In the matter of Sydney Project Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) and S.E.T. Services Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed)

[2017] NSWSC 881

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

In the matter of Sydney Project Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) and S.E.T. Services Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2017] NSWSC 881

Hearing dates:

29 June 2017

Date of orders:

30 June 2017

Decision date:

30 June 2017

Jurisdiction:

Equity - Corporations List

Before:

Robb J

Decision:

(1) Declaration, pursuant to s 447C of the Corporations Act 2001 (Cth) confirming the validity of the appointment of the plaintiffs on 16 June 2017 as administrators of both the first defendant and the second defendant.

 

(2) Order that the plaintiffs’ costs of this application are costs properly incurred in the administration of the companies.

 (3) Order that the third and fourth defendants pay the plaintiffs’ costs.

Catchwords:

CORPORATIONS – Directors and officers – Appointment, removal and retirement of directors – Whether director was validly appointed – Where sole shareholder resolved to remove director – Where sole director did not notify director – Where sole director did not notify ASIC.

  CORPORATIONS – Voluntary administration – Administrator – Appointment, removal and retirement of administrators – Whether administrators were validly appointed – Where administrators were appointed by director who had allegedly been removed from office.

Legislation Cited:

Corporations Act 2001 (Cth) ss 128, 129, 249B, 436A, 447C
Evidence Act 1995 (NSW) s 140

Cases Cited:

ASIC v Vines [2005] NSWSC 738
Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34
Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389
Correa v Whittingham (No 3) [2012] NSWSC 526
Correa v Whittingham [2013] NSWCA 263; (2013) 278 FLR 310
Jones v Dunkel (1959) 101 CLR 298
Moukhayber v Camden Timber & Hardware Co Pty Ltd [2002] NSWCA 58
Ross v GNC Homes Pty Ltd [2015] SASC 168
Sliteris v Ljubic [2014] NSWSC 1632
Watson v Foxman (2000) 49 NSWLR 315

Category:

Principal judgment

Parties:

Michael Andrew Hogan and Christian Peter Sprowles in their capacity as joint and several administrators of Sydney Project Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) ACN 155 827 295 and S.E.T. Services Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) ACN 151 314 439 (plaintiffs)

 

Sydney Project Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) ACN 155 827 295 (first defendant)

 

S.E.T. Services Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) ACN 151 314 439 (second defendant)

 

Khadijeh Mehajer (third defendant)

  Mr Salim Mehajer (fourth defendant)

Representation:

Counsel: I Pike SC and AR Zahra (plaintiffs)

 

MW Young SC (third and fourth defendants)

 

Solicitors: William James (plaintiffs)

  Galloways Solicitors (third and fourth defendants)

File Number(s):

2017/187280

Judgment

1. The originating process by which these proceedings were commenced was filed in court by leave of the Corporations List duty judge on 20 June 2017.

2. The plaintiffs, Mr Michael Andrew Hogan and Mr Christian Peter Sprowles, claim to have validly been appointed on 16 June 2017 as the administrators of two companies by an act of the person who they understood was the sole director of the companies, Mr Kenneth Wen Hsi Lee.

3. The companies are Sydney Project Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed), which I will call “SPG’, and S.E.T. Services Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed), which I will call “SET”.

4. SPG and SET have been joined as first and second defendants to the proceedings so that those companies will be bound by any orders made by the court.

5. The third and fourth defendants are respectively Ms Khadijeh Mehajer and Mr Salim Mehajer.

Background

6. After Mr Lee purported to appoint Mr Hogan and Mr Sprowles as administrators of each of the companies in the manner provided for in s 436A of the Corporations Act 2001 (Cth), it came to the attention of Mr Hogan and Mr Sprowles that Ms Mehajer and Mr Mehajer claimed that, early on the morning of 16 June 2017, before their purported appointment as administrators in the evening, Mr Mehajer, by a resolution under s 249B of the Corporations Act, had resolved to remove Mr Lee as the director of the two companies and appoint Ms Mehajer in his stead.

7. Accordingly, the possibility emerged that Mr Hogan and Mr Sprowles may not have been validly appointed as administrators of the two companies.

8. They therefore quickly commenced the present proceedings, whereby they claim by their originating process the following will substantive relief:

2. A declaration, pursuant to s. 447C of the Act, confirming the validity of the appointment of the Plaintiffs on 16 June 2017 as Administrators of both the First Defendant and the Second Defendant.

3. Alternatively to 2, an order, pursuant to s. 447A and/or s. 1322(4) of the Act, validating the appointment of the Plaintiffs as Administrators of both the First and the Second Defendant.

4. An order that the Plaintiff’s costs of this application are costs properly incurred in the administration of the Companies.

5. Costs as against the third and fourth defendants.

9. On 27 June 2017, Brereton J, the Corporations List duty judge, fixed the originating process for hearing on 29 June 2017.

10. Brereton J also granted an interlocutory injunction restraining Mr Hogan and Mr Sprowles from taking any further step pursuant to their purported appointment as administrators of the two companies until and including 29 June 2017. His Honour also noted that it would not be a contravention of the injunction for them to inform creditors and other persons affected that the meeting proposed to be held on 28 June 2017 would not proceed pending the outcome of the hearing on 29 June 2017.

11. At the end of the hearing on 29 June 2017, I made an order extending the interlocutory injunction until the time of delivery of the judgment in the proceedings.

12. The proceedings were set down for an urgent final hearing some seven days after they were commenced because of the urgent need for all parties, including interested creditors, to know whether Mr Hogan and Mr Sprowles’ appointment as administrators was valid, and if it was not, for the control of the two companies to be handed over to Ms Mehajer as the sole director. The parties have not been given the usual time to prepare their evidence fully, and that may be reflected in some of the observations I make below. I have heard the case and will give judgment on the basis that all parties request and are content to receive a judgment that has been produced urgently.

13. It will not in the circumstances be possible to explain the background facts relevant to the dispute that has arisen in the usual detail. Indeed, as may be expected, the evidence was relatively limited. The evidence does not clearly distinguish between the positions of the two companies.

14. It is sufficient to note that the companies have been engaged in a relatively substantial building development that I understand is nearing completion.

15. Mr Mehajer is the sole shareholder of each of the companies. He has not been a director of either company since 27 October 2015.

16. On 26 April 2016, Mr Lee was appointed as the sole director and company secretary of each of the companies.

17. On 30 May 2017, Mr Lee received statutory demands served by a creditor of each of the companies demanding payment of $1.785 million within 21 days.

18. On 14 June 2017, Mr Lee met with Mr Hogan in relation to the potential appointment of administrators to the companies.

