Bovis Lend Lease v Wily

HIS HONOUR : The plaintiff ("Bovis") is a major construction company and was the head contractor on the Aurora Place project at 88 Phillip Street Sydney, and the adjacent Macquarie Apartments. The Macquarie Apartments were completed in May 2000 and Aurora Place in October 2000. Interline Interior Linings Pty Ltd ("the Company") was engaged by Bovis as a subcontractor to carry out plasterboard partition and suspended ceiling works.

Tui Gilbert is the sole director of the Company. The sole shareholder of the Company is Tui Gilbert Holdings Pty Ltd. Mr Gilbert is the sole director and shareholder of Interline Interior Linings (NSW) Pty Ltd ("Interline (NSW)") and of Puketapu Pty Ltd. He is the sole director of Tui Gilbert Holdings Pty Ltd, the sole shareholder of which is Puketapu. Therefore he is, indirectly, the owner of the Company.

Andrew Wily was the liquidator of the Company. In contested circumstances, he purported to appoint Thomas Javorsky as the administrator of the Company. Subsequently a deed of company arrangement (“DOCA”) was purportedly entered into for the Company, and Mr Javorsky became the deed administrator.

There are three proceedings before the Court. Each of them is designed to test, in various ways, whether a scheme implemented by Mr Gilbert, under which he would acquire control over a claim for damages by the Company against Bovis by means of the deed of company arrangement, is valid.

In proceeding No 6062 of 2001, commenced on 20 December 2001, Bovis applies under ss 600A, 1321, 1322 and 447C of the Corporations Act 2001 (Cth) to set aside the purported appointment by Mr Wily, acting as liquidator of the Company, of Mr Javorsky as administrator. The plaintiff also seeks a declaration that the Company is in liquidation and not voluntary administration, and that Mr Wily remains the liquidator. The defendants are Mr Wily and Mr Javorsky. Essentially this is an appeal to the Court against a decision of a liquidator under s 1321 of the Corporations Act, together with an application for a declaration under s 447C that an administrator has not been properly appointed.

In proceeding No 1309 of 2002 Bovis applies under ss 445D, 447A, 449B, 449E, 600A, 1321, 1322 and 1324 of the Corporations Act and reg 5.6.26 of the Corporations Regulations for various alternative declarations and orders. The purpose of the proceeding is to challenge the validity of the second meeting of creditors of the Company in administration, at which the creditors resolved that the Company execute a deed of company arrangement, or to obtain orders terminating the deed of company arrangement, so that the company is returned to liquidation. Bovis also challenges decisions at the second creditors' meeting to admit it to vote for only $1 and to admit Interline (NSW) to vote for a substantial amount. It seeks to remove Mr Javorsky as administrator and it invites the Court to review Mr Javorsky's remuneration. The defendants are Mr Javorsky, the Company, Interline (NSW) and Mr Wily. Mr Javorsky and Mr Hurst have made a cross-claim seeking declarations of validity with respect to the meeting, or alternatively curative orders under s 447A or s 1322.

The third proceeding, No 1088 of 2001, is the proceeding for the winding up of the Company, under which a winding up order was made on insolvency grounds and Mr Wily was appointed liquidator. Mr Gilbert and Tui Gilbert Holdings have filed an interlocutory application in this proceeding, seeking a declaration that the winding up of the Company was terminated on Mr Javorsky's appointment as administrator, or alternatively on the passing of the resolution approving the Company's entry into the deed of company arrangement, or the execution of the deed. In the alternative, the applicants seek orders under s 482 terminating or staying indefinitely the winding up order. Strictly only Tui Gilbert Holdings, a creditor, has standing to apply under s 482.

Orders have been made having the effect that the first two proceedings and the application in the third be heard together, and that evidence in each be evidence in the others. Mr Gilbert and Interline (NSW) have been given leave to be heard on all aspects of the proceedings, under Corporations Rules, para 2.13.

The case so constituted is complex, both factually and in law. I received detailed, and in some cases lengthy, written submissions on matters of fact and law, and I also received a statement of facts prepared by counsel for Bovis and marked up with addenda and amendments proposed by counsel for Mr Javorsky. The marked-up statement of facts did not acquire the status of agreed facts admitted into evidence as such, but it is a handy summary, from which I shall sometimes borrow in my account of the facts set out below. The statement is footnoted to the evidence, so I have been able to check and consider the evidentiary sources.

I have done my best to identify and deal with the numerous and highly detailed submissions that were placed before me, although my doing so has made this a very long judgment. If one stands back from the detailed analysis, however, the decision that emerges is not unduly difficult. In broad summary: · Mr Wily made a valid decision to appoint Mr Javorsky as administrator, in difficult circumstances and with limited information, after consulting creditors at the meeting of 27 November 2001; · Mr Javorsky's consultant, Mr Franklin, acted on behalf of or in the interests of Mr Gilbert until the November meeting, helping him to prepare his report as to affairs ("RATA"), which contained a large claim for general damages that was proposed by Mr Franklin himself; · the Deed proposal put forward in the administration was contrary to the interests of creditors of the company as a whole, because it gave Mr Gilbert and Interline (NSW) the option to choose not to provide funding; there was insufficient information for the creditors to assess the ability of Mr Gilbert and Interline (NSW) to fund the litigation; Mr Gilbert had, in any case, a statutory obligation to assist the liquidator; and (notwithstanding the supplementary Deed of 19 March 2002) the Deed effectively prevented further investigations into recoveries, and deprived creditors of the prospect of recovery under such claims; · there were material omissions from Mr Javorsky's Report to creditors, because it gave creditors inadequate information about the claim against Bovis and the ability of Mr Gilbert and Interline (NSW) to fund the litigation; and it failed to disclose the connection between Mr Franklin and Mr Gilbert (including Mr Franklin's role in preparation of the RATA) and the arrangement between Mr Javorsky and Mr Gilbert for the payment of fees; · Mr Javorsky failed to discharge his statutory obligation personally to chair the second meeting of creditors, but an order should be made to overcome that contravention under s 1322; · the decision to admit Interline (NSW)’s claim for the full amount was correct, and while the decision to admit the claim for only $1 was invalid this did not vitiate the creditors’ decision; · the creditors' resolution of 16 January 2002 to execute the proposed Deed was liable to be set aside, and should be set aside, because it would not have been passed but for the related creditor vote of Interline (NSW), and it was contrary to the interests of the creditors of the company as a whole, and unreasonably prejudicial to the interests of creditors who voted against it having regard to relevant matters; · the DOCA should be terminated because it was contrary to the interests of the creditors of the company as a whole, and effect could not be given to it without injustice; also because of the material omissions from it; and also for "other reasons" (relating to Mr Javorsky's failure to undertake sufficient investigations into the claim against Bovis, and Mr Franklin's connection with Mr Gilbert); · Mr Javorsky should be removed from office because Mr Franklin's connection with Mr Gilbert, as well as Mr Javorsky's arrangement with Mr Gilbert for payment of fees, would cause a reasonable observer to perceive that Mr Javorsky lacked independence and impartiality, and he should be replaced with a liquidator unconnected with any of the parties, but his remuneration should not be reduced; · the liquidation of the Company should not be terminated. The Company's financial difficulties

As I have said, the Company was a subcontractor to Bovis for plasterboard partitioning and ceiling works at Aurora Place and the Macquarie Apartments. A dispute arose between Bovis and the Company with respect to this work. Between 1 September 1999 and 30 June 2000 the Company failed to remit PAYG/PPS amounts totalling $1.163 million to the Australian Taxation Office, and it did not file returns with the Australian Taxation Office after June 2000. Mr Gilbert says that these difficulties were connected with the dispute between the Company and Bovis.

The Company's accountant was Stephen Kamper. In July or August 2000 Mr Kamper, acting on behalf of either Mr Gilbert or the Company, contacted Mark Franklin, an insolvency practitioner, with respect to the company's financial difficulties. Mr Kamper had been a client of Mr Franklin for four years and was one of Mr Franklin's main sources of referred work. Mr Franklin met with Mr Kamper and Mr Gilbert for about an hour, and gave advice in relation to the voluntary administration process and provided a brochure on the topic. About a week later Mr Kamper, or Mr Gilbert, requested Mr Franklin to introduce Mr Gilbert to an insolvency lawyer. Mr Franklin contacted James Marshall of Blake Dawson Waldron and gave him Mr Gilbert's telephone number, but nothing came of that introduction.

The Company ceased trading on 30 November 2000. In December 2000 Bovis claimed that it had overpaid the Company almost $500,000 in relation to the Aurora Place project, and the Company claimed damages from Bovis for delay and disruption. In June 2001 unsuccessful attempts were made to mediate these disputes with the assistance of a person experienced in the construction industry, Ron Murphy. The liquidation of the Company

On 12 January 2001 NRMA Workers Compensation (NSW) (No 2) Pty Ltd ("NRMA") commenced a winding up proceeding against the Company in relation to underpaid workers compensation insurance premiums. The Company entered into arrangements for repayment by instalments with NRMA. Mr Franklin noticed in a bulletin that the Company was subject to a winding up application and contacted Mr Kamper. Mr Kamper told him that Mr Gilbert had done a deal with the partitioning creditor and did not need Mr Franklin's help. However, the Company defaulted in its arrangements with NRMA, and on 19 June 2001 the Court ordered that the Company be wound up and that Mr Wily be appointed its liquidator.

On 20 June 2001 Mr Wily wrote to Mr Kamper, asking him to package together for collection the books and records of the Company and information or files in relation to the claim against Bovis. As I shall explain, there was substantial delay in complying with this request in any respect, and in some respects it was never complied with. Mr Wily's firm made several follow-up requests for information, and also for Mr Gilbert's RATA. The delay in responding was associated with the development, by Mr Gilbert and his advisers, of proposals for the development of a deed of company arrangement under which Mr Gilbert would re-acquire control of the Company's claim for damages against Bovis.

On 3 July 2001 Bovis lodged a proof of debt for $494,022.90 with Mr Wily. The document provided particulars of the claim by Bovis, and the covering letter invited Mr Wily, if he required any further clarification or detail, to contact the general counsel of Bovis, Russell Bartlett. On 25 July 2001 Mr Gilbert sent a letter to Mr Wily setting out arguments as to why Mr Wily should reject that proof of debt. The development of plans to move the Company from liquidation to voluntary administration

In late June 2001 Mr Gilbert telephoned Mr Franklin and requested advice as to whether there was anything he could do to stop the liquidation process. Mr Franklin advised that while the liquidator could appoint an administrator, Mr Gilbert could not, and he agreed to arrange a meeting with the liquidator.

On 21 June 2001 Mr Franklin and Mr Gilbert met with Alan Topp, a partner of Mr Wily, and Nicole Rynhardt of Mr Wily's firm, for about 45 minutes. They discussed Mr Gilbert's desire to have the company placed into voluntary administration, so that a deed of company arrangement could be adopted. Mr Topp said that Mr Wily would consider appointing an administrator, provided that Mr Gilbert produced a RATA and handed over the books and records of the Company, and provided also that any proposed deed was in the interests of creditors. Mr Franklin suggested the names of possible administrators, one of whom was Mr Javorsky. He offered to help Mr Gilbert prepare his RATA.

After that meeting, Mr Franklin advised Mr Gilbert that it would be necessary for him to work out a proposal for a deed of company arrangement, and to demonstrate that the Company's claim against Bovis was valid. He referred Mr Gilbert to Cutler Hughes and Harris, solicitors (“Cutler Hughes”).

On 25 June 2001 there was a meeting attended by Mr Gilbert, Christopher Nock (an employee of the Company), Mr Franklin, and Craig Higginbotham and Genevieve Staff of Cutler Hughes. The meeting lasted about one and a half hours. The subjects were the formulation of a proposal for the Company to go into administration, the assistance to be required from Cutler Hughes, and the background to the dispute with Bovis, including a review of paperwork.

There was a further meeting attended by Mr Gilbert, Mr Franklin, Mr Topp and Ms Rynhardt, and Mr Higginbotham, on 28 June 2001. Mr Higginbotham told Mr Topp that he had been instructed to act for Mr Gilbert to provide advice in relation to the Company's claim against Bovis, and to request Mr Wily to appoint an administrator, and to assist in the preparation of a deed of company arrangement. Mr Franklin said that Mr Javorsky would consent to act as a voluntary administrator.

On 4 July 2001 Mr Gilbert wrote to Mr Murphy, the mediator, advising him that Mr Wily had been appointed as liquidator of the Company and stating: "I am currently preparing a proposal for the Official Liquidator to appoint a Voluntary Administrator for the purpose of propounding a Deed of Company Arrangement. My legal and accounting advice is that I have the requisite majority vote to ensure such terms and conditions of the Deed are in my control. "The implementation of the Deed of Company Arrangement will enable an application to the Supreme Court to have the liquidation of the company stayed and control returned to me."

The evidence indicates that the accounting advice referred to in the letter was provided by Mr Franklin. In relation to voting, Mr Franklin gave evidence that he did not know who all the creditors were at the time, nor which way they would vote, and therefore he did not tell Mr Gilbert that he and his associated company, Interline (NSW), had the majority voting power at any creditors' meeting. But Mr Gilbert’s evidence was that Mr Franklin may possibly have advised him on voting.

On 9 July 2001 there was a meeting attended by Mr Gilbert, Mr Franklin, Mr Higginbotham and Ms Staff, to discuss the merits of the Company's claim against Bovis and a proposal for a deed of company arrangement. According to Mr Franklin’s file note, the outcome of the meeting was that Mr Franklin would prepare a draft of the RATA, a proposal for the liquidator and a letter in relation to the Bovis claim. Cutler Hughes were to advise whether the case was sufficiently viable that such a proposal would be worthwhile. Mr Wily's attempts to obtain books and records of the Company and Mr Gilbert's RATA

As I have said, Mr Wily wrote to Mr Kamper on 20 June 2002, asking him to assemble the books and records of the Company, including files relating to the claim against Bovis. At the meeting of 21 June 2001, convened to explore avenues for stopping the liquidation process, Mr Topp handed Mr Gilbert a notice to submit a report as to affairs under s 475(2), a notice requiring delivery of the books and records to which he would be entitled if an order were made under s 483(1), a questionnaire for directors and officers, and a notification to corporate officers of their responsibilities on liquidation.

After the meeting, Mr Franklin advised Mr Gilbert that he needed to prepare the report as to affairs, and to collect the books and records of the Company. He arranged with Mr Gilbert that he would check the RATA as to affairs.

On 5 July 2001 Mr Franklin, at the request of Mr Gilbert, wrote to Mr Wily seeking an extension of time for completion of the RATA. In that letter Mr Franklin described Mr Gilbert as "my client". On 6 July 2001 Mr Wily wrote to Mr Franklin, granting an extension of time until 12 July 2001, requiring that Mr Gilbert provide the RATA and the books and records of the Company (including the complete file in relation to the proceedings against Bovis) by that date.

At the meeting on 9 July 2001, called to discuss the Company's claim against Bovis and the proposal for a deed of company arrangement, it was agreed that Mr Franklin would assist Mr Gilbert to prepare his overdue RATA.

On 12 July 2001 Mr Franklin wrote to Mr Wily requesting a further extension of time for Mr Gilbert to complete the RATA. On 13 July 2001 Mr Wily wrote to Mr Franklin declining that request and requiring Mr Gilbert to surrender immediately all books and records of the company, including the mediation and legal files and a completed RATA. On 16 July 2001 Mr Franklin sent a blank form of director's questionnaire to Mr Gilbert.

On 18 July 2001 Mr Wily wrote to Mr Franklin inquiring when he could expect Mr Gilbert to deliver the documents he had required. The letter said that Mr Wily had attended a meeting with Bovis and had spoken to the mediator, and wished to review the Company's files prior to deciding upon his course of action.

These requests for books and records and information were less than wholly successful. On 16 July 2001 Mr Wily received two mediation files regarding the Company's dispute with Bovis, but they were supplied by Mr Bartlett rather than by Mr Gilbert. One small box of documents was provided on behalf of Mr Gilbert on 13 September 2001. On 23 October 2001 Mr Gilbert provided 35 boxes of company records. It appears, according to Mr Wily's evidence, that the boxes did not contain payment vouchers, journals, ledgers, profit and loss statements on contracts, history of trading payments with major suppliers, or the substantial documentation concerning the claim against Bovis. Cutler Hughes had 34 lever arch files concerning the Company's claim against Bovis, but they were not provided to Mr Wily. The RATA

On 19 and 20 July 2001 Mr Gilbert sent to Mr Franklin the completed director's questionnaire, a letter from Bovis, a payment reconciliation for the Aurora Place project, and a summary of the Company’s claim on the sub-contract, which had been previously provided to Bovis. The summary recorded a total claim by the Company of $7,702,849.67, of which $4,023,080.51 had been paid, leaving a net claim of $3,679,769.18. This figure included a delay and disruption claim of $3,292,983. It did not include any general claim for damages.

On 24 July 2001 Mr Franklin sent Mr Gilbert and Mr Higginbotham a first draft of Mr Gilbert's RATA. In his covering note Mr Franklin asked Mr Higginbotham to look at and settle the claim against Bovis. He said, "I have used 'damages' as a balancing figure to eliminate deficiency."

A schedule to the draft RATA summarised the claim against Bovis. It recorded a total claim of $7,459,766.64, and payment received of $3,830,379.51. The total claim included a delay and disruption claim of $3,830,379.51, and also a damages claim of $3,521,758.53. The damages claim was described as follows: "This is a balance figure only. CHH to settle exact figure."

Another schedule to the draft RATA listed the claims of unsecured creditors, the total amount claimed being $7,444,486.69. The claim by Bovis was not included. Presumably this figure was the "deficiency" referred to by Mr Franklin in his covering note, and the damages claim was introduced so that the value of the Company's asset, namely its claim against Bovis, would slightly exceed the value of the claims against the Company.

Counsel for Mr Javorsky submitted that Mr Franklin's involvement in the preparation of the RATA was limited to inserting figures provided to him by Mr Gilbert in an appropriate format, subject to the damages figures. He submitted that upon his review of the RATA following the appointment of Mr Javorsky as administrator, Mr Franklin assumed that Mr Higginbotham had agreed with the figure for the damages claim, on the basis that he had not been advised to the contrary.

On 25 July Mr Gilbert sent the final RATA to Mr Wily, Mr Franklin and Cutler Hughes. The report showed: (a) total assets of $7,459,767; (b) total liabilities of $7,444,487 to unsecured creditors and $15,280 to employees, totalling $7,459,767 (an amount equivalent to the Company's claim against Bovis); (c) the sole asset as a claim against Bovis which included: (i) a total claim of $7,459,766.64 (after taking into account payments received of $3,830,379.51); (ii) a delay and disruption claim of $3,830,379.51; (iii) a damages claim of $3,521,758.53; (d) Interline (NSW) as an unsecured creditor in the amount of $3.1 million.

Mr Gilbert sent a copy of the RATA to Mr Franklin and Cutler Hughes. Mr Franklin gave evidence that he did not pay much attention to the RATA at that time and put it into a manila folder. Refinement of the proposal for a deed of company arrangement

On 25 July 2001 Mr Gilbert wrote to Mr Wily (copying the letter to Mr Franklin and Cutler Hughes) setting out a proposal for voluntary administration and a deed of company arrangement. Under the proposal Mr Gilbert and Interline (NSW) would be excluded as participating creditors; the deed administrator would be empowered to enter into a litigation funding agreement for funding to pursue the Company's damages claim against Bovis; and a deed fund would be established, consisting of 30% of the recovery from Bovis less funding and legal costs. The proposal nominated either Mr Javorsky or Antony de Vries as the deed administrator.

There is some disagreement as to Mr Franklin's role at this stage. The Javorsky interests submitted that the letter was copied to Mr Franklin solely to keep him informed as to the progress of any appointment of an administrator, or to keep him "in the loop", and that at all times Mr Franklin saw his role as being to act as a representative of any potential administrator.

In early September 2001 Mr Higginbotham telephoned Mr Franklin to invite him to attend a meeting with the liquidator, for the purpose of requesting the liquidator to convene a meeting of creditors to appoint a voluntary administrator. A meeting was held on 7 September 2001, attended by Mr Franklin, Mr Higginbotham, Ms Staff, Mr Gilbert, Mr Nock, Mr Wily and Ray South (from Mr Wily's firm). Mr Higginbotham said that Mr Gilbert wanted to propose a deed of company arrangement, with either Mr Javorsky or Mr de Vries as administrator, and that he wanted Mr Wily to convene a meeting of creditors to consider the appointment of an administrator. Mr Higginbotham said that the deed had not been finalised, but in general terms it would involve either Mr Gilbert or the deed administrator taking proceedings against Bovis. Mr Higginbotham said that the claim against Bovis had strong prospects of success. He said that although Mr Gilbert understood his obligation, as a director of the Company, to assist the liquidator, the involvement of Mr Gilbert in a proceeding against Bovis under a deed fund would far exceed his involvement in discharge of his statutory obligations as a director. Mr Wily said he would consider the matter.

On 14 September 2001, Mr Higginbotham wrote to Mr Wily. He said that Cutler Hughes were instructed by Mr Gilbert and Interline (NSW). He confirmed the opinion he had expressed at the meeting that the Company's claim against Bovis was validly based and had more than reasonable prospects of success. He said that Interline (NSW), a creditor in the amount of $3.1 million, was prepared to fund the proceeding against Bovis on the condition that an administrator was appointed. He said that a benefit of the proposed deed of company arrangement was that the Company would continue trading, this being important because (he contended) the Company had considerable goodwill, which would be extinguished if it remained in liquidation. He said that while Mr Gilbert would fulfil his obligations as a director, he did not have the financial resources to fund the litigation, and was not able to spend the hundreds of hours that would be needed in instructing lawyers on the claim. The letter proceeded to request Mr Wily to call a creditors' meeting to consider the appointment of an administrator so that such a deed could be proposed. The letter enclosed some letters of support, written in standard form, from Mr Nock, Interline (NSW), Coversafe Insurance Brokers Pty Ltd, Kamper & Co and PlastaMasta. The proposal for a creditors’ meeting

Mr Higginbotham's demand, that Mr Wily convene a meeting of creditors under s 479(2) to ascertain their wishes concerning the proposal, was pursued over the ensuing weeks.

On 25 September 2001 Mr Higginbotham wrote to Mr Wily's solicitors, PW Turk & Associates, referring to s 479(2) of the Corporations Law and noting that the liquidator's obligation to call a meeting was mandatory where 1/10 in value of creditors requested in writing. The letter foreshadowed an application to the Court, in which a personal costs order would be sought against the liquidator.

PW Turk replied on 26 September 2001, stating that the liquidator was not at that time disposed to call a meeting of creditors for five reasons: (a) the only books and records of the Company that had been supplied were in a small box delivered on 13 September 2001, and therefore the liquidator was unable to determine who the creditors were or how much was owed to them, or whether any claims had arisen against the controllers of the Company or for uncommercial transactions or unfair preferences; (b) no records relating to the Company's claim against Bovis had been supplied to the liquidator; (c) the material supplied to the liquidator by Mr Gilbert and Interline (NSW) fell well short of quantifying the claims; (d) there was no particular urgency in appointing an administrator, in light of Mr Gilbert’s earlier conduct; (e) Mr Gilbert and Interline (NSW) had not specified precisely what benefit they suggested there was to the general body of creditors in appointing an administrator, and if the claim against Bovis was strong, why was it preferable to appoint an administrator rather than to allow the liquidator to conduct the proceeding?

The letter pointed out that creditors could not make an informed decision without being provided with all relevant information, and the liquidator could not report to them until he received information from the Company and had the opportunity to consider it and take advice.

Mr Higginbotham sent copies of his letters of 14 and 25 September, and the letter by PW Turk dated 26 September, to Mr Franklin. Mr Franklin began to work part-time as a consultant to Jones Condon, Mr Javorsky's firm, in October 2001, and he became a full-time consultant for the firm in December 2001.

On 31 October 2001 Mr Higginbotham replied to PW Turk. He said he was instructed that all of the Company's books and records had been supplied to the liquidator. Except in that respect, the letter did not seek to meet Mr Wily's concerns. Rather, it asserted (to summarise the argument) that those concerns were rendered irrelevant by s 479(2), which imposes statutory obligation on the liquidator to call a meeting in response to a requisition by at least 10% in value of the creditors, regardless of whether the liquidator or the creditors were or would be adequately informed in respect of the proposed subject matter of the meeting. Mr Higginbotham said that a court application would be made if the liquidator did not call a meeting of creditors under s 479(2) within seven days, and that a personal costs order would be sought against the liquidator.

Mr Franklin had a meeting with Mr Javorsky and Mr Higginbotham in October or November 2001, during which they discussed the proposal for a deed of company arrangement. Mr Higginbotham explained that Mr Gilbert wanted the Company to avoid the stigma of liquidation, and that was why he would only fund the proceeding against Bovis if the Company was moved out of liquidation and placed into voluntary administration. He said that Mr Gilbert and Interline (NSW) would fund the voluntary administration, as well as the proposed deed and the litigation against Bovis. Mr Javorsky indicated his willingness to act as administrator.

After some further correspondence between Cutler Hughes and PW Turk, on 13 November 2001 Mr Wily convened a meeting of creditors, to be held on 27 November 2001. Mr Higginbotham telephoned Mr Franklin and invited him to attend that meeting. Mr Franklin arranged for Mr Javorsky to sign a consent to act as administrator, and he attended the meeting, described as Mr Javorsky's representative.

There is some evidence indicating that the list of names and addresses of creditors generated in Mr Wily's office originally did not included Bovis, nor two former employees, Raymond Greathead and Samuel Wood, but the printed list of names and addresses was endorsed with a handwritten instruction to add those names, and the addresses were given in handwriting. There is a computer printout of names and addresses in which the name and address of Bovis, as well as the names and addresses of Mr Greathead and Mr Wood, appears.

At about 5pm on 26 November 2001 Mr South telephoned Mr Bartlett, informing him that a meeting of the Company's creditors had been fixed the following morning, and apologising for omitting to give Bovis notice of the meeting. Mr South explained that Mr Gilbert wanted to fund the Company's litigation against Bovis on the basis that the Company be released from liquidation and that an administrator be appointed and a deed of company arrangement adopted by the creditors. Mr Bartlett told Mr South that he would be unable to attend. In fact, not only did Mr Bartlett not attend the creditors' meeting, but he did not arrange for anyone else to attend on behalf of Bovis. Mr Wily's report to creditors

Mr Wily prepared a report to creditors, which was dated 27 November 2001. It was not circulated to creditors prior to the meeting, but it was tabled at the meeting. Mr Bartlett did not receive a copy of it until 17 December 2001.

The following are some relevant statements in the Report: (a) After summarising the Company's financial statements, Mr Wily said: "I am unable to comment further on the company's trading as all the company's books and records have not been delivered to me. These records include Payment Vouchers/Journals, Profit and Loss Statements on Contracts, amongst other records." He then noted that Mr Gilbert as director attributed the Company's failure to Bovis not fully paying for services rendered at Aurora Place/Macquarie Apartments. (b) Under the heading "Assets Disclosed on the RATA" Mr Wily noted: "No tangible assets have been disclosed by Mr Gilbert in the RATA. My investigations to date have not revealed any real assets of the Company. "The only asset shown in the RATA is a claim alleged against BLL as follows: Aurora Project $7,394,228.69 Macquarie Apartments $65,538.00 $7,459,766.69 "Mr Gilbert claims to have substantial documentation to support a claim by the company against BLL, however I have not been provided with access to those records." He said that Mr Gilbert had informed him that he and/or his associated entities would be willing to fund an action against Bovis, but only if creditors were to vote to appoint an administrator so that a deed of company arrangement could be proposed. (c) In his review of the Company's liabilities, Mr Wily said: "I have been provided with a proof of debt from an associated company Interline NSW supported by a reconciliation of payments between the company and Interline NSW. I note that payments totalling $1.556 million are listed as having been made by Interline NSW to the company and/or its creditors since 1 December 2000. In the same time period payments totalling $418,821 are listed as having been made by the company to Interline NSW. Given that Mr Gilbert has stated the company ceased trading on 30 November 2000, I consider further inquiries are necessary to investigate and quantify the claim of Interline NSW against the company." (d) Under the heading "Liabilities" Mr Wily also referred to a proof of debt for $760,000 from Chris Nock (‘Nock’), general manager of the Company, based on his employment contract, which provided a profit share entitlement of 20% of the company's net yearly profit. Mr Wily said he thought the claim was excessive, and noted that most of the claim was contingent on recovery from Bovis. (e) Additionally, under the heading "Liabilities" Mr Wily referred to the proof of debt from Bovis in the sum of $494,022.29. He noted that Mr Gilbert claimed that the Company had an action against Bovis for over $7 million, and that there was substantial documentation in support of the Company's claim. Mr Wily said that, without all the company's books and records, he was unable to adjudicate on the proof of debt claim by Bovis. He said, “I understand that [Bovis] will strongly defend their claim and oppose the company's alleged claim against it." (f) On the question of statutory recoveries, Mr Wily said: "I have conducted limited investigations into the company's payment history since my appointment. As I have previously indicated, I consider I am without all the company's books and records. These include payment vouchers and a history of trading payments with the company's major suppliers. "I am unable to comment on any preference recovery actions by me as Liquidator without all of the company's books and records." (g) When dealing with insolvent trading, he said: "The proof of debt lodged by the ATO shows non-payment of taxation revenue from 1 September 1999. Mr Gilbert has indicated to me in an interview I have conducted with him, that the company's trading suffered as a result of the contract with [Bovis]. That contract I understand commenced on or around September 1999. 'My preliminary investigation reveals that there is evidence to suggest that the company's director may have engaged in insolvent trading. "It should be appreciated that recovering amounts from directors for insolvent trading invariable [sic] requires litigation. The law makes certain defences available to a company's director and any legal action is likely to be defended by Mr Gilbert. The litigation is always uncertain with a possibility of losing and costs being awarded against a Liquidator. Accordingly, substantial funds would need to be made available to me. The funds could be advanced by creditors or insurance funding." (h) Under the heading "Deed of Company Arrangement", Mr Wily said: "Following my appointment Mr Gilbert through his representatives communicated with me with regards to a conversion of the liquidation of the company into a Deed of Company Arrangement ('Deed'). The basis of the Deed would be the funding of an action against [Bovis] with a percentage of any successful recoveries from that action constituting the Deed fund. "Creditors should be aware that any such arrangement if approved by creditors, would alleviate the recovery of actions for preference payments and eliminate an insolvent trading claim." The creditors’ meeting of 27 November 2001

The creditors’ meeting held on 27 November 2001 was attended by: · Mr Wily and Mr South; · Mr Franklin, described as an "observer"; · Mr Higginbotham as proxy for Mr Nock, Mr Greathead and Mr Wood (all employees of the Company), Interline (NSW), Kamper & Co, PlastaMasta and Coversafe Insurance Brokers; · Mr Dunne as proxy for the ATO; · Mr Gilbert; · Ms Staff from Cutler Hughes.

