In the matter of Topknotz Pty Ltd

[2025] NSWSC 522

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Topknotz Pty Ltd [2025] NSWSC 522

Hearing dates:

22 May 2025

Date of orders:

22 May 2025

Decision date:

23 May 2025

Jurisdiction:

Equity - Corporations List

Before:

Nixon J

Decision:

1. Pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (“Act”), Part 5.3A of the Act is to operate in relation to the Second Plaintiff to the effect that notwithstanding any non-compliance with s 248F of the Act, the First Plaintiff was validly appointed as the voluntary administrator of the Second Plaintiff by a resolution of a director of the Second Plaintiff dated 13 May 2025 pursuant to s 436A of the Act.

2.   An order that the First Plaintiff’s costs of these proceedings be costs in the administration of the Second Plaintiff.

3.   These orders be entered forthwith.

Catchwords:

CORPORATIONS – Voluntary administration – appointment of administrator – where one director purported to pass resolution appointing voluntary administrator in the absence of the other director –whether resolution invalid for lack of quorum – whether director passing resolution genuinely held opinion as to insolvency – whether order should be made confirming appointment of administrator

Legislation Cited:

Corporations Act 2001 (Cth) ss 135, 141, 248F, 436A, 447A

Cases Cited:

Correa v Whittingham [2013] NSWCA 263

Darin re Palamedia Limited [2010] NSWSC 451

Dolores Correa and The Spanish Club Limited (subject to Deed of Company Arrangement) v Kenneth Michael Whittingham (No 3) [2012] NSWSC 526

Hayes v Doran (No 2) [2012] WASC 486

In the matter of Condor Blanco Mines Ltd [2016] NSWSC 1196

In the matter of Ethan Minerals Ltd (admins apptd) [2011] NSWSC 899

In the matter of Gulf Energy Ltd [2019] NSWSC 1637

In the matter of Lime Gourmet Pizza Bar (Charlestown) Pty Ltd(formerly under administration) [2015] NSWSC 244

In the matter of Creative Memories Australia Pty Ltd (admins apptd) [2013] NSWSC 652

Jack James as administrator of Zyl Ltd [2015] WASC 57

Shirlaw v Graham [2001] NSWSC 612

Category:

Principal judgment

Parties:

Bruce Gleeson in his capacity as Administrator of Topknotz Pty Ltd (Administrator Appointed) (First Plaintiff)
Topknotz Pty Ltd (Administrator Appointed) (Second Plaintiff)
Laurence McAllister (First Defendant)
Gerard Vernon Dover (Second Defendant)

Representation:

Counsel:
F Tao (Plaintiffs)
D Robertson (Second Defendant)

Solicitors:
Sparke Helmore Lawyers (Plaintiffs)
Mangioni Biggs + Co (First Defendant)
Pinsent Masons (Second Defendant)

File Number(s):

2025/00191324

JUDGMENT

1. As at 13 May 2025, the First Defendant, Mr Laurence McAllister, and the Second Defendant, Mr Gerard Dover, were the directors and shareholders of the Second Plaintiff, Topknotz Pty Ltd (the Company). On that day, Mr Dover purported to pass a resolution of the board of the Company, pursuant to s 436A of the Corporations Act 2001 (Cth) (Act), appointing the First Plaintiff, Mr Bruce Gleeson, as Voluntary Administrator of the Company (the VA Resolution).

2. Mr McAllister subsequently raised an issue that the VA Resolution was invalid, because the Board meeting at which Mr Dover purported to pass the resolution lacked the quorum specified in s 248F of the Act.

3. By Originating Process filed 19 May 2025, the Administrator seeks an order pursuant to s 447A(1) of the Act that, notwithstanding any non-compliance with s 248F, his appointment on 13 May 2025 as administrator of the Company was valid.

4. This proceeding first came before the Court as a duty matter on the date it was commenced. At that time, Mr McAllister indicated that he intended to raise issues as to whether Mr Dover had genuinely formed the opinion that the Company was insolvent as at the time he purported to pass the VA Resolution, and whether Mr Dover was acting for an ulterior purpose in purporting to pass the VA Resolution.