19. On 16 June 2017, both SPG and SET received a demand from SC Lowy Financial Services as Facility Agent under a syndicated construction loan note subscription agreement dated 29 April 2016, under which both SPG and SET were guarantors. The demand was for $83,201,423.17. The demand referred to various events of default, including the creditors statutory demands dated 29 May 2017 that had been issued against both companies.

20. Additionally, on 16 June 2017, AET Structures Finance Services Pty Ltd (in its capacity as a security trustee for the secured lenders), appointed Mr Todd Andrew Gammel and Mr Barry Anthony Taylor as receivers and managers to each of the companies.

21. At 5:25 PM on 16 June 2017, Mr Lee held meetings of SPG and SET and resolved that, in his opinion, the companies were insolvent or likely to become insolvent. For that reason he resolved to appoint administrators to the companies. Mr Lee then signed instruments of appointment appointing the plaintiffs as administrators of the companies.

22. Prior to consenting to being appointed as administrators, Mr Hogan and Mr Sprowles obtained ASIC searches for the companies, on 14 June 2017, which confirmed that Mr Lee was the sole director and secretary of both companies. That position was confirmed again by further ASIC searches obtained on 17 June 2017 following the appointment. Accordingly, at the time of their appointment, Mr Hogan and Mr Sprowles believed that Mr Lee was the sole director of both SPG and SET.

23. Following their appointment, Mr Hogan and Mr Sprowles took steps to discharge their statutory obligations as administrators, including meeting with Mr Lee on 19 June 2017, obtaining further documents from Mr Lee, identifying the companies’ bank accounts, identifying creditors of the companies, and arranging and providing notice of a first meeting of creditors that they scheduled for 28 June 2017. Following the granting of the interlocutory injunction on 27 June 2017, the plaintiffs have not been able to proceed to implement their duties as administrators of the companies.

24. Mr Hogan and Mr Sprowles first received notification that Mr Lee had purportedly been removed as director of the companies when updated ASIC searches for the companies were provided to them at about 3:52 PM on 19 June 2017. Those documents disclosed for the first time that at some time on 16 June 2017, Mr Lee had been replaced as director and secretary of both companies by Ms Mehajer.

25. The first apparent notification by Mr Mehajer or Ms Mehajer to Mr Lee of his replacement as director was an email (sent by Mr Mehajer) which attached a letter (apparently written by Ms Mehajer) sent at 3:53 AM on 21 June 2017. The letter stated, inter alia:

You have invalid/city [sic] appointed a receiver Your instrument of Appointment of Administrators minutes show that the meeting took place on 16 June 2017 at 5 27pm No doubt the ASIC record was very clear on who the director was at this time, whilst you had no authority to put the company in administration. You are effective immediately terminated under instruction from the director, Myslef [sic] Khadijeh Mehajer and the Sole Shareholder Salim Mehajer. Your appointment is ineffective. (emphasis in original)

26. At 3:15 PM and 3:16 PM on Sunday, 18 June 2017, Form 484 documents were electronically lodged with ASIC certifying that Mr Lee had been removed and Ms Mehajer appointed as director and secretary of both companies on 16 June 2017.

27. It was in those circumstances that the plaintiffs commenced these proceedings on 20 June 2017.

Issues

28. The proceedings were fought on the basis that there were three issues in contention between the parties.

29. The first issue was whether as a matter of fact the resolutions made by Mr Mehajer under s 249B of the Corporations Act were made before Mr Lee purported to appoint Mr Hogan and Mr Sprowles as administrators of the companies, or after that time.

30. The second issue was whether, if in fact Mr Lee had been removed as a director of the companies and replaced by Ms Mehajer, so that he was not a director when he made the appointments, the appointments are nonetheless effective by reason of the operation of ss 128 and 129 of the Corporations Act, by reason of the fact that the plaintiffs were entitled to assume that Mr Lee was the director of each of the companies, and each of the companies and Mr Mehajer and Ms Mehajer were not entitled to assert that their assumption was incorrect. This issue was also expressed alternatively, as being whether the plaintiffs acted on an actual holding out by the defendants of Mr Lee as the director of the companies.

31. The final issue was, if the appointment of Mr Hogan and Mr Sprowles as administrators of the companies was invalid, should the court make orders under either of ss 447A or 1322(4) of the Corporations Act with the effect of validating the appointments?

Making of the resolutions

32. As to the first of these issues, the evidence included a minute in respect of the affairs of each of the companies that was in the following terms (taking the SPG minute as an example):

MINUTES OF MEMBERS RESOLUTIONS MEETING OF SYDNEY PROJECT GROUP PTY LTD ACN 155 827 295 (Company) ON FRIDAY 16 JUNE 2017 AT 5:30AM

PRESENT

Salim Mehajer (Sole Shareholder) held meeting at 77 Carlingford Street, Sefton NSW 2162

CHANGE IN OFFICE

Noted the Sole Shareholder of the Company:

1. has received a consent from Khadijeh Mehajer to act as the sole director and secretary of the Company effective immediately from the conclusion of this meeting; and

2. has in the best interest of the Company decided to remove Kenneth Wen Hsi Lee as the sole director and secretary of the Company effective immediately from the conclusion of this meeting.

Resolved that the Sole Shareholder of the Company:

3. accept the appointment of Khadijeh Mehajer as the sole director and secretary of the Company effective immediately from the conclusion of this meeting;

4. that Kenneth Wen Hsi Lee be removed as the sole director and secretary of the Company effective immediately from the conclusion of this meeting; and

5. that George Boutros of GBR Accounting will be nominated to execute the above changes via the ASIC portal as ASIC agent for the Company.

CLOSURE

6. With no further business, the meeting is declared closed and concluded at 5:31AM.

33. The minutes were signed by both Mr Mehajer and Ms Mehajer. Mr Mehajer’s signature was witnessed by his solicitor, Mr Mahmoud Abbas. Mr Abbas had the conduct of these proceedings for the third and fourth defendants, he was in court throughout the hearing, and he gave oral evidence. Ms Mehajer’s signature was witnessed by a Ramah Yagni, who was said to be Mr Mehajer’s personal assistant. Both signatures were dated 16 June 2017.

34. The plaintiffs took no issue with the effectiveness of each of the minutes executed by Mr Mehajer as the sole shareholder of the relevant companies. The issue was as to when the documents were signed.

35. It will be seen that each minute records that the relevant meeting closed at 5:31 AM on 16 June 2017.

36. The only one of the four persons who signed the minutes to give affidavit evidence at the hearing was Mr Mehajer. I will come to that evidence below.

