McVeigh v Merlo

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST

No. 6681 of 2003

IN THE MATTER OF REMMINGTON GROUP PTY LTD (IN LIQUIDATION) ACN 069 635 463

DEAN ROYSTON McVEIGH and PETER JOHN MORRIS	Plaintiffs
V
FEDERICO ANTONIO MERLO and ANNARITA MERLO	Defendants

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JUDGE:	Hansen J
WHERE HELD:	Melbourne
DATE OF HEARING:	22 and 23 September 2003
DATE OF JUDGMENT:	7 April 2004
CASE MAY BE CITED AS:	McVeigh v Merlo
MEDIUM NEUTRAL CITATION:	[2004] VSC 107

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CORPORATIONS – Administration – Whether appointment valid – Corporations Act 2001 s 447A and s 1322(4)(a)

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr T J North SC and Mr M J Galvin	Deacons
For the First Defendant	Mr G J Parncutt	Comlaw
For the Second Defendant	Mr S J Maiden	Mantello Lawyers

HIS HONOUR:

This is another case in which orders are sought to cure a defect in the appointment of administrators, who are now the liquidators of the subject company, arising from the fact that their appointment as administrators was resolved upon by a sole director when the articles of association required a quorum of two directors. The curative orders are sought under s 447A and s 1322 of the Corporations Act 2001 ("the Act").

The liquidators are Dean Royston McVeigh and Peter John Morris. They carry on practice as registered liquidators under the name Foremans, McVeigh from premises at Sandringham in Victoria, and Morris from premises at Cairns in Queensland. They were appointed as administrators on 4 April 2003 and become liquidators on 8 May 2003 when the creditors resolved that the company be wound up.

The defendants are Federico Merlo and Annarita Merlo. Federico is sued as being an appropriate contender against the relief sought by the liquidators. His position as such derives from his opposition to the endeavours of the liquidators to obtain books and records of the company and take possession of the property at Buffalo River Road referred to below, and from a claim that he had been appointed trustee of the Merlo Family Trust by a deed of appointment of substitute trustee signed on 4 February 2003[1]. Federico accepted the role of contender with alacrity, as demonstrated by the endeavour with which his lawyers opposed the application. Annarita was represented by counsel but only in relation to her giving evidence; he did not make submissions.
[1]See the affidavit of Fiona Murray affirmed on 15 December 2003 and filed in proceeding 5920 of 2003 referring to an affidavit of Federico sworn in that proceeding.

The subject company is Remmington Group Pty Ltd ("Remmington" or "the company"), which was registered in Victoria on 30 May 1985. When Remmington was registered, the law required that a proprietary company have two directors. Articles of association have been produced by the solicitor for the first defendant[2], which the liquidators accept, at least for the purpose of this case, were the articles in force at the time of their appointment. Articles 73 and 74 provided:

"73. At a meeting of directors, the number of directors whose presence is necessary to constitute a quorum is such number as is determined by the directors and, unless so determined, is 2.
74. In the event of a vacancy or vacancies in the office of a director or offices of directors, the remaining directors may act but, if the number of remaining directors is not sufficient to constitute a quorum at a meeting of directors, they may act only for the purpose of increasing the number of directors to a number sufficient to constitute such a quorum or of convening a general meeting of the company."

[2]Exhibit CL1 to the affidavit of Charles Leonidas sworn on 2 July 2003 and filed in proceeding 5920 of 2003, which affidavit is Exhibit DRM20 to the affidavit of Dean Royston McVeigh sworn on 11 July 2003.

The requirement that a proprietary company have two directors was changed to a requirement of at least one director on 9 December 1995[3].
[3]The amendment was made by the First Corporate Law Simplification Act 1995, Schedule 4, s 25 which substituted a new section 221 in the Corporations Law. See now the Corporations Act 2001, s 201A(1).

Since the day following registration of the company, a married couple, Annarita Merlo and Paul Peter Merlo, were the directors and secretaries of the company and held the twelve issued shares as to six shares each. They lived at a tobacco farming property at 1235 Buffalo River Road, Myrtleford[4]. Federico and Paul are brothers.
[4]In affidavits Paul has referred to the property as being located at 1750 Buffalo River Road. It is the same property that is referred to. Any difference in the road numbering was not suggested as being relevant to the determination of the application, and may be disregarded.

In April 2001 Paul and Annarita attended at the office of the company’s accountant, B K Taylor & Co, in Melbourne and saw the principal Barry Keith Taylor. While there Paul signed papers whereby he resigned as a director and secretary of the company and transferred his shares to his sister Ivana Loretta Michellini. Paul did this because he had been, or was to be, charged with offences against the Commonwealth in connection with the sale of tobacco in relation to which, it would appear, excise duty was not paid, and wished to distance himself from assets. In an affidavit which he swore on 6 August 2002 Paul stated that he was being sued by the Australian Taxation Office for about $2M for unpaid taxes and penalties[5]. Paul was convicted and sentenced to four months' imprisonment on, it appears, 29 April 2003[6].
[5]This affidavit was sworn for the purpose of, and was filed in, the proceeding between Annarita and Paul in the Family Court of Australia which is referred to later in the judgment.
[6]See the Notice of Suspension of Producer Licence Excise Act, in Exhibit DRM19 to the affidavit of Dean Royston McVeigh sworn 11 July 2003; cf para 2 of the affidavit of Joseph Acquaro sworn 12 May 2003 and filed in the proceeding in the Family Court in which it is stated that the sentence commenced on 24 March 2003.

Since Paul resigned as a director, Annarita has been the sole director and secretary of the company.

In January 2002 Annarita and Paul separated, Annarita leaving the matrimonial home at the Buffalo River Road property with the child of the marriage.

Remmington acted as trustee of the Merlo Family Trust ("the Trust"). In his said affidavit sworn on 6 August 2002, Paul said that Remmington had been appointed trustee "several years ago". He had not been able to locate a copy of the trust deed, but he was the appointer under it and the beneficiaries included his mother, himself, his brother Federico, and his wife and daughter. The Buffalo River Road property was held in his name on trust for the Trust. The property comprised a residence and a farm on which "my family grow tobacco". The Trust owned the Buffalo River property, "farm equipment and ute", motor vehicles including a Mitsubishi Challenger which he drove on the farm and a Ford Telstar which he and Annarita drove, and a business called "Price Attack". I interpolate that Price Attack was a franchise business which sold hair care and cosmetic products at a shop at the Wodonga Plaza Shopping Centre in Wodonga

In his said affidavit Paul referred to liabilities of the Trust. These were, as I understand his affidavit, a mortgage (called "the Palmer Mortgage") secured by the Buffalo River property and a block of land in Myrtleford owned by Annarita and himself; a first mortgage on his mother's home in Myrtleford; a lease agreement for a Mitsubishi Challenger; a lease agreement for a Ford Telstar; and leases of farm plant and equipment ("the Bidgee leases"). He referred to the establishment of the Price Attack business in 1995, and to related costs, to an initial loan for the purpose of setting up the business from the ANZ Bank secured by the Buffalo River property, and which was re-financed in 1996 by the Palmer Mortgage, and to machinery leases with Bidgee Finance to fully repay the ANZ Bank. The purchase by Annarita and Paul of the block in Myrtleford was incorporated into the Palmer Mortgage. The Price Attack shop was further renovated in 1998 and in June 2000 the accounting system was upgraded funded by income from the farm. Annarita became more involved with running the Price Attack business. The Remmington bank accounts were changed from the ANZ to the Bendigo Bank in 1998 at which time one account was set up with the Bendigo Bank from which the following transactions took place: all EFTPOS transactions from the Price Attack shop; all income from the farm was deposited to the account; all farm expenses were paid from the account; and some Price Attack employee wages and superannuation were paid from the account or the Price Attack business account. The latter account, the Price Attack business account, was conducted with Hume Building Society and carried the following transactions: the takings of the Price Attack business were deposited to the account; stock purchases were paid from the account; and some Price Attack employee wages and superannuation were paid from the account. When the Bendigo Bank Price Attack account was set up, a number of debts were paid by direct debit from the account including the mortgage on his mother's home, and the Bidgee leases. He said that it was critical that the Price Attack business continued to trade and pay the various expenses. He said that prior to their separation, the Price Attack business paid "all our expenses". If the Price Attack business failed to continue to pay the expenses listed in paragraphs 31 to 34 of his affidavit then: Remmington will quickly become a company trading whilst insolvent; the mortgagee bank will probably sell the Buffalo River Road property and Annarita and Paul's Myrtleford block to recover funds owed to the bank; and he and Annarita will be in danger of becoming bankrupt. While I have regard to all of the affidavit, the above is a sufficient reference to it for present purposes.

In July 2002 Annarita filed an application in the Family Court for a property settlement. Paul's affidavit which I have referred to above was filed in that proceeding. In a further affidavit he filed in that proceeding, which he swore on 10 September 2002, Paul repeated verbatim the contents of his 6 August 2002 affidavit and added some further matters.

The latest financial statements of Remmington as trustee of the Trust produced before me were for the year ended 30 June 2001. They were prepared by Remmington's accountants, B K Taylor & Co. Taylor, a certified practising accountant of long experience, said in evidence that he had been the accountant for Remmington since 5 February 1999 until the appointment of the administrators to the company. The registered office of Remmington had been transferred to his office on 5 February 1999. The above accounts were prepared by his office on the basis of information received. They include a separate trading, profit and loss statement for Price Attack and the Farm. The profit and loss statements stated the following as the operating profit/loss before income tax:

2001 2000

Price Attack  $ 22,955 $40,272

Farm  ($125,125) ($15,542)

Consolidated  ($102,170) $24,730

Depreciation was claimed in both statements, the amount being higher for the Farm than for Price Attack. The balance sheet and the depreciation schedule indicate a number of items of plant and equipment for Price Attack and the Farm and hire purchase liabilities. The balance sheet recorded an excess of liabilities over assets of $184,102 for the year ended 30 June 2001 and $81,931 for the preceding year. The financial reports reflect that Remmington conducted the Price Attack and Farm businesses. Paul's affidavit is consistent with this.

Following their separation, Annarita tried to keep the Price Attack business going but it was not long before she experienced difficulty in paying the bills. In or about June 2002 her family's accountant, Gary Weir Samson, was requested by her father to advise Annarita as to the financial position of the Price Attack business. He commenced to help her in July/August 2002. After ascertaining the financial position as best he could he advised her that the company was unable to pay its debts as they fell due, or was insolvent. In these circumstances he advised her as to her responsibilities, and possible liability for debts, as a director, and that she should wind up the business as a matter of urgency. Acting on the advice Annarita closed the business in September 2002. She accepted advice of Samson that the stock on hand be consigned to Adelaide for sale through Price Attack outlets owned by her family. The stock was accordingly consigned to Adelaide. On Paul making objection to the stock being disposed of in this way orders were made in the Family Court at Melbourne, by consent, which resulted in the stock being transported to Melbourne on or about 23 September 2002 and stored at a storage facility known as Fort Knox. To facilitate the closure of the business and enable the carriage of the stock to Adelaide, Samson obtained a loan of $4000 from Thomas James Harper which was applied as to $2,500 in payment of the entitlements of an employee of the Price Attack business and as to $560 in cartage of the stock. The stock was consigned to Adelaide and Melbourne in Harper’s name, he acting on the basis that he had a lien over the stock. Samson paid the balance of $960 to Harper.

