Re Metal Storm Ltd (subject to deed of company arrangement) [2014] NSWSC 813 - Re RMGA Pty Ltd [2012] NSWSC 678 - Re Pan Pharmaceuticals Ltd (admins apptd); Selim v McGrath [2003] FCA 855; (2003) 47 ACSR 139 - Re Stockford Ltd; Korda [2004] FCA 1682; (2004) 52 ACSR 279 - Redowood Pty Ltd v Link Market Services Pty Ltd (formerly known as ASX Perpetual Registrars Ltd) [2007] NSWCA 286 - SingTel Optus Pty Ltd v Weston [2012] NSWSC 674; (2012) 90 ACSR 225 - Wimborne v Brien (1997) 15 ACLC 793
Texts Cited:	- Ritchie's Uniform Civil Procedure NSW - Handley, Spencer Bower and Handley Res Judicata (4th ed 2009, LexisNexis)
Category:	Principal judgment
Parties:	Tony Elias (First Plaintiff) Emily Elias (Second Plaintiff) Kelly Elias (Third Plaintiff) George Elias (Fourth Plaintiff) Richard Albarran (First Defendant) Blair Pleash (Second Defendant) Joe & Joe Developments Pty Ltd (subject to a Deed of Company Arrangement) (Third Defendant)
Representation:	Counsel: R Marshall/D Moujalli (Plaintiffs) A W Smith (Defendants) Solicitors: Marsdens (Plaintiff) Hicksons Lawyers (Defendant)
File Number(s):	2012/322387

Judgment

1. The First - Fourth Plaintiffs, Mr Tony Elias and others ("Elias family"), are the beneficial owners of fifty of the one hundred ordinary shares issued by the Third Defendant, Joe & Joe Developments Pty Ltd (subject to a Deed of Company Arrangement) ("Company"). Mr Joseph Kossaifi and his wife, Mrs Dolly Kossaifi, each hold twenty-five of the other fifty ordinary shares issued by the Company. Mr Tony Elias and Mr Joseph Kossaifi were, at relevant times, and currently are the directors of the Company. The First and Second Defendants, Mr Richard Albarran and Mr Blair Pleash, were appointed initially as administrators and subsequently as deed administrators of the Company under a Deed of Company Arrangement dated 31 March 2009 ("DOCA").

1. By an Originating Process filed on 17 October 2012, the Plaintiffs seek first, a declaration that Messrs Albarran and Pleash have managed the Company's affairs in a way that is prejudicial to the interests of the Plaintiffs and the Company's creditors and members. The relief sought in the Originating Process relates to allegations that Messrs Albarran and Pleash unreasonably incurred legal costs and failed to have those costs assessed, required a release from the Plaintiffs in a manner which would prejudice their interests and delayed or failed to perform the DOCA. The Plaintiffs further articulated their claim by Amended Points of Claim ("APOC") ordered by Brereton J on 4 November 2013, to which I will refer below in dealing with their particular claims.

1. Messrs Albarran and Pleash opened their case on the basis that they were prepared to meet the relief sought in the Originating Process and the case identified by the Plaintiffs in the APOC and that they do not consent to the determination of the present dispute other than on that basis and they submit that the case should therefore be determined on that basis: Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279 at 286-287. It is not necessary to determine whether that approach is open to Messrs Albarran and Pleash in an application under s 447E of the Corporations Act 2001 (Cth) since the Plaintiffs did not seek to depart in any substantive respect from their case identified in the APOC. I should also note that the Defence contained several claims that aspects of the APOC were embarrassing and were liable to be struck out. Messrs Albarran and Pleash did not seek to pursue a strike-out application prior to the hearing, and they also did not press an interlocutory process that they had sought to file on the first day of the hearing in respect of that matter. I will address substantive issues in respect of several of those claims below.

Principles applicable to an application under s 447E of the Corporations Act

1. Section 447E of the Corporations Act relevantly provides that:

"(1) Where the Court is satisfied that the administrator of a company under administration, or of a deed of company arrangement:

(a) has managed, or is managing, the company's business, property or affairs in a way that is prejudicial to the interests of some or all of the company's creditors or members; or

(b) has done an act, or made an omission, or proposes to do an act, or to make an omission, that is or would be prejudicial to such interests;

the Court may make such order as it thinks just."

1. That section covers similar territory to, although it is not an exact equivalent of, s 536 of the Corporations Act in respect of liquidators: Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395; (2002) 44 ACSR 21 at [442]. In Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 234 ALR 765 at [79], Brereton J observed that the Court's jurisdiction under this section:

"... requires satisfaction of the court that the administrator has managed or is managing the company's business property or affairs in a way that is prejudicial to the interests of some or all of the creditors or members, or has done or proposes to do an act or omission that is or will be prejudicial to such interests. It is insufficient that the conduct might be prejudicial; establishment of the ground for exercise of power under s 447E requires proof of conduct or proposed conduct that is or would be prejudicial - not that might be prejudicial." (emphasis in original)

1. Brereton J also noted that a person who brings an application under this section must identify not only the prejudice but also the counterfactual, being the position which would have been achieved had the relevant prejudicial conduct not occurred. His Honour also observed (at [87]) (while noting that observation was not exhaustive) that:

"An order under s 447E must have a sufficient nexus with the administrator's prejudicial behaviour, for example by regulating or remedying or compensating it, or preventing its repetition, or prohibiting conduct of a similar nature."

His Honour noted at [91] that the Court has no inherent jurisdiction over the conduct of a deed administrator, and its powers are the statutory powers conferred on it to the extent that administrations arise under statute. I followed that approach in Correa and the Spanish Club Limited (Subject to Deed of Company Arrangement) v Whittingham (No 3) [2012] NSWSC 526; (2012) 267 FLR 120 (reversed on appeal in respect of another point) at [114]-[115].

1. It is important to recognise that this section does not contemplate that the Court will enter into the field of commercial decision-making undertaken by an administrator or remake business and commercial decisions of an administrator, even if those decisions have a legal element or legal context, and the notion of what is or would be prejudicial in that section "must be set against the background of the Act and the sorts of considerations which have time and again been identified by the courts about the care with which interference with business decisions especially of people such as liquidators and administrators should be made": Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) [1998] HCA 30; (1998) 195 CLR 1 at [53]-[54]; Naumoski v Parbery [2002] NSWSC 1097; (2002) 171 FLR 332 at [13]-[15]; Re Pan Pharmaceuticals Ltd (admins apptd); Selim v McGrath [2003] FCA 855; (2003) 47 ACSR 139 at [50]-[51]. I have also been conscious of the desirability of, and indeed the necessity of, "the restraint with which the courts permit actions against liquidators and trustees in bankruptcy": Honest Remark Pty Ltd v Allstate Explorations NL above at [94]; however, Brereton J there noted (at [95]) that s 447E of the Corporations Act was itself an orthodox remedy in respect of inappropriate conduct of an administrator.

The evidence on which the parties rely

1. The Plaintiffs relied on the affidavits of the First Plaintiff, Mr Tony Elias, dated 17 October 2012 and 21 October 2013. In his first affidavit, Mr Elias set out the events relating to the administration and the DOCA at considerable length, although it seems to me that, as Mr Marshall (who appeared with Mr Moujalli for the Plaintiffs) pointed out, the Plaintiffs' case in respect of the majority of those events depends on the documentary record. An exception to that matter is certain representations that the Plaintiffs allege were made to them at the commencement of the administration. Mr Elias gave evidence of his understanding as to the circumstances in which Messrs Albarran and Pleash were initially appointed as administrators, which made clear that he did not then or now have an adequate understanding of the role of administrators or their statutory responsibilities under the Corporations Act. It is clear from Mr Elias' affidavit that, shortly after the appointment of the administrators, he came to regret the appointment and was frustrated by the fact that the administrators did not see their role in the narrow way in which he understood it. Mr Elias also appears to have believed that the administrators' services could be dispensed with, if the shareholders were able to resolve or narrow their differences, but that belief also gave too little weight to the statutory structure of an administration under the Corporations Act. I will refer to criticisms raised by Mr Elias in respect of particular conduct of Messrs Albarran and Pleash below.

1. Mr Elias' further affidavit dated 21 October 2013 exhibited documents that had been briefed to a solicitor and insolvency practitioner who gave expert evidence in the Plaintiffs' case, and also attached correspondence and documents that appear, on their face, to correspond to correspondence and documents referred to in the time entry reports of the solicitors who then acted for Messrs Albarran and Pleash (or for the Company on their instructions) in the administration and deed administration. I will refer further to those documents below.

1. Mr Elias was cross-examined as to the possibility that some parts of his affidavit evidence were based on affidavit evidence previously given by Mr Kossaifi in other proceedings (T67-68). There are similarities in the relevant evidence and, in some circumstances, this would cause difficulty with Mr Elias' evidence. However, the evidence that has similarities with Mr Kossaifi's evidence relates to largely uncontroversial events and it did not seem to me that this matter adversely affected Mr Elias' evidence. Mr Elias had little recollection of many events and conversations in cross-examination, unless prompted with a document. I did not form any impression that his evidence in that regard was evasive, and it seemed to me to reflect a genuine difficulty in recalling many relevant events. Mr Elias was also often unable to answer questions in a direct or clear manner in cross-examination. However, his difficulties in that regard seemed to me largely to reflect issues of comprehension or lack of focus and I draw no adverse inference as to his credit from this matter.

1. The Plaintiffs also relied on a report of Mr Woodward, an experienced solicitor, dated 1 August 2013 (Ex P6) and a supplementary report of Mr Woodward dated 6 September 2013 (Ex P7). Mr Woodward's supplementary report supplemented his initial report, to the extent that additional documents had become available in the course of the proceedings by the time of that supplementary report. Mr Woodward's attention was drawn to errors contained in a summary of the solicitors' fees which was annexed to his supplementary report, which appear to have involved calculation errors, including double-counting of GST, which involved material amounts and these matters were properly corrected by that cross-examination. I did not consider, however, that they impugned Mr Woodward's evidence generally, although I will refer to limitations in his approach below.

Messrs Albarran and Pleash did not lead evidence from Mr Albarran in the proceedings, although Mr Pleash's evidence was that Mr Albarran was the lead appointee (T233). Where a party would be expected to, but does not, call a witness who could give evidence on a relevant matter, and the failure to call that evidence is unexplained, an inference may in appropriate circumstances be drawn that the uncalled evidence would not have assisted the party's case: Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298; Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361 at [63]-[64] per Heydon, Crennan and Bell JJ; MSPR Pty Ltd v Advanced Braking Technology Ltd [2013] NSWCA 416 at [53] per Macfarlan JA (with whom Ward and Gleeson JJA agreed). The Plaintiffs also refer to the principle in Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970, where Lord Mansfield referred to "a maxim that all evidence is to be weighed according to the proof that it was in the power of one side to have produced and in the power of the other to have contradicted". In Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572, Hodgson JA referred to Jones v Dunkel above as a particular application of the principle in Blatch v Archer and observed at [16]) that:

"A similar principle applies where a person bearing the onus of proof does not give or call evidence which that person is plainly in a position to give or call; and unless some explanation is given of this failure, the tribunal of fact is entitled to infer that this evidence would not have assisted that person's case."