37. Ms Mehajer affirmed an affidavit on 26 June 2017, but that affidavit was not read. The reason why the affidavit was not read on behalf of the third and fourth defendants was explained by Mr Abbas, who was called to give the following oral evidence:

Q. Mr Abbas, what's your full name?

A. Mahmoud Abbas.

Q. What is your address?

A. 274 Hector Street, Bass Hill.

Q. What's your occupation?

A. I'm a solicitor.

Q. Who do you act for in these proceedings?

A. Salim Mehajer and Khadijeh Mehajer.

Q. Did you have a conversation with Khadijeh Mehajer this morning?

A. Yes, I did during the break.

Q. When did you have that conversation?

A. Roughly 10, 15 minutes ago.

Q. Was that face to face or by telephone?

A. No, by telephone.

Q. What did you say to her and she say to you in that conversation?

A. Yes, I I asked her whether she was still coming to Court. She replied by saying that, "My three week old, my newborn son is ill, he's having trouble breathing and I'm not in a position to come to Court, I'm somewhat emotionally distressed”.

Q. Did she tell you where she was?

A. Yes, at the Westmead Children's Hospital.

Q. Did she tell you whether she would be able to come later in the day?

A. I I didn't ask that question. She seemed, based off what she told me, she was somewhat distressed about her son's situation.

38. The plaintiffs accepted this explanation and did not make any submission based upon the rule in Jones v Dunkel (1959) 101 CLR 298 in relation to the failure of the third and fourth defendants to read Ms Mehajer’s affidavit and make her available for cross examination.

39. The third and fourth defendants did not call any evidence from Mr Abbas, and in particular did not cause him to serve an affidavit in which he confirmed that he was present when Mr Mehajer signed the two minutes, and that he witnessed those signatures at about 5:30 AM on 16 June 2017.

40. No leave was sought from the court to permit Mr Abbas to give evidence on that subject when he was called to give evidence to explain Ms Mehajer’s inability to come to court for the purpose of cross examination.

41. The court therefore had in evidence the two minutes apparently signed by Mr Abbas as the witness for Mr Mehajer’s signature, but Mr Abbas gave no evidence to authenticate his signature or verify the time when the documents were signed.

42. When, during submissions, the court raised with senior counsel for the third and fourth defendants the strange fact that Mr Abbas had not authenticated his signature as a witness to the signing of the minutes by Mr Mehajer, or verified the time when the documents were signed, notwithstanding that it would have been apparently a simple matter for him to do so, senior counsel explained that initially his clients understood that there were no issues of fact in the case. On 27 June 2017, the court ordered the defendants to serve any further affidavits by 27 June 2017. The plaintiffs’ written submissions were served on 28 June 2017, and even though those submissions made it clear that the first issue in the case was whether the two minutes had been signed before the plaintiffs were purportedly appointed as administrators of the companies, senior counsel said that the view was taken that it was then too late for the third and fourth defendants to try to introduce the relevant evidence from Mr Abbas.

43. Given that Mr Abbas did not give any evidence concerning his involvement in the signing of the two minutes, senior counsel for the plaintiffs did not cross examine Mr Abbas on the subject.

44. Senior counsel justified that course by relying on the following part of the judgment of Handley JA (with whom Kirby P agreed on that subject) in Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418-419:

In my opinion the Court should not draw inferences favourable to the insured on these matters when no attempt was made to prove them by direct evidence and in particular when no relevant questions were asked of Mr Ferrarese. Rather it seems appropriate to apply the principles of Jones v Dunkel (1959) 101 CLR 298.

There appears to be no Australian authority which extends the principles of Jones v Dunkel to a case where a party fails to ask questions of a witness in chief. However I can see no reason why those principles should not apply when a party by failing to examine a witness in chief on some topic indicates “as the most natural inference that the party fears to do so”. This fear is then “some evidence” that such examination in chief “would have exposed facts unfavourable to the party”: see Jones v Dunkel (at 320-321) per Windeyer J. Moreover in Ex parte Harper; Re Rosenfield [1964-5] NSWR 58 at 62,Asprey J, citing Marks v Thompson 1 NYS 2d 215 (1937) at 218, held that inferences could not be drawn in favour of a party that called a witness who could have given direct evidence when that party refrained from asking the crucial questions.

There is in fact extensive case law in the United States on this question although it is not referred to in Wigmore, Evidence, 3rd ed (1940). It may be found summarised in 5 ALR 2d, par 25 at 949-951. One of the leading cases is Milliman v Rochester Ry Co 3 App Div 109; 39 NYS 274 (1896), a decision (1991) 22 NSWLR 389 at 419of the Appellate Division of the Supreme Court of New York. The judgment of the Court was given by Follett J who said (at 276):

“In case a litigant fails to produce a person known to be friendly to him and to his cause, who is so situated that he must have knowledge of the facts in issue, the jury is permitted to presume that the testimony of that person would not have been favourable to the party … The existence of this rule is not disputed but it is urged that it is not applicable to this case because the daughter was produced as a witness, and that no presumption arises from the plaintiff's failure to interrogate her, that her testimony would have been unfavourable to him. I think the rule is as applicable to a case in which a party fails to interrogate a friendly witness, so situated as to be presumed to have knowledge of the existence or non-existence of the vital facts in issue, as it is to the case of a failure to produce such a witness. Indeed I think the omission to interrogate a friendly witness in respect to facts presumably within his knowledge is more significant than the failure to call such a person as a witness, and that the presumption that the testimony would not have been favourable to the party's case is stronger than the one which arises from the failure to produce such a person as a witness.”

45. Whatever may be the rights and wrongs of the courses taken by the parties, the outcome is that the court has been deprived of crucial evidence that may have been determinative on the issue of when the two minutes were signed by Mr Mehajer. The court cannot know whether Mr Abbas would have given evidence that affirmed the authenticity and timing of the minutes, and if so, whether his evidence would have been challenged by the plaintiffs and what the outcome of that challenge would have been. However, ordinarily if a solicitor had given direct evidence that he witnessed the signature and that the documents were signed at the time they purported to be signed, that would be very telling evidence. That is such an obvious proposition that notwithstanding the explanation given by senior counsel for the third and fourth defendants, it is hard for the court to understand why the evidence was not given, if Mr Abbas was prepared to give it.

46. Ms Yagni was also not called to give evidence. No evidence to explain this failure was given by the third and fourth defendants.

47. The position is so extreme that it appears that that an understanding of the very purpose of having the execution of documents witnessed by disinterested parties has been lost. They are called witnesses because documents are so easily fabricated that, where the authenticity and date of the execution of a document is put in issue, the expectation is that the issue will be determined by the evidence of the witnesses to the execution of the document, who have been chosen on the basis of their disinterest in the transaction and the likelihood that they will be treated by a court as being reliable witnesses. The first thing that should occur to the legal representatives of a party whose document has been challenged as to authenticity or time of production is to seek out the witnesses to obtain evidence to prove the authenticity and timing of the execution of the document.