5. Prior to the matter coming on for hearing, the Defendants reached a commercial settlement, the result of which is that Mr McAllister will no longer be a director, shareholder or creditor of the Company. In advance of the hearing, Mr McAllister filed a submitting appearance.

6. Accordingly, Mr Dover’s evidence regarding the basis on which he formed the view that the Company was insolvent and regarding the reasons as to why he passed the resolution was unchallenged on this application.

7. The Court received detailed and helpful written submissions from the Administrator and Mr Dover. At the conclusion of the hearing, I granted the relief sought by the Administrator. These are my reasons for doing so.

Factual Background

8. The Company was registered on 2 July 2023, with Mr Dover and Mr McAllister as its directors, and with Mr Dover holding 33.77% and Mr McAllister holding 66.23% of the shares in the Company.

9. The Company owns the intellectual property rights to a television program called “TopKnotz” which was intended to feature content related to marine-based recreation activities.

10. On 11 December 2024, the Company entered into:

1. an unsecured loan deed with Mr McAllister, which provided that the Company was able to request advances from time to time from Mr McAllister up to the facility limit of $1,505,000 (the MacAllister Loan Deed); and

2. an unsecured loan deed with a company of which Mr Dover was sole director and shareholder, G Z Dover Pty Ltd, which provided that the Company was able to request advances from time to time from G Z Dover up to the facility limit of $500,000 (the G Z Dover Loan Deed).

11. On 14 December 2024, the Company entered into a Production Agreement with RJMedia Pty Ltd for the production of a 10-episode series of TopKnotz. The Production Agreement was dated 1 October 2024. The terms of the Production Agreement required the Company to pay RJMedia total production costs of $2.845m (plus GST), in ten monthly instalments of $284,500 (plus GST) each, commencing 1 October 2024.

12. Mr Dover deposed that the sole purpose of the McAllister Loan Deed and the G Z Dover Loan Deed was to enable the Company to fund the provision of services by RJMedia under the Production Agreement.

13. G Z Dover has advanced a total amount of $697,000 to the Company (that is, an amount in excess of the facility limit under the G Z Dover Loan Deed).

14. In contrast, Mr McAllister has not advanced any money to the Company pursuant to the McAllister Loan Deed, despite the Company having issued, on 27 December 2024, a drawdown notice to Mr McAllister for the sum of $960,000 to be paid by 31 January 2025 (the Drawdown Notice).

15. On 2 April 2025, Mr Dover received an email from Mr McAllister which referred to instructions to “place $1.0m into the TopKnotz account”, with a promise to “top up funds ongoing as required”. (Notwithstanding this email, no such moneys were forthcoming from Mr McAllister.)

16. On 8 April 2025, RJMedia issued a letter of demand to the Company, demanding payment, within seven days, of an amount of $938,850.00 which was claimed to be owing pursuant to terms of the Production Agreement.

17. On 9 April 2025, the Company finalised its financial statements for the year ending 30 June 2024 (FY24 Accounts) and an interim financial statement for the nine-month period ending 31 March 2025 (FY25 Interim Accounts). Mr Dover signed both the FY24 Accounts and the FY25 Interim Accounts. Mr McAlllister signed only the FY25 Interim Accounts.

18. The FY24 Accounts reported that the Company suffered a loss before tax of $208,532 in FY24, and had, as at 30 June 2024, total assets of $18,045 and a net deficiency in assets of $208,455.

19. The FY25 Interim Accounts stated that, as at 31 March 2025, the Company had current assets of $139,796 and current liabilities of $938,850, with a current net deficiency of $799,054.

20. The current liabilities of $938,850 as at 31 March 2025 are wholly comprised of the debt owed to RJMedia in that amount, which is the subject of the letter of demand referred to in paragraph [16] above. This liability relates to outstanding invoices dating back to December 2024.

21. In signing the FY25 Interim Accounts on 9 April 2025, Mr Dover declared that “in the directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable”. Mr Dover explained that he signed this declaration because he believed, in particular based on the terms of Mr McAllister’s email of 2 April 2025 referred to at paragraph [15] above, that Mr McAllister would advance the amount of $950,000 which was the subject of the Drawdown Notice, which in turn would be sufficient to pay the amount due to RJMedia. All other creditors of the Company were being paid as and when debts became due and payable.

