In the matter of Empireal Ltd (in Liq) (Receiver and Manager Apptd)

1. [1]

   The Plaintiff, Empireal Ltd (in liq) (receiver and manager appointed), was at all material times a company within the LJ Hooker Group.

2. [2]

   The Defendant, Mr Leslie Janusz Hooker, was a director of Empireal and of various other entities within the LJ Hooker Group. Mr Hooker is the grandson of the founder of the LJ Hooker Group.

3. [3]

   Empireal claims that Mr Hooker breached the duties which he owed to Empireal pursuant to the Corporations Act 2001 (Cth) (Act) and at general law, by reason of a number of steps which Mr Hooker took in relation to a restructure of the LJ Hooker Group in August 2020.

4. [4]

   At all material times prior to this restructure, Empireal owned LJHRES Holdings Pty Ltd, which in turn owned LJH RES Ltd. Empireal, LJHRES Holdings and LJH RES were holding companies and did not carry out trading operations, incur trading debts or have any employees.

5. [5]

   The subsidiaries of LJH RES operated the LJ Hooker Group’s core franchise and asset management business (Core Business). There were around 400 LJ Hooker franchise offices offering real estate agency services across Australia and New Zealand. I refer to LJH RES and its subsidiaries as the LJHRES Group.

6. [6]

   The LJ Hooker Group also operated a Technology Business, which was in the startup phase of developing a real estate digital platform. That business was conducted by LJX Pty Ltd (formerly named LJX Labs Pty Ltd) and its subsidiaries (the LJX Group).

7. [7]

   Empireal was also the holding company of LJX Holdings Pty Ltd. This entity was the borrower under a $41m facility provided by Koi Structured Credit Pte Ltd (Koi Facility). Empireal and various entities within the Technology Business, guaranteed LJX Holdings’ obligations under the Koi Facility.

8. [8]

   At around the same time that the Koi Facility was entered, Perpetual Corporate Trustee Ltd in its capacity as trustee for the ICG Australia Senior Loan Fund (ICG) entered into a facility agreement with LJH RES, pursuant to which ICG loaned around $43m to LJH RES. At the time of the restructure that is the subject of this proceeding, each of LJHRES Holdings, LJ Hooker Corporation Ltd, and various other entities in the LJHRES Group (but not Empireal) was a guarantor in respect of the ICG facility.

9. [9]

   In short, ICG was the “senior lender” to the LJ Hooker Group, taking security over the assets of entities in the LJHRES Group, whilst Koi was the “mezzanine lender”, with security over the assets of Empireal and various entities in the LJX Group.

10. [10]

    On 11 June 2020, each of Empireal, LJHRES Holdings and LJH RES was placed into voluntary administration. Subsequently, in early August 2020, the creditors of LJHRES Holdings and LJH RES voted in favour of resolutions for those entities to enter into deeds of company arrangement (DOCAs) in the form proposed by MF LJH Investment Pty Ltd. Mr Hooker was the ultimate beneficial owner of MF LJH Investment.

11. [11]

    The effect of the restructure that was implemented pursuant to the LJHRES Holdings DOCA and the LJH RES DOCA was that:

    1. (1)

       MF LJH Investment became a holding company of LJH RES and of the entities in the LJHRES Group which operated the Core Business;

    2. (2)

       Empireal was no longer a holding company of any operating entities in the LJHRES Group; and

    3. (3)

       Empireal (which remained a guarantor under the Koi Facility) continued to hold shares in LJHRES Holdings, but LJHRES Holdings no longer held any shares in LJH RES, and therefore Empireal’s shares in LJHRES Holdings were worthless.

12. [12]

    On the opening day of the hearing, Empireal was, by consent, given leave to file a Further Amended Statement of Claim dated 4 December 2025 (FASOC). Mr Hooker filed his Defence to that amended pleading on 5 December 2025.

13. [13]

    In the FASOC, Empireal alleges that Mr Hooker voted in favour of the resolutions to place Empireal, LJHRES Holdings and LJH RES into voluntary administration, and took steps to implement the restructure of the LJ Hooker Group outlined above, for the improper purpose of obtaining for himself beneficial ownership of the Core Business unencumbered by the Koi Facility, and that, by this conduct, he breached his fiduciary and statutory duties as a director of Empireal.

14. [14]

    Mr Hooker denies that he acted for any improper purpose, and maintains that, at the time he voted in favour of the resolutions to place Empireal, LJHRES Holdings and LJH RES into voluntary administration, he had genuinely formed the opinion, on rational grounds, that each of those entities was insolvent or was likely to become insolvent in the future.

Factual Background

1. [15]

   In this section of the judgment, I set out matters which are not contentious, being, for the main part either:

   1. (1)

      factual findings which Empireal sought in a document annexed to its submissions, headed “Annexure A to the Plaintiff’s Closing Submissions – Factual background”, and which were not disputed in Mr Hooker’s responsive document; or

   2. (2)

      matters which are established by the contemporaneous documentary record.

2. [16]

   Where there is a factual dispute between the parties regarding the significance of, or proper interpretation of, a particular document, or regarding the knowledge or intentions of the key participants in respect of the matters set out below, I have generally addressed any such dispute (to the extent that it is necessary in order to resolve the real issues in the proceeding), when dealing below with the various claims advanced by Empireal.

3. [17]

   At all relevant times prior to 8 August 2020, the corporate structure of the LJ Hooker Group was as follows:

4. [18]

   In short:

   1. (1)

      Empireal was a wholly owned subsidiary of Empireal Holdings Limited, and owned 100% of the shares in each of LJHRES Holdings and LJX Holdings;

   2. (2)

      LJHRES Holdings and its subsidiary, LJH RES, were the parent entities of the LJHRES Group, which operated the Core Business through LJ Hooker Corporation and its subsidiaries; and

   3. (3)

      LJX Holdings had one subsidiary, LJX Partner Office Holdings Pty Ltd. LJX Holdings did not, despite its name, own the shares in LJX and LJHA (LNS) Pty Ltd (being the entities which operated the Technology Business). Instead, each of LJX and LJHA was a subsidiary of Ausreal Pty Ltd.

5. [19]

   One feature of this corporate structure which should be noted is that the entities within the LJ Hooker Group which operated the Core Business had “LJ Hooker” in their name, while the other entities within the Group did not.

6. [20]

   At all relevant times, the board of directors of each of Empireal, LJHRES Holdings, LJH RES, LJ Hooker Ltd and LJ Hooker Corporation comprised Mr Hooker, Mr Bryan Weir and Mr Simon Heathcote.

7. [21]

   The board of directors of each of LJX Holdings and LJX comprised Mr Hooker and Mr Weir.

8. [22]

   Koi is an investment fund based in Singapore which was, until December 2020, managed by Olympus Capital Holdings Asia Pte Ltd, pursuant to an Investment Management Agreement dated 7 October 2013. (On 9 December 2020, Olympus was rebranded as Orion Credit Capital Asia Pte Ltd, however, this did not change the operation of the underlying Investment Management Agreement.)

9. [23]

   Decisions in respect of approving any loan investments, including any amendments to loans, for the Koi fund were made by the Olympus Investment Committee (Olympus IC). During the relevant period, the Olympus IC comprised, Mr Daniel Mintz, Mr Gaurav Malik, and Mr Nitish Nirbhaya Agarwal.

10. [24]

    In around August 2017, Mr Hooker was introduced to Mr Agarwal, who was at that time the Managing Director of Olympus. Mr Agarwal introduced the possibility of a mezzanine loan from Koi.

11. [25]

    On 13 December 2017, Koi and LJX Holdings entered into the Koi Facility. The transaction documents that were executed on that date in connection with the Koi Facility included:

    1. (1)

       a Subscription Agreement between LJX Holdings (as Borrower), Koi (as Agent) and Madison Pacific Trust Limited (as Security Trustee);

    2. (2)

       a Warrant and Put Call Option Deed between Koi and Empireal;

    3. (3)

       a Security Trust Deed between Koi (as Agent, Original Lender and Original Warrant Holder), LJX Holdings (as Borrower and Original Security Provider), Empireal Holdings, Empireal, LJX Partner, Hooker Capital Pte Ltd, and Ausreal (as Original Security Providers), and Madison (as Security Trustee);

    4. (4)

       the following Transaction Security Documents:

    5. (5)

       Sponsor Side Letters dated 13 December 2017 from LJX Holdings to Koi; and

    6. (6)

       a Loan Note Deed Poll dated 13 December 2017 executed by LJX Holdings.

12. [26]

    The terms of the Koi Facility included that:

    1. (1)

       Koi provided for a facility of $41.55m to be made available to LJX Holdings as follows:

    2. (2)

       Koi was entitled to interest on the facility sum, as follows:

    3. (3)

       Empireal was required to maintain a ratio of Total Debt to Group EBITDA (the “Consolidated Debt Ratio”) below the following specified ratios for each respective financial quarter (cl 19.1(a) of the Subscription Agreement):

    4. (4)

       an “Event of Default” included a circumstance in which an Obliger does not pay “any amount payable pursuant to a Finance Document” unless its failure to pay is caused by an administrative or technical error; or a Disruption Event, and payment is made within two Business Days of the due date (cl 21.1).