At the meeting Mr Dunne from the ATO said that the company's PAYE/PPS returns had not been lodged since 30 June 2000. Mr Franklin responded that if the Deed of Company arrangement proceeded, Mr Gilbert would arrange for processing the outstanding returns. Mr Franklin gave evidence in cross-examination that he responded in this way because he wanted to take a practical approach; although he attended the meeting on Mr Javorsky's behalf, Mr Franklin was concerned, he said, to ensure that the things that had to be done were in fact done.

Mr Higginbotham moved that Mr Wily be directed to appoint Mr Javorsky as voluntary administrator. The motion was declared carried on a show of hands. Mr Higginbotham voted for it as proxy for the creditors I have mentioned. Their debts were as follows: · Mr Greathead $8,750 · Coversafe Insurance Brokers $2,175 · Mr Nock $760,000 · PlastaMasta $445,172 · Kamper & Co $12,980 · Interline (NSW) $3,659,677 · Mr Wood $6,530. The ATO voted against the motion, in respect of a debt of $1,163,010. Mr Wily's appointment of Mr Javorsky as administrator

On 28 November 2001 Mr Wily wrote to Cutler Hughes saying he would appoint Mr Javorsky as administrator of the Company provided he received a bank cheque for $33,485.78 for his fees and legal costs. On 29 November 2001, Mr Wily appointed Mr Javorsky as administrator of the Company, under s 436B of the Corporations Act. It appears that Mr Wily's fees were paid by Mr Gilbert, or a company associated with him.

Following a request by the solicitors for Bovis made on 21 December 2001, Mr Wily stated in a letter dated 15 January 2002 that he considered seven matters regarding the appointment of an administrator to the Company. He listed these matters as follows: · "Initial investigations indicating that there were no real assets of the Company. · The likelihood that any insolvent trading claim would be strongly defended by Tui Gilbert ('Gilbert'). An issue of establishing a date to base insolvent trading taking into account the company's claim against Bovis. · The scenario of a return to creditors resulting from successful litigation against Bovis. Gilbert had informed me that any support (either financial or in the provision of documentation) with regard to the litigation process would only occur under a VA administration. · My inability to make a proper determination over the merit of the claim against Bovis, without access to substantial records relating to the claim. · My inability, from the books and records presented, to ascertain whether or not any unfair preference/uncommercial transaction actions were available to me. · An urgent request to call a meeting of creditors by at least 10% of the creditors. · A resolution passed at the creditors meeting on 27 November 2001 which indicated that the creditors supported and requested the Liquidator to appoint an Administrator."

Mr Wily also confirmed that he had taken legal advice concerning his decision to appoint an administrator, but he did not disclose the content of that advice. His letter did not directly address the question, raised in the letter of PW Turk dated 26 September 2001, why it was of benefit to the general body of creditors to appoint an administrator in circumstances where he as liquidator was capable of conducting any proceedings against Bovis. Nor, indeed, was that question directly addressed in his report to creditors.

Mr Wily took into account the resolution of the creditors, without expressly addressing the doubts he had stated in his report about the debts of Interline (NSW) and Mr Nock, whose debts were by far the largest of the creditors voting in favour of the resolution. At the time when he made his decision to appoint Mr Javorsky as administrator, Mr Wily had not obtained all of the books and records of the company. He had received a substantial volume of material, but he maintained that it was seriously deficient. He had not received the substantial documentation of Mr Gilbert relating to the claim against Bovis, which was the only alleged asset of the Company. He had evidently not sought to rectify the situation by exercising any of his powers as liquidator to compel the delivery up and inspection of the books and records. Indeed, nothing had happened after 26 September 2001 to change the position as outlined in the letter of PW Turk of that date. The voluntary administration of the Company

Upon his appointment on 29 November 2001, Mr Javorsky acted as administrator with the assistance of David Hurst (the sixth defendant), a senior manager of Jones and Condon, and of Mr Franklin. Mr Franklin attended to the day-to-day running of the administration, overseen by Mr Hurst.

The first creditors’ meeting of the Company in administration was held on 6 December 2001. The meeting was attended by Mr Hurst (who chaired it), Mr Franklin and his assistant Padmini Saheb (who were described as "assisting administrator"), Ms Staff representing Mr Higginbotham as proxy for the same seven creditors who had appointed Mr Higginbotham as proxy for the meeting convened by Mr Wily, Mr Willats as proxy for NRMA, and Mr Gilbert. Mr Javorsky did not attend. Although Bovis was sent notice of the meeting in the ordinary course, Mr Bartlett did not personally receive it and there was no attendance on behalf of Bovis at the meeting. Mr Javorsky signed a written authority to Mr Hurst, authorising Mr Hurst to be his representative for the purpose of chairing the meeting. The meeting decided not to appoint a committee of creditors, nor to replace Mr Javorsky as administrator. The Deed Proposal and Mr Javorsky's Report to the Creditors

On 12 December 2001 Mr Gilbert, as director of the Company, formally proposed a deed of company arrangement for the consideration of creditors at their next meeting. The letter was addressed to Mr Javorsky as administrator of the Company. The proposal set out in the letter is sufficiently important that it should be set out substantially in full: "1. The creditors agree to a moratorium period of 5 years within which time the company will pursue its action against [Bovis] for breach of contract with respect to the Aurora Place project. 2. Funding for the company to pursue the claim against [Bovis] will be made jointly by myself and Interline Interior Linings (NSW) Pty Ltd and we will both need to take a secured charge over the assets of the company to secure this funding. 3. Upon successful completion of the claim against [Bovis] (either by way of settlement or judgment) and payment of money by [Bovis] to the company, the company after repaying all amounts of funding provided by Interline Interior Linings (NSW) Pty Ltd and myself, will provide to the Deed Administrator the balance of damages obtained up to an amount which will pay creditors 100 cents in the dollar. Any amount recovered over and above enough to pay 100 cents in the dollar will be retained by the company. Whilst the final payment is unknown at this stage and therefore 100 cents in the dollar cannot be guaranteed, nevertheless I am advised that the company has a significant claim for damages in amounts in the millions of dollars. Creditors are not guaranteed 100 cents in the dollar but will receive the balance of damages amounts as described above. Creditors are also not guaranteed that the action against [Bovis] will result in damages being paid to the company and therefore moneys being paid to the Administration Fund however, provided the company diligently pursues [Bovis] a full release will apply at the end of the moratorium period even if the action is not successful. 4. Any legal costs recovered from [Bovis] in pursuing the damages claim which are paid to the company will be included in the fund to be provided to the Deed Administrator. …. 6. The benefits to creditors in my proposal is that creditors will have the benefit of any funds flowing from the damages claim against [Bovis] without the necessity to seek litigation funding from an insurer or other company which I understand would be subject to a significant premium in addition to the legal costs funded. In other words, creditors will receive a larger proportion of any damages amounts the company received from [Bovis] if the claim against [Bovis] is made by the company after acceptance of the Deed of Company Arrangement. 7. It will be a term of the Deed of Company Arrangement that the company will take all reasonable steps to diligently prosecute its claim against [Bovis]. …. 9. In addition to the funding by myself and Interline Interior Linings (NSW) Pty Ltd if it is necessary litigation funding may be used. 10. In consideration for the considerable time my lawyers have advised I will need to spend instructing them, preparing documentation and generally assisting with the case, I propose that I be paid an amount of $100 per hour for my instructing time to compensate me for the time I will not be able to attend to my other income-producing business. My fees for this will be payable as part of the cost of the litigation which will be taken out of any damages award prior to the funds being provided to the Administration Fund. 11. In addition, I propose that the Deed provide a supervisory role for the Deed Administrator to supervise the conduct of the litigation on behalf of the creditors. If in the opinion of the Deed Administrator it is to the benefit of creditors for the Deed Administrator to take over the conduct of the claim and to instruct solicitors, then the Deed Administrator will have the power to do so."

On the same day Mr Javorsky sent notices to creditors convening the second meeting of creditors, to be held on 20 December 2001. The notices were accompanied by Mr Javorsky's Report to Creditors, which enclosed Mr Gilbert's letter setting out the Deed proposal, and also a separate document entitled "Administrator's Statement of His Opinion Regarding the Three Possible Alternatives for the Company's Future". The Report and the Statement were prepared by Mr Franklin and Ms Saheb, and were settled and signed by Mr Javorsky.

The Report gave a brief account of the nature of the Company's business and its history, saying that the Company ceased trading on approximately 30 November 2000 following its dispute with Bovis. Under the heading "Reasons for Difficulties", the Report noted that Mr Gilbert had attributed the failure of the Company solely to the dispute with Bovis, stating that according to Mr Gilbert, the Company had a claim against Bovis for $7,459,766.64. The Report noted that Mr Gilbert had incurred substantial costs personally and through another company in preparing the claim and in preparation for the mediation, and it said that Cutler Hughes had advised Mr Javorsky that they were in a position to provide advice to the deed administrator to obtain litigation funding, if required, and that their advice would confirm that there were reasonable prospects for success in bringing action against Bovis.

Under the heading "Financial Information", the Report set out a balance sheet and profit and loss account and noted that the Company had a significant operating loss for the period ending 30 June 2001, and a substantial shortfall of assets to liabilities for the same period, with the Company's position deteriorating by $4,304,435 in the period of 12 months. Mr Javorsky then said: "I am of the opinion that the claim against [Bovis] for the sum of $7,459,767 would explain the Company's substantial decrease in contractual earnings and result in an operating loss for the period ending 30 June 2001".

Under the heading "Report as to Affairs/Asset and Liability Position", Mr Javorsky referred to the RATA provided by Mr Gilbert as at 29 November 2001, which showed both assets and liabilities at $7,459,767. Mr Javorsky said: "The liabilities on the RATA total the same as the assets due to the amount noted for Interline Interior Linings (NSW) Pty Ltd as $3,100,000 and not the actual Proof of Debt amount which is $3,659,677.16". He then noted that the only asset shown in the RATA was the claim against Bovis for $7,459,767.

As to liabilities, Mr Javorsky listed the claims of various creditors amounting to $7,459,767, including the claim by Mr Nock for $760,000 and the claim by Interior (NSW) for $3,659,677.16. He made no comment on Mr Nock's claim. As to the claim by Interline (NSW), he noted that this was an associated company and that he had been provided with a reconciliation of payments between it and the Company. He expressed the opinion that further inquiries would be necessary to investigate and quantify the claim by Interline (NSW).

No mention is made in the Report of the claim by Bovis to be a creditor in the sum of $494,022.90.

Under the heading "Voidable Transactions", the Report gave a brief summary of the statutory provisions and then pointed out that recovery would not be available if the company executed a deed of company arrangement. The Report noted the difficulty of funding proceedings for recovery, and identified payments to NRMA totalling $60,000 as potentially recoverable.

Under the heading "Insolvent Trading", the Report referred to potential liability of directors under s 588G, and then said: "At this stage I have not been able to undertake a detailed analysis in respect of possible insolvent trading as I have only been able to conduct a limited review of the company's books and records. At this stage my review in this regard has been principally limited to an analysis of the company's financial statements, creditors records, cheque books and bank statements that have been provided to me. As a result of my review I consider that it is likely the director would have available to him certain defences which would make any actions for insolvent trading doubtful. It will require considerable investigation to draw any final conclusions and determine a specific date at which the director should have been aware of this situation. Furthermore, at this stage I am unable to establish whether any recovery may be possible in this regard as I am not aware of the financial position of the Company's director and whether he is in a position to satisfy any judgment that may be able to be obtained against him."

Under the heading "Dividend Prospects upon Liquidation", the Report said: "At this stage I am unable to establish the likely return to creditors in the event that the company remains in liquidation as I consider that there are numerous matters that require further investigation to establish whether there may be avenues for the recovery of funds for the benefit of the company's creditors and it may be necessary to pursue legal action to recover the company's debtors and other assets disclosed in the company's Balance Sheet. Furthermore, creditors may be required to provide the Liquidator with funding to conduct these investigations and commence any warranted legal actions. Failing that the Liquidator would be required to obtain Insolvency Litigation Funding."

Under the heading "Deed of Company Arrangement", the Report said "The director has provided me with a proposed Deed of Company Arrangement, the details of which are attached as annexure A. In summary however, the Deed provides for: - · A moratorium of up to five (5) years; and · Control of the company to be returned to the director for the purposes of commencing litigation against BLL; · The director is to provide regular reports on the progress of the litigation and when requested by the Deed of Administration; · If in the opinion of the Deed Administrator it is in the creditors' interests, he is to take control of the litigation; · The Deed Administrator be empowered to obtain litigation funding if in the Deed Administrator's opinion it is in creditors' interests to do so; · The legal fees to be paid as a priority out of funds received from the litigation; · The director to obtain a priority in respect of any dividend in the Deed of Arrangement for time spent in the preparation and hearings of the Litigation to be calculated at the rate of $100 per hour; · All other creditors to be paid in accordance with the priorities set out in Section 556 of the Corporations Act; and · Creditors to accept the amounts recovered in the litigation up to 100 cents in the dollar (which is not guaranteed to be paid) in the full satisfaction of their debts and thereafter release the company."

The Statement enclosed with the Report commented on the three alternatives put forward by s 439A(4) and then made a recommendation, as follows: "(i) Execution of Deed of Company Arrangement I am of the opinion that the Deed of Company Arrangement proposed by the Company's director is in the best interests of creditors, because it provides the best chance of the litigation against [Bovis] succeeding, and provides for an equitable distribution to the Company's creditors. (ii) Administration to end As the company is presently insolvent I do not believe that it would be in the creditors' best interests for the administration to end. (iii) Company to be wound up As detailed in my report to creditors about the company's business, property, affairs and financial circumstances it is difficult to determine whether any dividend will be paid to unsecured creditors. The payment of any dividend will be totally dependent upon the following: - · The recovery of funds from Litigation against [Bovis] which in the absence of the director's considerable assistance would be difficult; and · The possibility of funds in respect of voidable transactions. (iv) Recommendation It has been proposed by the director that the company execute a DCA. Based upon the information available to me the DCA at present offers the potential for unsecured creditors to receive a distribution greater than they would anticipate should the company remain in liquidation. The recovery for unsecured creditors in a liquidation is less certain and is dependent on the ability of the liquidator to recover funds from litigation and dependent upon him obtaining funds for that litigation. Whereas under the proposed DCA the director will voluntarily fund the litigation for the benefit of the creditors, with the benefit that control and funding can be taken over by the Deed Administrator at any time if it is in the creditors' interests. I note the objectives of Part 5.3A of the Corporations Act are to provide for the business, property and affairs of an insolvent company to be administered in a manner that maximises the chances of the company concerned continuing in existence or, if that is not possible, results in a better return to creditors than would result from an immediate wind up, it is therefore my opinion that it would be in the interests of creditors of the company that the company execute a Deed of Company Arrangement."

Neither in the Report nor the Statement did Mr Javorsky refer to whether it would be in the interests of creditors for the Company to remain in liquidation so that the liquidator could seek to obtain litigation funding in order to pursue the claim against Bovis. A fortiori, there was no discussion of the comparative advantages and disadvantages of the alternatives of continuing with the liquidation and adopting a deed of company arrangement, except to the limited extent contained in the last quoted paragraph. The second meeting of creditors of the Company in administration

Mr Bartlett of Bovis found out about the appointment of Mr Javorsky as administrator when he had a telephone conversation with Mr South, from Mr Wily's firm, on 13 December 2001. He immediately contacted Jones Condon, and was told that a creditors’ meeting was scheduled for 20 December 2001.

On 14 December 2001 Bovis wrote to Jones Condon stating that it was a creditor of the Company and that a proof of debt for $494,022.29 had been lodged with the liquidator on 3 July 2001. On the same day Jones Condon sent a facsimile to Bovis enclosing a notice of the creditors’ meeting and a copy of his Report to Creditors and Statement, and Mr Gilbert’s proposal dated 12 December 2001.

On 18 December 20001 Bovis wrote to Mr Javorsky, stating: "Bovis and the company in liquidation entered into some contracts for the performance of plasterboard partition and suspended ceiling work associated with the Aurora Place and Macquarie Apartments development in Sydney. Disputes have arisen between the parties under a subcontract dated 2 December 1999 (subcontract No 90341) in respect to work at Aurora Place. "Bovis is claiming the sum of $494,022.9 as damages and wishes to have the debt or claim admitted for the purpose of the administration. The claim consists of back charges, overpayments and liquidated damages. "Particulars of the claim are set out in the attached formal Proof of Debt (Form 535). "We understand you have been advised by the Liquidator of our interest as creditor although you have chosen to omit our company from your list of creditors. "We note the meeting of creditors to be held on 20 December 2001. "Should you require any further clarification or detail please contact the writer on 9236-6141."

The proof of debt and attached particulars provided a breakdown of the components of the claim.

On 20 December 2001 Mr Javorsky wrote to Bovis advising that he had no intention of omitting Bovis as a creditor and explaining that the list of creditors in his Report was taken from Mr Gilbert's RATA.

Prior to the meeting on 20 December 2001, Mr Javorsky and Mr Hurst met to discuss matters relating to the meeting and the adjudication of proofs of debt. They agreed that the appropriate adjudication of the claim by Bovis was to admit it for $1 for voting purposes, on the basis that the Company's claim against the Bovis swamped the latter's claim against the Company. In relation to the Interline (NSW) proof of debt, Mr Hurst had received from Mr Franklin a description of the audit process conducted by himself and Ms Saheb, and on that basis Mr Hurst and Mr Javorsky decided that sufficient investigation of the claim had been undertaken to enable them to admit it for its full amount, for voting purposes only.

The meeting was held on 20 December 2001. It was attended by: · Mr Hurst (who chaired it, purportedly as the representative of Mr Javorsky, under written authority); · Mr Franklin and Ms Saheb (described as "assisting Administrator"); · Mr Higginbotham, representing the same seven creditors whom he represented at the creditors meeting convened by Mr Wily; · Phillip Hoser, a solicitor of Freehills, as proxy for Bovis, together with Mr Bartlett and Ms Fellows (from Freehills) as observers; · Mr Dunne, as proxy for the ATO; · Mr Donald as proxy for NRMA, and Mr Willats representing that company; · Mr Gilbert; · two other observers, Mr Coghran and Mr Smith.

Mr Javorsky did not attend. He explained that he was working on another matter of a pressing nature.

At the meeting Mr Hoser asked why a liquidator would not be able to pursue any cause of action against Bovis as easily as a deed administrator. Mr Hurst initially said that Mr Gilbert's co-operation would be more likely under the proposed Deed than in winding up, and later he said that the Deed would enable more funds to be available to pursue the litigation, and that a liquidator would have no funds. Mr Hoser asked what information the administrator had about the financial worth of Mr Gilbert. Mr Hurst initially said that he did not know whether that was a matter for the meeting, but he later said that the administrator did not have any information. A question by Mr Hoser as to whether the administrator had made any investigations as to the worth of Interline (NSW) was not answered.

Mr Hurst said that the administrator had not himself obtained legal advice on the merits of the Company’s claim against Bovis, but instead he had relied on the advice of Cutler Hughes acting on behalf of the director. When Mr Hoser asked whether the administrator could explain the basis of the claim against Bovis, Mr Hurst said he was not able to do so, but he referred Mr Hoser to Mr Higginbotham, who responded to the question, noting that the claim had been explained to Bovis in the course of a mediation between the parties.

Mr Hoser asked whether the proposed Deed could result in Mr Gilbert's conduct not being investigated by a liquidator. Mr Hurst replied that the conduct had already been investigated by the liquidator when he issued his report. That was obviously incorrect. Mr Wily had made it clear in his report that he had insufficient information to reach relevant conclusions. Mr Hoser referred to the lack of co-operation and lack of access to documents under which the liquidator had laboured, and claimed that there were matters, including insolvent trading, which required further investigation. Mr Franklin pointed out that if the litigation were unsuccessful, the administrator would have to consider terminating the Deed and winding the company up, and at that stage insolvent trading and the possibility of pursuing preferences could be investigated.

After further discussion, the meeting was adjourned to 16 January 2002 for the purpose of allowing Bovis and the ATO additional time to consider Mr Javorsky's Report. After the meeting, in response to an inquiry by Mr Javorsky as to whether the creditors required him to make any further investigation, Mr Hurst told him that the meeting had been adjourned and that he had not been asked to do anything. On 20 December 2001 Bovis commenced one of the three proceedings currently before the Court, No 6062 of 2001, against Mr Wily and Mr Javorsky.

On 11 January 2002 Freehills, on behalf of Bovis, wrote to Mr Javorsky, asserting that Mr Wily's decision to appoint an administrator should be reversed and that his appointment should be declared invalid, for reasons set out at length in the letter. They claimed that if a deed of company arrangement were to be executed, it would be open to challenge on several grounds, which they stated. They insisted that Bovis’ proof of debt be admitted in full for voting purposes at the adjourned meeting. They drew attention to Mr Wily's comments to the effect that Mr Nock's claim appeared excessive, and the comments of both Mr Wily and Mr Javorsky in their reports that the Interline (NSW) claim required investigation. They gave information about some potential claims of the Company, including a possible claim against Puketapu.

Mr Javorsky did not respond to that letter. Between 12 December 2001 and 16 January 2002 Interline (NSW) provided Mr Javorsky with no further information on its alleged debt, and no further investigation was undertaken into that debt by Mr Javorsky's staff.

However, Mr Franklin, having read Freehills' letter, became concerned regarding the Puketapu claim. He obtained some documents from Mr Gilbert, and having reviewed those documents, he decided that further investigation was warranted to determine whether the Company had made payments for the benefit of Puketapu, which might be recoverable in the event that the Company was wound up. Mr Gilbert told him that the Company had made payments of interest on a CBA bill facility granted to Puketapu, because the Company was the tenant of premises of which Puketapu was the landlord, and the payment was made by way of payment of rent. Mr Franklin informed Mr Higginbotham of the position by telephone on 15 January 2002. Mr Higginbotham suggested that the proposed deed be amended to include a provision that the Puketapu transaction be investigated by the deed administrator.

On the morning of 16 January 2002, in a conference prior to the adjourned second meeting of creditors, Mr Higginbotham told Mr Franklin that the deed would be amended to remove the proposed remuneration of $100 per hour payable to Mr Gilbert. Apparently the reason for removing that provision was to avoid any criticism to the effect that creditors would not be treated equally under the deed. The adjourned second meeting of creditors on 16 January 2002

The adjourned second meeting of the Company in administration occurred on 16 January 2002. The meeting was attended by: · Mr Hurst, who chaired it, with written authority from Mr Javorsky to represent him for that purpose; · Mr Franklin and Ms Saheb (described as "assisting Administrator"); · Mr Higginbotham, as proxy for the same seven creditors; · Mr Smith, a solicitor of Freehills, as proxy for Bovis, together with Mr Bartlett and Ms Fellows (from Freehills), as observers; · Mr Dunne, as proxy for the ATO; · Mr Willats, as proxy for NRMA; · Ms Staff from Cutler Hughes · Mr Gilbert. Mr Javorsky, who was overseas, did not attend.

Mr Hurst advised the meeting that Bovis had commenced a proceeding challenging Mr Wily's decision to appoint an administrator. He also said that Bovis had drawn attention to some investigations by Mr Wily's firm concerning transactions between the Company and Puketapu. Mr Higginbotham told the meeting that there would be two changes to the proposed Deed, namely deletion of the proposal for Mr Gilbert to receive remuneration, and inclusion of a provision authorising the deed administrator to pursue Puketapu in respect of any claim the Company may have against it, on the basis that any recovery would form part of the deed fund.

Mr Hurst ruled, as chairman, that Bovis be admitted for voting purposes for $1, as a result of uncertainty as to the existence of its debt and the Company's claim for approximately $7.5 million against it. He ruled that Mr Nock be admitted for voting purposes for $1, because his claim included an amount relating to a share of profits that would only eventuate if the Company's claim against Bovis were to be pursued successfully. He ruled that Interline (NSW) be admitted, for voting purposes, for $3,659,677.16, saying that he had been provided with a reconciliation of the account and on the basis of the information supplied to the administrator there was no reason to dispute the validity of the claim.

The meeting resolved that the Company execute the proposed Deed. The motion was proposed by Mr Higginbotham, as proxy for Coversafe Insurance Brokers, and seconded by him as proxy for PlastaMasta. Seven creditors with a value of $4,135,285.13 voted in favour of it, and three creditors with a value of $3,124,640.62 voted against it.

The seven creditors voting in favour were: · Interline (NSW) $3,659, 677.16 · Mr Nock $1 · Mr Greathead $8,750 · Mr Wood $6,530 · Kamper & Co $12,980 · Coversafe Insurance Brokers $2,175 · PlastaMasta $445,172.07

The three creditors voting against were: · Bovis $1 · Australian Taxation Office $3,009,000 · NRMA $115,480

As counsel for Bovis pointed out, there was no disclosure to the meeting of any association between Mr Franklin and Mr Gilbert prior to the commencement of the administration.

A resolution was passed to fix the remuneration of the administrator for the period from 29 November 2001 to 16 January 2002 at $20,000 plus GST, that amount to be paid immediately subject to the availability of funds. The meeting was not told that Mr Gilbert had agreed to pay the account in the absence of Company funds. On 16 January 2002 Mr Javorsky rendered an account to the Company for his remuneration as administrator up to 16 January 2002, in the sum of $23,448.37. That amount was paid by Mr Gilbert on about 29 January 2002.

On 30 January 2002 Bovis commenced the second of the proceedings now before the Court, No 1309 of 2002, against Mr Javorsky, the Company, Interline (NSW) and Mr Wily. The deed of company arrangement

The DOCA, which had been prepared by Cutler Hughes, was entered into on 6 February 2002. The parties were the Company, Mr Javorsky, Mr Gilbert and Interline (NSW). The Deed contained relatively standard provisions with respect to such matters as the identification of claims by creditors, the extinguishment of claims and the discharge of debts upon distribution of entitlements under the Deed, limitation of the administrator's liability, the administrator's reporting obligations and right to remuneration, and termination of the deed upon performance. It also contains the following less usual provisions: [ Recital C ] "The Company, Tui Gilbert, Interline (NSW) and the Administrator have agreed to enter into this Deed which is to operate for the Moratorium Period." [ Clause 1.1, definitions ] " the Bovis Proceedings means the legal proceedings commenced by the Company against Bovis for, inter alia, breach of contract by Bovis in relation to the construction of the building known as the Aurora Place and Macquarie Apartments Project and shall include any ancillary proceedings arising out of or related to the principal proceedings." [ Clause 1.1, definitions ] " the Puketapu Proceedings means proceedings commenced, now or at any time hereafter, by the Administrator against Puketapu Pty Ltd." [ Clause 1.1, definitions ] " Related Party/Related Parties means those parties and/or entities as defined in Section 9 of the regulations of the Corporations Act and referred to in the Corporations Act as 'related body corporate,' 'related entity' or 'related party'." "2.2 Purpose The purpose of this Deed is to provide for a composition of the debts of Participating Creditors, to enable the continuation of the Bovis Proceedings until settlement or final judgment and thereby facilitating the ongoing business of the Company." "6.1 Creation of the Administration Fund The Administration Fund shall be created by payments made in the following manner: (a) the Company must pay to the Deed Administrator the net proceeds of any monies received on an interim or final basis in satisfaction of: (i) any judgment or settlement (including any portion of such judgment or settlement attributable to legal costs) received by the Company in relation to the Bovis Proceedings; and only (ii) after the deduction from the amount referred to in (i) above and re-imbursement to Tui Gilbert and Interline (NSW) of all legal and other related costs paid by Tui Gilbert and/or Interline (NSW) in respect of the Bovis Proceedings; and (iii) if either the Administrator or the Company has obtained litigation funding in accordance with either Clause 9.2(c)(ii) or Clause 9.2(d) respectively, after deducting all amounts owing to such funder under the terms of any agreement for funding between the Administrator and/or the Company with such funder; (b) the Administrator agrees to pay into the Administration Fund any monies received by the Company on an interim or final basis recovered by the Administrator on behalf of the Company in relation to the Puketapu Proceedings as defined herein." "6.2 Payments from the Administration Fund The Administration Fund is to be distributed at the Deed Administrator's discretion and the Administrator shall distribute the Administration Fund in the following order of priority: (a) in payment of any outstanding remuneration and expenses of the Voluntary Administrator; then (b) payment of the Administrator's Remuneration and expenses of administering this Deed (including legal costs and related expenses); then (c) payment of employee creditors pursuant to s 556 of the Act; and (d) remaining participating Unsecured Creditors to be paid on a pro rata basis on their admitted claims, (e) surpluses if any are to be paid back to the Company." "9.2 Powers of Administrator For the purpose only of administering this Deed, the Administrator: (a) will have those powers set out in the Prescribed Provisions as set out in Schedule 8A of the Corporations Act Regulations excluding Prescribed Provision 10, referring to 'Lodging of Accounts' in the said regulations, and the power to take and conduct the Puketapu proceedings, and proceedings against any Related Party/Related Parties in relation to any cause of action held by the Company; (b) will be entitled, after provision of written notice to the Company in relation to any default of the Company of its commitments under the Deed, to: (i) re-direct the mail of the Company; and/or (ii) enter into possession of the business and the assets of the Company for the purpose of remedying any defaults by the Company of its commitments under the Deed; (c) will be entitled to supervise the conduct of the Bovis Proceedings and if, in the opinion of the Administrator it becomes both necessary and is in the interests of the Creditors then the Administrator may, in his discretion: (i) be the sole controller of the Bovis Proceedings; and (ii) make application for and accept any reasonable offer for litigation funding in order to continue with the Bovis Proceedings for as long as the Deed endures; (d) in the event that the Administrator declines to make any application or declines to accept any reasonable offer for litigation funding in order to continue with the Bovis Proceedings then the Company will be entitled to make its own application for and accept any reasonable offer for litigation funding in order to continue with the Bovis Proceedings." "11.1 Failure to Comply with this Deed If the Company or the Directors fail to or are unable to comply with a provision of this Deed, including the payment of the Contribution in the manner required under this Deed and/or the Administrator forms the view that the Company or the Directors are unlikely to be able to comply with the covenants given under this Deed, then the Administrator is entitled to: (a) issue a notice ('default notice') to the Company and/or the Directors to comply with the said provision within 7 days. If the Company and/or Directors fail to comply with the written notice the Administrator is then entitled to convene a meeting as referred to in Clause 11.1(b) below; or (b) without the issue of a default notice, convene a meeting in accordance with the Prescribed Provisions as set out in Schedule 8A of the Corporations Act Regulations at which Creditors may resolve to: (i) vary this Deed of Company Arrangement; or (ii) terminate this Deed of Company Arrangement; or (iii) terminate this Deed of Company Arrangement and wind up the Company; or (iv) enforce the terms of this Deed; or (v) any other proposal permitted under the Corporations Act." "12.1 Control of Company The Company and its Directors agree and acknowledge that the day-to-day control and stewardship of the Company will revert to the Directors on execution of this Deed." "13.1 Covenant to Fund the Bovis Proceedings Tui Gilbert and Interline (NSW) agree to jointly provide during the Moratorium Period funding to the Company to pursue the Bovis Proceedings. In the event that Tui Gilbert and Interline (NSW) do not wish to or do not have the means to continue to fund the Company, Tui Gilbert and Interline (NSW) will either seek litigation funding on behalf of the Company or use his and its best endeavours to assist any request by the Deed Administrator for litigation funding from another source." "14.1 Stay of the liquidation of the Company As soon as practicable, and within thirty (30) days of the Commencement Date, the Directors warrant that they will make application to the Court to stay of the liquidation of the Company." "14.2 Remuneration for Time Expended in relation to the Bovis Proceedings The Directors individually covenant that neither they nor any Related Party will receive payments by way of remuneration for any act or work done by those directors or related parties in relation to the Bovis Proceedings." "14.3 Reports as to Conduct of the Bovis Proceedings (a) The directors covenant to provide regular reports to the Administrator on the progress of the Bovis Proceedings and such further reports as and when reasonably requested to do so by the Administrator; (b) The Company and the Directors covenant to conduct the Bovis proceedings with diligence; (c) However the Company and the Directors do not covenant or warrant that the Company will be successful in the Bovis Proceedings." "14.4 Security for Funding of Bovis Proceedings (a) The Company agrees to provide Tui Gilbert and Interline (NSW) with a charge in registrable form ( 'the Charge' ) representing security for the funding of the Bovis Proceedings provided by Tui Gilbert and/or Interline (NSW) in accordance with Clause 13.1 above and the Charge will be provided within thirty (30) days of the Commencement Date. (b) In the event that the Company fails to provide the Charge referred to in Clause 16.3(a) above then the Administrator after giving the Company fourteen (14) days notice to remedy the failure, may in his discretion, call a meeting of Creditors pursuant to Clause 11.1 ."