22. However, Mr Dover subsequently formed the view that Mr McAllister “would not be advancing the money sought under the Drawdown Notice”. On 28 April 2025, his solicitors sent a letter to Mr McAllister which noted that “the Drawdown Notice has not been met and the Company is otherwise unable to meet the obligations owed to RJMedia under the terms of the Production Agreement”, and stated as follows:

“[Mr Dover’s] position is that the Company needs to immediately be placed into voluntary administration pursuant to section 436A of the Act as it is insolvent or is likely to become insolvent.”

23. The letter stated that Mr Dover was calling a meeting of the board of directors of the Company to be held at 12pm on 6 May 2025. The letter attached a notice of this meeting, which stated that the meeting was to consider, and if appropriate, pass the following resolutions:

“1. resolve to remove Laurence McAllister as a director of the Company pursuant to section 203A of the Corporations Act 2001 (Cth); and

2. In the opinion of the directors voting for the resolution that the Company is insolvent, or is likely to become insolvent at some future time pursuant to section 436A of the Corporations Act 2001 (Cth);

3. Bruce Gleeson should be appointed as voluntary administrator of the Company pursuant to section 436A of the Corporations Act 2001 (Cth)

4. the Company execute, in accordance with the Corporations Act 2001 (Cth), an instrument of appointment of administrator, and for the purpose thereof, the directors of the Company, be authorised to execute on behalf of the Company the instrument of appointment of administrator:”

24. On 6 May 2025, the meeting of the board of directors of the Company was convened with Mr Dover and Mr McAllister present. Mr Dover agreed to adjourn the meeting to 12pm on 13 May 2025, so as to allow without prejudice discussions between the directors to take place.

25. On 9 May 2025, Mr McAllister sent email correspondence to Mr Dover to the effect that he was involved in proceedings before the Federal Circuit and Family Court on 13 May 2025.

26. At the resumption of the board meeting on 13 May 2025 at 12pm, Mr Dover was present, but Mr McAllister was not. Mr Dover purported to pass the VA Resolution on the basis of his vote alone. Mr Dover deposed that he did so because he formed the view that the Company was insolvent and that, having regard to his duties as a director of the Company, “it was appropriate and necessary to take steps to place the Company in the hands of an independent voluntary administrator”.

27. On 15 May 2025, the solicitors for Mr McAllister sent a letter to the Administrator, asserting that “there was not a quorum of 2 directors” at the 13 May 2025 meeting and that, in those circumstances, the VA Resolution “was not passed in accordance with the law and is void”.

28. Mr McAllister’s solicitors further stated that, even if the VA Resolution was valid, it was passed “for an improper purpose”, with Mr Dover having “an ulterior motive in seeking to place the Company into administration”. As noted above, no such allegation was advanced at the hearing and Mr Dover’s evidence regarding his reasons for passing the VA Resolution was unchallenged.

29. On 19 May 2025, this proceeding was commenced.

30. On 20 May 2025, Mr Dover and Mr McAllister agreed to an “in principle” settlement, the terms of which are confidential. On 21 May 2025, Mr McAllister resigned as a director of the Company and assigned to Mr Dover both the debt owed to him by the Company and his shares in the Company.

31. Accordingly, Mr Dover is now the sole director of the Company. He deposed that, as at the date of the hearing, he continues to be of the opinion that the Company is insolvent.

32. In addition, the Administrator deposed that based on his investigations to date, he has formed the preliminary conclusion that the Company is insolvent.

Relevant Principles

33. Section 436A(1) of the Act provides that a company may appoint an administrator:

if the board has resolved to the effect that:

(a)   in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time; and

(b)   an administrator of the company should be appointed.

34. The Company does not have a constitution, and is therefore subject to the replaceable rules in the Act, including s 248F (see ss 135 and 141 of the Act).

35. Section 248F provides that:

Unless the directors determine otherwise, the quorum for a directors’ meeting is 2 directors and the quorum must be present at all times during the meeting.

36. Mr Dover purported to pass the VA Resolution at a meeting on 13 May 2025 where he was the sole director present.

37. The Administrator accepted, and Mr Dover did not dispute, that the 13 May 2025 meeting was inquorate, and therefore the VA Resolution was invalid.

