VRM Global Holdings Pty Ltd v Savannah AG Research Pty Ltd (Administrators Appointed), in the matter of Savannah AG Research Pty Ltd
[2023] FCA 131
•23 February 2023
FEDERAL COURT OF AUSTRALIA
VRM Global Holdings Pty Ltd v Savannah AG Research Pty Ltd (Administrators Appointed), in the matter of Savannah AG Research Pty Ltd [2023] FCA 131
File number: QUD 306 of 2022 Judgment of: CHARLESWORTH J Date of judgment: 23 February 2023 Catchwords: CORPORATIONS – resolution of directors under s 436A of the Corporations Act 2001 (Cth) for appointment of voluntary administrators to a company – application for relief by majority shareholder under s 447A and s 447C of the Act including declarations the resolution was or is invalid – shareholder alleging the directors did not have a genuine and bona fide opinion that the company was insolvent or likely to become insolvent at some time in the future – shareholder alleging the directors were motivated by an improper purpose – shareholder failing to discharge onus of proof on either basis – evidence showing the directors genuinely held the opinion as to future insolvency including because of the conduct of the shareholder in purporting to control the company’s assets and business direction – preparations for appointment of administrators already near completion when the directors were issued with a notice to call an extraordinary general meeting – whether notice of extraordinary general meeting informed directors that their removal as directors would be affected at the EGM – whether appointment of administrators motivated by purpose of avoiding the directors’ removal – shareholder’s application dismissed.
EVIDENCE – circumstances in which it is appropriate to apply the principles in Jones v Dunkel (1959) 101 CLR 298 in cases where a respondent party is self-represented and not notified of the applicant’s intention to make a Jones v Dunkel submission in advance of the trial – principles in Jones v Dunkel not materially assisting the applicant in any event.
Legislation: Corporations Act 2001 (Cth) ss 95A, 435A, 436A, 447A, 447C
Evidence Act 1995 (Cth) s 140
Cases cited: Australian Securities and Investments Commission v Planet Platinum Ltd(Liquidator Apptd) [2016] VSC 120
Cadwallader v Bajco [2001] NSWSC 1193
Cadwallader v Bajco Pty Ltd & Ors [2002] NSWCA 328
Ford v Commissioner of Taxation, in the matter of Careers Australia Group Limited (inliq) (No 2) [2022] FCA 1151
In the matter of Bean & Sprout Pty Ltd (admin apptd) [2018] NSWSC 351
In the matter of Condor Blanco Mines Ltd [2016] NSWSC 1196
Jones v Dunkel (1959) 101 CLR 298
Kazar v Duus (1998) 88 FCR 218
Re Bean & Sprout Pty Ltd (admin apptd) [2018] NSWSC 351
Re Lime Gourmet Pizza Bar (Charlestown) Pty Ltd [2015] NSWSC 244
Re Warwick Keneally as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd (admin apptd) [2015] NSWSC 937
Smolarek v Brian Keith McMaster as administrator of Eznut Pty Ltd (No 2) [2008] WASCA 234
Thunder Studios Inc (California) v Kazal(No 12) [2022] FCA 110
Wagner v International Health Promotions Pty Ltd (1994) 15 ACSR 419
Westgem Investments Pty Ltd v Commonwealth Bank of Australia Ltd (No 6) [2020] WASC 302
Division: General Division Registry: Queensland National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 221 Date of hearing: 1, 2, 4, 10, 23 November 2022 Counsel for the Applicant: Mr M Jones Solicitor for the Applicant: Hopgood Ganim Lawyers Counsel for the First Respondent: The First Respondent did not appear Counsel for the Second Respondent: Mr S Low Solicitor for the Second Respondent: Results Legal Counsel for the Third Respondent: The Third Respondent appeared in person Counsel for the Fourth Respondent: The Fourth Respondent appeared in person ORDERS
QUD 306 of 2022 IN THE MATTER OF SAVANNAH AG RESERCH PTY LTD ACN 637 837 033 (ADMINISTRATORS APPOINTED)
BETWEEN: VRM GLOBAL HOLDINGS PTY LTD ACN 603 353 993
Applicant
AND: SAVANNAH AG RESEARCH PTY LTD ACN 637837 033 (ADMINISTRATORS APPOINTED)
First Respondent
ADAM PETER KERSEY AND DAVID MICHAEL STIMPSON AS JOINT AND SEVERAL ADMINISRATORS OF SAVANNAH AG RESEARCH PTY LTD ACN 637 837 033
Second Respondent
ANTHONY CAMERON MATCHETT (and another named in the Schedule)
Third Respondent
ORDER MADE BY:
CHARLESWORTH J
DATE OF ORDER:
23 FEBRUARY 2023
THE COURT ORDERS THAT:
1.The originating application is dismissed.
2.The applicant is to pay the costs of the third and fourth respondents in an amount to be assessed or agreed.
3.The parties have liberty to apply for an order fixing the quantum of costs for the purposes of paragraph 2.
4.The order in paragraph 2(a) of the orders made on 9 September 2022 be varied such that the words “further order” be substituted with “16 March 2023”.
5.The order in paragraph 4 of the orders made on 9 September 2022 be varied such that the words “further order” be substituted with “16 March 2023”.
6.The second respondent has liberty to apply for ancillary or consequential relief relating to the judgment delivered today.
7.Any party seeking an order for damages pursuant to the undertaking provided by the applicant and its director in support of the injunction granted on 9 September 2022 has liberty to apply within this proceeding for any such award.
8.The orders in paragraphs 2(b), 2(c), 2(d) and 3 of the orders made on 9 September 2022 are discharged.
9.Liberty to apply.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
CHARLESWORTH J
The first respondent, Savannah Ag Research Pty Ltd, operates a biotech business for the development and production of sustainable crops, including seed development, planting and the production and sale of seed-based products. At the time of its incorporation on 3 December 2019 its sole shareholders and directors were the third and fourth respondents, Mr Anthony Matchett and his wife Mrs Catherine Matchett (together, the Matchetts).
On 22 August 2022 the Matchetts, in their capacity as directors, passed a resolution under s 436A of the Corporations Act 2001 (Cth) providing for the voluntary appointment of joint and several administrators to Savannah (Resolution). The Resolution stated that the directors were of the opinion that Savannah was insolvent or would likely become insolvent at some time in the future.
The applicant, VRM Global Holdings Pty Ltd is the majority shareholder of Savannah. It alleges that the Resolution was not validly made because either or both directors did not genuinely hold an opinion as to the present or future insolvency of Savannah. Alternatively, VRM alleges that the Resolution was passed by the Matchetts for a purpose extraneous to the Act, namely to defeat its interests in having them removed and replaced as directors. It seeks relief alternatively under s 447A(1) or s 447C(2) of the Act. Other relief sought on the originating process is dependent on the success of at least one of those primary claims.
The two joint administrators, Mr Adam Peter Kersey and Mr David Michael Stimpson were together joined as the second respondent but adopted a neutral position in the dispute and were excused from attendance for most of the trial.
For the reasons that follow, I have concluded that VRM’s application for orders under s 447A(1) or s 447C(2) of the Act should be dismissed. It follows that the application for additional relief sought on the originating process will not be entertained. I will hear from the parties as to ancillary or consequential orders, including in relation to an interlocutory injunction granted on VRM’s application prior to the commencement of the trial.
THE ACT
Part 5.3A of the Act establishes a regime for the administration of a company’s affairs with a view to executing a deed of company arrangement. The object of Pt 5.3A is to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company or its business continuing in existence or that otherwise results in a better return to the company’s creditors and members that would result from an immediate winding up of the company: Act, s 435A.
