Sub Rosa Holdings Pty Ltd v Salsa Sudada Production Pty Ltd

[2006] NSWSC 916

CITATION:	Sub Rosa Holdings Pty Ltd v Salsa Sudada Production Pty Ltd [2006] NSWSC 916
HEARING DATE(S):	03/08/06
JUDGMENT DATE :	8 September 2006
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Grant of leave under s.237. Interlocutory process otherwise dismissed.
CATCHWORDS:	CORPORATIONS - statutory derivative action - claim by one shareholder and two officers to bring claim on company's behalf not opposed by other shareholders and officers - whether s.237 criteria satisfied - INJUNCTIONS - interlocutory injunctions - where chargor seeks to restrain chargee from appointing receiver - chargor maintains no moneys secured - whether serious question to be tried - no action by chargor to pay into court moneys said by chargee to be secured - balance of convenience favours chargee
LEGISLATION CITED:	Corporations Act 2001 (Cth), ss.236(1)(a), 237, 240, 459C, 459P, 472(6)
CASES CITED:	Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887 Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 Roach v Winnote Pty Ltd (2006) 57 ACSR 138
PARTIES:	Sub Rosa Holdings Pty Ltd - First Plaintiff Mohammed Reza Ashrafinia - Second Plaintiff Lachlan Ross Delaney - Third Plaintiff Salsa Sudada Production Pty Ltd - First Defendant Mafi Holdings Pty Ltd - Second Defendant Abraham Mafi - Third Defendant Stewart Bailey - Fourth Defendant
FILE NUMBER(S):	SC 2914/06
COUNSEL:	Mr G.P. George - Plaintiffs Mr M.A. Ashhurst - Defendants Mr M. Rosenblatt, Solicitor - Provisional Liquidator
SOLICITORS:	Pateman Legal - Plaintiffs Eakin McCaffery Cox - Defendants Abbott Tout - Provisional Liquidator

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

FRIDAY, 8 SEPTEMBER 2006

2914/06 SUB ROSA HOLDINGS PTY LTD & 2 ORS v SALSA SUDADA PRODUCTION PTY LTD & 3 ORS

JUDGMENT

1 I am dealing with an interlocutory process filed on 12 July 2006 by the plaintiffs.

2 The dispute centres upon the first defendant, Salsa Sudada Production Pty Ltd (which I shall call “Salsa”). That company was established in 2003 as a quasi partnership or joint venture among Mr Ashrafinia (second plaintiff), Mr Delaney (third plaintiff) and Mr Mafi (third defendant). It operates a restaurant and nightclub at King Street Wharf in Sydney. According to the search materials in evidence, the shareholders of Salsa are Mafi Holdings Pty Ltd (92 shares), Sub Rosa Holdings Pty Ltd (38 shares) and Mr Stewart Bailey (23 shares). Suba Rosa Holdings Pty Ltd is associated with Mr Ashrafinia and Mr Delaney. Mafi Holdings Pty Ltd is associated with Mr Mafi.

3 Differences and disputes have arisen among the individuals. Mr Ashrafinia and Mr Delaney stand on one side of the dispute. They, together with Sub Rosa Holdings Pty Ltd, are the plaintiffs. Mr Mafi and Mr Bailey are on the other side of the dispute. They, together with Salsa and Mafi Holdings, are the defendants. The ASIC search in evidence shows that Mr Delaney, Mr Mafi and Mr Bailey are the directors of Salsa and that Mr Ashrafinia is the secretary. All four individuals are thus within the definition of “officer” in s.9 of the Corporations Act 2001 (Cth), so far as Salsa is concerned.