It is now convenient to refer to certain interim orders made by the Family Court, commencing with the order which required the delivery of the Price Attack stock to Melbourne.

On 17 September 2002 Watt J, made orders by consent which, apart from directions, included the following:

"3.The wife cause to be delivered to Fort Knox Storage, Stud Road, Knox in the State of Victoria as soon as reasonably practicable:
(a)all stock previously located at shop 41, Wodonga Plaza Shopping Centre, Elgin Street, Wodonga, Victoria ("Price Attack");

(b) all fittings previously located at Price Attack; and
(c)all cash registers and point of sale machines and records previously located at Price Attack,

such goods to be stored in the joint names of the husband and the wife and to be available to be inspected by or on behalf of either party in the company of the inspecting party's solicitor only.
4.The first period under the storage agreement be paid for by the wife (ie, one week or one month) and for each second such period thereafter and the husband shall be responsible for payment of the storage charges for each intervening period, the parties to be at liberty to argue as to who should bear the whole of the costs at a later stage in these proceedings.
5.Until 4.00 pm on 30 September 2002 the wife through herself, her agents and in her capacity as director of the company Remmington Group Pty Ltd ("Remmington") both in its own capacity and trading as "Price Attack Wodonga" is hereby restrained from:
(a) further encumbering:
(i)the property known as and situated at RMB 1750 Buffalo River Road, Myrtleford ("the Buffalo River property"); or
(ii)the property known as and situated on the corner of Lawrence Street and Mummery Road in Myrtleford ("the Town property").

(b)subleasing or licensing the property at Shop 41, Wodonga Plaza, Elgin Street, Wodonga.
(c)removing, selling or otherwise disposing of any of the contents of the Buffalo River Property including, but not limited to, household chattels and farm equipment.
(d)removing, selling or otherwise disposing of the property including stock and fittings at Shop 41, Wodonga Plaza Shopping Centre, Elgin Street, Wodonga, Victoria ("Price Attack") other than in the ordinary course of business.
(e)selling or otherwise disposing of or encumbering or diminishing the value of any shareholding in any corporate entity in which the wife has an interest either as a shareholder or director including, but not limited to:
(i)Remmington Group Pty Ltd;
(ii)Blackbird Nominees Pty Ltd; and
(iii)Price Attack Franchising Pty Ltd.

(f)altering the shareholding or directorship or de facto control of the Remmington Group Pty Ltd.
(g)damaging or otherwise diminishing the value of the properties including:
(i)the Buffalo River Property;
(ii)the Town Property;
(iii)Price Attack.

(h)depleting any bank account in which the parties have an interest save for that required in the ordinary course of business of Price Attack and for the payment of the following debts:
(i)payment of outstanding GST accounts;
(ii)payment of outstanding employee superannuation accounts;
(iii)payment of further GST as it becomes due and payable;
(iv)payment of future employee superannuation as it becomes due and payable;
(v)payment of the Bendigo Bank mortgage BSB 633 000 Account number 97054720 secured by the property located at 12 O'Donnell Avenue, Myrtleford.

(i)incurring any or other debts in the name of Remmington and/or Price Attack or extending the personal indebtedness of the husband in his capacity as guarantor in respect of borrowings by Remmington and/or Price Attack.
(j)from acquiring any other asset in the name of Remmington if the said acquisition is to be undertaken by extending or drawing down on any credit facility in the name of the company secured by Price Attack, the Buffalo River property or the Town property.
(k)from drawing down or further debiting any loan account which the husband may have had in the said company.
(l)from doing any other act or thing which may negatively impact on the husband's ultimate property entitlements in this matter."

The "Town Property" was the block of land owned by Annarita and Paul.

On 7 October 2002 a number of orders were made by consent by Frederico J in the Family Court. Insofar as the Price Attack stock was concerned it was ordered:

"4.That the parties forthwith engage an independent accountant or stock liquidation agent to settle or dispose of the 'Price Attack' stock currently in storage at Fort Knox storage.
5.That the accountant or stock liquidation agent shall be appointed by agreement between the husband's solicitor and the wife's solicitor.
6.That the proceeds of the sale of the 'Price Attack' stock shall be distributed follows:
(a)Firstly, in payment of all reasonable sale costs, including the costs of the appointed accountant or stock liquidation agent;
(b)Secondly, in payment of all debts of the Price Attack business as directed by the said accountant, including but not limited to GST, employee entitlements, superannuation and stock creditors;
(c)Thirdly, the balance to be held on trust by Westminster Lawyers pending agreement or order of this Court."

Westminster Lawyers were solicitors for Paul Merlo. A series of other orders and directions were made, including the continuation until 11 December 2002 of order 5 of the orders made on 17 September 2002, and there were restraints affecting Paul including from removing Remmington as trustee of the Merlo Family Trust, from dealing in specified assets and generally from dealing with, disposing of or encumbering any assets in the Trust.

On 11 December 2002 further consent orders were made which, among other things, ordered the parties to attend a conciliation conference on 4 April 2003 and continued the injunctions and orders made on 7 October 2002 until further order.

It is now necessary to refer to subsequent events up to the filing of the present application on 11 July 2003.

Before doing so it is convenient to mention who gave evidence. In addition to their own affidavits, the liquidators relied on affidavits by Annarita and Samson. Each deponent was cross-examined. The first defendant, Federico, relied on affidavits by his solicitor Charles Leonidas, his brother Paul, and Taylor. Evidence was also given by Harper who had not sworn an affidavit. Taylor alone was cross-examined. Federico did not give evidence. There were numerous exhibits to the affidavits which, together with the affidavits, filled two lever arch files. Several additional documents were tendered during the trial.

It might have been supposed, by a person possessed of a reasonable mind, that the parties would have appointed someone immediately in order that the stock might be sold upon its delivery to Melbourne. It was in the interests of both parties to sell the stock on the best terms reasonably available, and it might have been supposed that it was better to sell the stock sooner rather than later. Even if the items of cost referred to in order 6 of the orders made on 7 October 2002 were not immediately known, the stock could have been sold and the proceeds of sale placed in an interest bearing account.

Under the orders made on 17 September 2002 Annarita was required to pay the first period of storage. It appears from a letter from Paul's solicitors, Westminster Lawyers, dated 10 October 2002 that the period was one month. Annarita said in evidence that she could not afford to pay her share of the charges and that she did not do so. I accept her evidence.

By their letter dated 10 October 2002 Paul's solicitors enclosed documentation provided by Fort Knox, and noted that the stock was uninsured and that Annarita had not paid storage for the first month. The failure to pay the storage charge meant that neither party could access the goods. The letter requested a breakdown of the list of creditors Annarita had annexed to an affidavit, stating that the breakdown was required "prior to any accountant or stock liquidation agent attempting to distribute stock and manage the issue of the Price Attack debts incurred by your client as director of Remmington". The letter continued with this observation:

"Our client sees that your client has a number of issues including:
1.Trading as a director of Remmington Group Pty Ltd whilst Price Attack, an arm of Remmington Group was insolvent.
2.That as Trustee of the Merlo Family Trust, Remmington Group Pty Ltd has not acted in the best interests of the beneficiaries or the trust itself since the date of separation."

The letter concluded with a request for Annarita's proposal as to paying the monies to free up the stock for distribution, and her proposal as to an appropriate independent accountant to distribute the stock.

In the meantime Samson sought to assist Annarita by trying to find a person who would accept appointment as administrator of the company. The difficulty was to find a person who would accept appointment without payment of fees in advance as Annarita, neither personally or by recourse to the company, was able to provide funds to cover the costs of administration. Samson suggested Sothertons and on 9 December 2002 Mantello Lawyers wrote to that firm seeking advice as to the expenses of Sothertons if they undertook the administration of the company.

Also on 9 December 2002 Mantello Lawyers sent a facsimile to Westminster Lawyers confirming "that it is necessary to appoint an administrator for the company Remmington Group Pty Ltd in view of pressing creditors and demands being made and the personal liabilities which would more than probably arise for both parties. Provided that there is no objection we wish to appoint Mr Cascone from Sothertons … "

Sothertons declined to act.

On 4 February 2003 Acquaro & Co, solicitors, who had commenced acting for Paul, wrote to Mantello Lawyers enclosing two civil complaints in the Magistrates' Court by suppliers against Remmington trading as Price Attack, the amounts claimed being $2,165.58 by L'Oreal Australia Pty Ltd for goods sold and delivered in April to May 2002 and $1,080.94 by Style Essentials Pty Ltd for goods sold and delivered in August 2002. The letter suggested that Mantello Lawyers file and serve defences to avoid judgment being entered against the company. There is evidence that judgment was entered in the Style Essentials matter on 24 February 2003. It may be inferred that judgment was similarly obtained in the L'Oreal matter.

In March 2003 Samson recommended to Annarita the firm Foremans as insolvency experts who, based on their preliminary assessment of the company did not require payment of fees in advance or any outside funding for their appointment. Other firms which had been consulted, including Sothertons, were not willing to act on those terms, and Annarita was otherwise unable to provide funding from her own or the company's resources.

Foremans being prepared to be appointed as administrators, and Annarita being of the view that there was no alternative other than to appoint administrators to sort out the debts of Remmington, she proposed to appoint Morris and McVeigh as administrators. On 28 March 2003 Mantello Lawyers wrote to Acquaro & Co advising that:

"Our client has been able to engage the services of Foremans … who are prepared to take over administration of the company Remmington Group, deferring payment of their fees until liquidation of assets. Fort Knox has been advised and we require your urgent confirmation that this can proceed so that the stock can be sold in accordance with the Court Orders and our client's liability as director limited."

On the morning of 4 April 2003, and prior to the conciliation conference, Annarita met McVeigh, together with Samson, in Melbourne where she was for the purpose of attending that conference. In her capacity as the director of Remmington she resolved that in her opinion the company was insolvent or was likely to become insolvent at some future time, and further resolved that the company appoint McVeigh and Morris as joint and several administrators pursuant to s 436 of the Act[7], and that she execute an instrument of their appointment. She signed a written minute of a meeting of directors which set out the resolutions. Then, McVeigh and Morris having consented in writing to their appointment, Annarita signed an instrument appointing them as administrators.
[7]The relevant section, to which the resolution plainly intended to refer, was s 436A.

On 4 April McVeigh attended to the formalities of the appointment and commenced to investigate the company's business, property, affairs and financial circumstances in accordance with s 438A of the Act, and requested Annarita as the director to provide a statement about these matters in accordance with s 438B.

