McMaster v Eznut Pty Ltd - [2006] WASC 109

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: BRIAN KEITH MCMASTER AS ADMINISTRATOR OF EZNUT PTY LTD (ADMINISTRATORS APPOINTED) & ANOR -v- EZNUT PTY LTD (ADMINISTRATORS APPOINTED) & ORS [2006] WASC 109

CORAM: SIMMONDS J

HEARD: 1 & 2 MARCH 2006

DELIVERED : 16 JUNE 2006

FILE NO/S: COR 16 of 2006

MATTER :Eznut Pty Ltd (Administrators Appointed) ACN 102 508 789

BETWEEN: BRIAN KEITH MCMASTER AS ADMINISTRATOR OF EZNUT PTY LTD (ADMINISTRATORS APPOINTED) (ACN 102 508 789)
OREN ZOHAR AS ADMINISTRATOR OF EZNUT PTY LTD (ADMINISTRATORS APPOINTED) (ACN 102 508 789)
Plaintiffs
AND
EZNUT PTY LTD (ADMINISTRATORS APPOINTED) (ACN 102 508 789)
First Defendant
HANNA SMOLAREK
Second Defendant
CHRISTINA SMOLAREK
Third Defendant
DAVID LIWSZYC
GHEORGHE EMIL DUTA
Fourth Defendants

Catchwords:

Voluntary administration - Appointment of administrator - Declaration of validity of appointment - Whether opinion of directors that company is insolvent genuine and properly formed - Whether appointment of director for improper purpose - Whether appointment an abuse - Principles for "caretaker" directors - Whether reasonable notice of meeting of directors given - Order about how Pt 5.3A of the Corporations Act 2001 (Cth) is to operate in relation to a particular company - Whether such order should be made

Jurisdiction to make declaration of validity of appointment or order as to how Pt 5.3A is to operate - Whether a decision of an administrative character - Whether jurisdiction specifically conferred by Corporations Act

Practice and procedure - Whether leave to re-open a hearing before delivery of judgment should be granted

Legislation:

Corporations Act 2001 (Cth), s 436A, s 447A, s 447C, s 1337B(2)

Result:

Application granted

Category: B

Representation:

Counsel:

Plaintiffs:     Mr J C Vaughan
First Defendant             :     No appearance
Second Defendant         :     In person
Third Defendant           :     In person
Fourth Defendants        :     No appearance

Solicitors:

Plaintiffs:     Christensen Vaughan
First Defendant             :     No appearance
Second Defendant         :     In person
Third Defendant           :     In person
Fourth Defendants        :     No appearance

Case(s) referred to in judgment(s):

Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300
Bell v St Michael's Golf Club [2003] NSWCA 159
Blacktown City Council v Macarthur Telecommunications Pty Ltd [2003] NSWSC 883
Boothey v Boothey, unreported; FCt SCt of WA; Library No 970092; 13 March 1997
Brown v La Trindad (1887) 37 Ch D 1
Commonwealth Homes and Investment Company Ltd v MacKellar (1939) 63 CLR 351
Eastern Resources Of Australia Ltd v Glass Reinforced Products (GRP) Pty Ltd [1987] 2 Qd R 31
Eastland Technology Australia Pty Ltd & Ors v Whisson & Ors [2005] WASCA 144
Federal Airports Corporation v Aerolineas Argentinas (1997) 147 ALR 649
Hickey v Aselford & Anor [2003] NSWSC 185
Houldsworth v City of Glasgow Bank (1880) 5 App Cas 317
Kazar v Duus (1998) 88 FCR 218
La compagnie de Mayville v Whitley [1896] 1 Ch 788
Liwszyc & Anor v Smolarek & Ors [2005] WASC 199
Oil Basins Ltd v Commonwealth (1993) 178 CLR 643
Paringa Mining and Exploration Co Plc v North Flinders Mines Ltd (1988) 14 ACLR 587
Petsch v Kennedy (1973) CLC 40‑015
Re Ansett Australia Ltd and Mentha sub nom Ansett Australia Ltd (No 1) (2001) 115 FCR 376
Re Pasdonnay Pty Ltd (administrator appointed); McDonald & Anor (2005) 53 ACSR 717
Singh v Crafter, unreported; FCt SCt of WA; Library No 8434; 15 August 1990
Smolarek & Anor v Liwszyc & Ors [2006] WASCA 50(S)
Smolarek & Anor v Liwszyc & Ors [2006] WASCA 50
Sons of Gwalia Ltd v Margaretic [2006] FCAFC 17
Utilicorp NZ Inc v Power New Zealand Ltd (1997) 8 NZCLC 261,465
Wagner v International Health Promotions (administrator appointed) (1994) 15 ACSR 419
Woonda Nominees Pty Ltd v Chng [2000] WASC 173

Case(s) also cited:

Arrow Nominees Inc v Blackledge [2002] 2 BCLC 167
Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 34 ACSR 391
Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336
Panasystems Pty Ltd v Voodoo Tech Pty Ltd (2003) 21 ACLC 842
Re Wood Parsons (in liq) (2002) 43 ACSR 257
Shirlaw v Graham [2001] NSWSC 612
Toole v Flexihire Pty Ltd (1991) 6 ACSR 455

SIMMONDS J:

Introduction

This is an application, by originating process under r 2.2 of the Corporations Rules, for an order under s 447C of the Corporations Act 2001 (Cth), and alternatively for an order under s 447A of the Act.
The order sought under s 447C is a declaration in accordance with s 447(2) that the plaintiffs were validly appointed as administrators of the first defendant under s 436A of the Act.
The order sought under s 447A is an order in accordance with s 447A(1) that Pt 5.3A of the Act, the Part to do with the administration of a company's affairs with a view to executing a deed of company arrangement, should operate in relation to the first defendant as if the plaintiffs had been validly appointed as its administrators under s 436A.
The issues raised by this application, the first four of which are the doubts specified in the application under s 447C, are:
•whether a resolution to appoint administrators under s 436A can be made as a result of a vote of directors who were themselves appointed following interlocutory orders for their reinstatement, orders which were at the time of the hearing subject to appeal, and were subsequently varied, and which were subject to final orders following a trial that has not yet occurred, in other proceedings, COR 144 of 2005 (the "caretaker" issue);
•whether the resolution in this case was bona fide and genuinely formed, as required by the authorities on s 436A: Kazar v Duus (1998) 88 FCR 218, Merkel J, at 230 ‑ 231;
•whether the resolution in this case was for an improper purpose;
•whether the second defendant, one of the first defendant's directors, was not given the required notice of the meeting of directors at which the resolution was passed; and
•whether this is a suitable case for the making of the order sought under s 447A(1).
I begin by describing the statutory framework for this application. I then turn to consider objections to this Court's jurisdiction, as well as to the position taken by certain parties in this action, and to the joinder of others. After a review of the factual background to the application, I describe the way these proceedings unfolded before me, including an application made after the end of the hearing to re-open it. I then turn to consider the issues listed, in the order given.

The statutory framework to this application

By s 436A of the Act, a company may appoint an administrator as the provision specifies. The appointment of an administrator is the first step in a process that can lead to the execution of a Deed of Company Arrangement, approved by the company's creditors as an alternative to liquidation.
As described in s 435A, the objects of Pt 5.3A, in which s 436A, as well as s 447C and s 447A fall, are to provide for an administration of the business, property and affairs of an insolvent company so as to maximise the chances of the company, or as much of its business as possible, continuing in existence; or, if continued existence is not possible, so as to result in a better return for the company's members and creditors than would result from an immediate winding up. See also Austin, R P and Ramsay Ford, I M Principles of Corporations Law 12th ed Sydney, LexisNexis Butterworths, 2005, at [25.080].
The relevant provisions of s 436A are:
"(1)A company may, by writing, appoint an administrator of the company 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."
The relevant provisions of s 447C, which are for the making of an order to validate the appointment of an administrator, are:
"(1)If there is doubt, on a specific ground, about whether a purported appointment of a person as administrator of a company, or of a deed of company arrangement, is valid, the person, the company or any of the company's creditors may apply to the Court for an order under subsection (2).
(2)On an application, the Court may make an order declaring whether or not the purported appointment was valid on the ground specified in the application or on some other ground."
The relevant provisions of s 447A, which are for the making of orders as to how the Pt 5.3A is to operate in relation to a particular company, are:
"(1)The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.
…
(4)An order may be made on the application of:
(a)the company; or
(b)a creditor of the company; or
(c)in the case of a company under administration—the administrator of the company; or
(d)in the case of a company that has executed a deed of company arrangement—the deed's administrator; or
(e)ASIC; or
(f)any other interested person."
There is a body of authority that an order may be made under s 447A which makes Pt 5.3A apply as if a person not validly appointed the company's administrator was in fact validly appointed: see Re Pasdonnay Pty Ltd (administrator appointed); McDonald & Anor (2005) 53 ACSR 717, Fed Ct, Giles J, and authorities cited there.

Jurisdiction

The second defendant submitted that this Court had no jurisdiction to entertain this application, under s 447C at least. In effect jurisdiction was only conferred on the Federal Court.
The second defendant's argument was based on s 1337B(2) of the Act. That provision confers jurisdiction "in civil matters arising under the Corporations legislation" (defined in s 9 "Corporations legislation" to include the Act) on State Supreme Courts, but "subject to s 9 of the Administrative Decisions (Judicial Review) Act 1977 [(Cth)]" ("the ADJRA"). It was submitted that the qualification was engaged here, and meant no jurisdiction was conferred on the Court in respect of the decision purportedly taken under Corporations Act, s 436A.
The ADJRA s 9(1) is as follows:
"(1)Notwithstanding anything contained in any Act other than this Act, a court of a State does not have jurisdiction to review:
(a)a decision to which this section applies that is made after the commencement of this Act;
(b)conduct that has been, is being, or is proposed to be, engaged in for the purpose of making a decision to which this section applies;
(c)a failure to make a decision to which this section applies; or
(d)any other decision given, or any order made, by an officer of the Commonwealth or any other conduct that has been, is being, or is proposed to be, engaged in by an officer of the Commonwealth, including a decision, order or conduct given, made or engaged in, as the case may be, in the exercise of judicial power."
There are definitions of terms used in s 9(1), in s 9(2), which in material part is as follows:
"(2)In this section:
'decision to which this section applies' means:
(a)a decision that is a decision to which this Act applies; …
'review' means review by way of:
…
(c)the making of a declaratory order."
A "decision to which this Act applies" is in turn defined in s 3(1) of the ADRJA in material part as follows:
"(1)In this Act, unless the contrary intention appears:
…
'decision to which this Act applies' means a decision of an administrative character made, proposed to be made, or required to be made (whether in the exercise of a discretion or not and whether before or after the commencement of this definition):
(a)under an enactment referred to in paragraph (a), (b), (c) or (d) of the definition of enactment [which includes the Corporations Act]; …"
The second defendant's submission is that these proceedings are an application for a "declaratory order" in respect of the validity of a decision (to appoint an administrator) which is a "decision of an administrative character made … under" s 436A of the Corporations Act. Thus the proceedings are caught by s 9 of the ADJRA, and this Court has no jurisdiction to entertain them.
It does not appear to me that a decision to appoint an administrator under s 436A of the Corporations Act is a "decision of an administrative character" (emphasis supplied). There is authority that the latter sort of decision can include a decision of a commercial character: Federal Airports Corporation v Aerolineas Argentinas (1997) 147 ALR 649, per Lehane J, Beaumont and Whitlam JJ agreeing, at 658 (fixing of charges for the use by airlines of the facilities of airports). However, that authority also appears to me to confirm that the decision must be one that could also be characterised as in the execution or administration of the legislation under which the decision was authorised to be taken. The appointment of an administrator is one in the administration of the company for which the appointment is made, but not, it seems to me, in the execution or administration of the Corporations Act.
However, I do not have to reach a final view on that matter. That is because s 1337B is in Div 1 ("Civil Jurisdiction") of Pt 9.6A of the Corporations Act, and s 1337A(5), which is also in that Division, states: "Nothing in this Division affects any other jurisdiction of any court."
The Supreme Courts of the various States are a species of "court": s 58AA "Court". I note the references to "Court" in s 447C. I interpret those references as the conferral of jurisdiction on a "Court", which is thus not affected by s 1337B(2).
Accordingly, I conclude that this Court has jurisdiction to hear and determine, by the making of declaratory orders, applications under s 447C.
The position is in my view even clearer as to whether this Court has jurisdiction to make the orders sought under s 447A. That provision is not, it seems to me, concerned with "review" of a "decision", but rather consideration of the application of Pt 5.3A to the circumstances. In addition, I note that that provision also refers to the "Court" in a way that for present purposes is the same, in my view, as that used in s 447C.