48. I will return to this issue when I consider how the dispute as to when the minutes were prepared should be resolved.

49. Mr Mehajer explained in one of his affidavits the reason why the minutes were signed at around 5:30 AM in the morning by saying:

The meeting was completed after my daily prayers and breakfast as it was the holy month of Ramadan. It is the custom during Ramadan to fast each day for a period commencing on or around 5:30 AM. It was thus my usual practice during Ramadan to start the day at approximately 4:30 AM so I could eat breakfast prior to the fasting period commencing for the day. Khadijeh was awake at that time for similar reasons.

50. I accept Mr Mehajer’s explanation in-so-far as he said that the documents were prepared at 5:30 AM because it was during Ramadan. I should draw no adverse inferences against the third and fourth defendants based solely on the apparent hour of the day of the signing of the minutes.

51. I should say that, upon reading this aspect of Mr Mehajer’s evidence, I understood that he implied that the events related to the signing of the minutes happened in his home, in so-far-as he merely said that he had completed his daily prayers and breakfast, and also in-so-far as he said that his sister “was awake at that time for similar reasons”. Mr Mehajer did not say anything to suggest in any positive way that the minutes were prepared outside his home, and indeed at the office occupied by the companies.

52. However, in cross-examination Mr Mehajer gave the following evidence concerning the circumstances in which the minutes were prepared and signed:

Q. Mr Mehajer, the meeting that you say occurred on 16 June 2017 at about 5.30am, where did those meetings occur?

A. Yes, that meeting those meetings occurred at my head office in Sefton, 77 Carlingford Street, Sefton.

Q. So who was there?

A. In presence was Khadijeh, the person the new director, Ramah who's also my PA. My solicitor was also present.

Q. So you got everybody up at 5.30am, did you?

A. Well it was normal practice during the month, but yes.

Q. So you even got your solicitor there at 5.30am, is that what you are saying?

A. During this month, yeah, we met up a number of times during this month.

Q. What documents did you have before you at that meeting?

A. Well, it would have been the minutes.

Q. Do you recall what you had before you?

A. Yes.

Q. What documents did you have before you?

A. I had the minutes.

Q. Had they been pre prepared, had they?

A. Yes.

Q. Who prepared them?

A. Myself.

Q. On your system at work, is that correct?

A. Well through my bookkeeper's computer, yes.

Q. When you say through your bookkeeper's computer, you mean your

bookkeeper's computer at work?

A. That's correct.

Q. Are you aware that, so as at 16 June 2017 there were you say electronic copies, were there, on your bookkeeper's computer at your head office at Sefton?

A. Can you repeat the question, electronic copies?

Q. Are you familiar with these were Microsoft Word documents, were they?

A. It was it was a type of Microsoft Word document, yes.

Q. So on the bookkeeper's computer as at 16 June 2017, you say, do you, that on the bookkeeper's computer were the actual Word copies of the two sets of minutes, is that correct?

A. That's correct.

Q. Were you aware that a notice to produce was served on you yesterday to produce certain documents?

A. Yes, yes.

Q. You didn't produce any electronic copies, did you?

A. It wasn't saved. There was a reason for that, and it wasn't saved, it was printed from the bookkeeper's computer but it was scanned from my computer so that was produced.

Q. So no copy was saved, is that what you were contending?

A. Well, I had the original only.

Q. So no copy was saved, is that what you were suggesting?

A. There was the original which was scanned, that was saved as the electronic copy.

Q. What about the Word copy though Mr Mehajer?

A. No.

Q. What happened to that?

A. It was not available.

53. As appears from the beginning of this aspect of the cross examination, Mr Mehajer said that the meeting occurred in the office at 77 Carlingford Street, Sefton.

54. That was not explained in Mr Mehajer’s affidavit, nor was any explanation given as to the circumstances that led Mr Mehajer to make an arrangement for his sister, his solicitor and his personal assistant to come to the office at some time before 5:30 AM on 16 June 2017. As it may well be that all four persons were observant Muslims, the court should be wary of drawing inferences as to the significance of the conduct of persons who have a need to undertake tasks early in the morning in order to observe the requirements of Islam during Ramadan. It remains the fact, however, that the evidence is silent about the circumstances that, if Mr Mehajer is to be accepted, must have caused him at some earlier time to foresee the need to make the two minutes, and to arrange for the other three people to attend at the office to assist him for that purpose.

55. The evidence makes it plain that neither the third nor the fourth defendant informed Mr Lee that he had been replaced as a director of the companies shortly after 5:30 AM on 16 June 2017, as might ordinarily have been expected.

56. Instead, Mr Mehajer exchanged a number of text messages with Mr Lee that, first, did not inform Mr Lee that he was no longer a director, and secondly, were consistent with Mr Mehajer accepting that Mr Lee in fact continued to occupy that office.

57. On 16 June 2013 at 9:33 AM, Mr Mehajer sent the following text message to Mr Lee:

Good Morning Kenneth,

The Stat Demand –

Please email me if okay for me to respond to them since no action taken yet.

I await your soonest reply

Salim

58. In this text, Mr Mehajer is asking for Mr Lee’s agreement to Mr Mehajer responding to the statutory demands. That implies an acceptance by Mr Mehajer that Mr Lee continued to be a director of the two companies.

59. At 9:47 AM, Mr Lee replied with a text in which he said that he had been waiting for action from Mr Mehajer relating to the statutory demands, which expired the following Monday, 19 June 2017. Mr Lee then said in a further text at 10:44 AM that he had emailed the statutory demand to Mr Mehajer again.

60. Mr Mehajer responded at 11:20 AM, with a text message in which he said:

kenneth

i need an official authority and direction from us to run the statutory demand proceedings today.

If you cannot do that please let me know today by 4 PM period.

61. The statement by Mr Mehajer that he needed an official authority from Mr Lee is consistent with Mr Mehajer believing that Mr Lee remained the effective director of the companies.

62. Mr Lee said in a text to Mehajer at 12:55 PM that he was seeking legal advice “as I’m uncomfortable having my name against. I’m not trying to delay this”.

63. Mr Lee by this message informed Mr Mehajer, as I understand its significance, that he was uncomfortable as the director of the companies causing them to take steps to challenge the debt upon which the statutory demands received by each of the companies had been based.

64. This is a significant fact, because, as will be seen, Mr Mehajer gave evidence in cross-examination that he was trying to persuade Mr Lee to take steps to cause the companies to challenge the statutory demands, and it was Mr Mehajer’s concern that Mr Lee might not be prepared to do it. That was at least part of the reason why Mr Mehajer decided to replace Mr Lee as the director of the companies with his sister. If in fact Mr Lee only informed Mr Mehajer of his discomfort with challenging the statutory demands at 12:55 PM on 16 June 2017, that would be a material matter relevant to the likelihood that Mr Mehajer had actually replaced Mr Lee as the director of the companies at 5:30 AM on the morning of that day.