The appointment of the administrators was not advised to Paul's lawyers at the conciliation conference on 4 April.

On 8 April McVeigh sent letters requesting information and the books and records of the company to various people including B K Taylor and Co and Barry Taylor; Heslop and McLeish, accountants in Wangaratta; Michael Hay, bookkeeper; and Brian McMahon, solicitor.

By notice dated 8 April 2003 McVeigh convened the first meeting of creditors pursuant to s 436C of the Act for 11 April 2003.

On 8 April 2003 Acquaro & Co wrote to Mantello Lawyers, advising that the appointment of Foremans was not approved and stating that:

"[O]ur understanding of the Orders are that the stock relating to Price Attack are to be liquidated and not the company. The liquidation of Remmington Pty Ltd will result in more than the stock being liquidated. In this regard we remind you of your client's undertakings in relation to the preservation of assets.
We are instructed to nominate Mike Bent & Co which firm specialises in the liquidation of stock …
We would also be pleased to receive a list of outstanding creditors relevant to Price Attack which includes any liability payable or anticipated to the ATO, so that we can assess the anticipated shortfall or gain from the sale of all stock."

The first creditors meeting was held on 11 April. There being no proposal for a committee of creditors or that another person be appointed as administrator, they being the only two items of business for such a meeting (s 436E), the meeting concluded without any resolution. That is, no vote was required at the meeting. The attendance register records 31 creditors of which 29 (including the Australian Taxation Office) had provided an informal proof of debt for voting purposes but none of whom were physically present; the other two persons who had provided informal proofs of debt were Annarita's father and brother respectively and they were represented by their accountant and proxy, Samson. Annarita did not attend the meeting.

On 14 April 2003 staff of the liquidator attended at the Buffalo River Road property to take an inventory of assets and photograph the buildings. There is evidence that Federico, who is engaged on the farm, advised Paul of this event. In his evidence Paul said that on 14 April he was contacted by a solicitor, McMahon, who informed him that an administrator had been appointed to the company. McMahon also contacted Joseph Acquaro of Acquaro & Co with the same advice on 14 April. A subsequent search of the records of the Australian Securities and Investments Commission concerning the company disclosed the appointment of administrators.

On 14 April Acquaro & Co wrote to Mantello Lawyers querying if they knew who had attended the property, objecting to the appointment of a liquidator for the company, requiring a response to their letter dated 8 April, and giving notice that an injunction would be sought to restrain any nomination of a liquidator.

Mantello Lawyers replied by letter on 15 April stating that:

"We refer to your previous correspondence and advise that our client is not intending to breach the Court Injunction. To this end we have faxed the past Court Orders to Foremans notifying them of priority to liquidate the stock of Price Attack and otherwise if they are to administer or are instructed by our client to liquidate the company any such action taken can not be in breach of the current Orders. We have also requested from Foremans that they contact us to confirm what action they are in fact taking on our client's instructions. As soon as we receive full details we shall notify you."

Later that morning Acquaro & Co sent a response to Mantello Lawyers drawing attention to orders 4 and 5 of the 7 October orders and requesting the immediate withdrawal of Foremans instructions to proceed and to confirm that had been done, by noon that day. Failing such confirmation, and Foremans’ files being made available in that time, an urgent application would be made to restrain Foremans from acting.

On 15 April Mantello Lawyers duly wrote to Foremans enclosing the letter from Acquaro & Co, the Family Court orders of 17 September and 7 October and other correspondence. On 16 April Deacons, as solicitors for Foremans, wrote to Mantello Lawyers in response. The letter referred to the administrators' control of the company's business, property and affairs, and their powers, under s 437A and s 437C. Deacons saw no reason to advise Foremans they were constrained by the orders in performing their obligations and exercising their powers with respect to the assets of the company. It was pointed out that Foremans were not susceptible to instructions from their client in relation to the discharge of their responsibilities as administrators. It was noted, in relation to a request that the administration or liquidation of the company will not breach any orders which bind Annarita, that the orders did not bind the administrators who were, in any event, not her servants or agents. Finally, Deacons were instructed that the administrators intended to sell the stock of the Price Attack business without regard to the wishes of their client or of Acquaro & Co's client.

In his affidavit sworn on 25 August 2003 Paul, after referring to the Mantello Lawyers letter dated 15 April, stated that he then formed the opinion that Annarita was seeking to frustrate the 7 October orders. Accordingly, on 16 April Acquaro & Co wrote to Foremans stating, among other things, their belief that the appointment of administrators was uncalled for and was designed to frustrate the Family Court proceedings, referring in that respect to the orders concerning the sale of the Price Attack stock, which orders did not contemplate the appointment of an administrator; noting that a brief was being prepared for an application in the Family Court or the Supreme Court to seek orders setting aside the appointment and/or restraining them from continuing to act; and requesting an undertaking that the administrators not take any further action until the issues had been adjudicated.

On 17 April Deacons replied to the letter from Acquaro & Co. It was stated that the company "is clearly insolvent", that Paul is not an officer, member or creditor of the company, and that Acquaro & Co's letter did not identify any ground on which it could be alleged that the administration should end and did not assert or demonstrate that the company is solvent. The letter also referred to the administrators' control of the company by virtue of s 437A, stated that it was not for the administrators to justify or substantiate their appointment, and that they were unable to give an undertaking not to act as they had responsibilities under the Act. In that situation any interest he might have in the assets of the company was subordinate to the rights of the creditors.

Later on the 17^th, Acquaro & Co sent a facsimile to Deacons advising that they also acted for Michellini. It was stated that the company is trustee of the Trust and that Paul is the appointer of the Trust. It was contended that it was implicit in the 7 October orders that Annarita not undertake any action that adversely affected the matrimonial assets directly or indirectly. Paul became aware of Foremans as administrators around 13 April and Michellini had not been informed of any meeting to resolve on their appointment. A response was requested as to how and on what basis the company was placed in administration. Until the appointment was demonstrated as being valid their clients and other members of the Merlo family would not accept the appointment, and the administrators should desist from attending the farm property.

In a reply later on 17 April, Deacons referred to s 435C of the Act which specified how the administration may end. It was stated, correctly, that it was not open to the administrators to withdraw from their role.

By a notice to creditors dated 1 May 2003 the administrators convened the second meeting of creditors pursuant to s 439A of the Act for 8 May 2003. In their report accompanying the notice of meeting, the administrators referred, among other things, to having been disrupted in their attempts to obtain the company's books and records from its bookkeeper who had claimed to have received legal advice not to cooperate[8]. It was further stated by the administrators, among other things, that no proposal had been put forward that could form the basis of a deed of company arrangement, that the company was insolvent and was not trading, and that winding up was recommended.
[8]For the administrator's right to receive the books and records see s 438C.

On 2 May 2003 Deacons wrote to Acquaro & Co noting that Paul was registered as proprietor of certain land which he held on trust for the Merlo Family Trust, and that Remmington was entitled to be indemnified out of Trust assets for the liabilities incurred by it as trustee and that it had a lien over Trust assets accordingly. Therefore, and reserving the position as to proprietorship of the land, Paul was on notice that his interest was postponed to the interest of the company, which was insolvent.

Also on 2 May, Mantello Lawyers wrote to Acquaro & Co responding "for the record" on certain matters.

The second meeting of creditors was duly held on 8 May. The creditors resolved that the company be wound up and that Morris and McVeigh be appointed joint and several liquidators. It was further resolved that the remunerations of the administrators be fixed at $45,695.50 and that a committee of inspection be formed consisting of Samson and Harper. The resolutions were passed on the voice, there was no contest and no poll. The attendance register varied from the first meeting as follows. Thirty seven creditors were noted, six being additional to those listed for the first meeting. Those six included Annarita for $68,470, Harper for an unspecified amount although his informal proof of debt is for $3,060, and Samson for $17,160. Annarita's father and brother were listed but in a nil amount claimed.

Later on 8 May Deacons wrote to D G Skinner & Associates, solicitors for Federico, with reference to a letter from that firm dated 7 May, advising of the creditor's resolution that the company be wound up. The letter referred to the liquidators' duty to take the property of the company into their custody or control, including the land, the farm business and the associated fixtures, fittings, plant and equipment. An undertaking had been sought from Federico on 2 and 6 May 2003, but it had not been given. The liquidator sought that Federico not take any step to prevent them from taking control of the assets and undertaking of the company and threatened an application for an injunction and other orders unless an undertaking was provided. The letter also requested an account in relation to the farm business and for the name of the witness to a purported deed of appointment of Federico as trustee of the Trust.

Finally on 8 May, Acquaro informed Deacons that the liquidation of the company was sabotaging the proceedings in the Family Court and that he would bring an application for injunctive relief the next day. On 9 May Deacons wrote to Acquaro & Co confirming that the company was placed in liquidation the previous day and requesting notice of any application.

On 12 May an application was filed on behalf of Paul in the Family Court seeking orders pursuant to s 106B of the Family Law Act or by way of enforcement of paras 4 and 5 of the 7 October orders to the effect that:

(a)Annarita revoke the appointment of Foremans as administrators and/or liquidators of Remmington;
(b)McVeigh and Morris be restrained until further order from exercising any powers conferred upon an administrator and/or liquidator by the Act;
(c)That Annarita, McVeigh and Morris be restrained until further order from disposing of, encumbering, or reducing the interests of the parties in property owned by Remmington and/or the Trust;
(d)Annarita, McVeigh and Morris produce for inspection all documents in their possession, power or control relating to Remmington and the Trust;
(e)Annarita indemnify Remmington in relation to all costs incurred by it in relation to the appointment of the administrators/liquidators.

The application was supported by an affidavit sworn by Acquaro. Among other things, in his affidavit he said that para 12 of the 7 October orders may have been entered in error as Remmington may not have been the trustee of the Trust at 7 October. That matter was "being pursued".

The application was heard by Dessau J. The application was opposed, separate counsel appearing for the liquidators. Dessau J gave judgment on 22 May 2003. The applicant had sought production of documents and then an adjournment to consider them. In the result, Dessau J made certain orders and otherwise adjourned the application to the Registrar's Duty List on 23 June 2003. Dessau J refused to make an order in the interim restraining the liquidators from performing their duties. The orders that were made included an order that the liquidators produce certain documents. That order was stayed pending the filing of an application by the liquidators seeking leave to appeal and upon the filing of such an application, the stay was to continue until determined by the Court. The liquidators have been granted leave to appeal and, as I understand it, the appeal is pending. I assume that pending the hearing and determination of the appeal, the order against the liquidators remains subject to a stay. In these circumstances it is reasonable to assume that the application has not been further pressed.