Factual background

There is considerable disagreement between the plaintiffs and the second defendant as to a number of aspects of the background to this application. So much is evident from the affidavits filed in support of their respective positions in this action. However, the basic picture is reasonably apparent.
Eznut Pty Ltd is a company whose business is concerned with the development of a device known as the "Eznut". This device is a self‑tightening fastener which it is said will not come undone under extreme vibration and is said to have other advantages. There are two sets of patent applications, pending if not granted, both in Australia and elsewhere, in respect of different aspects of this device. One was a claim as to a washer and threaded fastener assembly incorporating the same, in the name of the second defendant; the other was a claim as to an elastic joint element and fastener assembly, in the name of the Eznut company. I call these respectively, as they were called in the hearing before me, "the First Patent" and "the Second Patent". The Eznut Company was incorporated in 2002, and has never had a "constitution" within the Act, with the result that the Act's "replaceable rules" have applied as they are from time to time (Act s 135).
The second defendant is an engineer and was an initial director of the Eznut Company when it was incorporated in 2002. At all material times she has been managing director of the company. The first-named fourth defendant was the other initial director. At incorporation the second defendant held the overwhelming majority of the shares of the Eznut Company.
By April 1995 there was a third person acting as a director, the second‑named fourth defendant. While there appears to be no contest he was first appointed on 1 July 2003, there is a contest over how he was first appointed, whether by the board or the general meeting. There is no contest he was continuing to act as a director in April 2005 and indeed subsequently.
By 13 April 2005 it appears that the second defendant's beneficial holdings of shares in the Eznut company as a proportion of the total, as a result of share issuances since incorporation, had been reduced to 64.5 per cent. By that date, the other shareholders were family trusts for the first and second named fourth defendants as well as a number of other entities.
Following directors' meetings of 9 and 16 April 2005 efforts were made to raise a further $67,000 by an issue of shares. The second defendant had opposed the resolution at the board meetings to issue the shares. Shares were offered to all shareholders in proportion to their shareholding. The second defendant did not take up the offer to her, and those shares were offered to and the offers accepted by the remaining shareholders. There appears to be some contest over whether sums totalling $67,500 for all of the shares to be issued, numbering 1,500,000 in all, were paid to the company. However, it is not in contest that the company's share register was not changed to show the issue or share certificates issued, then or subsequently. I note, however, that the issue appears to be reflected in the records for the company at ASIC as at 2 February 2006.
By 27 May 2005 serious disagreements over matters to do with the company had developed between the first and second named fourth defendants and the second defendant. On that date what was said to be a general meeting of the company was held, attended only by the second defendant and the third defendant, who is her daughter. There is a contest between the parties as to whether there was a quorum at that meeting. The contest is largely but not entirely over the effectiveness of a purported transfer of shares from the second to the third defendant prior to the meeting.
At the 27 May 2005 meeting, there were resolutions passed to remove the first named fourth defendant as a director of the company and to appoint the third defendant as a director. Following the meeting, forms were lodged with ASIC to the effect that these changes had occurred, and also that the second named fourth defendant had ceased to act as a director of the company.
These events led to the fourth defendants commencing proceedings by originating process dated 17 June 2005, in COR 144 of 2005, against the second and third defendants in these proceedings, as well as against the Eznut Company, seeking the reinstatement of the first and second named fourth defendants as directors and related relief.
Two sets of interlocutory orders were made in COR 144 of 2005. Initially, an interlocutory order by a Master was made restraining the individual defendants in those proceedings from binding or purporting to bind the company without the approval and consent of the plaintiffs in those proceedings or the Court or both. This order was varied subsequently to allow the mother, the second defendant in these proceedings, to communicate with patent agencies in the United States with a view to keeping in force or maintaining the applications lodged with those agencies for the company, except that she was not at liberty to incur costs and expenses on behalf of the company.
The other set of interlocutory orders was the result of the decision in Liwszyc & Anor v Smolarek & Ors [2005] WASC 199, of Hasluck J, on 2 September 2005 ("Liwszyc"). Those orders, made 2 September and filed 9 September 2005, provided so far as is material for my purposes for the reinstatement of the plaintiffs in those proceedings (the first and second named fourth defendants in these proceedings) as directors of the company; until further order or pending the determination of the action, the daughter (the third defendant in these proceedings) be restrained from acting as a director of the company; and the orders stand in place of the restraining orders previously made, and the defendants' application to set aside the interim restraining orders previously made be dismissed. The mother (the second defendant in these proceedings) was required to take all steps and sign all documents necessary to give effect to among other things the reinstatement order. The orders included a stay of execution for a period of 21 days from 2 September 2005.

I note that, on the appeal from this decision, Smolarek & Anor v Liwszyc & Ors [2006] WASCA 50, a decision delivered on 29 March 2006 ("Smolarek"), the Court of Appeal (Steytler P, McLure and Buss JJA) confirmed that the order first referred to should be understood to be an interim one, pending the determination of the action, although it is not so expressed ([30]). The Court of Appeal also appears to me to have also confirmed that the orders third referred to should be understood to have superseded the previous interim orders restraining Ms Smolarek from acting or purporting to act for the company ([95], read with [99]).
I return to this decision of the Court of Appeal at a number of points below.
A general meeting of shareholders was called by the second defendant as the company's managing director for 21 November 2005. The meeting was called to consider a resolution for the removal of the first named fourth defendant as a director. Both of the fourth defendants attended that meeting, and the adjourned meeting on 29 November 2005. At both there was a dispute over whether the 1,500,000 shares were in fact validly issued. Had they been validly issued, the proportionate shareholding of the second defendant or the second and third defendants together would have been reduced from 64.5 per cent to 48.84 per cent.
There is evidence from the first named fourth defendant that no resolution for his removal as a director was passed at either meeting. I have no evidence in the form of minutes of such a meeting, or a filing or filings with ASIC, to indicate he was removed, at about that time or subsequently. A company search for the company indicates that both fourth defendants, with the second defendant, are shown as at 2 February 2006 as directors of the company. The first named fourth defendant continues to communicate with the second defendant describing himself as a director. And, as will be seen, he has acted as a director in other ways. I find then that he has since his reinstatement continued to be a director of the company.
There is also evidence that a board meeting was held on 29 October 2005 at which resolutions were passed to remove the second defendant as managing director and to appoint a replacement. However, as will be apparent below, following that meeting the first and second named fourth defendants treated the second defendant as a director, most relevantly in attempting to have her attend a meeting of directors to appoint an administrator of the Eznut Company. In addition, the company search for the company referred to also shows the second and third defendants as directors of the company, and makes no reference to any other directors than those two and the fourth defendants.
From 29 December 2005 to 5 January 2006 there were emails to, among others, the directors of the company sent by all of the individuals who had subscribed for the 1,500,000 shares, with one exception. These emails indicated the senders' wishes to have the funds provided for the respective shares returned. One of the emails was from the first named fourth defendant. The exception was the second named fourth defendant, who informed the first named fourth defendant otherwise than by email that he too required the repayment of the funds for the shares not issued to the trust on behalf of which he was acting.
The first named fourth defendant sought legal advice as to whether the subscribing shareholders had a claim for the return of their funds. He deposes that he received legal advice that it was more likely than not that they did have such a claim, and that they might be able to trace their claim into the company's cash at bank. If there were such claims, whether or not traceable into the cash at bank, they totalled about $67,500 before any interest.
The company's cash at bank as at 27 January 2006 (the significance of which date will shortly become apparent) was about $41,000, representing the company's only readily realisable assets.
There was evidence as well of other current liabilities as at that date. There was also evidence of a further liability to the second defendant, as well as the need to expend significant funds to maintain the Eznut Company's patent applications.
On 11 January 2006 a board meeting was held attended by both fourth defendants, but not by the second defendant, at which the financial condition of the company was discussed, and resolutions passed, to accept the offer of the share issue claimants to convert their claims to a secured loan, and to appoint the firm of which the present plaintiffs are partners as the administrator of the company. When the relevant partners of the firm were approached to act as administrator, it was indicated on their behalf that they would not be able to do so without an indemnity that would cover their remuneration and the anticipated costs of maintaining the company's intellectual property rights in the form of the patent applications. It would appear that the arrangement with the share issue claimants was not considered sufficient for this purpose. It was also indicated that prior to the acceptance of any appointment further resolutions of the company should be passed.
On 27 January 2006 there was a further meeting with the same attendance, this time at the plaintiffs' offices, at which resolutions were passed in the terms of Act s 436A(1). Subsequently, in exchanges with the second defendant, she expressed the concerns about the validity of the plaintiffs' appointments which they make the foundation of the current application under s 447C. One of those concerns had to do with what she said was a lack of proper notice to her of the meeting of 27 January 2006, as, on her understanding of the matter, she had been contacted about the meeting by telephone after the meeting had begun.
On their appointment, the plaintiffs secured the indemnities that had been sought.
On 29 March 2006, as I have indicated, the judgment of the Court of Appeal in Smolarek was delivered. In that decision, the judgment of the Court Appeal was that the appeal should be allowed, "but only to the extent of setting aside the order made by the primary Judge for the reinstatement of Mr Duta, [the second‑named fourth defendant] as a director" (at [111]). At the delivery of that decision, the issue arose as to whether the order of the Court should take effect "from the date of its pronouncement" by the Court (on 29 March 2006), or "from the date of the primary Judge's order" (2 September 2005), leading to the delivery on 26 April 2006 of the Court of Appeal's supplementary decision in Smolarek & Anor v Liwszyc & Ors [2006] WASCA 50(S) ("Smolarek, supplementary"). In that decision, Court held in the circumstances outlined in that decision that their earlier order "should take effect from the date on which this Court's order is pronounced" (see [3] and [21]), and not be dated as of some earlier day (see [20]).