13. [27]

    The Koi Facility was guaranteed by each of Empireal Holdings, Empireal, Ausreal, LJX Holdings and LJX Partner. Pursuant to cl 16 of the Subscription Agreement, the guarantee given by Empireal Holdings was a limited recourse guarantee (being limited to its shares in Empireal). Further, pursuant to cl 2 of the General Security Deed, Empireal’s shares in LJH RES (but not its shares in LJHRES Holdings) were excluded from the definition of “Secured Property”.

14. [28]

    The Warrant and Put Call Option Deed gave 1,000 warrants to Koi, each of which conferred onto Koi the right to cause Empireal to issue to Koi shares equivalent to 0.00431% of Empireal’s share capital, subject to the LJ Hooker Group’s right to purchase that equity from Koi.

15. [29]

    On 14 March 2018, LJX (which was then named LJX Labs) and LJHA (which was then named LJX Sydney) acceded as “Post Whitewash Guarantors” of the Koi Facility, and the following accession documents were executed on that date:

    1. (1)

       General Security Deed between LJX and LJHA (as Grantors), and Madison (as Security Trustee);

    2. (2)

       Accession Deed between LJX and LJHA (as Acceding Parties) and Madison (as Security Trustee);

    3. (3)

       Accession Letter from Empireal, LJX and LJHA (as Additional Obligors) to Koi (as Agent);

    4. (4)

       Verification Certificate from LJX to Koi; and

    5. (5)

       Verification Certificate from LJHA to Koi.

16. [30]

    The term “whitewash” is defined in the Subscription Agreement as referring to the contemplated transfer of the shares in LJX from Ausreal to LJX Holdings.

17. [31]

    Accordingly, from 14 March 2018, the guarantors of the Koi Facility were each of Empireal Holdings, Empireal, Ausreal, LJX Holdings, LJX Partner, LJX and LJHA.

18. [32]

    None of the entities in the LJHRES Group was a guarantor of the Koi Facility.

19. [33]

    On 14 December 2017, LJH RES, as Principal Borrower, entered into a Term Syndicated Facility Agreement with ICG for the sum of $43,375,000 (ICG Facility). The ICG Facility replaced an earlier facility that had been provided by Macquarie Bank Ltd to LJH RES.

20. [34]

    The terms of the ICG Facility included that:

    1. (1)

       LJH RES must pay interest on the facility sum by reference to the aggregate of a margin of between 3.75% and 5% (depending on the Net Leverage Ratio, being the ratio of Net Debt and EBITDA at the relevant calculation date), and a BBSY Bid rate that was benchmarked against the bank bill swap rate (cl 8);

    2. (2)

       LJH RES must ensure that, as at each “Calculation Date” (being each of 31 December, 31 March, 30 June and 30 September), the ratio of Net Debt to EBITDA for the previous 12 months does not exceed a specified ratio, this ratio being, relevantly, 2.50:1 for the period from 1 January 2020 until the Maturity Date (cl 19.1(b), read with definitions of “Net Leverage Ratio”, “Calculation Date” and “Calculation Period” in cl 1.1);

    3. (3)

       LJH RES must repay all outstanding amounts, plus interest, on the “Maturity Date”, being the date three years after “Financial Close” (such that this repayment fell due in December 2020) (cl 6.1);

    4. (4)

       an Event of Default occurs if, among other things:

    5. (5)

       at any time while an Event of Default subsists, the Agent may, and must if ICG so directs, declare, by notice to LJH RES, that the Secured Money is immediately due and payable (cl 21.18).

21. [35]

    The following security documents were executed in connection with the ICG Facility (ICG Security Documents):

    1. (1)

       a Specific Security Deed between Empireal (as Grantor) and Global Loan Agency Services Australia Nominees Pty Ltd (GLAS Nominees) (as Security Trustee);

    2. (2)

       a General Security Deed between LJ Hooker New Zealand Ltd, a subsidiary of LJ Hooker Corporation (as Initial Grantor), and GLAS Nominees (as the Secured Party);

    3. (3)

       a General Security Deed between LJH RES, LJ Hooker Ltd, LJ Hooker Corporation, LJ Hooker Franchising Ltd and LJ Hooker International Operations Pty Ltd, the latter two being subsidiaries of LJ Hooker Corporation (as Grantors), and GLAS Nominees (as the Secured Party);

    4. (4)

       a Security Trust and Intercreditor Deed between LJH RES (as Principal Borrower), Empireal, LJ Hooker Corporation, LJ Hooker Franchising, LJ Hooker International, LJ Hooker Ltd, and LJ Hooker New Zealand (as Original Guarantors), GLAS Nominees (as Security Trustee), Global Loan Agency Services Australia Pty Ltd (GLAS) (as Agent), and ICG (as Original Lender);

    5. (5)

       a Specific Security Deed between Mr Weir (as Grantor) and GLAS Nominees (as Security Trustee); and

    6. (6)

       a Specific Security Deed (New Zealand) between LJ Hooker Corporation (as Grantor) and GLAS Nominees (as the Secured Party).

22. [36]

    Pursuant to the ICG Security Documents, the “Original Guarantors” were Empireal, LJ Hooker Corporation and various entities within the LJHRES Group.

23. [37]

    It was a term of the Security Trust and Intercreditor Deed that each of the Original Guarantors irrevocably and unconditionally jointly and severally undertook that whenever an Obligor (including LJH RES) does not pay any amount under or in connection with any Finance Document, the Guarantor shall immediately on demand pay that amount as if it was the principal obligor (cl 17.1).

24. [38]

    At the time of entry into the ICG Facility, Empireal held 12,507,745 ordinary shares, 12,507,746 Class H preference shares, and 27,885,020 redeemable preference shares (RP Shares) in LJH RES.

25. [39]

    It was a term of the ICG Facility that LJHRES Holdings be “interposed” between Empireal and LJH RES (cl 23.5). This required Empireal to transfer all of the shares that it held in LJH RES to LJHRES Holdings, which was established as a wholly owned subsidiary of Empireal.

26. [40]

    On or around 17 January 2018, Empireal transferred all of the ordinary shares and the Class H preference shares that it held in LJH RES to LJHRES Holdings.

27. [41]

    At this time, LJHRES Holdings executed a General Security Deed which granted security over all of its present and after-acquired property to secure the ICG Facility, and Empireal ceased to be a guarantor under the ICG Facility.

28. [42]

    Accordingly, from 17 January 2018 onwards:

    1. (1)

       the ICG Facility was secured against the property of each of LJHRES Holdings, LJH RES and certain other entities in the LJHRES Group; and

    2. (2)

       the ICG Facility was guaranteed by LJHRES Holdings, LJ Hooker Corporation, and certain other entities in the LJHRES Group (but not by Empireal).

29. [43]

    Due to an oversight, Empireal did not transfer the RP Shares to LJHRES Holdings following the establishment of that entity in January 2018. This transfer subsequently occurred on 5 June 2020, following this oversight being identified. (There was no issue raised in this proceeding regarding the June 2020 transfer of the RP Shares.) Accordingly, from 5 June 2020, all of the shares in LJH RES, including the RP Shares, were held by LJHRES Holdings.

30. [44]

    Clause 7.5 of the ICG Facility provided that upon the occurrence of “a Change of Control”, the ICG Facility “will be cancelled and all outstanding Loans, together with all accrued interest, Break Costs and all other amounts payable under the Finance Documents, shall become immediately due and payable, which such payments required to be made within five Business Days following such event”. A “Change of Control” occurred when “the Sponsor Group” ceased to own, directly or indirectly, at least 50.1% of the issued voting share capital in, or control (within the meaning of s 50AA of the Act), the Parent, or where the Parent ceased to own 100% of the issued share capital in LJH RES or, after the proposed restructure, LJHRES Holdings. Each of Mr Hooker and Mr Fuchs was named as a “Sponsor” (and therefore a member of the Sponsor Group) in the Sponsor Side Letter that was executed on the same date as the ICG Facility.

31. [45]

    As set out at paragraph [26(3)] above, the Financial Covenants under the Subscription Agreement in respect of the Koi Facility required the Total Debt to EBITDA ratio to ratchet down each financial quarter.

32. [46]

    In January 2019, Mr Hooker informed Mr Agarwal and Ms Ming Eng that it was anticipated that a breach of this covenant would occur by June 2019, because the Total Debt to EBITDA ratio was not going to ratchet down in the forthcoming financial quarters at the rate required by the Koi Facility. (Ms Eng was the deal team leader in respect of the Koi Facility, and reported to Mr Agarwal.)

33. [47]

    The Olympus IC agreed to negotiate with the LJ Hooker Group for early repayment of part of the Koi Facility through a fresh equity injection in exchange for resetting the covenant ratio levels.

34. [48]

    On 31 August 2019, the parties to the Koi Facility entered into an Amendment and Restatement Agreement in relation to the Subscription Agreement which relevantly included, amongst other things, the following terms:

    1. (1)

       LJX Holdings would repay $3.5 million to Koi by 31 December 2019 (2019 Repayment) and a further $6,217,875 by 30 June 2020; and

    2. (2)

       the ratchetting down of the Net Debt / EBITDA ratio was amended so as to enable the Group to comply with the covenant, including a change to the ratio from Total Debt / EBITDA to Net Debt / EBITDA.