4 The plaintiffs claim, in their amended originating process, relief as follows:

1. An order for the winding up of Salsa.
2. A declaration that, in February 2004, Mr Ashrafinia, Mr Delaney and Mr Mafi made a particular agreement under which Mr Mafi was to indemnify Mr Ashrafinia and Mr Delaney in respect of liability incurred by them as guarantors of obligations of Salsa.
3. An order for specific performance of that agreement.
4. A declaration that a deed of loan and deed of charge, both dated 30 November 2004, between Salsa and Mafi Holdings are the product of misleading or deceptive conduct on the part of Mafi Holdings or were procured by unconscionable conduct of Mafi Holdings and, in either event, that the deeds be set aside.
5. In the alternative to item 4, a declaration that the deed of loan and the deed of charge “are invalid at law” and that moneys paid to Mafi Holdings pursuant thereto and secured thereby total $428,918 or such other amount as the court determines; together with an order that any moneys owed by Salsa to Mafi Holdings should be set off against moneys owed by Mafi Holdings or Mr Mafi to Salsa “either pursuant to statute or equity”.
6. A declaration that any moneys paid to Mafi Holdings, Mr Mafi or “Salsa Sudada Production Tokyo” for “management services” were “paid for no consideration”.
7. A declaration that all moneys paid by Salsa pursuant to the agreement for “management services” be repaid to Salsa by Mafi Holdings and Mr Mafi.

5 By the interlocutory process I have mentioned with which I am now dealing, the plaintiffs seek two orders of a procedural kind and two orders designed to maintain the status quo pending trial. The orders I have described as being of a procedural kind are, first, an order under s.459P of the Corporations Act 2001 (Cth) granting leave to the plaintiffs to apply to the court for an order for the winding up of Salsa in insolvency and, second, an order under s.237 of the Corporations Act allowing the plaintiffs to bring on Salsa’s behalf the various claims advanced in the name of Salsa in the originating process. I shall deal first with these procedural orders.

6 In relation to the claim for an order under s.459P, it should be mentioned immediately that the court has already made an order appointing provisional liquidators of Salsa. The provisional liquidators were represented by Mr Rosenblatt, solicitor, on the hearing of the interlocutory process.

7 Leave may be granted under s.459P(2) of the Corporations Act only if the court is “satisfied that there is a prima facie case that the company is insolvent”. In the present case, s.459C has not operated to produce any rebuttal presumption of insolvency. The prima facie case to which s.459P(3) refers must therefore be found on the evidence. I was not taken in detail to any evidence concerning solvency. I was shown accounting material suggesting that Salsa had traded at a loss since its formation and that accumulated losses are significant. I was also given material regarding the results of trading since the appointment of the provisional liquidators showing that creditors are being paid in the ordinary course and that trading losses have been small. Most significantly, I was informed by Mr Rosenblatt, on behalf of the provisional liquidators, that they could not come to any firm view about the state of Salsa’s solvency or otherwise unless and until they had guidance on the question that was most actively agitated before me, that is, the status of the loan account and the charge claimed by Mafi Holdings.

8 There was debate before me as to whether a winding up order should be made immediately by reference to the just and equitable ground. Again, I regard the attitude of the provisional liquidators as significant. They would prefer to see that question deferred. I consider the appropriate course to be to leave the application for a winding up order (and the related s.459P(2) application) in abeyance.

9 The second procedural application is that under s.237 of the Corporations Act. All three plaintiffs wish to have leave under that section to bring on behalf of Salsa the claims in paragraphs 5, 6, 7 and 8 of the originating process, that is, claims going to the validity of the charge given by the first defendant and the question whether there are moneys secured by it and the claim to recover moneys paid for “management services”. The plaintiffs are within the s.236(1)(a) categories of persons to whom such leave may be granted, Sub Rosa Holdings Pty Ltd (first plaintiff) being a member of Salsa and Mr Ashrafinia (second plaintiff) and Mr Delaney (third plaintiff) being officers.

10 There is no opposition to the making of a s.237 order. It is acknowledged that there is no real likelihood that the provisional liquidators will pursue the claims the plaintiffs wish to see Salsa pursue. Mr Mafi and Mr Bailey, the other individuals interested in Salsa, accept that the plaintiffs genuinely wish to ensure that Salsa brings those claims. They also accept that the plaintiffs should be allowed to cause Salsa to do so in order that the claims may be appropriately ventilated, subject to their bearing the costs.