Section 436A(1) of the Act provides:
(1)A company may, by writing, appoint an administrator of the company if the board has resolved to the effect that:
(a)in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time; and
(b)an administrator of the company should be appointed.
…
A company is solvent if, and only if, it is able to pay all of its debts as and when they become due and payable: Act, s 95A(1). A company that is not solvent is insolvent: Act, s 95A(2).
The power of a board of directors to appoint an administrator is pre-conditioned not by the objective fact of insolvency, but by the passing of a resolution to the effect that the company is, in the opinion of the directors voting for the resolution, insolvent or likely to become insolvent at some future time. In Smolarek v Brian Keith McMaster as administrator of Eznut Pty Ltd (No 2) [2008] WASCA 234, Pullin JA said at [55] with Wheeler JA and Le Miere AJA agreeing at [1] and [95]:
The opinion referred to in s 436A must be bona fide and genuinely formed. A concluded opinion, rather than a tentative opinion, is necessary. If a bona fide opinion is genuinely formed as to ‘actual’, ‘likely’ or ‘actual or likely’ insolvency, that opinion will satisfy the requirements of s 436A. …
If the relevant directors’ opinion is not held or not held in good faith, the resolution will be invalid: Kazar v Duus(1998) 88 FCR 218 (at 231). An inability to determine whether or not a company is insolvent is not sufficient to enliven the statutory power in s 436A: Wagner v International Health Promotions Pty Ltd (1994) 15 ACSR 419, Santow J (at 421); Kazar at 231; In the matter of Bean & Sprout Pty Ltd (admin apptd) [2018] NSWSC 351, Black J (at [46]).
In Re Warwick Keneally as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd (admin apptd) [2015] NSWSC 937, Black J said at [96]:
The exercise of the power to appoint an administrator will be invalid, and the purported appointment will be invalid, if that power is exercised for an ulterior or extraneous purpose and that purpose is substantial in the sense that the decision would not have been made but for the ulterior purpose…
Expressed another way, an extraneous purpose will not be “substantial” if the directors passing the resolution would have appointed the administrators for a proper purpose in any event: Re Lime Gourmet Pizza Bar (Charlestown) Pty Ltd [2015] NSWSC 244 at [44] – [45] and [53] – [54]. Fulfilment of the test requires the ascertainment of the purpose for making the resolution, the characterisation of the impugned purpose as “improper” or “extraneous” in the sense that it is inconsistent with the objectives of Pt 5.3A of the Act and proof that the purpose actuated the resolution in the “but for” sense identified in the authorities.
Division 13 of Pt 5.3A contains provisions conferring powers on this Court in relation to companies under administration. Section 447A(1) provides that the Court may make such orders as it thinks appropriate about how Pt 5.3A is to operate in relation to a particular company. Section 447A(2) provides that if the Court is satisfied that the administration of the company should end because the provisions of Pt 5.3A are being abused, the Court may make an order under s 447A(1) that the administration is to end.
Section 447C(2) relevantly provides that if there is doubt, on a specific ground, about whether a purported appointment of a person as administrator of a company is valid, the person, the company or any of the company’s creditors may apply to the Court for an order under subs (2). The Court may make an order under s 447C(2) declaring whether or not the purported appointment was valid on the ground specified in the application or on some other ground. The records before me indicate that VRM is a creditor of Savannah and so has standing to apply for such an order. The Matchetts did not contend otherwise.
An order made under s 447A(1) has the effect of bringing the administration to an end from the time that the order is made. It has no effect on the validity of the administration and the acts of the administrator up to that time.
Counsel for VRM submitted that the effect of a declaration under s 447C(2) of the Act founded on a lack of genuine opinion as to insolvency is to declare the appointment of administrators to be void ab initio. On the other hand, VRM submitted regardless of the opinion as to insolvency if the appointment was made for a substantial extraneous purpose a declaration under s 447C(2) of the Act would only render the appointment voidable.
In this case, it is unnecessary to consider the different legal consequences that would follow should an order be made under s 447A(1) bringing and administration to an end as compared to an order under s 447C(2) declaring the appointment of administrators to be invalid, because neither order will be made.
VRM’S CASE
As expressed in closing submissions, VRM asserted four “pathways” by which it was said that the Resolution is “either void or voidable”. Adopting the words of the submission they are:
(1)Mr Matchett did not genuinely form the opinion required by s 436A of the Act on the basis that he did not genuinely turn his mind to relevant factors concerning solvency of Savannah, in fact being motivated by extraneous considerations;
(2)Mrs Matchett did not form the belief because she relied blindly on Mr Matchett and did not independently enquire into Savannah’s financial position;
(3)Even if the Matchetts had a genuine belief as to future insolvency, they acted with extreme haste motivated by a purpose of self-interest, to defeat the legitimate exercise of the applicant’s powers inimical to their own interests … ;
(4)Even if the Matchetts had a genuine belief as to future solvency, the appointment had a dominant purpose to effect a separation of their interests from VRM, which was not a proper use of the power granted by Pt 5.3A.
The “power” of VRM referred to in the third pathway is its capacity as Savannah’s majority shareholder to convene an extraordinary general meeting (EGM) for the asserted purpose of passing a shareholders’ resolution for the removal of the Matchetts as directors of Savannah. As identified below, the appointment of administrators occurred 2 hours and 19 minutes after the Matchetts received notice that VRM had called an EGM. That temporal coincidence is relied upon heavily by VRM in support of an inference that the Resolution was made for a purpose extraneous to the objectives of Pt 5.3A of the Act.
THE HEARING
At trial, the onus was on VRM to establish its case to the civil standard of proof in accordance with s 140 of the Evidence Act 1995 (Cth). To that end it called three witnesses: Mr Kenneth Bellamy, Ms Kellie Walters and Mr James Lord. Their evidence in chief was adduced by affidavit, subject to rulings on objections. A bundle of documents was tendered independently of the affidavits. Mr Matchett cross-examined each of VRM’s witnesses.
The Matchetts were self-represented throughout the trial. Submissions advanced by Mr Matchett were adopted by Mrs Matchett as a respondent in her own right, with some supplementation of her own.
The Matchetts’ unrepresented status had a number of consequences for the conduct of the trial, one of which was the absence of experienced counsel to cross examine VRM’s deponents so that their testimony was not effectively tested. That is not to criticise any party or witness, it is simply to observe that in a case such as the present the Court is hesitant to make an assessment of the credit of VRM’s witness based too heavily on impressions of them in the course of giving oral evidence. In any event, I can identify no critical issue that depends upon a demeanour-based assessment of the credit of Mr Bellamy, Ms Walters or Mr Lord. As discussed below, whilst there were a multitude of issues in dispute between the Matchetts and particularly Mr Bellamy in the conduct of Savannah’s business, it is largely unnecessary for the Court to resolve them. The relief sought on the originating process turns rather on the Court’s assessment of the Matchetts’ subjective state of mind. That is a question of fact to be determined in light of all of the objective circumstances, however in this case my consideration of the objective circumstances has not involved an adjudication as to who had the best or correct commercial judgment about how Savannah’s business should be conducted.
The Matchetts did not file sworn affidavit evidence in advance of the trial. Instead, Mr Matchett prepared a number of schedules by which he gave written responses to VRM’s affidavits at the level of each paragraph, together with written submissions asserting the existence of facts and business records.
Mr Matchett’s evidence in chief was given orally with some assistance of the Court (provided with VRM’s consent). He adopted the truth of that part of the response documents (and parts of the submissions that took the form of asserted facts) that had not been ruled inadmissible for that purpose. He supplemented that material with additional oral evidence in chief. The Court adapted its procedures so as to prompt evidence from each of the Matchetts by headlining topics for them and asking them to elaborate on their evidence where it was considered fair and appropriate to do so. VRM was afforded the opportunity to object to the procedure as well as to the topics and the manner in which they were prompted.