On 19 March 2002 another Deed (which I shall call "the 19 March 2002 Deed") was entered into. The parties were the Company, Mr Gilbert, Interline (NSW), Puketapu, Tui Gilbert Holdings Pty Ltd, Tui Gilbert Family Trust Pty Ltd and Logical Innovations Pty Ltd. It was prepared by Cutler Hughes. According to a recital, the 19 March 2002 Deed gave effect to an agreement by Mr Gilbert and related entities, said to have been made at the adjourned meeting on 16 January 2002, to make themselves contractually liable to the Company with respect to certain liquidator recovery actions, to the extent that they would have been exposed to liability had the Company remained in liquidation. The arrangement was reflected in Clause 9.2(a) of the Deed of Company Arrangement, set out above. The principal operative provision of the 19 March 2002 Deed was as follows: "2. Related Party Transactions 2.1 The Parties refer to the Deed of Company Arrangement and in particular to clause 9.2(a) of the Deed of Company Arrangement and expressly agree that the reference in clause 9.2(a) of the Deed of Company Arrangement to the Deed Administrator's '… power to take and conduct the Puketapu proceedings and proceedings against any Related Party/Parties in relation to any cause of action held by the Company' is a reference to the Related Parties agreement that they will pay to the Company any amounts which would have been recoverable by a Liquidator under the provisions of the Corporations Act, had the Company stayed in liquidation. 2.2 Without limiting the generality of 1.1 above, the Related Parties specifically agree to pay to the Company any amounts a liquidator would have been able to recover, under Sections 588FA, 588FB, 588FC, 588FD, 588FE, 588FF, 588FH, 588FJ, 588M, 588V, and 588W of the Corporations Act. 2.3 The Parties agree that in any claim for compensation by the Company, the Related Parties shall be entitled to rely on all defences at law including, but not limited to the defences provided in Sections 588FG, 588FGB, 588X and 588H of the Corporations Act."

No proceedings have been commenced by the Company against Bovis, as contemplated by the Deed of Company Arrangement. A draft summons was provided by Mr Gilbert's solicitors to the liquidator's solicitors on 30 August 2002. The draft summons claims $3,451,605.26 on various grounds, and there is no specification or particularisation of any damages claim for the $3.5 million that had been inserted, by Mr Franklin, into Mr Gilbert's report as to affairs.

At a meeting held on 2 May 2002, the Creditors resolved that Mr Javorsky do nothing further in the administration, including doing nothing further to investigate the Puketapu claim or other related party claims, until the determination of the present proceedings. Challenges to the credibility of witnesses

Oral and affidavit evidence was given by Mr Bartlett, Mr Gilbert, Mr Wily, Mr Javorsky, Mr Hurst and Mr Franklin. I received submissions urging me to reject various assertions by witnesses, which I shall consider where relevant. I also received submissions which amounted to general attacks on the credibility of the evidence of Mr Bartlett, Mr Franklin and Mr Javorsky. I shall deal with these general attacks now. Mr Bartlett

Mr Bartlett was formerly the general counsel of Bovis, and he alone gave evidence on its behalf. Some of his evidence related to "concerns" he claimed to have with respect to aspects of the administration and liquidation, the amendments to the proposed Deed made on 16 January 2002, and the connection he perceived between Mr Javorsky's firm, Jones Condon, and Mr Gilbert via Mr Franklin. Mr Bartlett's statements about his concerns were admitted into evidence, despite objection, but only as evidence of Mr Bartlett's state of mind.

Counsel for Mr Javorsky invited me to treat Mr Bartlett's evidence of his concerns with considerable scepticism. After listening to Mr Bartlett in cross-examination and observing his demeanour, my opinion is that his evidence, including his evidence on these matters, should generally be accepted. However, the fact that Mr Bartlett and therefore Bovis had some concerns does not establish that those concerns were justified or that, given opportunity, Mr Bartlett would have been able to persuade enough creditors of his point of view that the decisions by creditors taken on 27 November 2001 and 16 January 2002 would have been different.

One of Mr Bartlett's concerns was about the connection between Jones Condon and Mr Gilbert, which arose because Mr Franklin had acted for Mr Gilbert at one time. Mr Bartlett said he learned about the connection between Mr Franklin and Mr Gilbert after the DOCA had been executed. In cross-examination, Mr Bartlett said that the connection between Mr Franklin and Mr Gilbert created a "suggestion of a conflict", but he declined counsel's invitation to say that there was in fact a conflict. He said he had never met Mr Javorsky and had not spoken to him.

Counsel for Mr Javorsky said that Mr Bartlett's evidence of his awareness of details of the Company's claim against Bovis was internally inconsistent. At one stage in cross-examination Mr Bartlett said that he was unaware of the details of the Company's claim against Bovis, but he later gave evidence that he participated in a discussion with Mr Murphy, the mediator, in the course of which he received a statement of the Company's claim on 15 June 2001. He also admitted in re-examination that he was aware that the Company's delay and disruption claim against Bovis had previously been quantified at $3.2 million, an amount substantially in excess of the claim by Bovis against the Company.

In my opinion there was no contradiction in Mr Bartlett's evidence on these matters. He said that he was not involved in the building project and he referred the claim to appropriate Bovis officers for review and reports, although that work was not done because the Company went into liquidation. I infer that Mr Bartlett left it to others to deal with the content of the claim, and was not personally acquainted with it in any detail.

Mr Bartlett denied that Bovis opposed the administration out of concern for its own interest in avoiding the Company's claim. Counsel for Mr Javorsky invited me to reject that evidence, but I have decided to accept it. While there is some evidence indicating that Bovis was strongly opposed to the Company's claim, and there were grounds for Mr Bartlett to take the view that there would be a greater chance of litigation against Bovis if the Company entered into the proposed Deed than if it remained in liquidation, Mr Bartlett gave evidence (noted above) that he had other concerns, and that evidence implies, in my opinion, that Bovis was not motivated solely or even principally by self-interest. Mr Franklin

Bovis invited me not to accept the evidence of Mr Franklin on certain key issues. Mr Franklin gave evidence that his role in his dealings with Mr Gilbert was "to procure the consent to act of either Mr de Vries or Mr Javorsky".

Bovis said that when one looks at the nature and duration of Mr Franklin's involvement, considered below, that description cannot be accepted. Mr Franklin, according to this submission, attempted to minimise or play down his involvement with Mr Gilbert. The truth, according to Bovis, was that Mr Franklin was a participant at the heart of the effectuation of Mr Gilbert's strategy, who was kept in the loop at all stages. Bovis referred to the fact that Mr Franklin attended four meetings with the liquidator's firm, he was copied with correspondence by both Mr Gilbert and Mr Higginbotham, he originated the figure for the damages claim, he gave assurances to the Australian Taxation Office on behalf of Mr Gilbert at the creditors' meeting, and he sent the two schedules to the draft RATA to Mr Higginbotham as well as Mr Gilbert. Bovis contended that the evidence of Mr Franklin, in seeking to explain his file note and his description of Mr Gilbert as his client in a letter, should not be accepted.

For the most part, Mr Franklin's evidence was consistent with documents and the evidence of other witnesses, and there is no reason to reject it. However, in his evidence he frequently invited the Court to take an interpretation of the documents and other evidence that would have the effect of minimising his participation with Mr Gilbert. He was obviously aware that Bovis sought to make a case based upon his connection with Mr Gilbert, and it appeared to me that in his evidence he was endeavouring to refute that case on factual basis. After hearing and assessing his evidence, I have decided that certain parts of it should not be accepted. The evidence that I shall reject relates to Mr Franklin's connection with Mr Gilbert. I shall deal with it under that heading. Mr Javorsky

Bovis was critical of Mr Javorsky's evidence, saying that I should not accept that evidence unless it was supported by contemporaneous documents or was inherently plausible. I have decided that the evidence of Mr Javorsky was incorrect on some matters, but I do not regard his evidence as generally unreliable. He had no desire to confess to failings or to advance information not called for or that would put him into a bad light, but subject to those limitations he was a witness to truth.

Bovis put forward four specific criticisms of Mr Javorsky's evidence. First, Bovis submitted that Mr Javorsky's evidence was characterised by non-responsive answers, particularly where a direct answer would not reflect well on him or his case. I have answered this submission by my general comments. I do not regard Mr Javorsky as a deliberately evasive or deliberately non-responsive witness.

Secondly, Bovis contended that Mr Javorsky was very reluctant to accept fault, or to concede that he had failed to perceive or investigate issues. Bovis said that Mr Javorsky's evidence stood in contradiction to the perceptions of Mr Wily. I agree that he was guarded and did not volunteer information that would put him in a bad light, but I do not regard this as reflecting adversely on his evidence as a whole.

Thirdly, Bovis said that Mr Javorsky contradicted Mr Franklin on one matter. Mr Javorsky maintained that adequate investigations had been undertaken on matters such as insolvency and breach of fiduciary duty. Mr Franklin, who would have been responsible for any such investigations, accepted that he had not undertaken them. I agree that there is an inconsistency in the evidence of Mr Javorsky and Mr Franklin, and I accept that no external investigations were undertaken on these matters. However, Mr Javorsky's Report to creditors is evidence that these matters were given some consideration by him and Mr Franklin.

Fourthly, Bovis criticised Mr Javorsky for expressing the opinion that the main purpose of his Report was to put forward a deed of company arrangement. That, said Bovis, showed that Mr Javorsky had aligned his interests with the interests of Mr Gilbert. I think this submission places too much emphasis on the literal words of Mr Javorsky's evidence, without adequate regard to their context. In my opinion, Mr Javorsky's evidence meant no more than that his ultimate recommendation in the Statement accompanying his Report was in favour of the proposed Deed. That is true and unexceptional. Principal issues in contention

In his submissions counsel for Bovis has, quite properly, addressed each of the statutory grounds upon which relief is sought. Thus, there are separate submissions dealing with: · Mr Wily's decision as liquidator to appoint Mr Javorsky as administrator; · the validity of the second meeting of creditors on grounds relating to Mr Javorsky's non-attendance, the admission of Interline (NSW)'s proof of debt for the full amount, the admission of the proof of debt by Bovis for only $1, and the effect of related party voting under s 600A; · the removal of Mr Javorsky as administrator; · the review of Mr Javorsky's administration; and · the termination or stay of the winding up order.

The submissions on behalf of Bovis involved considerable repetition, because the same issues were raised as grounds for granting or resisting relief in several categories. I have decided to deal with what seem to me to be the three principal issues separately, before dealing with the various categories under which relief is claimed. Those three issues are: (1) the "connection" of Mr Franklin with Mr Gilbert; (2) the alleged benefits of the Deed proposal to creditors as a whole; and (3) the alleged prejudice or disadvantage to creditors as a whole from implementation of the Deed proposal. (1) The "connection" of Mr Franklin with Mr Gilbert The liquidator's duties of independence, impartiality, and avoidance of conflict of interest

It is now well established that a liquidator must be, and be perceived to be, independent of the company, its directors and shareholders, and individual creditors. The liquidator must act, and be perceived to act, impartially in the discharge of the duties and responsibilities of his or her office. Although the distinction is not always observed, there are in fact separate duties relating to independence and impartiality (absence of bias).

In National Australia Bank Ltd v Market Holdings Pty Ltd (2001) 19 ACLC 710 Young J (as the Chief Judge in Equity then was) said (at 733) that there was a third separate duty, namely the duty of liquidators to ensure that they do not place themselves in a position where there is, or might be, a conflict between their duty to creditors and members and their personal interest, and later he added (at 734) that for the principle to apply in a case of possible conflict of interest, there must be a real rather than merely a theoretical possibility of conflict.

The Chief Judge in Equity has comprehensively stated the relevant principles, as they apply to liquidators, in the Market Holdings case. I shall nevertheless spend some time elaborating those aspects of the principles that were given emphasis in the submissions in the present case, focusing attention on the duties with respect to independence and impartiality. Scope of the duties of independence and impartiality

The duties were first developed, as one would expect, in cases concerned with the independence of a court-appointed liquidator, especially independence from the influence of the petitioning creditor. In Re Contract Corporation; Gooch's Case (1872) LR 7 Ch App 207, James LJ compared the position of a court-appointed liquidator with the position of a receiver and manager of partnership assets. As to the duty of impartiality, he said (211): "In truth, it is of the utmost importance that the liquidator should, as the officer of the Court, maintain an even and impartial hand between all the individuals whose interests are involved in the winding-up. He should have no leaning for or against any individual whatever."

In Re Allebart Pty Ltd [1971] 1 NSWLR 24, Street J (as he then was) drew attention to the "public responsibilities" that an official liquidator has, as an officer of the Court, to investigate activities connected with the company and in appropriate cases, to initiate proceedings (at 26), and he said "it is essential that the independence and impartiality of a liquidator should at all times exist in point of substance, and be manifestly seen to exist" (at 30).

Problems about independence and impartiality can arise because of a connection between the liquidator and the company prior to the commencement of liquidation, or a connection between the liquidator and the directors or major shareholders, or one of the creditors, or because some other facts create a basis for concern. The principles apply quite generally. As Fitzgerald P, Pincus JA and Williams J said in Re Chevron Furnishers Pty Ltd (No 2) [1995] 1Qd R 125, 130: "The liquidator must have had no prior or other involvement either with the company in liquidation, its directors and major shareholders, or one of its creditors so that he could not fairly and impartially carry out his duties as liquidator requiring him, in broad terms, to act in the best interests of the general body of creditors."

For example, a perception of lack of independence may arise where the liquidator's own firm is a potential subject of investigation in the course of the winding up. That was the problem in Re National Safety Council of Australia [1990] VR 29, where the liquidator's firm had prepared a report on the company's accounting procedures and controls, in respect of which it might arguably have been appropriate for the liquidator to take proceedings in negligence. The Appeal Division of the Supreme Court of Victoria (at 34) quoted with approval the statement in McPherson on Company Liquidations (3rd edition, page 209) that "the guiding principle in the appointment by the court of a liquidator is that he must be independent and must be seen to be independent". In their Honours' opinion, the liquidator could not be seen to be independent because he was a partner in a firm whose relationship with the company might need to be investigated by the liquidator.

In Re Giant Resources Ltd [1991] 1 Qd R 107, a perception of lack of independence arose out of the association between the provisional liquidators' firm and companies that would need to be investigated in the course of liquidation. Ryan J said (at 117): "It is of the greatest importance that there should be no possibility of criticism attaching to one of the Court's own officers on the ground of a conflict of interest. The liquidator needs to be seen to be independent in any matter which his duties as liquidator may require him to investigate." On the same reasoning, it has been held that a person should not be appointed liquidator if he has a partner who has been involved with a potential examinee as auditor or accountant: Re Queensland Stations Pty Ltd (1991) 9 ACLC 1341.

As can be seen from the passages I have quoted, some cases have emphasised, in enunciating the principles of independence and impartiality, that a court-appointed liquidator is an officer of the Court. In Re Timberland Ltd (1979) 4 ACLR 259, Marks J said that in some respects a liquidator is in the same position as a judge. Thus, a liquidator acts in a quasi-judicial capacity in determining whether to admit or reject a proof of debt, and must act according to standards no less than the standards of a court or judge: Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332, 338-9 per Brennan and Dawson JJ. It may be that the duties of independence and impartiality are rooted in this curial analogy. In some respects (for example, in selling assets or running a business of the company in liquidation) the liquidator can hardly be said to be acting quasi-judicially. As Young J remarked in the Market Holdings case (at 733), it is hard to draw the line as to where the quasi-judicial aspects of a liquidator's task stop and other aspects commence. Yet the duties of independence and impartiality extend to every facet of the liquidator's activities.

Notwithstanding the emphasis placed in the cases on the status of a court-appointed liquidator as an officer of the court, the courts have unhesitatingly applied the principles regarding independence and impartiality to a liquidator in a voluntary winding up. Thus, in Re Lubin, Rosen & Associates Ltd [1975] 1 WLR 122, Megarry J said (at 126) that "a voluntary liquidator ought not even to give the appearance of being one-sided" in such matters as organising opposition to a petition for compulsory winding up. The principles were applied in Advance Housing Pty Ltd v Newcastle Classic Developments Pty Ltd (1994) 12 ACLC 701, and also in Re Biposo Pty Ltd (1995) 17 ACSR 730, to a liquidator who had previously been a voluntary administrator, and had become a liquidator in a "deemed" voluntary winding up under s 446A. Application of the principles of independence and impartiality to voluntary administrators

Part 5.3A does not expressly state that the administrator is required to be independent of the directors and any creditors during the administration, or that he or she must act impartially in the discharge of the statutory responsibilities. However, even a cursory review of the scope and objects of Part 5.3A would establish that voluntary administrators have implied duties of independence and impartiality, which are part of the very marrow of voluntary administration system. It has therefore been held that the principles of independence and impartiality developed and applied to liquidators are equally applicable to voluntary administrators (see, for example, Commonwealth of Australian v Irving (1996) 19 ACSR 459, at 462) - although differences in the circumstances in which they are required to work (especially the speed at which the administrator must work) may affect the standard required to be observed in particular circumstances. Limits on the duties of independence and impartiality

Not every prior association will lead to a breach of duty. In the Advance Housing case, Santow J said (at 704-705): "the correct balance is struck by permitting the liquidator to act as such even if there be a prior involvement with the company in liquidation, provided that involvement is not likely to impede or inhibit the liquidator from acting impartially in the interests of all creditors or be such as would give rise to a reasonable apprehension on the part of a creditor that the liquidator might be so impeded or inhibited. In short the question should be whether there would be a reasonable apprehension by any creditor of lack of impartiality on the liquidator's part in the circumstances, by reason of prior association with the company or those associated with it, including creditors, or indeed any other circumstances."

While it may sometimes be appropriate (as Santow J contemplated in this passage) to choose as liquidator a person who already has some knowledge of the company, "that consideration is unlikely to have great weight in circumstances where there are divergent interests in the liquidation and the liquidator's familiarity arises from a connection with parties representing some only those interests": Re Ross Wood & Sons Pty Ltd (1997) 23 ACSR 291.

It is not impermissible, per se , for a liquidator to make an arrangement with a particular creditor for payment of the liquidator's costs and expenses (although, as I shall point out, it may be material to disclose such an arrangement to creditors). The position was explained by Street J in Re Allebart (at 27-28): "Not only did the petitioning creditor seek to urge on the liquidator in the process of the windings up, but it agreed to indemnify him against the expenses of carrying out examinations of Mr and Mrs Barton. It had already provided him with a cash sum of over $1,800 to cover the costs of, and related to, the bringing of these examinations. Here again there is no basis for levelling any criticism whatever against the petitioning creditor. Where a company is being wound up and it has no assets, or insufficient assets, to enable the due processes of the liquidation to be carried through, a creditor is to be encouraged, rather than criticised, in making funds available to the liquidator. Nor need a liquidator be diffident in accepting funds or indemnities from creditors so as to enable a winding up to proceed. Moreover, I see no reason to criticise on the grounds of propriety the arrangement under which a creditor provides money or indemnities to cover the expenses of a specific step in the winding up, such as the bringing of named proceedings or the carrying out of named examinations. Arrangements such as these are commonplace, and, if anything, they are to be encouraged, as very frequently some such arrangement enables the liquidator to carry out his duties more thoroughly or comprehensively than would otherwise be the case …."

Nor is it necessarily impermissible for a liquidator to retain solicitors who have also acted for, or continue to act for, a creditor. In Re Allebart , Street J said (at 29): "The liquidator instructed as his solicitors the solicitors who had acted for the petitioning creditor. This is of itself innocuous and, indeed, commonplace. It did however set the stage which, again, necessitated particular care being taken by the liquidator to ensure that it was on his instructions that each step was taken in the winding up." (See also National Australia Bank Ltd v Wily [2002] NSWSC 573; Domino Hire Pty Ltd v Pioneer Park Pty Ltd [2003] NSWSC 496.)

The principle of independence has also been "slightly eroded" in other respects, such as by "(a) the practice to permit a company which has consulted an insolvency accountant about its future and has been advised to go into liquidation to nominate that accountant as liquidator; (b) the practice to permit a voluntary liquidator to be appointed who has given financial advice to the directors …": Market Holdings , at 733. In Re Club Superstores Australia Pty Ltd (in liq) (1993) 11 ACLC 351 Thomas J accepted that there was a common practice in Queensland for a potential liquidator to attend a pre-appointment conference with a creditor or the company’s directors, which did not contravene the duties of independence and impartiality. However, the potential liquidator needed to be careful not to “cross the line” by giving personal advice to the persons in attendance.

On the same point, but in the context of voluntary administration, Branson J said in Commonwealth of Australian v Irving , at 464-5: "It is not, in my view, the law that a person appointed as an administrator of a company under Part 5.3A of the Corporations Law may not have had any prior contact with the company or its directors or officers. It is now commonplace for a company to seek professional advice respecting actual or apprehended insolvency and for the advice received to be to appoint an administrator pursuant to Part 5.3A of the Corporations Law. Not infrequently, and in my view, not improperly, the proponent of the advice to appoint an administrator then accepts appointment as that administrator. There would, I consider, be an air of commercial unreality about any suggestion that this course of events is necessarily improper. … However, the authorities make it plain that substantial involvement with a company prior to its administration will disqualify a person from appointment as that company's administrator. Such an involvement will be seen to detract from the ability of the person to act fairly and impartially during the course of administration. In Molit (No 55) Pty Ltd v Lamb Soon Australia Pty Ltd (1996) 19 ACSR 160 in speaking of the role of an administrator I said: 'In such a role he or she is, in my view, obliged to consider not only means to maximise the chances of the company, or as much as possible of its business, continuing in existence (s 435A), but also issues of fairness between the company and its creditors, and between the company's creditors inter se.' It is necessary that a person appointed as an administrator can be seen to be independent of the company and of each of its creditors so that his or her ability to perform the above role is not open to question." Perception of partiality or lack of independence

As I have said, the principles about in dependence and impartiality draw attention not only to the facts but also to the perception that the facts create. Olsson J has reminded us that "for those who have a particular perception, that perception is the reality": Re Dunquil Pty Ltd (1985) 9 ACLR 950, 955. In Re Biposo Young J (as his Honour then was) emphasised the importance of the perception of impartiality, and (at 735) saw the primary problem in the case before him as being "whether it would be perceived by a reasonable observer that the liquidators have manifested tendency to favour certain interests at the expense of others".

Re Biposo was, like the Giant Resources and Chevron cases, a case where the liquidator's duty of impartiality arose for consideration in an application for the liquidator's removal. Young J said that in such a case, the question is not whether a case of wrongdoing has been proven according to the particulars given by the plaintiff, but rather "whether in the interests of the public removal of the liquidator would be for the general advantage of persons interested in the winding up". This principle has frequently been applied in applications for removal of liquidators ( City & Suburban Pty Ltd v Smith (1998) 28 ACSR 328, 336; Citrix Systems Inc v Telesystems Learning Pty Ltd (1998) 28 ACSR 529, 536), and in applications for the removal of administrators ( Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 13 ACSR 544; Dallinger v Halcha Holdings Pty Ltd (1995) 60 FCR 594; Velkovski v Ryan (1996) 19 ACSR 514). Questions of independence and impartiality also arise, and are similarly treated, where an application is made for leave under s 448C for a person to be appointed administrator: Re Central Spring Works Australia Pty Ltd (2000) 34 ACSR 164; Re St George Builders Hardware Pty Ltd (1995) 18 ACSR 451. Application to this case

Bovis contended that Mr Franklin, who by 27 November 2001 had become a part-time consultant with Jones Condon, had an association with Mr Gilbert and Interline (NSW) from which various consequences flowed, as follows: · Mr Wily's decision to appoint Mr Javorsky as administrator should be reversed by the Court under s 1321, because (inter alia) it was inappropriate for Mr Wily to appoint Mr Javorsky having regard to Mr Franklin's association with Mr Gilbert and Interline (NSW); · the resolution passed by creditors at their meeting of 16 January 2002 was contrary to the interests of creditors as a whole and prejudiced or was likely to prejudice the interests of creditors who voted against it (s 600A(1)(c)), because (inter alia) the appointment of Mr Javorsky as deed administrator would carry with it the problems created by Mr Franklin's association with Mr Gilbert and Interline (NSW), and therefore the resolution should be set aside under s 600A(2); · the decision by Mr Hurst at the meeting on 16 January 2002 to admit the proof of debt by Bovis for only $1 was erroneous, because (inter alia) he did not disclose to the creditors the facts relating to Mr Franklin's association with Mr Gilbert and Interline (NSW); · similarly, the decision by Mr Hurst to admit the claim by Interline (NSW) in full for voting purposes was erroneous because it was influenced by partiality, having regard to the connection between Mr Franklin and Mr Gilbert and Interline (NSW); · there were material omissions from Mr Javorsky's report to creditors, one of which was its failure to disclose in detail or in summary the facts concerning Mr Franklin's connection with Mr Gilbert and Interline (NSW), and therefore the DOCA should be terminated under s 445D(1)(c); · Mr Franklin's involvement in preparation of Mr Javorsky's report to creditors, and in the administration generally, was impermissible having regard to his prior association with Mr Gilbert, and therefore the DOCA should be terminated for "some other reason" under s 445D(1)(g); · Mr Javorsky should be removed from his position as deed administrator under s 449B, having regard to Mr Franklin's involvement in the day-to-day conduct of the administration and preparation of Mr Javorsky's report to creditors and his prior association with Mr Gilbert; · the Court should review and reduce Mr Javorsky's remuneration under s 449E(2) on grounds including Mr Franklin's involvement in the administration following his association with Mr Gilbert and Interline (NSW).

Mr Javorsky submitted that Mr Franklin's link with Mr Gilbert and Interline (NSW) was a very limited one. According to this submission, in the period up to Mr Javorsky's appointment as administrator, Mr Franklin did no more than give Mr Gilbert advice about a possible administration, on the basis that he would, if required, procure a “consent of administrator to act”. Mr Javorsky contended that Mr Franklin played no part in formulating the proposal for a deed of company arrangement, and he did not assist Mr Gilbert to write to Mr Wily on 25 July 2001 to reject Bovis' proof of debt. Nor, according to Mr Javorsky, did Mr Franklin play any role in seeking to persuade Mr Wily to appoint an administrator. Mr Javorsky said that Mr Franklin's involvement with Mr Gilbert was in accordance with standard and proper practice for insolvency practitioners, and conformed to the Code of Professional Conduct published by the Insolvency Practitioners Association of Australia ("IPAA Code").