35. [49]

    Each of LJX, LJHA and Madison also entered into a Deed of Release dated 31 August 2019, which released LJX and LJHA from all of their obligations and liabilities owed in connection with the Koi Facility, provided that there was an equity injection of at least $5 million into LJX after 24 July 2019 on terms that were acceptable to Koi.

36. [50]

    Also on 31 August 2019, a Subordination Deed was executed by Empireal, Ausreal, and LJ Hooker Corporation (as Subordinated Creditors), LJX (as Debtor) and Koi (as Agent). The effect of the Subordination Deed was that the debts owed by LJX to each of Empireal, Ausreal and LJ Hooker Corporation were subordinated to the debt owed to Koi.

37. [51]

    On or about 11 September 2019, Mr Hooker commenced negotiations with lWIinvestor Group Holdings Limited (IWI) in relation to a potential investment into LJX. IWI is a Māori-owned investment advisory firm in New Zealand.

38. [52]

    On 14 November 2019, IWI and LJX entered into a term sheet in relation to a proposed investment of $20m by IWI, by means of the issue of two tranches of redeemable convertible preference shares.

39. [53]

    An Olympus IC memorandum dated 16 December 2019 referred to the term sheet with IWI and identified the following matters as “Key Implications”:

40. [54]

    On 19 December 2019, IWI and LJX signed a revised term sheet, which was provided to Koi on 24 December 2019. Under the revised term sheet, it was proposed that due diligence be completed by 25 January 2020 (being the “Commitment Date”), with the subscription date being 7 February 2020.

41. [55]

    On 30 December 2019, Koi entered into an amendment letter to the Amendment and Restatement Agreement (Amendment Letter) which provided, relevantly, as follows (emphasis in original):

42. [56]

    The effect of this clause was to extend the date for the 2019 Repayment from 31 December 2019 to 10 February 2020 (being the first business day after the subscription date specified in the revised term sheet with IWI), to defer the upcoming interest payments to the same date, and to make a failure by LJX Holdings to pay such amounts by that date an Event of Default under the Koi Facility.

43. [57]

    As at 10 February 2020, IWI had not committed to subscribe for equity in LJX and, in those circumstances, LJX Holdings did not make the 2019 Repayment which fell due on that date, or pay the interest which also fell due on that date. Accordingly, from 10 February 2020 onwards, there was a subsisting Event of Default under the Koi Facility.

44. [58]

    On 10 February 2020, Mr Hooker sent an email to Mr Agarwal which enclosed a further revised Term Sheet that Mr Hooker had been negotiating with IWI. Mr Hooker advised Mr Agarwal that he expected IWI to sign this further revised Term Sheet “shortly”, but that the commitment date from IWI had been “pushed back” to 18 February 2020, with the funding date “shortly thereafter”.

45. [59]

    On 19 February 2020, Ms Eng sent an email to Mr Wilson Leung of Madison, stating that Koi “would like to connect with Borrelli Walsh to discuss a potential deal in Australia and are looking to speak with someone there who is very experienced in acting as a receiver in Australia”. Mr Agarwal agreed in cross-examination that Koi was at this time looking to be in a position to appoint receivers to entities in the LJ Hooker Group, if the Olympus IC decided to go ahead and do so.

46. [60]

    Also on 19 February 2020, a further revised IWI Term Sheet was signed by each of IWI and LJX, which stipulated a subscription amount of $20m, a commitment date on or before 31 March 2020, and a subscription date of 31 March 2020.

47. [61]

    On 21 February 2020, this further revised term sheet was provided to Koi. An Olympus IC memorandum of that date recorded that, in addition to LJX Holdings failing to make the 2019 Repayment of $3.5m and to pay $764,613 in interest that was also due on 10 February 2020, “the Net Debt/EBITDA was 6.19x, and hence the Company was in breach of the December covenant of 6x”. The Olympus IC referred to the revised IWI term sheet, noting that, should the proposed investment eventuate, that would “help in de-risking our Facility”, and stated that: “Should the proposed transaction not materialize, we will have to be prepared to look at a full/partial divestment of the Group, either working in cooperation with the Borrower or via an enforcement action.” The Olympus IC memorandum concluded as follows (emphasis added):

48. [62]

    It is plain from this document that, as at 21 February 2020, the Olympus IC was not intending to waive the Event of Default which had arisen upon the failure by LJX Holdings to make the 2019 Repayment by the (extended) due date of 10 February 2020, and was planning to take enforcement action at short notice, based upon that existing Event of Default, if it became apparent that the proposed IWI investment was unlikely.

49. [63]

    Mr Agarwal agreed, in cross-examination, that “the decision not to formally waive or extend the 10 February [2020] deadline was a deliberate decision” by the Olympus IC, in order “to allow Koi to move immediately if it wanted to with an event of default”.

50. [64]

    On 5 March 2020, Mr Agarwal sent an email to Mr Hooker and to Mr Weir in which he stated as follows (emphasis added):

51. [65]

    Later that evening, Ms Eng sent an email to Mr Weir and Mr Heathcote, requesting certain financial information in respect of LJH RES and LJX, so that it could be provided to the Olympus IC. Mr Heathcote responded to that request, on behalf of the board of Empireal, on 12 March 2020 (see below).

52. [66]

    In March 2020, cases of COVID-19 were increasing in Australia. The first major lockdowns in response to the pandemic commenced in that month.

53. [67]

    On 12 March 2020, Mr Heathcote sent Mr Agarwal and Ms Eng a document entitled “COVID-19 LJ Hooker Olympus Analysis – March 2020”. This document included statements that:

    1. (1)

       it was “still too early to understand the full ramifications that the COVID-19 outbreak will have on Australian households, businesses and economy”;

    2. (2)

       the Australian economy was “well-placed leading into the COVID-19 outbreak”, and the Australian property markets were “head[ing] into this crisis on solid footing”; and

    3. (3)

       the LJ Hooker Group “should [fare] relatively well in the [COVID-19] crisis”, including because of the strength of its brand and its “resilient operating model” with “high operating margins”.

54. [68]

    On 19 March 2020, Mr Hooker sent an email to Mr Agarwal and Ms Eng, in which he extracted a number of news articles, and stated that it “[s]ounds like the RBA is cooking up a big bailout plan for SMEs akin to the UK” and that this would “likely be positive for our business and the franchise network”.

55. [69]

    In around mid-March 2020, in response to the developing COVID-19 pandemic:

    1. (1)

       the Australian Government announced a $17.6 billion economic support package; and

    2. (2)

       the Australian Taxation Office (ATO) announced a range of measures to help individuals and businesses manage their tax liabilities during the pandemic.

56. [70]

    Around this time, ICG also requested information from the LJ Hooker Group regarding the impact of the COVID-19 pandemic.

57. [71]

    On 16 March 2020, Mr Vincent Ling of ICG sent an email to Mr Heathcote, to which Mr Hooker was copied, which stated that ICG was doing a “deep dive into our investment portfolio to better understand how each companies are placed in these times of uncertainty”, and requested that Mr Heathcote provide information in response to a number of questions in order to “understand how we can be best prepared to be supportive of the company”.

58. [72]

    Mr Heathcote responded to Mr Ling’s queries on 20 March 2020. In particular, he stated, in response to ICG’s request for “an update of Covid-19 exposure across the franchisee network”, that attendance at open homes and auction clearance rates remained strong, and that “head office [was] providing guidance to the network including reiterating the governments advice and ensuring the network have the ability to continue to have capacity to sell property and continue with property management”. He added that: “We are expecting the virus to impact, however, no one really knows the extent of that downturn”.

59. [73]

    On 25 March 2020, after new restrictions were imposed in respect of real estate auctions and open house inspections, Mr Ling emailed Mr Heathcote seeking to schedule a telephone conversation with the LJ Hooker Group management to discuss business operations as a result of those restrictions, the impact on the rental book, the liquidity position and the mezzanine debt position (being the position in respect of the Koi Facility), adding that ICG wanted “to understand how we can be best prepared to be supportive of the company”.

60. [74]

    On 6 April 2020, Koi sent a “Notice of Outstanding Payments” and an “Interest Notification” to Empireal. The Notice of Outstanding Payments referred to various payments which were outstanding, including the 2019 Repayment in the amount of $3.5m, and a number of interest payments totalling more than $1.64m. The Notice of Outstanding Payments stated that interest was continuing to accrue on these outstanding amounts, and further stated as follows:

61. [75]

    An Olympus IC memorandum dated 16 April 2020 provided the following update in relation to the LJ Hooker Group and the Koi Facility (emphasis added):

62. [76]

    When taken to this document in cross-examination, Mr Agarwal agreed that, by this time, “Koi was actively preparing for the enforcement of its security”. He explained that the downgrade in ratings to “OCAC 5” indicated that the Koi Facility was now regarded as “below par”.