These proceedings

On 8 February 2006, the proceedings before me were commenced by the filing of originating process pursuant to the Act. Three affidavits, one an affidavit of Brian McMaster (one of the two administrators of the Eznut company), the second an affidavit of the first named fourth defendant, and the third an affidavit of the second named fourth defendant, all sworn on 8 February 2006, were filed on the same day. An original hearing date of 23 February 2006 was vacated on the application of the second and third defendants, appearing in person, and the original programming orders of the Court were varied accordingly to allow additional time to the defendants to file and serve any affidavits in opposition to the application, to the plaintiffs to file and serve any affidavit in reply, and the defendant to file and serve any outline of submissions and list of authorities in opposition to the application. An affidavit of the second defendant, sworn 27 February 2006, was duly filed, in response to which an affidavit in reply of the first named fourth defendant, sworn 28 February 2006, was duly filed. I note that a further affidavit was also filed in these proceedings, of Charles Nilant, a consultant to the firm of which the plaintiffs are partners, sworn 24 February 2006. It is not clear to me how this affidavit is provided for in the programming orders for these proceedings. However, the second and third defendants made no objection to it on that account, and indeed, as I will indicate, themselves made reference to material in it. I make a reference to that material later in my reasons.
In the event, the hearing commenced on 1 March 2006 and concluded on 2 March 2006. The plaintiffs appeared by counsel, and the second and third defendants appeared in person, as it appears they have done throughout the proceedings in this action. There were no appearances for the first and fourth defendants. The second and third defendants sought an adjournment of the hearing, to permit them more time to prepare for the hearing, and to allow for the then pending decision in the appeal from the decision of Hasluck J in Liwszyc (supra). In view of the circumstances, most notably the previous vacating of the hearing date and the variation of the programming orders, I determined that it was not appropriate to adjourn the hearing, which was listed for that day only. However, with the consent of counsel for the plaintiffs, I allowed for the continuation of the hearing to the following day, to accommodate the position of the second and third defendants as self-represented litigants who I judged needed that time to prepare their closing submissions.
In the event, at the hearing before me, it became evident to me that the second and third defendants required further time to understand the basis of the plaintiffs’ objections to the second defendant’s affidavit of 27 February 2006. Accordingly, I did not rule on those objections, and gave leave to the second and third defendants by 7 March 2006 to file and serve any written submissions in opposition to the plaintiffs' objections. I also gave leave to the second and third defendants by 7 March 2006 to file and serve any written submissions as to any objections on specified grounds to any of the plaintiffs' affidavits. I also granted leave to the plaintiffs by 8 March 2006 to file and serve any written submissions in response to submissions made pursuant to that second form of leave.
At the hearing the second and third defendants sought to make reference to the second defendant's affidavit sworn 26 July 2005 in COR 144 of 2005, as to certain paragraphs in it and annexures to it, as well as to annexure "R" to her affidavit in the appeal against the interlocutory orders of Hasluck J in that action, sworn 24 November 2005 (erroneously referred to before me as sworn 25 November 2005). Without objection from the plaintiffs, and notwithstanding the second and third defendants’ non-compliance with O 36 r 10, I gave such leave, except as to one paragraph of the affidavit of 26 July 2005, and as to the annexure to the affidavit of 25 November 2005, to which the plaintiffs maintained objection. In respect of both of those, I gave leave to the second and third defendants by 7 March 2006 to file and serve any written submissions seeking leave to make reference to that paragraph and that annexure. I also gave leave to the plaintiffs by 8 March 2006 to file and serve any written submissions in response to submissions made pursuant to this third form of leave.
In the event, on 7 March 2006 the second and third defendants filed written submissions pursuant to the first and third forms of leave, and sought further time in relation to the second form of leave. On 8 March 2006 the plaintiffs filed written submissions in response to the second and third defendants’ written submissions pursuant to the third form of leave.
The second and third defendants' written submissions of 7 March 2006 also contained material constituting further submissions on the duties of the first and second named fourth defendants as directors, their power to appoint administrators contrary to the wishes of the second defendant, the duties of the administrators in relation to the patents, the matters and their importance covered by those patents, the history of the internal relations in the Eznut company involving the first and second named fourth defendants and others associated with them, and involving the second and third defendants, the background to the issuance of 1,500,000 shares following the directors' meetings of 9 and 16 April 2005, the alleged irregularities in that issuance and their effects, the alleged removal of shares issued to the third defendant, and the argument that the appointment of the administrators is an insolvent transaction.
I do not grant leave to make such further submissions. The scope of the matter addressed to which I have referred is considerable. The hearing before me on 1 and 2 March 2006 itself was extensive, and gave the second and third defendants a considerable opportunity to address these matters, many of which were in fact addressed, as will be come evident in these reasons. In those circumstances, I do not consider this is a case involving exceptional circumstances such that it would appropriate to grant leave to make the further submissions to which I have referred. See Boothey v Boothey, unreported; FCt SCt of WA; Library No 970092; 13 March 1997, per Ipp J, at 4.
Nor, in view of the matters to which I have referred, do I consider it appropriate to further extend the time to make submissions in relation to the admissibility of the affidavits filed in support of the plaintiffs' position in these proceedings. In particular, considerable time was given over in the hearing before me to explaining to the second and third defendants the principles upon which objections of that sort might be taken. Time was then allowed for them to consider whether to make any such objections.
As to the balance of the submissions of the second and third defendants, I refer first to the material in the second defendant’s affidavit in these proceedings to which the plaintiffs have objected. I have found that the second and third defendant’s submissions which I consider below do not depend on any of that material. In any event, most of that material, particularly but not only that to which objection was taken on the basis it was "conclusionary", was in my view subsumed in the argument with which I deal below (see affidavit of Hanna Smolarek sworn 27 February 2006, pars 9, 15, 17, 18, 21, 24 - 34, 36, 41, 43, 51 - 52, 55 - 56, 58, 63 - 64, 66, 68, 70, 72 - 74, 76 - 81, 83 - 86, 89, 91 - 103 and 105).
This leaves the material in the second defendant's affidavit of 26 July 2005 in COR 144 of 2005 and annexure "R" to her affidavit of 24 November 2005 in the appeal in that action to which the plaintiffs maintained their objections. I return below to each of those, separately.
There was a further stage in these proceedings, however. It arose out of the delivery of the judgment in the Smolarek (supra). On 13 April 2006 the second and third defendants filed an application to re-open the proceedings to permit the Court to take account of the decision of the Court of Appeal in Smolarek, as well as to consider whether the decision would be backdated (which Smolarek supplementary subsequently resolved in the negative), her claims that minutes of the first creditors meeting had been falsified, and that the administrators had closed out the company's bank account, spending the Eznut company’s money. As a result of a process of conferral between the plaintiffs (the respondents to the application) and the second defendant (the applicant), it was agreed I could deal with that application on the papers, which I understood to consist of the second defendant's application to re‑open, her supporting affidavit sworn 13 April 2006, her written submissions, and the written submissions of the plaintiffs.
The plaintiffs consented to the reasons for decision of the Court of Appeal in Smolarek being referred to me, together with a covering letter containing submissions limited to the implications of that decision for COR 16 of 2006. There was no such covering letter sent to me. However, as the written submissions of the second defendant addressed the matter of the effect of the decision in Smolarek, I consider the consent of the plaintiffs allowed for me to take account of the reasons for the eventual decision in Smolarek supplementary.
The plaintiffs submitted, however, in opposition to the application to re‑open in any other respect, that the matters of the minutes of the first creditor's meeting and the spending of the Eznut Company's money should not be entered into as the second defendant would have me do. Those matters it was submitted had occurred before the hearing before me that began on 1 March 2006. A number of the arguments made in relation to them were ones which were open to the second defendant at that hearing, and indeed, as I will indicate, were gone into at that hearing.
I agree. The jurisdiction to re-open after the delivery of judgment is one described in Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300, per Mason CJ at 303 as one:
" … not to be exercised for the purpose of reagitating arguments already considered by the court; nor is it to be exercised simply because the party seeking a rehearing has failed to present the argument in all its aspects or as well as it might have been put. What must emerge, in order to enliven the exercise of the jurisdiction, is that the court has apparently proceeded according to some misapprehension of the facts or the relevant law and that this misapprehension cannot be attributed solely to the neglect or default of the party seeking the rehearing. The purpose of the jurisdiction is not to provide a backdoor method by which unsuccessful litigants can seek to reargue their cases."
I consider that similar principles apply in a case where the matter was urgent, as was the case here, and to which I return below, and the matter to be adduced was available to the party seeking to re-open before the delivery of judgment. See also Singh v Crafter, unreported; FCt SCt of WA; Library No 8434; 15 August 1990 per Pidgeon J, at 16.
In this case, the minutes of the first creditors meeting had been lodged with the Australian Securities and Investments Commission on 14 February 2006, although the second defendant apparently only discovered them there in a search she did on 8 March 2006: affidavit of Hanna Smolarek sworn on 13 April 2006, par 17. She had previously asked one of the administrators for a copy of "all of the minutes you've held in relation to the company", by an email on 22 February 2006 (annexure "C" to that affidavit). The administrator had not responded to this request, it appears. However, the availability of the minutes at the ASIC web site, the concern of the second defendant to have them, and the concern of the defendant as to the suitability of the administrators in this case, to which her argument on one of the issues at the hearing before me on 1 and 2 March 2006 was addressed, all seem to me to weigh against re-opening the hearing in respect of the minutes.
It is the case of course that the second defendant in respect of the minutes was seeking to re‑open to show that the minutes had been falsified, which would appear to go to the second defendant's claim she was made late for the meeting by the administrators "on purpose" (Smolarek affidavit of 13 April 2006, at par 19). This went to the honesty rather than the competence of the administrators, and the focus of her argument before me at the hearing on 1 and 2 March 2006, as I will explain below, was on the latter. This of course is a most serious allegation, which would require some hearing time to explore and test.
However, I note again the context to these proceedings, where urgent action is required, as had been evident to the second defendant from the outset of these proceedings, when the initial programming orders were made, and then varied. The conduct relied upon does not appear to represent matter which required the discovery of the minutes to bring to light. It appears to me it represented matter which she could have raised at the hearing before me, albeit without the support of the minutes. She did not raise it.