The pertinent facts may be summarised as follows: (1) Kamper & Co, the Company's accountants, were one of Mr Franklin's main sources of referred work as an insolvency practitioner in the year 2000; (2) Mr Kamper arranged a meeting between Mr Franklin and Mr Gilbert in July or August 2000, in which Mr Franklin gave Mr Gilbert advice about the voluntary administration process generally; (3) after noticing that the Company was subject to a winding up application, Mr Franklin contacted Mr Kamper who told him that Mr Gilbert did not need Mr Franklin's help; (4) after the Company was placed in liquidation and Mr Wily endeavoured to collect its books and records, Mr Gilbert contacted Mr Franklin for advice as to whether he could do anything to stop the liquidation process, and Mr Franklin told him that while the company's director could not appoint an administrator, the liquidator could do so; (5) Mr Franklin participated in a meeting with Mr Gilbert and representatives of Mr Wily on 21 June 2001, at which they discussed Mr Gilbert's interest in placing the Company into administration in order to propound a deed of company arrangement, and the liquidator's position that he would consider appointing an administrator after receiving a RATA and the Company's books and records, and Mr Franklin suggested Mr Javorsky or Mr de Vries as administrator; (6) Mr Franklin later advised Mr Gilbert that it would be necessary for him to work up a proposal, and to prepare a RATA which Mr Franklin would check, and demonstrate that the Company's claim against Bovis was valid, and he referred Mr Gilbert to Cutler Hughes and Harris; (7) Mr Franklin participated in a meeting with Mr Gilbert and representatives of Cutler Hughes and Harris on 25 June 2001, at which they discussed the proposal for a deed of company arrangement, the background to the dispute between the Company and Bovis (including a review of paperwork) and the assistance required of Cutler Hughes and Harris; (8) Mr Franklin attended a meeting with Mr Gilbert, representatives of Mr Wily and of Cutler Hughes and Harris on 28 June 2001, at which it was said that Mr Higginbotham had been retained by Mr Gilbert to advise on the claim against Bovis, and to request Mr Wily to appoint an administrator, and to provide assistance in preparing a deed of company arrangement, and Mr Franklin reported to the meeting that both Mr Javorsky and Mr de Vries would consent to act as administrator; (9) in his letter to Mr Murphy dated 4 July 2001 Mr Gilbert claimed (possibly on the basis of advice by Mr Franklin) that he had the requisite majority to ensure that the terms of the proposed Deed were within his control; (10) between 5 July and 18 July 2001 Mr Franklin, on behalf of Mr Gilbert, exchanged five letters with Mr Wily concerning Mr Gilbert's RATA and the request by Mr Wily for provision of the books and records of the Company (including files relating to the claim against Bovis); (11) Mr Franklin met with Mr Gilbert and representatives of Cutler Hughes and Harris on 9 July 2001, and at that meeting Mr Higginbotham gave his opinion of the merits of the claim against Bovis, and (according to his file note) Mr Franklin agreed to prepare the RATA, a proposal to Mr Wily and a letter concerning the claim by Bovis; (12) in his letter to Mr Wily on 5 July 2001, seeking an extension for completion of the RATA, Mr Franklin described Mr Gilbert as "my client" and he wrote seeking a further extension, unsuccessfully, on 12 July; (13) Mr Franklin assisted in the preparation of the RATA, in the manner described below; (14) Mr Gilbert sent the RATA to Mr Wily on 25 July 2001, and on the same day he sent to each of Mr Franklin and Ms Staff of Cutler Hughes a copy of the document, thanking them both for "all [their] assistance", and Mr Franklin put it in a manila folder; (15) Mr Gilbert copied to Mr Franklin his letter of 25 July 2001 to Mr Wily, in which he proposed voluntary administration and a deed of company arrangement, and his letter to Mr Wily setting out arguments as to why Mr Wily should reject Bovis' proof of debt; (16) Mr Franklin attended a meeting on 7 September 2001, attended by Mr Gilbert, representatives of Mr Wily and of Cutler Hughes and Harris, to discuss Mr Gilbert's wish to propose a deed of company arrangement, and his wish that Mr Wily should convene a meeting of creditors to consider the appointment of an administrator; at this meeting the general nature of the proposed Deed, under which Mr Gilbert or a deed administrator would take proceedings against Bovis, was discussed, and Mr Higginbotham gave his views on the merits of the claim against Bovis, and Mr Gilbert explained his desire to take proceedings under a deed of company arrangement; (17) copies of the correspondence between Cutler Hughes, Mr Wily and PW Turk of 14, 25 and 26 September 2001 were sent by Cutler Hughes to Mr Franklin; (18) in October 2001 Mr Franklin began to work as a consultant to Jones Condon on a part-time basis, becoming full-time in December 2001; (19) Mr Franklin met with Mr Javorsky and Mr Higginbotham of Cutler Hughes in October or November 2001, and they discussed Mr Gilbert's proposal that the Company be placed into administration in order to promote a deed of company arrangement, Mr Javorsky's willingness to act as administrator, and the willingness of Mr Gilbert and Interline (NSW) to fund the administration process and the proceedings against Bovis; (20) Mr Higginbotham invited Mr Franklin to attend the meeting of creditors held on 27 November 2001, and after arranging for Mr Javorsky to sign a consent to act as administrator, Mr Franklin attended the meeting; (21) at the meeting held on 27 November 2001, Mr Franklin was described as an observer but he purported to speak on behalf of Mr Gilbert, saying that if the proposed Deed proceeded, Mr Gilbert would arrange for the processing of outstanding tax returns; (22) in the voluntary administration, Mr Franklin attended to the day-to-day running of the administration, overseen by Mr Hurst, who was a senior manager with Jones Condon, who in turn reported to Mr Javorsky as administrator; (23) Mr Franklin attended the first meeting of creditors held on 6 December 2001; (24) Mr Franklin prepared Mr Javorsky's Report to Creditors and Statement, with assistance from Ms Saheb, and they were settled and signed by Mr Javorsky; (25) it was Mr Franklin who, when he read the letter from Freehills dated 11 January 2002, became concerned regarding the Puketapu claim and investigated it; (26) Mr Franklin attended the second meeting of creditors held on 20 December 2001 and 16 January 2002, and was described as "assisting Administrator", and he spoke at the meeting generally in favour of the proposed Deed; (27) there was no disclosure to the meeting of creditors that there had been any association between Mr Franklin and Mr Gilbert prior to the commencement of the administration.

The extent of Mr Franklin's involvement in preparation of the RATA was a matter of central importance, according to counsel for Bovis. Therefore the facts need to be set out in some further detail. Apart from seeking extensions of time for preparation of the RATA, Mr Franklin provided Mr Gilbert with a blank questionnaire for directors on 16 July 2001, which Mr Gilbert later completed and returned to Mr Franklin on 20 July 2001. It appears that Mr Franklin became responsible for collating certain information for the purposes of the RATA. On 19 July 2001 Mr Nock, on behalf of the Company, sent Mr Franklin a copy of a summary that the Company had submitted to Mr Murphy and Mr Bartlett for the purposes of the mediation. On 20 July 2001 Mr Griache on behalf of the Company sent Mr Franklin some further information about the dispute with Bovis. On 24 July 2001 Mr Franklin sent Mr Gilbert and Mr Higginbotham a "first draft" of the RATA, although it seems that only two schedules, schedules C and H, were sent. As I have said, in the covering note he asked Mr Higginbotham to look at and settle the claim against Bovis, noting that he had used "damages" as "a balancing figure to eliminate deficiency".

Mr Franklin gave evidence that he only prepared those two schedules, saying that he used information provided to him by Mr Gilbert, and used his experience to put that information into an appropriate format. He said he did not see the draft again before it was finalised, and there was no meeting for the purpose of finalising it, and he did not give any further advice. At that time, Mr Gilbert was being advised by Cutler Hughes and Harris on various matters including finalisation of the RATA. Mr Gilbert gave evidence that Mr Franklin assisted him to complete the RATA, by explaining items he did not understand.

I accept the evidence of Mr Franklin and Mr Gilbert on these points, but I do not regard it as telling the full story of Mr Franklin's participation in preparation of the RATA. I have reached this conclusion for two reasons. First, while it appears that Mr Franklin prepared the draft of only two schedules to the RATA, they were by far the most important parts of the document. After the meeting of 21 June 2001 Mr Franklin offered to check the RATA when it was prepared, and later he negotiated for extensions of time for lodgement of the RATA. As I have said, he took responsibility for collating information regarding the claim against Bovis which became draft schedule C, and he also collected information from the Company for the purpose of preparing the schedule of unsecured creditors, schedule H. It is therefore correct to characterise his involvement in the preparation of the RATA as a central involvement.

Secondly, I regard Mr Franklin's proposal in draft schedule C to include general damages of $3.521 million, as a balancing figure to eliminate deficiency, to be a significant involvement in the process of preparation of the RATA. Mr Franklin gave evidence that by doing so, he was giving effect to Mr Gilbert's statement that the Company would not have been insolvent but for Bovis' actions. That evidence seems to acknowledge that the claim for general damages, at least damages quantified at $3.521 million, was Mr Franklin's idea, and that in formulating the claim he was purporting to act either on the instructions or in the interests of Mr Gilbert.

Mr Gilbert gave evidence acknowledging that the calculations used by the Company for the purposes of the mediation were limited to the delay and disruption claim, and did not include any figure at all for general damages. He sought to explain this by saying that it was his understanding of what Bovis had requested, and "we weren’t looking for anything more than to get out with the seat of our pants on". To the extent that this evidence implies that the general damages claim was in contemplation during the mediation but was withheld, I reject it as implausible.

Mr Franklin gave evidence that, having submitted the draft, he proceeded on the assumption that Cutler Hughes and Harris would settle the figure of the damages claim. I accept that evidence. Mr Gilbert gave evidence to like effect. He said that the damages claim shown in the final RATA represented the view of Cutler Hughes and Harris after they had reviewed the claim. Neither Mr Gilbert nor Cutler Hughes and Harris reverted to Mr Franklin with respect to the settling of the damages figure after he had transmitted the first draft. But all this is of limited significance. The important point is that Mr Franklin conceived the idea of inserting a claim for general damages as a balancing figure to eliminate the deficiency of liabilities over assets, and in that way he made a contribution to the preparation of the RATA which amounted to a significant involvement.

These considerations have led me to the conclusion that in the course of preparation of the RATA, Mr Franklin acted on behalf of, or in the interests of, Mr Gilbert, and not merely as a person who was there to procure the consent of an administrator.

The more general issue is whether Mr Franklin acted for or in the interests of Mr Gilbert, as his adviser on the Deed proposal, during the whole course of events leading to the development and making of the proposal for a deed of company arrangement to Mr Wily and its consideration at the meeting on 27 November 2001. I have decided that he did. I reject the submissions, and evidence by Mr Franklin and Mr Gilbert, to the effect that Mr Franklin had the more limited role of advising generally on the administration process and procuring the consent of an administrator.

I accept Mr Gilbert's evidence that Mr Franklin did not assist Mr Gilbert to draft the final proposal for the deed of company arrangement, but in light of the file note to which I refer below, I find it more likely than not that Mr Franklin assisted in the preparation of one or more earlier drafts of the proposal. Having regard to the sequence of events in which Mr Franklin participated in meetings at and in connection with which the proposal was generated and developed, I find it implausible to say that he did not tender advice and make contributions to the discussion, or that he did so only in the hope of participating in a later administration rather than as a representative of Mr Gilbert. The fact that Mr Higginbotham was present to provide legal advice with respect to the proposal did not mean that Mr Franklin's presence was somehow rendered unnecessary or redundant. He had the skills and experience of an insolvency practitioner, complementary to the skills and experience of Mr Higginbotham as a lawyer. I therefore cannot accept Mr Gilbert's evidence that Mr Franklin gave him no assistance in relation to putting together a proposal for a deed of company arrangement.

In reaching this conclusion, I have found three pieces of evidence to be particularly persuasive. First, there is the file note made by Mr Franklin in respect of the meeting held on 9 July 2001 which says "me to prepare RATA, Proposal, letter re BLL claim". Mr Franklin gave evidence that these were notes of the discussion at the meeting, recording comments by people at the meeting, and did not necessarily reflect what he was ultimately to do as a result of the meeting. But it is implausible that Mr Franklin would have noted matters raised at the meeting but not reflecting the outcome of the meeting, and very little else, especially as he acknowledged that the file note was not intended to be a transcript.

Secondly, there is Mr Franklin's letter to Mr Wily dated 5 July 2001 in which he referred to Mr Gilbert as his client. Mr Franklin's explanation, in his affidavit, was that he meant nothing by the terminology other than that he was writing on Mr Gilbert's behalf. He was not directly challenged on this evidence in cross-examination, although he was asked questions about the nature of his relationship with Mr Gilbert. There is no unfairness in Bovis inviting me to find that Mr Franklin had a connection with Mr Gilbert of which the letter of 5 July 2001 is some evidence. I accept that the letter does not establish that Mr Gilbert was Mr Franklin's client in any formal or contractual sense, but it shows that at least for certain purposes, Mr Franklin represented Mr Gilbert in dealings with Mr Wily.

Thirdly, at the meeting of creditors on 27 November 2001 Mr Franklin responded to a statement by Mr Dunne of the Australian Taxation Office about the Company's failure to lodge returns, by saying that if the proposed Deed proceeded then Mr Gilbert would arrange for the processing of the outstanding returns. His willingness to commit Mr Gilbert to this course of action implies that their relationship was closer than counsel's submissions contended. Mr Franklin said in cross-examination that he did not attend the meeting to represent the interests of Mr Gilbert, but to provide Mr Wily with the knowledge that an administrator would consent to act, and he denied that he made the statement about outstanding tax returns on Mr Gilbert's behalf. But in my opinion it cannot plausibly have been otherwise. Mr Gilbert was present. If Mr Franklin had no authority to commit him to lodge tax returns one would have expected him to say so, but he did not.

Counsel for Mr Javorsky contended that the whole of Mr Franklin's involvement in the period from June to November 2001 amounted to his taking a "practical approach" to the issues that arose, rather than acting as Mr Gilbert's adviser. The idea appears to be that if he thought it practical to do so, he acted of his own initiative without instructions in order to make things happen. In my opinion that is not an accurate account of Mr Franklin's involvement during the June to November period, and I reject Mr Franklin's evidence to that effect.

Mr Gilbert did not pay Mr Franklin for any of his assistance during the June-November period, but nevertheless the work that Mr Franklin did on behalf of or in the interests of Mr Gilbert caused a retainer-like arrangement to arise between them. There is an analogy between the facts of the present case in the facts of Re Club Superstores Australia Pty Ltd (in liq) (1993) 11 ACLC 751. There an insolvency practitioner gave advice to the directors of a company in financial difficulties, discussing the effect of winding up on them personally, and on creditor and debtor entities that they controlled. Subsequently the company went into liquidation and he was appointed liquidator. An application was successfully made to remove him from that office.

Thomas J noted that the insolvency practitioner did not charge a fee for the services he provided to the directors, but he found that a species of retainer or contingent arrangement arose by virtue of what had happened. The arrangement was that the insolvency practitioner accepted an obligation to give advice in circumstances that considerably increased his chances of being appointed liquidator of the company. The prospect that no fees would be recovered for the advice was commercially acceptable when balanced against the strong probability of significant remuneration in the liquidation.

The present case is a little more complicated than the facts before his Honour, because Mr Franklin was acting in the capacity of a consultant and for most of the period in question he worked as a consultant for Mr de Vries rather than Mr Javorsky. Nevertheless, Thomas J's analysis is applicable. I infer from the facts that the arrangement between Mr Gilbert and Mr Franklin was that Mr Franklin would provide certain advisory services to Mr Gilbert on the basis that he would be given the opportunity to nominate an administrator from whom he could hope to earn remuneration as a consultant. I think that is what he meant when he said, in cross-examination, "all through I saw my role as a representative of either potential administrator".

In the Club Superstores case, Thomas J acknowledged (as noted earlier) that a pre-appointment conference between a potential liquidator and a creditor or the directors of the insolvent company was common practice in Queensland. He insisted, nevertheless, that the insolvency practitioner must avoid giving the impression in the pre-appointment conference that he or she was giving personal advice to the persons in attendance. He decided that on the facts before him, the insolvency practitioner clearly crossed the line, although acting with the best motives and for no fee.

There is evidence that insolvency practitioners in New South Wales and elsewhere in Australia have a similar practice with respect to voluntary administration. Mr Wily, a person of considerable experience in voluntary administration, said he would often have discussions with the directors of a company prior being appointed as its administrator. During those discussions he would explain the administration procedure, identify the powers he would have as administrator, and canvass other options for external administration, explaining the differences between administration and liquidation. Mr Wily acknowledged, however, that there were limits upon the extent of an insolvency practitioner's permissible involvement with the directors prior to accepting an appointment as administrator. That is consistent with the principles stated by Branson J in Commonwealth v Irving (extracted above) and with Thomas J’s idea that there is a "line" which ought not to be crossed by the insolvency practitioner in his or her dealings with the directors prior to the commencement of a voluntary administration.

The IPAA Code is intended to provide guidance on standards of practice and professional conduct expected of members of the IPAA (Code, paragraph 1). In my opinion, it is a useful guide to the common practice in such matters, and to the profession’s own view of proper professional standards. It is permissible for the Court to take the Code into account, to that extent, in applying the law concerning independence and impartiality to the insolvency practitioner’s conduct in the case before it: cf National Roads and Motorists’ Association Ltd v Geeson (2001) 39 ACSR 401, 403; Permanent Trustee Australia Ltd v Boulton & Lynjoe Pty Ltd (1994) 33 NSWLR 735, 738.

The Code’s general principle is that in every professional assignment that he or she undertakes, the IPAA member must both be, and be seen to be, free of any interest which is incompatible with objectivity and independence (Code, paragraph 2). Paragraphs 3 and 4 provide a more specific elaboration of the general principle. The relevant parts are as follows: "3. Conflicts of Interest Conflicts of interest affecting independence must be avoided. (i) Pre-Appointment Where it is apparent at the time a Member is approached to consent to act that there will be a conflict of interest if consent is given, then the Member shall not consent to act. When a Member is requested to consent to act and his or her review of the information available is such that he or she forms the opinion that a conflict of interest may arise during the appointment or administration, consent to act shall not be given unless all relevant parties (including the Court where appropriate) are advised of the possibility of a conflict arising, and they do not object to the appointment. …" " 4. Appointment : Without limiting in any way the general comments outlined above: (a) Except in the case of a members' voluntary winding up: (i) No person in a practice shall accept appointment as a liquidator, provisional liquidator, controller, scheme manager, or administrator of a company if any person in the practice has, or during the previous two years has had, a continuing professional relationship with the company. … (b) For the purpose of (a)(i) above, a 'continuing professional relationship' shall not arise: (i) by reason only of the appointment of a practice or person in a practice to investigate, monitor or advise on the affairs of a company on behalf of a third party so long as the professional obligation is to a party other than the company being investigated, or (ii) if the professional relationship existed for less than two months, or …".

In the present case, my factual conclusions about the extent of his involvement imply that Mr Franklin crossed the line in his dealings with Mr Gilbert in the period from June to November 2001. He gave Mr Gilbert advice and assistance going beyond general advice about the administration process, both by participating in meetings in which the Deed proposal was developed, and by assisting in the preparation of the RATA, the lodgement of which was a prerequisite to Mr Wily appointing an administrator. His activities gave rise to a continuing professional relationship between himself and Mr Gilbert over the period from June to November 2001. A member of the IPAA Mr Franklin's position would have been precluded by the IPAA Code from accepting appointment as administrator of the Company. More importantly for present purposes, Mr Franklin's activities during the June-November period put him in a position where he could not thereafter discharge the duty of a voluntary administrator to act in a manner that would be, and would be perceived by a reasonable observer to be, independent of Mr Gilbert and impartial as between the interests of Mr Gilbert and his companies and the interests of other creditors including Bovis.

Counsel for Mr Javorsky carefully analysed the facts of the cases in which liquidators were found to have breached their duties of independence and impartiality, seeking to show that they were all more extreme cases than the present one. I find this analysis unhelpful, because the decisions tend to be based on their own facts. Although in some of the cases the liquidator's lack of independence was more extreme than Mr Franklin's position, my view is that the principles emerging from the cases, which I have described earlier in these reasons for judgment, and the approach taken by the courts of carefully assessing the facts in detail, lead to the conclusion that I have expressed.

I regard my conclusion on this matter as having a central significance. Mr Franklin had the day-to-day carriage of the administration, and (with his assistant, Ms Saheb) he drafted the Report and Statement. The fundamental issue for creditors to decide was whether to set up the Deed structure, as proposed by Mr Gilbert, to pursue the Company’s claim against Bovis. They needed and were entitled to have an informed and independent assessment by the administrator of the viability of the claim. Mr Franklin’s role in the administration ensured that this was not delivered.

Of course, it was Mr Javorsky rather than Mr Franklin who was appointed as administrator. To the extent that the complaints of Bovis relate to failure to discharge the duties of independence and impartiality in the chairing of meetings, it was Mr Hurst rather than Mr Franklin who presided at the meeting of creditors held on 20 December 2001 and 16 January 2002.

Mr Javorsky did not meet Mr Gilbert prior to his appointment on 27 November 2001, but he was aware that Mr Franklin had previously been in touch with Mr Gilbert about his problems. Mr Gilbert gave evidence that he did not recall knowing about any relationship between Mr Franklin and Mr Javorsky at the time of Mr Javorsky's appointment. He said he thought he might have been introduced to Mr Javorsky by Mr Higginbotham. He said he did not know that Mr Franklin had arranged to obtain Mr Javorsky's consent, and at one stage he assumed that Mr Franklin was part of "Wily's team". I accept this evidence, but Mr Gilbert's lack of knowledge of the connection between Mr Javorsky and Mr Franklin is not relevant to Bovis’ complaints on this subject.

Mr Javorsky gave evidence that he saw no problem arising out of Mr Franklin's prior involvement with Mr Gilbert. He gave rather tentative evidence that he questioned Mr Franklin about his prior association with Mr Gilbert before accepting the appointment. But he does not seem to have appreciated the full extent of Mr Franklin's involvement with Mr Gilbert.

When asked in cross-examination whether he saw any problem in accepting the appointment knowing that Mr Franklin was a consultant to his firm, Mr Javorsky said: "No, I didn't. I'm sometimes asked to do exactly the same thing that Mr Franklin has been asked to do where a referral of work brings me up and says 'A client is experiencing difficulties. He wants to know what his options are.' I'll go along and say, 'These are the options for your company. Let me know if you want to do something.' Typically those sorts of people will ask for quotes or an indication of what the price might be for particular options and they might go off and speak to other insolvency practitioners." This evidence assumes that Mr Franklin did no more than provide general advice about the administration process of a kind regarded by Mr Wily in his evidence as appropriate and unproblematic.

Mr Javorsky's evidence implies that he was unaware of the extent of Mr Franklin's involvement in the preparation of the RATA, both at the time of his appointment and throughout the administration. He said in cross-examination that he had "subsequently [evidently after 16 January 2002] spoken to Mr Franklin about his involvement in the preparation of the report and he has told me that all he did was assist the director in the formatting of the report and where various amounts should go; that the information for the report was provided by the Company". Later, in response to a question as to whether he would have regarded Mr Franklin's involvement in preparation of the RATA as impugning his own independence as administrator, Mr Javorsky said that this would depend on what hand Mr Franklin played in preparing the RATA, adding that "if he merely assisted the director getting the report into a form admissible for lodgement with ASIC, I don't believe that is the case." I have found that Mr Franklin's involvement in preparation of the RATA was much more extensive than Mr Javorsky believed. (2) The alleged benefits of the Deed proposal to creditors as a whole

The question whether the Deed proposal was of benefit to the creditors as a whole, and the question (considered under the next heading) whether it prejudiced the creditors as a whole, are relevant in the following ways: · since the Deed proposal had been outlined before Mr Wily decided to appoint Mr Javorsky as administrator, these issues affect the appeal by Bovis against Mr Wily's decision under s 1321; · these issues also affect Bovis' challenge to the validity of the resolution of creditors on 16 January 2002 under s 600A; · they are also relevant to Bovis' case for termination of the DOCA under ss 445D(1)(f)(ii), (e) and (g).

Bovis submitted that the implementation of the Deed proposal would provide no real advantages to creditors, in comparison with the Company remaining in liquidation. This is a fundamental issue for the purposes of Part 5.3A, because under s 435A it is part of the object of Part 5.3A that, if it is not possible for the company or its business to continue in existence, then the business, property and affairs of the company are to be an administered in a way that results in a better return for the company's creditors and members than would result from immediate winding up: see Kalon Pty Ltd v Sydney Land Corporation Pty Ltd (1998) 26 ACSR 593, 597. As Davies AJA observed in Khoury v Zambena Pty Ltd [1999] NSWCA 402 at paragraph [105], "an arrangement under Part 5.3A may discriminate between creditors or classes of creditors; but nevertheless it ought to deal fairly with the interests of creditors of the insolvent company".

In the Statement attached to his Report, Mr Javorsky expressed the opinion that the Deed was in the best interests of creditors because it would provide the best chance of the litigation against Bovis succeeding, and would provide for an equitable distribution to the Company's creditors. The underlying idea seems to have been that if the Deed were executed, then Mr Gilbert would use his best endeavours to make the litigation against Bovis succeed, whereas if the company remained in liquidation he would not. Additionally, under the Deed proposal Interline (NSW) would provide funding for the litigation against Bovis, whereas if the Company remained in liquidation it would be necessary for the liquidator, if he chose to proceed with the Bovis litigation, to arrange for litigation funding at much more substantial cost.

Bovis challenged this reasoning of six grounds, submitting that: (1) Under the Deed, clause 13.1, Mr Gilbert and Interline (NSW) are subject to no real obligation to fund proceedings against Bovis in any particular amount or for any particular time, and are free to cease any funding for any reason at any time. Further, clause 13.1 expressly recognises that it may be necessary to seek litigation funding. (2) There was no adequate information concerning the capacity of Mr Gilbert and Interline (NSW) to fund substantial and lengthy proceedings. (3) Mr Gilbert, as director of the Company, was under statutory obligations to co-operate with and assist the liquidator. (4) Mr Gilbert would have an indirect financial incentive to pursue proceedings brought by a liquidator, because his company, Interline (NSW), claims to be a creditor of the Company for over $3.6 million. (5) It would be equally open to Mr Gilbert and Interline (NSW) to agree with a liquidator terms relating to the funding of litigation such as those contained in the Deed. (6) Mr Gilbert amended the terms of the proposed Deed to delete the requirement that he be remunerated for his time in prosecuting the proceedings. This, said Bovis, should be taken to manifest a willingness to assist the pursuit of proceedings without remuneration, irrespective of the status of the Company. In its submission, there would be no justifiable and acceptable basis upon which Mr Gilbert would devote time without charge under the DOCA but not in a liquidation.

I agree with the first three submissions, for reasons I shall give. Submissions (4) and (5) do not directly go to undermine the benefits to creditors which are alleged to flow from the DOCA, but instead they are submissions to the effect that some of the alleged benefits of the DOCA could be matched in a liquidation. It is unnecessary to say more than that I agree with submissions (4) and (5). I disagree with submission (6), if it is intended to invite a finding that Mr Gilbert is in fact willing to assist the pursuit of proceedings against Bovis if the company remains in liquidation.

As to submission (1), it is clear beyond dispute that clause 13.1 of the DOCA does not impose any enforceable obligation on Mr Gilbert or Interline (NSW) to provide funding. By that clause Mr Gilbert and Interline (NSW) jointly agree to provide funding, but the clause then contemplates what will happen if they do not wish to continue to fund the Company, or if they do not have the means to do so. Read as a whole, the clause gives Mr Gilbert and Interline (NSW) the option to choose not to provide funding even if they have the means to do so, and in that event their obligation is either to seek litigation funding or use their best endeavours to assist the Deed Administrator to obtain litigation funding from another source.

As to submission (2), Mr Javorsky gave evidence that Mr Franklin or Mr Higginbotham told him that Mr Gilbert had a company that was trading profitably (presumably Interline (NSW)), and that company was providing him with cash flow, which Mr Gilbert would use together with his own funds in order to finance the Bovis litigation. Mr Javorsky was also told that Mr Gilbert owned property, which he would sell to provide such funds. No further inquiries were made.

In my opinion, at no time until the execution of the DOCA on 6 February 2002 did Mr Gilbert provide to Mr Javorsky, Mr Hurst, Mr Franklin or Mr Wily information that would provide a reasonable basis for believing that they or either of them could provide the funds to maintain complex, expensive and probably lengthy proceedings against Bovis. In the absence of information that would provide a reasonable basis for that belief, there can have been no reasonable basis for any of them, or for the creditors generally, to believe that by resolving to execute the DOCA, the creditors would secure arrangements for funding that would be better than the arrangements for funding available if the Company were to remain in liquidation. Indeed, clause 13.1 expressly contemplates that Mr Gilbert and Interline (NSW) might not have adequate funding.

Creditors would be better off under the DOCA than in liquidation if Mr Gilbert or Interline (NSW) were to provide adequate litigation funding throughout the Bovis litigation, because of the probability that the cost of litigation funding from any other source (such as an external litigation funder) would be substantially greater. However, to the extent that Mr Gilbert and Interline (NSW) could not provide funds for the litigation against Bovis, then the Company's funding provision under the DOCA would be no better, for practical purposes, than its funding provision in liquidation. In each case, it would be necessary to seek external litigation funding. The only possible difference would be that under the DOCA, Mr Gilbert and Interline (NSW) would be obliged to use their best endeavours to assist the Deed Administrator to obtain litigation funding. Interline (NSW) was under Mr Gilbert's control, and there is nothing in the evidence to suggest that its use of its best endeavours would offer any advantage beyond Mr Gilbert using his best endeavours. I fail to see how their covenant to use best endeavours would have any practical advantage to the creditors over Mr Gilbert's statutory obligation to assist the liquidator, to which I shall now turn.