Mrs Matchett adopted the truth of some parts of the response documents that were within her personal knowledge. She too gave additional oral evidence in chief, prompted by topics.
My impressions of the Matchetts as witnesses have been formed in circumstances where they appeared for the whole of the hearing by way of a video link (as did VRM’s counsel and witnesses). I do not consider that form of hearing inhibited my ability to observe them in the course of their evidence, although their cross-examination was interrupted at times by difficulties adjusting their audio and the need to refer to documents in a way that was efficient and fair. They each absented themselves from the room when the other was giving evidence.
My general observation of Mr Matchett is that he was an argumentative but authentic witness. His disdain for VRM was made plain in his exchanges with VRM’s counsel. His responses to some questions had an air of sarcasm and he was inclined to rhetorical flourishes, often reflecting a sense of resentment that these proceedings were on foot. I nonetheless formed the impression that he was not overly guarded in his responses and that his answers were not artificially crafted with an end result in mind. His evidence focussed heavily on addressing accusations made against him by VRM and in that context he at times presented as defensive, however I consider that to be a reflection of the manner in which VRM had presented its own case. Considered as a whole, I do not consider that the cross examination of Mr Matchett revealed any part of his evidence to be deliberately untruthful or misleading. Mr Matchett readily acknowledged engaging in conduct that he knew was against the stated wishes of VRM. I do not consider that conduct to reflect on his veracity as a witness in the proceedings but it nonetheless forms a part of the factual background against which the Resolution was made. On the basis of those impressions and my assessment of the evidence as a whole I consider Mr Matchett to be a witness of truth.
Mrs Matchett’s responses in cross-examination were terse at times. She occasionally asserted that she did not understand a straight-forward question, but on those occasions Counsel for VRM did not suggest that she was being deliberately evasive. She at times responded to questions with the phrase “no comment”. Whilst that was neither appropriate nor helpful I consider it to be a product of Mrs Matchett’s status as an unrepresented litigant and no point was taken about it by VRM’s counsel so as to inform Mrs Matchett to appreciate that she would respond in a manner that was more forthright.
Mrs Matchett did not attempt to suggest that she had a greater role in Savannah’s affairs than she actually had. I consider she was frank and truthful in her responses to questioning about the extent to which she relied on the advice and information provided to her by Mr Matchett. There was some ambiguity or discrepancy in Mrs Matchett’s evidence concerning the date upon which she obtained and considered some financial records relating to Savannah. I will return to that topic in due course.
On the whole, my findings should be understood as proceeding from a general acceptance of the Matchetts’ evidence (in respect of the matters that call for findings) except where it is otherwise stated in these reasons.
The parties otherwise relied on additional documents tendered as business records independently of their affidavit or oral evidence, the content and authenticity of which are not disputed. They have been read, again subject to rulings as to admissibility and use and they now form the basis of many of the undisputed factual findings that follow.
FACTS
It is convenient to express my findings first by reference to objective facts and circumstances and then by reference to the states of mind relating to them. For the most part the events leading up to the appointment of the administrators and the events that followed are not in dispute. Nor is there dispute as to the authenticity of documentary records, including correspondence most of which speaks for itself. Except where otherwise stated, my findings in relation to the objective facts and circumstances are based on uncontroversial evidence.
I will consider separately the opinions and perspectives of the Matchetts with respect to past events as they perceived them to be. It will be necessary to make an assessment as to the extent to which those matters informed their assessment of Savannah’s position and their motivations in passing the Resolution more generally.
Objective facts and circumstances
VRM forms part of a group of companies referred to by Mr Bellamy as the “VRM Group”. Mr Bellamy refers to himself as the president of the VRM Group. At all relevant times the Chief Executive Officer of one of the companies in the VRM Group was Ms Walters. Companies within the VRM Group operate a business for the research and production of agricultural products and technologies, including environmentally resistant food produce and animal feed.
In late 2021, Mr Bellamy entered into discussions with the Matchetts about investing in Savannah.
In January 2022 Savannah became a licenced distributor and manufacturer of VRM products pursuant to a licence agreement with another company in the VRM Group, VRM International Pty Ltd. Then, on 8 February 2022, an agreement was entered into having two components, referred to in the evidence as the Cash Flow Agreement and the Share Option Agreement.
The relevant features of the transaction were as follows:
(1)VRM would purchase 500 ordinary shares in Savannah from each of the Matchetts for a total purchase price of $360,000.00;
(2)Savannah would issue a further 250 allotted shares to VRM at a capital value of $220,000.00;
(3)Savannah would appoint a VRM nominee as a third director of its Board;
(4)VRM would transfer 100 ordinary shares to Ms Kate Fabian (a founding employee of Savannah) at no cost;
(5)VRM would fund a salary for Mr Matchett (Management Payments), an obligation expressed at clause 4 of the Cash Flow Agreement in the following terms:
VRM to provide Cash Flow support totalling $120,000.00 to offset the cost of a salary for Anthony Matchett. It is agreed that this element is satisfied by VRM making 12 monthly payments of an amount equivalent to the Net Salary applicable for a Gross Salary of $10,000.00 per month to Anthony Matchett and 12 monthly payments of an amount equivalent to the tax payable for a Gross Salary of $10,000.00 directly to the Australian Taxation Office all on behalf of Savanah Ag Research Pty Ltd. The date of commencement of these payments is the date of this agreement.
(6)VRM would pay superannuation and tax with respect to the Management Payment;
(7)VRM would purchase $125,000.00 of Savannah product;
(8)VRM would pay $50,000.00 for the cost of consultancy fees paid to Ms Fabian;
(9)VRM granted to the Matchetts an option (exercisable within 10 years) to buy a certain portion of VRM’s shares at an agreed price to effect a reduction of VRM’s shares to less than majority holding;
(10)VRM granted Savannah an option to buy back a 150 of VRM’s shares at an agreed price with the effect that VRM would no longer hold the majority of shares;
(11)VRM would provide accounting and record keeping support for Savanah with Savannah assisting with the provision of sales, pricing, inventory and client management information;
(12)VRM and Savannah would mutually assist each other in marketing; and
(13)VRM would provide other “in kind” support including the use of storage facilities, farm equipment and vehicles.
Following the transaction, Savannah’s 2250 issued shares were held:
(1)1150 by VRM;
(2)500 by Mr Matchett;
(3)500 by Mrs Matchett; and
(4)100 by Ms Fabian.
The money personally received by the Matchetts in consideration for the sale of their shares was expended in a way that meant that it was no longer available to them over the months that followed. They did not otherwise have sufficient personal funds to cause Savannah to buy back a portion of VRM’s shares in accordance with the Share Option Agreement.
On 8 February 2022 Ms Walters was appointed as a director of Savannah as VRM’s nominee.
Following VRM’s share acquisition, relations between the Matchetts and VRM (particularly Mr Bellamy) rapidly soured.
A critical event occurred in March 2022 when VRM defaulted on its obligation to make the monthly Management Payment then due under the Cash Flow Agreement. Only one such payment had been made at that time and no further payments were ever made. VRM did not put forward a positive case that its failure to make the monthly payments from March 2022 was not in breach of the Cash Flow Agreement. There is otherwise nothing in the evidence to show that the cessation of the payment was justified as a matter of law. My reference in these reasons to a breach of the Cash Flow Agreement should be understood as referring to a belief on the Matchetts’ part that VRM was in breach. Whilst this is not a trial founded in breach of the contract I am satisfied for the purposes of this proceeding that the Matchetts’ belief was correct.