In Cook's Constructions Pty Ltd v Brown [2004] NSWCA 105; (2004) 49 ACSR 62 at [42], Hodgson JA similarly observed that:

"[w]here a party has to prove something and prima facie has available evidence that would directly deal with the question, a court will be very hesitant in drawing an inference in that party's favour from indirect and second-hand evidence, when the party doesn't call the direct evidence that prima facie it could have called, at least unless some explanation is given, or the circumstances themselves provide an explanation."

However, in Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345 at [250], Heydon J referred to cases which had applied that principle, and noted that many of the applications of the principle were no more than an application of the rule in Jones v Dunkel above and observed (at [253]) that a failure to call certain evidence would not lead to a discounting of other evidence actually called. The Plaintiffs accept that the inference which may be drawn from Mr Albarran's failure to give evidence is that his evidence would not have assisted the Defendants' case. That is, of course, not the same as an inference that Mr Albarran's evidence would have harmed that case.

1. Messrs Albarran and Pleash also did not lead evidence from the solicitors who previously acted for them, although it must have been clear to Messrs Albarran and Pleash (and to those former solicitors, since they previously represented Messrs Albarran and Pleash in the proceedings) that their bills would come under close scrutiny in the proceedings.

1. Messrs Albarran and Pleash relied on a document titled "Proof of Evidence" of Mr Pleash that was sworn on 14 March 2014 and ultimately adopted as his affidavit evidence in the proceedings. Mr Pleash's proof of evidence refers to the circumstances in which he was approached in respect of, initially, a potential appointment as voluntary liquidator of the Company and deals at length with the retainer and payment of the solicitors formerly retained by Messrs Albarran and Pleash, a matter to which I will refer below. Mr Pleash was cross-examined at some length as to these matters.

1. Mr Timothy Cook and Mr Jovan Singh, who also gave evidence in the proceedings, worked on the administration and deed administration of the Company under Messrs Albarran's and Pleash's supervision. Mr Cook, who was the more senior of the two, gave evidence by two affidavits dated 14 March 2014. Mr Cook's first affidavit contains a detailed account of the course of the administration, which indicates it was prepared based on a review of the business records of the relevant firm, including those of the solicitors then acting for Messrs Albarran and Pleash and the different firm now acting for them in the proceedings. It appears, from Mr Cook's evidence, that the Company was placed in voluntary administration rather than liquidation both because of issues raised by the Kossaifi family and the Elias family as to the extent of their respective contributions and in order to seek to avoid any adverse consequences for insurance requirements for builders licences in respect of Messrs Kossaifi and Elias that might have arisen from a liquidation. Mr Cook's second affidavit dated 14 March 2014 annexes voluminous correspondence in respect of the administration and deed administration, documents in relation to the DOCA, creditor's reports and invoices, time entry records and tax invoices issued by Messrs Albarran's and Pleash's former solicitors, valuations of the property and documents in respect of litigation between the Plaintiffs, the Kossaifi family and Messrs Albarran and Pleash in the course of the administration.

1. Messrs Albarran and Pleash also relied on the affidavit of Mr Singh dated 14 March 2014. Mr Singh is now a Senior Manager of the accounting firm with which Messrs Albarran and Pleash are associated and, at the relevant time, was a junior accountant who worked under the supervision and direction of Messrs Albarran, Pleash and Cook. Mr Singh's evidence is that he was involved in preparation of documents prior to the appointment of Messrs Albarran and Pleash as administrators and, in particular, that he was asked to prepare documents for the appointment of voluntary administrators on 9 February 2009. He refers to having attended the Company's development property at Narrabeen on 11 February 2009 and that he was then provided with information by Mr Elias, including his account of the disputes between the Elias family and the Kossaifi family. Mr Singh also gives evidence as to the first meeting of creditors on 19 February 2009, a conversation with Mr Elias in March 2009 in which Mr Elias suggested that he and Mr Kossaifi had "sorted it all out", the second meeting of creditors on 10 March 2009, the engagement of Messrs Albarran's and Pleash's then solicitors in early March 2009 and other communications with Mr Elias.

The conduct of the administration and deed administration

1. I will now address some of the significant events in issue in the proceedings. In doing so, I will address several specific matters that were referred to in the APOC, but seemed to be relied on as part of the relevant circumstances rather than to support specific claims for relief. The Company purchased land in Narrabeen in late 2005 and constructed commercial and retail units on that land. The purchase and development of that land was initially funded by a secured loan in the amount of $1,025,000 by ING Bank (Australia) Ltd which was then refinanced by a loan from St George Bank (Ex P10, 1/12). The Company granted a fixed and floating charge to St George Bank on 18 January 2006 securing a maximum prospective liability of $8,430,000 (Ex P10, 1/8-33) and also granted registered mortgages over the land as security.

1. The development of the commercial and retail units on that land took place between November 2005 and March 2007. Differences between Mr Elias and Mr Kossaifi as to what should be done in respect of the completed development emerged from early 2007 and had grown to a substantial dispute by 2008. It seems to be common ground, and was amply demonstrated by the evidence, that at least Mr Kossaifi and Mr Elias were no longer willing or able to work together by that time. In July 2008, the Kossaifi family filed proceedings seeking orders for the winding up of the Company on the basis of oppression under ss 232-234 of the Corporations Act or on just and equitable grounds under s 461-462 of the Corporations Act and also sought interlocutory orders for the appointment of a provisional liquidator.

1. The Company had by that time sold some of the units in the development, although seven units were unsold as at February 2009, and had paid down the amount borrowed from St George to about $114,000 and then had a balance of about $111,000 in its current bank account with St George Bank.

1. By email dated 6 February 2009 (Ex P10, 1/155), Messrs Albarran and Pleash were approached by the solicitors for the Kossaifi family to act as liquidators in a creditors' or members' voluntary liquidation of the Company. By that email, Mr Kossaifi's solicitor advised Messrs Albarran and Pleash:

"Gents,

New job for you.

A CVL (or MVL) required arising from a dispute between the two directors of JOE & JOE DEVELOPMENTS PTY LTD ...

The directors want the company shut down and the properties sold. I just need to check the position regarding the extent of creditors so as to determine whether MVL more appropriate.

Has to happen today, as the matter is back in Court on Monday for the purpose of appointing a provisional liquidator..."

I understand the reference to "CVL" to be to a creditors' voluntary winding up and to "MVL" to be to a members' voluntary winding up. The solicitors acting for the Elias family and the Kossaifi family also approached other insolvency practitioners at the same time (Ex P10, 1/144-154). The solicitors for the Kossaifi family wrote to the solicitors for the Elias family on the same day (Ex P10, 156) pressing for the appointment of Mr Pleash as liquidator of the Company, with the relevant documents to be signed by either 4pm that afternoon, 6 February 2009 or on 9 February 2009 at 9:00am on the basis that the Kossaifi family would otherwise press the application for the appointment of a provisional liquidator. The solicitor acting for the Elias family responded confirming their agreement to voluntary liquidation with Mr Pleash to be appointed as liquidator. The Plaintiffs contend that approach was adopted at the suggestion of an accounting adviser to the Company and Messrs Albarran and Pleash contend that correspondence is inconsistent with that submission. I do not consider that such an inconsistency was shown but little turns upon that matter.

1. The Plaintiffs plead that, on 9 February 2009, Mr Albarran on behalf of himself and Mr Pleash represented to Mr George Elias that, if the Company's directors resolved to place the Company in administration and Messrs Albarran and Pleash were appointed as administrators, then they could complete the acts necessary to conclude the Company's business within a month and the costs of doing so would be approximately $50,000. The Plaintiffs also contend that Messrs Albarran and Pleash represented, presumably by implication, that they had reasonable grounds for those representations (APOC [20]). Messrs Albarran and Pleash respond to that alleged representation by pleading that Mr Albarran provided general advice at that meeting as to the timing of the voluntary administration process and they accept that he represented that the costs of a voluntary administration process were usually $50,000, subject to events occurring during the voluntary administration and not including the costs of a deed administration. Neither Mr George Elias nor Mr Albarran gave evidence in the proceedings, and I must infer that their evidence would not have assisted the respective parties in this regard. The claimed representation, as distinct from the more limited statement acknowledged by Messrs Pleash and Albarran, cannot be established without evidence of Mr George Elias supporting it. The more limited statement, as to the costs usually incurred in a voluntary administration, excluding a deed of administration, has not been falsified by the evidence.

1. On or about 9 February 2009, Mr Joseph Kossaifi and Mr George Elias, who was not a director of the Company, executed a resolution to appoint Messrs Albarran and Pleash as voluntary administrators of the Company. The Plaintiffs accept that Mr George Elias executed that resolution on behalf of Mr Tony Elias, who was a director of the Company, and no point was ultimately taken as to the validity of the appointment of Messrs Albarran and Pleash in this application. The Plaintiffs contend that Mr Tony Elias instructed Mr George Elias to execute that resolution as a result of the representation made by Messrs Albarran and Pleash that they could complete the Company's administration for the sum of approximately $50,000 (APOC [23]). That wider representation has not been established, and the more limited representation has not been falsified, as I noted above.

1. The Plaintiffs accept that, at the time of appointment of Messrs Albarran and Pleash as administrators, there were difficulties in communication and cooperation between the directors of the Company but contend that the Company was solvent and there were no delinquent debts (APOC [19]). It appeared from Mr Elias' cross-examination that there were at least significant delays in respect of the sale of the relevant properties and a number of them were then vacant and not generating rental income (T68-69). As at 9 February 2009, the Company also owed significant amounts to shareholders, and at least to the Plaintiffs who later claimed that it was then indebted to them in the amount of $587,567 (Ex P10, 1/183A and see the cross-examination of Mr Elias at T79-80). Mr Elias accepted that, as at 6 February 2009, the Company did not itself have the money to pay its debts as and when they fell due, although he had indicated that he personally had the money to pay those debts and that his family had previously injected a lot of money into the Company (T98). It also appears that, in January 2009, the Company had been issued penalties by the Australian Tax Office in respect of its failure to lodge Business Activity Statements for 31 March 2008, 30 June 2008 and 30 September 2008 (Ex P10, 2/619). Mr Elias ultimately also accepted that, by February 2009, tax liabilities were due to the Australian Tax Office in the order of $260,000 by reference to outstanding Business Activity Statements (T102).