As to the closing out of the Eznut Company's bank account, the second defendant had been informed, by material attached to an email from solicitors for the plaintiffs to her shown as sent on 1 February 2006, that the plaintiffs intended "taking control of the Company's bank accounts": affidavit of Brian McMaster sworn 8 February 2006, annexure "BKM 8". That affidavit, as well as annexing that material, also confirms that the plaintiffs had, since their appointment, required the "Bank of Western Australia Ltd [to] remit to us all funds maintained in bank accounts in the name of the Company" (par 12(1)).
In respect of the bank accounts, the second defendant was seeking to raise the matter of the plaintiffs depleting the bank accounts when the matter of their lawful appointment had not been settled. However, the matter of lawful appointment was of course precisely what was in issue from the outset of the proceedings eventually heard before me, and the matters to do with the accounts were readily available to the second defendant. She did not raise as she now does the issue of the depletion (then in prospect). However, she did indeed raise the matter of the taking of any action by the administrators on the authority of an appointment by "caretaker" directors.
It is important in dealing with the application to re‑open I not lose sight of the second defendant's position as a self‑represented litigant who at the time of the hearing before me was involved not only in those proceedings but also in the appeal against the interlocutory orders of Hasluck J in COR 144 of 2005. However, I consider that there has been a substantial effort to accommodate that position, in the vacating of the original hearing in this matter, in the time allowed for the hearing, which extended over parts of two days, and in the leave to which I referred earlier.
In considering the interests of the second defendant in this case, I must also consider the interests of the plaintiffs in the circumstances of these proceedings as I have described them. I must also consider the public interest in the finality of hearings, especially in matters like an administration where, as has been apparent to the second defendant, it is important to resolve issues of the sort raised in these proceedings as a matter of urgency.
Accordingly, save to allow for my consideration of the reasons for decision in Smolarek and Smolarek supplementary (which does not require any further appearances or submissions), I do not grant the application to re‑open.
Before I turn to consider the issues in these proceedings, there is a further issue with respect to them raised by the second and third defendants that I need to consider. It has to do with the position in these proceedings of the first and second named fourth defendants, and the joinder of the second and third defendants.

The parties to these proceedings

The written submissions for the second and third defendants put to me that the first and second named fourth defendants through their affidavits, sworn in support of the plaintiffs' application, took a position in these proceedings inconsistent with their status as defendants. Those written submissions also put to me that the second and third defendants were not proper parties to these proceedings.
As to the first matter, there is no reason why, in proceedings such as these, under the Act, s 447C, and in the alternative under s 447A, for what in substance is declaratory relief, a defendant might not take a position favourable to or in support of the position of another party, including that of a plaintiff: see Seaman, Civil Procedure Western Australia at [18.6.5A], and Oil Basins Ltd v Commonwealth (1993) 178 CLR 643, Dawson J, at 650. Resort to the principles for proceedings for declaratory relief to resolve issues arising in respect of proceedings for relief under Act s 447C or s 447A is warranted by the general reference, in the Supreme Court (Corporations) Rules (WA) 2004 r 1.3(2), to the Rules of the Supreme Court for proceedings under the Act, and also on general principle.
As to the second matter, the joinder of the second and third defendants, the Act provides for those who may be applicants, for s 447C, in s 447C(1) and, for s 447A, in s 447A(4): see above. Neither set of provisions describes who may be named as defendants. For that purpose, it is appropriate again to resort to the principles for proceedings for declaratory relief.
In such proceedings, there may on the authorities be a doubt whether or not it is proper to join a party simply in order to bind that party to the judgment sought: Seaman (supra), at [18.6.6]. There was no suggestion the joinder of the second and third defendants was simply to bind them, however.
Rather, the joinder of the second and third defendants appears to have been justified by reference to the general principles which govern the granting of declaratory relief, and which go to who may be properly joined as a defendant in such proceedings. Those principles were described in Bell v St Michael's Golf Club [2003] NSWCA 159, per Tobias JA, Sheller and Ipp JJA agreeing, as follows (at [26]):
"The general principles with respect to the granting of declaratory relief are not in issue. It is common ground that they are set forth in the judgments of the High Court in Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-582, 595-597. Those principles have been applied in cases too numerous to mention. They consistently cite the following passage from the speech of Lord Dunedin in Russian Commercial & Industrial Bank v British Bank for Foreign Trade Ltd (1921) 2 AC 438 at 488 as setting out the requirements which must be satisfied before a court will exercise its discretion to make a declaration without other consequential relief:
'The question must be a real and not a theoretical question; the person raising it must have a real interest to raise it; he must be able to secure a proper contradictor; that is to say, someone presently existing who has a true interest to oppose the declaration sought.'"
As will become apparent, the second defendant as a director and substantial shareholder, and the third defendant as a person whose position as director is presently in issue in other proceedings, are strongly opposed to the granting of relief under s 447C or s 447A in this case, and the second defendant principally, with support from the third defendant, has made strong arguments in support of that opposition. It is difficult for me to consider the second and third defendants as other than persons with true interests to oppose the relief sought.
I turn then to consider the issues in these proceedings.

The "caretaker" issue

As I have indicated the first named and second named directors at the meeting of the board on 27 January 2006 resolved to appoint the plaintiffs as administrators of the first defendant. As I will indicate below, that is the only such appointment that may properly so operate in this case.
At that time the first and second named fourth defendants were in office as directors by virtue of the interlocutory orders of Hasluck J in Liwszyc (supra). Those orders were varied, as I have indicated, by the judgment in Smolarek (supra); however, those orders were not antedated, also as I have indicated: see Smolarek, supplementary.
The position of the second and third defendants is that the authority of the directors so in office derived only from the circumstances of their appointment under interlocutory orders of the Court. That authority was only to preserve the status quo in the company as at the date prior to the issue of shares in April 2005 (the validity of which issue is in contest between the parties), or at least as at the date of the interlocutory orders of Hasluck J in Liwszyc (supra). The actions of the first and second named fourth defendants as directors in appointing the plaintiffs as administrators of the company were such as to make a fundamental change in the company's affairs. Such action went beyond the authority, to preserve the status quo, those directors possessed.
It is undoubtedly the case that the interlocutory orders in Liwszyc (supra) were to preserve the status quo: see per Hasluck J, at [123]. However, it is also apparent from Hasluck J's reasons that the status quo being preserved was that of the board management structure, prior to the cessation or purported cessation of the authority of the first and second named fourth defendants as directors, and prior to the conferral or purported conferral of authority on the third defendant to act as a director: see [25] and [122], read with [123] and [124]. There is no indication in his reasons of any qualification of the authority of the board, or the authority of any of its members whose authority was confirmed by those orders. The purpose of the orders was to permit the management of the company to be conducted accordingly. I see nothing in Smolarek or Smolarek supplementary that casts any doubt on that understanding of Hasluck J's interlocutory orders.
It is also undoubtedly the case that, as at the times of the hearing and orders in Liwszyc (supra), the Court understood the position of the Eznut company as one of a viable concern which was not being pressed to meet claims by creditors or employees: per Hasluck J, at [122], [23].
However, since the date of Hasluck's decision in Liwszyc (supra), as I have already indicated, and will return to below, questions have arisen as to the solvency of the company. The Act s 436A permits the board of a company to respond to concerns about solvency by, among other actions, passing a resolution to the effect that, 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 that an administrator should be appointed. I have already described the objects of an administration as set out in Act s 435A, which are in terms of maximising the chances of the company or so much as is possible of its business continuing in business; or, if that is not possible, producing a better return for the company’s creditors and members than would result from an immediate winding up of the company. While a company's move into administration might properly be described as a fundamental change in its affairs, it is also clearly within the authority of a board of directors under the Act, for the purposes indicated.
In those circumstances, I do not consider that the actions of the board or its members in appointing administrators could be described, without more, as beyond the authority conferred by orders like those of Hasluck J in Liwszyc (supra).
However, the second and third defendants put considerable reliance upon the decision of the Full Court of the Supreme Court of South Australia in Paringa Mining and Exploration Co Plc v North Flinders Mines Ltd (1988) 14 ACLR 587. In particular they referred me to remarks by King CJ, in whose judgment White and O'Loughlin JJ concurred, at 591.
In Paringa there was an appeal from orders had been made to adjourn an extraordinary general meeting of North Flinders. The meeting had been requisitioned by Paringa, which held 49.59 per cent of North Flinders's shares, sufficient to give it control of decisions at such meetings. The meeting was to reconstitute the board of North Flinders to give directors nominated by Paringa control of the board. The managing director of North Flinders had, prior to the requisitioning of the extraordinary general meeting, received a request from Paringa for a reconstitution of the board to give them that control. The board had subsequently, but on the date of the requisitioning of the extraordinary shareholders meeting, resolved to have North Flinders make takeover offers for the shares of Paringa and another company, and to make a rights issue to finance the latter offer. The board had also set the date for the extraordinary general meeting at the latest date allowed under the legislation, some two months later. Shortly after those board decisions were made, Paringa had commenced an action to challenge the validity of and seek relief in relation to those offers and that rights issue, and it had obtained interlocutory orders to restrain the implementation of the offers and the rights issue. The adjournment order appealed from was to have the chairman adjourn the extraordinary general meeting until 57 days after the discharge of those interlocutory orders or until further order.
The Full Court in Paringa allowed the appeal against the adjournment order and quashed that order, while confirming that the court did have the power to make the adjournment order.
Of particular relevance to these proceedings, it had been argued for North Flinders that the adjournment order was necessary, to restore the status quo that had existed before the interlocutory orders to restrain the implementation of the takeover offers and the rights issue and to allow for the length of the trial in Paringa's action. King CJ said this, in relation to that argument (at 591):
"The argument assumes that it is a proper exercise of the powers of the directors to fix the meeting at the latest permissible time and to use the period so provided for the purpose of implementing decisions against the expressed wishes of the controlling shareholders. This is not the purpose, in my view, for which the two month period is allowed by the Code.
The controlling shareholder, or majority shareholders, are entitled to use their voting power to exercise such control of the company as is permitted to shareholders in general meetings. That power is exercised, of course, by means of a general meeting of the shareholders. A reasonable period of time is permitted after requisition to enable the meeting to be arranged, that is to say, to put in place the mechanism whereby the shareholders can exercise their power. The directors are, of course, free to exercise their powers during that interval, but the reality is that from the time a meeting is requisitioned for the purpose of replacing them, especially where it is requisitioned by a controlling shareholder, they are caretaker directors. If they choose to make use of the interval to circumvent the known wishes of the controlling shareholder who seeks to replace them, they cannot complain, in my view, if circumstances supervene to prevent them from so doing.
I know of no principle which requires the court to intervene to protect the directors’ freedom to act in that way. The injunction against North Flinders was granted to preserve the status quo, pending a decision of the action. If its incidental effect is to deprive the directors of time which they would otherwise have had to implement their plans against the wishes of the controlling shareholder, no wrong or injustice is thereby done to them, nor is there any infringement of their legal rights. Still less does the injunction cause any wrong or injustice to or infringe the legal rights of the company, the controlling shareholder of which is opposed to the implementation of the directors' plans."
I have emphasised the words particularly relied upon by the second and third defendants.
It was put to me by counsel for the plaintiffs that the principle of the "caretaker" director has not been well developed in the law, and there is support for that view, as I will shortly explain. However, I consider I must proceed on the basis the principle is part of the law of companies, on Paringa, and on what appears to be the principal authority in this jurisdiction that has considered the principle identified with that case, Woonda Nominees Pty Ltd v Chng [2000] WASC 173, Owen J, at [44] and [46]. In Woonda Nominees an interlocutory injunction to restrain the implementation of a decision of directors approving the placement of shares was granted on the basis that there was a serious question to be tried in terms of a "caretaker" principle. Compare the rather more qualified discussion in Austin and Ramsay, (supra), at [7.410]. Neither case is on all fours with this one, in the sense that both involved decisions to make issues of shares in the shadow of general meetings to be held to remove directors. However, it seems to me that the principle is potentially applicable, on the authority of Utilicorp NZ Inc v Power New Zealand Ltd (1997) 8 NZCLC 261,465, which is referred to without disapproval in Woonda Nominees, Owen J at [45] as follows:
"In Utilicorp [supra] a majority shareholder asked the Court to restrain directors from accepting an offer to sell a strategic parcel of shares in a situation where, at a shareholders' meeting to be held on the day following the hearing of the injunction application, those directors were likely to be voted out of office. The injunction was granted. Giles J referred to Paringa Mining and other authorities. His Honour's conclusion, expressed at 261,469, was as follows:
'Having reviewed the cases in the limited time available to me I conclude that the more recent authorities relied upon by the plaintiff indicate that a principle may well be evolving whereby some limits are placed upon the rights of caretaker directors. … It seems to me that the concept of some restricted power remaining with caretaker directors is a sensible development in today's modern commercial context. I do not suggest that a company cannot continue to be managed or to operate. What it means is that there is a need for compelling caution on the part of directors whose term of office is coming to an end not to make decisions which fall within the category of fundamental or significant.'"
In this case, there was the shareholders meeting of 21 November 2005 adjourned to 29 November 2005 I referred to above. The business at that meeting was the removal of the first named fourth defendant as a director: Smolarek affidavit of 27 February 2006, pars 33 and annexure "B", and pars 36 and 40. On the evidence before me that meeting has been further adjourned "pending court decision on the status of the shares": par 40.
I have already indicated that my understanding of the voting position in the Eznut Company is that the second defendant will, regardless of the outcome of that decision, have a majority of the votes at that meeting. Whether the exercise of her voting power at a meeting of shareholders would be sufficient to prevent the first named fourth defendant being a director, is, however, a different matter, which it appears is to be further addressed in COR 144 of 2005: see Smolarek (supra) at [77]. At the same time, there is support for the application of a "caretaker" principle to a case where the general meeting is one at which the director “may” be removed; however, the fact that there is no high level of certainty that will happen will affect how the principle is to be applied: Woonda Nominees, (supra), Owen J at [46], [47] and [48] (source of quotation).
In particular that authority supports the conclusion, in respect of the application of a "caretaker" principle in a case like this one, that it is necessary to consider, not only whether the directors' decision is a "fundamental or significant" one which is "not within the ordinary course of the day to day business of the company", but also whether the decision is "not otherwise necessary for the proper running of the company": Woonda Nominees, (supra), Owen J, at [48]; and see also [51]. At [55], his Honour, in considering the balance of convenience, said there was:
"I think, insufficient evidence upon which I could form the view that the proper running of the company will be prejudiced seriously if the placements do not go ahead."
See also Austin and Ramsay, (supra), at [7.410].
This case raises precisely the question of prejudice to the proper running of the company in the circumstances in which it found itself on 27 January 2006. That question, in my view, is answered by reference to the resolution of the four issues raised by these proceedings and considered below.