In her affidavit Ms Walters described the management and directors fees as being one of Savannah’s “key expenses”. That is an apt description. The failure of VRM to comply with is contractual obligations to Savannah in this respect resulted in directors payments owing to Mr Matchett being paid directly out of Savannah’s resources.
A further critical feature of the relationship was Mr Bellamy’s assumed entitlement to dictate the day to day business judgment decisions of the Board of Savannah. Mr Bellamy was not a director of Savannah. Whilst VRM had a contractual right to have a director appointed to the Board, that director was Ms Walters. She alone could not pass a resolution affecting the company’s day to day operations or its financial affairs. VRM had voting rights as a shareholder of Savannah, sufficient to remove the Matchetts as directors, but those rights were not in fact exercised before the administrators were appointed. In closing submissions VRM asserted that the situation was one in which VRM exercised “practical” control, requiring the Matchetts’ to “dance to the tune” of Mr Bellamy. I accept that VRM (particularly by Mr Bellamy) exercised practical control over Savannah.
Although Mr Bellamy was not a member of the Board of Savannah his evidence and conduct disclose a belief that he could and should dictate Savannah’s business plan and general direction in direct dealings with the Matchetts and that he could cause VRM to possess and control Savannah’s assets, and that is what he did in fact. His opinion as to the management of the affairs of Savannah differed from those of Mr Matchett including in respect of commercial matters affecting Savannah’s future profitability. Again, it is unnecessary for the Court to determine whether Mr Bellamy’s position in that conflict is correct. It is sufficient to identify that Mr Matchett and Mr Bellamy were at odds over matters concerning fundamental aspects of the business including development, production, planting, storage and sale of seed. At all times during that conflict the Matchetts had a duty to act in the best interests of Savannah, which in circumstances of solvency equated to the best interests of all of the shareholders (not just VRM). In circumstances of insolvency or near insolvency, the duty was to act in the best interests of creditors and to otherwise comply with the Act.
The relationship between VRM and the Matchetts deteriorated to the point where Mr Bellamy accused Mr Matchett of acting against the best interests of Savannah in particular transactions, accusations that Mr Matchett denied. The existence, nature and intensity of the business-related disputes is relevant to the Matchetts’ subjective assessment of Savannah’s financial position as identified later in these reasons. At this juncture, it is sufficient to mention two issues that were the cause of some conflict.
The first may be referred to as the ‘Mareeba Issue’. It arose when VRM insisted on Savannah’s seed stock being moved from a storage facility in Mareeba to a facility in Townsville that it owned and operated. The owner of the facility at Mareeba (Mr Santoscoy) would not release the seed until a payment had been made for use of the facility. Mr Matchett informed VRM that the money was in fact owed by Savannah to the facility owner pursuant to a memorandum of understanding and because the owner had suspended payments under that arrangement since December of the previous year. Mr Bellamy was dissatisfied, including because a liability owing to the owner of the Mareeba facility had not been disclosed in the financial records provided by Savannah to VRM prior to VRM acquiring its shares. Mr Matchett was directed to sort the problem out himself.
The second may be referred to as the ‘Rossi Issue. It arose in a context where Mr Matchett and Mr Bellamy were in dispute about payments that should be made to seed growers to recompense them for use of products known as catalyst and groundswell. Mr Matchett had previously operated the business on a model where Savannah made those payments and bought back the crops for resale at a profit. Mr Bellamy’s view was that growers should cover those costs and that there should be no buy-back of crops. That fundamental difference between them was apparent from about March or April 2022. On 9 April 2022, Mr Bellamy sent a text/WhatsApp message to Mr Matchett demanding that he be provided with an invoice sent to a grower named Rossi. He followed up with the terse message: “this is not a casual request”. The messages indicate a level of distrust on the part of Mr Bellamy as to whether Mr Matchett would operate in accordance with VRM’s demands on the issue. On 10 April 2022 Mr Matchett generated an invoice for Rossi and provided a copy to Mr Bellamy. He did not tell Mr Bellamy that he had agreed with Rossi that the expenses of the catalyst and groundswell would be met by Savannah. He asked Rossi to issue an invoice addressed to the Matchetts personally to cover the costs of the catalyst and groundswell. The Matchetts paid that invoice from their own funds. Mr Matchett reasoned that after the payment and the buy-back of crops there would be a significant profit to be made for Savannah. Mr Matchett told the Court that he knew that Mr Bellamy would disapprove of the transaction and so sought to conceal it from him.
By 7 April 2022 Mr Matchett was expressing his frustrations in writing, including his concerns about Savannah’s revenue streams, paths to market and budget assumptions. In an email sent on that day he expressed the view that the entire business model needed to be addressed because he could not see revenue paths that would contribute income to the business.
On 13 or 14 April 2022 Ms Walters attended at a branch of Savannah’s bank together with the Matchetts where they signed forms to enable Ms Walters to become a signatory to Savannah’s bank accounts. As at 9 May 2022 their requests had not been processed by the bank.
That day Mr Bellamy, Ms Walters and the Matchetts attended a meeting at VRM’s Brisbane premises (9 May meeting). At that meeting, Mr Bellamy demanded that Ms Walters become a signatory to Savannah’s bank accounts. Mr Bellamy alleges that he insisted upon her becoming a signatory as a condition of VRM reinstating the Management Payments under the Cash Flow Agreement. I have already observed that VRM was in breach of the Cash Flow Agreement by withholding the Manager Payments and I am satisfied that Mr Bellamy had no legal entitlement to make demands concerning access to Savannah’s bank accounts as a precondition to the reinstatement of the payments. As explained elsewhere in these reasons, I have concluded that at the time of the Resolution, the Matchetts proceeded on a reasonable assumption that there was no prospect of the Manager Payments resuming. I would arrive at that conclusion whether or not the bank signatories demand was made as a condition of their restoration.
The conflict between Mr Bellamy and Mr Matchett concerning Savannah’s business plan was also the subject of a heated conversation between the two of them at the 9 May meeting.
When Mr Matchett attempted to remove himself from the meeting Mr Bellamy said words, in an aggressive tone, to the effect:
Your next decision is a very important one. If you choose now to leave this room, I will destroy you. The next correspondence you get will be from my lawyer, and he will take you for everything.
Mr Matchett’s evidence as to the content and tone of that statement was not challenged and I accept it.
Following the 9 May meeting, Mr Bellamy insisted that he too become a signatory to Savannah’s bank accounts.
On 10 May 2022 Mr Matchett sent an email to both Mr Bellamy and Ms Walters advising that he had received a call from Savannah’s bank confirming that “2 director authentication” could be set up for transactions on Savannah’s accounts, however the bank could not specify that Ms Walters be a necessary signatory. Mr Matchett asked Mr Bellamy and Ms Walters whether they wanted to follow the issue up for themselves, or whether the issue should be “managed internally”. He did not receive a response. Mr Matchett did not otherwise take steps to make Mr Bellamy an additional signatory to Savannah’s accounts. In cross examination he said that he did not consider that Mr Bellamy had any right to be a signatory in circumstances where he was not a director of Savannah.
I reject assertions by both Mr Bellamy and Ms Walters that the Matchetts had failed to take all steps necessary to make Ms Walters a signatory on Savannah’s bank accounts (assuming for present purposes they had any legal entitlement to insist upon it). It was within their power to follow up with Savannah’s bank both in respect of the forms signed by Ms Walters in mid- April 2022 and in relation to the issue raised in Mr Matchett’s email of 10 May 2022. Ms Walters gave evidence to the effect that she was concerned that there was inadequate transparency with respect to Savannah’s banking. That evidence is difficult to reconcile with her acceptance that the Matchetts attended with her at the bank in April 2022 to complete the necessary forms, and with the failure by her and Mr Bellamy to respond to Mr Matchett’s email of 10 May. I accept Mr Matchett’s evidence that when Mr Bellamy complained at the 9 May meeting that Ms Walters had not been made a signatory, Ms Walters remained mute notwithstanding that she had by that time signed forms with the bank with the Matchetts’ cooperation.