1. The proposition that the Company was solvent at that point would not be inconsistent with a valid appointment of an administrator on the basis that the directors believed the Company was likely to become insolvent at some future time. That belief would have been justified by the debt then due, or likely to become due, to the Australian Taxation Office, the delays in the sale of the remaining units and the fact that the directors, Mr Kossaifi and Mr Elias, would plainly not be able to reach agreement as to any other means to realise the Company's assets to pay that debt. That position is consistent with Recital F of the DOCA which recorded that the Company was balance sheet solvent, but did not have the cash resources to pay its debts at the time it was placed into voluntary administration. Messrs Albarran and Pleash plead that the Plaintiffs are bound by a deed estoppel in that regard. I do not find it necessary to determine whether such an estoppel would be available in respect of a statutory precondition to their appointment as deed administrators, since it seems to me the facts to which I have referred and that recital are sufficient to support a finding that the Company was likely to become insolvent as a matter of fact.

1. On 10 February 2009, Mr Murray Liston of Hymans Asset Management attended at the Company's development property and subsequently prepared valuations of the unsold units, valuing them at between $1,790,000 on a forced sale basis (as defined in the valuations) and $2,120,000 at market value (as defined in the valuations) (Ex P10, 1/210-294). The valuation observed that:

"We note, given the intrinsic nature of the subject development, selling periods may be lengthy, plus given the background of the current ownership (i.e. Conflict between directors of Joe & Joe Developments, liquidation) purchasers may be "spooked". Thus, Vendors expectation will necessitate flexibility as indicated in our valuation range as per our instructions."

1. Messrs Albarran and Pleash sent their first report to creditors on 11 February 2009. That report included a summary of the Company's creditors totaling approximately $294,004, including the Australian Taxation Office in the amount then estimated of $120,000 and St George Bank in the amount of approximately $100,000. Mr Singh was subsequently advised by St George Bank that the Company's liability to it was $114,183.66 and that the balance of its cheque account with St George was approximately $111,602.58. The Company's liability to St George Bank would therefore be substantially extinguished if St George Bank set off the balance of the Company's cheque account against its loan facility, which it later did on 27 February 2009.

1. In opening submissions, the Plaintiffs point to that report to creditors as indicating that a surplus of $2.09 million was forecast under the DOCA after payment of creditors and Messrs Albarran's and Pleash's remuneration and expenses (Ex P1, 1/369). The Plaintiffs contend that the Company's financial position as at February 2009 was that the market value of units then held by the Company was estimated as $2,385,000; cash and bank was noted as $111,603, for total assets of $2,496,603; and liabilities were noted as trade creditors of $38,035, a debt to the Australian Tax Office as $258,883, based on a proof of debt subsequently submitted; related creditors of $19,020 and St George Bank as a secured creditor of $114,184, leaving a surplus of $2,066,481. On any view, the estimated value of the Company's assets then substantially exceeded the Company's then estimated liabilities.

1. Mr Albarran chaired the first meeting of creditors held on 19 February 2009. The Plaintiffs plead that Mr Albarran "agreed to defer conducting detailed investigations into the affairs" of the Company (APOC [27]) and particularise that allegation by reference to the minutes of that first meeting of creditors and an email dated 24 February 2009 from Mr Cook. The minutes of the meeting (Ex P10, 432) record only a narrower deferral, stating that:

"... in the initial meeting held at [Mr Albarran's] office, there had been various accusations made by Mr Kossaifi and Mr George Elias (on behalf of Mr Tony Elias) in relation to alleged misappropriation of funds and assets of the Company and that the Administrator had a duty to address these issues and investigate other matters relating to the Company. Subsequent to this meeting the directors had advised that they may reach an agreement and accordingly the Chairperson confirmed that he would wait until Monday 23 February 2009 for the directors to reach an agreement prior to concluding these investigations..."

1. Mr Cook's email dated 24 February (Ex P10, 2/482-483) advised that the time for deferral of investigations "in relation to alleged misappropriation of funds and assets of the Company" had expired and that:

"As you are aware the Administration is subject to strict timeframes and as such the Administrators must now continue with the required investigations which include the deferred investigations into the accusations previously made by the directors ..."

It does not seem to me that the suggested agreement for such a deferral was established or that Messrs Albarran and Pleash could be criticised for pursuing such an investigation, proportionate to the matter to be investigated and having regard to the interests of creditors and contributories in not incurring unreasonable costs in the administration. The extent of any investigation and the costs incurred in it were ultimately not clear from the evidence led in the proceedings.

1. By email dated 24 February 2009, the Kossaifi family's solicitors advised Mr Cook and others (Ex P10, 2/486) that:

"I met with Joe Kossaifi yesterday, and he clearly expressed that in the absence of a written agreement between the parties that could form the basis of a DOCA by today, the Administration was to continue, and if it meant that the company was ultimately placed into Liquidation, then that was the cost of it. Mr Kossaifi talked to what he understood the last exchange of offers to be, which included either party taking one of the residential units, each taking two commercial units, and the last remaining unit being left to sold [sic] or transferred upon determination of the parties' loan accounts, and liabilities to the company."

1. By email dated 25 February 2009, an accountant who was advising the Elias family, Mr Georgiou, sent Mr Cook proposed terms of a deed of company arrangement. The initial proposal put by Mr Georgiou was, in substance, that the units not then sold should be divided between the Elias family who would take two commercial units (lots 16 and 18) and a home unit (lot 4) and the Kossaifi family who would take two commercial units (lots 12 and 15) and a home unit (lot 6). Messrs Albarran and Pleash point out that Mr Georgiou's proposal provided for the transfer of all of the remaining lots situated on the property to the Kossaifi family or the Elias family (Ex P10, 2/502) and at least at that point did not provide for the sale of another commercial unit (lot 14, being commercial suite 5) to meet the expenses of the administration. The proposal also provided (Ex P10, 2/503) that the Kossaifi family and Elias family were to have transferred to them or their nominee one unit of their choice "to facilitate ... raising funds and a cash injection into the company of $150,000.00 each". The proposal contemplated that the Company would meet several third party liabilities and also amounts claimed by the shareholders and "that both parties' reasonable legal fees in relation to shareholder discussions and negotiations be paid by the company in the same proportion" and recorded shareholder loan accounts for the Kossaifi and Elias interests as $754,058.34 and $645,982.70 respectively prior to adjustments. That proposal did not identify a legal mechanism for the transfer of the units owned by the Company to its shareholders and would have exposed the Company's creditors to significant risk if such transfers were implemented and the Company was then left with insufficient assets to meet its debts.

1. Mr Georgiou's email also stated that:

"... In the meantime, as major creditors, Elias and Kossaifi advised that they do not wish the receiver [sic] to spend any further time investigating the company's affairs as any allegations of fraud or otherwise have been resolved the details of which have been put down purely to miscommunication between the shareholders...

Would you please review the attachment and advise as soon as practicable if [the Elias family's solicitor] can proceed to draft the DOCA and that the contents of the attachment to this email meet with the Receiver's [sic] satisfaction to work towards handing the management of the company back to the Directors."

Messrs Albarran and Pleash submit, and I accept, that they were obliged, by reason of their appointment as administrators, to investigate the Company's business, property, affairs and financial circumstances, by reason of s 438A of the Corporations Act and in order to prepare a report to creditors under s 439A of the Corporations Act.

1. By email dated 27 February 2009 (Ex P10, 2/520) to representatives of the Elias family and the Kossaifi family and Mr Oliver Trajcevski (to whom I will refer further below), Mr Cook outlined several unresolved aspects of Mr Georgiou's proposal (Ex P10, 2/520-529). Mr Cook there estimated that the Company's total creditors would be $585,000 including creditors' claims, and fees referable to the administration, DOCA and liquidation fees and associated costs; noted those estimates were subject to verification and finalisation; sensibly suggested that the directors may wish to forego their claims and those of related parties to reduce the funds required to be put into the deed fund; and suggested that the transfer of any title of any of the lots to the shareholders would require a mortgage and charge to be provided to the Company as security. Although the last suggestion was controversial in the proceedings, it does not seem to me to have been unreasonable, where that transfer would involve the Company parting with assets that could ultimately be required to satisfy creditors' claims other than for an arms' length consideration.

1. Mr Cook also made the following, plainly sensible, comments:

"Considering my comments above in relation to the difficulties identified in relation to the proposed transfer of title and the alternative available to creditors, being an orderly realisation of the Company's assets, I suggest the following compromise:

● The approximate net funds recoverable from the sale of one residential unit may provide enough funds to satisfy the estimated creditors claims, administration/DOCA/ liquidation fees and associated costs.

● As such an intense marketing program will be commenced in conjunction with the director's efforts to secure finance (as outline above but not yet finalised)...

As advised previously the matters raised above need to be addressed in order for the Administrator to recommend acceptance of the deed proposal. As the report is to be dispatched to creditors on Monday it is clear that these matters will not be finalised prior to Monday.

As such I will be seeking an adjournment of the forthcoming major meeting to allow further time to address the above matters..."

Messrs Albarran and Pleash submit, with substantial force, that the acceptance of that approach by the Plaintiffs may well have had the result that, rather than the Company later entering into a DOCA, it would have been able to meet its obligations and the administration would have ended or the Company would have been placed into a form of liquidation by the shareholders to enable the remaining assets to be realised. That does not, however, provide a full answer to the Plaintiffs' criticisms of subsequent events.

1. In their second report to creditors, sent on 2 March 2009 (Ex P10, 2/533), Messrs Albarran and Pleash recommended that creditors adjourn the second meeting of creditors for up to 45 business days. That report recorded, inter alia, that Messrs Albarran and Pleash had been advised that:

"the Company has been marketing the remaining residential units but due to a dispute between the directors and the winding up proceedings initiated by one of the directors, at least two interested parties [had] withdrawn their interest." (Ex P10, 2/537)

That report also noted that:

"It is accordingly difficult to conclude that the Company was insolvent from an analysis of the Profit and Loss as it has been able to meet its expenses and generate a profit in the two most recent financial periods..." (Ex P10, 2/539)

The Plaintiffs place considerable weight on this statement. However, it does not exclude the likelihood of future insolvency arising in the manner to which I referred above. That report stated that the estimated realisation value under a DOCA was nearly $2.1M, excluding the shareholder loan accounts and the legal fees that were to be paid by the Company under Mr Georgiou's proposal. Messrs Albarran and Pleash also point out that, by that time, the Australian Taxation Office had submitted a proof of debt for $258,883 (Ex P10, 2/543, 2/552). That report also noted that investigations into the Company's affairs had identified payments to directors and associates of its directors of approximately $1,682,631. The second report to creditors included a summary of Mr Georgiou's proposal and attached a copy of it and noted that there were:

"a number of issues surrounding the proposal which indicate the proposal in current form is incapable of practical effectuation by way of a deed of company arrangement. I am unable at this time to express an opinion as to whether it is in creditors interests for the company to execute a Deed of Company Arrangement...". (Ex P10, 2/555)

1. As early as 4 March 2009, Mr Elias was sufficiently unhappy with the progress of the administration and with the costs incurred by Messrs Albarran and Pleash, including for review of Mr Georgiou's proposal for a deed of company arrangement, that he indicated he would complain to the Australian Securities and Investments Commission about the conduct of Messrs Albarran and Pleash (T103). In the period following the issue of the second report, Mr Elias also had several dealings with Messrs Albarran's and Pleash's staff that could only be characterised as aggressive and inappropriate. The Plaintiffs did not ultimately seek to defend those dealings. However, it seems to me that they are ultimately peripheral to the issues in this application, since the fact that Mr Elias was capable of behaving aggressively and inappropriately is no more than background to the subsequent issues arising in the administration. The Elias family's legal representatives also wrote to the administrators pressing for the Company to be returned to the directors' control at this time in a manner that did not sufficiently recognise the extent to which creditors' interest were now relevant.