I now turn to those issues.

The resolution of the board was not bona fide and genuinely formed

The resolution of the board under s 436A must follow the form in that section, which by s 436(1)(a) requires a resolution that, in the opinion of those voting in favour of that resolution, the company is "insolvent or likely to become insolvent at some future time": Wagner v International Health Promotions (administrator appointed) (1994) 15 ACSR 419, Santow J, SC NSW (Eq). No such resolution was passed at the meeting of 11 January 2006: the only resolutions then passed, on the minutes of that meeting in evidence before me, was to accept an offer of certain claimants to convert their claims to secured debt in the terms I will return to, and to appoint the plaintiffs' firm as administrator of the Eznut company (affidavit of David Liwszyc sworn 8 February 2006, par 42 and annexure "DL9").
The board appears to have been advised in terms of the law I have just described when it passed its resolutions on 27 January 2006, apparently replacing that for the appointment of administrators of 11 January 2006. In any event, that earlier resolution cannot be relied upon for purposes of relief in these proceedings, as I have indicated, and no attempt was made to do so.
The opinion as to solvency referred to in Act s 436(1)(a) must be "genuine, bona fide and concluded", and in forming that opinion the board must address the question formulated in s 436A and not err in law in doing so: Kazar (supra), per Merkel J, at 231.
The resolution of the board on 27 April 2006 was in material part as follows (Liwszyc affidavit of 8 February 2006, annexure "DL 11"):
"1.'That in the opinion of the directors, the company is insolvent, or is likely to become insolvent at some future time, and an administrator should be appointed.'"
It will be noted that the resolution refers to a single opinion expressed as to "actual or likely insolvency". Merkel J in Kazar (supra) confirmed (at 231) such a resolution would satisfy the requirements of s 436A if the opinion met the test referred to. It will also be noted that the resolution contains the language of both s 436A(1)(a) (on solvency) and s 436A(1)(b) (on the appointment of an administrator).
The second and third defendant's challenge to that part of the resolution of 27 January 2006 to which s 436A(1)(b) relates goes in my view to the issue reached in the next section of these reasons, concerning proper purpose.
As to the part of the resolution to which s 436A(1)(a) (to do with solvency), relates, the Act provides by s 95A(2) that a person who is not "solvent" is "insolvent". As to when a person is "solvent", s 95A(1) provides:
"A person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable."
What matters for this purpose is the opinion of the board, provided the opinion addresses the question of solvency as formulated by s 95A as that provision is properly to be understood. However, while that question is on its face a subjective one, it will be of considerable practical importance to consider the financial circumstances of the company as they were known to the board at the time of the resolution: Kazar (supra), per Merkel J at 232, 234. The Court will consider whether those circumstances properly considered showed an actual or likely inability to pay all of the person's debts as and when they became due and payable, which would make relevant whether there were then or in prospect outstanding claims being or that would be pressed by creditors, claims the person was or would be unable to meet: see per Merkel J at 234.
Both the Liwszyc affidavit of 8 February 2006, par 30 (as to the first named fourth defendant) and the affidavit of Gheorghe Duta sworn 8 February 2006, par 7 (as to the second named fourth defendant) depose to the belief of each on 27 February 2006 that the Eznut Company was insolvent.
By 11 January 2006 there were claims being pressed by persons who had or said they had paid for 1,500,000 shares but who had not received any shares for return of their money, as I have indicated: Liwszyc affidavit of 8 February 2006, pars 27 and 28. The total amount was, also as I have indicated, $67,500. Of that amount, $31,612 represented contributions by trusts associated with the first and second named fourth defendants for the trusts' shares: Liwszyc affidavit of 8 February 2006, par 22. On the evidence before me both the first named and the second named fourth defendants were pressing those claims on behalf of the respective trusts: pars 27(4) and 28.
As I have previously indicated, legal advice as to the validity of the claims had been obtained by the first and second named fourth defendants. This advice was understood by the first and second named fourth defendants to have included that there was a possibility of a tracing claim on what all parties appear to have accepted was the company's only readily realisable asset, its cash at bank of approximately $41,000: pars 29 and 30.
I note that the second defendant before me contested both the validity (if not the fact) of the contract for the issue of those shares and the receipt of any funds for them.
The matter of the validity of the issue is also an important issue in COR 144 of 2005. For my purposes, however, I do not consider I need to go into it. I note again the issue posed by Act s 436A(1)(a), of the opinion of the directors.
If the contract to issue was invalid, then there would appear to be claims for the return of any funds paid. If the contract to issue was valid, then there was uncontested evidence that there was no issue of share certificates to the share issue claimants and no entry of them for the shares offered in the share register, with the result in my view that there would at least arguably not be a barrier (of the sort represented by Houldsworth v City of Glasgow Bank (1880) 5 App Cas 317, recently considered in a different factual setting in Sons of Gwalia Ltd v Margaretic [2006] FCAFC 17) to any claim they might have for the return of any funds they provided to the Eznut company: see Austin and Ramsay, (supra), at [17.170]. At that point they were not members in respect of those funds: see Act s 231(b). The claim they would appear to have would appear to be based upon the repudiation of the contract to issue shares to them resulting in a total failure of consideration: see Act s 1071H; and see Commonwealth Homes and Investment Company Ltd v MacKellar (1939) 63 CLR 351, considered in Eastland Technology Australia Pty Ltd & Ors v Whisson & Ors [2005] WASCA 144, per McLure JA, Malcolm CJ and Steytler P agreeing, at [34] and [35].
I note that the lack of entry on the share register for the share issue claimants would appear to have had the effect that the share issue claimants would not have had at any material time any voting rights in respect of the shares purportedly offered to them: Austin and Ramsay, (supra), at [17.170]. Thus, whether or not the contract to issue the shares was valid, the second defendant would appear to have retained her majority voting position. The matter of the non‑registration of the shares, and its impact on the voting position of the second defendant, appears to be part of the case for the first and second named fourth defendants in their capacities as plaintiffs in COR 144 of 2005: see Smolarek, (supra), per curiam at [77]. That aspect goes to the issue in that case, as indicated by that paragraph of the Court of Appeal's reasons, of whether or not the majority voting position of the second defendant meant she was therefore able to proceed as she did (or indeed proposes to do) with respect to the directorship of the first named fourth defendants. I have already referred to that issue, in connection with the “caretaker” issue in these proceedings.
This leaves the question of the receipt of funds by the Eznut Company from the persons concerned, whom from now on I will call "the share issue claimants".
The evidence referred to by the plaintiffs in support of the receipt of funds is the offers of shares to the share issue claimants with requests for payments, as annexed to the Liwszyc affidavit of 8 February 2006 (annexure "DL5"), and the Eznut company's cash at bank of $41,000 as at 27 January 2006, which that affidavit indicates was the balance of the funds remitted net of interest and small amounts received from the Australian Taxation Office (par 23). It is common ground that the Eznut Company had not been trading at any material time, and the second defendant does not suggest any other source of the funds in the account at that time.
In these circumstances, I find that the amount of $67,500 was indeed remitted to the Eznut Company, or that there was at least a reasonable basis for the directors so to conclude.
It should be noted that, following their reinstatement by the interlocutory orders of Hasluck J in Liwszyc (supra), and apparently after the demands received from the share claimants, the first and second named fourth defendants had sought the second defendant's approval to issue share certificates to the share claimants, which she had refused: Liwszyc affidavit of 8 February 2006, at par 26 and annexure "DL6". It is clear, and seems to have been clear to the first and second named fourth defendants at the time of the 27 January 2006 resolution, that the second defendant vigorously resisted any effect being given to the issue that would permit it to dilute her holding of shares in accordance with the terms of the issue. Indeed, as I have said, this appears to be one of the central issues in COR 144 of 2005. In those circumstances, it appears to me on the evidence that the first and second named fourth defendants would understand the share issue claimants’ position to be that of a demand for the return of their funds for failure to provide them with what they had bargained for.
There were additional debts or claims, of $6,000 for payments made by the first named fourth defendant in respect of work done in relation to the Eznut company's patents, of $9,543 to a company associated with him for work in relation to the Eznut Company device, and of $1,500 to the Australian Securities and Investments Commission, and some indications that demand had been or would be made in the near future for the first two amounts at least: par 18 and annexures "DL7", at 81, and "DL9" (minutes of the meeting of directors of 11 January 2006, referring to total claims of "$17,000" without further specification).
There was considerable argument before me as to whether there were indeed debts owing to the first named fourth defendant or at least to the company associated with him, rather an amount owing to the Eznut Company by the latter. However, it was not put to me that this latter amount would exceed $3,590.40 (Smolarek affidavit of 27 February 2006, at par 75). The second defendant also appeared to contest that any more than $200 was owed to ASIC (par 75), while she also maintained that the first and second named fourth defendants owed the company the balance of $1,500, $1,300, as expenditures that had been unnecessarily incurred. I note, however, that the sum of these two amounts as claimed by the second defendant does not offset the sum of the amounts claimed by the share issue claimants so as to bring the net down to the level of the Eznut Company's cash at bank.
I note that there are references, in the affidavit of Hanna Smolarek of 26 July 2005 in COR 144 of 2005, pars 85 and 86, to shares issued to the first named fourth defendant in these proceedings and others, in respect of which it was put to me there were monies owing. Those paragraphs were ones to which the plaintiffs did not maintain any objection to their admission. They do not support the position put to me, in any event, as they do not describe an obligation to make payments but rather to provide services, nor do they support a readily realisable asset of any sort.
I should add that par 87 of the affidavit, the one in that affidavit to which objection was maintained by the plaintiffs, and which appears to have been put to me by the second defendant in relation to amounts owed by the first and second named fourth defendants to the Eznut Company, relates to what on its face is an agreement between the first named fourth defendant and the second defendant, which does not appear to go to funds owed to the Eznut Company by him. Thus, I do not consider that the paragraph is relevant to these proceedings, and I would uphold the plaintiffs' objection in that respect to my taking account of it.
Further, I also note the annual return for the Eznut company dated 26 September 2003, with corrections dated 30 April 2005 and 13 May 2005, all signed off by the second defendant, all of which would appear to show the shares in question as "fully paid" (Liwszyc affidavit of 28 February 2006, annexures "DL15", "DL16" and "DL17").
There was also a prospective liability of the Eznut Company for $20,000 for one of the Eznut Company's patents, due by the end of January 2006: Liwszyc affidavit of 8 February 2006, par 33 and annexure "DL9". There appears to be no contest over this amount or the necessity for its payment.
There was also a claim by the second defendant in the amount of $125,400 for salary since the incorporation of the Eznut Company, for which a written demand on her behalf by her then solicitor had been made, on 1 November 2005: Liwszyc affidavit of 8 February 2006, par 19 and annexure "DL4" at p 55, p 56. This claim was, however, disputed by the first named and second named fourth defendants. Further, it is not clear whether as at 27 January 2006 this claim was being pressed, and the second defendant appears not currently to be pressing for satisfaction of the claim, although she continues to maintain it.
It should be noted that, if the second defendant's claim is made out, it would, absent the establishment of other creditor’s claims not so far referred to, make the second defendant the predominant creditor by value. In turn, this would be sufficient to give the second defendant voting control at meetings of the creditors: Corporations Regulations 2001 (Cth), reg 5.6.21.
It should also be noted that the share issue claimants had proposed to have their claims satisfied by loans to the Eznut company secured on all of the assets of the company, an offer which it appears the board of directors resolved to accept at its meeting of 11 January 2006 (Liwszyc affidavit of 8 February 2006, at pars 35, 36 and annexure "DL 9"). It is not clear to me how any such acceptance could be effective, given the interest of both the first and the second named fourth defendants in the resolution, arising out of the status of the trusts associated with them as share issue claimants as I previously described that status. In any event, by the terms of that resolution those loans were to fall due on 20 February 2006 (Liwszyc affidavit of 8 February 2006, annexure "DL9"), and the transaction was apparently on the basis that the moneys in the Eznut company's bank account were to be used "for patent support and administrator cost".
I note that this is the only evidence before me of the ability of the Eznut Company at the time of the 27 January 2006 resolution readily to access credit by way of loan, on the security of its assets or otherwise. Nor is there any other evidence of inflows of readily realisable assets that could reasonably be counted upon at that time otherwise to cover any deficiency in the realisable asset position of the company. See Keay A, McPherson A R, "The Law of Company Liquidation", 4th ed Sydney, LBC Information Services, 1999, at 437 - 438. I do not doubt there might have been prospects of transactions of benefit to the company that might have been concluded, of the sort a company with new technology but no trading record might be able to identify. However, there is no evidence that there were any such prospects that on 27 January 2006 could reasonably be counted upon to mature in time to meet the claims that had been made.
For the second and third defendants, it was argued that it was the responsibility of the first and second named fourth defendants, by virtue of the undertakings they had given in relation to the interlocutory orders of Hasluck J in COR 144 of 2005, to provide funds for the company as needed to preserve the status quo, at least as to the First and Second patents.
However, the purpose of such an undertaking is (Owen J, "The Interlocutory Injunction", in Carroll, R ed, Civil Remedies: Issues and Developments Sydney, Federation, 1993, at 258):
"To compensate the defendant for any loss that might be suffered by the defendant if it is later established that the restraint was contrary to the defendant’s rights as finally adjudicated."
Thus, such an undertaking is not a basis for an obligation to make payments in advance of such establishment. Such an undertaking has no bearing on the present issue, in my view.
It should further be noted that there is evidence the proposal of the share issue claimants with respect to converting their claims to secured debt had been put to the second defendant by the first named fourth defendant on 23 December 2005 (Liwszyc affidavit of 8 February 2006, at par 36), and she had responded on the same day (Liwszyc affidavit of 8 February 2006, at par 37) that the Eznut company was "not in a position to take any loans" and that
"You cannot make a loan against the company's assets in the situation where the Company's creditors recovery might be compromised.
This is a criminal matter[.]"
I presume that the reference to a "criminal matter" was to Act s 588G (at least if the transaction was "dishonest"), which also provides for civil liability.
It was following this response that the share issue claimants made their demands for payment to which I have previously referred.
I am of the view that this exchange supports the conclusion that the first named and second named fourth defendants had the opinion referred to in Act s 436(1)(a).
It is true that the realisation of the Eznut Company's intellectual property might have been sufficient to meet all of the claims on the company. However, apart from any question as to how readily this might have been arranged, a realisation might have resulted in the end of the business of the company or at least a radical change in that business. On the authorities (Keay (supra) at 437):
"If a company has to resort to selling assets that are essential to continuation of its business, those assets are not to be included in a determination of solvency."
In all of those circumstances I consider that the evidence establishes that the directors voting in favour of the resolution on 27 January 2006 had properly formed the opinion described in Act s 436A(1)(a).