63. [77]

    On 21 April 2020, Mr Weir sent Mr Hooker an email with the subject line “LJ Hooker Group”, in which Mr Weir provided his “summary of a possible plan”. Mr Weir suggested that, if it “looks okay” to Mr Hooker, it be sent “on to G+T [Gilbert + Tobin] for their sign-off”. Mr Weir commenced by noting that LJH RES owned the entities which operated the Core Business; that LJH RES owed ICG approximately $38m; that ICG had “recently written its loan down to $30 million”; and that Koi had “no security over LJHRES or any of its group assets”. Mr Weir then set out the following proposal, noting that it “assume[d] ICG prior consent and co-operation”:

64. [78]

    On 24 April 2020, Mr Hooker sent an email to Mr Michael Fuchs with the subject line “for your eyes only – LJ Hooker”, stating that this email was provided by way of “background” for a planned “chat Friday afternoon NYC [New York] time” (the “For Your Eyes Only” Email).

65. [79]

    At this time, Mr Fuchs (who is the co-founder of a real estate investment and development company based in New York City, RFR Holdings LLC) held, through MF LJH LLC, in excess of 3m ordinary shares in Empireal Holdings.

66. [80]

    The “For Your Eyes Only” Email was the subject of detailed submissions by both parties. It is accordingly necessary to set out its contents at some length, focussing on those passages which were the subject of cross-examination and oral address (emphasis added):

67. [81]

    Several drafts of the “For Your Eyes Only” Email (or of parts thereof) were exchanged between Mr Hooker and Mr Weir before the email was sent to Mr Fuchs. At the bottom of one of those drafts, Mr Hooker inserted the following question: “Based on this why would Michael Fuchs pay anything for it. Future value?????”.

68. [82]

    On around 27 April 2020, the LJ Hooker Group engaged KPMG, through Gilbert + Tobin, to provide a report which became known as the “Project Cork Report”. Each of Mr Heathcote and Mr Hooker had input into the preparation of the Report, after a “discussion draft” was circulated to each of them by KPMG on 29 April 2020.

69. [83]

    On 30 April 2020, Mr Hooker sent an email to KPMG, requesting an “abbreviated version of the [Project Cork Report] in draft” in advance of a telephone call with Koi at 3pm the following day, and indicating that he “would like to review before the call…so we have time to edit if needed”.

70. [84]

    On 1 May 2020 at 12:56pm, KPMG sent a further draft of the Project Cork Report to each of Mr Hooker, Mr Heathcote and Mr Weir, asking “which specific slides you would like extracted” prior to the document being provided to Koi.

71. [85]

    On the same day at 2:35pm, Mr Hooker sent to Mr Agarwal and Ms Eng a document described as “Project Cork - Draft report excerpts 01.05.20 for Olympus”. It would have been apparent to Koi, from this description, that this document represented a selection of the slides from the full version of the Project Cork Report.

72. [86]

    Mr Agarwal acknowledged in cross-examination that he reviewed “very carefully” the excerpts from the Project Cork Report which were provided to him, which were stated as being prepared for “Restructuring Advisory Assistance”. These included:

    1. (1)

       a slide setting out “key issues” facing the group. The issues which were designated as of “High” importance included:

    2. (2)

       a slide headed “Financial position – review comments” which explained that KPMG had assessed the current financial position of each of the LJX Group and the LJHRES Group, and had prepared a “high level estimated outcome statement” on a “low case” (which assumed that the assets of each group are realised on a forced sale basis in the course of a voluntary administration) and on a “high case” (which assumed that assets of each group are realised on a going concern basis through voluntary administration”). This slide also noted that KPMG had undertaken “a high level review of cash flow forecasts for the LJX Group and the [LJH]RES Group provided by Management for FY2020 to FY2022”;

    3. (3)

       a number of slides headed “Financial position – estimated outcome” which indicated that:

    4. (4)

       two slides providing an “overview” of “High level activities” in a voluntary administration (the content of which was generic, and not specific to the LJHRES Group or the LJX Group); and

    5. (5)

       a slide headed “Options – indicative pricing”, which set out “a high level indicative professional cost estimate for a consensual restructure, as well as separate voluntary administrations for LJX Group and [LJH]RES Group (with and without concurrent receivership appointments)”.

73. [87]

    Mr Agarwal agreed, in cross-examination, that it was plain from the document that KPMG was being asked to consider, at this time, the voluntary administration of each of the LJX Group and the LJHRES Group.

74. [88]

    The slides which were omitted from the version of the Project Cork Report that was provided to Koi were as follows:

    1. (1)

       a slide setting out the “Scope Items” to be undertaken by KPMG pursuant to their Engagement Letter, which included:

    2. (2)

       a slide headed “Options – suggested steps” which proposed, in the first instance, that the Group “request further time from secured creditors” (namely, ICG and Koi) to “[r]eforecast for the impact of COVID-19” and to “[a]ssess options for injection of equity”. This slide proposed that an assessment be undertaken of “the likely return to each lender under an orderly VA, to inform options for each lender” and proposed presenting to each lender “a bespoke solution which may include some combination of: Deferment of obligations; Debt-to-equity conversion; Debt haircut or debt sale at discount”. This slide also stated that “[b]ased on our high level review of the Group’s financial position, the preferred option is a consensual solution”;

    3. (3)

       a further slide which was also headed “Options – suggested steps” and which set out a “decision tree” in relation to “the high level options”, and noted that the “response from each lender will determine next steps regarding restructure options including a potential Voluntary Administration over some or all of the entities within the LJX Group or RES Group (or both)”. The “decision tree” was as follows:

    4. (4)

       slides showing the “standard timeline” and “strategy” for a possible voluntary administration, including an analysis of the benefits and disadvantages of a potential voluntary administration to the LJ Hooker Group. The “strategy” slide set out the following “Disadvantages” of appointing voluntary administrators “over some or all of the entities”:

    5. (5)

       This slide concluded that, having regard to the above matters, “it is preferable that consensual restructure options are explored prior to the consideration of a Voluntary Administration.”

75. [89]

    On 3 May 2020, Mr Hooker sent an email to Mr Weir with the subject line “X File” (“X File” Email). This email was a focus of Empireal’s case and its text was the subject of detailed submissions. It is set out in full below (emphasis added):

76. [90]

    Empireal submitted that the “X File” Email, when read with the “For Your Eyes Only” Email, revealed a plan, orchestrated by Mr Hooker, to “confect a story that each of Empireal, LJHRES Holdings and LJH RES was insolvent so that Koi would accept a nominal amount by way of repayment on its Loan”. I address these matters below when dealing with Empireal’s claims against Mr Hooker.

77. [91]

    On 5 May 2020, IWI decided not to proceed with their proposed investment into the LJ Hooker Group. Mr Hooker forwarded IWI’s correspondence to Mr Agarwal and Ms Eng on the evening of 5 May 2020 and stated he will be “busy tonight with London and New York to get some shareholder support for LJX” (this likely being a reference to Mr Fuchs).

78. [92]

    On 6 May 2020, a telephone call occurred between Mr Agarwal and Mr Hooker, during which Mr Hooker informed Mr Agarwal that Mr Fuchs was considering investing in the LJ Hooker Group.

79. [93]

    In the following days, Mr Agarwal and Mr Hooker exchanged a number of WhatsApp messages in relation to Mr Fuchs’ potential investment in the LJ Hooker Group. In particular, on 8 May 2020, the following exchange took place:

80. [94]

    On 11 May 2020, another telephone call took place, this time between Mr Agarwal, Ms Eng, Mr Weir and Mr Hooker. In this call, Mr Agarwal put forward what was referred to in submissions as a “delinking” proposal. In his evidence, Mr Agarwal described the “delinking” proposal in the following terms:

81. [95]

    Mr Hooker recalled that Mr Agarwal proposed, around this time, “delinking some of the LJX entities” and that, although they had discussions “about a couple of structures”, “his delinking one was sort of the best outcome that he could come up with”.

82. [96]

    On 13 May 2020, at 1:45pm and 2:04pm respectively, Mr Peter Bowden, a partner at Gilbert + Tobin (the solicitors for the LJ Hooker Group), sent two versions of an email with the subject line “LJX – Empireal” to Mr Hooker, copied to Mr Weir.

83. [97]

    Other than some insignificant differences in line and paragraph breaks, the only substantive difference between the two emails concerned a single statement regarding the effect of an insolvency event in respect of any of the LJX entities on the Koi Facility. I have shown this change below by italicising the portion of the 1:45pm email which was removed in the 2:04pm email, and setting out in bold the corresponding statement that was inserted in the 2:04pm version (for ease of reading, I have adopted the line and paragraph breaks in the 2:04pm version):

84. [98]

    As set out above, the 1:45pm version of the email stated that an insolvency event in respect of the LJX entities would trigger a default, which would entitle Koi to issue a notice to Empireal, accelerating all outstanding amounts under the Koi Facility and demanding payment under the Empireal guarantee, while the 2:04pm version stated that such a default “would enliven the payment obligation under the Empireal guarantee” (without any reference to the issue of a notice or demand).

85. [99]

    On the same day at 3:12pm, Mr Hooker forwarded to Mr Agarwal, copied to Mr Weir, the 2:04pm version of the email from Gilbert + Tobin, stating: “As discussed please see the formal advice from G&T below”. (The reference to a “discussion” appears to be a reference to a video call between Mr Hooker and Mr Agarwal that was arranged for 2pm on 13 May 2020 – that is, around the time that the second version of the email from Mr Bowden was sent to Mr Hooker.)