As to submission (3), Mr Gilbert, as an officer of the Company, had the statutory duties to assist a liquidator imposed by s 530A, including the duty to deliver up all books of the Company in his possession, to give the liquidator such information about the Company's affairs as he might reasonably require, and to do whatever the liquidator reasonably required to help in the winding up. He was not entitled, as against the liquidator, to retain possession of the books of the Company or to obstruct or hinder the liquidator's attempts to obtain possession of them: s 530B(1) and (2).

When the Deed was proposed, it was contemplated that there would be a provision for paying Mr Gilbert an hourly rate for his work on the Bovis litigation. However, that provision was removed from the Deed in its final form. Clause 14.2 of the final document contained a covenant by the directors that neither they nor any related party would receive remuneration for work done in relation to the Bovis proceedings. Therefore in its final form, the DOCA offered Mr Gilbert no financial incentive to prosecute the Bovis litigation, other than the incentive of receiving a distribution through Interline (NSW), which would participate as a major creditor in the distribution of the Administration Fund. That incentive would be equally available in liquidation.

By clause 14.3 (b) of the DOCA, the Company and its directors covenanted to conduct the Bovis proceedings with diligence. In my opinion that covenant had no greater effect than Mr Gilbert's statutory obligation to assist the liquidator. The difference between Bovis litigation under the DOCA and Bovis litigation by the Company in liquidation would essentially be that under the DOCA, the litigation would be conducted by Mr Gilbert subject to supervision by the Deed Administrator, while in liquidation the litigation would be conducted by the liquidator with the assistance of Mr Gilbert. While the latter might be more expensive than the former, because the liquidator's involvement and therefore the time devoted to the task, might be greater than the Deed Administrator's involvement, an advantage of having the litigation conducted by the company in liquidation would be that all decisions taken on behalf of the Company in the course of the litigation would be taken by an officer of the Court whose duty would be to act in the interests of the creditors as a whole.

Mr Gilbert gave evidence that it was important to him for the Company to be taken out of liquidation, because his association with the Company in liquidation would be regarded in the building industry as an association with a failed company, and therefore there would be an adverse effects on his reputation. I accept this evidence. It provides a reason for Mr Gilbert to give the promises contained in the DOCA, as the price of avoiding the adverse effect on his reputation that continuation of the liquidation would entail. However, once the DOCA was in operation, Mr Gilbert would have achieved his objective of avoiding or reversing adverse effects on his reputation, and his incentive to continue to prosecute the Bovis litigation for the benefit of creditors in compliance with the terms of the DOCA would, I think, be no stronger than the incentive he would have to assist a liquidator in compliance with the statutory obligations.

In summary, considering the evidence is a whole, I have decided that having Mr Gilbert and the Company bound by the DOCA to conduct the Bovis litigation with due diligence is not, on balance, better for the creditors as a whole than having Mr Gilbert bound by his statutory obligation to assist the liquidator in respect of the Bovis litigation.

I accept that it would have been open to individual creditors (who had the opportunity to observe Mr Gilbert at their meeting), in making their assessment of the likelihood of recovery under the proposed Deed as compared with liquidation, to conclude that there would be a better prospect of recovery under the proposed Deed. But to the extent that it is relevant for the Court to make an assessment on the evidence, my conclusion is that there is no case for believing that the proposed Deed would produce a better outcome for creditors in the Bovis litigation than would be obtained in liquidation. (3) The alleged prejudice or disadvantage to creditors as a whole from implementation of the Deed proposal

Bovis submitted that creditors were disadvantaged under the Deed in six ways, namely by foregoing the prospects of: · an independent investigation into the conduct of Mr Gilbert; · a claim against Mr Gilbert for insolvent trading; · claims against Mr Gilbert for breach of fiduciary and statutory duties; · claims against Interline (NSW) for unfair preferences and uncommercial transactions; · a claim against Interline (NSW) for knowing participation or accessorial liability; and · a claim against NRMA to the return of $60,000 paid as a preference. I shall refer to these various claims as “recovery claims”.

As Davies AJA observed in Young v Sherman [2002] NSWCA 281, at paragraph [92], the examination of directors for insolvent trading is not a matter to be lightly overlooked. His Honour cited with approval some remarks by Sheppard J in a bankruptcy case, NZI Capital Corporation v Lancaster (unreported, Federal Court, 3 September 1991), where Sheppard J said "in the absence of complete agreement by creditors, and the petitioning creditor which is owed a substantial sum does not agree, there is something which, if not shocking, is at least something which takes one aback about a suggestion that someone who owes almost $5.5 million can offer $15,000 and walk away without there being any appropriate investigation of his affairs". Although the facts of the present case are very different, the potential disadvantage to creditors generally of the absence of a proper investigation into Mr Gilbert's conduct must be given careful consideration.

Bovis contended that the unfair preference and uncommercial transaction claims against Interline (NSW), and the insolvent trading claim against Mr Gilbert, may well be very substantial claims. It pointed out that the Company ceased to remit PAYG/PPS amounts to the Australian Taxation Office from September 1999, and yet it ceased to trade only on 30 November 2000. I agree that failure to make such payments to the Australian Taxation Office is some evidence, warranting investigation, that the Company may have been insolvent from the time those defaults commenced, although it is obviously not conclusive evidence. If the company was insolvent from September 1999, it would be reasonable to investigate whether Mr Gilbert had engaged in insolvent trading contrary to s 588G, subject to any available defences. Since 1 December 2000, the Company has made payments to Interline (NSW) totalling $418,821, and Interline (NSW) has made payments to the Company and/or its creditors totalling $1.556 million. If the Company was insolvent throughout that period, payments of those kinds may well have constituted unfair preferences or uncommercial transactions, subject to any available defences, and consequently further investigation would be warranted.

The response of the Javorsky and Gilbert interests was, in part, to rely on the provisions of the DOCA and the 19 March 2002 Deed. Clause 9.2(a) of the DOCA gives the Administrator the power to take and conduct the Puketapu proceedings, and proceedings against any Related Party in relation to any cause of action held by the Company. The 19 March 2002 Deed records the agreement of the parties to it that they will pay to the Company any amounts which would have been recoverable by a liquidator under the Corporations Act had the Company stayed in liquidation, subject to any defences they may have under the Act.

Bovis contended that these provisions failed as an attempt to protect the DOCA from attack. First, Bovis pointed out that while clause 9.2 purported to extend the prospect of recovery to related parties associated with Mr Gilbert, no amendment had been made to the description of the Administration Fund in clause 6.1, so that any recoveries under the 19 March 2002 Deed would not be required to be paid into the Administration Fund and would therefore not be available for distribution to creditors under clause 6.2 of the DOCA. I agree with this submission. There is no covenant in the DOCA for the Administrator to pay related party recoveries into the Administration Fund. Under the terms of the 19 March 2002 Deed, the agreement by the related parties was with the Company, day-to-day control of which had by that time reverted to its director under clause 12.1 of the DOCA.

Secondly, Bovis submitted that clauses 2.1 and 2.2 of the 19 March 2002 Deed contemplate amounts recoverable by a liquidator, whereas s 588FF(1), 588FH(2), 588M(2) and 588W(1) contemplate orders for payment to a company or debts due to a company (see Elfic Pty Ltd v Macks (2001) 181 ALR 1, 41-2), and s 588FJ contemplates charges being void rather than recovery of amounts. I do not accept this submission. In my opinion it is necessary, in order to give a sensible meaning to the 19 March 2002 Deed, to read references to an amount a liquidator would have been able to recover as including an amount ordered to be paid to the company in liquidation at the suit of the liquidator. I acknowledge, however, that the wording of the 19 March 2002 Deed is inappropriate to the circumstances contemplated by s 588FJ, notwithstanding that this is one of the sections expressly mentioned in clause 2.2 of that Deed.

Bovis also submitted that clauses 2.1 and 2.2 of the 19 March 2002 Deed are unworkable in several ways, and therefore the Deed is void for uncertainty. I agree that there would be some serious difficulties giving effect to the provisions of the Deed. First, in the case of unfair preferences s 588FA(1)(b) requires the Court to determine whether a transaction results in a creditor receiving more from the company that it would have received if the transaction were set aside and the creditor were to prove for the debt in the winding up of the company. In circumstances where the company has entered into a deed of company arrangement, the hypothesis which this provision would require the Court to apply is inherently uncertain. Secondly, if an unfair preference or uncommercial transaction were to be established as an insolvent transaction, the Court would have the discretion to make one or more of the orders set out in s 588FF(1). In my opinion the 19 March 2002 Deed is inherently obscure as to the assumptions to be made for the purpose of determining how the Court would exercise its discretion with respect to the making of orders. Thirdly, various provisions of the Corporations Act contemplate that a related party or other person making a payment in respect of an insolvent transaction may be entitled to lodge a proof of debt in respect of that payment (see ss 588FF(1)(g), 588FH(4), 588FI(3) and 588M(3)). It is not clear whether those provisions would have any relevance if a recovery were made under the 19 March 2002 Deed.

Although a court would strive to give a commercial agreement of this kind a comprehensible field of operation, it is not easy to identify an approach to its construction that would overcome these problems, consistently with established principles. However, it is unnecessary for me to decide whether these difficulties render the 19 March 2002 Deed void for uncertainty. Even if the 19 March 2002 Deed is valid, it provides no answer to Bovis’ complaint about the disadvantages to creditors arising under the DOCA. This is because, as I have said, the 19 March 2002 Deed (if effective) gives rise to causes of action in the Company with no provision for recoveries to be made available to the creditors under the DOCA.

Actions for insolvent trading, unfair preferences and uncommercial transactions would raise questions about the solvency of the Company. An investigation of solvency would require an assessment of the viability and strength of the Company's claim against Bovis, although it may be that some parts of the recovery claims would relate to a period before the Bovis claim arose. An action against Mr Gilbert for insolvent trading would almost certainly be resisted by Mr Gilbert invoking the defence in s 588H(2), in view of Mr Gilbert's evidence that he believed that the company's difficulties flowed from Bovis' actionable failure to meet its obligations to the Company. Actions alleging unfair preferences or uncommercial transactions might be met with defences, including the defence in s 588FG(2), which would also raise the question whether there were grounds to suspect in solvency in light of the Bovis claim.

Therefore any assessment of the viability of recovery claims, made by a person in the position of Mr Wily or Mr Javorsky, or made by any creditors at their meetings, would necessarily involve an assessment of the viability and strength of the Company's claim against Bovis. This is not to say, however, that a judgment that the Company had a reasonably arguable claim against Bovis would entail that the recovery claims had no prospect of success, or that no further investigation of them was warranted. A company may be insolvent even though it has a claim which, if realised, would enable it to pay all of its debts, where the claim is uncertain and will take substantial time to prosecute. And there may be reasonable grounds to suspect insolvency notwithstanding the existence of a reasonably arguable claim.

The Court is not in a position to decide that recovery proceedings would have produced funds for distribution to creditors. What can be said, however, is that the recovery claims warranted further investigation, and the DOCA deprived creditors of investigations that might have clarified the viability of such claims, and also (having regard to the deficiencies of the 19 March 2002 Deed) deprived them of the prospect of recovery in such proceedings. The issues

The three proceedings presently before the Court raise the following issues: (a) whether the Court should reverse Mr Wily's decision to appoint Mr Javorsky Administrator of the Company, under s 1321, and/or declare that the appointment of Mr Javorsky as Administrator was invalid, under s 447C ( The Challenge to the Appointment of Mr Javorsky as Administrator ); (b) whether the resolution to execute the DOCA, adopted at the adjourned second meeting of creditors, was and should be declared to be invalid or set aside, and if so, with what consequences in light of s 435C(3)(e) and s 439A(2) ( The Validity of the Resolution of Creditors ), on grounds relating to: the non-attendance of Mr Javorsky in spite of s 439B(1) ( Non-attendance by Administrator ); whether Mr Javorsky's decisions to admit of Interline (NSW)'s proof of debt and to admit of the proof of debt by Bovis for only a nominal amount were authorised under Corporations Regulation 5.6.26 and were otherwise valid ( Admission of Proofs of Debt ); and the voting power of related creditors having regard to s 600A ( Related Creditors ); (c) whether the Deed of Company Arrangement should be terminated under s 445D ( Termination of the Deed of Company Arrangement ), and in particular, on the basis that the Deed was, or acts done under it were, or would be, contrary to the interests of the creditors of the company as a whole (s 445D(1)(f)(ii)); or that effect cannot be given to the Deed without injustice (s 445D(1)(e)); or that there were material omissions from the Administrator's report (s 445D(1)(c)); or that the Deed should be terminated for some other reason (s 445D(1)(g)); (d) whether grounds exist under s 449B to remove and replace Mr Javorsky as administrator ( Removal of Administrator ); (e) whether there are grounds for reducing or removing Mr Javorsky's entitlement to remuneration as administrator, under s 449E(2) (and s 447A) ( Remuneration of Administrator ); (f) whether the Court should declare that the winding up of the Company was automatically terminated when Mr Javorsky was appointed administrator, or should now be terminated or stayed under s 482 ( Termination of Liquidation ). I shall consider each of these issues in turn. The Challenge to the Appointment of Mr Javorsky as Administrator

Section 1321 allows a person aggrieved by a decision of a liquidator to appeal to the Court. The Court may confirm, reverse or modify the decision, and make such orders and give such directions as it thinks fit. An appeal under s 1321 involves a hearing de novo ( Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332, 340-341), and the Court is not confined to a consideration of the correctness of the grounds stated by the liquidator ( Murray v Donnelly [2000] NSWSC 634 (6 July 2000), per Bryson J at [3]). Bovis is a person aggrieved by Mr Wily's decision to appoint Mr Javorsky as administrator, and therefore has standing to appeal under s 1321.

Section 447C applies where there is "doubt, on a specific ground" about whether a purported appointment of a person as administrator of a company is valid. The section permits, inter alia, any of the company's creditors to apply to the Court for an order declaring whether or not the purported appointment was valid on the ground specified in the application or on some other ground. Bovis seeks relief under this section in its capacity as a creditor of the Company. Its status as a creditor depends upon some other matters to which I shall refer later. In this part of my judgment, I shall assume that Bovis has standing as a creditor to seek the relief that s 447C allows.

The amended originating process in proceeding No 6062 of 2001 purports to invoke s 1322, as well as ss 1321 and 447C, but in submissions Bovis did not rely on that section. The substantive relief sought in the proceeding is an order setting aside the appointment by Mr Wily, on 29 November 2001, and of Mr Javorsky as administrator of the Company, and a declaration that the Company is in liquidation and Mr Wily remains its liquidator, but that it is not in voluntary administration.

The amended originating process sets out ten "brief grounds on which the appeal is made", which I take also to be the "grounds" to be specified in the application for the purposes of s 447C(2). I shall set out the grounds, and my reasoning and decisions in respect of them, one by one. In written submissions Bovis departed from the structure provided by the ten grounds, but I shall do my best to deal with the submissions as they arise in my consideration of the ten grounds. A. That the reasons put forward by the Company's director [Mr Gilbert] for suggesting that administration, rather than liquidation, was the more appropriate course were insufficient, when properly considered, to warrant [Mr Wily] making the appointment.

Mr Gilbert made a proposal for a deed of company arrangement in his letter of 25 July 2001, but that letter did not include any reasons to support the proposal. Mr Higginbotham, acting for Mr Gilbert and Interline (NSW), wrote to Mr Wily on 14 September 2001, referring again to the proposal for a deed of company arrangement. The reasons supporting the proposed deed of company arrangement, given by Mr Higginbotham, were that · Interline (NSW) would be prepared to fund the proceeding against Bovis (which was said to have "more than reasonable prospects of success") on condition that an administrator was appointed; · while Mr Gilbert would fulfil his obligations as a director, he did not have the financial resources to fund the litigation against Bovis, nor to spend many hundreds of hours instructing on the claim; · if a deed of company arrangement were entered into the company could continue trading [I take this to mean "resume trading"] and retain its goodwill in the marketplace, whereas its goodwill would be extinguished if it were to remain in liquidation.

No additional reasons to support the proposed deed arose out of the exchange of correspondence comprising PW Turk's letter of 26 September 2001 and Mr Higginbotham's reply dated 31 October 2001. In those circumstances Mr Gilbert's reasons for supporting the deed proposal, as presented to Mr Wily, were the reasons stated in Mr Higginbotham's letter of 14 September 2001.

It is necessary to assess the adequacy of Mr Gilbert's reasons in light of the circumstances that existed when Mr Wily made his decision. Apart from the fact that there had been a meeting of creditors, Mr Wily was presented with a firm assertion that under the proposed Deed, the Company would retain its "goodwill" (presumably meaning its trade reputation). Moreover, the funding offer by Interline (NSW) was conditional upon the adoption of the proposed Deed. To the extent that Mr Gilbert's reasons implied that he would work harder under the proposed Deed than in assisting a liquidator, there was some plausibility to the claim because at that time, it was proposed that Mr Gilbert would be paid under the Deed.

In my opinion it was not open to Mr Wily to accept Mr Gilbert's reasons without further investigation, as a basis for appointing Mr Javorsky as administrator. But he did not do so. He made further inquiries, and by PW Turk's letter of 26 September 2001 he raised some objections which invited response. While, therefore, I agree that Mr Gilbert's reasons were not of themselves sufficient to warrant making the appointment, I do not regard that conclusion as itself undermining the appointment. B. That no proper notice was given to [Bovis] of the meeting held on 27 November 2001 at which creditors expressed their views on and passed a resolution in favour of administration, and [Bovis] was thus deprived of the opportunity to draw to the attention of creditors the reasons for [Mr Wily] not to make such appointment.

As I have said, Mr Bartlett was informed of the creditors' meeting of 27 November 2001 at about 5pm on the previous day. Although there is some evidence that Mr Wily's mailing list was amended by hand to include the name and address of Bovis, it is not clear whether this occurred before the list was used for the purpose of convening the creditors’ meeting held on 27 November, or only later, when the list was sent by Mr Wily's firm to Mr Javorsky in December 2001. In my view, it has not been established that written notice of the meeting of 27 November was sent to Bovis.

Mr Bartlett gave affidavit evidence that at such short notice, it was not possible for him to attend or to arrange for somebody else to do so. In cross-examination he agreed that as in-house counsel to Bovis he had access to solicitors, but he did not seek to contact Bovis’ solicitors to arrange for someone to attend. In my view, Mr Bartlett's evidence is consistent and establishes that, while he had access to solicitors, he did not seek to use that access because he decided that there was insufficient time to brief is solicitors to attend.

It is therefore true that no proper notice was given to Bovis of the meeting held on 27 November 2001, and necessarily true that Bovis was consequently deprived of the opportunity to argue at the meeting against the appointment of Mr Javorsky. However, the meeting was no more than a meeting to ascertain the wishes of creditors, convened under s 479(2). It was not a meeting at which an operative decision would be made. Section 436B (1) vests the decision-making power in the liquidator, rather than in the creditors. There being no evidence of lack of good faith on the part of Mr Wily, the fact that Bovis was not given the opportunity to make submissions to the creditors at their meeting would not invalidate Mr Wily's decision, if there were sound reasons for it. C. That [Bovis] was given no opportunity thereafter to put before [Mr Wily] its views on the advantages to creditors of [Mr Wily] not making such an appointment.

This is true, but the position is governed by my observations under the previous heading. D. That [Mr Wily] decided to appoint [Mr Javorsky] despite his not having received satisfactory answers to the questions raised by his solicitors in their letter dated 26 September 2001 to Cutler Hughes, which answers would have been material to his decision .

To the extent that PW Turk's letter of 26 September 2001 relates to Mr Gilbert's failure to provide books and records of the Company, I shall deal with it under heading E below. There were three other matters raised in the letter.

First, the letter contended that the materials supplied to Mr Wily by Mr Gilbert and Interline (NSW) fell short of quantifying the claim against Bovis. I shall describe what was supplied, and what was not supplied, under heading E. However, although additional material was supplied to Mr Wily after 26 September 2001, it remained true on 27 November 2001 that the materials supplied in relation to the Bovis claim fell well short of quantifying it. I have described how the general damages claim in the RATA was initially put forward as a balancing item. Very limited information was given about the delay and disruption claim.

On the other hand, Mr Wily had the assessment of Mr Higginbotham, an experienced solicitor acting for Mr Gilbert, to the effect that the Company had a good arguable case against Bovis. The issue for Mr Wily was not whether to commence proceedings against Bovis, or even to recommend a DOCA which would establish a framework for the commencement such proceedings. The issue for Mr Wily was whether to appoint an administrator whose statutory obligation would be to investigate matters relevant to whether a DOCA should be executed. In my opinion it was reasonable for him to make a decision on the basis of the evidence before him, including Mr Higginbotham's opinion, even though the claims that were to be pursued against Bovis had not been properly quantified.

The second statement made in PW Turk's letter was that there was no particular urgency in appointing an administrator. That may well have been true, but was beside the point. There is no suggestion that Mr Wily rushed his decision. He did not take it for another two months.

The third point made by PW Turk was that Mr Gilbert and Interline (NSW) had not specified precisely what benefit they suggested there was to the general body of creditors in appointing an administrator, nor why it was preferable to appoint an administrator rather than to allow the liquidator to conduct the Bovis litigation. That is true, although a partial answer had already been advanced by Mr Higginbotham, in what I described above as "Mr Gilbert's reasons". In my opinion there was enough in the materials before Mr Wily to justify his deciding that it was desirable to appoint someone who would be charged with the specific task of investigating the case for and against a DOCA. E. That [Mr Wily], by failing to invoke his powers compulsorily to obtain all the Company's books and records, deprived himself of the ability to make an informed report to creditors, and deprived creditors and himself of the ability to make an informed decision in relation to the appointment of an administrator.

My finding is that, while a substantial quantity of corporate documentation was provided, it did not constitute all of the books and records of the company which Mr Wily was entitled to possess or inspect as liquidator. The evidence indicates, in particular, that there were 34 lever arch files relating to the Company's claim against Bovis in the possession of Cutler Hughes and Harris that were not provided to the liquidator, and the boxes of documents that were provided did not include important corporate information such as payment vouchers, journals, ledgers, profit and loss statements on contracts, or histories of trading payments with major suppliers.

The Company's books and records were property of the company and therefore Mr Wily as liquidator was entitled and required (subject to any prior ranking proprietary claim, other than a lien: see s 530B(1)(b)) to take custody of them under s 474(1) of the Corporations Act. He was entitled to inspect the Company's books under s 477(3), even if there was some such proprietary claim: see s 530B(2). It was open to Mr Wily to apply to the Court to require Mr Gilbert to deliver the books of the Company to him under s 483(1). As I have said previously, Mr Gilbert had the statutory duties to assist Mr Wily under s 530A, including the duty to deliver up all books of the Company in his possession, to give Mr Wily such information about the Company's affairs as he might reasonably require, and to do whatever Mr Wily reasonably required to help in the winding up. He was not entitled, as against Mr Wily, to retain possession of the books of the Company or to obstruct or hinder Mr Wily's attempts to obtain possession of them: s 530B(1) and (2). It was open to Mr Wily to conduct an examination of Mr Gilbert under Part 5.9 of the Act, and in that context to obtain a direction by the Court under s 597(9) requiring Mr Gilbert to produce for examination all books of the Company that were in his possession. He could have applied for the issue of a warrant to search Mr Gilbert’s premises and seize books or property under s 530C: see Cvitanovic v Kenna & Brown Pty Ltd (1995) 13 ACLC 1654; Wily v Parker (1996) 14 ACLC 1432.

Therefore Mr Wily had ample powers to require Mr Gilbert to provide the missing information and documents, but he did not do so. Instead, he gave Mr Gilbert time to comply and then, when Mr Gilbert procured a requisition by 10% in value of the creditors for a meeting to be held, Mr Wily convened the meeting without first pursuing recovery of the missing books and information. After the creditors resolved in favour of the appointment of an administrator, Mr Wily made the appointment, still without pursuing the missing books and information.

In my opinion it was unnecessary for Mr Wily to make his own assessment of the prospect for success of the claim against Bovis before making his decision to appoint Mr Javorsky as administrator. By making that decision, he was ceding to others, namely the creditors and Mr Javorsky, the responsibility for deciding whether to adopt arrangements under which the claim against Bovis would be pursued. It may well have been unreasonable for him to make that decision if the evidence already in his possession suggested that the claim was not viable, or if there were no evidence in his possession as to the strength of the claim. But he had the assessment of Mr Higginbotham. The assessment was not independent because Mr Higginbotham was acting for Mr Gilbert, who was agitating for the appointment of an administrator, and also for Interline (NSW) which was proposing to fund the litigation. But it was an assessment in writing, evidently after consideration, by a commercial lawyer who had access to the facts.

The evidence indicates that Mr Wily did not have funds to instruct a lawyer to carry out the substantial work that would have been necessary to form a conclusion, even on a prima facie basis, as to the likelihood of success of the claim against Bovis. It has not been suggested that Bovis was prepared to fund Mr Wily to make an application to the Court for an order for production of books, or for the public examination of Mr Gilbert, nor that it would have offered him an indemnity for the liabilities and costs associated with such an application. Additionally, Mr Wily was faced with the assertion, which he was in no position to challenge effectively, that Interline (NSW)'s offer to fund the litigation was conditional upon an administrator being appointed.

In those circumstances, my opinion is that Mr Wily's decision was not vitiated by failure to pursue and inspect all of the books and records of the Company. F. That [Mr Wily's] report to creditors was not circulated to them prior to the meeting of 27 November 2001.

This is true, but it does not undermine Mr Wily's decision, particularly bearing in mind that a meeting convened under s 479(2) is a meeting to ascertain the creditors' wishes, and under s 436B(1) the decision to appoint an administrator was for Mr Wily to make. G. That to the extent that it was appropriate for [Mr Wily], in making his decision to appoint [Mr Javorsky], to have regard to the wishes of creditors as expressed at the meeting of 27 November 2001, [Mr Wily] should have had, but failed to have, regard to the following matters: (a) that Mr Nock should not have been regarded as a creditor in the sum claimed of $760,000 in view of [Mr Wily's] view that the claim was excessive and that in part it was contingent on a successful claim against [Bovis], the likelihood of which [Mr Wily] was in no position to evaluate; (b) that [Interline (NSW)'s] claimed debt of $3,659,677 was one which [Mr Wily] considered required further investigation; (c) that [Interline (NSW)] should have been admitted to vote for only $1 in view of the doubts surrounding its claim; (d) that had Mr Nock been admitted to vote for only $1 as he should have been (and as he was subsequently in the administration of the Company), and [Interline (NSW)] been admitted to vote for only $1 (as it should have been) the resolution directing [Mr Wily] to appoint [Mr Javorsky] would not have been passed (as there would then have been a majority in value voting against the resolution, and a majority in number voting for it); (e) that [Interline (NSW)] was a related entity of the Company; (f) that had Mr Nock been admitted to vote for only $1 (as he should have been and as he was subsequently in the administration) then even if [Interline (NSW)] was properly admitted to vote in the sum of $3,659,677 the resolution directing [Mr Wily] to appoint [Mr Javorsky] would not have been passed but for the vote of the related entity, [Interline (NSW)] (as there would then have been a majority in value voting against the resolution, and a majority in number voting for it).

In his letter dated 15 January 2002, Mr Wily said he considered seven matters, set out earlier in these reasons for judgment. One of them was that a resolution had been passed at a meeting of creditors on 27 November 2001 which indicated that the creditors supported and requested the liquidator to appoint an administrator. The letter does not say that in considering the opinion of the creditors, Mr Wily had regard to any particular values attached to votes. However, he had already noted his reservations about the claim of Mr Nock, and his view that the claim by Interline (NSW) required further investigation. It seems to me plain from the terms of his letter of 15 January 2002, and his evidence to the Court, that the view of creditors was only one matter influencing his decision, and the overwhelming thrust of his reasoning was directed towards identifying the most practical way forward in the interests of creditors.

Bovis pointed out that, strictly speaking, the vote at the meeting on 27 November 2001 was tied, because there was only a show of hands upon which Mr Higginbotham voted in favour of the resolution and Mr Dunne of the Australian Taxation Office voted against. Mr Higginbotham had only one vote on a show of hands, although he held multiple proxies: Ernest v Loma Gold Mines Ltd [1897] 1 Ch 1. Since, however, the meeting had only an "advisory" status under s 479(2), the technical invalidity of the resolution on this ground was, in my view, of no significance. It was open to Mr Wily to take into account that Mr Higginbotham held proxies that would have caused the resolution to be carried had a poll being taken.

Bovis also contended that Mr Wily should not have taken into account the creditors' resolution of 27 November because it was procured by the vote of a related creditor (Mr Nock) contrary to s 600A. In my opinion, this submission is unsuccessful because the resolution of the creditors was not, in the circumstances then existing, contrary to the interests of the creditors as a whole, or unreasonably prejudicial to the interests of the creditors who voted against it. The proposal under consideration was whether to move the company into voluntary administration so that the Deed proposal could be further developed and presented to the creditors for decision. The submission that the decision on that matter (in fact taken by Mr Wily rather than by the creditors) was contrary to the interests of the creditors or unfairly prejudicial requires the Court to treat the decision taken in November as if it were the decision taken by creditors on 16 January 2002. While, for reasons I shall give, the decision of January 2002 was open to attack under s 600A, the decision of November 2001 to initiate a process that would enable the creditors to make their January 2002 decision was not, in my view, a decision falling within s 600A(1)(c). H. That [Mr Wily's] appointment of [Mr Javorsky] was made in circumstances in which [Mr Wily] knew (a) that Mr Franklin was a consultant to or associated with [Mr Javorsky's] firm; and (b) that Mr Franklin had previously acted for the Company's director, Mr Gilbert in relation to the Company and the appointment of an administrator so that [Mr Javorsky] would or might not be wholly independent of the director into whose actions he would be required to inquire and on whose proposal he would be required to express an opinion.

Mr Wily was aware that Mr Franklin was a consultant to Jones Condon, and that Mr Franklin had acted in connection with Mr Gilbert in relation to the Company. Mr Franklin had written to Mr Wily describing Mr Gilbert as his "client", in connection with an application for extension of time to file the RATA. Mr Franklin had participated, with a partner and the employee of Mr Wily's firm, in the meeting of 21 June at which the possibility of a deed of company arrangement was explored. Mr Wily personally attended the meeting of 7 September, where Mr Franklin was present, at which the general terms of the proposed Deed were described and Mr Wily was asked to convene a meeting of creditors.