1. On 6 March 2009, the accounting or taxation advisers to Mr Kossaifi put a proposal to Mr Georgiou (Ex P10, 2/630) expressed as a "final proposal" that:

"To raise the funds to meet creditors 1 & 2 - the following method is proposed:

(a) On the transfer of Unit 4 to Mr Kossaifi or Nominee $250,000.00 is to be deposited in the Company's bank account.

(b) On the transfer of Unit 6 to the Elias Family or nominee $250,000.00 is to be deposited in the Company's Bank Account.

(c) On the transfer of Commercial Unit 3 to Mr Kossaifi or nominee and on transfer of Commercial Unit 7 to the Elias Family or nominee - the shareholders will deposit equally the shortfall of the company's remaining debt (other than Directors Loan Account)."

1. By an email dated 9 March 2009, Mr Georgiou in turn advised Mr Cook and others (including Mr Trajcevski) that:

"... the Elias and Kossaifi parties have been instructed and have commenced discussions with their respective banks to obtain a preliminary letter of offer for the raising of $250,000.00 each to meet the expected costs of winding up the company and to continue with the DOCA previously documented and provided.

It is the Elias' intention to postpone the Creditor's Meeting to allow both parties to obtain an indicative letter of offer to allow adequate proof to you as Receivers [sic] that the company and its shareholders/Directors have the capacity to have the company handed back to them.

Would you please contact [Mr Kossaifi's legal adviser] and confirm that this is Mr Kossaifi's intention as it is our contention that if both parties had adequate proof of their ability to raise the funds, we could proceed to have the DOCA drafted and have the Receiver's [sic] consent to hand the company back." (Ex P10, 2/636)

Consistent with Mr Cook's earlier suggestion, an adjournment of the second meeting and the shareholders then raising funds to pay creditors and the costs of the Company's administration might then have avoided the need for a DOCA.

1. Mr Elias ultimately took a different view and advised Messrs Cook and Singh (Ex P10, 2/639) that:

"As a major shareholder, director, and creditor of [the Company] I Tony Elias have spoken to all shareholders as well as Dennis Georgioo [sic] and the meeti8ng [sic] is to proceed tomorrow ignoring any previous instructions from Dennis Georgio [sic] to cancel the meeting. The shareholders or their proxies will be in attendance."

1. The second meeting of creditors took place on 10 March 2009. The minutes of that meeting (Ex P10, 2/642-650) record that:

"The Chairman noted that a proposal for a Deed of Company Arrangement ("DOCA") had been put forward by the directors with which the Administrators had identified numerous issues to be addressed. The Chairman noted that these issues had been subsequently addressed and an amended proposal had been provided.

The Chairman discussed the proposal and advised that the underlying activity was that all creditors were to be paid out in full. The Chairman noted that these creditors included the Administrators' fees and costs, the Australian Taxation Office ("ATO"), Harrington McNamara, Khoury Taxation Services and various legal fees of the directors/shareholders.

The Chairman noted that these payments would be facilitated through the provision of funds by the directors/shareholders. The Chairman noted that the transfer of properties to the directors/shareholders would allow them to gain access to funds which would satisfy all claims discussed in the proposal. The Chairman advised that the provision of funds were crucial and no transfer of property would take place prior to these funds being made available under the DOCA.

Mr Dennis Georgiou as proxyholder for Tony Elias asked whether it was possible that the properties could be released prior to the provision of funds. The Chairman confirmed that this was possible however any release of property would be done with the Administrators placing a mortgage/fixed and floating charge over the property until the funds were provided to release all liabilities under the DOCA.

The Chairman also advised that a time limit will be placed on the generation of funds, being 2 months, subsequent to which the Administrators will exercise their security and take possession of the property released. The Chairman noted that should one party not be able to raise funds as required by the DOCA, this would not result in the DOCA having failed. The Chairman noted that should one of the directors not provide funds, the Administrators would exercise the charge over the property released to that director.

The Chairman asked whether both parties agreed to this and [the solicitor for the Kossaifi family] advising Mr Joseph Kossaifi and Mr Georgiou [acting for the Elias family] agreed to this...

[The solicitor for the Kossaifi family] asked if the allocation of the properties could be confirmed. It was confirmed that the following allocations would take place...

... 4. Commercial Suite 5 [Lot 14] would be sold to either the Kossaifi group or the Elias Group depending on who wishes to purchase and subject to commercial value, determined by the valuations performed by the Administrators."

1. A resolution was then proposed that the Company execute a deed of company arrangement as outlined in the administrators' report to creditors dated 2 March 2009 with amendments "as per the correspondence from Khoury Taxation Services [as advisers to the Kossaifi family] dated 6 March 2009 and as per the amendments discussed above" and was carried unanimously on the voices. The creditors also approved remuneration of Messrs Albarran and Pleash for the period from the date of their appointment to 10 March 2009 capped at an upper limit of $95,227 plus GST and for the period 11 March 2009 to the date of execution of the DOCA capped at $75,000 plus GST. A resolution to approve remuneration capped in the amount of $80,000 plus GST in respect of the deed administration was lost on the voices at that meeting.

1. On 11 March 2009, Mr Georgiou sent an email to Mr Cook, Mr Albarran, and the parties' solicitors recording that:

"... Following discussions with the Shareholders and from the ATO's attitude in the meeting yesterday, it has become apparent that the main impediment to having the company handed back to the directors is the ATO debt...

... Whilst the motion to have the company handed back to the Directors was not specifically dealt with yesterday in the meeting it is an important resolution that could and should be considered in light of any impediments that the Receivers [sic] advises remain at this time.

As shareholder disputes are now solved, we would be seeking to have a separate shareholder agreement to document the shareholder's intent to have the company wound up based on their agreements to date however an exhaustive DOCA, administration thereof, tax investigation by Hall Chadwick and all that is supposedly required as discussed yesterday could be alleviated." (Ex P10, 2/657)

1. On 13 March 2009, Mr Cook sent a "final" DOCA proposal (Ex P10, 2/666-669) to the legal representatives of the Elias family and the Kossaifi family. The then solicitors for Messrs Albarran and Pleash also raised certain matters in respect of the suggested shareholders agreement. Correspondence between the solicitors as to whether a DOCA should include a shareholders agreement then followed, with Mr Kossaifi and Mr Elias' representatives taking different views. A further draft DOCA was issued by the solicitors then acting for Messrs Albarran and Pleash on 23 March 2009 (Ex P10, 2/700-733) and amendments were proposed by the solicitors for the Kossaifi family and the Elias family, with the final version not being settled until the last day on which it could be executed in order to avoid the Company being placed in liquidation. Mr Cook's evidence is that at least eight versions of the draft DOCA were distributed between 23 March and the end of March 2009, including mark-ups of the draft deed prepared by the solicitors for the Kossaifi family and the solicitors for the Elias family (Cook 14.3.14 [104]).

1. The DOCA was executed by the Company, Messrs Albarran and Pleash and the Elias family and the Kossaifi family on 31 March 2009. Recital A recorded the appointment of Messrs Albarran and Pleash as voluntary administrators of the Company (Ex P10, 3/1030). Recital F, to which I referred above, recited that:

"[The Company] is solvent on a balance sheet test but does not have cash resources to pay debts at the time the Company was placed into Administration."

Clause 4 of the DOCA required the Kossaifi family, and the Elias family, together to make payments of $500,000 on or before 56 days after the date of execution of the DOCA (26 May 2009) and the greater of $300,000, or the amount required to be paid to meet the total liabilities set out in Item 8 of the Schedule on or before 84 days after the date of execution of the Deed (23 June 2009). The amount prescribed by Item 8 of the Schedule is that amount which was required to discharge in full the administrators' fees, expenses and trading liabilities, the Deed Administrators' fees and expenses, creditors and subordinated creditors. The term "Subordinated Creditors" was defined to include the accounting and legal advisers to the Kossaifi family and the Elias family respectively (cl 1.2 and Item 7 of the Schedule). Clause 5 and Item 10 of the DOCA defined the property that constitutes the deed fund, including all of the remaining lots of the property (Ex P10, 3/1034 and 1059). Clause 6 and Item 11 prescribed the priority of distribution of the property referred to in cl 5 of the DOCA.

1. Clause 8 of the DOCA set out the deed administrators' powers which included to call in, collect or convert into money the Company's property and to take control and possession of the Company's assets and undertaking at any time the company was in breach of any terms of the DOCA. Clause 12 of the DOCA in turn provided that:

"Notwithstanding anything else contained in it, upon the execution of this Deed, the Deed Administrator shall not be personally liable for any debts incurred by the Company in conducting its business or otherwise and the Deed Administrator will be entitled to indemnity out of the funds that would otherwise be available for the creditors of the Company for any costs, expenses and charges whatsoever incurred and this indemnity will operate as a priority over all creditors' claims and entitlements."

1. Clause 25 of the DOCA provided that the Elias Family and the Kossaifi family guaranteed the Company's performance of the DOCA. Clause 25.22 in turn acknowledged an agreement between Elias family and the Kossaifi family about the consequences of breach, but each acknowledged that they were "jointly and severally liable to the Company and the Deed Administrator" and that the agreement recorded in cl 25.22 of the DOCA bound them but not Messrs Albarran and Pleash (Ex P10, 3/1050--1051).