86. [100]

    There was extensive cross-examination of Mr Hooker regarding the circumstances in which there came to be two versions of this email. I address below the parties’ submissions on this issue.

87. [101]

    In his email to Mr Agarwal which forwarded the 2:04pm version of the Gilbert + Tobin advice, Mr Hooker referred to a planned telephone call later that evening between Mr Agarwal, Mr Weir and Mr Fuchs: “Good luck tonight, Bryan [Weir] will introduce you both, Michael [Fuchs] will likely start talking, and Bryan will jump in to help the discussion if needed”. It is apparent from the terms of Mr Hooker’s email, that prior to this time, Mr Fuchs had not spoken directly to Mr Agarwal.

88. [102]

    This call took place, as planned, later on the same day. Mr Hooker did not participate in the call. Mr Agarwal gave the following unchallenged evidence regarding his discussion with Mr Fuchs (emphasis added):

89. [103]

    Shortly after that call, Mr Hooker sent a WhatsApp message to Mr Agarwal which thanked Mr Agarwal for speaking with Mr Fuchs and stated that Mr Weir had reported that “the call was positive and you came across well”. Mr Hooker also indicated in the WhatsApp message that he planned to contact Mr Fuchs the following day.

90. [104]

    On the same day as the discussion between Mr Agarwal and Mr Fuchs, Ms Eng of Koi sent an email to Mr Borrelli of Borrelli Walsh, asking him to conduct a conflict check and seeking to arrange a call with him. Mr Agarwal agreed in cross-examination that these requests were made as “part of the preparation” for the enforcement of Koi’s security.

91. [105]

    On around 17 May 2020, Mr Agarwal proposed to Mr Hooker that Koi and the LJ Hooker Group undertake a consensual sale of the whole of the LJ Hooker business (that is, both the Core Business and the Technology Business).

92. [106]

    Mr Agarwal gave the following unchallenged evidence regarding this “consensual sale” proposal:

93. [107]

    On 18 May 2020 at 10:09pm, Mr Bowden sent an email to Mr Hooker and Mr Weir, setting out Gilbert + Tobin’s advice on the question “whether … it would be open to the directors to entertain the Olympus proposal or whether doing so would put them at risk of breaching their duties” (18 May Advice). This email stated as follows:

94. [108]

    Empireal submitted that Mr Bowden’s advice was given on the basis of an instruction that “the directors of LJX had received an offer of financial support from Michael Fuchs”, and that this instruction was incorrect, with the result that the 18 May Advice was of little consequence. I address this issue below when dealing with Empireal’s claims regarding the directors’ decision to place Empireal, LJHRES Holdings and LJH RES into voluntary administration.

95. [109]

    Mr Hooker forwarded Mr Bowden’s advice to Mr Agarwal at 9:47am on 19 May 2020, following a video call between them that morning. Mr Agarwal responded as follows: “We had a good talk today morning. Together we can overcome the situation…”.

96. [110]

    On the following day, 20 May 2020, Ms Eng sent an email to the members of the Olympus IC which stated that Koi had “reached out to a few restructuring and insolvency firms in anticipation of potential enforcement actions on Project Landmark [that is, the LJ Hooker Group]”. Ms Eng attached an engagement letter for Borrelli Walsh and noted that, upon engagement, this firm would “complete a work plan” and would “get … up to speed on the transaction, propose the next steps for [Koi] to consider and be ready to act within short notice as required”. Ms Eng noted that these steps would cost around $20,000 to $25,000, and stated as follows: “Given the fast-moving situation and the various stakeholders’ involvement in the deal, we would recommend engaging BW [Borrelli Walsh] and request them to start with the review and work plan as soon as possible.” Ms Eng requested that the Olympus IC members provide their sign-off for the engagement of Borrelli Walsh.

97. [111]

    Mr Agarwal acknowledged, when taken to this email in cross-examination, that Koi was actively preparing for enforcement of its security at this time, and that there was a sense of urgency about being ready to enforce.

98. [112]

    On Sunday, 24 May 2020, Mr Hooker sent an email to Mr Bowden and Mr Robert Trowbridge, another partner at Gilbert + Tobin, and to Mr Weir, requesting a telephone call for 4pm that day. Mr Hooker stated that Mr Trowbridge was required on the call “as what we are going to make a Decision on has serious implications”. The meeting took place at 4:05pm that afternoon.

99. [113]

    Mr Hooker arranged a further telephone call at 8pm on the same day with Mr Bowden and with Mr Ryan Eagle of KPMG. In arranging this call, Mr Hooker indicated that he wanted to arrange this call “so I can speak to London” (Mr Hooker gave evidence that “London” was a reference to Mr Fuchs.)

100. [114]

     It appears that the planned discussion with Mr Fuchs went ahead. At around 10:56pm on the same evening, Mr Hooker sent an email to Mr Trowbridge and Mr Bowden which stated as follows:

101. [115]

     In cross examination, Mr Hooker gave the following evidence in respect of this email:

102. [116]

     It is likely that the “green light” was Mr Fuchs’ approval to commence negotiations with ICG regarding a proposed restructure of the LJ Hooker Group. In the 24 May 2020 email which contains the reference to a “green light”, Mr Hooker refers to a plan to “regroup in the morning before hitting up ICG”. It is common ground that, by 25 May 2020 (that is, the day after the “green light” email), Mr Hooker had commenced negotiations with ICG in respect of a possible restructuring support deed (FASOC [35], Defence at [35]).

103. [117]

     On 25 May 2020, Mr Hooker sent an email to Mr Bowden, Mr Trowbridge and Mr Weir, attaching a PowerPoint presentation titled “Restructure Steps 1 + 2”. This presentation included the following slides:

104. [118]

     Although these slides are labelled “Step 1” and “Step 2”, they show two distinct options for restructuring the LJ Hooker Group, rather than two steps which were to be implemented as part of the one restructuring option.

105. [119]

     The first slide labelled “Step 1” depicts a restructure in which a company associated with Mr Fuchs and Mr Hooker becomes the holding company of LJH RES, and thereby gains ownership of the Core Business. As part of this restructure, it was proposed that an amount of $5m be paid to ICG in return for its agreement to reset the loan terms, with the balance of the ICG Facility reducing from $38m to $33m.

106. [120]

     The second slide labelled “Step 2” depicts a restructure in which an entity associated with Mr Fuchs (shown as “MF Financing”) becomes the holding company of Ausreal and thereby gains ownership of the Technology Business. As part of this restructure, it was proposed that Ausreal buy LJH RES (and thereby obtain ownership of the Core Business) for a sum that was to be determined.

107. [121]

     Each of the first and second slides show a large red “X” through Empireal Holdings and its subsidiaries. The subsidiaries of Empireal Holdings included Empireal and LJHRES Holdings. (A later version of this document which was circulated by Mr Hooker included a key showing that the red “X” meant that the entities in question were “liquidated”.)

108. [122]

     The “Step 2” slide refers to a payment being made to Koi, in an amount to be determined: “Ausreal pays Olympus $x m, in return for dropping the guarantee from LJX and retiring their loan”. There is no corresponding statement on the “Step 1” slide.

109. [123]

     The LJ Hooker Group did not proceed with the restructuring option shown on the “Step 2” slide. In an email sent late on the evening of 24 May 2020 (that is, after the various phone calls between Mr Hooker and the Group’s advisors), Mr Trowbridge informed Mr Hooker that Ausreal’s liability to Koi was not limited to the shares held by Ausreal in LJX and, accordingly, even after Koi had exhausted its security over those shares (and related rights) in LJX, Koi would still be able to pursue Ausreal for the balance of the loan. Mr Trowbridge advised: “In light of the above, I favour the acquisition structure where the purchaser [of the Core Business] is not Ausreal or its subsidiaries”.

110. [124]

     On 26 May 2020, Mr Hooker sent an email to Mr Bowden and Mr Trowbridge which enclosed a revised version of the “Restructure Steps” PowerPoint presentation and a Word document titled “Steps Involved for Restructure of LJHRES Group 26 May 2020”. In his email, Mr Hooker stated as follows (emphasis added):

111. [125]

     The revised Restructure Steps presentation again set out a proposed “Step 1” and “Step 2” (again, being distinct options). This version of the presentation included a slide which indicated that, in respect of the “Step 2” option, it was intended that there be a negotiation with Koi, with the following offer being put:

112. [126]

     The Word document referred to in Mr Hooker’s email, which was headed “Steps Involved for LJHRES Group”, set out a number of steps “to be done before any Administration”, as follows:

     1. (1)

        “Confirm Structure Details”;

     2. (2)

        “Incorporate Bidco” (with it being noted that this entity would be “100% owned by Janusz [Mr Hooker] (Australian resident therefore no FIRB [Foreign Investment Review Board])” and that Mr Fuchs, who was not an Australian resident, “can be a director”);

     3. (3)

        “Set up MF [Mr Fuchs’] funding” (with queries as to whether this would be “a convertible loan with conversion subject to FIRB approval” or a “straight loan” and, if so, whether it would be secured over Mr Hooker’s shares);

     4. (4)

        “Set up ICG Arrangements” (with “Draft Loan Amendment documents to be prepared”);

     5. (5)

        “Set up Bidco Offer” (with there being reference to the need to “[c]onfirm Bidco is purchasing LJHRES shares from LJHRES Holdings for $5.0 million, with ICG debt and security remaining in place”);

     6. (6)

        “Communications Plan” (including consideration being given to a “Press Release” and “Messaging to Olympus [Koi]”); and

     7. (7)

        “Timetable” (that is, “Prepare timetable for implementation”).

