Termite Resources NL (in liq) v Meadows, in the matter of Termite Resources NL (in liq) (No 2)

The case involves Termite Resources NL (in liq), a mining company, and several individuals who were directors or officers of the company. The dispute centers on the actions of these defendants in relation to the distribution of proceeds from the mining activities of Termite. The court was required to determine whether the defendants breached their common law duties to act with care, skill, diligence, and good faith for the company as a whole, as well as their statutory duties under sections 180 and 181 of the Corporations Act 2001 (Cth). The court also had to decide whether the reserve of $3 million was adequate or if a larger reserve of at least $10 million was necessary for the company to survive a downturn in the iron ore price.

The court found that a cash reserve of at least $10 million should have been retained by Termite. Each of the defendants, acting as either directors or de facto directors, breached their duties under sections 180 and 181 in respect of the adoption and implementation of the distributions policy and in failing to review and revise it during the period that distributions were made. Three of the defendants also breached their common law duties. The court determined that an additional $7 million would have been available in mid-2014 when the administration occurred if a $10 million cash reserve had been retained. As a result, damages of $7 million were awarded.

The court also considered the claim for damages and reviewed the deficiency in the liquidation, including whether the amount for which a debt has been admitted to proof by the liquidators was a cap on the defendants’ liability and the assessment of creditors’ claims. The evidence presented in the trial included affidavits and expert opinions from various witnesses, including liquidators, contractors, and experts in the mining and consultancy fields.

The court concluded that the Outback Board, rather than the Termite Board, exercised the functions of a Board of Directors determining matters of strategy, management, and oversight of the operations of Termite. This was due to the Woomera Variation Deed, which precluded certain individuals from being appointed as directors of Termite. As a result, the Outback Board made decisions for Termite, while Termite management was involved only at the day-to-day operational level. The court found that the defendants' actions led to a deficiency in the liquidation, and damages of $7 million were awarded.

The matter is adjourned to 12 noon (SA time) on 22 March 2019 for submissions with respect to interest and costs.