1. Clause 26 provided for the Plaintiffs, the Kossaifi family and Messrs Albarran and Pleash to effect and execute a share buy-back scheme of the ordinary shares held by the Plaintiffs and the Kossaifi family in the Company in consideration for transfer of identified lots of the Property (Ex P10, 3/1051 - 1057). That provision has been the subject of controversy in the proceedings. Messrs Albarran and Pleash invite the Court to find that the buy-back arrangement was intended to have the result that the value of the units transferred to the Plaintiffs and the Kossaifi family could be treated as a deemed dividend, which would attract the ability to frank dividends, and improve their tax position. That was put as a matter of inference, absent direct evidence of that purpose led by any party. It seems to me that the structure of the buy-back arrangement was at least consistent with that possibility. Clause 26.2 of the DOCA provided that the actions, steps, transfers, sales or conveyances prescribed by cl 26 were conditions precedent to the completion of the parties' obligations under the DOCA. Clauses 26.6-26.7 provided that the lots of the property transferred to the Plaintiffs and/or the Kossaifi family were to be transferred subject to:

"not less than second ranking securities to secure the performance by the Guarantors obligations pursuant to [the DOCA] to pay all amounts owing and payable." (Ex P10, 3/1053 and 3/1058 and Item 6 of the Schedule).

Clause 26.8 provided that an amount of $800,000 was to be paid by shareholders to the Company in two tranches. Clause 26.9 required Messrs Albarran and Pleash, following execution of the DOCA, to list for sale and sell lot 14 and pay the proceeds of sale less expenses into the deed fund (Ex P10, 3/1053).

1. As I noted above, the DOCA required the Kossaifi family and the Elias family to make to payments to the deed fund, the first payment to be made no later than 26 May 2009 and the second no later than 23 June 2009. Those payments were not made to the deed fund in that manner and that appears to have been a significant contributor to the complexities and difficulties that followed. The first payment was ultimately made by the Elias family out of the proceeds of the sale of lot 4, in circumstances to which I refer below, although the amount paid significantly exceeded the amount required to be made by them as the first payment. The first payment was made by the Kossaifi family out of a borrowing on lot 6, in circumstances to which I refer below, but not until more than two years after it was due.

1. The solicitors then acting for Messrs Albarran and Pleash subsequently prepared a circular to shareholders and notice of intention for the share buy-back contemplated by the DOCA. On 7 April 2009, those solicitors sent a letter to the solicitors acting for the Kossaifi family and the Elias family outlining the steps and actions to be taken by Messrs Albarran and Pleash, the Elias family and the Kossaifi family to effect the share buy-back (Ex P10, 3/1073) and subsequently distributed the proposed circular resolution of directors and ASIC Forms 280 and 281 to those parties' legal representatives (Ex P10, 3/1146). The solicitors for the Kossaifi family provided comments on 5 May 2009 (Ex P10, 3/1170) and the solicitors for the Elias family advised on 7 May 2009 that they should be able to settle agreed changes with the solicitors for the Kossaifi family on that day (Ex P10, 1173-1174). A draft incorporating those changes was then circulated and the share buy-back agreement was agreed in its final form on 12 May and executed on 14 May 2009. It does not seem to me that there is any real basis for the Plaintiffs' criticism of Messrs Albarran and Pleash or their then solicitors in respect of delay in this process.

1. The share buy-back agreement contemplated the transfer of lot 4 to the Kossaifi family in consideration for 30% of their shares in the Company and lot 6 to the Elias family in consideration for 30% of their shares in the Company in the period on or before 21 July 2009 (APOC [43]).

Events in respect of lots 4 and 6 from April 2009

1. Issues subsequently arose in respect of the circumstances of the sale of lot 6 to a third party and a consequential payment into the deed fund by the Elias family and the sale of lot 14 (commercial suite 5) to the Elias family.

1. The issue in respect of lot 6 arose when the Elias family sought to sell that lot to a third party rather than have it transferred to them or their nominee subject to a mortgage as provided by the DOCA. Mr Cook's evidence is that his understanding was that tranche 1 under the DOCA, so far as it concerned the Elias family, required that lot 6 be transferred to the Elias family or a nominee in exchange for the family selling 30% of their shares; that a real property mortgage was to be granted to the Company over that lot to secure payments that the Elias family was required to make under the DOCA, and that the Elias family was to pay $250,000 in clear funds to Messrs Albarran and Pleash (Cook 14.3.14 [114]). Mr Cook also gives evidence of having become aware, by correspondence from Messrs Albarran's and Pleash's former solicitors, in early April 2009, that the Elias family wanted to change the operation of tranche 1 by selling lot 6 to a third party (Cook 14.3.14 [115]).

1. On 7 April 2009, Mrs Elias, who is a solicitor and the First Plaintiff's wife, advised Messrs Albarran's and Pleash's then solicitor of a proposed sale of lot 6 to a third party (Ex P10, 1076-1077). Messrs Albarran's and Pleash's then solicitor, fairly, pointed out to the Plaintiffs' solicitor and Mrs Elias that that proposal was not consistent with the terms of the DOCA which provided for transfer of the unit to the Elias family or their nominee subject to a mortgage. That inconsistency was not inconsequential since, if the Elias family retained the proceeds of such a sale as they initially proposed, that proposal would have distributed the value of a significant asset of the Company to them without securing the position of the Company's creditors.

1. An email dated 14 April 2009 (Ex P10, 3/1083) from the solicitors for the Elias family to the then solicitors for Messrs Albarran and Pleash enclosed a draft contract for the sale of lot 6, which had not been prepared by that firm but by the firm associated with Mr Elias' wife and noted:

"Please also advise of [Messrs Albarran's and Pleash's] requirements in relation to the conduct of the sale. In this regard my clients have indicated that they now wish for me to act on this sale on the basis that the property is being sold to a nominee of my client under the DOCA.

Please also advise if your client's requirements in relation to the distribution of the proceeds of sale and confirm that your client requires all net proceeds to be paid into the Deed Fund."

1. By email dated 16 April 2009, the solicitors for the Elias family referred to cll 26.11 and 26.12 of the DOCA, which they noted had been inserted at the request of the Elias family, and observed that:

"The purpose and intent of those clauses is to allow a commercial sale of a Unit to be undertaken by either Elias or Kossaifi prior to the terms of the deed being satisfied and to prevent a situation where both parties need to wait until the deed is at an end before they call sell the relevant units in the development ... In my client's view, this approach is a sensible one as it allows cash to be injected into the Deed Fund instead of security being held under a mortgage and also provides some flexibility ..." (Ex P10, 3/1100)

1. By email dated 15 May 2009 (Ex P10, 4/1337), the solicitors for the Elias family advised the solicitors for the Kossaifi family that the proposed arrangement in respect of lot 6 was that the gross proceeds of the sale of the lot would be paid into the deed fund; the mortgage over lot 6 would be discharged, replacing the security held by the mortgage with security held by cash; and a proposed adjustment would not be between the Elias family and the deed administrator, but between the Elias family and the Kossaifi family once the DOCA ended and the parties received their final entitlements from the Company; and, by email dated the same date, the solicitors for the Kossaifi family advised that they accepted that proposal.

1. Messrs Albarran's and Pleash's then solicitor, fairly, pointed out to the Elias family's solicitor the fact that the consequence of that approach would be that the Elias family would have paid $640,000 into the deed fund and the Kossaifi family only $250,000 (implicitly, after the latter complied with their obligation to make a payment into the deed fund) (Ex P10, 4/1475). The Elias family's solicitor responded that that issue had been addressed by arrangements with the Kossaifi family and the Elias family were satisfied with those arrangements (Ex P10, 4/1478). The relevant amount was then paid into the deed fund as the basis on which Messrs Albarran and Pleash permitted the sale of lot 6 to a third party, free of security, as proposed by the Elias family, rather than transferred to the Elias family subject to mortgage as provided under the DOCA.

1. An issue then arose in respect of the terms of the transfer of lot 4 to the Kossaifi family. Mr Cook's evidence was that tranche 1 under the DOCA applied similarly in respect of the transfer of lot 4 to the Kossaifi family and corresponding transactions (Cook 14.3.14 [120]). His evidence was that he understood from the creditor's meeting on 10 March and subsequent emails that both shareholder groups required finance to make the $250,000 payment required as part of tranche 1 and that he knew the lender to the Kossaifi family required a first registered mortgage over lot 4, which meant that the deed administrators had to take a second mortgage, which he understood to comply with the DOCA (Cook 14.3.14 [122]-[123]).

1. The certificates of title for the remaining lots of the property were not made available for collection from St George Bank until 10 June 2009 and the transfer of lot 4 of the Property to the Kossaifi family did not occur until after that date. On 11 June 2009, the Kossaifi family executed a mortgage in registrable form in favour of Messrs Albarran and Pleash (Ex P10, 4/1449A-1449AM), albeit that mortgage ranked behind that granted to their lender, the ANZ Bank. The DOCA and share buy-back agreement seem to me to have permitted that course, and, in particular, cl 7.3 of the share buy-back agreement provided that:

"If any one of the Mortgages cannot be registered because of a pre-existing mortgage over the title of the unit, then [the Company] will attend to the registration of a Caveat in respect of the Mortgage" (Ex P10, 4/1269).

As contemplated by that clause, Messrs Albarran and Pleash registered a caveat on the title for lot 4 which recorded the nature of their estate or interest in that lot as being as:

"Mortgagee of the land pursuant to a mortgage dated 11 June 2009 granted by the registered proprietors (Caveatees) to the caveators" (Ex P10, 4/1452).

Events in respect of lot 14 from May 2009

1. On 12 May 2009, Messrs Albarran and Pleash issued a third report to the Company's creditors and convened a third meeting of creditors on 27 May 2009 (Ex P10, 4/1209-1236, 1398-1403). During the third meeting of creditors, Mr Elias asked if he could purchase lot 14 (commercial suite 5) from the Company (Ex P10, 4/1401) and Mr Albarran advised Mr Elias that:

"the shareholders could purchase the unit given that a Deed of Release is provided from the other shareholders that no action will be taken against the Deed Administrators in relation to the sale".

Mr Albarran advised that the cost of preparing and executing a deed of release would be "$5,000.00 plus GST if there were no problems but could cost up to $10,000.00 plus GST" (Ex P10, 4/1401). Mr Elias noted those costs, asked whether he had to decide right there and was, fairly, advised that he did not need to make a decision at that point. Messrs Albarran and Pleash submit, and I accept that, where that issue was then left open, the Plaintiffs' claim (APOC [57]) that Mr Albarran agreed on that date to sell lot 14 to Mr Elias is not established.

1. Mr Cook's evidence (Cook 14.3.14 [127]-[128]) was in turn that:

"In about March 2009/April 2009 I instructed [the former solicitors for Messrs Albarran and Pleash] that the Deed Administrators would only consider selling Suite 5 to the Elias shareholder group if both the Elias and Kossaifi shareholder group executed a Deed of Release in favour of the Deed Administrators.