Resolution for an improper purpose

A resolution for the appointment of an administrator that was for an improper purpose in this context is other than one "in furtherance of the object of Pt 5.3A as set out in s 435A"; such a resolution would be "vitiated": Kazar (supra) per Merkel J at 233. Whether or not a claimed ulterior purpose was that for the resolution in question will be determined by whether or not that purpose was "a substantial purpose in the sense that the decision would not have been made but for the ulterior purpose": per Merket L, at 233.
An example of appointment of an administrator for an improper purpose is one to perpetuate control or the positions of the directors, particularly where there is a possibility of a competing appointment of an administrator: Kazar per Merkel J at 233 ‑ 234.
The immediate purpose for the passage of the board resolution of 27 January 2006 relied upon for the plaintiffs was that of arranging for the payment necessary to protect the Eznut company's Second Patent without incurring liability for insolvent trading. There is evidence the first and second named fourth defendants believed this could be achieved by the replacement of the board by an administrator under Pt 5.3A of the Act: Liwszyc affidavit of 8 February 2006, par 38; Duta affidavit of 8 February 2006, par 7. There is the circumstantial evidence supporting that evidence of that belief to which I referred in the previous section. The protection of the patent was, on the evidence of the first and second named fourth defendants, for the purpose of advancing the prospects for its commercialisation: Liwszyc affidavit of 8 February 2006, par 51; Duta affidavit of 8 February 2006, par 5.