As the application is before the Family Court I say little about it. However, the application that Annarita revoke the appointment of Foremans as administrators or liquidators is misconceived. The circumstances in which an administration may end are stated in s 435C of the Act. But the company is in liquidation and, that being the case, the relevant provision is s 482 of the Act which makes provision for the Court, on application by the liquidator, a creditor or contributory, to stay the winding up indefinitely or for a limited time or to terminate the winding up on a day specified in the order. On such an application the Court would ordinarily require evidence as to the liabilities and assets of the company, the position of creditors, and satisfaction that the creditors and the costs and expenses of the liquidator and other liabilities were paid or otherwise appropriately provided for, together with evidence of any other relevant circumstances. The Court has a discretion to be exercised in light of all the relevant circumstances. In other words, the stay or termination of a winding up is a matter for the Court. In making these observations I do not overlook the fact that in this particular case there is an initial question arising from the defect in the appointment of the administrators. My observation concerns only the competence of the application for revocation of the appointment in terms of principle. I am prompted to make these observations because of misconceptions in the submissions of counsel for Federico before me, and in the hope that some assistance might be provided to those concerned with that interest.

On 1 June 2003 the liquidators filed an originating process in proceeding number 5920 of 2003 in this Court seeking, as against Paul, Federico and Annarita as defendants, a number of orders and declarations as to the liquidators entitlement to the books and records of the company including their delivery up; injunctions restraining Federico from preventing the liquidators from taking control of the assets of the company; an order for delivery up of the farm property, fixtures, fittings, plant and equipment, books and records and other assets of the farm business; a declaration that the company is entitled to be registered as the proprietor of the land as trustee for the Trust and related alternative relief; a declaration that a deed of variation of trust dated 4 February 2003 is void; a declaration that the company as trustee of the Trust is entitled to be indemnified out of the assets of the Trust for liabilities incurred as trustee; and a declaration that any interest of Annarita in the land is postponed to the interest of the company as trustee of the Trust.

This proceeding gave rise to a number of directions hearings. On 6 June I ordered that Paul and Federico be restrained from dealing with the land, any fixtures, fittings, plant and equipment used in connection with the farm business, and any crops or produce of the land and business otherwise than in the ordinary course of business, and from altering the books and records of the business; and ordered the defendants to deliver up the books and records of Remmington by 4.00 pm on 13 June. On 13 June Palmira Merlo, the mother of Paul and Federico, was added as a defendant, and similarly restrained from dealing with the farm assets. I also ordered that she and Federico permit the liquidators to inspect the books and records of the farm business. On 20 June the injunctions were continued until further order, and directions were made for affidavits, and points of claim and defence. Moving forward, on 19 December I ordered that Federico make discovery of the deed of removal of the trustee and appointment of a new trustee (of the Merlo Family Trust) dated 2 July 2002, and the deed of variation dated 4 February 2003 referred to in his affidavit sworn in the proceeding on 1 July 2003.

In the meantime, and pursuant to an order made on 4 July, the originating process had been amended substantially. While there are some additional claims, relief is still sought to the same purpose and effect as originally. It is only necessary to mention that one ground of additional relief sought curative orders under s 447A or s 1322 as are now sought in the present application.

In his affidavit Leonidas referred to an interlocutory process filed by Paul in proceeding 5920 of 2003 on 1 July 2003[9]. The interlocutory process sought a declaration that the resolutions passed by the company on 4 April 2003 were void and that the appointment was a nullity.
[9]The interlocutory process is not on the Court file but there is no dispute as to the existence of the interlocutory process and it was before me (as an interlocutory process of Palmira also) on 4 July 2003. I note in this respect that Federico's affidavit sworn 1 July 2003 is not on the Court file.

On 11 July 2003 points of defence and cross claim were filed on behalf of Federico and Palmira. The cross claim raised the contention that the appointment of the administrators was void because of the lack of a quorum when Annarita resolved on the appointment. In consequence, the appointment as liquidators was a nullity. Declarations were sought as to these matters. It is not necessary to refer to other allegations in the points of defence and cross claim concerning the ownership of the farm property and as to whom it was held in trust for. It is sufficient to note that a number of issues of fact and law are raised in that proceeding in addition to the application for orders to cure the defect in the appointment of the administrators.

Mindful of the time and cost that would be involved in the determination of the issues in proceeding 5920 of 2003, the liquidators filed the originating process in the present proceeding on 11 July 2003. The purpose was to obtain a decision on the application for curative orders without the extra time, cost and expense involved in the hearing of the various issues raised in proceeding 5920 of 2003. The advantages of this course, to all parties, seemed obvious, yet on 24 July Paul (by his solicitor Leonidas) filed an interlocutory process for an order that the proceeding be dismissed as vexatious or an abuse of process, or stayed. The complaint was that the proceeding was not necessary and that it duplicated costs in the first proceeding. I refused the application. The later originating process served to bring forward for decision, in a convenient way, the application for curative orders and the hearing of the application would be quicker and cheaper than the hearing of the first proceeding. Further, any question of waste or duplication of costs could be dealt with by appropriate orders. I was also influenced by the vexation and arguing that I was experiencing at directions hearings in the first proceeding.

The cases have clearly established the power to make curative orders of the nature sought by the liquidators. I was referred to many cases although it was recognised that the question whether to make orders is to be answered in light of the circumstances of the particular case. Following some decisions of single judges (Wagner v International Health Promotions (admin apptd)[10]; Gordon v Allied Meridian Pty Ltd[11]; Deputy Commission of Taxation v ACN 001 330 203 Pty Ltd (in liq)[12]), the High Court decided Australasian Memory Pty Ltd v Brien[13] in which the Court, in a joint judgment, considered the operation of s 447A. In that case the second meeting of creditors of a company under administration was held outside the time permitted by s 439A(2). At the meeting the creditors resolved to wind up the company. Then the liquidators served statutory demands which were set aside on the basis that the meeting had not been properly convened. The effect of s 435C(3)(g) was that the non-compliance with s 439A(2) meant that the administration had ended. The administrators then applied for orders pursuant to s 447A or s 1322 to overcome the effect of the non-compliance. The High Court dismissed an appeal from curative orders made in the Supreme Court of New South Wales. It was held that s 447A enabled an order to be made which altered the time fixed in s 439A(2), indeed of times generally in Pt 5.3A of the Act. The power is a wide one which permitted alterations to the way in which Pt 5.3A is to operate in relation to the subject company. At 279 the High Court said that:

" … the words of the provision are wide enough to confer power to make orders which will have effect in the future but which are occasioned by something that has been done (or not done) under the other provisions of Pt 5.3A before application is made under s 447A(1)."

[10](1994) 15 ACSR 419.

[11][1998] NSWSC 558.

[12][1999] NSWSC 798.

[13](2000) 200 CLR 270.

Later in the judgment, at 283, the High Court considered an argument of statutory construction concerned with accrued or vested rights and the operation of s 447A in that context. It was necessary to distinguish two kinds of case that may arise following termination of an administration, and to identify the circumstances in which rights may accrue in the period between the end of an administration and the making of an order varying the operation of Pt 5.3A in a way that would, in effect, reinstate the terminated administration. The two types of case were: first, where steps are taken by members or officers of the company, or by third parties, predicated upon the termination other than by entering into a deed of company arrangement or going into liquidation. Their Honours instanced trading of shares in the company, the directors resuming management and dealing with assets or otherwise acting on the assumption the administration had ended; secondly, where steps are taken that are predicated on the company having validly entered into a deed of company arrangement or gone into liquidation. In the second kind of case their Honours said at, 284:

"… there would be no inconsistency between the varied operation of Pt 5.3A and the rights that have accrued in the intervening period, if the order gave legal validity to the premise for the parties' conduct."

The present case is the second kind of case. Further, the present case is not the first kind of case.

A few weeks later Austin J gave judgment in Deputy Commissioner of Taxation v Portinex Pty Ltd[14]. In that case the company had resolved to appoint an administrator. The resolution was by a single director, acting on the basis that the articles for association had been changed to allow for the company to have one director. In fact that change had not been validly made with the result that the requirement in the articles that there be at least two directors and a quorum of two for a meeting of directors remained in force. As it was not complied with, the resolution to appoint the administrator was invalid. An order was sought under s 447A or s 1322 declaring that the appointment was not invalidated by reason of any contravention of the Corporations Law or the articles or by virtue of any defect in the appointment. Austin J discussed the operation of the sections and concluded that it was open to make curative orders under them. At [30] his Honour set out a number of propositions which emerge from the cases. Proposition 6 was that:

"The section may be used where, in taking a step required by Pt 5.3A (such as the execution of a deed of company arrangement), the company has failed to comply with its constitution."

At [32] His Honour concluded that Australasian Memory "is consistent with the use of s 447A to overcome the consequences of a defective resolution to appoint an administrator". His Honour concluded that s 447A could be used to overcome the deficiency in the appointment resulting from the lack of a quorum at the meeting at which it was resolved to appoint the administrator. After considering the facts Austin J concluded at [39] that it was appropriate to make orders under s 447A to the effect that Pt 5.3A is to operate in relation to the company as if the resolution of the board of directors was valid notwithstanding the absence of a quorum. Austin J further concluded that s 1322(4) authorised a declaration that the resolution was not invalid by reason of the contravention of the company's constitution.

[14](2000) 156 FLR 453; (2000) 34 ACSR 391.

A few months later in Re Inventive Marketing Pty Ltd[15], Warren J (as her Honour then was) considered a similar case. Again, an invalid attempt to adopt single director articles preceded the resolution for, and appointment of, an administrator by a single director. The administrator, who had become liquidator of the company, applied for orders validating his appointment as administrator. Warren J, considering and applying Australasian Memory and Portinex, granted relief under s 447A and s 1322. Relevant factors included that it had been intended to amend the articles, there was no evidence of prejudice to shareholders or creditors, the liquidator had acted honestly as to his appointment as an administrator, and the liquidation was almost complete.
[15](2000) 36 ACSR 206.

There have been a number of subsequent cases. In Shirlaw v Graham[16] Young CJ in Eq granted a curative order under s 447A where the defect was the failure of the directors to resolve in appropriate terms as to insolvency. At [14] his Honour referred to s 447A as "a plenary power", and to the statutory requirement that the Corporations Law be construed in a way that fulfilled the aim of the statute. Then there was Nagler v H Volski & Co Pty Ltd (in liq) (No 2)[17], ReSupreme Imports Pty Ltd (in liq); re De Vries[18] where orders were made to cure the defect resulting from a want of a quorum when the sole director resolved to appoint an administrator; ReContinental Pacific Insurance Co (Aust) Ltd[19] where orders were made to cure the defect in appointing an administrator arising from the want of a quorum and where, in fact, and contrary to the requirement of the Act and the constitution, there was only one director; ReWood Parsons Pty Ltd (in liq)[20] where administrators had been appointed by invalidly appointed directors and curative orders were made; and Panasystems Pty Ltd v Voodoo Tech Pty Ltd[21] in which orders were made where the directors, in appointing an administrator, had not resolved to the effect of s 436A(1)(a).
[16][2001] NSWSC 612.
[17][2001] NSWSC 1106.
[18][2001] NSWSC 1209.
[19][2002] NSWSC 789.
[20](2002) 43 ACSR 257.
[21][2003] FCA 428.