11 In view of what I have just said, I am satisfied that the conditions in paragraphs (a), (b) and (c) of s.237(2) are satisfied. Since all relevant persons are before the court, I need have no concern about paragraph (e). As for paragraph (d) and the issue of whether there is a serious question to be tried, it is preferable that I defer consideration until after I have considered the issues relevant to the remaining claims in the interlocutory process, being the claims for relief by way of interlocutory injunction.

12 Those remaining claims are claims for the following orders:

1. “An order restraining the second defendant and its servants and agents taking any step to appoint a receiver to the first defendant in reliance upon any power in a deed of charge or a loan agreement executed, or purportedly executed by the first defendant, on or around 30 November 2004.”
2. “An order or direction, that, pursuant to s.472(6) of the Corporations Act 2001, the provisional liquidators are not to sell the assets of the first defendant to the third defendant or interests associated with him, on terms that provide that moneys owed pursuant to a deed of charge or a loan agreement dated on or around 30 November 2004 to the second defendant by the first defendant are set off or by which these moneys form any part of the consideration payable to effect such a sale.”

13 The claims for interlocutory orders in these terms are advanced on the footing that there is a serious question to be tried as to the state of the indebtedness of Salsa to Mafi Holdings. Mr George of counsel, who appeared for the plaintiffs, contended that there is nothing owing by Salsa and nothing secured by the charge. In pursuing the interlocutory application, he did not rely specifically on the allegations of misleading and deceptive conduct or unconscionability except insofar as they arose from what was said during a meeting on 30 November 2004. Words spoken at the meeting are the source of an alleged agreement collateral to the formal documents. They also lend some credence to an allegation that pressure was brought to bear. Before turning to the meeting, however, I should say something about the documents themselves.

14 The so-called deed of loan is dated 30 November 2004. It is expressed to be made between Salsa as “Borrower” and “in its capacity as Trustee of the Salsa Sudada Production Unit Trust” and Mafi Holdings (called, in the deed, “Mafi”). Recital A is as follows:

“Mafi has since February 2003 advanced to the Borrower the sum of $1,435,000 (Advance).”

15 Clause 1 is as follows:

“The Borrower does hereby acknowledge receipt of the Advance which is deemed to have been made on Feb 2003 (Date of Advance).”

16 Clause 2 provides for the payment of interest. Clause 4 says that the Advance, together with accrued interest, will be repaid “within 12 months of written notice given by Mafi to the Borrower requiring payment” but with notice not being given by Mafi until four years after the Date of Advance. It is provided by clause 4 that the principal and interest will become payable immediately on the happening of certain events including:

“A receiver, or receiver manager, or liquidator or provisional liquidator, liquidator or administrator is appointed to either the Borrower or the Trust.”

17 The parties accept, as I understand it, that this last provision has operated so that the moneys are now immediately due.

18 The deed of charge is also dated 30 November 2004. It is of the “all moneys” variety and it is not disputed, as I understand it, that such indebtedness, if any, as is outstanding by Salsa to Mafi Holdings is secured by the charge, assuming that the charge is valid and effective. Among the events of default specified in the charge is:

“An application being filed (which is not withdrawn within 14 days of the date of filing) or an order being made for the winding up of the Mortgagor.”

19 It is conceded that the initiation of these proceedings constituted such an event so that remedies available under the charge (including appointment of a receiver) are now available to Mafi Holdings as chargee – again, subject to the validity and enforceability of the charge.

20 Against that background, I turn to events at the meeting on 30 November 2004. Present at it were Mr Ashrafinia, Mr Mafi, Mr Bailey and Mr Robert Elliott, a partner with Hall Chadwick, who had been advising Mr Mafi and attempting to assist with the resolution of the problems that the parties were then facing. Each of the persons present has given a version of what transpired at the meeting, it being common ground that a loan deed and charge document had been prepared in advance, with the former containing certain blanks.