Ms Walters deposed that it remained within Savannah’s responsibility and control to oversee seed planting to ensure revenue streams. That evidence is contradicted by the contemporaneous correspondence and I do not accept it. On 18 July 2022 Mr Matchett sent an email to Ms Walters asking her how many hectares of a list of 11 seed and grain products had been planted and the crop locations because he needed to know what the supply would be available for customers. The correspondence is consistent with Mr Matchett’s claim that he had been denied transparency of stock because it had been brought under VRM’s physical control in Townsville. Ms Walters did not respond in terms that the question was unusual or unnecessary. Instead, she briefly stated in an email dated 19 July 2022 that there had been some sunnhemp and mustard seed planted and noted their locations. Mr Matchett otherwise told the Court that the majority of Savannah’s seed stock had been earlier relocated to a storage facility in Townsville controlled by VRM which limited his physical access to it and information about it.
On 16 July 2022 Mr Matchett complained that VRM’s accounting records relating to Savannah were incorrect, including because they made no provision for VRM’s broken commitment to make the Management Payment and associated superannuation. He complained that the accounting services provided by VRM were “far from supportive”. He stated that Savannah would be reverting to its own Xero accounting system from 1 July 2022 and would submit monthly reports prepared by a book keeper “to bring efficiency back to accounting for Savannah”.
On 21 July 2022, Mr Matchett emailed a letter to Mr Bellamy (copying Ms Walters) in the following terms:
We refer to our ongoing discrepancies over Savannah AG and how the company is to progress.
As you know Kate, William, Catherine and I ran the company prior to you coming on as an investor. We ran the company with a vision in mind and believed that you shared that same vision for the company.
However, recent events have led us to believe that there is no shared vision for the company and you seek a different outcome. Examples of those events include that you have rejected our business plans and stopped us from engaging with our grower suppliers.
You have also not met your obligations in respect of the purchase of the shares in Savannah which required a contribution equal to my wage and superannuation. That payment was made in the first month, but there has been no payment of that amount since. That is despite VRM contributing funds towards Kate’s wage.
With that in mind, Catherine and I have come to the conclusion that we need to look towards an amicable separation.
Please let us know your proposal to overcome this impasse.
We look forward to receiving your response by 26 July 2022.
No response was received.
On 1 August 2022 Mr Matchett made arrangements for the return to VRM of a vehicle provided to Savannah for its use under the Cash Flow Agreement. In the days following he made arrangements for the return of some bulk containers containing a variety of VRM products owned by Savannah to VRM’s Townsville premises. Ms Walters deposed that the products in the returned bulk containers could instead have been sold by Savannah for a profit of $18,000.00 but did not state the time frame in which that might have been achieved nor whether such a sale would have been commended or facilitated by VRM.
Ms Walters resigned as a director on 3 August 2022. There is no evidence that her asserted reasons for her resignation were conveyed to the Matchetts at any time prior to the Resolution.
On 8 August 2022, Mr Matchett sent an email to Ms Walters stating that Savannah wished to terminate the licence agreement with VRM International Pty Ltd.
At some time prior to 9 August 2022 Mr Bellamy determined that the Matchetts should be removed as directors. His intention was not communicated to the Matchetts at that time.
In the week prior to 15 August 2022 Mr Matchett contacted investors with a view to attracting them to invest in Savannah. I will consider his motivations for making those approaches and their outcomes in due course.
From 15 August 2022, Mr Matchett obtained legal advice. He told the Court (and I accept) that his lawyer arranged for him to meet with a representative of SV Partners (the office of the administrators) and with Ms Cheryl Stainsby of Your Directors Advocate Pty Ltd, a consultancy business trading as Strategic Solutions.
The administrators’ declaration of independence (adduced on VRM’s case) confirms that Mr Adam Thorpe of SV Partners met with Mr Matchett and Ms Stainsby on 15 August 2022. The purpose of that contact was stated to be:
To discuss the status of the Company and outline its need for assistance.
To discuss a potential appointment and to obtain sufficient information about the financial position, solvency potential risks, unique stakeholders or circumstances that would affect any formal appointment over the Company.
To obtain sufficient information about the Company and related entities to assess any conflicts of interest or potential future conflicts of interest.
To clarify and explain the various options available to the Company and the nature and consequences of an insolvency appointment including potential actions available to a Liquidator against a director of an insolvent company.
Providing relevant documentation to allow the appointment of the Voluntary Administrator.
On the same day, Ms Stainsby sent an email in these terms to Mr Matchett:
Hi Tony
It was good to talk to you today and Nicole it was good to speak with you again as well.
I look forward to seeing the financials once they are available and I will organize a zoom conference to discuss further one [sic] I have had a chance to review them.
In the meantime if there are any developments with the other party or you would like catch up sooner, please give me a call on Mobile [redacted] and we can move things forward.
On the morning of 16 August 2022 Mr Matchett forwarded to Ms Stainsby and other recipients copies of Savannah’s financial reports for 2020 and 2021 and asked if there was anything more he needed to do. Later that day Ms Stainsby advised Mr Matchett by email that a company search identified that Ms Walters remained recorded as a company director of Savannah. The email stated “she may have resigned but the ASIC search has not been updated to reflect that and that would be the fly in the ointment to any strategies we discussed yesterday”. Mr Matchett responded to the effect that he would update the Australian Securities and Investments Commission (ASIC) record.
By a further email exchange on the same day, Ms Stainsby asked whether Mr Matchett had a stocktake and Mr Matchett said that he would undertake one on the following day. Ms Stainsby also requested that Mr Matchett provide a listing of staff, as well as documents from Savannah’s bookkeeping systems namely aged payables and receivables reports, profit and loss statements and a balance sheet.
On the following day Mr Matchett emailed to Ms Stainsby a staff list as well as two attachments, being reports taken from book keeping systems concerning aged payables, aged receivables and profit and loss. The attached documents are generated from the QuickBooks or “Intuit” system operated by VRM as well as reports generated from Xero which Mr Matchett said ‘we have reverted too [sic] going forward”.
Insofar as they are relevant to conclusions that follow, the Xero reports indicate:
(1)a net loss for the 2021/2022 financial year of $218,033.07;
(2)a net loss to date (that is, to 17 August 2022) for the 2022/2023 year of $36,846.32;
(3)trading income declining from 477,872.06 in the 2020/2021 financial year to $269,558.46 in the 2021/2022 financial year to -$4,174.00 for the financial year 2022/2023 to date;
(4)aged receivables as at 17 August 2022 of less than $1,000.00;
(5)current and long term assets of $129,923.68, including about $100,000.00 cash in the bank; and
(6)current liabilities of $68,281.75.
On 18 August 2022 Mr Matchett sent an email to his accountant concerning the updating of ASIC records to reflect the resignation of Ms Walters as a director. He asked the accountant to advise when the record had been updated “so we can continue to action our separation strategy”.
The ASIC record was updated on the following day.
On the morning of 18 August 2022 Mr Matchett sent further documents to Ms Stainsby including the Cash Flow Agreement, Share Option Agreement and Savannah’s constitution.
That evening, Mr Bellamy sent this WhatsApp message to Mr Matchett:
You have acted illegally to cancel a subscription owned by VRM Biologik. You are formally on notice.
Mr Matchett forwarded the WhatsApp message to Ms Stainsby with the following email:
This has just been received by me from ken via Whatsapp.
I think he is referring to me closing and cancelling the subscription (that savannah pays for) to Quickbooks that was requested by VRM to align our financials with VRM.