As I have already indicated, on their appointment as administrators of the Eznut Company, the plaintiffs secured indemnities to cover their expenses and to meet the expenditures to preserve the Eznut Company's patent applications. In the McMaster affidavit of 8 February 2006, he deposes that the funds were provided by "the shareholders in the company (other than Ms Smolarek)" (par 10).
The second and third defendants put to me that the only object of the administration should be seen to be a winding up. In such a winding up, it seems to have been put to me, I should note that the indemnities paid would have priority to all other claims, and, to the extent of any subrogation of those "shareholders" who provided the indemnity to the position of the administrators under Act s 443E(1), the "shareholders" would have priority over other creditors, including the second defendant. This, it seems to have been suggested, would be to enable them, including the first and second named fourth defendants, to acquire the company's intellectual property.
On the evidence I previously referred to, I am not able to determine that the only object or a substantial purpose of the administration was a winding up of the Eznut Company. There is evidence to the contrary from the first named fourth defendant (Liwszyc affidavit of 28 February 2006, pars 38 – 41).
However, the second and third defendants put to me that external administration of a technology company at the stage of the Eznut Company, which had not traded, could only lead to a winding up, as external administrators could not be expected to have the necessary capabilities to develop the technology, which would involve capital raising. In any event the plaintiffs did not claim such skills.
However, the scheme of Pt 5.3A is to provide the management of the company with an "incentive to assist the administrator to try to salvage the company" (Austin and Ramsay, (supra), at [25.080]), and I do not consider there is evidence here that establishes for me there is no such incentive in this case, where the "shareholders" have provided the indemnity referred to. The management of the company includes the second defendant, of course, whose position as a director continues under the interlocutory orders in COR 144 of 2005 and on the evidence before me had not otherwise terminated. There is no restriction in the Act on the form salvage by way of a Deed of Company Arrangement may take.
The second and third defendants put to me that there was substantial evidence the plaintiffs were proceeding on incorrect advice as to the protection of the Eznut Company's intellectual property. This argument went to what the second and third defendants said was a failure to properly recognise the importance of the First as well as the Second Patent. It is certainly the case that the first and second named fourth defendants have expressed the view that the former "need not be retained by the Company on a commercial basis as the Second Patent was capable of standing on its own" (Liwszyc affidavit of 8 February 2006, at par 32(1)). The argument seems to be that this shows the administrators were appointed simply to ensure the implementation of the views of the first and second named fourth defendants, rather than to achieve for the Eznut company the purposes of Pt 5.3A: see Blacktown City Council v Macarthur Telecommunications Pty Ltd [2003] NSWSC 883, Barrett J, at [24].
However, while there is evidence the administrators have only applied funds to the protection of the Second Patent, that evidence does not indicate any final view having been formed by them in respect of the First: see McMaster affidavit of 8 February 2006, par 12 and annexure "BKM14", a letter from the Eznut Company's patent attorneys dated 2 February 2006. I have also noted the Nilant affidavit of 24 February 2006, pars 7 ‑ 11 and annexure "LN8", which appears to me to be evidence that the administrators are expending funds on the Second Patent while continuing to seek reports on it and on the First Patent, with respect which the administrations are advised in a letter from the Eznut Company's patent attorneys dated 21 February 2006 (annexure "LN8", p 1):
"We understand, however that there is not a consensus on the commercial value of the first patent application relative to the second patent application."
The second defendant appeared to draw my attention to this advice, in support of her argument.
I also understood it was in this regard that the second defendant was seeking to have me read the annexure "R" to her affidavit of 24 November 2005 in her appeal against the decision of Hasluck J in Liwszyc (supra), to my reading of which, as I have indicated, the plaintiffs had maintained their objection. That annexure is an email, to the second defendant and the first and second named fourth defendants, from the same senior associate in the firm of patent attorneys who signed the letters that are "BKN14" and "LN8". The email annexure "R" indicates it was to "reiterate the consequences of allowing the Smolarek applications to lapse", including that:
"It will be possible for another party to use the inventive concepts described in the first application without infringing the second application where the specific improvements in the second application are not used".
The concluding paragraph in the email is:
"If this is a commercially acceptable position for the company, then so be it, but the consequences could be quite significant."
The plaintiffs object to my taking account of annexure "R", both on the basis it was included only in the second plaintiff's closing submissions, without any explanation having been given then or since for such late notice, and on the basis that, considered as tendered as evidence of the truth of its contents, it is classic hearsay, the author of the email not having given sworn evidence in these proceedings.
I agree with the latter objection. However, in my view that objection falls away if the annexure is considered, as I believe it falls to be considered, as evidence of what the first and second named fourth defendants knew when they reached the view I have previously referred to.
However, the email annexure "R", so considered, does tend to show that the appointment of the administrators was simply or even substantially to ensure the implementation of that view. Nor is there any evidence that the administrators have been shielded or are shielding themselves from a consideration of the First Patent relative to the Second Patent, and some evidence to the contrary, in their exchanges with Eznut Company's patent attorneys to which I have referred.
On this basis, I consider I do not need to rule on the remaining basis for the plaintiffs' objection to my reading annexure "R". That is because, in my view, I do not consider it adds anything to the second defendant's argument.
Nor is it the case, on the evidence as to claims by possible creditors against the Eznut company, particularly that of the second defendant, that at this stage it is clear or was clear to them at 27 January 2006, the first and second named fourth defendants will or were likely to be the only creditors voting on any deed of company arrangement to come out of the administration (see Blacktown (supra) at [24]).
Accordingly, I do not conclude that, in respect of dealings with the intellectual property of the Eznut company, at this early stage of the administration, it has been shown the administrators were appointed simply to ensure the implementation of the views of the first and second named fourth defendants, rather than to achieve for the Eznut company the purposes of Pt 5.3A.
However, the second and third defendants put a further argument to me. The argument appears to be that the appointment of administrators was an abuse of Pt 5.3A of the Act in another way, being to deny the second and third defendants the possibility of enjoying the fruits of any success they ultimately might enjoy in defending the proceedings in COR 144 of 2005. The first and second named fourth defendants were seeking to ensure the continuation of their influence and control over the company's affairs whether or not that action succeeded. At present, of course, the management of the company does not include the second named fourth defendant, as a result of the decision of the Court of Appeal in Smolarek (supra). However, I am prepared to accept for the purposes of the argument that the second named fourth defendant would continue to have at least an advisory role in relation to the affairs of the company in administration, through the first named fourth defendant at least, in addition to the position of the family trust of the second named fourth defendant as a share issue claimant.
The second and third defendants might indeed succeed in COR 144 of 2005 in establishing that the first and second named fourth defendants in this action had ceased to be directors, and that the second and third defendants were the board of the Eznut Company. The effect of the administration was of course that control of the company was no longer in the hands of the board and the general meeting, but rather the administrators and ultimately the creditors (see Austin and Ramsay, (supra), [25.080]). Further, I note that the board meeting of 27 January 2006 occurred later on the same day as a hearing in the appeal against the interlocutory orders of Hasluck J in COR 144 of 2005: see Liwszyc affidavit of 8 February 2006, pars 52 and 53.
However, I do not consider the timing just referred to establishes that a substantial purpose of the appointment was to defeat any outcome in that action adverse to the first and second named fourth defendants, in view of the circumstances as to the appointment to which I return below, in relation to the matter of reasonable notice of the directors' meeting that day.
Further, I consider that the authority cited in support of this argument so made does not in my view assist the second and third defendants, Blacktown (supra). That case involved a company against which an action had been commenced and a cross-claim in another action made by a person in respect of negligent or otherwise faulty advice. After those proceedings against the company had been commenced the company was placed in administration by the company’s sole director and shareholder.
Barrett J, in ordering that the administration end, referred to a number of matters that in his view, in combination, made out abuse of Pt 5.3A (at [20]). The company's sole director and shareholder, with his solicitor and accountant, were likely to be the only creditors voting as to value in the administration. The company had been insolvent for some two years and had not been carrying on any business activity for that period. There was no suggestion of any commercial rehabilitation and resumption of business activities in the deed of company arrangement proposal made in the administration, there were some clear indications of insolvent trading, and there was the timing of the commencement of the administration, which resulted in the stay of the proceedings referred to under s 440D of the Act. In addition, the company was not to be restored to the stewardship of the directors, but, as Barrett J ordered, to be wound up on application by the claimant against the company in those proceedings.
In this case, where in terms of its formal stages the administration has not yet progressed beyond a first creditor's meeting, let alone to a proposal for a deed of company arrangement, as I have indicated, it is not established that there is no prospect of commercial rehabilitation and resumption of business activities. The second and third defendants are not proposing to apply for the winding up of the Eznut Company in insolvency. It is not clear, as I have indicated above, that the position of the first and second named fourth defendants as creditors, together with that of others who may for the sake of the argument be taken to be aligned with them, would be sufficient (in view of the possible claims of the second defendant as a creditor) to shield their activities from review for involvement in any insolvent trading or otherwise to determine the outcome of the administration.
Of course, it may be, as any administration unfolds, that it will become apparent that there is an abuse of the provisions of Pt 5.3A of the Act such that the administration should be ended: see s 447A(2), and Blacktown. There are also other provisions of Pt 5.3A, to which I return below, which make possible the review of the administration. My conclusion on this argument, at this stage of this administration, does not mean that a case for relief might not be successfully made at a later time.

Lack of notice of meeting of the board of 27 January 2006

The relevant requirement for notice of the Eznut Company's board meetings to its directors is Act s 248C. This is the replaceable rule applicable to the company, which as I have indicated does not have a constitution. That provision says:
"A directors' meeting may be called by a director giving reasonable notice individually to every other director."
In this case the matter raised goes to the timing of the notice the parties appear to have accepted was provided to the second defendant.
The matter of what is a "reasonable time" for the purposes of a company’s constitutional provision calling for such notice was said, in Hickey v Aselford & Anor [2003] NSWSC 185, Gzell J, at [26], to depend:
"… upon the circumstances and its limit is determined by what is fair to both parties (Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 567‑568)."
In this case, the meeting of 27 January 2006 began at "approximately 2 pm" (Liwszyc affidavit of 8 February 2006, at par 60), and at 2 pm, according to the minutes of the meeting (Liwszyc affidavit of 8 February 2006, annexure "DL11"). At about the same time or no more than about seven minutes later the first named fourth defendant rang the second defendant on her mobile phone to tell her of the meeting: Liwszyc affidavit of 8 February 2006, pars 55 and 56; Smolarek affidavit of 27 February 2006, par 102. In the former affidavit Liwszyc deposes that the call was "before Mr Duta and I formally convened a directors' meeting", and "at approximately 2 p.m.". In the latter affidavit Hanna Smolarek deposes that the call time "as shown on my mobile" was 2:07 pm.
I do not consider I need to resolve this difference. This is because there is uncontradicted evidence from the first named fourth defendant, which as will be seen is consistent with the evidence, (which I return to below) of the position he had taken with respect to the holding of an earlier directors meeting to appoint an administrator, that (Liwszyc affidavit of 8 February 2006, at par 56) the first named fourth defendant used words in the conversation with the second defendant as follows (in which I note the last sentence):
"… words to the effect:
'Gheorge and I are at the offices of the proposed administrators, Korda Mentha. Because the Company needs to take steps now to protect the patents we are looking to appoint Korda Mentha as administrators and propose to hold a directors' meeting to do so as soon as possible. I want to let you know that and to see whether you wish to attend. If you wish to attend, Gheorge and I will wait for you.'"
I find that the meeting was not to go forward until the second defendant had had an opportunity to indicate whether or not she wished to attend, which is consistent with the evidence of the second defendant (Smolarek affidavit of 27 February 2006, par 102). There was no clear evidence it was physically impossible for the second defendant to attend the meeting (and indeed her presence at the hearing of the appeal in COR 144 of 2005 that morning would indicate the contrary), her objection to going (in her affidavit of 27 February 2006, par 102) being "at the oppressive manner I was invited to the meeting that left me no option but to decline". It was apparent to the second defendant what was proposed to be done at that meeting, and that a quorum of the other two directors of the company (see Act s 248F on the quorum requirement for the Eznut Company) would be present. This it seems to me made the call to the second defendant’s mobile notice of the meeting. The issue is, it seems to me, the reasonableness of that notice.
In the event, the second defendant refused to attend the meeting: Liwszyc affidavit of 8 February 2006, par 57; Smolarek affidavit of 27 February 2006, par 102.
There is a particularly relevant discussion of the matter of what would constitute reasonable notice in a case where it is given informally, and at or about the time the meeting had begun, in Petsch v Kennedy (1973) CLC 40‑015 (the report of the case in [1971] NSWLR 494 does not reproduce this part of the judgment), per Jacobs JA, at 27,191 (in the majority: it is not clear whether the other member of the majority agreed with this part of the judgment, however, as his reasons are not reproduced), reproducing with approval certain remarks of Street J in the decision appealed from as follows:
"Apart from the statements made when the parties seated themselves around the table, Miss Petsch was given no notice that this was to be a directors' meeting. Notice must always be given of any meeting of directors of a company. This general proposition does not necessarily require written notice substantially in advance of a meeting of directors of a company such as the present, that is to say, a company with but two shareholders who are also the only directors. But mere co‑incident physical presence of all directors does not constitute a formal directors' meeting. Where two persons are the sole directors of a company, a discussion between them on company affairs will not amount to an effective directors' meeting unless both are aware before purporting to proceed to business, that the occasion is to be a directors' meeting. Notice of a meeting about to be held instanter (such as was given to Miss Petsch on the night of 4 August) would ordinarily be insufficient if objected to by the recipient. In the absence of agreement, express or acquiescent, by all directors to hold a meeting instanter the law requires the notice to be reasonable, subject always to any specific provision in the articles. In determining what is reasonable in point of length, form and content of the notice regard will be had, inter alia, to the context of the company's structure, practice and affairs."
In this case the plaintiffs referred me to the nature of the company, as a small one with three directors at the time.
They also referred me to the urgency of the business to be conducted. That urgency derived from the need to make a payment in respect of the Eznut Company's second patent by 30 January 2006, which was the first working day after 27 January 2006: Liwszyc affidavit of 8 February 2006, pars 49 and 53. I have already referred to the need validly to appoint an administrator for the purposes of making that payment. There is evidence from the first named fourth defendant that, while he and the second named fourth defendant were working to secure the indemnity for the administrators they sought to which I earlier referred, he received, on 25 January 2006, information, in the form of a letter from the Eznut company's patent attorneys, emailed to the second named fourth defendant and shown as copied to the second defendant and the first named fourth defendant, that the deadline for "proceeding with the national phase applications for the Second Patent fell due on 1 February 2006" (Liwszyc affidavit of 8 February 2006, at par 49). While the letter (Liwszyc affidavit of 8 February 2006, annexure "DL10") says that the author is "writing to remind you" (my emphasis) of that "deadline", I also note the evidence that the work to secure the "necessary indemnity" to enable the administrators to protect the Eznut company's second patent, the requirement for which I have previously referred to, was "between 11 January 2006 [the date of the previous meeting to appoint an administrator] and 27 January 2006" (Liwszyc affidavit of 8 February 2006, at par 48). In all of the circumstances, I consider that the urgency arose in such a way that it explained why a meeting might reasonably not have been decided upon until 27 January 2006, the last day on which it could be held before the "deadline". I further note that on that day, apparently in the morning, there had been a hearing in the appeal against the interlocutory orders in COR 144 of 2005 (Liwszyc affidavit of 8 February 2006, at par 52), at which the second defendant was self‑represented.