65. Mr Mehajer then said in a text message at 1:28 PM:

With no pressure, just resign and I’ll sign what is required to release you from everything, a deed of release.

As you can see - my challenge is to protect my rights - i.e. arising from the penalty interest

66. By this text message, Mr Mehajer suggested that Mr Lee should resign as the director of the companies, even though his case now is that he had already replaced Mr Lee with his sister.

67. On 19 June 2017 at 9:38 AM, Mr Mehajer sent a text message to an addressee called “Rammy Q”. The evidence suggests that that person was a director of the firm to which Mr Lee belonged. The message was:

Thanks ramy.

I have also had advice to remove Kenneth

So I’ve done that to act to the stat demand

.

The stat demand and payout figure need to sit with ben to get into an agreement/solution.

68. The text message is silent as to when Mr Mehajer received the advice to remove Mr Lee. Taken in context, however, it creates an appearance that the advice was relatively recent. It would be logical for Mr Mehajer to only take steps to implement the advice after it had been given. It would be strange for Mr Mehajer to have been given that advice before 5:30 AM on 16 June 2017, and for him to have done nothing to implement it until three days later.

69. On Sunday 18 June 2017 at 5:57 AM, Mr Mehajer sent an email to his accountant, Mr Boutros, which attached copies of the two minutes that replaced Mr Lee as director of the companies with Ms Mehajer, as well as associated documents. The email referred to a previous discussion and contained the instruction: “Please proceed as a matter of urgency”.

70. Mr Mehajer was cross-examined for the purpose of supporting a submission that the two minutes that replaced Mr Lee as director of the companies were prepared not long before Mr Mehajer sent the minutes to his accountant, and that was the reason why in the various communications with Mr Lee before that time, Mr Mehajer acted as if Mr Lee remained the director of the companies. The cross examination included the following (T 15.23 to 16.1):

…You are aware that shortly prior to 16 June 2017, a statutory demand had been or two statutory demands had been served on each company. That's correct, isn't it?

A. I'm aware of that, yes.

Q. As at 16 June, I think the time for the companies to apply to set aside those statutory demands, if it was going to do that, was about to expire. That's correct, isn't it?

A. It was going to expire in about 72 to I believe about three days.

Q. The Monday the 19th. That's correct, isn't it?

A. Thereabouts Monday, yes.

Q. I want to suggest to you the reason why you removed or wanted to remove Mr Lee was because he was not prepared to authorise as a director, the companies seeking to set aside those statutory demands. That's correct, isn't it?

A. Well, that's one of the reasons with correction to what you've just said, and that is for me to act in the best interests of the company and to address the invalid stat demands.

Q. So you say there was some urgency about getting rid of Mr Lee as director. That's correct?

A. That's correct.

Q. Can his Honour take it that after these resolutions were passed as you say at 5.31am sorry, you say, do you, that you'd lost trust in Mr Lee? I think that was one of the answers you gave a bit earlier, is that correct?

A. That's correct.

71. Mr Mehajer explained what he understood was the significance of his delay in causing notice of the change of directors to be given to ASIC in the following way (T 16.9 to 16.27):

A. Should his Honour take it that after you signed the, as you say, the minutes of meeting at about 5.31am on 16 June 2017, Mr Lee was to have nothing to do with either of the companies, is that correct?

A. Partially. Well, the minutes took place but it became more official until I lodged it, so either minutes which, as you mentioned, which took place on the Friday, Friday morning, and I was in the mindset whether I was to finalise those by lodging them via the ASIC website through my accountant sorry.

Q. So what does that mean in that answer, Mr Mehajer, about finalising?

A. Sure. What that means is, the minutes took place then in order to finalise it which, to read on ASIC, to show the director has been removed, I had to lodge via my accountant so the minutes were taking place, then a day or 24 hours later I decided to make it official and lodge it online.

Q. But you are not suggesting, are you, that prior to you making it official that you were in any doubt that Mr Lee on your evidence had been removed as a director?

A. Well, as I mentioned earlier, yes he was removed but I didn't finalise that until I lodged

Q. But your evidence to this Court is that you removed him?

A. That that is correct.

72. Further (T 16.43 to 17.25):

Q. Is that your evidence?

A. I undertook the minutes on 5.30 in the morning, I did give Kenneth an opportunity to resign, I remained communicating with Kenneth so I didn't actually lodge it until the following day and I asked him whether he wanted to resign, so it would be a cleaner slate where both parties walk out rather than a termination without his knowledge, so I asked him to resign because I needed to act for the stat demand and he didn't respond so I gave him another 24 hours and he gave no response so I made an official lodgement the following day.

Q. What I want to suggest to you is that you did ask him to resign on 16 June after 5.31am, that's correct?

A. That is correct.

Q. You did that because as at that time you hadn't held the meeting that you say was held at 5.30am that morning?

A. Absolutely incorrect.

Q. That is the reason why you asked him to resign because he still was a director at that time in your mind?

A. Incorrect because the time on the minutes wasn't wasn't at all in play because according to my ASIC record, it was still as if he was a director so there was no agenda to amend the times as you may think.

Q. Your accountant lodged the necessary forms to change the directors on Sunday. That's correct, isn't it?

A. That is correct.

Q. Why did it take so long?

A. Well I had the meeting on the Friday and I was still thinking about whether, because the stat demand was due on Monday so I still had time and I still had in mind thinking of giving Kenneth the opportunity of whether he wants to resign so I just I did stretch and give Kenneth the uttermost maximum opportunity to resign or approach me and speak to me about this matter.

73. Also (T 17.32 to 17.44):

Q. And your sister on your case was the director of those two companies. That's correct, isn't it?

A. It will be correct if it was finalised so in my my eyes that was step one which was the resolution of the minutes, then the actual finalising of the documents, that is lodging, the following day.

Q. It wasn't finalised the following day, was it? It wasn't until the Sunday?

A. Until the Sunday morning sorry, I apologise. I did speak to my accountant the following day.

74. Mr Mehajer explained his first text message to Mr Lee on 16 June 2017, wherein he asked for permission from Mr Lee, in response to the suggestion that he appreciated at the time that Mr Lee was a director of the two companies, by saying (T 21.29 to 21.35):

Q. You were asking that because you appreciated at the time he was the director of each of the two companies. That's correct, isn't it?

A. Well, partially correct because as I mentioned again, the resolution took place, the minutes took place but I didn't lodge until the weekend.

Q. So is it your position in this case that it wasn't until the documents were lodged that the removal as director became official?

A. Became actually official and for him to actually be notified he is no longer director, yes, but technically it was since Friday morning, yeah.