I considered it was prudent to get a Deed of Release because there was so much trouble in this job and criticism of Albarran, Pleash, Singh and I that I did not want the sale of Suite 5 via a related party transaction to cause any more trouble. It just seemed to make good sense in light of the history of this job."

Presumably, this date referred to should be after May 2009, when Mr Elias raised the possibility of purchasing that suite at the third meeting of creditors. As events had developed by that point, it does not seem to me that a request for a release in respect of an off-market sale was unreasonable.

1. From late June 2009, Mr Elias and Mr Kossaifi put competing offers for the purchase of lot 14. By letter dated 26 June 2009, Mr Elias advised Mr Albarran that:

"At the last creditors meeting on the 27 May 2009 - I - Tony Elias the director of [the Company] we discussed to buy the last remaining commercial office and to buy the last remaining commercial unit No 5. You agreed at the valuation (valuation as per Hymans) But you needed indemnity by directors so they would not sue you for not properly marketing the property of sale. (As per meetings of meeting) and will do for $5,000.00 More importantly the commercial unit has been on the market for some years now with several agents and in summary the commercial market is slow and is not due to pick up in the near future It also adds funds to directors and creditors our offer is $200,000. That way there will be saving on agents fees." (Ex P10, 4/1500)

1. Mr Elias again wrote to Mr Albarran offering to purchase lot 14 for $200,000 on 3 July 2009 (Ex P10, 4/1537). On 15 July 2009, Mr Georgiou sought Mr Kossaifi's consent to the transfer of lot 14 to the Plaintiffs (Ex P10, 4/1547) and, on 22 July 2009, Mr Kossaifi's solicitor advised Mr Cook that:

"Mr Kossaifi says that if [Mr] Elias is not interested in purchasing [lot 14 (commercial suite 5)] for valuation amount, then he will purchase it" (Ex P10, 4/1561).

1. On 3 August 2009, Mr Kossaifi offered to purchase lot 14 for $210,000 (Ex P10, 4/1566). The Elias family was then advised of that offer on 4 August 2009 (Ex P10, 4/1568). At this point, Messrs Albarran and Pleash were faced with two competing offers by the shareholders to purchase lot 14 off market and faced a clear difficulty in accepting one of those offers, particularly if the relevant party then did not comply with the terms of any sale, a possibility that was plainly open given their previous non-compliance with the terms of the DOCA. The Kossaifi family and the Plaintiffs were advised that:

"the Deed Administrators have held of[f] instructing an Estate Agent to list [Lot 14 (Suite 5)] for sale but having regard to the merry-go-round that is developing the property will be listed and the offers then considered. In the meantime if the parties can agree a sale to one of the groups may eventuate." (Ex P10, 4/1588)

On the same day, the Kossaifi family's solicitor repeated their offer to purchase lot 14 for $210,000 (Ex P10, 4/1589). On 10 August 2009, Mr Elias in turn offered to purchase lot 14 for $206,000 (Ex P10, 5/1611).

Further events from August 2009

1. On 6 August 2009, Mr Cook sent an email to the solicitors acting for the Kossaifi family, which does not appear to have been copied to the solicitors acting for the Elias family, which set out two scenarios (Ex P10, 4/1591). The first was the current position as at 5 August 2009, in which the Elias family had contributed $640,000 (on the sale of lot 6 as noted above) and the Kossaifi family $250,000 to the deed fund, and there were outstanding payments estimated as $655,139, with an estimated distribution to shareholders of nil. The second scenario was where the parties complied with the DOCA, treating the Elias family as contributing $640,000, the Kossaifi family as contributing $400,000 (including the payment of the second tranche which they had not yet made) with outstanding payments of approximately $655,139, a sale of lot 14 (commercial suite 5) for $210,000 and an adjustment to unbalanced contributions in favour of the Elias family, which would result in a distribution to each shareholder of approximately $28,412. The figure shown for the distribution for shareholders at that point did not, however, take account of the fact that the Company still owned four commercial units at that point and the distribution of those units to shareholders in specie would confer an additional benefit on them.

1. By email dated 7 August 2009 (Ex P10, 4/1593), the then solicitors for Messrs Albarran and Pleash advised the solicitors for the Elias family and the Kossaifi family that:

"The time period for compliance with the [DOCA] for payment has not been met in accordance with its terms.

The [Defendants] have exercised their discretion not to require strict compliance with the terms of payment under the [DOCA] prior to now...

Having regard to amongst other things, the fact that the second tranches have not been paid by either shareholder group when attempts to be paid have been made, and the uncertainty regarding the commercial unit being sold to one or other of the shareholder groups or not, the [Defendants] will be issuing a default notice under clause 9 of the [DOCA] requiring strict compliance with the terms of the [DOCA]."

They also referred to complaints as to the costs incurred in the administration and deed administration and indicated that Messrs Albarran and Pleash:

"Advise that the [DOCA] will not be finalised until all issues are resolved and all shareholders and the directors of [the Company] sign a Deed of Release with the Deed Administrators." (Ex P10, 4/1594)

1. The solicitors for the Elias family responded denying a breach of the DOCA and, by email dated 12 August 2009 (Ex P10, 5/1635), contended that:

"As such the Deed Administrators are in breach of the DOCA by refusing to complete that buy back in accordance with the terms of the DOCA and are unnecessarily and without basis delaying that matter..."

1. By letter dated 18 August 2009 (Ex P10, 5/1654), the then solicitors for Messrs Albarran and Pleash expressed the view that:

"There does not appear to be any particular reason to hold a meeting of creditors at this time. Besides having the same issues which have been agitated in written correspondence being agitated orally, plus the further incursion of costs to convene and hold a meeting of creditors, the [Defendants] cannot see any benefit to be derived by this course of action.

In light of the various allegations laid by the Shareholders Groups about the conduct of the [Defendants], it should come as no surprise that they would seek to exercise their statutory entitlement to seek judicial direction."

1. By email dated 19 August 2009, the Elias family's solicitors in turn advised Messrs Albarran's and Pleash's then solicitors that an agreement had been reached between the Elias family and the Kossaifi family for lot 14 of the property to be sold to the Elias family for $211,000 (Ex P10, 5/1660) and a solicitor acting for the Kossaifi family confirmed that position on that day (Ex P10, 5/1662). That agreement also proved to be short-lived.

1. By letter dated 24 August 2009, Messrs Albarran's and Pleash's then solicitors advised the Elias family and the Kossaifi family that Messrs Albarran and Pleash would sell lot 14 to one of the shareholder groups provided that the other gave written consent and acknowledged the waiver of their rights to purchase the unit and contracts were exchanged within 10 days (Ex P10, 5/1668).

1. On 26 August 2009, the Kossaifi family and the Elias family signed a circular resolution apparently authorising the sale of lot 14 to Mr Elias (Ex P10, 5/1672-1675). It is unclear what occurred for the next two and a half months. On 16 November 2009, the Kossaifi family's solicitor requested a contract for sale of lot 14 to a purchaser, presumably not Mr Elias, for $211,000 (Ex P10, 5/1809) in a manner plainly inconsistent with the previous view expressed by both families and that circular resolution. A dispute then followed in which the Elias family took the position, oddly, not that Mr Elias had already agreed to purchase the property but rather that they had not been provided with details of the purchaser proposed by the Kossaifi family (Ex P10, 5/1824ff). The then solicitors for Messrs Albarran and Pleash responded on 17 November 2009, with substantial justification given the events set out above, that:

"In regards to the confusing and contradictory emails received today in this matter ... We note that this entire matter has been due to the inability of your respective clients to act in a unit [sic] manner. Agreements vanish as soon as they appear to arise. If indeed agreements do in fact arise..." (Ex P10, 5/1834)

1. Mr Elias accepted in cross-examination that, by at least August 2009, he had instructed his solicitors to advise the Court, in the earlier proceedings commenced by Mr & Mrs Kossaifi to wind up the Company, that he intended to bring an application to review the fees charged by the voluntary administrators of the Company (T182).

1. Mr Elias' evidence is that, in about September 2009, Mr Cook had a conversation with him in which, in effect, Mr Cook advised that completion of the DOCA would require Mr Elias to cease retaining a person who was then an adviser to him, who had previously fallen out with Messrs Albarran's and Pleash's firm in another context, and provide a deed of release and that "if you don't sign we are going to delay this whole thing". I am not satisfied that this conversation took place in the terms to which Mr Elias deposes. In any event, the narrative of events set out above makes clear that the disputes between the Elias family and the Kossaifi family were amply sufficient to delay the completion of the DOCA.

1. In November 2009, the Elias family approached the Australian Tax Office which provided a form of requisition for a meeting of the creditors of the Company which proposed amendments to the DOCA (Ex D2). Ultimately, that proposal was not pressed by the Elias family.

1. By email dated 24 November 2009, the solicitors acting for the Elias family reconfirmed the position apparently reached several months before, but then departed from by the Kossaifi family's proposal for another purchaser, that the Elias family and the Kossaifi family agreed that Mr Elias could purchase lot 14 for $211,000 plus GST (Ex P10, 5/1856). Also on 24 November 2009, Messrs Albarran's and Pleash's then solicitors sent a draft contract of sale of lot 14, proposed further circulating resolution and draft deed of release to the solicitors for the Plaintiffs, the Kossaifi family and others. Clause 3.1 of the draft deed of release contained a general release of Messrs Albarran and Pleash from liability in broad terms. Mr Pleash did not recall whether he had given instructions to those solicitors to send that draft deed of release (T262). He also could not recall whether he and Mr Albarran were then seeking a general release from the Elias family and the Kossaifi family or whether the Elias family's then position was that they did not wish to sign a general deed of release (T262) and his memory as to that question was not refreshed by being shown an email dated 25 November 2009 from the Plaintiffs' solicitors which sought to narrow the proposed release to deal with the sale of lot 14 rather than all claims against the deed administrators (Ex P11, 149, T263).

1. On 27 November 2009, Messrs Albarran and Pleash commenced proceedings ("Earlier Proceedings") seeking relief including a declaration that the Elias family and the Kossaifi family were in breach of the DOCA; directions in respect of the interpretation of the DOCA including whether they would be justified in refusing to transfer titles to the remaining lots while the Elias family and the Kossaifi family remained in breach of the DOCA; an order terminating the DOCA; and orders confirming or approving their remuneration (Ex P10, 5/1871-1875). The Plaintiffs criticise the commencement of the Earlier Proceedings on the basis that a meeting of creditors could have been called under s 445F of the Corporations Act. Mr Smith, who appears for Messrs Albarran and Pleash, submits that a condition to the calling of a meeting of creditors under s 445F of the Corporations Act was that there be a breach of the DOCA, and points to the fact that the Elias family had vigorously denied being in breach of the DOCA and that, where there was a dispute as to that matter, that was properly a matter as to which the deed administrator could approach the Court for directions. It does not seem to me that Messrs Albarran's and Pleash's decision to seek directions from the Court, and potentially an order for termination of the DOCA, was unreasonable given the difficulties that existed by that time.