It is apparent from the cases that s 447A and s 1322 provide power to make orders and declarations that would cure the defect in the appointment of the administrators arising from a failure to comply with the quorum provision (and to have two directors), if it were otherwise appropriate to do so having regard to the circumstances of the case.

The facts and matters upon which the liquidators relied may be summarised as follows:

(a)Annarita had a genuine belief, on reasonable grounds, that she was entitled to act as a sole director including for the purpose of resolving to appoint an administrator.
(b)The liquidators had a genuine belief that Annarita was entitled to resolve upon the appointment.
(c)In this state of belief the second meeting of creditors was held and the creditors resolved to wind up the company, and the liquidators entered upon the performance of their duties and commenced the first proceeding.
(d)Notwithstanding the endeavours of the administrators/liquidators to obtain the books and records of the company, they had been frustrated in those attempts by the Merlos, and the apparent articles for association were not produced until the provision of the Leonidas affidavit sworn 2 July 2003.
(e)There is no evidence that the company is solvent. Federico has avoided the issue.
(f)There is no evidence of prejudice to creditors or the shareholders. In particular, there is no evidence that Paul is a creditor, and his sister gave no evidence whether as to prejudice as a shareholder or at all.
(g)It would be of advantage to the creditors to have liquidators represent their interest and be able to investigate the affairs of the company and, in relation thereto, take such steps and exercise power as a liquidator may in accordance with the Act. That was important in the context of what may appear to be shifting sands on the Merlo side as to ownership of the farm property and business, and the identity of the trustee.
(h)The liquidators, both as such and as administrators, had acted correctly in accordance with their duties and powers under the Act.

The written[22] and oral submissions of counsel for Federico may be summarised as follows:
[22]See the first defendant's amended outline of submissions dated 22 September 2003 and the "First Defendant's Proposition" provided in argument on 23 September 2003, each of which are on the Court file.

(a)In light of their knowledge of the 7 October order of the Family Court, the liquidators’ assertion that their appointment emanated from a belief in the insolvency of the company was disingenuous when the clear intention of the Family Court Orders was only to sell the Price Attack stock to pay the creditors. Instead of seeking to be engaged as an independent accountant to sell or dispose of the Price Attack stock the plaintiffs actively pursued a course of conduct in contravention of the Family Court Orders. In the circumstances there had been a contumelious disregard of the orders of the Family Court.
(b)The plaintiffs should have considered whether, in view of its date of registration, Remmington was a two director company. It was not reasonable for them to believe that the articles required only one director for the passing of a board resolution and that Annarita was the sole director.
(c)The liquidators commenced the Supreme Court proceedings for an improper purpose, namely to stifle the discovery of documents in the Family Court pursuant to the order made on 22 May 2003. Further, in seeking validation of their appointment, the liquidators are seeking to present the Family Court with a fait accompli as to their appointment and defeat any application by Paul to set aside the appointment since the matter would be res judicata.
(d)The liquidators are taking instructions from Annarita. This was evidenced by Mantello Lawyers letter to Acquaro & Co dated 15 April 2003. The liquidators were apprised of the need only to sell the stock and not to liquidate the company but they chose the latter course on the "instructions" of Annarita.
(e)McVeigh permitted Samson to vote at the second meeting of creditors when he was not a creditor of the company.
(f)In his affidavit McVeigh provided a list of creditors as evidence of the purported insolvency of the company. There was some duplication of amounts. The total amount owed was approximately $30,200.

(g) There was sufficient stock to pay all of the existing creditors of the company.
(h)Annarita had caused the company to be wound up when the Family Court had ordered that only the stock be sold to pay the debts of the company. If the Family Court order had been complied with the company would have no creditors since they would have been paid from the proceeds of sale of the stock of the company.
(i)The decision of Annarita was made for an improper purpose, namely to circumvent the Family Court order. See Kazar v DUU[23]. This submission of improper purpose was refined by counsel in the course of his final address and, as refined, set out in writing in the "First Defendant's Proposition" provided to me after the lunch adjournment on 23 September 2003. The proposition or propositions were stated as follows:

[23](1998) 29 ACSR 321 at 335.
·    The appointment of the administrators was made for the purpose of allowing Annarita to wrest control of the assets of the company from the jurisdiction of the Family Court, where the parties were disputing the ownership of the purported assets of the company, to a liquidator. As shown by their letter dated 15 April 2003, her solicitors perceived that the administrators were subject to her instruction.
·    The benefit to Annarita was that she thereby circumvented the order restraining her from altering the de facto control of the company and dealing with the assets, whereas the Family Court Orders were designed to maintain the assets in order that the parties share of matrimonial property be determined in accordance with family law principles. Annarita's benefit was that she had defeated that purpose.
·    Not being aware of the financial position of the company as a whole, Annarita could not form a belief as to solvency of the company, and nor did she. She had an ulterior purpose or objective of wresting control of the assets of the company from the jurisdiction of the Family Court.

(j)        Relief should be refused as a matter of discretion because:
·    The liquidation is not at an advanced stage.
·    The administrators cannot be said to have acted honestly upon a genuine belief as to the validity of their appointment.
·    Validation of the appointment would aid Annarita to usurp the Family Court Orders which, if complied with, would have resulted in the creditors being paid in full.
·    The Family Court is seized of the matter.
·    The Family Court should supervise its own orders, and validation of the appointment in the face of non-compliance with the orders of the Family Court undermines the rule of law.
·    The opinion as to the insolvency of the company was not bona fide and genuinely formed.
·    The power to appoint an administrator was exercised for the purpose, solely or substantially, of frustrating the Family Court order to enable a collateral attack in this Court on the assets held in Paul's name. That was an improper purpose and the exercise of the power was thus vitiated.

In thus setting out the submissions I have regard to all that was otherwise said by counsel both orally and in writing.

The submissions raise issues of fact and do so in a way that requires me to set out the evidence, and then to make findings.

I commence by referring to Annarita's evidence, although when possible I will not refer to matters already mentioned or which are not in dispute. Commencing with her affidavit, she managed the Price Attack shop until the business closed in September 2002. She had never had a role in the management or operation of the tobacco farm although for a short time she was the company's bookkeeper and carried out some manual labour on the farm. Paul controlled the company's financial affairs and allowed her limited knowledge of them. Mail was received at Taylor's office or at the farm and Paul opened it.

At the meeting at Taylor's office in April 2001 she was presented with documents for signing and Paul said he w as resigning as a director and secretary, and transferred his shares to his sister. She argued with him. He said that he had been charged with criminal offences and wanted to distance himself from assets. She was reluctant to sign the documents until Taylor assured her that she would be sole director and empowered to make decisions concerning the company. The company's registered office continued to be at Taylor's office and its principal place of business at 1235 Buffalo River Road where Paul and (from December 2002) Federico live. She occasionally received mail redirected to her by the company's bookkeeper Michael Hay but otherwise, to her best knowledge, the company's mail and other documents were retained by Taylor or at the farmhouse at Myrtleford.

She had never attended a formal meeting of directors or shareholders of Remmington, and was not aware of any having been held. The liquidators' solicitors had asked her about the company's articles of association, but she did not know what they are. To the best of her recollection, she had never seen them. While, during the marriage, she had signed documents at her husband's request, formal meetings had not been held.

As to obtaining advice from Samson regarding Price Attack's financial position, she had been receiving demands from creditors of the business and was concerned that some of the revenue from it was being applied towards the operation of the tobacco farm rather than being applied in payment of Price Attack creditors. In particular, the cash flow generated by the Price Attack business was being used to pay farm debts and payments in respect of a mortgage over the property where Paul's mother lived. In the course of his investigations Samson informed her that he had written to B K Taylor & Co requesting information as to the company's financial position, but had not received a response.

Around September 2002 she became concerned as to her liability as the only director of Remmington. She was constantly being harassed by creditors. On or about 9 September 2002 Samson attended the business premises of Price Attack and examined the financial records available there, including invoices and statements from creditors as well as Business Activity Statements which she had received from B K Taylor & Co and which had not been completed. Samson advised that it appeared to him that the business was insolvent and that she might be breaching the Act and that she risked incurring personal liability if the company continued to fail to pay its debts. He told her to place the company into administration and advised her that she should wind up the business urgently. It was then that she resolved to transfer the balance of the Price Attack stock to Adelaide.

After the closure of the Price Attack business, Paul continued to receive notices from creditors of Price Attack addressed to the registered office of Remmington or to the address recorded as the company's principal place of business, which notices were occasionally passed on to her. Further, Paul's solicitors wrote the letter dated 10 October 2002 in which they refer to her trading as a director of Remmington whilst Price Attack was insolvent. (I have referred already to the other correspondence that occurred between the parties and to the recommendation to appoint Foremans as administrators.) By 4 April 2003 Annarita said that she was of the view that there was no alternative other than to appoint administrators to sort out the debts of Remmington. The Price Attack business had ceased trading and she could not meet the demands of the suppliers of stock, and the company's banks were declining to meet cheques drawn in the normal course of the business. As the company's correspondence went to Paul's address she found it difficult to make an informed decision on the state of the business. By 4 April 2003 she had received copies of a number of letters of demand, complaints issued in the Magistrates' Court of Victoria and the District Court of New South Wales, and default notices from financiers. After discussing these matters with Samson, she had become very worried about her personal liability for the company's debts. Accordingly, on 4 April 2003 she resolved as to insolvency and appointed the administrator.

Annarita was cross-examined at some length by counsel for Federico in the course of which, and in the submissions in final address, her evidence and actions were attacked in several respects. In view of that, it is necessary to refer to the relevant parts of her cross-examination. She said that she ran the Price Attack business daily, managing staff and ordering stock but her husband was the controller of all the businesses. She was not told of finances or things like that. There was a computer at the farm which had the MYOB software, and she would type in information and send a floppy disk to B K Taylor & Co from time to time. Following the separation in January 2002 she ran the Price Attack business by herself but did not have access to the computer at the farm "so there was no running of the business as far as accounts go, I had no knowledge of what was happening as far as finances go other than a few bank statements but they were still being delivered to the home address in Myrtleford. All correspondence was being delivered to the home address in Myrtleford". All she received were statements from creditors but any ATO matters or tax matters went to B K Taylor & Co or the firm, as did most of the bank statements because that was the address on the bank's records. B K Taylor & Co did not send her information that they received. She received the quarterly BAS statement but basically had no figures, all she had was her own account and the daily takings of the shop. For that reason the BAS statements were not completed. But she knew the financial position of the company "because of the demands I was getting from creditors and I was having a lot of trouble paying bills and so I knew I was in trouble because I wasn't able to meet payments". She was referring there to creditors of the Price Attack business. There was not enough money from the takings of the Price Attack business to pay the creditors. Other monies were coming into the shop in other ways, by cash coming through the shop through Paul and Federico; she did not know on account of what. She would arrive at work and there would be an envelope of money that needed to be banked but Federico would usually drop in and it was banked through the shop. In other words the bank account of the business was used by other people in the Merlo family for reasons she was not aware of. This money was usually drawn out to pay farm accounts, and other amounts as to which she instanced farm accounts such as leases and the mother's property. She then said that once that money stopped coming in the business of Price Attack was under a lot of pressure because it still had to pay "all those leases plus the mother's home with the takings and it just wasn't meeting that demand as far as stock, paying for stock and paying for the running of the farm". She was asked whether she had an overall view of the company's position and said that all she knew was that she was under a lot of pressure to pay the shop bills and that she could not pay them.