21 The account given by Mr Ashrafinia is as follows:

“Mr Mafi: ‘I have prepared a charge for the monies that Salsa Sudada owes me. I want you and Lachlan to sign it.’
Mr Ashrafinia: ‘I will not sign any charge. The figures are plucked from the air and do not represent any actual accounted amounts.’
Mr Mafi: ‘Lena (Mafi’s ex-wife) has taken Abe Jr and I have nothing left to keep me here. I will burn the company and leave if I have to. If the deed is not signed right now I will wind the company up and you will be liable to the landlord under the lease and to all of the lenders under the leases. As well, you will loose [sic] your house, because Nicom has a caveat on it and you are liable to Multiplex.’
Mr Ashrafinia: ‘This is not fair Abe, you said you had access to funds and you said you could get loans at 1%.’
Mr Mafi: ‘You are fantasizing Moe, sign the charge or its all going up in smoke.’
Mr Ashrafinia: ‘I don’t think its fair, I need to have my lawyer look at this charge.’
Mr Bailey: ‘I have had enough of this, you sign this right now. No more games.’
Mr Ashrafinia: ‘This is not a game Stewart, I respect you and you should know that by now ..’
Mr Elliott: ‘He has the option to wind the company up, I don’t see you have any other choice but to sign right now.’
Mr Ashrafinia: ‘I don’t have much choice, do I? But Abe you have to promise me that once the accounts are prepared, if the accounts say different amounts are owed to you and me, you will vary the charge.’
Mr Mafi: ‘Of course. I promise, Moe we need this charge to protect the company trust me I will not betray you. All monies owed to you by the company will be paid by the end of the 2005, with interest.’”

22 Mr Mafi’s account is to the effect that he handed Mr Ashrafinia a document containing a list of payments and said:

“Moe, this is how much I have invested in the business. It is all itemised here. This is the loan I want secured by the charge.”

23 According to Mr Mafi, Mr Ashrafinia replied:

“Obviously you have paid these moneys into the company.”

24 Mr Mafi says that Mr Ashrafinia then examined the document and that there was discussion about one item of $23,000 which Mr Ashrafinia agreed to delete. According to Mr Mafi, Mr Ashrafinia then said:

“OK. Let’s make it $1,435.000.00.”

25 Mr Mafi’s affidavit says that that figure was then inserted into the deed of loan which was ultimately signed. The deed of charge was signed immediately afterwards.

26 Mr Bailey’s affidavit contains the following account of the conversation at the meeting:

“Mr Mafi: ‘A deed of charge and deed of loan has been prepared and we would like you [the second plaintiff] and Lachlan to sign it.’
Mr Ashrafinia: ‘I will not sign this without showing it to my lawyer first.’
Mr Mafi: ‘You have known of our wishes to have these documents signed for some time now. Stewart has flown over here specifically for this meeting. You have delayed this for over 6 months now. We need to have our assets in the company protected – otherwise we will have no option but to wind up the company.’
Mr Bailey: ‘That’s correct, Moe. We need to have this done today. This is not a game.’
Mr Ashrafinia: ‘I know it’s not a game, Stewart. But I think my lawyer should go over this.’
Mr Elliott: ‘I don’t see you have any other choice but to sign right now. They do have the option to wind up the company.’
Mr Ashrafinia: ‘Okay, I have no choice. But, if some of the figures in the deed of loan are incorrect, could we have them changed at a later date?’
Mr Mafi: ‘Of course.’”

27 By leave, oral evidence was adduced from Mr Elliott of Hall Chadwick concerning the events at the meeting. Mr Elliott recalls that there was discussion about the amount owing and that Mr Ashrafinia said that he would agree to the amount being exactly $1,435,000 so that there would be no dispute as to the amount. Upon that agreement being reached, Mr Elliott says, he wrote the amount into the document. Mr Elliott had no recollection of Mr Ashrafinia saying words to the effect, “But Abe, you have to promise me that once the accounts are prepared, if the accountants say different amounts are owned to you and me, you will vary the charge”. I quote from his cross-examination:

“Q. At that meeting were words to the effect, by Mr Ashrafinia, said: ‘There have been some discussions about the amount of Mafi Holdings loan’? Did Mr Ashrafinia say: ‘I agree with most of it but I still have some items I need to check’?
A. Yeah. Look, he said something along those lines, yes.