Notwithstanding that degree of connection between Mr Franklin, and Mr Wily and his staff, I am not persuaded that Mr Wily or his staff were aware of the extent to which Mr Franklin had acted in Mr Gilbert's interests. As I have said, a degree of connection between the director of a company and a proposed administrator (or, a fortiori , a consultant to a proposed administrator) is permissible, as Mr Wily himself said in his oral evidence. A problem arises where the insolvency practitioner "crosses the line" and comes to act on behalf of or in the interests of the director. I have found that Mr Franklin put himself in such a position, by virtue of such matters as his role in the drafting of the RATA and in meetings with Mr Gilbert and Mr Higginbotham, at which no representatives of Mr Wily were present. It is unlikely that Mr Wily or his staff were aware of the extent of Mr Franklin’s role in preparation of the RATA, especially schedules C and H. The letter describing Mr Gilbert as Mr Franklin's "client" would have some significance if Mr Wily or his staff were aware of other activities by Mr Franklin, but not in isolation. Mr Franklin "crossed the line" but in my judgment, Mr Wily and his staff were not aware of essential facts and circumstances which have led me to that conclusion. I. That it is inappropriate, in circumstances where a sole director has failed to provide to the liquidator all the books and records of the company (including documents relating to the alleged principal asset of the company) and refused to co-operate fully with the liquidator in the realisation of that alleged principal asset, for the liquidator to appoint an administrator for the purpose of allowing the director to propound a deed of company arrangement designed to enable him to regain control of the company, using related entity voting power, where the deed of company arrangement would have or be likely to have the result that the director's conduct would not be fully investigated and that any claims against the director or his associated companies would not be pursued.

This submission implies that Mr Wily should have formed a view as to the likely outcome of a process of administration that had not begun, that he should have concluded that the process could not be in the interests of creditors, and that he should have substituted his own judgment for the judgment of the proposed administrator as the desirability of the Deed proposal before it had reached its final form. In my opinion Mr Wily was not required to anticipate the outcome of the voluntary administration in this way.

In written submissions counsel for Bovis added to this proposition by pointing out that this was a case where the liquidator insisted upon payment of his fees by the director or an associated company prior to any appointment (citing Re Allebart at 29-30; Aloridge Pty Ltd v Christianos (1994) 13 ACSR 99; Re Southern Resources Ltd (1989) 15 ACLR 770, 787-8; Re G K Pty Ltd; ex parte Deputy Commissioner of Taxation (1983) 7 ACLR 633, 639). The last of these cases reminds us that a liquidator occupies a fiduciary position and therefore must avoid putting himself in a position where his personal interest conflicts or may possibly conflict with his duty. The Southern Resources case is cited for the proposition that an exercise of power by a fiduciary, if taken for several purposes only one of which is impermissible, will be invalidated if the impermissible purpose is causative in the sense that, but for its presence, the power would not have been exercised. However, the fact that a liquidator requires that his fees be paid before he takes a decision that will (in a practical sense) put the company beyond his control does not necessarily invalidate his decision, as was explained in Re Allebart , in the passage that I cited earlier; although the Court will be anxious to ensure that a liquidator in such a position takes care that "all steps [are] taken regularly, properly, and remote from any appearance of favour to one side or the other" (at 29).

In the present case, while it appears that payment of his fees was imposed by Mr Wily as a condition precedent to his decision, it does not seem to me that in fact his motivation of having his fees paid was causative in the "but for" sense or, indeed, influential at all as a motive or purpose for the decision. According to the evidence, the decision was taken for the reasons set out in Mr Wily's letter dated 15 January 2002. As I have pointed out, in applying the fiduciary principles to the external administrators of companies, courts have taken a practical approach, inquiring into whether there is any real sensible possibility of conflict, rather than a merely theoretical possibility, and consequently a real rather than a theoretical compromising of independence and impartiality. Street J's observations in Re Allebart show how this approach is applied to a case where a liquidator negotiates with a creditor for payment of his fees. In the present case I am satisfied that when he insisted on payment of his fees, Mr Wily did not put himself in a position where there was any real sensible possibility of conflict between his personal interest in being paid his fees and his duty to act in the interests of creditors. He was endeavouring, before the Deed proposal was put to him, to administer the affairs of the Company in liquidation and to that end, to obtain the Company's books and records and the RATA. There is no reason to think that he would not have continued with the process of investigation and winding up, had the Deed proposal not come forward.

Counsel for Bovis submitted that the present situation is analogous to cases in which the Court, in the exercise of its powers in bankruptcy or winding up, will not condone conduct which is detrimental to commercial morality or contrary to the public interest. He referred to the well-known liquidation case, Re Data Homes Pty Ltd [1972] 2 NSWLR 22, at 26-27, and also Re Denistone Real Estate Pty Ltd [1972] 3 NSWR 327, at 329-31. He contended that the approach exhibited by those cases has been carried across to s 436B, citing Re Depsun Pty Ltd (1994) 13 ACSR 644, at 646 and 648, and Deputy Federal Commissioner of Taxation v Foodcorp Pty Ltd (1994) 13 ACSR 796, at 798-9.

I agree that if a liquidator's decision to appoint an administrator under s 436B amounts to condoning commercially immoral conduct or a proposal contrary to the public interest, then the Court will take those matters into account and will ordinarily decline to exercise any relevant discretion in the liquidator's favour. The Depsun and Foodcorp cases were applications by a liquidator for leave to appoint himself as administrator under s 439B(2), but I have no difficulty accepting the proposition that the same approach would be taken by the Court under s 1321. However, in the present case Mr Wily's decision cannot be condemned on those grounds. The Deed proposal was not in its final form. An indication of this is the amendment on 16 January 2002 by which an attempt was made to preserve the Company's rights against some related creditors. Mr Javorsky was to be responsible, as administrator, for investigating the proposal, and as far as Mr Wily knew, that process may have caused the proposal to change in such a fashion as to put it beyond objections even from Bovis. J. It is to the greater advantage of creditors that the Company should remain in liquidation than that a deed of company arrangement such as proposed by the director should be entered into through a voluntary administration.

For reasons I have explained, I have reached the conclusion that this proposition is correct. In part, this is because of the particular terms of the DOCA. It is also, in part, because of the absence of information about important issues such as the ability of Mr Gilbert and Interline (NSW) to fund the Bovis proceedings, matters which Mr Wily might reasonably have expected to be addressed during the voluntary administration. However, it is not necessary or appropriate to reverse Mr Wily’s decision in order to return the Company to liquidation. I shall reach that result by another route.

My conclusion is that the appeal against Mr Wily's decision to appoint Mr Javorsky is administrator is unsuccessful. The Validity of the Resolution of Creditors

Bovis contends that the resolution by the creditors at their second meeting to execute the Deed was invalid for three reasons: · because Mr Javorsky did not attend and chair the meeting; · because incorrect decisions were made as to the admission of Bovis and Interline (NSW) for voting purposes; · because the resolution was passed by the exercise of the voting power of a related creditor. Non-attendance by Administrator

Mr Javorsky, the administrator, did not attend the meeting, either on 20 December 2001 or at its adjournment on 16 January 2002. The meeting and its adjournment were chaired by Mr Hurst, an employee of Jones Condon, who had the written authority of Mr Javorsky to do so. Mr Javorsky met with Mr Hurst before the meeting and they made decisions with respect to the admission of proofs of debt for voting purposes. He received a report from Mr Hurst after the meeting was adjourned in December and ascertained that the creditors did not require him to do anything until the meeting resumed.

Bovis contends that Mr Javorsky did not comply with s 439B(1) and consequently the meeting was not validly held. Mr Javorsky contends that he was authorised by reg 5.6.17(1) to appoint a nominee to attend in his place at the meeting, but if that is not the case, the Court should cure the deficiency under either s 447A(1) or s 1322.

Section 439B(1) does not sit easily with reg 5.6.17(1). The two provisions are as follows: "439B(1) At a meeting convened under section 439A, the administrator is to preside". "Reg 5.6.17(1) If a meeting is convened by: (a) a liquidator; or (b) a provisional liquidator; or (c) an administrator of the company under administration or of a deed of company arrangement; that person, or a person nominated by that person, must chair the meeting." Also relevant is the following provision: "Reg 5.6.11(3) Regulations 5.6.12 to 5.6.36A do not apply to: (a) a meeting of the directors of a company; or (b) a meeting of the members of a company, other than a meeting mentioned in paragraph (2)(a); or (c) if those regulations are inconsistent with a particular requirement of the Act, these Regulations or the rules - a meeting mentioned in paragraph (2)(a) or (b)."

The procedure adopted by Mr Javorsky in this case complied with reg 5.6.17(1), in that he nominated Mr Hurst to chair the meeting and Mr Hurst did so. The question is whether Mr Javorsky complied with the requirement that he, as administrator, was to "preside", and to do so "at" the meeting that had been convened under s 439A. To answer this question, I shall first consider the legislative policy underlying s 439B(1), and then the construction of the section and the regulation.

In terms of legislative policy, one could argue that the purpose of s 439B(1) is to require the administrator's personal presence, because he or she is the author of the report and recommendations that are before the creditors at the meeting, and should be personally there to explain and answer questions about those documents. Additionally, it is arguable that the administrator should be personally in the chair because of the chairman's casting vote conferred by reg 5.6.21(4), and the chairman's power to admit or reject proofs of debt under reg 5.6.26(1). On the other hand, to require the administrator's personal presence for a valid meeting would be inconvenient not only for the administrator (as a presumably busy insolvency practitioner) but also for the creditors, whose decision might be delayed if the administrator were unable to attend, for example through illness or (to use an example given in submissions) because he or she had been required to give evidence at a hearing. Such delays are incompatible with Part 5.3A's emphasis on efficiency in the administration process.

The legislative history of s 439B(1) is not very helpful. Part 5.3A (including s 439B) was introduced by the Corporate Law Reform Bill 1992. The explanatory memorandum accompanying that Bill says nothing about clause 439B. The Bill was based on the so-called "Harmer Report" (Australian Law Reform Commission, General Insolvency Inquiry , Report No 45). On the question of the procedure to be followed in meetings of creditors in voluntary administration, the Harmer Report recommended that the procedural rules governing arrangements under Part X of the Bankruptcy Act be adapted, covering matters including the election of a chairperson.

The recommendation to adapt the Part X procedure is odd, because at the time s 196 of the Bankruptcy Act 1966 (Cth) stated that the majority in number of the creditors were to elect a chairman to preside at the meeting. There is no direct explanation for the fact that the draft Bill that accompanied the Harmer Report contained a provision (clause VA28(5)) substantially in the same terms as the enacted provision, rather than along the lines of s 196. But it may be of significance that the Harmer Report (paragraphs 109-113) raised the question whether it was necessary to have a meeting of creditors or merely a postal vote, and preferred a meeting to a postal vote on the ground that the meeting would be preceded by a "professional investigation" and report to creditors, together with an expression of the administrator's opinion as to what should be done. This suggests an assumption that the administrator would be present at the meeting to answer questions about the report and recommendation.

Taken in isolation, the word "preside" is relevantly ambiguous. The Macquarie Dictionary defines "preside" to mean: "1. to occupy the place of authority or control, as in an assembly; act as chairman or president. 2. to exercise superintendence or control."

If the former definition is used, Mr Javorsky did not "preside" at the meeting because he was not there. If the latter definition were used, it would be arguable that Mr Javorsky presided because, though not physically present, he exercised superintendence or control through his nominee. In my view the presence of the word "at" in s 439B(1) indicates that the former rather than the latter meaning of the word "preside" was intended by the drafters of the section. One can preside over events or places without being physically present (for example, in Gulliver's Travels , Jonathan Swift referred to "that part of the earth over which the monarch presides"), but to preside at an event or place implies physical presence.

To construe the section as requiring the administrator's physical presence at the meeting would be consistent with the suggestion arising from paragraphs 109-113 of the Harmer Report. That construction would also conform to the use of language in the Corporations Regulations. While reg 5.6.17(1) talks about a person chairing a meeting, reg 5.6.21(4) gives the casting vote to "the person presiding at the meeting". The latter regulation seems to contemplate that the casting vote will be exercised by a person physically present at the meeting, and so in that context "presiding at the meeting" means being physically present there as chairman. I do not suggest that the construction of a section of an Act of Parliament should be governed by the construction of the regulations made under the Act. I merely note that a consequence of the construction that I prefer is that the words "preside at" are used consistently in the Act and Regulations.

My conclusion, for these reasons, is that Mr Javorsky failed to comply with s 439B(1) by failing to be physically present at the meeting as chairman.

After the hearing of these proceedings had concluded and judgment had been reserved, I heard a case in the Corporations List that raised the very same question, namely whether s 439B(1) required requires a voluntary administrator personally to preside as chairman at the s 439A meeting of creditors. In the other case, written submissions were provided by the Australian Securities and Investments Commission. ASIC's submission noted the importance of the issue, and contended that the Corporations Act requires that the s 439A meeting be presided over by a registered liquidator who understands the company and has been intimately involved in its affairs for a short period, because it is a very important meeting that determines the future course of the company. According to ASIC, if the administrator is unable to preside at a s 439A meeting, then he or she should adjourn the meeting to a time when he or she is able to attend and preside. ASIC referred to s 439B(2) and reg 5.6.18(1) as the sources of the power of adjournment. Section 439B(2) says that a meeting convened under s 439A may be adjourned from time to time, but cannot be adjourned to a day that is more than 60 days after the first day on which the meeting was held. Regulation 5.6.18(1) provides that the chairperson of the meeting must adjourn it if so directed by the meeting, and may adjourn it with the consent of the meeting, from time to time and from place to place.

If the administrator has the power to adjourn the s 439A meeting before the date on which it is due to be held, some of the inconvenience flowing from the view that s 439B(1) requires his or her personal attendance is removed, although the 60 day time limit remains an important constraint. Since the power of adjournment had not been considered in the submissions I received at the hearing of the present case, I made ASIC's submission available to the parties and received supplementary submissions with respect to it.

Counsel for Bovis submitted that an administrator has the power to adjourn or postpone a s 439A meeting, and he referred to Byng v London Life Association Ltd [1989] BCLC 400. The problem giving rise to that case was that the venue selected for a meeting of the members of a company was too small to accommodate all the members who attended, and so the chairman adjourned the meeting to an alternative venue. The English Court of Appeal held that the initial assembly of members was a meeting for the purposes of the Companies Act and the company's articles of association, even though no business could be transacted because the members could not be adequately accommodated. The company's constitution contained a provision materially equivalent to reg 5.6.18(1). The chairman adjourned the meeting to a larger venue later in the day, without the consent or direction of those present. The Court held that the chairman had a residual common law power of adjournment, arising out of his duty to regulate proceedings so as to enable those attending to be heard and to vote. That power was not removed or restricted by the provision of the company's articles, in circumstances where it was not possible to discover whether the meeting would agree to an adjournment and an urgent decision was needed (at 410-411 per Browne-Wilkinson V-C; see also at 416 per Mustill LJ, and at 418 per Woolf LJ).

It seems to me that the reasoning in Byng's case is applicable by analogy to a meeting of creditors convened pursuant to statutory provisions such as ss 439A and 439B, together with reg 5.6.18(1), notwithstanding that the source of the power of adjournment is a statutory provision (s 439B(2)) rather than the common law. But properly understood, Byng's case empowers the chairman to adjourn the meeting, and to do so without the meeting's consent, only if he or she exercises the power at the meeting (and therefore is personally in attendance), and there is some good reason for not putting the adjournment proposal to the meeting for its consent under the regulation. Therefore Byng’s case does not overcome the inconvenience of interpreting s 439B(2) as requiring the administrator's personal attendance at the meeting.

Does the administrator have any power to postpone a duly convened meeting before it is held, if he or she discovers that personal attendance will not be possible? Section 439B(2) permits the meeting to be "adjourned". There is a distinction in the law of meetings between adjourning a meeting, a step taken after the meeting commences, and postponing a meeting after it has been convened but before the due date. The use of the word "adjourned" suggests that s 439B(2) does not permit the meeting to be postponed before it is held. The administrator has control of the company's business, property and affairs, and may carry on those affairs (s 437A(1)), a power similar to the management power of corporate directors in standard articles of association (see s 198A). However, it has been held that the standard management article does not authorise the directors of a company to postpone a duly convened general meeting of members, and they cannot do so unless the corporate constitution confers some other authority: Smith v Paringa Mines Ltd [1906] 2 Ch 193; Bell Resources Ltd v Turnbridge Pty Ltd (1988) 13 ACLR 429; McPherson v Mansell (1994) 16 ACSR 261.

Consequently, as far as I can see, an administrator cannot avoid the inconvenience of the statutory requirement of personal attendance by postponing the meeting date once the s 439A meeting has been duly convened. However, it is not strictly necessary for me to decide the point, since I would hold that s 439B(1) requires personal attendance at the meeting regardless of whether the administrator has the power to postpone the meeting.

By his cross-claim Mr Javorsky invites the Court to overcome his failure to chair the meeting personally, by making an appropriate order under s 1322 or s 447A(1).

Section 1322 distinguishes between cases of "procedural irregularity" and other cases. Subsection 1322(2) declares that a proceeding under the Corporations Act (defined in subsection (1) in a manner that includes the holding of a meeting convened under s 439A) is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid. Thus, in the case of a procedural irregularity, the meeting is valid unless the Court steps in and declares otherwise.

"Procedural irregularity" is not defined, but subsection (1) says a reference to a procedural irregularity includes a reference to the absence of a quorum at various meetings including a meeting of creditors, and also includes a defect, irregularity or deficiency of notice or time. There is not much authority on the meaning of the words "procedural irregularity" (but see Sipad Holdings ddpo v Popovic (1995) 61 FCR 205; Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 34 ACSR 391). In my opinion, failure by an administrator to comply with the statutory requirement that he preside at the second meeting of creditors cannot be described as a mere "irregularity", although the statutory requirement is of a procedural kind. I therefore conclude that s 1322(2) does not apply.

Section 1322(4)(a) authorises the Court, on application by an interested person, to make an order declaring that a proceeding purporting to have been taken under the Corporations Act is not invalid by reason of any contravention of a provision of the Act. Mr Javorsky is an interested person. This provision enables the Court to make an order removing any invalidity that might otherwise arise out of failure to comply with s 439B(1). However, by s 1322(6)(a) the Court must not make such an order unless it is satisfied that (i) the proceeding is essentially of a procedural nature; (ii) the persons concerned in or party to the contravention acted honestly; or (iii) it is just and equitable that the order be made. Subparagraph 1322(6)(c) adds that the Court must be satisfied that no substantial injustice has been or is likely to be caused to any person.

Although the requirements of s 1322(6)(a) are expressed as alternatives, my view is that all three of them are present here. First, the proceeding under consideration is the holding of a meeting and in particular, at issue is a requirement concerning the chairmanship of the meeting. The whole question is essentially of a procedural nature. Secondly, there is no basis for submitting, and it has not been submitted, that Mr Javorsky acted otherwise than honestly in relevant respects. Although Bovis has criticised the conduct of Mr Hurst and in particular, Mr Franklin, both of whom were probably "concerned in" Mr Javorsky's contravention of s 439B(1), my view is that they acted honestly in respect of the convening and holding of the meeting.

Thirdly, it is just and equitable that the order be made because, in my opinion, Mr Javorsky's failure to attend the meeting and to chair it was based upon a bona fide misreading of the Corporations Act and Regulations, the drafting of which left it open for a reasonable person in Mr Javorsky’s shoes to form the erroneous view that he was authorised to appoint a nominee to chair the meeting. Moreover, and more importantly, in the circumstances of this case it cannot be said that Mr Javorsky's absence deprived the creditors of information or assistance that they needed or sought for the purposes of their decision. This is because Mr Franklin and Mr Hurst, who were both in attendance at the meeting and the adjourned meeting, were responsible respectively for the day-to-day administration of the Company and for the supervision of that activity, and they were therefore in as good a position as Mr Javorsky to supply whatever information and assistance the creditors sought or might have sought. The reasoning supporting Mr Javorsky's recommendations, such as it was, was set out in his Report and his Statement, and in my view it is most unlikely that he would have added anything to those documents had he been present. Mr Hurst did not any stage purport to exercise the chairman's casting vote and so Mr Javorsky's absence was not relevant to that issue. In fact he participated in the decisions to admit and reject proofs for voting purposes, with Mr Hurst, prior to the meeting.

Bovis complained that the meeting led to substantial injustice being caused to it, because Mr Javorsky and others treated the meeting as having decided to execute the proposed Deed, and subsequently the Deed was executed and a system was thereby put in place for proceedings to be taken against Bovis. In my opinion Mr Javorsky's failure to attend personally and chair the meeting was not a contributing cause to any such prejudice or injustice. The meeting would have led to the same outcome whether he was there, in the chair, or not. I do not accept Bovis’ submissions that Mr Javorsky would have acted differently if he had attended the meeting and heard Bovis’ complaints regarding the adequacy of investigations or that Bovis was prejudiced by Mr Javorsky’s failure to attend and explain and defend his Report.

My conclusion, therefore, is that the conditions for the exercise of the Court's discretion to make an order under s 1322(4)(a) are satisfied. Bovis submitted that Mr Javorsky had not discharged the onus of establishing grounds for the exercise of the Court’s discretion under s 1322, especially since his reasons for not attending the meeting (he had other pressing work) and its adjournment (he was overseas) were manifestly inadequate. I have decided, however, having regard to the considerations I have stated, that the Court's discretion should be exercised by making an order declaring that the meeting of creditors of the Company purporting to have been held on 20 December 2001 and 16 January 2002 is not invalid by reason of any contravention of s 439B(1) of the Act. This makes it unnecessary for me to decide whether s 447A(1) is available in the present circumstances. The issue presented by that section is whether, in light of Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270, the words "how this Part is to operate" limit the Court's ability to make an order validating a meeting that has already been held in contravention of the Act (cf Portinex 34 ACSR at 398-9). It is unnecessary for me to consider that issue.

For reasons given below, I have decided that the resolution to execute the DOCA should be set aside under s 600A. There is, nevertheless, a point in making a curative order under s 1322. Section 600E validates any acts done in reliance on the resolution but before the order is made. Absent an order under s 1322, contravention of s 439B(1) might lead to invalidity ab initio. Admission of Proofs of Debt

In proceeding No 1309 of 2002 Bovis seeks declarations that the meeting of creditors held on 20 December 2001 and 16 January 2002 was not a valid meeting held within the period required by s 439A(2) and that all proceedings at that meeting were invalid and of no effect, and also a declaration that the resolution purportedly passed at the meeting for the Company to execute the proposed Deed was of no effect for the purposes of s 439C. Additionally, Bovis appeals under s 1321 against the decisions by Mr Hurst to admit Interline (NSW) to vote for $3,659,667 and to admit Bovis to vote for only $1.

Regulation 5.6.23(1) provides that a person is not entitled to vote as a creditor at a meeting of creditors of a company in voluntary administration unless his or her debt has been admitted wholly or in part by the administrator, or he or she has lodged with the chairperson particulars of the debt or a formal proof of debt. By reg 5.6.23(2), a creditor must not vote in respect of a contingent or unliquidated debt, or a debt the value of which is not established, unless a just estimate of its value has been made.

Regulation 5.6.26(1) states that the chairperson of a meeting has power to admit or reject a proof of debt or claim for the purposes of voting. Regulation 5.6.26(2) states that if the chairperson is in doubt whether a proof of debt or claim should be admitted or rejected, he or she must mark that proof as objected to and allow the creditor to vote, subject to the vote being declared invalid if the objection is sustained.

The meaning of these provisions was considered by Hodgson CJ in Eq (as his Honour then was) in Vincent, White & Associates Pty Ltd v Vouris (1998) 28 ACSR 93. There a plaintiff lodged a proof of debt for over $1.4 million, and the administrator decided that he would allow the plaintiff to vote in respect of only about $420,000, on the basis that this was a just estimate of the value of the debt for the purpose of voting. A motion for the company to execute a deed of company arrangement was defeated, but it would have been carried on a poll if the proof had been admitted for the full amount of the claim. The plaintiff's appeal against the administrator's decision was unsuccessful.

The plaintiff argued that, because the administrator was in doubt as to the amount of the debt, reg 5.6.26(2) meant that he should have marked the claim as objected to, allowing the plaintiff to vote for the full amount claimed. The plaintiff relied on the following observations by Thomas J in Re Oriel Homes Pty Ltd (1997) 15 ACLC 564, 565: "I interpret the effect of [the relevant regulations] as follows. Under reg 5.6.26(1) the power to admit includes the power to admit in part. If the position is clear, the chairperson should make a just estimate of the value of the debt. If, however, he or she is in genuine doubt, the claim must be allowed at the amount that the creditor has claimed and should thereupon be marked as 'objected to'. The creditor should then be allowed to vote at that value. Any error, and any effect that the error may have on the result, may be corrected in due course by an appeal to the Court under reg 5.6.26(3)."

I respectfully agree with Hodgson J that this passage is not authority for the proposition that, whenever there is genuine doubt as to the correct amount of the debt, the chairman must allow the creditor to vote in the amount claimed. I would add that in Re Oriel Homes itself, the Court held that the proof should be admitted at a nominal value rather than for the amount claimed.

In light of these cases, and the wording of the regulations, the position may be summarised as follows: (a) a creditor is not entitled to vote at a meeting convened under s 439A unless either the debt or claim has been admitted wholly or in part by the administrator, or the creditor has lodged with the chairman of the meeting or other appropriate person "particulars of the debt or claim" or (if required) a formal proof of the debt or claim (reg 5.6.23(1)); (b) the chairman of the meeting has a discretion to admit the debt or claim wholly or in part, or to reject it for the purposes of voting (reg 5.6.26(1)) and that decision may be the subject of an appeal to the Court under reg 5.6.26(3); (c) if the chairman is in doubt whether a proof of debt or claim should be admitted or rejected, the proper procedure is to mark the proof as objected to and allow the creditor to vote (reg 5.6.26(2)); (d) if the debt or claim is for an unliquidated amount, or it is contingent, or it is a debt the value of which is not established, a just estimate of the value of the debt or claim must be made by the chairman of the meeting, acting reasonably, before the creditor is permitted to vote (reg 5.6.23(2); Oriel Homes at 565; Vincent, White at 101); (e) if a just estimate cannot be made at all, in circumstances where reg 5.6.23(2) applies, then the creditor should not be permitted to vote at all, and reg 5.6.26(2) has no application ( Vincent, White at 101); (f) if the claim cannot be quantified by a just estimate, but it appears that the creditor is a creditor for at least some amount (for example, where a debt is subject to an uncertain contingency), it is appropriate to admit the creditor for voting purposes at a nominal value of $1 ( Oriel Homes at 566; Re Zambena Pty Ltd (1995) 13 ACLC 1020); (g) if a just estimate has been made as required by reg 5.6.23(2), but the administrator remains in doubt as to whether the creditor should be allowed to vote on the basis of the just estimate, then the administrator must mark the proof as objected to and allow the creditor to vote under reg 5.6.26(2) ( Vincent, White at 101). The proof of debt by Interline (NSW)

The proof of debt by Interline (NSW) was for $3,659,677.16. Bovis has pointed out that in fact Interline (NSW) lodged three proofs of debt for that amount with the administrator, dated respectively 6 December 2001, 17 December 2001 and 14 January 2002, describing its claim differently on each occasion. In my opinion nothing turns on the differences in description or the lodgement of three proofs. In each of them the thrust of the claim was the same, namely that Interline (NSW) had paid certain creditors of the Company and had also paid legal costs of the Company.

In his report as to affairs dated 25 July 2001, Mr Gilbert listed Interline (NSW) as a creditor for $3.1 million. Mr Wily said in his report to creditors dated 27 November 2001 that he considered that further inquiries were necessary to investigate and quantify the claim, drawing attention to the amount of payments said to have been made by Interline (NSW) to or for the benefit of the Company during the period after the Company ceased trading. Mr Wily's solicitors had previously said, in their letter dated 26 September 2001, that the materials supplied to support Interline (NSW)'s claim fell well short of quantifying it, and that Mr Wily was unable to ascertain whether Interline (NSW) was in fact a creditor, and if so in what amount.

The evidence given by and on behalf of Mr Javorsky and Mr Hurst, which I accept, is as follows. Mr Javorsky was aware of Mr Wily's concern about Interline (NSW)'s proof. In his report to creditors dated 12 December 2001, he noted that Interline (NSW) was an associated company and that he had been provided with a reconciliation of payments, saying that further inquiries would be necessary for the purpose of investigating and quantifying the claim. At about the same time, Mr Franklin with the assistance of Ms Saheb reviewed a folder of documentation supporting the proof of debt. That material is in evidence. The review was undertaken on an audit check basis against bank statements. It indicated that an amount of at least $3.097 million was owing. All of the amounts that were checked reconciled correctly. Mr Franklin reported the results of the investigation to Mr Hurst and Mr Javorsky prior to the meeting of 20 December 2002. Mr Hurst and Mr Javorsky gave evidence that they were satisfied that the audit check was sufficient for the purposes of Mr Javorsky's decision on admission of proofs of debt for voting purposes. At the adjourned meeting held on 16 January 2002, Interline (NSW) was admitted for voting purposes for the full amount of the claim.

It seems to me that, in terms of the Corporations Regulations, the decision to admit Interline (NSW) to vote for the full amount of the claim must have been on the basis that the claim was for a debt the value of which had been established, the establishment of the debt occurring by provision of the folder of documents relating to payments and the audit check of that material. Therefore the decision was not made under the "just estimate" procedure of reg 5.6.23(2).