38. It is for this reason that the Administrator approaches the Court for relief.

39. Where doubt arises in relation to the validity of the appointment of an administrator, it is reasonable for the administrator to seek to remove such doubt by seeking a curative order from the Court pursuant to s 447A(1) of the Act: Jack James as administrator of Zyl Ltd [2015] WASC 57 at [17].

40. Section 447A(1) provides that the Court “may make such order as it thinks appropriate in respect of about how Part 5.3A of the Act is to operate in relation to a particular company”.

41. In Shirlaw v Graham [2001] NSWSC 612 at [14], Young CJ in Eq observed as follows:

“In my view s 447A is a plenary power. In my view s 447A may be used as Austin J said in Portinex, to overcome a defect in compliance with the appointment procedure under s 436A which is within Part 5.3A of the Corporations Law. In my view the court can make an order under s 447A which has some effect in the past in the same way as the court can make an order nunc pro tunc. I cannot see any reason why in the exercise of its discretion the court cannot in relation to a particular company deal with a technical defect in the resolution under s 447A. This should include cases such as the failure of a resolution to state the opinion the directors held or of the directors so to resolve. After all, the purpose of s 447 is fulfilled, namely to make Part 5.3A work in the public interest so far as that company is concerned.”

42. In Correa v Whittingham [2013] NSWCA 263 at [5], Barrett AJA referred to the “frequently encountered case” of an order under s 447A of the Act “repairing or validating the appointment (or purported appointment) of an administrator which is defective because some element required by Part 5.3A itself is lacking.” His Honour observed that, in circumstances of that kind, “the s 447A order causes Part 5.3A to operate even though its own terms are not fully satisfied”.

43. In particular, the broad power in this section can be, and has been, used to validate the appointment of an administrator which is (or which may be) defective because the resolution appointing the administrator was passed at a meeting which was inquorate: see, for example, In the matter of Ethan Minerals Ltd (admins apptd) [2011] NSWSC 899 at [6] (White J), referring to Darin re Palamedia Limited [2010] NSWSC 451 (Barrett J); In the matter of Creative Memories Australia Pty Ltd (admins apptd) [2013] NSWSC 652 at [7] (Hammerschlag J); and In the matter of Gulf Energy Ltd [2019] NSWSC 1637 at [14] (Ward CJ in Eq).

44. In Gulf Energy at [18], Ward CJ in Eq (as her Honour then was) quoted, with approval, the summary of the relevant principles which is set out in Hayes v Doran (No 2) [2012] WASC 486 at [406] (Kenneth Martin J), including the following matters (citations omitted):

“An invalidly appointed administrator who has acted on the basis of the purported appointment has standing to make an application for an order under s 447A(1) because they are an 'interested person' within the meaning of s 447A(4)(f) … .

The broad discretion conferred by s 447A(1) is to be exercised having regard to all of the circumstances of the case that have been brought to the court's attention by the applicant for relief and by those who have an interest in the matter and who may be affected by the granting of that relief …

One relevant consideration is whether the purposes of Part 5.3A would be best served by the making of an order ... The apparent purpose and object of Part 5.3A is to provide a constructive approach to corporate insolvency by focussing on the possibility of saving a business (as distinct from the company itself) and preserving employment prospects …

Another consideration is whether substantial injustice would be caused by effectively validating an otherwise invalid appointment …

The focus of the court when making an order under s 447A is the position of the company at the time of making the order and what is best for the company in the future …”

45. Her Honour also referred (at [19]-[20]) to Black J’s observations in Dolores Correa and The Spanish Club Limited (subject to Deed of Company Arrangement) v Kenneth Michael Whittingham (No 3) [2012] NSWSC 526, that:

1. it was relevant to the exercise of the discretion to validate an appointment under s 447A of the Act that the company was insolvent or very likely to become insolvent when the appointment was made; and

2. before making an order under s 447A of the Act, the Court must be satisfied that no substantial injustice has been or is likely to be caused to any person.