113. [127]

     On 27 May 2020, at around 4:30pm, Mr Hooker sent a further version of the PowerPoint presentation, which stated, in respect of LJH RES, that the “Janusz Hooker & Michael Fuchs Bid Co” would acquire 100% of the shares held by LJHRES Holdings in LJH RES for $1.

114. [128]

     Later that evening, at 9:31pm, Mr Hooker sent “updated restructure charts” to Mr Bowden and Mr Trowbridge, and to Mr Mark O’Reilly of PricewaterhouseCoopers (PwC). These charts distinguished between the proposed restructure of the LJHRES Group and the proposed restructure of the LJX Group, as follows:

115. [129]

     The proposed restructure of the LJHRES Group in this PowerPoint presentation involved:

     1. (1)

        Mr Fuchs providing $5m to the holding company of the BidCo;

     2. (2)

        the BidCo (which was to be an entity associated with Mr Hooker and Mr Fuchs) becoming the owner of 100% of the shares in LJH RES, by purchasing all of LJHRES Holdings’ shares in LJH RES for $1, and LJH RES issuing $5m of new shares to BidCo; and

     3. (3)

        the amount of $5m then being paid by LJH RES to Olympus.

116. [130]

     The green shading of the box relating to LJHRES indicated that it was proposed that the purchase of LJH RES’s shares by BidCo occur at a time when LJH RES was in voluntary administration. Further, the use of green boxes and red crosses in both of these slides indicated that it was proposed that each of Empireal Holdings, Empireal, LJHRES Holdings and LJX Holdings be placed into voluntary administration and then into liquidation.

117. [131]

     This version of the presentation also indicated that an amount to be determined (“$Xm”) was to be advanced by Mr Fuchs to Ausreal by way of convertible notes, with this amount being loaned by Ausreal to LJX and paid, via LJX Holdings, to Koi “to extinguish 100% of loan”.

118. [132]

     Also on the evening of 27 May 2020, Mr Hooker sent a WhatsApp message to Mr Agarwal, which stated as follows:

119. [133]

     On 1 June 2020 at around 4:30pm, Mr Trowbridge emailed a document headed “Project Cork – Timetable and Implementation Checklist” to Mr Hooker and Mr Weir, noting that the attached document “does not address LJX (though that process will be similar to Project Cork, so we can roll out a similar checklist in short order)”.

120. [134]

     The attached document referred to a restructure of the LJHRES Group involving:

121. [135]

     The company described as “BidCo” (namely, L.J. Hooker Investments Pty Limited) was wholly owned by Mr Hooker. On 5 June 2020, another entity was incorporated, L.J. Hooker Holdings Pty Ltd, which was also wholly owned by Mr Hooker, and which was to fulfil the role of the “HoldCo” referred to in this document.

122. [136]

     The document presented two options. Option 1 was described as a “consensual restructure”, and Option 2 was described as “restructure via voluntary administration”. Both options resulted in BidCo acquiring all the shares in LJH RES for $1. The “consent” involved in Option 1 was the consent of ICG, rather than Koi. It was noted, in respect of Option 1, that the purchase by BidCo was dependent on “ICG consent to Proposed Transaction (including agreed ICG term sheet)”. Option 2 commenced with voluntary administrators being appointed to each of Empireal, LJHRES Holdings and LJH RES by their respective boards (which is what in fact subsequently occurred). Neither Option 1 nor Option 2 referred to any amount being paid to either Empireal or Koi.

123. [137]

     As noted above, this document was addressing the restructure of the LJHRES Group, not the restructure of LJX Group. On 1 June 2020 at 7:05pm, Mr Hooker sent an email to Mr Trowbridge and Mr Weir, describing the document prepared by Gilbert + Tobin as “solid”, and stating as follows (emphasis added):

124. [138]

     As set out in paragraph [126] above, three of the steps which Mr Hooker had identified as being required “to be done before any Administration” were as follows:

     1. (1)

        “Set up MF [Mr Fuchs’] funding” (including the terms of any convertible notes);

     2. (2)

        “Set up ICG Arrangements” (with “Draft Loan Amendment documents to be prepared”); and

     3. (3)

        a “Communications Plan” (including consideration being given to a “Press Release”).

125. [139]

     Steps were taken in relation to each of these matters in early June 2020.

126. [140]

     On 1 June 2020, Mr Weir and Mr Trowbridge provided comments to Mr Hooker on a draft Convertible Note Agreement, which was to be provided to Mr Fuchs. A further draft was circulated on the following day.

127. [141]

     On 2 June 2020, Mr Hooker sent a text message to Mr Weir, which stated as follows:

128. [142]

     On 2 June 2020, Mr Trowbridge sent to ICG and its solicitors, Allens, a first draft of an offer letter and term sheet by which ICG would give its consent to the proposed restructuring transaction, whereby L.J. Hooker Investments would purchase all of the shares in LJH RES from LJHRES Holdings and would, immediately upon acquisition, subscribe for further shares in LJH RES, with the subscription moneys being paid to ICG.

129. [143]

     On 3 June 2020, Gilbert + Tobin sent Mr Hooker and Mr Weir a draft letter of offer which was addressed to Mr Eagle of KPMG as administrator of LJHRES Holdings and LJH RES, and which made a binding offer for L.J. Hooker Investments to acquire all of the shares in LJH RES for $1.00, and to subscribe for 5m ordinary shares in LJH RES for $5m, for the purposes of effecting a repayment of $5m in respect of the ICG Facility. Gilbert + Tobin noted that “this document is subject to ICG and its lawyers review”. (A version of this draft letter was sent by Gilbert + Tobin to Allens on the following day.)

130. [144]

     Also on 3 June 2020, Mr Hooker sent an email to Ms Sarah Dickson, with the subject line “PR”. Ms Dickson was the head of public relations and marketing at the LJ Hooker Group. Mr Hooker’s email stated as follows (emphasis added):

131. [145]

     On 3 June 2020, Mr Hooker sent a text message to Mr Weir stating as follows: “Bryan so go into VA at 10am give OLYMPUS until 4pm the next day to respond”.

132. [146]

     On 5 June 2020, Allens sent to Gilbert + Tobin a draft of the proposed amended terms for the ICG Facility following the restructure. Further drafts were circulated over the following days.

133. [147]

     Also on 5 June 2020, Allens sent Gilbert + Tobin a draft Restructuring Support Deed. The parties to this agreement were ICG and L.J. Hooker Investments (that is, BidCo).

134. [148]

     On 7 June 2020 at 11:04am, Gilbert + Tobin provided a marked-up version of this draft to Mr Weir, Mr Hooker and Mr Heathcote for their review, prior to the document being sent to Allens. Clause 4 of this draft was headed “Support for the Restructuring” and provided as follows (in the clean version, with Gilbert + Tobin’s mark-up incorporated and underlined):

135. [149]

     Mr Hooker responded at 11:59am on the same day, with the following request: “Can we expand [clause] 4c so its exclusive to bid co… would not want to set this up and someone else walks into our position”. Mr Bowden responded as follows later that afternoon:

136. [150]

     Mr Hooker responded soon afterwards confirming that the proposed amended form of cl 4(c) should be inserted. This change was made and the revised draft was then sent to Allens. The form of cl 4(c) that was approved by Mr Hooker was incorporated into the executed form of the Restructuring Support Deed.

137. [151]

     On 8 June 2020, approval was given by ICG’s investment committee for the planned restructure of the LJ Hooker Group. Mr Hooker sent a text message to Mr Weir at 8:23pm that day, informing him of this approval, as follows: “Icg just got Ic approval – one step closer”.

138. [152]

     On the morning of 10 June 2020, there was a series of meetings of the board of directors of each of Empireal, LJHRES Holdings, LJH RES, LJX and LJX Holdings. These meetings were also attended by Mr Bowden.

139. [153]

     At those meetings, resolutions were passed in the following terms (VA Resolutions) in respect of each of Empireal, LJHRES Holdings, LJH RES, LJX and LJX Holdings:

140. [154]

     The only document tabled at each meeting was the consent of the relevant KPMG personnel to act as administrators of the relevant entities.

141. [155]

     According to the respective minutes of those meetings, which were signed by Mr Hooker, each meeting took place by telephone, and was around two minutes in duration, as follows:

     1. (1)

        the meeting of the board of Empireal (Mr Hooker, Mr Weir and Mr Heathcote) was held at 8.50am;

     2. (2)

        the meeting of the board of LJHRES Holdings (Mr Hooker, Mr Weir and Mr Heathcote) was held at 8:52am;

     3. (3)

        the meeting of the board of LJH RES (Mr Hooker, Mr Weir and Mr Heathcote) was held at 8:54am;

     4. (4)

        the meeting of the board of LJX (Mr Hooker and Mr Weir) was held at 8:56am; and

     5. (5)

        the meeting of the board of LJX Holdings (Mr Hooker and Mr Weir) was held at 8:58am.