1. The conclusions that I have reached in respect of this matter are reinforced by the fact that Messrs Albarran and Pleash did not call Mr Albarran or the principal of their former solicitors or any of its employees to address the issues that had been squarely raised by the Plaintiffs in respect of the review of the former solicitor's invoices. In these circumstances, I should infer that no evidence which could have been led by Mr Albarran or the former solicitors would assist them, and I should more readily draw the inference that the former solicitors' invoices called for further inquiry that was not made.

1. I am satisfied, for the purposes of s 447E of the Corporations Act, that Messrs Albarran and Pleash have managed the Company's business in a way that is prejudicial to the interests of its creditors or members, or have made an omission that is prejudicial, by reason of their failure to undertake appropriate review of the invoices which they had received from their former solicitors, and thereby to supervise the work undertaken by those former solicitors. I am also satisfied that the matter is of significance, given the extent of the potential issues arising on the face of the former solicitors' invoices and the extent of the deficiency in the deed administration, and that the Court should properly make an order under that section to seek to address the issue. I will return to the relief that may be ordered in respect of this matter below.

Third party payment

1. The Plaintiffs also challenge a payment to Shalton Investments Pty Ltd ("Shalton Investments"), a firm associated with Mr Oliver Trajcevski, to provide services in regard to the Company, on the basis that there was no written agreement for the provision of such services; Mr Trajcevski did not give any written advice or other apparent work product; and he rendered a tax invoice for $16,855.91 that was paid from the Company's funds. Messrs Albarran and Pleash admit to retaining Mr Trajcevski on or about 25 February 2009 to provide "services" to them although they do not disclose the substance of those services in their Defence.

1. The Company paid an invoice dated 27 May 2009 rendered by Shalton Investments for $16,855.91 inclusive of GST (Ex P3, 692) for services rendered by Shalton Consulting, an entity associated with Mr Trajcevski. The invoice was addressed to Mr Albarran, who, as noted above, did not give evidence, and described work undertaken between 25 February 2009 and 27 May 2009 as follows:

"Professional services with regards to the VA, investigation, Deed of company arrangement and general correspondence (60.5 hours at $250 ph)".

The amount referable to those professional services was $15,125 and there was also a reference to disbursements (not further identified) of $198.55. The description of the services rendered in that invoice was, at best, unilluminating.

1. On 24 August 2009, the Kossaifi family's then solicitors wrote to Messrs Albarran's and Pleash's then solicitors requesting information about the payment to Shalton Investments and Messrs Albarran's and Pleash's then solicitors responded by letter dated 9 September 2009 (Ex P3, 3) enclosing the relevant invoice and advising:

"The services provided by Shalton Consulting were in conjunction with and complimentary to the work of the Voluntary Administrators to enable the Voluntary Administrators to comply with their obligation pursuant to Part 5.3A Corporations Act 2001".

That description, on its own or combined with the description in the invoice, seems to me to convey no useful information as to what Shalton Consulting had actually done. A subpoena to produce documents was subsequently issued the request of the Plaintiffs to Shalton Consulting, which produced a substantial quantity of material which had been briefed to that entity by Messrs Albarran and Pleash and no working papers, analysis, report or memorandum of advice prepared by that entity or provided by it to Messrs Albarran and Pleash.

1. The Plaintiffs caused the issue of a subpoena to Mr Trajcevski to give evidence in the proceedings but neither party called him to give evidence. Mr Albarran did not give evidence and Mr Pleash did not refer to the retainer of Shalton Consulting in his affidavit evidence. His evidence in cross-examination was that he had signed the cheque to Shalton Investments because he was informed that Mr Albarran was out of the office and had requested that he sign it (T270). Mr Cook gave evidence of a conversation with Mr Albarran, which was the subject of a limiting order under s 136 of the Evidence Act 1995 (NSW) so that it was proof of the conversation and not proof of the asserted facts, in which Mr Cook had advised Mr Albarran that Mr Kossaifi was pressing for Mr Elias' claims to be investigated through the administration and Mr Albarran indicated he would ring Mr Trajcevski and "see if he can help us out on this" (Cook 14.3.14 [143]). He gives evidence of meeting Mr Trajcevski with Mr Albarran on or about 25 February 2009 (in a conversation also subject of a limiting order under s 136 of the Evidence Act, so that it was not proof of the asserted facts) in which Mr Albarran said that Mr Trajcevski had previously done some "tricky financial analysis" for the firm and had experience in relation to property development, asset realisation and distribution and "may be able to assist consider [sic] the implication of the directors' proposal for distribution of the units" (Cook 14.3.14 [146]). Mr Cook's affidavit annexes further correspondence with Mr Trajcevski and materials provided to him for review. He does not, however, give evidence of what Mr Trajcevski did or of having received any substantive advice from him.

1. Mr Singh's evidence is that he did not attend any meeting regarding the engagement of Mr Trajcevski and Mr Cook and Messrs Albarran and Pleash would be in charge of any decision to retain an external third party for an administration (Singh 14.3.14 [88]-[89]). His evidence was that he did not question Mr Trajcevski's invoice because it was not uncommon for the appointees or managers to arrange for a third party to provide expert skills and he was not always involved in all decision-making in respect of a matter, and the invoice did not seem unreasonable to him given the volume of documents provided to Mr Trajcevski (Singh 14.3.14 [96]).

1. The Plaintiffs submit, and I accept, that the payment to Shalton Consulting was not an insignificant amount. The Plaintiffs point out, with justification, that if services were provided for the Company's benefit, it remains a mystery as to what they were and what benefit was obtained from them. In their opening written submissions, Messrs Albarran and Pleash noted that they accepted that, as the Plaintiffs submitted, the invoice from Shalton Investments was not "petty cash" and otherwise responded that:

"Firstly, in circumstances where there was departure by the Plaintiffs and the Kossaifis from their respective representations to provide a proposal for a DOCA in a timely fashion, it was appropriate for [Mr Albarran] to engage a third party to assist with the administration process, where the already strict time for compliance had been further compacted.

Secondly, the Court is invited to conclude that Trajcevski who received not only correspondence from the [Defendants] but also representatives of the Plaintiffs read and considered the material provided to him."

1. Messrs Albarran's and Pleash's submission has the difficulty that, where neither Mr Albarran nor Mr Trajcevski gave evidence, there is no evidence that his role was in fact to "assist the administration process" or that he in fact did so. The premise of this submission as to the services that were commissioned by Mr Albarran or provided by Mr Trajcevski has not been established by evidence of those who would have the relevant knowledge of any work that was in fact done. It seems to me that the Court should infer that no evidence which Mr Albarran could have led as to this matter would have assisted in justifying the relevant payment and more readily draw the inference which the Plaintiffs seek to have drawn that the payment was unjustified.

1. In my view, a proper basis has been established for an order that Messrs Albarran and Pleash should repay the amount of the payment to Shalton Investments to the Company, leaving them to any rights that they may in turn have against Shalton Investments.

Application for accounting and compensation

1. The Plaintiffs initially sought orders that Messrs Albarran and Pleash pay the creditors identified in the Company's accounts; that there be an account given by Messrs Albarran and Pleash to the Company; damages or equitable damages; or such further order as the Court sees fit in relation to the administration of the Company. The Plaintiffs also sought an order terminating the appointment of Messrs Albarran and Pleash and appointing alternative administrators and an order that Messrs Albarran and Pleash obtain an assessment of the legal costs of their former solicitors. The Plaintiffs refined the relief sought, in their written outline of opening submissions, to seek the removal and replacement of Messrs Albarran and Pleash as deed administrators of the Company; an account by Messrs Albarran and Pleash to the Company; and the payment of compensation by them to the Company. In closing submissions, the Plaintiffs submitted that Messrs Albarran and Pleash should be required to account to the Company on the wilful default basis for all expenses paid (T334) or alternatively should be required to compensate the Company, on the basis that the fees properly charged by their former solicitors were the amount of $127,000 plus GST as estimated by Mr Woodward. Messrs Albarran and Pleash submitted that the only relief claimed by the Plaintiffs, and open to them in these proceedings, was relief directed to the legal fees charged by their former solicitors and the amount paid in the Shalton Consulting invoice, and that it was not open to the Plaintiffs to seek wider orders in respect of all expenses incurred by Messrs Albarran and Pleash. I accept that APOC did not raise any challenge to those wider expenses.

1. I consider that relief is warranted in respect of the payments made by Messrs Albarran and Pleash of invoices rendered by their former solicitors. In Honest Remark Pty Ltd v Allstate Explorations NL above, Brereton J found that the jurisdiction under s 447E of the Corporations Act was not established where the applicant did not allege conduct which was prejudicial to creditors or members as a matter of fact, as distinct from a possibility of such conduct. The present case is not of that nature, so far as the Plaintiffs have alleged, and established, that the failure to review the relevant invoices was prejudicial to creditors, at least so far as it deprived the Company, creditors and contributories of proper supervision of legal costs being incurred by the Company, or funded from monies which would otherwise be available for distribution to creditors or contributories. His Honour also noted that a nexus between the order sought and the relevant conduct must be established. In the present case, such a nexus is established, to the extent that any order is directed to address costs which have been paid without such review.

1. It seems to me that the breadth of the Court's powers is sufficient, in principle, to make orders tailored to the difficulties that have arisen from the nature of the invoices rendered by Messrs Albarran's and Pleash's former solicitors and the failure of Messrs Albarran and Pleash to review them. However, there is no particularly satisfactory means of achieving the result that the Company, the creditors and contributories are placed in the position they would have been had the deed administrators adequately reviewed their former solicitors' invoices when they were received. Any approach that is now adopted involves a risk the Company, creditors and contributories will not properly be compensated for payments which should not have been made to the former solicitors, or the deed administrators will be left (subject to any recourse to the former solicitors) to repay costs that were properly paid at the relevant time, but which they are unable to justify several years later. However, it must be recognised that the latter risk arises from the deed administrators' failure to adequately review those invoices as they were received, and it seems to me preferable, in that situation, that they should be left to bear that risk rather than the Company, its creditors and its contributories be left uncompensated for amounts which should not properly have been paid out.