Bovis attacked the decision to admit the Interline (NSW) proof on four grounds. First, Bovis contended that the ruling was influenced by Mr Franklin’s lack of independence and impartiality. I have already made findings about the connection between Mr Franklin and Mr Gilbert. However, in my view the evidence does not establish that Mr Franklin’s lack of independence and impartiality affected the decision by Mr Hurst and Mr Javorsky to admit Interline (NSW)’s proof of debt for voting purposes. The decision was based on a simple audit check of materials supplied by Interline (NSW). A reasonable bystander knowing the facts would not perceive lack of independence or impartiality with respect to that decision.

Secondly, Bovis complained that neither Mr Javorsky nor Mr Hurst personally investigated Interline (NSW)'s claim, and contended that there were no investigations by anyone after the preparation of Mr Javorsky's Report to creditors, to dispel the doubts raised in that report, or the doubts earlier raised by Mr Wily. I do not accept Bovis’ submissions on this point. I have found that Mr Franklin and Ms Saheb conducted an audit check. It is not clear whether the check was undertaken just before the finalisation and dispatch of the Report to creditors on 12 December, or between 12 and 20 December, but that does not matter. The important point is that the check was undertaken and it supported the bulk of the claim. It was not necessary for Mr Hurst or Mr Javorsky to repeat the work done by Mr Franklin and Ms Saheb. They required a report from Mr Franklin on the results of that work, and the decision to admit the proof of debt for the full amount claimed was taken after that report had been given.

Thirdly, Bovis contended that no explanation has been offered for the discrepancy between the figure stated by Mr Gilbert in the report as to affairs, $3.1 million, and the amount of the proof of debt, $3,659,677.16. I agree that the evidence does not provide an explanation for this discrepancy. However, the difference between the two figures was pointed out in Mr Javorsky's Report. The audit check confirmed a substantial claim of at least $3.097 million. If the proof had been admitted for that amount, the outcome of the meeting would have been the same.

Fourthly, Bovis submitted that there was no adequate basis for regarding the claim by Interline (NSW) as a legitimate claim. Bovis’ complaint is that according to the evidence, Mr Gilbert caused the Company to incur debts of over $1.1 million at a time when it was insolvent, because it had not paid tax debts for over 15 months. Bovis said that by allowing the Company to incur debts in this fashion, Mr Gilbert acted in breach of fiduciary and statutory duties, and Interline (NSW) participated in those breaches by funding the payment of creditors. Additionally, according to the submission, by paying out the Company's creditors and increasing the Company's debt to it, Interline (NSW) enhanced its own voting power and removed the votes of those creditors.

I have found that these various recovery claims were such as to warrant further investigation, but that does not mean that it was incumbent on Mr Javorsky to investigate them sufficiently to quantify them and judge their prospects of success before reporting to creditors or holding the meeting. The decision taken by Mr Javorsky and Mr Hurst was no more than a decision to admit the Interline (NSW) debt for the purpose of voting at the meeting of creditors. It would be unrealistic to expect an administrator in the position of Mr Javorsky not only to anticipate recovery claims against Interline (NSW) but also to quantify such claims so as to reduce the proof of debt to a nominal amount, when there was at the time no legal assessment available to assist them. In the circumstances that existed at the time, it was open to Mr Javorsky and Mr Hurst to take the view, as they evidently did, that the audit check was a sufficient investigation for the purposes of the chairman's decision on admission of the proof for voting purposes, without any such qualification.

In Rodgers v Radly (2000) 37 ACSR 158, Warren J considered the circumstances in which a court might make an order for an administration to come to an end under s 447A. She referred (at 163) to circumstances where courts have made such an order on the ground of "wrongdoing or commercial immorality". She gave as an example, a case "where a deed of arrangement was adopted against the wishes of a single large creditor in circumstances where the votes of the other smaller creditors were acquired or bought and in further circumstances where the report of the administrator was regarded as superficial".

I accept that in such circumstances it would be appropriate to order that the administration come to an end, and to take into account for that purpose conduct amounting to the "buying" of the votes of creditors by having a related entity pay them out. I am less certain whether it would be appropriate for the administrator to take such considerations into account in deciding whether to admit a proof of debt by the related entity for voting purposes, although I would not rule out the possibility in a clear case. It is unnecessary for me to make a decision on that point.

Her Honour's hypothetical case is one where a deliberate course of conduct is embarked upon to outflank the opposition creditor. The facts before me now do not establish that Interline (NSW) paid the Company's creditors for the purpose of obtaining their votes at the meeting of creditors. Many of the debts were paid before the Deed proposal took shape, in circumstances where it is plausible to conclude that payments were made at the instigation of Mr Gilbert so as to preserve his reputation in the industry.

My conclusion is that the validity of the creditors' resolution of 16 January 2002 is not open to challenge on the ground that Interline (NSW) was permitted to vote for the full value of its claim. If I had reached the conclusion that Interline (NSW)'s proof should either had been rejected or admitted for only $1, the fate of the motion to execute the proposed Deed would have depended on whether the casting vote was exercised in favour of the motion. Mr Hurst gave evidence that as chairman, he would have exercised the casting vote in favour of the motion, but Bovis attacked Mr Hurst's position on various grounds. Having regard to the conclusion I have reached concerning the decision to admit the Interline (NSW) proof for its full amount, it is unnecessary for me to make any determination on these additional matters. The proof of debt by Bovis

Bovis lodged its proof of debt for $494,022.90 with Mr Wily on 3 July 2001. Mr Wily referred to that claim in his report to creditors dated 27 November 2001. Bovis lodged a further proof of debt for the same amount with Mr Javorsky on 18 December 2001. In his covering letter Mr Bartlett said that if Mr Javorsky required any further clarification of the claim, he should contact Mr Bartlett. On 11 January 2002 Freehills, on behalf of Bovis, wrote to Mr Javorsky noting that Mr Javorsky had not sought any further information from Bovis regarding its claim, and insisting that the claim by Bovis be admitted in full for the purposes of voting at the adjourned meeting of creditors. Mr Javorsky did not reply to that letter and did not request any further information concerning Bovis’ proof of debt.

Bovis’ claim was described in Mr Bartlett's letter of 18 December 2001 as a claim for damages, comprising backcharges, overpayments and liquidated damages. The "particulars" attached to the proof of debt listed the original contract value and approved variations, and then subtracted backcharges and liquidated damages, together with the amount certified to date. This produced, according to Bovis, an amount owing to it, from which it then deducted retention moneys, leaving a net balance owing of $494,022.29.

Under reg 5.6.23(1) Bovis was not entitled to vote for the full amount of its claim unless either it had lodged "particulars of the debt or claim" or "if required - a formal proof of the debt or claim". No formal proof having been required, the issue in the present circumstances is whether Bovis supplied particulars of its debt or claim.

It is doubtful whether the information supplied by Bovis on 18 December 2001 amounted to the supply of "particulars of the debt or claim" for the purposes of reg 5.6.23(1). Bovis did nothing more to assert that "backcharges" and "liquidated damages" of certain global amounts were owing. Arguably some information should have been given as to how those two amounts were calculated, either by referring to correspondence or by setting out summary calculations (cf Young v Sherman (2002) 20 ACLC 149, 160; a part of the judgment that was not affected by the appeal: (2002) 20 ACLC 1559). However, Bovis invited Mr Javorsky to seek further information and he did not do so. Further, the information supplied by Bovis in support of its claim was no less specific than the information supplied by other creditors (except Interline (NSW), which supplied a folder of documents). It seems to me that by admitting the Bovis claim for $1 without further inquiry, Mr Javorsky and Mr Hurst acknowledged that it was a claim supported by particulars for the purposes of reg. 5.6.23(1)

Mr Hurst gave evidence that he did not admit the claim for its full amount for two reasons, one of which was his "uncertainty" as to the existence of the debt. As I understand his evidence, he did that not thereby intend to raise the question of lack of particulars.

This was a case where a "just estimate" would have been required. The claim by Bovis does not appear to have been a claim to an unliquidated or contingent debt, assuming that the claim to "backcharges", presumably under the contract, was a claim to a liquidated amount. But in all probability it was a claim to a debt the value of which was not established, so that a just estimate was required to be made under reg 5.6.23(2)(d). Bovis submitted that the information supplied on 18 December 2001 amounted to a "just estimate" of the claim in accordance with reg 5.6.23(2). As I have pointed out, the "just estimate" must be made by the administrator rather than creditor.

Mr Hurst's second reason for refusing to admit Bovis’ claim for its full amount was that the Company had a claim against Bovis for a substantially greater amount, and therefore disputed Bovis’ claim. Mr Hurst and Mr Javorsky were aware that the Company disputed Bovis’ claim, but the mere fact that a claim which is the subject of a proof of debt is disputed is not sufficient to justify rejection of the proof of debt. In Petrochemical Industries Ltd v Dempster Nominees Pty Ltd (1994) 15 ACSR 468 Murray J held (at 475-6) that "a person having an arguable claim against the company of an unliquidated kind, or contingent in its character, is properly described as being a creditor for the purposes of [Part 5.3A]".

In the present case, however, Mr Javorsky and Mr Hurst had information going beyond the mere assertion of a dispute. The Company had a claim against Bovis comprising two components. One was a claim for over $3 million for delay and disruption. Mr Gilbert's report as to affairs showed that claim at $3,872,470.16 in respect of the Aurora Project, and an additional $65,538 relating to the Macquarie Apartments Project. The other component was a damages claim for about $3.5 million. There is evidence, as I have said, that this figure was merely a balancing amount designed to show that assets were sufficient to cover liabilities. However, the delay and disruption claim, about which there was some information, though limited, was well in excess of the claim by Bovis. Although Mr Javorsky did not obtain all of the Company's records with respect to its claim against Bovis, Mr Javorsky was aware that Cutler Hughes and Harris, acting for Mr Gilbert, had expressed their professional opinion that the claim was a viable one.

In these circumstances it was appropriate, in my opinion, for a “just estimate” of Bovis’ claim, to be made either by combining the claims of Bovis and the Company to produce a single net figure, or by setting one claim of against the other.

Both sides agree that company's claim and Bovis’ claim relate to the same dispute, and upon resolution of the dispute there would be a single figure struck in favour of one side or the other, although the two claims appear to relate to separate causes of action. In National Australia Bank Ltd v Market Holdings Pty Ltd (2000) 50 NSWLR 465, Market Holdings was a plaintiff in proceedings against a bank, in which the plaintiffs sought to recover billions of dollars in damages. In those proceedings the bank was a cross-claimant for $31 million. The directors of Market Holdings convened a meeting of creditors to consider voluntary winding up, but they did not give notice of the meeting to the bank. Young J held that they should have done so. He made the following observations, which seem to me to be equally applicable to an administrator adjudicating a proof of debt for voting purposes (at 472): "Although there may be some difficulty in assessing who is a creditor and who is not, the Corporations Law requires company directors to act reasonably. They must make a reasonable assessment as to the liabilities of the company both annually and when they are considering winding up. They must not pretend someone is a creditor who is not. They must not also completely dismiss claims against the company merely because they are disputed, are unliquidated or are the subject of pending contested litigation."

As to whether it was appropriate to set off the bank's cross-claim against the claims made by Market Holdings and its co-plaintiffs, his Honour contemplated that a liquidator might value the respective claims after taking proper advice, and admit a proof of debt for any balance in favour of the claimant (at 472), but he thought it appropriate for some reasonable assessment of the competing claims be made before such a decision could properly be taken. He drew attention to some uncertainties about the claim by Market Holdings, including uncertainties as to its allocation amongst the various plaintiffs.

Young CJ in Eq also considered the duty of an administrator in adjudicating on claims for voting purposes in Kirwan v Far East Ltd (2002) 21 ACLC 371. He said (at 444): “[The administrator] needed to assess, at leas in approximate terms, the chances of success which could easily be worked out, at least so far as a range is concerned, from legal advice. It was not open to decline to assess a just value on the claim and to reject it altogether.”

Here the administrator and his assistant have purported to make such an assessment. The question is whether they have made a reasonable assessment of the competing claims. It is important to remember that the issue arises only for voting purposes, at a meeting convened under a statutory timetable that allows very little time for the administrator to conduct investigations. In the present case the evidence indicates that Mr Javorsky, Mr Hurst and Mr Franklin did not conduct any substantial investigation into the Company's claim against Bovis. The information supplied to them by Mr Gilbert was limited and incomplete. Mr Hurst was not able to explain the basis of the claim to the meeting, in response to a question. Mr Javorsky and Mr Hurst did not seek any advice about the claim from lawyers independent of Mr Gilbert. However, they had the considered opinion of Mr Higginbotham, who had access to information about the claim against Bovis. My opinion is that (but for the matter of independence, considered below) they would have been entitled to take that opinion into account and to reach the conclusion that in view of the Company’s claim, a just estimate of the Bovis claim was $1.

Bovis contended that the decision to admit its proof for only $1 was open to challenge on the ground that he failed to act impartially. The chairman of a meeting of creditors in Mr Hurst's position has a duty to act impartially: National Australia Bank Ltd v Market Holdings Pty Ltd (2001) 19 ACLC 710; Re Vector Capital Ltd (1997) 137 FLR 201; Re Adams International Food Traders Pty Ltd (1988) 13 NSWLR 282; National Dwellings Society v Sykes [1894] 3 Ch 159. In circumstances where the chairman should have been the administrator under s 439B, the chairman’s duty was no different in content from the administrator’s duty.

The law’s requirement of independence and impartiality is quite a strict one when it comes to admitting claims for voting purposes, because of the “quasi-judicial” function involved, as noted earlier. Here the decision with respect to the Bovis claim depended on an assessment by Mr Javorsky or Mr Hurst, aided by Mr Franklin, of the viability of the Company’s claim against Bovis. That was a matter upon which Mr Franklin helped Mr Gilbert in preparation of the RATA. Mr Franklin’s contribution to the RATA included his proposing the general damages claim. In my opinion Mr Franklin’s conduct on Mr Gilbert’s behalf was so central to the formulation of the Company’s claim as to create a very strong perception, in the eye of the reasonable observer apprised of the fasts, that the decision to reduce the claim to $1 was biased in favour of Mr Gilbert and against Bovis. The decision was therefore vitiated by the failure of Mr Javorsky and Mr Hurst to discharge the duty of independence and impartiality.

It seems to me that the creditors’ resolution to execute the DOCA was not invalidated by the incorrect decision regarding the Bovis claim. If the Bovis claim had been admitted in full for voting purposes and a poll had been taken, the result would have been the same, given my decision with respect to the claim by Interline (NSW). But a poll was not in fact taken. Bovis was allowed to attend, appoint a proxy, participate in the discussion and vote on the voices as a creditor for $1, just as it would have been had it been admitted as a creditor for $494,022.90. Related creditors

Interline (NSW) is a "related creditor" of the Company, within the definition in s 600A(3). It is a creditor of the Company, and when the vote was cast on 16 January 2002, it was a "related entity" of the Company within paragraph (k) of the definition in s 9, because Mr Gilbert was a director of both companies at that time.

Section 600A(2) empowers the Court, on the application of a creditor of the company, to set aside a resolution passed at a meeting of creditors in the circumstances described in subsection (1), and to make other orders including an order convening a new meeting at which a related creditor is not to vote.

Mr Gilbert submitted that Bovis had no standing to obtain relief under s 600A because it is not a "creditor" of the Company. I have summarised the evidence regarding Bovis' claim in its correspondence with Mr Wily and Mr Javorsky, and its proof of debt. That evidence was permitted subject to a limitation that it was not evidence to prove the existence of the debt claimed by Bovis. Mr Bartlett was cross-examined about his knowledge and understanding of the Bovis claim, and gave evidence that the information contained in the proof of debt was prepared by employees of Bovis other than himself, namely Mr Cummins and Mr Salier. Mr Gilbert wrote to Mr Wily on 25 July 2001 questioning the Bovis claim and denying that any claim for backcharges had been made until that time.

Mr Gilbert submitted that Bovis carried the onus of proving that it was a "creditor" for the purposes of s 600A, and said that it was not sufficient for there to be a mere assertion by someone who, on the evidence, had not sought to verify the accuracy of the information relied on. Mr Gilbert said that the unexplained failure of Bovis to file any evidence by Mr Cummins and Mr Salier, the persons having knowledge of the facts and circumstances giving rise to the assertion that Bovis was a creditor as claimed, should give rise to the inference that the evidence of Mr Cummins and Mr Salier would not have assisted Bovis.

In my opinion this submission should be rejected, because it is based on the incorrect assertion that an entity seeking to rely on s 600A must establish its status as a person to whom a debt is in fact owed in order to prove standing. If that proposition were correct, it would be necessary for the Court to determine, as a preliminary issue, a question of fact that may well be complex and disputed, and that may be a central part of the ultimate contest between the parties. To avoid that consequence, courts have held, in respect of other winding up provisions of the Corporations Act and its predecessors, that a person who has an arguable claim against the company is a "creditor" for statutory purposes, even if the claim is unliquidated or contingent. For example, in Petrochemical Industries Ltd v Dempster Nominees Pty Ltd Murray J applied this test to s 447B(2), which states that on the application of a "creditor" of a company, the Court may make such order as it thinks necessary to protect the creditor's interests while the company is under administration. In National Australia Bank Ltd v Market Holdings Pty Ltd (2000) 50 NSWLR 465, 469, Young J (as the Chief Judge in Equity then was) regarded the same principle as being applicable generally for the purposes of Part 5.3A, and he referred with approval to English authority applying the same test to determine who was a creditor for the purposes of a reinstatement application, as well as to English and Australian authority as to the meaning of the term "creditor" for the purposes of a scheme of arrangement within s 411. He held that the plaintiff bank was a "creditor" to whom notice should have been given of a meeting of creditors, in circumstances where the bank asserted a cross-claim and had an order in its favour for costs.

In my opinion, therefore, the correct question to ask is whether Bovis has an arguable claim against the Company. There is ample evidence to support an affirmative answer. Although Bovis did not tender the underlying contracts between itself and the Company, those contracts appear to have been admitted by the cross-claimants, who relied on them. Bovis was admitted as a creditor in the sum of $1 for voting purposes at the meeting on 20 December and 16 January. Although the correspondence by Bovis and its proof of debt were not admitted as evidence of the existence of the debt, they are evidence of the making of a claim, and it is open to the Court to weigh up the whole of the evidence to make an inference as to whether the claim is an arguable one. My conclusion is that Bovis has standing to seek relief under s 600A, because it is a "creditor" for the purposes of that section. Any other conclusion would lead to a wholly unsatisfactory outcome, since Bovis has such an obvious and strong interest to make a challenge under section.

The conditions for the exercise of this statutory jurisdiction are set out in subparagraphs (a), (b) and (c) of s 600A(1). They are as follows (to the extent relevant in this case): (a) a proposed resolution has been voted on at a meeting of creditors of a company held under Part 5.3A; (b) if the votes that a particular related creditor of the company cast on the proposed resolution had been disregarded for the purpose of determining whether or not the proposed resolution was passed, the proposed resolution (if it was in fact passed) would not have been passed, or the question would have been decided on a casting vote; and (c) the passing of the proposed resolution (i) is contrary to the interests of the creditors as a whole; or (ii) has prejudiced, or is reasonably likely to prejudice, the interests of the creditors who voted against the proposed resolution, to an extent that is unreasonable having regard to: (A) the benefits resulting to the related creditor, or to some or all of the related creditors, from the resolution; and (B) the nature of the relationship between the related creditor and the company; and (C) any other relevant matter. Condition (a) was satisfied with respect to the resolution of the creditors that the Company execute the proposed Deed.

As to condition (b), if the vote of Interline (NSW) had been disregarded, the motion would still have been carried on the voices, by a majority of six to three, but the value of the votes cast in favour of the motion would have been reduced from $4,135,285.13 to $475,607.97, the value of the votes against the motion being $3,124,640.62 (assuming the Bovis proof was correctly admitted at $1). In those circumstances it seems to me more likely than not that a poll would have been demanded before or on the declaration of the result of the voices, by Bovis and either or both of the Australian Taxation Office and NRMA, under reg 5.6.19(1). Then the outcome of the vote would have been governed by reg 5.6.21. Reg 5.6.21(2) would not have applied because the value of the debts owed to creditors voting in favour of the resolution, disregarding the Interline (NSW) debt, would have been less than half of the total votes owed to all creditors voting. Consequently, the question would have had to be decided by the casting vote of the "person presiding at the meeting" under reg 5.6.21(4). Condition (b) was therefore satisfied.

As to condition (c), Bovis submitted that the passing of the resolution led to the effective termination of claims for unfair preferences, uncommercial transactions and insolvent trading without a commensurate advantage to creditors, while these claims could have been pursued with litigation funding had the Company remained in liquidation. It contended that these claims may well have been very substantial. Additionally, it submitted that · the covenant by Mr Gilbert and Interline (NSW) to fund proceedings against Bovis was illusory because they could choose, under its provisions, not to fund the proceedings; · the appointment of Mr Javorsky as deed administrator carried with it the problems created by his association with Mr Franklin, the former adviser to Mr Gilbert; · contrary to the wishes of three independent creditors, Mr Gilbert sought to have control of the Company returned to him by means of the proposed Deed; and · Mr Gilbert pursued a strategy of withholding the Company's books and records from the liquidator and not complying with his statutory obligations as a director of the company in liquidation.

In his submissions Mr Javorsky relied on Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 13 ACSR 544. The case establishes, uncontroversially, that the applicant for relief under s 600A must establish that the conditions for the exercise of the Court's statutory jurisdiction are present. In my opinion, however, the case is distinguishable from the present case on its facts. There the plaintiff disagreed with the choice of administrator made by the defendant's directors. The plaintiff wished to remove the administrator appointed by the defendant but its motion for that purpose was defeated. Hayne J noted that the plaintiff did not challenge the integrity or competence of the administrator, the argument being that the plaintiff's nominee would do better job because he was more familiar with the industry, and that as the biggest creditor, the plaintiff should be able to secure the appointment of administrator of its choice. His Honour found that these circumstances did not establish that failure to pass the motion to remove the administrator and appoint the plaintiff's nominee was contrary to the interests of the creditors as a whole or something that had prejudiced or was reasonably likely to prejudice the interests of the creditors who voted for the removal. All that was shown, according to his Honour, was that the largest creditor would wish its own nominee to do the job (at 550).

Mr Javorsky submitted that in the present case, the only interest of Bovis in opposing the proposed Deed and preserving the liquidation was that by doing so it would eliminate or reduce the prospect that a claim would be brought against it by the Company. Mr Javorsky also drew attention to the provisions of the Deed of 19 March 2002 which preserve any liability of Interline (NSW) to the Company.

My decision as to condition (c) is governed by my findings under the headings "(2) Alleged benefits of Deed proposal to creditors as a whole" and "(3) Alleged prejudice or disadvantage to creditors as a whole from implementation of the Deed proposal". My finding is that the passing of the resolution of creditors to execute the proposed Deed was contrary to the interests of the creditors as a whole, for the purposes of s 600A(1)(c)(i). This is because, on the one hand, the DOCA did not deliver the benefits claimed by those supporting it. It gave Mr Gilbert and Interline (NSW) the option to choose not to provide funding, there was insufficient information for the creditors to assess the ability of Mr Gilbert and Interline (NSW) to provide any funding, and Mr Gilbert had a statutory obligation to assist the liquidator in any case. On the other hand, the DOCA deprived the creditors of the benefit of further investigations into the prospect of recoveries for insolvent trading, unfair preferences and uncommercial transactions, and it deprived them of the prospect of recovery under such claims. The latter point is not overcome by the 19 March 2002 Deed, for reasons I have explained.

Having regard to my conclusion under s 600A(1)(c)(i), it is unnecessary for me to form a view under s 600A(1)(c)(ii). However, in view of my conclusion about the effects of the DOCA on the investigation and pursuit of recoveries, my opinion is that the resolution to execute the DOCA has prejudiced the creditors who voted against it to an extent that is unreasonable having regard to that relevant matter.

It follows, therefore, that the Court has the discretion to make an order under s 600A(2) setting aside the resolution. In view of my findings, it is clearly appropriate that such an order be made. Section 600A(2) also contemplates that the Court may order that the proposed resolution be reconsidered in the meeting of creditors and may order that the related creditor is not entitled to vote. On its face, the subsection contemplates an order that the same resolution be considered again, perhaps at a meeting where the related creditor is not entitled to vote. In my opinion there is no point in putting the Deed proposal to another meeting of creditors. If I were to do so, I would regard it as necessary to direct that Interline (NSW) be not entitled to vote. This is because the Deed as put to the meeting on 16 January 2002 had the effect of preventing recovery proceedings from being taken against Interline (NSW), amongst others, for the benefit of creditors. If there were a fresh meeting at which Interline (NSW) could not vote, then on a poll the proposed resolution would be overwhelmingly defeated by the votes of either or both of Bovis and the Australian Taxation Office. There is no evidence to suggest that the Australian Taxation Office would vote in favour of the proposed Deed if given another opportunity.

I have considered whether to order, under the general power given to me by s 600A(2)(d), that a meeting be held to consider a revised proposal, under which rights of action for recoveries against Mr Gilbert and the related parties would be satisfactorily preserved or replicated. I have decided not to do so. Any attempt to create by covenant rights of action equivalent to the statutory rights would be problematic, as I have indicated. More importantly, there would need to be a satisfactory mechanism for the Deed Administrator to fund investigations and proceedings. The proposal would become so different from the Deed proposal considered by creditors, that there would be no case for requiring it to be put forward by Court order. Conclusion as to Validity of Resolution of Creditors

The proof of debt by Interline (NSW) was correctly admitted for voting purposes at its full amount. The decision to admit the proof of debt by Bovis for voting purposes at $1 was invalid, but that decision did not affect the validity of the creditors’ resolution. This is a case within s 600A, and an order will be made setting aside the resolution to execute the proposed Deed. Section 600E will save from invalidity anything done pursuant to the resolution prior to the making of the order. Termination of the Deed of Company Arrangement

Bovis submitted that if the resolution of the Company to execute the DOCA was passed validly, then the DOCA should be terminated on three separate bases, namely (1) there were material omissions from Mr Javorsky's Report to creditors (s 445D(1)(c)); (2) the DOCA is contrary to the interests of the creditors as a whole (s 445D(1)(f)(ii), or effect cannot be given to it without injustice (s 445D(1)(e)); (3) Mr Javorsky's recommendation in favour of the DOCA was made (a) without his having made any independent or proper assessment of the merits of the proposal, (b) without his having taken any independent advice concerning the strength of the company's claim against Bovis or the Company's other possible claims, and (c) where he, or those to whom he delegated the conduct of the administration, were or appeared to be biased in favour of Mr Gilbert and Interline (NSW) and against Bovis, within s 445D(1)(g).

Bovis has standing to seek relief under s 445D as an "other interested person", regardless of whether it is a "creditor" for the purposes of that section: Allatech Pty Ltd v Construction Management Group Pty Ltd (2002) 41 ACSR 587. It is an interested person because the DOCA makes provision for proceedings to be taken against it for recovery of an amount of some millions of dollars.

Mr Javorsky and Mr Gilbert submitted that in considering the adequacy of Mr Javorsky's Report, the Court should take into account the content of Mr Wily's Report, treating Mr Javorsky's Report a supplementary to Mr Wily's. They pointed out that the two reports were presented to the same body of creditors. I disagree with this submission. Mr Javorsky's Report did not in terms purport to incorporate Mr Wily's Report by reference (it is therefore not necessary to decide whether "incorporation by reference" is permissible under s 439A). That being so, s 439A(4) and s 445D(1)(c), when read together, have the effect of requiring that the adequacy of the administrator's report be assessed on the face of the report. Contrary to the interests of creditors as a whole, and injustice

I have decided that an order should be made terminating the DOCA, on the ground stated in s 445D(1)(f)(ii). That provision permits the Court to make an order terminating a deed of company arrangement if it is satisfied that the deed is contrary to the interests of the creditors of the company as a whole. In applying that provision, it is appropriate for the Court to have regard to the objects of Part 5.3A set out in s 435A, specifically by considering whether a better return for the company's creditors would be achieved under the Deed than would result from continuation of the winding up of the Company: Kalon Pty Ltd v Sydney Land Corporation Pty Ltd (1998) 26 ACSR 593, 597. It is also appropriate to consider whether the arrangements proposed under the Deed amount to fair dealing with the interests of the creditors: Khoury v Zambena Pty Ltd [1999] NSWCA 402 (28 October 1999).

The wording of the provision is relevantly identical to the wording of s 600A(1)(c)(i), but the latter provision is not in Part 5.3A and is therefore not directly subject to the declaration of objects in s 435A. This raises for consideration the question whether the same words have different meanings in the two provisions. I doubt that there is any difference, notwithstanding the slightly different contexts. After all, s 600A, though a more general provision about creditors' meetings, has an application to the second meeting of creditors convened under the provisions of Part 5.3A. But it is unnecessary for me to determine the relationship between the two provisions in any general sense. It is quite clear that any possible differences in meaning have no impact in the circumstances of the present case.

My findings under headings "(2) The alleged benefits of the Deed proposal to creditors as a whole" and "(3) The alleged prejudice or disadvantage to creditors as a whole from implementation of the Deed proposal", applied in my reasoning as to the application of s 600A, are equally relevant considerations for the purpose of determining whether the ground for termination of the Deed in s 445D(1)(f)(ii) is satisfied. Therefore my findings imply that this ground for terminating the deed is present. The same reasoning establishes that the ground in s 445D(1)(e) ("effect cannot be given to the deed without injustice") is also present.

Having decided that the resolution authorising the execution of the DOCA should be set aside under s 600A, it is appropriate that I should make an order terminating the Deed executed pursuant to the resolution. There are no disentitling factors here. Bovis has acted with expedition in seeking relief, and it has not been suggested that anyone has changed their position or that third party rights have intervened without knowledge of the challenge. The validity of any actions taken pursuant to the DOCA is protected by s 445H. My decision that the creditors’ resolution of 16 January 2002 should be set aside does not make it unnecessary to terminate the deed, for (absent an order under s 445D) s 600E would save the execution and implementation of the DOCA from any invalidity flowing from vitiation of the resolution.