Q. Did Mr Mafi then say: ‘It is okay to reduce the loan to what we agree on. Mafi Holdings claims it has advanced a sum of $1.435 million to Salsa Sudada’?
A. Yes, that's my recollection.

Q. So, did you understand from that, that the amount advanced of $1.435 million was not set in stone so to speak?
A. What I understand is that I wrote $1.435 million into this loan document. I wouldn't have written it into the document if I didn't think it was set in stone. My - what I did there demonstrates, I think, my feelings about it, what I thought the situation was then. I thought the matter had been sorted out, it had been agreed and that was we could go forward.”

28 And later:

“Q. You provided and prepared a lot of information that you say substantiated the loan of $1.435 million?
A. No, that's not what I said. I said Mr Mafi came to the meeting with a bundle of papers that said as to what moneys had been advanced. My memory of that meeting was that he and Mr Ashrafinia had a discussion about that bundle of papers, and there was an agreement between them that they had an agreement about some other items on that sheet of paper and that there was then agreement as to 1.435 million. That is my clear recollection.”

29 At the hearing of the application for interlocutory relief, Mr George, on behalf of the plaintiffs, devoted considerable time to the proposition that there was, in November 2004, nothing owing by Salsa to Mafi Holdings and that the charge effectively secured nothing. I was taken through a myriad of items in respect of which it was contended that the person from whom particular funds were received by Salsa was not the lender/chargee, Mafi Holdings. Based on that, it was submitted that receipt of each such sum by Salsa did not give rise to a debt owing by Salsa to Mafi Holdings but, rather a debt owing to someone else (if there was any debt at all). Against this, I was referred to other elements of the evidence suggesting that, while Mafi Holdings may not have been the immediate payer to Salsa, the payment was attributable to and indirectly sourced from Mafi Holdings. It is sufficient to refer to one example to illustrate the point.

30 One relevant item is an item of $149,985.00 which, on the case the plaintiffs seek to make, came from Mr Bailey and therefore did not result in indebtedness on the part of Salsa to Mafi Holdings. The defendants say that there is no issue that that payment was generated by a sale of shares by Mafi Holdings to Mr Bailey, with the result that Mr Bailey became liable to pay the price of $149,985.00 to Mafi Holdings. The making of a payment of that amount by Mr Bailey direct to Salsa is, it is said, perfectly consistent with (and explicable by reference to) the making of a loan or advance of that amount by Mafi Holdings to Salsa, with actual payment being effected by direct movement of cash from Mr Bailey to Salsa at the direction of Mafi Holdings. Mr George, on behalf of the plaintiffs, sought to make much of a discrepancy in the name of Mafi Holdings, but the likelihood that it is Mafi Holdings that is referred to is strongly suggested by the use of the correct ACN.

31 Numerous similar instances were canvassed before me. I need not go into them. It is sufficient to say that, in each case, the evidence is consistent with the possibility of a payment to Salsa by a third party at the direction and for the benefit of Mafi Holdings.

32 It is likely that, upon a final hearing, it will be found that at least some loans were made by Mafi Holdings to Salsa. It is unlikely that the court will find that each and every one of the myriad of payments by apparent third parties direct to Salsa was not in truth a payment by or at the direction of Mafi Holdings. I am satisfied that there is a question to be tried on these issues.

33 The additional contention of the plaintiffs is that there was a collateral oral agreement made at the time of creation of the charge that the deed was not to be binding or would not be relied upon unless and until the sum of $1,435,000 had been verified.