75. The following exchange is important (T 21.48 to 22.2):

Q. Permission to respond is what you were seeking from the director of each of the companies, that's correct?

A. It can be looked at with permission but in my mindset I also had intentions to seek, depending on the response of how, whether I proceed with the ASIC register.

76. In the balance of his cross-examination, Mr Mehajer strenuously denied that the reason why he treated Mr Lee as continuing to be a director of the companies was that he had not yet signed the minutes to remove Mr Lee. However, Mr Mehajer consistently explained his conduct on the basis that the removal of Mr Lee and the appointment of Ms Mehajer would not be perfected until Mr Mehajer caused the relevant notices to be lodged with ASIC.

77. Even if it be assumed that the two minutes that Mr Mehajer signed that replaced Mr Lee as the director of the companies were signed at about the date and time that they bear, the evidence makes it clear, and I so find, that Mr Mehajer believed that the replacement of Mr Lee was a two-step process. The first step was that Mr Mehajer, as the sole shareholder in the companies, had to sign the appropriate minutes to replace Mr Lee as the director of the companies. The second was that Mr Mehajer had to cause the necessary forms to be lodged with ASIC. If Mr Mehajer is to be believed, in his own mind the replacement of Mr Lee was contingent. If Mr Lee could be persuaded to cause the companies to deal in a satisfactory way with the two creditors statutory demands that had been received, Mr Mehajer may not have lodged the relevant forms with ASIC.

76. There was fleeting evidence that the project lenders had made it a condition that Mr Lee occupy the office of director of the companies, and Mr Mehajer was trying to achieve a satisfactory balance between alternative outcomes. If Mr Mehajer could not persuade Mr Lee to act in the desired manner, Mr Mehajer would have preferred Mr Lee to resign voluntarily than to be unilaterally replaced. All of these considerations were involved in Mr Mehajer’s decision-making process as to what should finally be done concerning who continued to be the director of the companies. Mr Mehajer understood that Mr Lee continued to believe he was the director. By implication, Mr Mehajer also continued to believe that third parties who dealt with the companies would understand that Mr Lee remained the director, as that is the appearance that would be gained by a search of the ASIC records. Finally, it remained a real possibility until shortly before Mr Mehajer gave the instruction to his accountant on the morning of Sunday, 18 June 2017, that Mr Mehajer could have decided not to lodge the ASIC forms at all. In that event, presumably, he would have caused the minutes to be destroyed.

77. It is clear that when Mr Lee decided that the appropriate course was to appoint the plaintiffs as administrators of the companies, and when he signed the appointments required by s 436A of the Corporations Act, he believed that he remained the director of the companies. That belief was based not only on his original appointment and the absence of any knowledge that his appointment had been terminated; but also on the fact that during the course of 16 June 2017, in the manner described above, Mr Mehajer had continued to correspond with him as if he remained the director.

78. It is also clear that, when the plaintiffs accepted their appointment as administrators of the companies, they believed on reasonable grounds that Mr Lee remained the director of the companies, as they acted on the basis of a current ASIC search. They also confirmed that belief by a further search soon after their appointment.

Validity of appointment of administrators

81. In these circumstances, the question is whether the plaintiffs were validly appointed as administrators, and if they were not, whether orders should be made that have the effect of validating the appointments.

82. The first issue that logically arises is whether in fact the minutes that replaced Mr Lee as the director of the companies were signed by Mr Mehajer, as he claims, before Mr Lee acted to appoint the plaintiffs as administrators of the companies. If they were not signed before the appointments were made, then as the plaintiffs submit, that ends the matter, as the plaintiffs will have been validly appointed by the person who was the director of the companies at the time.

83. In-so-far as the plaintiffs seek a declaration pursuant to s 447C of the Corporations Act confirming the validity of their appointment as administrators of the two companies, the plaintiffs have the burden of proving the validity of the appointments. However, the evidence of the minutes that purported to remove Mr Lee as the director of the companies before he appointed the plaintiffs as administrators first came to light after the appointments had taken place. It is the third and fourth defendants who propound the validity of those minutes as having been made on the date and at the time that they bear. In my view the third and fourth defendants have an evidentiary onus of establishing the authenticity and timing of the minutes. That evidentiary onus flows not only from the fact that they are the proponents of the minutes, but on the additional circumstances that they ask the court to make a finding that is inconsistent with the contents of the contemporaneous records held by ASIC, and because the only persons who were present when the minutes were said to have been created were the third and fourth defendants and their privies.

84. I have decided that the court should not find on the evidence that the third and fourth defendants have established to the civil standard of proof that the minutes were in fact prepared before Mr Lee appointed the plaintiffs as administrators of the companies. The evidence put forward by the third and fourth defendants has not been sufficient to cast the evidentiary burden back on the plaintiffs, as the parties with the ultimate burden to prove the validity of their appointment, to produce evidence to counteract the effect of the evidence produced by the third and fourth defendants. I am simply not sufficiently persuaded that events occurred as claimed by the third and fourth defendants.

85. In the particular and somewhat exceptional circumstances of this case, I do not accept that the issue distils to one of accepting Mr Mehajer’s evidence as to the circumstances in which the minutes were prepared, or finding that Mr Mehajer gave untruthful evidence to the court. The issue is whether, upon the whole of the evidence, the court is sufficiently persuaded that it ought to make a finding as to a particular fact.

86. The standard of proof in civil proceedings is contained in s 140 of the Evidence Act 1995 (NSW):

(1)  In a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities.

(2)  Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account:

(a)  the nature of the cause of action or defence; and

(b)  the nature of the subject-matter of the proceeding; and

(c)  the gravity of the matters alleged.

87. Section 140(2) of the Evidence Act is said to reflect observations about the standard of proof in civil proceedings made by Sir Owen Dixon in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34: see ASIC v Vines [2005] NSWSC 738, 105 (Austin J). In that case, his Honour said at 361-362:

Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. Reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must perfect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters 'reasonable satisfaction' should not be produced by inexact proofs, indefinite testimony, or indirect inferences

88. The approach that the court should take when dealing with finding of facts about meetings and conversations was discussed by McLelland CJ in Eq in Watson v Foxman (2000) 49 NSWLR 315. In that case, and in the context of a claim for misleading and deceptive conduct, his Honour had to determine what happened at a meeting of directors in relation to which each of the witnesses gave conflicting testimony. At 318-319, his Honour said:

Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court ‘must feel an actual persuasion of its occurrence or existence’. Such satisfaction is `not ... attained or established independently of the nature and consequence of the fact or facts to be proved' including the ‘seriousness of an allegation made, the inherent unlikelihood of a given description, or the gravity of the consequences flowing from a particular finding’: Helton v Allen [1940] HCA 20; (1940) 63 CLR 691 at 712.