Annarita was then taken to an affidavit she had sworn in the Family Court proceeding on 26 September 2002, in particular to para 3(o) in which she stated that "as far as I am aware the only debts of the business Price Attack that are outstanding are as follows" and she then referred to GST of approximately $20,000, future employee superannuation contributions estimated to be about $2,000, and trade creditors approximately $30,000. She was then referred to the next paragraph in the affidavit in which she stated that "as far as I am aware the remaining stock of the business is worth about $50,000 to $60,000", which she said were "just rough estimates".

As to the engagement of Samson, she described being distraught about having to pay bills and fearing for herself personally because she was raising a child on her own and was frightened of the creditors and rang her father, who spoke to Samson.

It was Samson's idea to transport the stock to Adelaide. The stock was going to be sold through her family's Price Attack stores "because it was the only way I could get rid of the stock in one lump delivery". She said that Samson did not advise her on her matrimonial matter. She was not sure how the stock was brought back, it was done through Samson and her family because she did not have the money to pay for it to come back. She was aware of the orders made on 17 September 2002. At the time when the 7 October order was made she was advised that as a director of the company she was doing the wrong thing if she did not pay her creditors. That is what she wanted to do. She feared going to gaol, "so all I wanted to do was pay the debts that the company had incurred and the only way that I could do it was to sell the stock". When she shut the shop down her whole intention was to sell the stock to clear herself as a director of the company and pay the debts that the company had incurred. When the stock was returned to Fort Knox she told her solicitor that there was no way she could meet the payment plus raise the child on her own and she had no financial back up, hence she could not pay the rent for the storage of the stock. She added that Paul was not paying rent either, that there were letters of demand from Fort Knox that were redirected to her from the Buffalo River Road property, or whatever address it was addressed to, it was coming back to her. In addition, there were summonses, letters of demand and telephone calls from creditors. She referred to the mail going to her husband's address and that "he was redirecting Sheriffs and everybody back to me, then he didn't want to know about paying any of the debts off and wasn't doing anything forthwith as far as what we were going to do with the stock", and felt that the responsibility lay with her as the director of the company. At the end of the day "all I worried about was my interests and my daughter's" and not ending up in gaol. She also referred to the stock becoming obsolete. She did not have the money to be able to afford a solicitor and barrister, like Paul, and to be able to keep going back to court. When asked if it occurred to her that she should go back to court she answered that what occurred to her was that "I was doing something very wrong as a director of a company, [Samson] advised me that I … was breaking the law", that was what she was interested in at the time. She was a director of a company and raising a child on her own. It did not cross her mind that she was not complying with orders of the Family Court.

In answer to questions to what records she had kept Annarita referred to the computer at the matrimonial home having the MYOB system into which she fed in invoices and payments and sent the floppy disk to B K Taylor & Co. She did not really keep books. The daily sales in the Price Attack business were all on the computer. The point of sale at the shop was a computer which was linked up to the home computer, thus meaning that Paul had access to that information because it was linked up. In addition she kept wage records and bank deposit books. She could say the business was making a loss because it could not pay its bills. She was in 90 days on most accounts so she could not reorder stock and the shop was looking shabby.

As to the meeting at Taylor's office in April 2001, there had not been discussion prior to the meeting. When she was asked to sign documents she asked Taylor to leave the office so that she could have a discussion with Paul as to what was happening with Remmington. She was surprised at what Paul had said. Paul did not wish to make his sister a director. Annarita was the sole director and was assured by Taylor that she was the sole director and that "I had full control over the company as a sole director". He also said that there was a signed document from Michellini in his safe that signed over the shares to her should Paul drop dead. She added that "Mr Taylor told me I was the sole director that now that companies could have one director because my argument was in my ignorance that you had to have two directors for a company and he said, no, the law has changed, you can have one. You have full control as a sole director. She is only a shareholder". She had raised the issue of two directors because until then Paul and herself were the directors, and why all of a sudden could there only be one, Paul always led her to believe that you needed two directors to run a company. She went on to say that "I was told and believed that you only needed one director to run a company because I again, was informed by an accountant, B K Taylor & Co and my husband that one director was fine and it was all legal and above board and I had full control". It was a very important issue to her because she did not get along with Paul's sister and did not really want the sister's name anywhere on any document that entailed her marriage and the welfare of her daughter.

Annarita was asked questions about her informal proof of debt lodged for the purpose of the second meeting of creditors. I interpolate that the informal proof stated that the amount claimed was for employee entitlements, third party liability (company creditors) and loans – the balance of funds not drawn and credited to loan account. She said that she considered the business owed her wages. It is appropriate to interpolate further in relation to this informal proof of debt, that any amount that the company might owe her was not relevant to her decision to appoint administrators. That decision was based on indebtedness to external creditors and the inability to pay the debts of the business as they fell due.

It is convenient to next refer to the evidence of Samson, commencing with his affidavit. In order to advise Annarita concerning the financial status of the Price Attack business he wrote to B K Taylor & Co and requested information concerning the financial status of the company. He requested copies of the company statutory books and of the trust deed appointing Remmington trustee of the Merlo Family Trust. He never received any company records or formal response to his correspondence from B K Taylor & Co. On or about 9 September 2002 he attended the premises of Price Attack and examined the financial records available there. They were not complete as Remmington's registered address remained care of B K Taylor & Co and its trading address care of the farm in Myrtleford, so a lot of the correspondence to the company was not available at the Price Attack premises.

From his examination of what was available, it appeared that there were outstanding trade creditors totalling $27,000 and in that respect he referred to six named creditors and noted that there were in addition a number of other smaller creditors. He was advised by Annarita that one creditor would no longer provide the business with credit to purchase stock and had required her to make payments of at least $500 per month to reduce the outstanding balance owed to it. There were reminder letters from the Australian Taxation Office from which it was apparent that the company had not lodged a number of Business Activity Statements under the GST legislation. He contacted the manager of the Wodonga Plaza Shopping Centre and spoke to Mr Harris who informed him that the lease had expired on 16 August 2001 and that Mrs Merlo had been permitted to hold over as a monthly tenant provided she met the monthly rent of $4,200. Samson advised Mrs Merlo that it would be in her interest to vacate the premises. At about the same time Mrs Merlo had been advised by the franchisors of Price Attack that if she wanted to renew the franchise she would have to pay a renewal fee of $50,000 and would be required to refit the shop premises. Other Price Attack franchisees advised Samson that the cost of refitting the premises could be as much as $100,000. Following his examination of the affairs of the business he advised Mrs Merlo that she should wind it up as a matter of some urgency. The only credit in the business's bank account was $667 in the Bendigo Bank, which sum was insufficient to meet the outstanding liabilities to staff. He recommended that the remaining stock be consigned to South Australia and sold in order to meet staff liabilities. He was aware that Mrs Merlo's extended family operated two Price Attack franchises and would therefore be in a position to dispose of the stock in an orderly manner. He advised Mrs Merlo that as director of Remmington she might be in breach of the Act if she were to allow it to continue to incur debts which it was unable to pay. He told her that she risked incurring personal liability if the company continued to fail to pay its debts and that the responsible thing for her to do as Remmington's sole director was to place the company into administration. In or about March 2003 while he was in Cairns for business purposes and speaking to a local solicitor, Glen Walker, Peter Morris of Foremans was recommended as an accountant with experience in dealing with insolvent companies and who had an associated colleague based in Melbourne. He spoke to Annarita who instructed him to ask Walker to communicate with Morris so that an administrator could be appointed. Samson met Morris on 28 March 2003 and, after being provided with some materials, Morris advised that Foremans would consider being appointed administrators without the need for outside or private funding. The administrators were appointed on 4 April 2003.

Moving on, McVeigh denied that it was ever purported to him, or that he ever understood, that his appointment had anything to do with the independent accountant or stock liquidator referred to in the order of 7 October. It was never put to him like that and he did not think of it like that. On the material before him the director believed that the company was insolvent and had a duty to do something about it. That was the basis upon which the appointment was taken. The director was given material in relation to voluntary administration and its ramifications and had the advice of a competent insolvency lawyer and of an accountant.

I now turn to the evidence relied upon by Federico. It is unnecessary to refer to the affidavit of Leonidas. It was sworn in support of the interlocutory process which sought that the proceeding be stayed or dismissed as an abuse of process. Harper gave brief evidence and was not cross-examined. I have already referred to his involvement. It is unnecessary to refer again to his evidence. The other witnesses were Paul Merlo and Taylor. Paul was not cross-examined but his affidavit was relied upon and I now refer to it.

In his affidavit Paul said that Remmington had never owned a farm, the farm referred to by Annarita is the farm registered in his name, which is run by him. He said that Annarita was in charge of all bookkeeping from around 1982 and that she participated in all management decisions concerning the farm and banking transactions including loans. She was wrong in her belief that she was allowed only limited knowledge of the company's financial affairs. B K Taylor & Co were the accountants for the company and for Paul and Annarita.

He said that prior to meeting Barry Taylor in April 2001, he discussed with Annarita the prospect of his sister being appointed as a director in his stead, and said that Annarita became very agitated at the suggestion and objected to it saying his sister was aggressive and could not be trusted. As he had a serious task to convince Annarita to allow his sister to take over his role in the company, he invited her and their daughter to travel to Melbourne for the weekend prior to seeing Taylor on the Monday to resign from the company. They met Taylor and he told him that he wanted to appoint his sister as a director in his stead. Paul said that Annarita and he became so animated that it was decided they should leave the office and adjourn to the coffee lounge downstairs to sort out the matter. They finally reached an agreement that if she was not going to agree to the appointment of his sister as a director she would at least agree to the transfer of shares to her. They compromised their differences by her agreeing to him transferring his shares to his sister on condition that his sister would not be a director of the company. Once agreement was reached he passed across a document for her to sign which she believed was connected with the transfer of shares. Annarita and he returned to Taylor's office and handed a signed document to him without sitting down and left immediately.

Paul then turned to the closure of the Price Attack business, saying that on or about 13 September he was told by Barry Marsden, the person administering the superannuation fund of the employees of the business, that the shop had closed and that the stock had gone as well as the shop fittings. He became aware that the stock was being carted to Adelaide, that the forwarding agent had received instructions from Samson, and he thereupon sought orders in the Family Court for the return of the stock, fittings and property previously located at the shop. He referred to the orders of 17 September, to the return of the stock, and to the further orders made in the Family Court, and to items of correspondence which have been referred to previously in this judgment.