1. The approach I will adopt has something in common with an accounting by a trustee, on a wilful default basis, in that it seems to me the difficulty which has arisen cannot be addressed unless Messrs Albarran and Pleash are required to justify the charges of their former solicitors which they have approved for payment. In particular, the Plaintiffs cannot fairly be required to falsify those charges, particularly where they do not have access to all of the attendances by reason of claims of legal professional privilege by Messrs Albarran and Pleash. That process of justification, by Messrs Albarran and Pleash, seems to me to be the closest substitute that can now be achieved for a process of adequate review of the invoices by them as they were received and paid. A broadly similar approach has been adopted in cases where liquidators have been found to have paid themselves for work done without adequate justification: for example, Australian Securities and Investments Commission v Edge [2007] VSC 170; (2007) 211 FLR 137 at [189], [624]-[628]; Australian Securities and Investments Commission v Dunner [2013] FCA 872; (2013) 95 ACSR 76 at [239]. Messrs Albarran and Pleash point out that no claim for an accounting on the basis of wilful default was pleaded; however, it seems to me that the Court has power, under s 447E of the Corporations Act, to shape an appropriate remedy, and Messrs Albarran and Pleash have been afforded procedural fairness in respect of that remedy so far as it was addressed in the course of submissions and they will have the opportunity to lead further evidence in order to justify the relevant costs.

1. Messrs Albarran and Pleash should therefore be allowed a further opportunity to lead evidence to justify the legal costs that they have paid and, to the extent that such costs are not then justified by evidence, they should be ordered to repay such costs to the Company and be left to such rights as they have as against their former solicitors. I will hear the parties as to the orders that need to be implemented for that process and as to whether it should be referred to a referee. I should add that it seems to me that Messrs Albarran and Pleash would face a significant conflict between the Company's interests and their duty to it on the one hand and their personal interests on the other in respect of any claim to indemnity from the Company's assets in respect of that process, where the need for it arguably results from their failure adequately to review invoices for legal services which they have paid: compare ASIC v Dunner above at [239]. That conflict is relevant to the question whether they should be removed as deed administrators to which I now turn.

Removal of deed administrators

1. I have also considered whether this aspect of the Plaintiffs' claim might itself have warranted an order for the removal of Messrs Albarran and Pleash as deed administrators. The Plaintiffs filed a consent to act as joint and several deed administrators, or alternatively as official liquidators or joint and several provisional liquidators, by Messrs Godfrey and Iannuzzi. Mr Marshall properly accepted, in the course of oral submissions, that there would be a difficulty with my appointing liquidators at this stage, so far as the other contributories had not had an opportunity to be heard as to that course.

1. Mr Marshall pointed out that no inquiry had been made by Messrs Albarran and Pleash in respect of the costs incurred by their former solicitors, notwithstanding the complaints previously made by the Plaintiffs and referred to the cross-examination of Mr Cook (T310, 321) and Mr Pleash (T228) in that regard. The Plaintiffs point out that, as early as 17 May 2009, the solicitors for the Elias family had raised concerns with the former solicitors for Messrs Albarran and Pleash about the costs being incurred by those solicitors. There is no evidence that Messrs Albarran and Pleash made any adequate attempt, either themselves or by their staff, to assess the validity of those concerns. I also find it troubling that, even when placed on notice of the allegations made in these proceedings, Messrs Albarran and Pleash did not themselves (so far as the evidence goes) consider it necessary to undertake any critical review of their former solicitors' invoices to assess the validity of the complaints about their charges. The Defendants would also now face an actual or potential conflict of interest in investigating this matter, where the difficulties that now exist have at least partly resulted from the failure of their system for ongoing review of their former solicitors' invoices.

1. I raised with the parties, in closing submissions, whether the circumstances of this matter were alternatively such as to warrant the replacement of the deed administrators, by reason of the breakdown in their relationship with the contributories, and for the better advantage of the administration. In an appropriate case, the Court may remove a liquidator or administrator and appoint another liquidator or administrator on that basis, notwithstanding that no misconduct on the part of that liquidator or administrator has been established: SingTel Optus Pty Ltd v Weston [2012] NSWSC 674; (2012) 90 ACSR 225 at [155]-[162]; Haulotte Australia Pty Ltd v All Area Rentals Pty Ltd (in liq) [2012] FCA 615; (2012) 90 ACSR 177 at [26]; Re Metal Storm Ltd (subject to deed of company arrangement) [2014] NSWSC 813 at [91]. The relevant principle is to be applied by reference to whether it would be for the better conduct of the administration, or for the general advantage of those interested in the assets of the relevant company, that the administrator be removed.

1. The Plaintiffs submit that the Court at least has power to remove Messrs Albarran and Pleash by reference to those principles, by the exercise of its powers under s 447A of the Corporations Act. In supplementary submissions as to that issue, the Plaintiffs sought to support such a removal by reference to their substantive complaints, in respect of the expenditures incurred in the course of the administration and deed administration, the requirement for a general release, and the failure to finalise the DOCA. I have addressed those matters above. The Plaintiffs submit that, by reason of those matters, it is for the better conduct of the administration and the general advantage of those interested in the Company's assets that the Deed Administrators should be removed.

1. Messrs Albarran and Pleash point that the Court's express power to remove a deed administrator under s 449B of the Corporations Act cannot be invoked by a contributory. Messrs Albarran and Pleash raised the possibility that a conferral of standing on specific persons under s 449B of the Corporations Act impliedly confines the Court's power to "make such order as it thinks just" if the criteria in s 447E of the Corporations Act are satisfied. It does not seem to me that the express powers conferred by s 447E of the Corporations Act, and the wider power conferred by s 447A of the Corporations Act, are confined in that manner. There seems to me to be no reason, as a matter of statutory construction or of policy, not to read those sections as operating in parallel, conferring alternative bases of jurisdiction in the Court, rather than to read the wider powers conferred on the Court under s 447A and 447E of the Corporations Act as confined by the narrowest of those powers conferred under s 449B of the Corporations Act. In any event, little turns on that matter, where Messrs Albarran and Pleash accept that Mr Elias is in any event a creditor of the Company and has standing to apply for an order under s 449B of the Corporations Act that they be removed.

1. In SingTel Optus Pty Ltd v Weston above at [165], Bergin CJ in Eq referred to the observation of Neuberger J (as his Lordship then was) in AMP Music Box Enterprises v Hoffman [2002] BCC 996 that the replacement of a liquidator (and, by extension, an administrator) will typically have undesirable consequences in terms of costs and delay and her Honour recognised that the length of time that a liquidator had been in office and the nature of his or her obligations were relevant factors to whether he or she should be removed. The Court must also be conscious, as Jessup J observed in Haulotte Australia Pty Ltd v All Area Rentals Pty Ltd (in liq) above at [42], that such applications should not be an avenue for persons interested in a liquidation or administration to have, as a matter of reality or as a matter of appearance, persons of their choice appointed as liquidator or administrator. Messrs Albarran and Pleash note that that issue is particularly significant where there is a real risk that the Elias family and the Kossaifi family will be pursued under a guarantee contained in the DOCA for any shortfall in funds in the deed fund, although that may depend upon the outcome of the review of the legal costs incurred by the deed administrators consequential upon my judgment.

1. Messrs Albarran and Pleash also put detailed submissions as to the steps which remain to complete the administration, including the payment of an interim dividend of 95¢ in the dollar to creditors which have not been subordinated (the Australian Tax Office, ASIC and Mr Elias, including his claim for amounts previously paid out to trade creditors), funded by monies presently held in the deed fund and the sale proceeds of lot 12, and indicate that they propose partially to waive their entitlement to be paid from the deed fund in priority to creditors to pay that interim distribution. They also submit, with substantial force, that:

"... Having regard to the effluxion of time since the DOCA began, the limited tasks to be completed to finalise the DOCA and the real risk of a newly appointed deed administrator incurring substantial costs in coming to terms with the events that have transpired in the conduct of the DOCA of the [Company] and any future proceedings, the Court ought readily conclude that the removal of [Messrs Albarran and Pleash] as deed administrators of the [Company] will not result in the better conduct of the administration of the [Company] and will not give effect to the purpose of Part 5.3A Corporations Act 2001."

1. I have ultimately concluded that, where the deed administration seems close to completion, the preferable course, subject to one qualification, would not be to take the course of removing Messrs Albarran and Pleash as deed administrators. It seems to me that the appointment of replacement deed administrators would impose significant costs on the administration. The qualification to that conclusion is that, if Messrs Albarran and Pleash remain in office, they need to address the conflict of interest and duty which they face in respect of any claim to indemnity from the Company's assets against the costs of the justification process required by paragraphs 196-197 above, the need for which arguably results from their failure adequately to review the invoices of their former solicitors before using the Company's assets to pay them. That issue could potentially be addressed by their undertaking not to exercise such a right of indemnity without first obtaining a direction or order from the Court that they would be justified in doing so. Further steps would need to be taken if that issue is not addressed.

1. I also considered whether a special purpose administrator should be appointed to address the question of legal costs. The question whether a special purpose administrator could be appointed to investigate conduct of the existing administrator, in the course of an administration under a deed of company arrangement, was considered in Honest Remark Pty Ltd v Allstate Explorations NL above. Brereton J there held (at [72]) that an order appointing a special purpose administrator was not available, including under s 447A of the Corporations Act to appoint a person to investigate the conduct of a deed administrator, because such an investigation was not part of a voluntary administration or of a deed administration or a matter entrusted to an administrator or deed administrator, and the relevant orders would not vary or modify how Part 5.3A operated in relation to the relevant company. It seems to me that, for that reason, s 447A of the Corporations Act does not here authorise the appointment of a special purpose administrator to investigate the legal costs paid out by Messrs Albarran and Pleash. Even if the power to make such an appointment had been available, it does not seem to me that it would have been warranted in the exercise of the Court's discretion, since the costs of that appointment were likely to be disproportionate in an administration in which the Company's assets may already be less than its liabilities, even if some recovery of the legal costs paid out is made from Messrs Albarran and Pleash.

Orders and costs of these proceedings

1. The parties should bring in short minutes of order to give effect to this judgment, which will need to address any steps that Messrs Albarran and Pleash propose to take to address the conflict arising in any exercise of a right of indemnity in respect of the process noted in paragraph 196 above.

1. The Plaintiffs sought an order that Messrs Albarran and Pleash not be entitled to an indemnity for their remuneration from the Company for the work done in the defence of these proceedings, or for the costs of instructing solicitors, and also claimed their costs of the proceedings. Mr Smith accepted in oral submissions that it would be difficult to resist the suggestion that the Court's jurisdiction under s 447E of the Corporations Act extended to making orders about the extent of costs orders to be met by an administrator in proceedings and whether the administrator would be entitled to an indemnity out of the estate to meet any costs orders made against them (T350). He submitted, however, that that question should be addressed at the time of determination of the proceedings. I will hear the parties further as to these matters, which will need to be determined in the context of the mixed result in this judgment.

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Decision last updated: 22 October 2014