I have also decided that the grounds exist, separately in each case, for making an order to terminate the DOCA under s 445D(1)(c) (material omissions) and s 445D(1)(g) ("some other reason"). My decision on these matters requires elaboration. Material omissions

Section 445D(1)(c) allows the Court to make an order terminating a deed of company arrangement if it is satisfied that there has been an omission from the administrator's report, and the omission can reasonably be expected to have been material to the creditors in making their decision.

Section 445D(1)(c) is to be understood in conjunction with the administrator's statutory and other duties to make investigations and inquiries. An administrator, like a court-appointed liquidator, has general duties of investigation and disclosure. As James LJ said in Re Contract Corporation, Gooch's Case (1872) LR 7 Ch App 207, at 211: "It is his duty to the whole body of shareholders, and to the whole body of creditors, and to the Court, to make himself thoroughly acquainted with the affairs of the company; and to suppress nothing, and to conceal nothing, which has come to his knowledge in the course of his investigation, which is material to ascertain the exact truth in every case before the Court. And it is for the Judge to see that he does his duty in this respect."

Circumstances may arise where, to discharge his or her duties, an administrator must make specific inquiries, beyond the statutory duty to investigate imposed by s 438A: Deputy Commission of Taxation v Portinex Pty Ltd (No 2) (2000) 34 ACSR 422. In Kirwan v Cresvale Far East Ltd (2002) 21 ACLC 371, Giles JA (with whom Meagher JA agreed) held (at 418) that the administrator in that case was under no duty to make inquiries about a possible breach of duty by a director before reporting to creditors, because "the facts known at the time of the proceedings did not give rise to a prima facie case of breach of duty". It would be wrong, in my opinion, to treat this passage as authority for the proposition that an administrator need not investigate possible claims unless, on the facts available to him or her before any investigation, there is a prima facie case for recovery. The existence of a duty to make further inquiries must depend on an assessment of the nature of the question to be investigated, the information in the administrator's hands, the cost and difficulty of making further investigation, and (most importantly) the significance of the issue under investigation to the creditors' decision: see Deputy Commissioner of Taxation v Pddam Pty Ltd (1996) 19 ACSR 498, 510; Bamco Villa Pty Ltd v Montedeen Pty Ltd [2002] VSC 184 (17 May 2002), at para [9].

These duties must be considered in light of the special position in which the administrator is placed under Part 5.3A. It is well established that pressure of time or the complexity of administration may excuse an administrator from undertaking detailed investigations: Deputy Commissioner of Taxation v Pddam Pty Ltd (1996) 19 ACSR 498; Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 156 FLR 453. In the present case the Report was completed about two weeks after Mr Javorsky's appointment.

Bovis contended that there were six material omissions from Mr Javorsky's Report.

First, Bovis pointed to the Report's failure to identify, and provide adequate information upon, possible claims against Mr Gilbert and Interline (NSW) for insolvent trading, breach of fiduciary duty, unfair preferences and uncommercial transactions. I have set out the relevant parts of the Report. It does make a reference to possible recoveries, and draws attention to the likelihood that Mr Gilbert would raise a defence to an insolvent trading claim. The complaint of Bovis is that the Report does not go far enough on these matters. According to Bovis, the Report should have drawn attention to the failure of the Company to make remittances to the Australian Taxation Office for the period from September 1999, 15 months before the Company ceased to trade, and the fact that the debt to the Australian Taxation Office had accumulated to over $1.1 million by June 2000, five months before the company ceased to trade. Moreover, says Bovis, these things occurred before the Company became substantially indebted to Interline (NSW).

It seems to me that the case put forward on behalf of Bovis is really a claim that Mr Javorsky could have written a better and more informative report. On its face, the report indicates that Mr Javorsky turned his mind to the issue of recoveries, and states his conclusion. My view is that this is sufficient in the present case.

Secondly, Bovis complained of the failure of the Report to provide information on the ability of Mr Gilbert and Interline (NSW) to fund the proceedings against it. The evidence indicates that Mr Javorsky and his staff did not make the substantial inquiries about these matters before sending out the Report.

Even allowing for the limited time available to Mr Javorsky for investigations, and the complexity of his task, the question of the ability of Mr Gilbert and Interline (NSW) to fund the Bovis litigation was so central to the Deed proposal that, in my opinion, some investigation should have been undertaken and the results should have been provided to the creditors, even if the results were inconclusive or unproductive. Failure by Mr Gilbert to respond to a timely request by Mr Javorsky for such information might itself have had some significance for the creditors.

I accept that, where the administrator's report is to be made available to the other party to the litigation, detailed disclosure of the strength and depth of the source of funds may not be necessary (cf Young v Sherman (2002) 28 ACLC 1559, 1576, paragraph [77] per Hodgson JA). But the creditors are entitled to have some information on the subject, at least along the lines that the administrator has investigated the availability of funds and is satisfied that funds will be available up to a certain stated benchmark in the proceedings.

I have explained why I regard this issue as one of central importance. My conclusion is that there was a material omission from the Report because of Mr Javorsky's failure to provide adequate information to the creditors on the financial ability of Mr Gilbert and Interline (NSW) to fund the Bovis litigation.

Thirdly, Bovis submitted that the Report provided almost no information about the claim against it. There is a delicate question as to how much disclosure should be made in an administrator's report, when the subject of the disclosure is litigation in existence or in contemplation against the creditor who will have access to the report, and the administrator has obtained or has access to legal advice on the prospects of success. In Young v Sherman (2002) 28 ACLC 1559, Hodgson JA made the following remarks (at 1576): "75. Where creditors are asked to vote on the entry into a deed of company arrangement, particularly where this would be to the detriment of one or more creditors, it is important that matters relevant to the decision of creditors be put fairly to the meeting. Where, as in this case, the administrator has legal advice that the company has good grounds for taking legal proceedings against one creditor, there may be a question whether it is fair to advise the meeting of this but withhold the legal advice on the ground of legal professional privilege. It is possible that to do so may amount to the disclosure of the substance of the legal advice, so as to make the advice admissible in evidence pursuant to s 122(2) of the Evidence Act 1995 (see Ampolex Ltd v Perpetual Trustee Company (Canberra) Ltd (1996) 14 ACLC 977; (1996) 4 NSWLR 12), and possibly to lose legal professional privilege at general law. "76. It might be contended that such disclosure is under compulsion of law, because the administrator is bound to disclose material matters to the meeting, so that s 122(2)(c) applies. However, the disclosure of material matters must be fair to the creditors, and it may be that an administrator proposing to take proceedings against one creditor has the alternatives of either disclosing the factual circumstances and legal propositions said to give a reasonable cause of action, but not the legal advice, or else disclosing the whole of the legal advice, subject if appropriate to undertakings ensuring that the disclosure is treated as confidential so as to avoid wider loss of privilege. In either case, the creditor facing a disadvantageous vote could then make an informed the submission as to the merits of the proposal, which it could not do if all that is disclosed is that there is legal advice that there are good grounds for legal proceedings."

These observations envisage a substantial degree of disclosure, which would give the reader a clear idea of the facts and legal propositions said to give rise to the cause of action, as well as the nature of the cause of action, either by description or by disclosure of the contents of legal advice. There may still be some room for contention as to how detailed the disclosure must be, but by any standard the Report fell well short of adequate disclosure. The basis of the Company's claim was not disclosed, the damages components were not separated and identified, and the Report did not even disclose the nature of the cause or causes of action.

This omission was of a highly material matter. The Company's claim against Bovis was shown in the Report to be its only substantial asset. Moreover, the point of putting forward the Deed proposal was to provide a mechanism for realising that asset by the bringing of proceedings. It is striking that so little information was given in the Report about such an important matter.

Fourthly, Bovis submitted that the Report was deficient because it did not contain any independent legal assessment of the strength of the claim against it. The thrust of the submission is that, at least in the circumstances of the present case, it was the duty of Mr Javorsky to obtain an independent assessment, and to disclose it in the Report. In the absence of such an assessment, said Bovis, the administrator was simply a "mouthpiece" for the position of Mr Gilbert and Interline (NSW).

Bovis seeks to derive a duty to obtain an independent legal assessment of the Bovis claim by combining the law's requirements for proper investigations and impartiality. As to the latter, it has been held that, since a liquidator must both be and appear to be independent and impartial, it would be wrong for him or her to appear to be acting as the mouthpiece of a particular creditor: Re Intercontinental Properties Pty Ltd (1977) 2 ACLR 488, 491 per Needham J. For the reasons I have already given, the same principles of independence and impartiality apply to a voluntary administrator, who must equally avoid acting as the mouthpiece of a particular creditor.

My decision is that it was not necessary for Mr Javorsky to obtain independent legal advice and present it to the creditors, in the circumstances of this case. An administrator has a statutory duty under s 438A to investigate the company's business, property, affairs and financial circumstances. It is possible that he or she may fall under an obligation to obtain legal advice in order to discharge that duty properly in the facts of the case. But in assessing whether any such duty has arisen, the Court is bound to take into account the limited time available to an administrator to carry out his or her investigations, the extent and complexity of the tasks to be carried out during that time, and the availability of funds for these purposes: see the Pddam and Portinex cases, cited above. In some cases it will be open to the Court, bearing in mind such considerations, to conclude that something less than an independent legal assessment will be sufficient.

In the present case a proper legal assessment of the Bovis claim would have involved review of a substantial volume of material. I have said that Cutler Hughes and Harris had 34 lever-arch folders relating to the Bovis claim. Such a review would have taken time, and would have involved substantial cost. As I have said, Mr Javorsky's Report was completed only about two weeks after his appointment.

Although it was important for Mr Javorsky to put fairly before the creditors, to the extent that he was able, sufficient information about the Bovis claim to permit them to reach their decision, he was not required to commission and disclose a necessarily rushed, costly and time-consuming legal assessment of the Company's prospects of success. It would have been reasonable for him to inform the creditors of the contents of Mr Higginbotham's opinion, combined with some information about Mr Higginbotham's qualifications and experience and the extent to which his opinion was a considered opinion after a detailed review, as opposed to a "kerbside" assessment. Alternatively, Mr Javorsky might have set out his own summary of the factual circumstances and the legal propositions underlying the Company's causes of action, sufficient to indicate the nature of those causes of action. Whatever method of disclosure was adopted, it would have been essential for Mr Javorsky to draw attention to the fact that the legal assessment of the Company's prospects had been provided by Mr Gilbert's lawyer. His disclosure of these matters fell well short of what was required, as I have held.

If those matters of disclosure had been properly addressed, there would have been no basis for a reasonable observer to form the opinion that Mr Javorsky was biased in favour of Mr Gilbert or was lacking in independence, notwithstanding the absence of an independent legal assessment.

Fifthly, Bovis submitted that, as the Report had been prepared by Mr Franklin, a full-time consultant to Jones Condon who had the day-to-day-conduct of the administration, the Report should have disclosed the connection between Mr Franklin and Mr Gilbert. Under the heading "(1) The 'connection' of Mr Franklin with Mr Gilbert", I analysed the facts and law concerning Mr Franklin's relationship with Mr Gilbert, concluding that Mr Franklin gave Mr Gilbert advice and assistance going beyond general advice about the administration process, by participating in meetings in which the Deed proposal was developed and by assisting in the preparation of the RATA. There was, I found, a continuing professional relationship between Mr Franklin and Mr Gilbert over the period from June to November 2001.

As I have said, that connection between Mr Franklin and Mr Gilbert was highly material to the decision the creditors were being asked to make. The RATA was the principal exposition of Mr Gilbert's claim, on the Company's behalf, to damages against Bovis. Schedule C to the RATA was prepared by Mr Franklin, whose draft was adopted by Mr Gilbert after advice from Mr Higginbotham. When Mr Franklin subsequently became responsible for the day-to-day conduct of the administration, he came under a duty to investigate the claim in the RATA. But as the draftsman of the most important parts of the document, on behalf of or in the interests of Mr Gilbert, he had an interest in defending the RATA.

Section 445D(1)(c) directs attention to whether there was in fact an omission from the administrator's report of a material matter. The issue does not depend upon the administrator's state of knowledge, and ignorance of the material matter on the part of the administrator is no defence to an application to terminate the deed. In any event, all relevant matters concerning his connection with Mr Gilbert were, of course, well-known to Mr Franklin, who had the day-to-day carriage of the administration within Jones Condon. Consequently the Report's failure to disclose the connection between Mr Franklin and Mr Gilbert provided a ground for termination even though Mr Javorsky was not aware, according to my findings, of the full facts concerning the connection.

Sixthly, Bovis submitted that the Report, whilst referring to Mr Javorsky's remuneration of $20,000 and the proposal to seek approval for those fees, failed to refer to the fact that Mr Gilbert had agreed to pay Mr Javorsky $20,000 in advance for his remuneration.

Mr Javorsky gave evidence that he told Mr Franklin or Mr Higginbotham, before accepting appointment as administrator, that $20,000 should be paid to Jones Condon to be held in trust in respect of future fees. He said he expected that the money would be provided by Mr Gilbert or entities controlled by him. He was subsequently under the impression that the $20,000 had been paid into his firm's trust account, but he was wrong. After the creditors approved payment of his fees on 16 January 2002, Mr Gilbert paid that amount to Jones Condon.

Mr Gilbert gave evidence that he could not recall being approached to pay $20,000 on account of costs of the administration before Mr Javorsky's appointment, but when pressed he did not deny that some arrangement had been made. He said that he was aware that there were going to be some costs, and when it was put to him that he paid Mr Javorsky's fees after the creditors' meeting because he had given a commitment to pay them, he said he believed he was obliged to pay something because there was no money in the company.

It seems to me more probable than not that there was some form of agreement or looser arrangement made before Mr Javorsky accepted appointment as administrator, to the effect that Mr Gilbert would provide the funds to pay Mr Javorsky's fees, including an advance payment to be held in trust, given that there was no other ready source of funds.

I agree with Bovis that an arrangement for a director or creditor to pay an administrator's fees, made in advance of appointment or at least before the second meeting of creditors, is likely to be material to the creditors' decision and therefore should be disclosed to the creditors before they make their decision at the second meeting. The only circumstances where disclosure might perhaps be avoided would be where the person agreeing to pay the fees has no interest whatsoever in the propounding of the Deed proposal that the administrator is asked to support. That, I take it, will be a very rare situation.

Mr Javorsky gave evidence that it should be read into the Report that Mr Gilbert would be funding the entire administration, and he said he assumed that creditors would have been aware that Mr Gilbert was funding his fees. He said that, in circumstances where he was being appointed to an insolvent company with no assets and a scheme was to be propounded which would involve funding by the director, it was reasonable for him to ask the director to show good faith and his ability to put money up-front by making a payment on account of future costs. He denied that this was unusual.

It may be that if a creditor with experience of insolvent administration had considered the position, he or she would have concluded that Mr Gilbert had accepted responsibility for Mr Javorsky's fees. But the likelihood that such an inference might be made by commercially-aware creditors did not remove Mr Javorsky's obligation to disclose the fees arrangement to creditors in express terms.

In summary, my findings are that the Report was deficient in failing to disclose information about the ability of Mr Gilbert and Interline (NSW) to fund the Bovis litigation, information about the nature of and basis for the Bovis claim and its prospects of success, information concerning the connection between Mr Franklin and Mr Gilbert, and information concerning the arrangement between Mr Javorsky and Mr Gilbert concerning payment of $20,000 on account of fees. These were material omissions for the purposes of s 445D(1)(c). I would regard those findings as sufficient to justify an order terminating the DOCA. Termination for other reason

Under this heading Bovis relied on three related factors: Mr Javorsky's failure to undertake sufficient investigations of the Deed proposal in comparison with liquidation; his failure to take independent advice about the claim against Bovis, or the other possible claims of the Company; and Mr Franklin's impermissible connection with Mr Gilbert. There is some overlapping between these submissions and the submissions on material omissions, but here the point is that the matters complained of are circumstances of injustice that provide reasons for termination, rather than merely obligations of disclosure.

In my view the first and third of these factors are made out, but the second is not. As the second factor, I have already expressed the opinion that in the circumstances, Mr Javorsky had no obligation to take independent legal advice about the claim against Bovis. I have also held that Mr Javorsky provided adequate information to creditors with respect to the recovery claims against Mr Gilbert and the related parties, and therefore by implication he had no duty to obtain independent advice on those claims.

As to the first factor, I agree with Bovis that Mr Javorsky and his employees obtained very little information about the nature of and basis for the damages claim against Bovis. Mr Hurst was unable to explain the basis for the damages claim at the creditors' meeting on 20 December 2001. The almost complete absence of information about the claim in Mr Javorsky's report also suggests an inadequate investigation.

Similarly, there was inadequate investigation of the financial position of Mr Gilbert and Interline (NSW), confirmed by the content of the Report, by Mr Hurst's recognition at the meeting of 20 December 2001 that the administrator was not aware of the financial position of Mr Gilbert; and by his failure to answer the question raised at the meeting on 20 December 2001 as to whether the administrator had investigated the financial worth of Interline (NSW).

I acknowledge that Mr Javorsky prepared his Report within about two weeks of his appointment. Even the so, on matters as basic as these, he should have some basic investigations, at least by requiring further information from Mr Gilbert. A basic understanding of the nature of the damages claim, and of the financial resources available to prosecute it, were absolutely essential to informed decision-making.

I agree with Bovis that this lack of investigation was compounded by Mr Javorsky placing Mr Franklin in charge of the day-to-day conduct of the administration, and of the preparation of the Report, when Mr Franklin had been closely aligned for six months with Mr Gilbert, and also with Mr Gilbert's lawyers. I have discussed this matter at length. I also agree that the absence of independence and impartiality was exacerbated by the fact that Mr Gilbert had arranged to pay $20,000 to Mr Javorsky in advance for costs of the administration.

Considered together, these matters warrant the conclusion that the DOCA should be terminated for "some other reason" under s 445D(1)(g). I do not regard it as material to this decision that Interline (NSW) acquired other debts by paying out the creditors, because the evidence does not show it did so for the purpose of strengthening its position in the context of the Deed proposal. Removal of Administrator

Section 449B permits the Court, on the application of a creditor, to remove a deed administrator from office and appoint someone else as administrator of the deed. Having regard to the matters I have considered in respect of s 600A, Bovis is a creditor for this purpose. Therefore the Court has the power to remove and replace Mr Javorsky under s 449B. Obviously the power is available only if Mr Javorsky is still the deed administrator when the order for removal is made. An order for removal of Mr Javorsky as administrator would be pointless after the Court has terminated the DOCA under s 445D.

I have set out the principles governing an application for removal of a deed administrator earlier in these reasons (under the heading "(1) The 'connection' of Mr Franklin with Mr Gilbert"). I have also set out under that heading my conclusions as to the connection between Mr Franklin and Mr Gilbert. During the course of the administration Mr Franklin was a consultant to Jones Condon and therefore to Mr Javorsky as administrator. He remained in that position at the time of the hearing.

If a person in Mr Franklin's position is found to have "crossed the line" and acted on behalf of or in the interests of the director prior to the commencement of the administration, and that person works for the administrator during the administration of the company, a perception arises from the viewpoint of a reasonable bystander that the administrator lacks independence and impartiality. If, as in the present case, the administrator is unaware of the degree of connection between the consultant and the director, it may be that the administrator has not personally lost his or her independence and impartiality. But lack of knowledge of the activities of the consultant is no answer to the claim that there is a reasonable perception of lack of independence and impartiality on the part of the administrator. That, in effect, is the approach that I took in Cadwallader v Bajco Pty Ltd (2001) 189 ALR 370, where the person lacking in independence was an employee of the administrator. Nothing in the Court of Appeal's judgment ([2002] NSWCA 328) is inconsistent with that approach.

In my opinion the perception of lack of independence and impartiality created by Mr Franklin's role in the administration and his previous assistance to Mr Gilbert provides an adequate basis for terminating Mr Javorsky's office as deed administrator. There is a suggestion in some cases (for example, in the Dallinger case, 60 FCR at 599-600) that there may be a difference between the test for removal applied by Hayne J in the Network Exchange case (13 ACSR at 550), that the question is whether it has been "demonstrated that such an order would be for the better conduct of the administration", and the approach of Santow J in the Advance Housing case (14 ACSR at 234) that the question is whether there is a "reasonable apprehension by any creditor of lack of impartiality". In my respectful opinion there is no inconsistency between these two formulations. The formulation adopted by Santow J is an application, in a case where the problem is lack of independence and impartiality, of a more general formulation adopted by Hayne J (see the City & Suburban case, 28 ACSR at 336; and the Citrix Systems case, 28 ACSR at 536).

In the present case, it makes no difference whether there are two alternative tests, or single test and a sub-test. This is a case where in the perception of lack of independence and impartiality went to the heart of the issues that were to be addressed by Mr Javorsky as administrator, for (as I have said) it related to the ability of Mr Javorsky, advised by Mr Franklin, to form a proper assessment of the Company's claim against Bovis for the purpose of making a recommendation to creditors on the Deed proposal. This is therefore a case where the requisite lack of independence and impartiality was present to satisfy Santow J's observations, and it has been demonstrated (in terms of Hayne J's formulation) that the order to remove Mr Javorsky would be for the better conduct of the administration of the affairs of the Company, which is about to move into liquidation once the DOCA is terminated.

Although Mr Franklin's connection with Mr Gilbert provides the primary basis for Mr Javorsky's removal, I have made some findings adverse to Mr Javorsky that should also be taken into account. I have held that there were material omissions from Mr Javorsky's Report, in particular that there was insufficient information about the Company's claim against Bovis and the ability of Mr Gilbert and Interline (NSW) to fund the litigation. These were matters upon which Mr Javorsky could have provided more information even in the limited time available to an administrator. Additionally, I have found that there was an arrangement between Mr Javorsky and Mr Gilbert for the payment of fees, which should have been disclosed to creditors but was not.

Taking all of these matters into account, I have decided that it is appropriate to make an order under s 449B to remove Mr Javorsky as deed administrator.

It will be necessary for me to appoint someone else in his place. Mr Wily has the requisite quality of independence, but I have decided (without meaning to convey any criticism of him) that would be wise to appoint someone totally unconnected with any of the parties. Mr Wily's conduct as liquidator of the Company was extensively criticised by Bovis, and the evidence indicates that Mr Gilbert was uncomfortable with him and insisted on someone else as administrator. I shall therefore direct the parties to negotiate, over a short period of time, to select a qualified liquidator to act as the administrator (for a few instants of time) and then as the liquidator of the Company. If they cannot agree, then I shall select an official liquidator at random, to be approached for his or her consent to act. Remuneration of Administrator

Mr Javorsky's remuneration was fixed at $20,000 plus GST by resolution of the Company's creditors passed on 16 January 2002. Section 449E(2) authorises the Court, on the application of a creditor such as Bovis, to review remuneration so fixed, and confirm, increase or reduce it.

Bovis submitted that the approach that the Court should take to the review of Mr Javorsky's remuneration is similar to that taken on applications to make administrators pay costs of proceedings personally, without any right of indemnity against the assets of the company. Counsel for Bovis referred to my decision in Cresvale Far East Ltd v Cresvale Securities Ltd (No 2) (2001) 29 ACLC 622. I should note that the principles I stated in that case must now be read subject to the observations of the Court of Appeal: sub nom Kirwan v Cresvale Far East Ltd (2003) 21 ACLC 371, esp at paragraphs [413] to [439] per Young CJ in Eq.

I have reached the conclusion that there is no ground for reducing Mr Javorsky's remuneration as approved by creditors. I am not sure that it is appropriate for the Court to apply, except by general analogy, the complex principles regarding liquidators' and administrators' liability to pay costs, when it exercises the statutory discretion to review the administrator's remuneration as fixed by creditors. My decision is one that I would reach whether upon the application by analogy of the costs principles or in the exercise of a more general discretion.

I accept the submissions of Bovis that it is relevant to take into account Mr Franklin's connection with Mr Gilbert. Also relevant is my finding that the decision to admit the Bovis claim at $1 for voting purposes was tainted by this perceived lack of independence and impartiality. I have found that Mr Javorsky's Report was deficient because there were material omissions from it, reflecting the absence of adequate investigations into the Bovis claim and the funding capacity of Mr Gilbert and Interline (NSW). More significantly for present purposes, the Report failed to disclose Mr Javorsky's arrangement with Mr Gilbert for the payment of his fees. And I have found that the DOCA, though recommended by Mr Javorsky, was contrary to the interests of the creditors.

On the other hand, it is plain from the evidence that Mr Javorsky and his staff have done a substantial amount of work and it has not been suggested in submissions that $20,000 was an excessive amount for the work required to be done in this administration. I have found that Mr Javorsky was not aware of the full extent of Mr Franklin's involvement with Mr Gilbert. Mr Javorsky's mistakes do not reflect on his honesty or even, in my view, on his overall conscientiousness. In my opinion Bovis' submission that Mr Javorsky should be denied his remuneration should be rejected. Termination of Liquidation

Mr Gilbert's interlocutory application in proceeding No 1088 of 2001 seeks declaratory orders under s 447A to the effect that the winding up by the Court was terminated when Mr Javorsky was appointed administrator, or when the creditors resolved to enter into the DOCA, or when the DOCA was executed. In the alternative, Mr Gilbert seeks an order for the termination or indefinite stay of the winding up by the Court under s 482.

In my opinion liquidation by order of the Court is not automatically stayed or terminated by the appointment of an administrator under s 436B. I so held in Mercy & Sons Pty Ltd v Wanari Pty Ltd (2000) 35 ACSR 70. It is unnecessary to repeat my reasoning. The submissions in the present case have not shed new light on the issue.

I received submissions as to whether s 447A would permit the making of the declarations that Mr Gilbert seeks. On the view I take in the present matter, it is unnecessary for me to decide that point, which was also left undecided in Mercy v Wanari .

I also received submissions from the parties as to the grounds upon which I might or might not make an order terminating the winding up under s 482, but I think they were all premised on the assumption that I had not already decided to make orders having the effect of putting the company back in liquidation. I think those submissions have no relevance now, and the only issue is how best to achieve an effective winding up of the Company.

Section 482 gives the Court a broad discretion to terminate or stay a winding up by the Court. In the present case, the conclusions I have reached will mean that the company will pass into liquidation upon the making of my orders. It is arguable (extrapolating from the reasoning in Mercy v Wanari at paras [22] to [28]) that, once an order is made terminating the DOCA, the Company will revert to Court-ordered winding up, notwithstanding reg 5.3A.07, on the ground that a double winding-up cannot have been intended by the drafters of the regulation. If, contrary to that argument, the company will be in winding up by the Court and also in a creditors' voluntary winding up upon the termination of the DOCA, such an unsatisfactory situation should not be allowed to continue.

As far as I can see, the relation-back day would be the day upon which the application was filed that led to the Court ordering that the Company be wound up, whether the liquidation continues as a winding up by the Court, or becomes a creditors' voluntary winding up, or is both of these (see s 513A(e), 513B(a) and (b), 513C(a) and the definition of "relation-back day" in s 9).

In the circumstances, I am inclined to make an order terminating the new creditors' voluntary winding up (if any) that may arise upon the termination of the DOCA (as I can, under ss 482 and 446A(6) and (7)), by order operating immediately after my other orders, so that as a result, it will be clear that the company will be left in winding up by the Court. I shall invite Mr Wily to resign as Court-appointed liquidator, and appoint in his place the new liquidator under s 473(1). Given that some difficult issues will have to be addressed by the new liquidator with respect to the Bovis claim and recovery claims, it seems to me generally the preferred outcome that the winding up should proceed as a winding up by the Court, rather than as a creditors' voluntary winding up: see Mercy v Wanari at para [39].

This is somewhat untidy. It would be simpler to make orders terminating the DOCA without first removing Mr Javorsky as administrator, and then immediately terminating any resulting creditors' voluntary winding up, and then replacing Mr Wily with the new liquidator. I think it is important, however, that an order be made for the removal of Mr Javorsky as administrator on the grounds that I have set out, rather than dissolving his office by terminating the DOCA and then terminating any ensuing creditors' voluntary winding up.

There may be some other practical considerations that I have overlooked. I shall therefore invite the parties to make submissions as to whether, given the conclusions I have reached, the best way to give effect to my intentions is to make orders, in sequence, removing Mr Javorsky as administrator, appointing a new person administrator, terminating any creditors' winding up that arises from termination of the DOCA, and replacing Mr Wily with that new person as liquidator in the winding up by the Court. Conclusions

These reasons for judgment lead to the following conclusions: (a) proceeding No 6062 of 2001, which seeks to set aside Mr Wily's appointment of Mr Javorsky as administrator, with ancillary relief, should be dismissed; (b) in proceeding No 1309 of 2002, orders should be made (i) setting aside the creditors' resolution of 16 January 2002 to execute the DOCA; (ii) removing Mr Javorsky as administrator and replacing him with a new administrator; (iii) terminating the DOCA; (iv) terminating any creditors' voluntary winding up that may arise upon termination of the DOCA; (v) appointing the new administrator as liquidator in the winding up by the Court, in substitution for Mr Wily; (c) in the cross-claim in proceeding No 1309 of 2002, an order should be made under s 1322(4)(a) declaring that the meeting of creditors of the Company held on 20 December 2001 and 16 January 2002 was not invalid by reason of contravention of s 439B(1); (d) the interlocutory process in proceeding No 1088 of 2001 should be dismissed.

Since I am not sure whether orders (b)(ii), (iv) and (v) are the best method of achieving my objectives, I shall invite the parties to make submissions on that point. I shall also invite submissions with respect to costs. I shall appoint a time for the hearing of those submissions.

I should mention, finally, that my decision does not depend on making the findings as to motivation urged upon me by Bovis and Mr Javorsky respectively. Bovis submitted that Mr Gilbert proposed the DOCA for the purpose of regaining control the company in circumstances where further investigation of recovery claims would cease. On balance, I have decided that the evidence does not establish that Mr Gilbert actually had that motive. His own evidence is that he wished to avoid the stigma of being associated with a failed company, and I have decided to accept that evidence. Mr Javorsky submitted that Bovis was motivated in pursuing these proceedings by the desire to protect itself from litigation rather than by the interests of creditors generally. My acceptance of Mr Bartlett's evidence implies that I reject this contention. Even if Bovis had acted for self-interested reasons, that fact alone would not have excluded relief.