46. In considering an application to validate an administrator’s appointment pursuant to a resolution which is defective for want of a quorum, it is relevant to consider whether the director or directors who purported to make the appointment genuinely held the opinion that the company was insolvent: see, for example, Zyl at [25];

47. In In the matter of Lime Gourmet Pizza Bar (Charlestown) Pty Ltd(formerly under administration) [2015] NSWSC 244 at [22], Black J observed that:

1. if a director’s opinion as to insolvency is not held, or is not held genuinely or in good faith, a resolution passed by the directors to appoint an administrator under s 436A of the Act is invalid;

2. statements of the directors' opinion are relevant to whether they have formed the requisite opinion but the court must approach that question objectively;

3. it is not sufficient to support an administrator’s appointment that directors are merely uncertain as to a company’s solvency; and

4. the question whether directors genuinely believed that a company was actually insolvent, or likely to become so at some future time, will depend largely upon whether they took adequate steps to satisfy themselves that the statutory requirements were met before resolving to appoint an administrator.

48. In In the matter of Condor Blanco Mines Ltd [2016] NSWSC 1196 at [58], Barrett AJA observed that:

“…the relevant inquiry is as to each assenting director’s opinion. The actual state of affairs prevailing is relevant only to the extent that it may ground inferences as to the opinion a director held and the genuineness of that opinion.”

Determination

49. Having regard to the facts and principles set out above, I am satisfied that Mr Dover held the requisite state of mind as to the Company’s insolvency or likely insolvency at the time he purported to pass the VA Resolution. Further, on the evidence before the Court, it appears that the Company is in fact insolvent.

49. In particular, the following matters to which Mr Dover had regard as at 13 May 2025 support the opinion he formed at that time regarding the Company’s insolvency:

1. the FY25 Interim Accounts stated that, as at 31 March 2025, the Company had current assets of $139,796 and current liabilities of $938,850;

2. the current liabilities of $938,850 represented a sum due to RJMedia under the Production Agreement, which related to invoices dating back to December 2024, and which was the subject of a letter of demand issued to the Company on 8 April 2025;

3. in addition, the Company has obligations under the Production Agreement to make a series of further monthly payments to RJMedia in the amount of $284,500 (plus GST) each;

4. the Company entered into the Production Agreement on the basis that it had, by reason of the McAllister Loan Deed and G Z Dover Loan Deed, the means to make the payments due to RJMedia under the Production Agreement;

5. however, Mr McAllister has not advanced any funds under the McAllister Loan Deed, despite the Drawdown Notice for $950,000 having been issued by the Company in December 2024;

6. Mr Dover, by late April 2025, reasonably formed the view that Mr McAllister would not advance any funds pursuant to that deed; and

7. in the absence of Mr McAllister providing funding under the McAllister Loan Deed, the Company did not have the means to meet its existing and future obligations under the Production Agreement.

51. Given those matters, I am also satisfied that the exercise of the power under s 447A of the Act to validate the appointment of the Administrator would promote the object of Pt 5.3A of the Act, since it would allow the business, property and affairs of the Company, which is insolvent, to be administered by the Administrator in a way that is consistent with the objects specified in s 435A(a) and (b) of the Act.

52. There is no reason to conclude that any substantial injustice would be caused to any person by an order in the terms sought by the Administrator.

53. Mr McAllister, who was the only other shareholder and director of the Company, and who previously opposed this application and the appointment of the Administrator, has reached a commercial resolution with Mr Dover. As a result of this settlement, Mr McAllister is no longer a director, shareholder or creditor of the Company.

54. Other than Mr Dover, the only creditor of the Company is RJMedia.

55. The Administrator has given notice of this application to the Australian Securities and Investments Commission and to RJMedia. Neither sought to be heard on the application, or notified any opposition to the application.

56. For those reasons, I was satisfied, at the conclusion of the hearing, that the Court should exercise its power under s 447A to validate the appointment of the Administrator under the VA Resolution.

orders

57. Accordingly, at the conclusion of the hearing, I made the following orders:

1. Pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (“Act”), Part 5.3A of the Act is to operate in relation to the Second Plaintiff to the effect that notwithstanding any non-compliance with s 248F of the Act, the First Plaintiff was validly appointed as the voluntary administrator of the Second Plaintiff by a resolution of a director of the Second Plaintiff dated 13 May 2025 pursuant to s 436A of the Act.

2. An order that the First Plaintiff’s costs of these proceedings be costs in the administration of the Second Plaintiff.

3. These orders be entered forthwith.

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Decision last updated: 23 May 2025