89. In Moukhayber v Camden Timber & Hardware Co Pty Ltd [2002] NSWCA 58 at [29], Heydon JA (with whom Beazley JA and Santow J agreed) referred to the above passage as being of ‘general application’ and indeed it has been generally applied in a range of cases.

90. In this case the court has the evidence of Mr Mehajer. However, it also has the evidence of Mr Mehajer’s communications with Mr Lee and others after the supposed time that the minutes were signed, which is consistent with Mr Mehajer continuing to believe that Mr Lee remained the director of the companies. As I have noted above, there were apparently witnesses to Mr Mehajer’s signing of the two minutes, but, except in the case of Ms Mehajer, those witnesses have not been called to give evidence, and that absence has not properly been explained. Whether or not the court applies the rule in Jones v Dunkel, I am simply not persuaded given the balance of the evidence that the minutes were prepared at the time claimed by the third and fourth defendants, in the absence of corroboration from the witnesses, when that evidence could so easily have been given.

91. I do not make a positive finding that Mr Mehajer was not telling the truth in the evidence he gave as to his recollection of when the two minutes were signed by him. In saying that, I appreciate full well that Mr Mehajer’s evidence is of a recent event, which either happened or it did not, and Mr Mehajer’s evidence must be in a stark sense either true or false. However, this case has come on for hearing with extreme expedition, being as I have noted above some seven days after the proceedings were commenced, and only about two weeks after the relevant events. I would not have disbelieved Mr Mehajer simply on the basis of his demeanour in the witness box and the manner in which he gave his evidence. Although Mr Mehajer’s evidence was not supported by the evidence of witnesses that ought to have been readily available, his senior counsel gave an explanation for that circumstance. I accept what I was told by senior counsel, even if I doubt that the circumstances precluded the third and fourth defendants from being permitted to call the evidence, even if notified late to the plaintiffs.

92. There is, in the circumstances, a real chance that Mr Mehajer’s evidence was not supported because of some forensic mischance. It was intended that Mr Mehajer’s evidence would have been supported by evidence given by his sister. That did not happen because of misadventure arising out of the ill-health of Ms Mehajer’s baby son. While some might be suspicious as to the circumstances in which Ms Mehajer unexpectedly became unable to give evidence, the reason given was not challenged by the plaintiffs, and the plaintiffs did not submit that the court should draw any adverse inference on the basis of the failure of the third and fourth defendants to read Ms Mehajer’s affidavit. On that basis I must take into account that Mr Mehajer’s evidence was not supported because of a mischance. There is also the fact that, although Mr Abbas did not give evidence that he witnessed Mr Mehajer sign the minutes at about 5:30 AM on 16 June 2017, I would feel uncomfortable in proceeding on the simple conclusion that Mr Abbas was not in a position to give evidence that supported the case of the third and fourth defendants.

93. Mr Abbas is a solicitor of this court. He sat in court through the proceedings. He was responsible for the filing of the affidavits of Mr and Ms Mehajer, which positively contended that the minutes were signed at 5:30 AM on 16 June 2017. Mr Abbas readily entered the witness box to give evidence why Ms Mehajer could not attend to court, so he subjected himself to the possibility of cross examination concerning his involvement in the signing of the minutes, even though senior counsel for the plaintiffs elected not to put questions on that subject. All in all, I have real qualms as to whether the urgency with which this matter has been made ready for hearing may have had forensic consequences that were unexpected.

94. If it had been Mr Mehajer’s case that the minutes he signed were effective once and for all at the time of signature, then his subsequent conduct would have been entirely inconsistent with the minutes having been signed before the plaintiffs were appointed as administrators of the companies by Mr Lee. However, in the manner that I have explained above, it was Mr Mehajer’s case that the minutes were not effective until the relevant forms were lodged with ASIC. Although the third and fourth defendants now contend that, contrary to that belief, the minutes took effect when they were signed, it follows from Mr Mehajer’s evidence that he believed during the course of his dealings with Mr Lee that Mr Lee remained the director of the companies. It is that evidence that gives rise to the possibility that Mr Mehajer’s evidence as to when the minutes were signed is correct.

95. The point of that observation is that it is the evidence of Mr Mehajer that positively supports a finding that Mr Mehajer and the companies held out Mr Lee as being their director that creates the only basis for allowing that Mr Mehajer’s evidence concerning the time when the minutes were signed is capable of being correct.

96. I therefore find that the plaintiffs are entitled to a declaration under s 447C of the Corporations Act that they were validly appointed as administrators of the companies, because I am not satisfied that it has been established that Mr Lee had been removed as the director before the time of the appointments.

Statutory assumptions supporting validity

97. That finding leads me however to the second basis upon which I would find that the plaintiffs are entitled to a declaration as to the validity of their appointment under s 447C of the Corporations Act.

98. I am satisfied that, at the time the plaintiffs were appointed by Mr Lee as the administrators of the companies, they were entitled to assume that Mr Lee was the duly appointed director of each company, with authority to act and perform the duties customarily performed by a sole director (including the appointment of administrators) and the defendants are estopped from asserting in any proceedings that the assumption is incorrect.

99. Section 128(1) of the Corporations Act provides: “A person is entitled to make the assumptions in section 129 in relation to dealings with the company. The company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect”.

100. Section 129(2) of the Corporations Act provides:

(2)   A person may assume that anyone who appears, from information provided by the company that is available to the public from ASIC, to be a director or a company secretary of the company:

(a)   has been duly appointed; and

(b)   has authority to exercise the powers and perform the duties customarily exercised or performed by a director or company secretary of a similar company.

101. The Court of Appeal of this State has established in Correa v Whittingham [2013] NSWCA 263; (2013) 278 FLR 310 that persons who are appointed as administrators of a company are persons for the purposes of ss 128 and 129 of the Corporations Act, and may rely upon the assumptions referred to in those sections. That conclusion may in some respects arise by implication, as the Court of Appeal dealt with the various grounds of appeal raised by the appellants on the basis that the trial judge, Black J, had been correct in proceeding on the basis that the statutory assumptions were available to an administrator: see Correa v Whittingham (No 3) [2012] NSWSC 526.

102. The same conclusion was reached by Dart J in Ross v GNC Homes Pty Ltd [2015] SASC 168. The third and fourth defendants sought to distinguish that case on the basis that in that case the shareholders had delayed for about five weeks in notifying ASIC that the director who appointed the administrators had been removed while in the present case the delay was only three days. I do not accept that that is a relevant distinction. In any event, for the reasons I have given above, the present is not a case of inadvertent delay in notifying ASIC. This is a case where the sole shareholder believed that the director’s appointment would continue to be valid until ASIC was notified of the termination of his appointment, and that shareholder was aware that the director would continue to act on the basis that his appointment subsisted. The evidence in this case justifies a finding that the shareholder and thus the companies positively held out Mr Lee as continuing to be the sole director at the time that he appointed the plaintiffs as administrators of the companies.