This was cancelled so as bank feeds stopped going through to VRM’s financial team, but we advised them of this service being far from ‘supportive’ and that it was to be cancelled back in mid‐July, and had zero response since then until now.
Mr Matchett later clarified that the cancelled subscription was an Intuit subscription that had been paid for by VRM and added that he had probably acted illegally by cancelling it.
ASIC records show that on Friday 19 August 2022 a company named Sustainable Foods Australia Pty Ltd (SFA) was incorporated, having Mr Matchett as the sole director and shareholder.
Later that afternoon Ms Stainsby sent to Mr Matchett a copy of her letter of engagement and an invoice and requested that they return the signed agreement and a receipt for the invoice payment. The consulting agreement names Your Directors Advocate Pty Ltd as the service provider and Mr Matchett, Mrs Matchett and Savannah as clients. The consulting services covered by the agreement are defined to include:
1.1“Consulting Services” means providing the following services and such other consulting services as may be required and agreed from time to time:
-Initial consultation to obtain instructions including all relevant documentation;
-Assessment of business and asset position;
-Assistance in negotiating with creditors;
-Assistance in negotiating with financiers including banks;
-Liaising with accounting and legal advisors and review of and where necessary, summarising and explaining the advice provided;
-Review of Client guarantee position;
-Mediating with third parties;
-Review of personal taxation position.
The scope of work is then described as follows:
Scope of Work: Consulting Assistance with the Pre-positioning of Savannah AG Research PL, Appointment of a Voluntary Administrator and subsequent DOCA or CVL. Assistance with lodgement of Paperwork, all correspondence with Administrator or Liquidator and Sale of Business.
The timeframe allowed for completion of work as outlined above is 3 to 6 months.
Additional works outside of the initial agreed scope of work, being external costs will incur either a supplementary quote or a revision of the original quote.
Services will commence upon receipt of the fee charged by YDA, which are due and payable in full, prior to the commencement of work on the Client's file.
Ms Stainsby also sent an email to Mr Thorpe asking him to “send undated VA Docs”. She stated “we are trying to get this in for next week”.
Mr Thorpe of SV Partners responded later on 19 Friday 2022, attaching forms providing for his appointment as administrator. His email relevantly stated:
Please ensure that the Director has the $30‐40k in the account for us if appointment is happening early next week. Otherwise I will provide the trust details.
The attachments to Mr Thorpe’s email include a letter addressed to the directors of Savannah referring in its opening line to the proposed voluntary appointment of administrators to the company. The attachments to Mr Thorpe’s email included a draft resolution for the appointment of administrators with provision for signatures to be applied by the Matchetts. The wording of the draft resolution is the same as that later made by the Matchetts and includes an expression of opinion that “in the opinion of the Directors, the Company is insolvent or is likely to become insolvent at some future time, and an administrators [sic] of the Company should be appointed”. The attachments also included advice concerning the appointment of administrators and a schedule of fees.
Mr Matchett returned the signed agreement to Ms Stainsby by email sent at 8.30am on Monday 22 August 2022. The signatures of the Matchetts are dated 19 August 2022 and it has not been suggested by them that they were applied at a later time.
In his email Mr Matchett said that he would provide Ms Stainsby with an asset and liability worksheet “asap”. Mrs Matchett was copied in that response.
At 8.43 am Ms Stainsby sent an email to Mr Matchett as follows:
Thanks Tony,
I am in meetings most of the day today so Sue will be collating all of the urgent information I have requested so far … can you please copy her into all correspondence always in case I do not see an email come through.
She will also be requesting the information for the Management Agreement today. We aim to get you into Voluntary Administration this week early as possible.
If you have any urgent queries leave me a voicemail and I will get back to you as soon as I can.
By email sent at 11.16am, VRM’s solicitor sent an email to Mr Matchett attaching a notice for the convening of an EGM (EGM Notice). It contained no proposed resolution. The agenda items were set out under the heading “General business” as follows:
(a) Address items of general governance of the company.
(b)To consider any other business as may be lawfully put forward in accordance with the Constitution of the Company.
The EGM Notice stated that the EGM was scheduled to take place at 11.00am on the following day if members holding at least 95% of votes agreed, or (absent such agreement) at 11.00am on 9 September 2022. Mr Matchett forwarded the covering email and its attachment to Ms Stainsby within about half an hour.
At 12.41pm an employee of Strategic Solutions sent to Mr Matchett an email with the subject heading including the words “Management Agreement Information” seeking Mr Matchett’s confirmation of the accuracy of information contained in an attached table. The attachment refers to Savannah as vendor and SFA as manager. The first column includes the question:
How is stock to be dealt with:
-is there a stocktake and when does that occur?
-does the manager buy the stock upfront or pay for it as it is sold?
The “Answer” column states “TBA” and a “Comments” column refers a stocktake of 22 August 2022 recorded in a spreadsheet and the phrase “can go as consignment stock”. Another row refers to employees of Savannah being taken over by the manager, including Mr Matchett at the same rate of pay as that of the Manager Payments.
At 1.03pm an employee of Strategic Solutions emailed to Mr Matchett the documents that had been provided by SV Partners to facilitate the appointment of voluntary administrators. That email asked that Mr Matchett arrange for both Mr Matchett and Mrs Matchett “to sign and date (today’s date and time where applicable) the forms where indicated and return same to our offices as soon as possible”.
In cross examination Mr Matchett said (and I accept) that he drove from Cairns to Mrs Matchett’s workplace in Palm Cove and that he and Mrs Matchett had a brief meeting at which the Resolution was passed. The Resolution states that it was made at a meeting held at 1.45pm.
Mr Matchett then returned the signed documents to Strategic Solutions by email at 2.10pm.
The EGM Notice was later amended so as to schedule the meeting at 11.00 am on 12 September 2022 (if there was no agreement for the meeting to be scheduled for the following day). The amended notice was sent by email between 2.08 and 2.09pm. At that time, VRM had not been made aware that the Resolution had been made. The Matchetts later informed VRM’s solicitors that they would not attend the meeting following the appointment of administrators.
At 3.18pm, Mr Matchett forwarded an “assets/liabilities workbook with sheets for different categories” to Ms Stainsby and stated that he would go to the bank to set up accounts for SFA.
On 23 August 2022 Mr Thorpe of SV Partners sent an email to Ms Stainsby and Mr Matchett confirming the appointment of Mr Stimpson and Mr Kersey as administrators of Savannah. The email proposed a meeting to discuss seed stock and leased properties. It concluded:
We can also discuss the management agreement, however I am ok to allow this to continue in principle (so as to continue trading) based on terms largely outlined in the draft until the deed is finalised.
Mr Bellamy deposed that the EGM could not occur on 23 August 2022 because of the appointment or purported appointment of the administrators. That is not entirely correct. The EGM did not occur on 23 August 2022 because VRM had no entitlement to conduct an EGM at short notice on that day without the consent of 95% of shareholders, which was not forthcoming.
By letter sent on 24 August 2022, VRM’s solicitor gave the Matchetts and the administrators notice of an EGM to be held on 14 September 2022. The correspondence was to the effect that VRM would exercise its voting rights at that EGM to remove the Matchetts as directors. An agenda for the EGM set out proposed resolutions to that effect. The Matchetts were otherwise invited to resign and they were provided with pro forma resignation notices to achieve that end. Neither of them accepted the invitation to resign.
Mr Matchett continued to provide Ms Stainsby with records relating to Savannah’s business following the appointment of the administrators, including a spreadsheet identifying its assets and liabilities.