I now refer to Taylor's evidence. In his affidavit Taylor said that he had read Annarita's affidavit and noted that there were several matters which she deposed to which refer to him and his firm which were wholly untrue. One respect was her assertion that the company's address was always the address of B K Taylor & Co whereas it did not commence to be the registered office until 5 February 1999. More importantly, Taylor took issue with her evidence as to the meeting in April 2001. He said that Mr and Mrs Merlo attended his office on 23 April 2001. He recalled Mr Merlo suggested that because of his prospective inability to act as a director on account of charges against him, that he wished to replace himself as a director with his sister and transfer his share in the company to his sister. Mrs Merlo was not happy with this decision and to satisfy her he decided to only transfer his share and not appoint his sister as the other director.

Taylor said it was wholly untrue to say that he asked her to sign documents so that she would be the company's sole director and would be empowered to make decisions concerning the company. He recalled that there was no discussion concerning her role in the company or her ability to be "empowered" to make decisions concerning the company. The only matter discussed was the removal of Mr Merlo as a director and shareholder. He specifically recalled that the consequences of his removal from the company were not discussed. He recalled that there was no discussion of the so called "empowering" of Mrs Merlo to make decisions on behalf of the company, as Mr and Mrs Merlo were an estranged couple at the time and he was unaware of what private arrangements they had made between themselves for the conduct of the Price Attack business being run by Mrs Merlo and whether she had a partner to replace Mr Merlo. He also formed the opinion at the time that Mrs Merlo would be distancing herself from her husband and he expected her to engage an accountant who she would perceive as being better able to look after her sole interests.

In some short oral evidence in chief Taylor gave evidence confirmatory of his affidavit and stated that no documents were prepared at the time of the meeting. He was then cross-examined. He said that documents were prepared after the meeting but that prior to the meeting no documents had been prepared. After the meeting he prepared documents removing Mr Merlo as a director and transferring his share to his sister. There was a minute of him resigning as a director and there was also the form required under the Act to advise of the change of directors. He filed with the Australian Investments and Securities Commission the form notifying the change of directors. Taylor said, in relation to the meeting, that it was strained, that they had been seeking independent legal advice, and that he did not think it was his duty to discuss the matter of there being only one director. He said he "was just obeying instructions". Leading up to the events of 23 April 2001 he was liaising with Paul. He had some conversations with Annarita, they prepared her personal tax return, "but the actual dealings of the company were through Paul Merlo". He was asked as to the information on the company's extract obtained from the Australian Securities and Investments Commission, and confirmed that it stated the farming property was still the principal place of business, and that it stated that the notification was filed on 23 April 2001 with the date of cessation as a director as 12 April 2001. He was asked whether the resignation which was prepared after the meeting on 23 April was back dated to 12 April 2001. He could not recall, it appeared to him to be the case but he could not recall. From memory he understood that Paul Merlo resigned as a director on the 23^rd. His recollection was that he had resigned there and then, so that the document which was filed did not accord with his memory.

Taylor was asked whether he thought to say to Mrs Merlo, how do you do this because it is a two director company? Taylor said he had not, adding that "they had both been seeking independent legal advice. I mean, there had been other things happening; there had been a transfer of trusteeship, there had been – and I am not sure that the memorandum and articles hadn't been changed to allow for a one director company. I mean, they were both receiving independent advice". He said that he did not see it as part of his role to give any advice or warn Paul Merlo of the sole directorship. Nor did he think it was part of his role to warn Annarita that there might be a problem with her being a sole director. He said he had been an accountant for 30 years. I asked him whether it had crossed his mind and he replied "well, they had both – I believed they had both been – they had both obviously been to solicitors …". I pointed out that the company was meant to have two directors and could not operate without two, to which he said "I wasn't sure if changes had taken place to make …". I asked him if he had pointed that out to which he said no he had not. I then asked him why not and he said "well, at the time it was a strained meeting, both had obviously been getting separate legal advice, I had noticed that there had been a change of trusteeship of the company and I didn't give them that advice. The answer is, no, I didn't". I asked him if it had occurred to him to do so and he said that he did not think that was his job at that point of time. He was acting as an accountant, "I was asked to do a job and I did that job". He was to continue to be the accountant but he had not done any accounting function since that time. He continued to liaise with Paul after 23 April, but not with Annarita. He acknowledged that Samson had written to get access to documents on behalf of Annarita and that he had not responded. He said that the farming part of information for accounting purposes came from Paul. There had been no doubt in his mind that the farming business was operated by Remmington as trustee of the Merlo Family Trust. Finally, I asked Taylor whether he gave any consideration as to how Mrs Merlo was to exercise the powers of a director when she was a sole director. He said he had not, adding that there were no discussions at all regarding her duties or that she had sole power or anything such as that.

That completes the reference to the evidence. I have found it necessary, or considered it desirable, to refer to the evidence at this length in view of certain of the submissions made by counsel for Federico. He submitted that I should find Taylor was a witness of truth and accept his evidence, that I should conclude that Samson was not a witness of truth, that Annarita's evidence as to the meeting with Taylor was not true, and that McVeigh and Morris had totally disregarded the position of companies in 1995.

Annarita impressed me as a witness. She is an intelligent person and gave her evidence with conviction, attending to the questions, and with evident sincerity and depth of feeling. I accept her evidence as that of a truthful person. In his final address counsel for Federico submitted that I should not accept her evidence that Taylor told her that the company only needed one director and that she was in full control. Counsel gave as the reason for not accepting that evidence that it differed from the statement in her affidavit that Taylor told her she was empowered to make decisions concerning the company. I observed to counsel then, and I find now, that what she said there was to the effect of what she said in cross-examination. The difference was pedantic. Nevertheless, counsel submitted that the evidence in cross-examination was recent invention, and went on to submit that Taylor appeared to be a witness of truth. Putting the matter of Taylor aside for a moment, I reject the suggestion of recent invention. That deals with the point made by counsel in his final address as to why I should not accept her evidence.

Samson was attacked by Federico's counsel as not being a witness of truth, and advanced some reasons to establish the submission. They are set out in the transcript. I reject each reason. None merits further consideration. I reject counsel's submission. I find that Samson sought to and did assist Annarita, who as the director of the company had been placed in an awkward situation, to the best of his ability, that he did what he could and advised her sensibly and appropriately in light of the information available to him. Samson was an honest witness and I accept his evidence.

I also find that the liquidators were witnesses of truth. The submission against them was that they had totally disregarded the position as to the number of directors required by the Corporations Law in 1995. He said that Morris did not get in the articles of association and that McVeigh relied on having been told that there was a single director. None of this was good enough, as part of their due diligence they should have looked into the fact whether their appointment was proper. It seemed to me that counsel failed to have regard to the need for a prompt decision whether to accept an appointment, and to the evidence that pointed to the company being a single director company. Further, Annarita did not possess the articles and it can be seen from subsequent events that it might have taken months for a set to be produced, if at all. If the case is one appropriate to appoint an administrator, and that is because of present or likely insolvency, a director cannot defer acting for any appreciable time just because the articles are not presently available. In my view there is no substance in the submission. I find that in considering and accepting the appointment the liquidators acted in an appropriate and responsible manner in the circumstances.

I find the liquidators to be witnesses of truth who were then, and have at all times been, attentive to their responsibilities, duties and powers as such under the Act. I reject as entirely without substance the allegation that they have acted on the instructions of Annarita or her lawyers. I find the contrary to be the case, that McVeigh and Morris have at all times acted independently of all parties, conformably and in accordance with their duties and powers under the Act. The allegation as to acting on instructions was based on no more than the reference to instructions in the letter of Mantello Lawyers dated 15 April 2003[24], as distinct from evidence as to whether in any particular respect the administrators had acted on instructions of Annarita and not on the basis of their own independent judgment.
[24]See at [39].

Harper was called by Federico's counsel. His evidence was short and corroborative of the financial position described by Samson and Annarita. He was not cross-examined. I accept his evidence.

I am required then by the submissions of Federico's counsel, to consider the evidence of Taylor. Federico's counsel submitted that Taylor appeared to be a witness of truth. The central point was whose evidence I should accept on the issue as to whether Taylor advised Annarita that as a sole director she could make decisions concerning the company. Unfortunately counsel left the submission in the air, so to speak. He did not identify reasons why I should prefer Taylor's evidence. Having considered the matter, I prefer the evidence of Annarita to that given by Taylor. Put bluntly, I do not accept his evidence. There are several reasons for this conclusion.

I was, I repeat, much impressed by Annarita when she gave evidence. I was not impressed by Taylor who I considered fell into the area of self justifying recollection. I find that Annarita had an accurate recollection of events, and particularly of the meeting in question. The meeting was most significant to her. It occurred at a time, I find, when the marital relationship was deteriorating. Financial matters were important to her. On the other hand, the meeting was but one event in what was doubtless a busy professional practice for Taylor, and he had no, or at least he produced no, note of the meeting. He swore positively as to the date of the meeting when it became apparent that he had no accurate memory of the date. He relied, I find, on the date of lodging of the notice of change of directors. There is no other reliable basis for him to have selected the 23^rd as the date of the meeting. Moreover, the lodged notice stated that Paul ceased to be a director on 12 April, and Paul and Annarita both say that the resignation was signified at the meeting. There is no evidence that Paul resigned on a date earlier than the meeting. Taylor's evidence that there were no documents for signing at the meeting is not consistent with the evidence of Paul and Annarita as to a document or documents. A further matter concerning Taylor is his failure – clearly deliberate – to aid Annarita as the director of the company, by responding to Samson's request for information. Taylor did not seek to explain or justify his conduct in this respect. He could not have done so. His conduct in this respect and in the content of his affidavit, manifested a bias to the interest of Paul.

There is a further and more fundamental concern that I have with Taylor's evidence. That is his evidence that he did not advise Annarita at all as to the ability to perform her duties as the sole director of the company. It is one thing for Taylor to observe that Mr and Mrs Merlo were "an estranged couple" but, let it be remembered, Taylor prepared their tax returns and was the company’s accountant and she was to go forward as the sole director with all the burdens and responsibilities of that office. How was she to perform this role? This was a two director company, and she, as I find, asked the question. Even if she had not asked as to her power, in my view Taylor should have had it in his mind to raise and advise her on the issue, unless of course the advice that Annarita said he gave reflected his state of mind. By what measure of competence in the performance of the duties of a professional adviser could he otherwise not have referred to the matter? I consider that his reference to Annarita having legal advice not to be a sufficient or appropriate basis for his alleged approach. In his evidence on the point Taylor obfuscated, and avoided saying whether at the time he was aware that the company required two directors. I was concerned that he had been aware that the company required two directors and that Annarita was misled. However, it is sufficient to hold, as I do, that I prefer the evidence of Annarita. Her evidence, in my view, reflects the approach that a responsible professional adviser would have taken in the circumstances. That is to say, on a client (as Annarita was both personally and in the capacity of a director of a client company, and to be the sole director of that client company) raising a point as to her power to act as a director, he advised her as he believed correct.