The plaintiffs also referred me to the previous communications between the directors including the second defendant in respect of meetings of the board for the appointment of an administrator. Those communications, by email, had been of the intention to call a meeting for that purpose. I should note that at least one pair of the emails in evidence would appear to indicate that the times of the day shown for them at least may not correct, as I indicate below.
Those email communications indicate that the second defendant had sought an explanation of the benefit of the appointment for the company (Liwszyc affidavit of 8 February 2006, annexure "DL6", email from second defendant to first named fourth defendant shown as sent 6 January 2006 at 12:41 am), objected to the calling of a meeting on 7 January 2006 on one day's notice (annexure "DL6", email from the second defendant to the first named fourth defendant shown as sent 6 January 2006 at 7:27 pm), asked how an administrator could be appointed in the period before the hearing of the appeal against Hasluck J's interlocutory orders in COR 144 of 2005 ("DL6", email from the second defendant to the first named fourth defendant shown as sent 6 January 2006 at 9:48 pm) and indicated she did not wish to have the company liquidated, whether through an administration or otherwise ("DL6", emails shown as sent 6 January 2006 at 12:41 am and 7 January 2006 at 3:03 pm).
The email communications on the side of the first named fourth defendant indicate his belief the second defendant should be aware of the benefits of an administration to the Eznut company ("DL6", email from the first named fourth defendant to the second defendant shown as sent 6 January 2006 at 8:01 am), and indicate that a later meeting would be held (as it was) on 11 January 2006, unless the second defendant required more time to familiarise herself with the procedure for appointing an administrator ("DL6", email from the first named fourth defendant to the second defendant shown as sent 7 January 2006 at 8:34 am). Following a further email from the second defendant, in which she indicated that "[l]iquidation is out of the question" ("DL6", shown as sent 7 January 2006 at 3:03 pm), he replied to her that he took the view she did not intend to attend the meeting, the meeting of 11 January 2006 would go ahead, and she would be informed of the outcome ("DL6", email from the first named fourth defendant to the second defendant shown as sent 7 January 2006 at 9:55 am, which does not align with the time shown for the second defendant's email).
As I have indicated the meeting of 11 January 2006 did go ahead, without the second defendant being present. There is no evidence before me that the second defendant was informed of its outcome, although the second defendant makes no point of this, in the emails or otherwise.
I note that there is no requirement under s 248C for the business to be done at the directors meeting to be specified in the notice: Austin and Ramsay, (supra), at [7.320].
I consider that this background indicates that the matter of appointment of an administrator at the meeting of second defendant of 27 January 2006 was one in respect of which it was reasonable to expect the second defendant would not attend the meeting. This is on the basis she had clearly indicated she would not attend a meeting for the appointment of an administrator without a prior explanation to her of the benefit of such an appointment. I further consider this background indicates that the need for a board meeting on 27 January 2006 on very short notice, involving particularly urgent action, was not an ordinary need.
While I note the second defendant had clearly indicated her wish for greater notice, and the other directors had sought to accommodate her in that respect in calling the meeting of 11 January 2006, I also note the basis for my previous finding as to whether it was reasonable to expect the second defendant would attend the meeting, that she had clearly indicated she would not attend a meeting for the appointment of a director without a prior explanation to her of the benefit of such an appointment. Her fellow directors were, it seems to me, entitled to take the view that such an explanation if required was a matter for the meeting, not one for an exchange prior to the meeting: thus, I note again that there is no "legal requirement that the business to be conducted at a board meeting be specified in the notice of meeting" (Austin and Ramsay, (supra), at [7.320]). I also note the view, expressed in that connection in the authority that has been cited (as in Eastern Resources Of Australia Ltd v Glass Reinforced Products (GRP) Pty Ltd [1987] 2 Qd R 31, Connolly J at 36) in support of that view, La compagnie de Mayville v Whitley [1896] 1 Ch 788, per Lindley LJ at 797, that it is the "duty" of a director, at least when he or she is paid for their services, to go "when there is any business to be done".
Finally, I note again the urgency of the meeting in question.
I conclude that this was a case where notice at or just before the meeting itself was "reasonable". In that respect, I note also, as I did above, and do again below, that the second defendant does not deny that the first named fourth defendant indicated to her at the time of that notice (Liwszyc affidavit of 8 February 2006, at par 56) that, if she wished to attend, the first and second named fourth defendants would wait for her. I derive support for my conclusion here from Brown v La Trindad (1887) 37 Ch D 1, at 9 per Cotton LJ. Unlike that case, where the notice was given in writing left with the director "a few minutes" before the meeting, there is evidence the second defendant objected to the notice; however, there was here the offer to delay the meeting to which I have referred, and the urgency of the matters for the meeting.
This conclusion means I do not need to consider whether I need to exercise any authority I have to validate the appointment of the administrators notwithstanding that defect. However, in view of the argument addressed to me on the point, and in case I am in error on this last matter of reasonable notice, I turn to the submissions in relation to Act s 447A.

Application for an order under Act s 447A

Act s 447A(1), in Pt 5.3A, provides, as I have indicated earlier:
"The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company."
In my view it is established that an order may be made under s 447A(1) with the effect of validating the appointment of administrators: Re Pasdonnay (supra), Gyles J at [18] and authority cited there. Further, as Gyles J indicates, at that paragraph:
"Such an order technically operates only prospectively but the effect of it is that, once made, it is henceforth to be taken that the Act has the effect declared and so operates in respect of actions taken from the nominated date or event. In that sense, it has retrospective effect."
Any order made in this case should operate in respect of the resolution of 27 January 2006, and not the earlier one appointing an administrator, that on 11 January 2006. That is because of the failure of that earlier resolution to follow the form of s 436A, as I have indicated.
Invalidly appointed administrators have standing to seek such an order: Re Pasdonnay, (supra), Gyles J at [17], on Act s 447A(4)(f).
An order under s 447A(1) must be consistent with the objects of Pt 5.3A in s 435A: Re Ansett Australia Ltd and Mentha sub nom Ansett Australia Ltd (No 1) (2001) 115 FCR 376, Goldberg J, at [52].
In respect of the order sought in this case, I note the considerations that caused the Court in Re Pasdonnay, (supra), to make the order validating appointment that it did, Gyles J, at [20] and [21]:
"However, I came to the conclusion that making the order was in the interests of shareholders and creditors (including employees) and that the purposes of Pt 5.3A of the Act would be best served if it were made. The Company was trading but there was a real possibility that it was insolvent. That was not desirable. It may well be that sale of the business as a going concern would be in the best interests of all concerned. Administration under Pt 5.3A serves that purpose by enabling business to continue whilst the position is urgently investigated and analysed and alternatives proposed for the future of the Company. That process is well advanced. The second meeting of creditors will take place in the near future. There has been no suggestion from any creditor (including SDS) that the plaintiffs are not carrying out their duties in a competent and professional manner. It would be potentially disruptive to the affairs of the Company for there to be the capacity to challenge the validity of that which has occurred in the administration to date.
There are various mechanisms by which creditors, ASIC and the Court can supervise an administration. There is a committee of creditors (s 436F). The meeting of creditors decides the future of the company, assisted by a report from the administrators (ss 439A, 439B, 439C). The Court has wide powers of supervision and control (eg ss 447A, 447B, 447D and 447E), together with the power of removal (s 449B). Furthermore, creditors and the Court have control over the remuneration of administrators (s 449E). ASIC and other bodies may have disciplinary functions in relation to professional persons such as the plaintiffs. In my opinion, the shareholders, creditors and ASIC are better placed to assess the issues at stake, including the circumstances surrounding the purported appointment of the Administrators, than the Court."
While the Eznut company was not a trading concern on 27 January 2006, the immediate purpose for the appointment of the administrators was the need to take action to protect the company's intellectual property, which was of course essential to its capacity to do business. That need arose out of the circumstances I previously described, which in my view establish the real possibility of the insolvency of the Eznut company, in circumstances where the company was, by virtue of the positions taken by those concerned with its affairs, facing the real prospect that that possibility could not be dealt with short of a winding up otherwise than through a voluntary administration. I note in particular the duty of the administrator to investigate the company's affairs and form an opinion on the matters in s 438A.
Further, in this case even at this early stage of the administration actions have been taken under it to pay the amount needed to preserve at least one set of the Eznut company's patent applications, as well as to investigate the affairs of the company and to hold the first creditor’s meeting, which the second defendant attended: McMaster affidavit of 8 February 2006, par 12. There have been the funds provided by way of indemnity for the expenditures of the administrators as I have explained.
I have already referred to and dealt with the arguments the administrators were not able to act competently in this administration during that early stage. To the extent that such matters might arise subsequently, there are the remedies available described in that quotation from Pasdonnay.
Finally, I note my conclusion earlier that the matter of appointment of an administrator at the meeting of 27 January 2006 was one in respect of which it was reasonable to expect the second defendant would not attend the meeting.
I note again that the Smolarek affidavit of 27 February 2006, par 102, indicates that when she was informed of the meeting at about 2 pm, she:
"… expressed my outrage at the oppressive manner I was invited to the meeting that left me no option but to decline …"
However, I also note again she does not deny that the first named fourth defendant indicated to her at that time (Liwszyc affidavit of 8 February 2006, at par 56) that, if she wished to attend, the first and second named fourth defendants would wait for her.
Further, there is no indication in the evidence before me that her attendance would have changed the result.
Accordingly I have concluded there is no relevant prejudice to any party here from the making of the order sought under s 447A(1). I repeat what I said earlier about the possibility for action to be taken in respect of the administration as the quotation from Pasdonnay, (supra), indicates.
However, as I have also indicated, I do not consider I need to make such an order under s 447A(1) in this case.

Conclusion and orders

I conclude that I should make the order sought under Act s 447C sought by the plaintiffs in their originating process at "2". I will hear from the parties as to the terms of that order.
I note that the plaintiffs also seek their costs as against the second defendant only. While the third defendant took a role in the hearing before me, it was very much a supporting one. In those circumstances, it seems to me that a costs order as sought by the plaintiffs is the appropriate one to make in the circumstances.