VRM later asserted its contractual right under the Cash Flow Agreement to appoint a director to Savannah. It advised the administrators that Mr Bellamy had been appointed as a director and that ASIC would be advised of that appointment on the following day. The administrators were also notified of the VRM’s challenge to the validity of their appointment culminating in the institution of these proceedings on 6 September 2022.
By orders made on 9 September 2022 Downes J granted an application for an interlocutory injunction made on the application of VRM and supported by undertakings as to damages given by it and by Mr Bellamy in his personal capacity. The order restrains the administrators from:
(a)calling or convening a meeting of the company’s creditors under section 439A(1) of the Act;
(b)disposing of, or otherwise diminishing or altering any interest that the First Respondent has in any intellectual property rights, licenses, permits or authorisations;
(c)otherwise disposing of, or otherwise dealing with the assets of the First Respondent other than in the ordinary course of business;
(d)except insofar as is reasonably necessary to preserve the assets of the First Respondent, taking any further steps in the administration of the First Respondent, including by:
(1)undertaking any further investigations pursuant to section 438A of the Act; and
(2)exercising any powers or providing any consents pursuant to sections 437A(1)(b), 437A(1)(c), 437A(1)(d), 437D, 437F of the Act.
At the EGM held on 14 September 2022, VRM exercised or purported to exercise its voting rights as majority shareholder to pass resolutions providing for the removal of the Matchetts as directors of Savannah.
On 31 August 2022 Mr Matchett signed a Report on Company Affairs and Property (ROCAP), identifying the Matchetts as creditors in an amount of $68,015.00.
Findings as to states of mind
VRM’s witnesses
The affidavits of Mr Bellamy and Ms Walters contain a multitude of opinions they formed about the Matchetts, most of them derogatory and based on accusations of wrongdoing. I do not consider their views about the Matchetts to meaningfully inform my assessment of the matters to be decided on VRM’s application. I am mindful that Mr Bellamy especially accused Mr Matchett of acting against the interests of Savannah in respect of at least the Mareeba Issue and the Rossi Issue. As I understood Mr Bellamy’s evidence, he relied on (at least) his suspicions in respect of those issues and other matters to justify steps he took to cause VRM to withhold the Manager Payment and to call the EGM. To the extent that Mr Bellamy relied on his suspicions as justifying the words he said at the 9 May meeting, I consider that to be a peripheral issue. The words he said and the manner in which he said them are nonetheless relevant to the Matchetts’ views as to whether the relationship with VRM was affecting Savannah’s business and will be considered for that purpose. VRM’s subjective motivations for calling the EGM are not presently relevant.
I have already rejected the assertion that the Matchetts had failed to take the necessary steps to make Ms Walters a signatory (including a necessary signatory) on Savannah’s bank accounts. Mr Bellamy’s evidence on that topic is contradicted by the email correspondence. To the extent that Mr Bellamy held that issue out to be a reason for withholding the Manager Payment, I do not accept it and it does not assist VRM’s case in any event.
To the extent that Mr Bellamy and Ms Walters expressed opinions about the financial position of Savannah, VRM’s claim for relief in these proceedings does not depend on findings as to whether either of their opinions was genuinely or even reasonably held. In the conduct of its case, VRM did not seek to positively prove that Savannah was in fact solvent (or likely to become insolvent in the future) at the time of the Resolution by reference to all relevant materials. Foreshadowed reliance on an expert report on the topic of actual solvency was withdrawn. I otherwise gain very little assistance from the assertions of Mr Bellamy and Ms Walters as to their asserted shock or surprise that administrators were appointed on the basis of insolvency under s 436A of the Act. Their asserted opinions as to solvency were based on selective aspects of Savannah’s operations and principally its balance sheet position, rather than its cash flow position. Neither of them gave sufficient acknowledgement of the impact that VRM’s failure to make the Management Payment may have had on Savannah’s ability to pay its debts as and when they fell due.
Mr Bellamy referred to Mr Matchett’s conduct in cancelling a QuickBooks subscription held in VRM’s name. He is correct in his assertion that Mr Matchett had no legal entitlement to cancel the subscription. His message to Mr Matchett confirms that he was angry about the cancellation, but whether or not he was justifiably angry is of little consequence to the issues to be decided.
There were differences in reports produced out of QuickBooks and reports produced out of Xero, however, VRM did not advance a positive case to establish which of those records reflected the true position. Mr Bellamy’s evidence was not such as to satisfy me that it was unreasonable for the Matchetts to have regard to reports generated by Xero in preference to those generated by QuickBooks.
I am satisfied that at the time when the EGM Notice was issued, the following facts and circumstances already existed:
(1)Mr Matchett had engaged his lawyer who had introduced him to the office of the administrators SV Partners and to Ms Stainsby of Strategic Solutions;
(2)In the week that followed there was a flurry of activity principally directed to preparing Savannah to be put to voluntary administration;
(3)SFA had been incorporated as a vehicle intended to enter into a management agreement with the administrators for the purpose of continuing the operation of Savannah’s business during the administration process;
(4)Arrangements had proceeded to the extent that on the Friday before the EGM notice was issued, documents facilitating the appointment of administrators had been prepared. A draft resolution had been prepared and sent by SV Partners to Strategic Solutions and Ms Stainsby had been formally engaged under an agreement the scope of which was clearly directed to representing the Matchetts in their dealings with the administrators;
(5)The provision of information by Mr Matchett to Ms Stainsby proceeded with haste commencing on 15 August 2022 and continuing throughout that week and into the following week; and
(6)The words “as soon as possible” or “asap” or “next week” or “early next week” had already been used in the correspondence passing between Mr Stainsby, the administrators and the Matchetts.
Viewed in its proper context, the service of the EGM Notice did not introduce an element of haste that had not previously existed. Accordingly, I do not consider that the issue of the EGM Notice put in train a course of events that would not otherwise have occurred. The most that could be said is that the issue of the EGM Notice did not cause the Matchetts to change the trajectory toward voluntary administration. Expressed another way, it has not been established that the Resolution would not have been passed were it not for the Matchett’s receipt of the EGM Notice.
As explained earlier, I am not satisfied that the Matchetts or either of them subjectively considered that the EGM Notice forecast their inevitable removal as directors in any event. I have accepted Mr Matchett’s evidence that he did not interpret the notice in that way. His evidence on that topic is not inconsistent with the equivocal words used in the EGM Notice itself and it is not otherwise contradicted by the whole of the evidence. The evidence shows that VRM had not exercised its powers to remove the Matchetts over the many months in which they were directing accusations at the Matchetts tantamount to fraud. Ms Walters did not communicate her purported reasons for resigning to the Matchetts. It was Mr Matchett’s evidence that following Ms Walter’s resignation he felt abandoned by VRM in the sense that the board was left to make decisions alone to address Savannah’s likely future insolvency. I accept that he genuinely held that view. I accept that Mr Matchett fairly anticipated that VRM would appoint Mr Bellamy as a director and that Mr Matchett expected that Mr Bellamy would “kick his arse”. But I reject the submission that he saw the EGM notice as necessarily foreshadowing a resolution that the directors be replaced altogether.
I also accept that Mr Matchett correctly understood the proposed EGM to be some three weeks away and it is plain that the fact that the meeting had been called did not dissuade him from the view that administrators should be appointed. His intention to appoint administrators is made most plain by his execution and return of the agreement to Ms Stainsby, which occurred before the EGM notice was issued. If the Resolution was not passed on the Monday I am satisfied that it would in any event have been passed in the days that followed and in any event before the EGM was scheduled to occur.
Mr Matchett told the Court that he considered the administrators were best placed to correspond with VRM with respect to its interests as a shareholder and he understood that administrators must and would act neutrally as between the interests of all of Savannah’s members.