142. [156]

     The VA Resolutions in respect of each company record, as set out above, that the directors were of the opinion that the company was, or was likely to become, insolvent, “due to the reasons discussed at the meeting”.

143. [157]

     At 1:38pm on the same day, Mr Hooker sent Mr Weir an email with the subject line “Reasons for VA”. The body of this email commenced with the statement “Reasons of putting the various entities into VA for minutes” and proceeded to set out various matters grouped under three headings “Empireal, LJX Holdings & LJHRES Holdings into VA”, “LJHRES into VA” and “LJX into VA”. At 1:58pm, Mr Weir forwarded this email to Mr Bowden, stating as follows:

144. [158]

     Several further drafts of this statement of “Reasons for VA” were exchanged between Mr Weir, Mr Hooker and Mr Heathcote on 11 and 12 June 2020. Mr Hooker, in sending the penultimate version to his fellow directors, Mr Heathcote and Mr Weir, on 12 June 2020 at 12:16pm, made the following request: “Please read and verify you[’re] happy with this, as they are board minute details people will go over later.” Mr Hooker was plainly aware that the basis on which the directors formed their opinion as to insolvency and passed the VA Resolutions was likely to be closely scrutinised.

145. [159]

     This document (which I will refer to as the “Reasons” Document) commenced with a “General Overview of Financial Position – both LJX and LJHRES Groups” that referred to three main matters.

     1. (1)

        The first was the inability of LJX Holdings to pay the 2019 Repayment, or the outstanding interest that was payable to Koi pursuant to the Koi Facility. The total amount said to be due and payable to Koi was around $5m. It was further stated that “LJX Holdings has no way of remedying its failure” to pay the amounts due to Koi, or the amounts which it owed to LJH RES.

     2. (2)

        The second was the failure of the proposed IWI capital raising. It was stated that, after IWI pulled out, the prospect of raising replacement capital was limited by the impact of the COVID-19 pandemic.

     3. (3)

        The third was the reduction in LJH RES’s EBITDA. This was said to be a consequence of the impacts of COVID-19 (with “ongoing deterioration in franchise fees”), additional employee expenses, and the likely need to impair the amounts recorded in LJH RES’s accounts as owing by LJX. It was noted that, as a result, there was a default in respect of the leverage ratios specified in each of the ICG Facility and the Koi Facility, and “there is no prospect of refinancing”.

146. [160]

     Approximately two hours later, Mr Heathcote sent a revised version of the “Reasons” Document with changes marked up. This version of the “Reasons” Document was sent by Mr Weir to Gilbert + Tobin on 12 June 2020 at 2:34pm.

147. [161]

     In that revised version of the “Reasons” Document, the following comments are set out in respect of each of the five entities that was the subject of the VA Resolutions on 10 June 2020 (with the tracked changes by Mr Heathcote, as set out below):

148. [162]

     There was a dispute between the parties as to whether the matters in the “Reasons” Document represented the “genuine” reasons of Mr Hooker and his fellow directors for the passing of the VA Resolutions. This issue is addressed below, when dealing with Empireal’s claims regarding those resolutions.

149. [163]

     On 10 June 2020, shortly after the VA Resolutions were passed, Mr Hooker and Mr Weir had a telephone call with Mr Agarwal.

150. [164]

     This telephone call was recorded by Mr Agarwal. Both the recording and a transcript of the recording were in evidence.

151. [165]

     There was no evidence that Mr Agarwal informed Mr Hooker and Mr Weir that the call was being recorded, or obtained their consent to this occurring. Senior Counsel for Mr Hooker did not submit that this conduct by Mr Agarwal, who was located in Singapore at the time of the call, contravened any law, but did submit that Mr Agarwal’s conduct was “underhanded”. Empireal also made credit submissions against Mr Hooker based on this telephone call, alleging that he made a number of knowingly false statements. In this section of the reasons for judgment, I set out the key elements of the conversation that were the focus of the parties’ submissions. I deal separately below with the issue of whether particular statements in that conversation were false or misleading, and the parties’ respective submissions on credit.

152. [166]

     At the commencement of the telephone call, Mr Weir informed Mr Agarwal that administrators were being appointed to Empireal, LJHRES Holdings, LJH RES, LJX Holdings and LJX. Mr Hooker stated that no appointments were being made to any companies which included the “Hooker” name, “because … we think we can minimise the PR and brand damage if they don’t have the Hooker name in it”.

153. [167]

     Mr Hooker and Mr Weir then made the following statements regarding the circumstances which had led to the appointment of administrators:

154. [168]

     Mr Hooker then made statements to Mr Agarwal that this was “not the outcome that I wanted”, and that “[h]opefully I can salvage something”.

155. [169]

     Mr Agarwal responded that, on the appointment of administrators, Koi would have “no choice but to appoint a receiver”, and queried whether ICG would also appoint a receiver, which would lead to matters then taking “a different route altogether”.

156. [170]

     Mr Agarwal then referred to the “consensual sale” proposal which he had previously raised with Mr Hooker:

157. [171]

     Mr Weir responded that there were “issues” with this proposal “which we haven’t been able to deal with”, and that “there comes a point where as directors we have to face reality and that’s where we’re at”.

158. [172]

     Mr Agarwal also raised once again the option of “de-linking” (which had been raised by him in the previous month, see [94] above), such that only the LJX Group was placed into voluntary administration:

159. [173]

     Mr Weir responded that “the advice we’ve got” on the “de-linking” proposal “is pretty clear, unfortunately”.

160. [174]

     Mr Agarwal urged that there be another discussion with Gilbert + Tobin to see whether, by making some change to the guarantees or security providers, it would be possible to “de-link the … two sub-groups” (namely, the LJX Group and the LJHRES Group) such that only one sub-group enters voluntary administration, with the other continuing “without impacting the directors’ liability”. Mr Weir responded that ICG would likely have a view on this proposal because there was “a whole lot of … revenue that they realise at the moment, which will disappear” (upon the LJX Group entering administration) and “they know that”. Mr Agarwal stated that, if ICG determined that there was an event of default under the ICG Facility, then the directors could put the LJHRES Group into voluntary administration at that point in time, but otherwise it “should be possible to at least let those companies continue”.

161. [175]

     Mr Agarwal added that: “We have not accelerated, and unless ICG accelerates, then I think it should be okay. If ICG accelerates then obviously you can put it to VA at that point in time”. This led to the following exchange:

162. [176]

     Mr Hooker agreed to “make some phone calls”.

163. [177]

     At 1:34pm on the same day, Mr Agarwal sent Mr Hooker a text message asking when Koi could have a telephone call with Gilbert + Tobin, and stating that: “We may be able to save Empireal and the other two companies [LJHRES Holdings and LJH RES] from VA by removing LJX companies from our structure”. This was apparently a reference to the “de-linking” proposal that he had raised in their earlier telephone call (see paragraph [172] above).

164. [178]

     Later that afternoon, Mr Hooker sent a text message and an email to Mr Agarwal, stating that he had spoken to Mr Fuchs “re your suggestion” and asking Mr Agarwal to telephone him.

165. [179]

     There was another telephone conversation between Mr Hooker and Mr Agarwal on 10 June 2020, in which a further proposal was made by Mr Agarwal. Mr Hooker summarised this proposal in an email which he sent to Mr Agarwal at 9:30pm, following their discussion:

166. [180]

     Mr Agarwal responded at 9:56pm, confirming that Mr Hooker’s understanding of the offer was correct, and stating that:

167. [181]

     Mr Hooker forwarded Mr Agarwal’s email to Mr Fuchs shortly afterwards, commenting as follows:

168. [182]

     On 11 June 2020, L.J. Hooker Investments and ICG entered into the Restructuring Support Deed. Mr Hooker executed this document on behalf of L.J. Hooker Investments. The document was entered prior to administrators being appointed to Empireal, LJHRES Holdings, LJH RES, LJX Holdings and LJX, which occurred later on the same day.

169. [183]

     Clause 1.1 of the Restructuring Support Deed defined the “Restructuring” as including “the transfer by LJHRES Holdings of all shares held by it in [LJH RES] to [L.J. Hooker Investments]”.

170. [184]

     Pursuant to cl 3.1(c), the parties agreed that the Restructuring was to be implemented by L.J. Hooker Investments submitting, within 7 days of the appointment of administrators to LJH RES and LJHRES Holdings, a letter of offer for the Restructuring to the administrators, including the proposed DOCA terms; and by ICG agreeing to vote in favour of the DOCA proposal at the second creditors’ meetings of LJHRES Holdings and LJH RES.

171. [185]

     Clause 4(c) of the Restructuring Support Deed was in the form that had been proposed by Gilbert + Tobin, on Mr Hooker’s instructions (see paragraphs [149]-[150] above), and provided that ICG would not vote for or commit to any alternative restructuring which was inconsistent with the Deed or the attached DOCA term sheet, or which was proposed by any entity other than L.J. Hooker Investments.