I find that Annarita thus left the meeting with the belief that she, as a sole director of the company, had the power to conduct the affairs of the company and to make all decisions required for its conduct.

Neither counsel made a particular submission concerning the evidence of Paul Merlo. I make allowance for the fact he was not cross-examined and that I did not have the benefit of cross-examination. In that respect it is pertinent to note that counsel for Federico called Taylor for oral evidence when the liquidators' counsel had said that he did not wish to cross-examine him. In effect, it seemed, counsel for Federico chanced his arm with Taylor. He did so having heard Annarita give her evidence, and doubtless realising the force of her evidence. For reasons already mentioned I prefer the evidence of Annarita where it conflicts with Paul's evidence. In my view the way in which Annarita was left to struggle on as sole director of the company, with all the attendant duties and risks, without Paul and Taylor, or whoever else on his side, assisting her with information to enable her to carry out her duties in accordance with the law, was deliberate and disgraceful. She was left to manage as she could with the full burden of directorial responsibility. Then, notwithstanding the letter of 10 October 2002 which referred to Annarita trading while Price Attack was insolvent, and the letter of 9 December advising that it was necessary to appoint an administrator, Paul made objection when an administrator was appointed. The change in attitude seemed perverse and must have been driven by tactical considerations in the Family Court proceedings as distinct from the required step of appointing an administrator. A most singular feature of Paul's affidavit, and of Federico's case, is the absence of evidence as to solvency of the company, or of prejudice to the creditors and members of the company. There is a void, which is unexplained, and in the presence of the evidence of insolvency, it is singular and must be advised. The inference is plain, and I draw it, that no evidence Paul, or his sister, or Federico, could have given would have put the financial position of the company in any better light than appears in the evidence in the liquidators' case.

I now conclude on the parties' submissions as follows. In short I accept as correct the submissions of the liquidators and reject those of Federico. Some elaboration is required.

As a result of advice at the meeting in April 2001 Annarita had a genuine belief, on reasonable grounds, that as a sole director she was entitled to conduct the company's affairs. I find that she had that belief when she appointed the administrator. Indeed it was only when the articles of association were produced in July that a reliable basis arose for questioning that belief.

I find that McVeigh and Morris had a genuine belief that Annarita was a sole director and as such had authority to appoint administrators. I find that the information before them, which in particular came from an accountant (Samson), a solicitor (Walker), the company extract, the Family Court affidavit evidence, and Annarita's desire to appoint an administrator, were sufficient to lead them to that view. Nothing indicated the contrary except, as Federico's counsel pointed out, that the company was registered at a time when the law required two directors and there was no evidence of a change in the articles. That is not to say that the articles had not been changed, but, it was submitted, the administrators should have made inquiries before accepting their appointment. In referring to the inquiries as a due diligence, the submission got carried away from the point of reality. As a matter of fact, the available evidence established insolvency and that the appointment of administrators, which should have been made as long ago as September 2002, should be made now. McVeigh and Morris had to make a practical judgment in light of the materials presented to them. In my view they were amply warranted in believing that Annarita had the power a sole director to make the appointment.

I find that Annarita appointed administrators for the proper reason that the company was insolvent or was likely to become insolvent. In fact, on the materials available to her she had no alternative but to do so and the appointment would properly have been made in September 2002.

The submission against her that she did not have a bona fide belief, genuinely formed, as to insolvency is utterly without merit or substance. I have sufficiently referred to what was before her. Counsel tried, unsuccessfully and on a basis that involved misreading the affidavit evidence of Annarita in particular and of Samson, to establish that what were estimates of debt and value of stock were actual hard and fast figures. The attempt entirely failed, not only because they were estimates but because Annarita, despite reasonable endeavours, had not been given information by Paul or Taylor as to enable the overall debt position to be more particularly assessed. That is, Annarita was being kept out of information which as the director she was entitled to. I find that she formed her belief to the best of her ability in light of what she knew.

Furthermore, even while attacking Annarita and Samson's evidence in this way, the affidavits of Paul and Taylor were silent as to the debts. As mentioned, they avoided the issue of solvency.

Part of the attack on Annarita was to contend that the Price Attack stock was of sufficient value to pay the debts of that business. The basis of the submission was an assertion that the estimated value was the actual value. It is plain that that was not a legitimate step. Further, counsel for Federico advanced no evidence as to the value of the stock or what had happened to it. He even said the stock had not been sold but when he was corrected on that, he accepted that the stock had been sold, but did not bother to seek, at least before me, any particulars as to the sale price. Then, I infer from McVeigh's evidence, the stock had turned out to be worth less than the debts.

It is necessary to take this point a little further. Counsel's submission actually was that the stock was sufficient to pay all of the existing creditors of the company. That is, the company and not merely the Price Attack business. The submission must be rejected. Not only was the stock not sufficient to pay the debts of the Price Attack business, it is plain that it was not sufficient to pay creditors of "the company" as that comprehends creditors of the company whether derived in relation to the farm business, the Price Attack business or otherwise. Further, counsel advanced no evidence to establish the proposition.

I note the submission as to McVeigh's affidavit having listed creditors of approximately $30,200. That was part only of the information that he had. For reasons already discussed, that reference does not establish that the company was not insolvent or that the value of the stock exceeded the value of the creditors.

Fundamental to Federico's opposition was the submission that Annarita had appointed administrators for an improper purpose. While the logic of the submission was not always as clear as it might have been, I have considered it carefully in light of the evidence. I reject the submission in all of its aspects. I find that Annarita made the appointment for the sole and correct reason that the company was insolvent or likely to become insolvent and in the proper performance of her duty as the director of the company, and in recognition of the duties and liabilities (actual and potential) to which she was exposed. The appointment of administrators was not the appointment of an accountant or stock liquidation agent pursuant to the Family Court order and neither Annarita nor the administrators considered that it was. The submission alleging as against the administrators (and Annarita presumably) that there had been a contumelious disregard of the Family Court orders was extravagant, utterly without factual substance, and I reject it.

Part of the submission was an assertion that Annarita appointed administrators for the purpose of wresting control of the assets of the company from the jurisdiction of the Family Court to a liquidator. Related to this was the submission that Annarita's solicitors perceived that the administrators were subject to her instructions, a point of no substance which I have dealt with already. The administrators/liquidators have acted independently, and been at pains by their solicitor's letters to point out their independent position. Apart from that empty point, the submission proceeds on a misconception.

The sole director of the company has exercised a power which she believed she had to appoint administrators in circumstances of corporate insolvency. The power was exercised for the purpose for which it was granted by the Act. For the director not to have made the appointment would have been foolhardy to the point of recklessness. Her responsibility was not merely to herself and to her liabilities, but to the creditors, neither of which seemed to be acknowledged as matters of concern by counsel's submissions. And creditors in this sense are the company's creditors, not merely those of the Price Attack business. The Family Court order of 7 October concerning the sale of the Price Attack stock comprehended in its terms only debts incurred in connection with the Price Attack business, but that was only one aspect of the company's business activities and, as such, the order (I emphasise made by consent) did not comprehend the entire situation. Nor did the order comprehend the fact of insolvency and the consequences in relation to that, under the Act. Further, no proposition had come from Paul as to a means by which Annarita could be vouched safe from liability as a director, or indemnified, if she did not appoint an administrator or exercise powers open to her to be exercised as the director of the company under the Act to deal with the situation of insolvency. The orders gave no protection to her in that respect. Of course, the Family Court could not indemnify Annarita if in consequence of apprehended compliance with its orders she did not act and was thus exposed to liability and suffered loss in consequence. It thus seemed a strange result if, as submitted by counsel for Federico, the order not to change de facto control of the company, meant, on its proper interpretation, that the powers of a director under Pt 5.3A of the Act (and, presumably, the powers of a director in relation, for example, to moving for winding up) were excluded and could not be exercised. I find it difficult to accept that a change of control resulting from the appointment of an administrator in the circumstance of insolvency was in the nature of the change that the order contemplated.

These reasons are sufficient to deal with a further submission that Paul had suffered a detriment because he had the benefit of the order restraining Annarita from dealing with the control of the company, and an order regulating the sale of the Price Attack stock. I add only that counsel's submission did not grasp or comprehend the significance of a company being insolvent, the position of a director in those circumstances, and the primary interest of creditors. The submission seemed to treat Paul, who is not a member, officer or creditor of the company, as possessing a superior interest to those considerations. He does not.

A further submission was that the liquidators had commenced the Supreme Court proceeding 5902 of 2003 for the purpose of stifling discovery of documents in the Family Court. That is false. The proceeding is patently seen as raising a number of serious questions for the purpose of establishing what are the assets of the Trust, of establishing the liquidators' entitlement to the books and records and assets of the Trust, and other matters. They are genuine issue. There are several defendants and the proceeding is being strongly contested. It is an appropriate proceeding in this Court. It is not a proceeding merely between a husband wife as parties to a matrimonial dispute. I reject the submission which, I might add, is unsupported by evidence. I also reject the submission as to presenting the Family Court with a fait accompli. The present application is appropriately brought forward in this Court and its resolution, by clarifying the status of the liquidators, can only be of assistance in whatever court a proceeding is brought.

There was an isolated point as to McVeigh permitting Samson to vote at the second meeting of creditors when he was not a creditor. The point gets nowhere. The resolutions at the second meeting were passed on the voices. There was no contest on the resolution. No question, and no doubt, was raised as to Samson's claim. There was no need for McVeigh to rule on Samson's informal proof of debt, and it made no difference. Further, the time for establishing whether a person is a creditor of the company has not yet arrived. The liquidators have not yet called for proofs of debt.

In my view the case is one in which curative orders may be made. I consider that none of the factors, considered separately or in combination, relied on by Federico warrant a refusal of the application in the exercise of discretion. It is correct that the liquidation has not reached an advanced stage. It has reached the stage that has been permitted by the opposition and blocking conduct of those on the Merlo side. In my view the case is overwhelmingly one that is appropriate for the exercise of discretion in favour of granting curative orders. It can only be to the advantage of the company and its creditors, and regularise what was intended to be the case, that curative orders are made. Being satisfied that it is appropriate to make orders under s 447A and s 1322(4)(a) I will order as follows. Under s 447A that Pt 5.3A of the Act is to operate in relation to the company as if the resolution purportedly passed by Annarita Merlo as director on 4 April 2003 was a valid resolution of the directors of the company for the purpose of s 436A to appoint the plaintiffs as administrators of the company notwithstanding the absence of a quorum. And, the facts being such as to attract the power in s 1322(4)(a), I will make a declaration under that section that the resolution purportedly passed by Annarita Merlo as director on 4 April 2003 in relation to the company is not invalid by reason of any contravention of the articles of association of the company.

2001	2000
Price Attack $ 22,955	$40,272
Farm ($125,125)	($15,542)
Consolidated ($102,170)	$24,730

[2004] VSC 107

7 April 2004