34 On this, much was said about the parol evidence rule and the proposition that evidence of what was said or agreed in conversations cannot be allowed to contradict the clear terms of a deed of loan. But that, in my view, is not what the evidence here would indicate, even if viewed in the light most favourable to the plaintiff. The position is not, as I see it, one in which an attempt is made to show that the parties’ contract is, by reason of some oral agreement, inconsistent with or different from the deed they have executed. Rather, it is said that there co-existed with the deed an oral agreement to the effect that, whereas the deed referred to a fixed and specific sum of $1,435,000, the parties would, after execution of the deed, engage in a process directed towards the possibility of future amendment of the agreement embodied in the deed. On Mr Ashrafinia’s account, he asked Mr Mafi to confirm that “once the accounts are prepared, if the accounts say different amounts are owed to you and me, you will vary the charge”; to which Mr Mafi is said to have agreed. Mr Bailey’s account has Mr Mafi agreeing to Mr Ashrafinia’s statement, “if some of the figures in the deed of loan are incorrect, could we have them changed at a later date?” Neither of the others present reports any such exchange.

35 But even if the evidence of Mr Ashrafinia and Mr Bailey were, on this matter, fully accepted and the court eventually found that there had been a collateral oral agreement, that would not affect rights under the deed of loan and the charge. At best, that further agreement is an agreement to vary the rights and obligations arising from the formal documents in a defined future event. That does nothing to detract from the present and continuing efficacy of those formal documents.

36 The basic point made by the plaintiffs is that Mafi Holdings should not be allowed to rely on its charge in any way unless and until “it is established with certainty what the amount secured by the charge is”. The words quoted appear in the outline of submissions handed up by Mr George.

37 Mr George thus relies upon the matters regarding the sources of payments and the collateral agreement in support of the application for interlocutory relief. He did not, in advancing the interlocutory application, rely on the attack upon the deed of loan and the charge based on alleged misleading and deceptive conduct and alleged unconscionable conduct.

38 I am accordingly called upon to decide, in the first instance, whether there is a serious question to be tried regarding the proposition that nothing is owing under the deed of loan and nothing is secured by the charge. On the material before me, I do consider that there is a question to be tried to that effect, although it is not strong. In relation to the one item of $149,985.00 to which I have made particular reference, the evidence regarding source and application of funds is likely to be found to show, in my opinion, an advance by Mafi Holdings. But there is another item of some $70,000 involving Mr Bailey which I have not specifically mentioned where there is at least a real doubt. While Mr George sought to show that each and every payment had some third party source, the claim for declaratory relief to which I have referred (item 5 at paragraph [4] above), contemplates a finding by the court that $428,918 is owing by Salsa to Mafi Holdings and secured by the charge. Nevertheless, the evidence as to actual and immediate source of each payment shows that investigation is required.

39 Although it may therefore be said that there is a serious question to be tried regarding the proposition that there is zero secured by the charge, my view is that the balance of convenience would not favour restraining resort to secured creditor remedies by Mafi Holdings. Any case in which a mortgagor seeks to restrain enforcement action by a mortgagee on the ground that there is a dispute as to the amount secured attracts the operation of what Barwick CJ (with the concurrence of Menzies and

Gibbs JJ) called in Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 at p.169 “the general rule applicable when it is sought to restrain the exercise by a mortgagee of his rights under the mortgage instrument”, that is, that there should be no restraint absent payment into court of “the amount sworn by the mortgagee as due and owing under the mortgage”.

40 The matter I have just mentioned goes to the balance of convenience, indicating as it does that the mortgagor should, as the price of interlocutory orders depriving the mortgagee of freedom to act, put up the whole of the sum sworn to by the mortgagee as owing so that the mortgagee, while prevented from resorting to rights against the mortgaged property, is given an assurance that there will nevertheless be a fund from which his debt, as eventually established, can be paid. Mr George said that the loans are so uncertain that the appointment of a receiver would be unjust and there should be no reliance on the charge without verification of the amounts secured. This is contrary to the position laid down by the High Court.