103. The third and fourth defendants also sought to deal with the decision of Dart J on the basis that his Honour had not been asked to deal with the submission, which the third and fourth defendants made in this case, that the prohibition in s 128(1) of the Corporations Act against the company being entitled to assert in proceedings that any of the assumptions are incorrect, only applies to the companies, who are the first and second defendants, and not to be third and fourth defendants.

104. I reject that submission, and respectfully adopt the observations made by Black J in Sliteris v Ljubic [2014] NSWSC 1632, as follows:

[27] The Administrators also submit that they were entitled to assume that valid and effective notice of the directors’ meeting at which they were appointed had been given in accordance with the Company’s constitution, by reason of s 129(1) of the Corporations Act and that Mr Sliteris is not entitled to assert in this proceeding that the assumption is incorrect by reason of s 128(2) of the Corporations Act. Section 128(1) of the Corporations Act relevantly provides that a person is entitled to make the assumptions specified in s 129 of the Corporations Act in relation to dealings with a company and the company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect. Section 129(1) of the Corporations Act provides that a person may assume that the company’s constitution (if any) and any provision of the Corporations Act that applies to the company as replaceable rules has been complied with.

[28] In Correa v Whittingham (No 3) [2012] NSWSC 526 ; (2012) 267 FLR 120 at [42], I observed, with reference to authority, that the steps involved in a person’s appointment as administrator of a company were a dealing with the company for the purposes of ss 128 and 129 of the Corporations Act and that the assumptions available under s 129(1) reflected the indoor management rule, by which persons dealing with a company may assume that acts within its constitution are duly and properly performed and are not bound to inquire whether acts of internal management have been regular. I treated such an assumption that was available to the administrators, in dealing with the company, as also being available to them in an application made by a privy of the company who challenged the validity of that dealing with the company. That approach was not questioned on the appeal to the Court of Appeal ([2013] NSWCA 263 at [118] ff). As Mr Peadon put it in submissions, there could not be a “bifurcation” of the validity of the Administrators’ appointment, such that a different result was reached as between an attack on that appointment brought in the name of the Company and an attack on it brought, in reliance on dealings between the Company and the Administrators, by Mr Sliteris as a director or shareholder of the Company.

[29] There is no suggestion that the Administrators, in this case, knew or suspected that the assumption that the Company’s constitution had been complied with, in calling the meeting at which they were appointed, was incorrect for the purposes of s 128(4) of the Corporations Act, so as to deprive them of the assumption specified in s 129(1) of the Corporations Act. That assumption would be sufficient to sustain the validity of the Administrators’ appointment, although it is not necessary for the Administrators to rely on that assumption where the invalidity of their appointment has not otherwise been established.

105. Those observations are on all fours with the circumstances in the present case. The question is whether the plaintiffs were validly appointed as administrators of the two companies. That is a question of their status, and depends upon whether the relevant provisions of the Corporations Act have been enlivened, so that the earlier regime of directorial control of the companies has been replaced by the suite of changes given effect by the provisions of Part 5.3A of the Corporations Act. The effect of the statute must be that the administrators are validly appointed for all purposes and in relation to all persons, or they are not. The statute does not permit the result that the appointment is deemed to be valid if the contrary is asserted by the companies, but not valid if the contrary is asserted by any other persons. In reality, the issue is between the companies and the plaintiffs, and in-so-far as the third and fourth defendants have been joined to these proceedings as interested parties, and in-so-far as they have been permitted to contest the validity of the appointment of the plaintiffs as administrators, they are not asserting their own rights, but they are seeking to establish the position of the companies, who cannot at this point in a practical sense act in their own interests because of the uncertainty as to whether it is the plaintiffs or the third defendant who is entitled to manage their affairs.

105. Consequently, irrespective of the finding that ought to be made as to whether or not Mr Lee was removed as the director of the companies before he appointed the plaintiffs as their administrators, the plaintiffs are entitled to the declaration they seek under s 447C of the Corporations Act, on the basis that they were entitled to assume that Mr Lee remained the director, and that is an assumption that cannot be challenged by the companies or any other relevant persons.

106. That is an additional reason why it is unnecessary in this case, in the circumstances explained above, for the court to make any direct findings concerning the truthfulness of the evidence given by Mr Mehajer.

Absence of need for validating orders

108. It is therefore unnecessary for the court to decide the third question, being whether the court should make an order having the effect of validating the appointment of the plaintiffs as administrators of the companies, even if it had found that the appointments were invalid as a matter of law.

109. I do not propose to consider whether or not it would have been appropriate to make the validating orders that have been sought by the plaintiffs.

110. If for any reason it becomes necessary to decide that question, it will not be a difficult matter, given the relative paucity of the evidence that is before the court.

111. There is evidence that the secured creditor has advised the plaintiffs that, if the court does not make a declaration that the appointment of the plaintiffs as administrators of the companies was valid, the secured creditor will exercise its power under s 436C of the Corporations Act to appoint the plaintiffs as administrators. The plaintiffs put that evidence forward as one reason for the court to make validating the orders. However, there is a basis for arguing that, if the plaintiffs have not been validly appointed by the director of the companies, the proper course is to allow a party that does have the power to appoint the administrators of the companies to do so. That may have consequences in relation to the commencement of any subsequent winding up, and the relation back period.

112. It is also said by the plaintiffs that the companies are hopelessly insolvent, so that this court should follow other courts that have made validating orders on the basis of the insolvency of the relevant company and the interests of the creditors of the company. The evidence seems to suggest in the present case, at least at a superficial level, that the companies have enormous debts and very little cash at bank. It is highly likely that the companies are insolvent. There is also the matter of the statutory demands which have not been set aside. However, there is also evidence that the companies have been engaged in a very substantial property development that may be relatively near completion, a substantial number of individual units may have been presold, and there may be a significant stock of additional units that remain unsold.

113. It is a matter for speculation what I would have done, if I had been required to decide whether or not validating orders should be made as requested by the plaintiffs. There is a substantial possibility that, given that the proceedings have come on for hearing within one week, and the evidence concerning the financial circumstances of the companies is incomplete, I would have required further evidence to be provided to the court before I finally ruled on the question of whether validating orders should be made.

Orders

114. In these circumstances I make the following orders:

1. Declaration, pursuant to s 447C of the Corporations Act 2001 (Cth) confirming the validity of the appointment of the plaintiffs on 16 June 2017 as administrators of both the first defendant and the second defendant.

2. Order that the plaintiffs’ costs of this application are costs properly incurred in the administration of the companies.

3. Order that the third and fourth defendants pay the plaintiffs’ costs.

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Decision last updated: 30 June 2017