Mrs Matchett was not directly questioned as to how she interpreted the EGM Notice, but I accept her denial that it played any part in her decision to vote in favour of the Resolution and that she otherwise relied on the advice of Mr Matchett concerning the timing. I have not overlooked Mrs Matchett’s acknowledgment that she had not planned on the morning of 22 August 2022 to pass the Resolution on that day. However, I am satisfied that the Resolution occurred on that day because of the circumstance that all of the documents necessary for the appointment itself had been brought into existence the prior Friday and was sent to Ms Stainsby’s office by the administrator. It is also explained by Ms Stainsby’s office receiving the executed agreement for her engagement and the payment of her fee earlier that morning. Whilst Ms Stainsby was yet to receive further information, I am not satisfied that the remaining material was critical to the appointment itself. The correspondence suggests that it related to matters to be attended to post-appointment, specifically the finalisation of a management agreement and the preparation of the ROCAP.
I find that Mr Matchett acted upon Ms Stainsby’s instruction to execute and return the documents as soon as possible. I accept his evidence that the timing of the Resolution was explained by that instruction, consistent as it was with the haste of activity in the week preceding it. If I am wrong in making that positive finding, I would nonetheless conclude that VRM has failed to establish, to the requisite standard, that an improper motivation existed by reference to the EGM notice. It is understandable that VRM’s case focussed heavily on the short period of time between the issuing of the EGM notice and the making of the Resolution. However, that evidence must be considered in the context of the evidence as a whole.
In any event, I have previously found that Mr Matchett was genuinely concerned to avoid Savannah entering into transactions that might later be “clawed back” should there be a liquidation. I am also satisfied that he had genuine intentions to ensure that Savannah’s business operations could continue whilst it was under the control of the administrators and that he was motivated in that respect to avoid the company’s assets (including the whole of the business) being lost in a liquidation process. That state of mind is consistent with the objects of Pt 5.3A of the Act, not extraneous to them.
Ownership and control of assets
VRM postulated various theories as to what the “strategy” referred to in the contemporaneous correspondence entailed. In opening submissions it was suggested that the Matchetts had artificially made themselves creditors of Savannah so that they could, in that capacity, vote on a Deed of Company Arrangement to acquire Savanah’s assets for themselves. To the extent that that original case theory was pursued in closing submissions, it has not been established on the evidence and I reject it.
Reliance was also placed on the incorporation of SFA as a new company on 19 August 2022. However, I am satisfied on the basis of Mr Matchett’s evidence and the contemporaneous correspondence that SFA was incorporated as an entity that was intended to enter into a management agreement to ensure the continued operation of Savannah’s business during the administration. It has not been shown that it was incorporated as a vehicle to enable the Matchetts to secure Savannah’s assets for themselves. The most that could be said is that the Matchetts were concerned to preserve Savannah’s business as a going concern for the benefit of its shareholders, which included themselves. I am not satisfied that the appointment of administrators was made to place themselves in a better position than VRM to deal with the administrators as to the future ownership of Savannah or its business. I find that Mr Matchett considered that Savannah’s business would continue to exist and would be profitable in the future, because the administration would create the circumstances necessary for it to return to profitability.
Mr Matchett’s dealings with additional potential investors for Savannah in the week prior to the administration requires separate consideration. I am satisfied that those discussions took place because the Matchetts did not have the resources to exercise the option under the Share Option Agreement to reduce VRM’s shareholding. However that issue too is inextricably connected with Mr Matchett’s genuine belief that the cause of Savannah’s actual and anticipated lack of revenue was VRM’s conduct. The circumstance that the Resolution was made after those overtures came to nothing does not support a conclusion that the Resolution was actuated by an improper purpose. The absence of additional investors informed Mr Matchett’s view that the issues affecting Savannah’s likely future solvency were not going to resolve for so long as there was disagreement between VRM and the directors about how the company’s business should operate and for so long as VRM insisted on a business plan that Mr Matchett genuinely believed was commercially unviable. The nature of the investment that prospective investors might otherwise have made was not the subject of decisive cross examination. But to the extent that Mr Matchett attempted to attract more capital investment in Savannah, the failure of those attempts takes VRM’s case no further.
I am not satisfied that the appointment of the administrators was actuated by the purpose alleged by them, namely a desire on the part of the Matchetts to acquire Savannah’s assets for their own benefit. The circumstance that it is open to the Matchetts to propose and participate in a DOCA affecting those assets is not sufficient to demonstrate the existence of an improper actuating purpose of that kind.
Failure to call Ms Stainsby
VRM submitted that the Matchetts’ failure to call Ms Stainsby enabled an inference to be drawn in accordance with the principles stated in Jones v Dunkel (1959) 101 CLR 298, at 308, 312 and 320 – 321.
It is relevant to consider that the Matchetts were self-represented. Their intention not to call Ms Stainsby was known to VRM’s legal representatives in advance of the trial. VRM did not foreshadow a Jones v Dunkel submission prior to the trial and it has not been shown that the principles were understood by either of the Matchetts at that time. The principles were explained to the Matchetts by the Court some time after the trial had commenced.
Mr Matchett then made belated contact with Ms Stainsby to enquire as to her availability to attend to give evidence at short notice. Mr Matchett reported to the Court (and it does not appear to be disputed) that Ms Stainsby expressed a reluctance to attend at the trial in the days remaining for the hearing, and that she considered that she had produced all of her documentary records to VRM disclosing her involvement in the events. It has not otherwise been shown that she was unavailable (as opposed to unwilling) to give evidence.
The Matchetts did not seek leave for a subpoena to issue to compel her attendance. Had such an application been made, it would have been necessary to consider whether a stranger to the proceedings should be compelled to attend to give evidence in the trial at very short notice.
It seems to me that an applicant party in VRM’s position intending to make a Jones v Dunkel submission against a self-represented respondent should notify that respondent of the principle sought to be invoked. If that notification is not given, it will be more difficult to establish that the self-represented party has made an informed forensic choice not to call the witness in question, assuming the witness is naturally in the camp of the respondent party.
I will nonetheless proceed on the assumption that the principle discussed in Jones v Dunkel is enlivened in the circumstances I have described. The principle is to be applied in a context where VRM bears the onus of proof on its claim for relief.
The Matchetts gave evidence supported by documents in the nature of business records authored by Ms Stainsby, the authenticity of which is not challenged. The principle in Jones v Dunkel applies such that the Court may infer that if Ms Stainsby were to be called her evidence would not have assisted the Matchetts’ case. However, the principle does not operate to “convert conjecture and suspicion into inference”: see generally Heydon JD, Cross on Evidence (11th ed, LexisNexis Butterworths, 2017) at [1215]. In the present case, it does not require or permit an inference that Ms Stainsby would have given positive evidence sufficient to fill gaps in VRM’s case in respect of those matters she might be expected to give evidence about.
VRM’s reliance on Jones v Dunkel does not alter the circumstance that the business records produced by Ms Stainsby corroborated the Matchetts’ evidence in critical respects. VRM’s closing submissions do not identify how any legitimate inference that may be drawn in accordance with Jones v Dunkel could or should be employed by the Court in a way that would make a difference to the outcome. The factual findings expressed in these reasons have been reached on the whole of the evidence and with the principle in Jones v Dunkel borne firmly in mind, and adopting an assumption that it applies.
ORDERS
The appointment of administrators to Savannah is neither void nor voidable. The injunction restraining the administrators from exercising their powers in relation to Savannah in the ordinary course should be discharged.
The parties should be heard as to any ancillary or consequential orders, including as to costs.
I certify that the preceding two hundred and twenty one (221) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Charlesworth. Associate:
Dated: 23 February 2023
SCHEDULE OF PARTIES
QUD 306 of 2022 Respondents
Fourth Respondent:
CATHERINE GRACE MATCHETT
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