41 Also under the balance of convenience heading, the plaintiffs say (and I quote from Mr George’s outline of submissions):

“The balance of convenience also favours the plaintiffs; if a receiver is appointed, he or she will be concerned with getting-in money to repay the second defendant at the expense of the plaintiffs and creditors generally. Further, the assets will be sold and funds distributed probably before the first defendant’s liquidators can act.”

42 I must say that I cannot see how this causes the balance of convenience to favour the plaintiffs. Any sale by a receiver appointed by Mafi Holdings and any application of sale proceeds towards the debt owed to Mafi Holdings will not be “at the expense of” anyone. Sale proceeds will be applicable only towards the indebtedness as ultimately determined. It is true that a receiver, if appointed, will sell in such a way as to forestall sale by the provisional liquidators. But principles of prudence and care will apply whichever official effects the sale.

43 On the balance of convenience generally, I cannot see how the possibility of sale by a receiver, as distinct from (and instead of) provisional liquidators, is to the detriment of anyone; nor can I see what detriment will be occasioned by conversion into cash of the assets and undertaking of Salsa which is subject to the charge held by Mafi Holdings.

44 I will therefore not make the interlocutory order restraining steps towards appointment of a receiver.

45 The second interlocutory order sought is aimed at controlling behaviour of the provisional liquidators. I am not satisfied that any basis at all has been shown for the making of that order. Any such restraint would have to be grounded in an apprehension that the provisional liquidators will exceed or abuse their powers. All that has been shown is that they have received a proposal for sale of assets to Mr Mafi or interests associated with him which is of the kind contemplated by the second order at paragraph [12] above. Any insolvency practitioner acting rationally would not give credit for a particular off-set unless convinced that the amount of the off-set was correct and verified – at least without taking steps, including no doubt by way of suitable security (assuming that security could properly be given and taken) – to ensure that the adverse effects of any uncertainty were guarded against. But ultimately, all that is a matter for commercial judgment. The court will not interfere unless there is a demonstrated apprehension of breach of duty.

46 In relation to the interlocutory restraint sought against the provisional liquidators, I can see no serious question to be tried.

47 In the result, therefore, neither of the interlocutory injunctions sought will be granted.

48 I return, therefore, to the s.237 application and the criterion specified in s.237(2)(d), that is, whether there is a serious question to be tried. Bearing in mind what I have said about the issue of quantification of the sum secured by the charge (added to the evidence about the circumstances in which the documents were presented for signature, completed and signed at the 30 November 2004 meeting), the finding on that criterion must be positive, with the result that all elements contemplated by s.237(2) are established and leave must be granted.

49 It was submitted on behalf of the defendants that the grant of leave should be on terms as to costs. I agree. It is commonplace for a person given permission to pursue a claim on behalf of a company to be required, in the first instance, to bear the burden of costs: see the cases discussed in Roach v Winnote Pty Ltd (2006) 57 ACSR 138 at [23] to [29] and the very recent example in Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887.

50 The only order I now make upon the plaintiffs’ interlocutory process filed on 12 July 2006 is an order that leave be granted to the plaintiffs, pursuant to s.237 of the Corporations Act, to bring on behalf of the first defendant the proceedings in prayers 5, 6, 7 and 8 of the amended originating process filed on 12 July 2006, such leave being on terms that:

(a) the plaintiffs pay and bear (and indemnify the first defendant against) all costs, charges and expenses of and incidental to the bringing and continuation of the proceedings brought by them on behalf of the first defendant except to such extent, if any, as the court may in future otherwise direct or allow; and
(b) in so far as it may not apply of its own force, s.240 of the Corporations Act shall apply to and be observed in relation to the proceedings brought by the plaintiffs on behalf of the first defendant.

51 The interlocutory process is otherwise dismissed.

52 I grant leave to the plaintiffs to restore the matter to the list on 48 hours notice for the purpose of pressing the application for leave under s.459P(2) and a winding up order in respect of Salsa.

53 I will hear the parties on the costs of the interlocutory process.

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