172. [186]

     Clause 5(a) of the Restructuring Support Deed provided that ICG was only permitted to assign, or transfer, or create any trust of, its rights, title, interest or benefits in the Secured Debt (being the funds advanced pursuant to the ICG Facility) or in the Restructuring Support Deed in favour of any person, if that person “delivers to [L.J. Hooker Investments] a counterpart of the Restructuring Accession Deed by which it agrees to accede to [the Restructuring Support Deed], which is duly executed by [ICG] and the acquirer”.

173. [187]

     Schedule 1 to the Restructuring Support Deed comprised a term sheet for L.J. Hooker Investments’ DOCA proposal. It was a term of the DOCA proposal that any claims which LJHRES Holdings had against its directors or former directors or any of its subsidiaries would be “released, discharged and extinguished”. The DOCA term sheet attached another term sheet setting out amendments to the ICG Facility (which, among other things, had the effect of removing the financial covenant which required there to be a specified ratio of Net Debt to EBITDA).

174. [188]

     Later on 11 June 2020, Mr Hooker and Mr Weir signed instruments of appointment of administrators, thereby appointing Mr Eagle, Mr Phil Quinlan and Ms Amanda Coneyworth of KPMG as Administrators of each of Empireal, LJHRES Holdings, LJH RES, LJX Holdings and LJX (Appointment Entities). At 1:42pm, Mr Eagle sent an email to Mr Agarwal, notifying him of the Administrators’ appointment.

175. [189]

     On 11 June 2020 at 3:12pm, Mr Hooker sent, as director of Ausreal, an offer to the Administrators to pay Koi an amount of $2 million (which, Mr Hooker noted, Mr Fuchs had agreed to fund) on condition that Koi:

176. [190]

     Mr Hooker stated that: “For the avoidance of doubt, it is not intended that the obligations of LJX Holdings and Empireal Limited under the [Koi Facility] be affected by these arrangements”. Mr Hooker further noted that, if Koi were to accept the offer by 12pm on the following day, then Mr Fuchs would be prepared to provide funding to enable LJX to pay the wages due to its employees on that day.

177. [191]

     The Administrators forwarded Ausreal’s offer to Mr Agarwal for Koi’s consideration.

178. [192]

     On 11 June 2020 at 8:25pm, Mr Hooker sent an email to Mr Agarwal in which he confirmed that ICG did not intend to appoint a receiver following the Administrators’ appointment.

179. [193]

     On 11 June 2020 at 11:47pm, Koi sent a Notice of Default and Demand for Payment to LJX Holdings (which was the borrower under the Koi Facility); and at 11:50pm, Koi issued a Notice of Demand to each of the Guarantors under the Koi Facility (including Empireal Holdings, Empireal and LJX). Those notices demanded that the borrower and guarantors render the immediate payment of the amount outstanding under the Koi Facility, the total amount of such moneys being some $56.163m.

180. [194]

     On 12 June 2020, Mr Hooker sent, on behalf of L.J. Hooker Investments, an offer to the Administrators of LJHRES Holdings and of LJH RES. The elements of the offer included (consistently with the terms of the Restructuring Support Deed) that L.J. Hooker Investments would acquire all of the shares in LJH RES that were held by LJHRES Holdings for $1.00; that L.J. Hooker Investments would subscribe for 5m shares in LJH RES at a subscription price of $1.00 each, with the subscription proceeds of $5m being paid to ICG; and that ICG would release LJHRES Holdings in full from its obligations under the ICG Facility. This offer annexed the proposed terms of the DOCA in order to give effect to this restructuring arrangement (L.J. Hooker Investments DOCA Proposal).

181. [195]

     On 15 June 2020, the Administrators sent their first circular to creditors of the Appointment Entities. The first meetings of creditors were scheduled for 23 June 2020 at 11:00am. The circular also noted that the second meetings of creditors would be held on or before 16 July 2020, unless this date was extended by the Court.

182. [196]

     On 19 June 2020, Baker McKenzie issued a notice of the appointment of Receivers and Managers to the assets of LJX Holdings, Empireal Holdings, Empireal, LJHA, Ausreal, Hooker Capital, and Mr Hooker, pursuant to the securities granted in connection with the Koi Facility (see paragraph [25(4)] above). Mr Borelli was one of the Receivers so appointed.

183. [197]

     On 22 June 2020, Baker McKenzie sent to the Administrators (a) proofs of debt lodged by Koi in the administrations of each of Empireal, LJX Holdings, and LJX, and (b) a proof of debt lodged by the Receivers of Empireal in the administration of LJH RES. On the same day, the Administrators’ solicitors, Gadens, responded by letter to Baker McKenzie, stating that the Administrators’ preliminary view was that the proof of debt lodged by the Receivers of Empireal in the administration of LJH RES should not be admitted for voting purposes. Gadens explained that, according to the Administrators’ investigations, there was no intercompany loan from Empireal to LJH RES, and that the asserted amount claimed in respect of such a loan ($27.855m) in fact related to Empireal having subscribed for 27,855,020 RP Shares in LJH RES on 13 December 2017 (see paragraphs [38]-[39] above). Gadens noted that the RP Shares were “in the nature of equity, and not debt”.

184. [198]

     On 23 June 2020, the first meetings of creditors of the Appointment Entities were held. The minutes record that Mr Eagle stated that “the directors’ reason for the Companies’ failure was due to undercapitalisation and poor economic conditions”, and noted that the Administrators had received the L.J. Hooker Investments DOCA Proposal. Mr Borrelli asked whether the Administrators had received any other expressions of interest in addition to the L.J. Hooker Investments DOCA Proposal, and Mr Eagle responded that that the Administrators had received a few expressions of interest from “financial parties” and “a competitor of the Companies”.

185. [199]

     On 22 June 2020, the following entities were incorporated:

     1. (1)

        MF LJH (Nominees) Pty Ltd;

     2. (2)

        MF LJH Holdings Pty Ltd; and

     3. (3)

        MF LJH Investment.

186. [200]

     At all times since its incorporation, MF LJH Nominees has had one share on issue, which has been held by Mr Mark Langan. It is common ground that, since 23 June 2020, this share has been held on trust for Mr Hooker.

187. [201]

     MF LJH Nominees holds all of the issued shares in MF LJH Holdings. As at 20 June 2020, MF LJH Holdings held all of the shares in MF LJH Investment. (As noted below, another entity, MF LJH MidCo Pty Ltd, was subsequently interposed between MF LJH Holdings and MF LJH Investment.)

188. [202]

     The directors of each of MF LJH Holdings and MF LJH Investment have been, since 29 June 2020, Mr Hooker and Mr Fuchs.

189. [203]

     On 22 June 2020, Mr Hooker sent an email to Mr Trowbridge and Mr Bowden, informing them of the incorporation of these entities, and describing MF LJH Holdings as the “updated holdco” and MF LJH Investment as the “updated … bidco” for the purposes of the proposed restructuring of the LJ Hooker Group.

190. [204]

     A Deed of Amendment and Novation was prepared, and was subsequently executed by ICG, L.J. Hooker Investments and MF LJH Investment on 1 July 2020. The effect of this deed was that MF LJH Investment assumed all of the rights and obligations of L.J. Hooker Investments under the Restructuring Support Deed, which otherwise remained fully effective.

191. [205]

     On 25 June 2020, MF Australia Capital LLC was incorporated in Delaware, United States.

192. [206]

     On 29 June 2020, Mr Hooker sent an email to Mr Richard Froom of RFR Holdings LLC (this being Mr Fuchs’ company, see paragraph [79] above), attaching the “key bid documents” which were for “MF [Mr Fuchs] to sign”. Mr Hooker provided the following commentary on these documents (emphasis added):

193. [207]

     On 30 June 2020 at 11:54pm, Gilbert + Tobin sent to the Administrators an offer from MF LJH Investment, which attached a DOCA Term Sheet signed by Mr Fuchs and Mr Hooker (MF LJH Investment DOCA Proposal). Other than the fact that MF LJH Investment had been substituted for L.J. Hooker Investments, the offer was substantially the same as previously made in the L.J. Hooker Investments DOCA Proposal.

194. [208]

     Also on 30 June 2020, Koi submitted its first DOCA proposal in respect of Empireal, LJHRES Holdings and LJH RES. Koi’s proposal involved a special purpose vehicle (BidCo) providing a contribution sufficient to pay the secured and unsecured creditors of LJHRES Holdings and LJH RES in full, and the unsecured creditors of Empireal in full, with BidCo acquiring the shares in LJHRES Holdings.

195. [209]

     On 2 July 2020 at 8:05pm, Mr Hooker sent an email to Mr Michael Astarita of RFR Holdings LLC, stating as follows (emphasis added):

196. [210]

     On 2 July 2020, a Convertible Loan Agreement was executed by MF Australia Capital (as Lender) and by MF LJH Holdings (as Borrower). The “Background” section of this document stated that MF Australia Capital had agreed to make a cash advance to MF LJH Holdings, “in consideration for which [MF LJH Holdings] has agreed (at [MF Australia Capital’s] option) to repay the amount owing under this agreement with interest or to convert such amount into convertible preference shares in [MF LJH Holdings]”. The Convertible Loan Agreement provided for MF Australia Capital to make, on certain conditions, two advances of $5m each. The first was to be used to subscribe for $5m of new shares in LJH RES, and the second was to be used “in supporting the capital restructure of the broader LJ Hooker Group”. MF LJH Holdings agreed that, on the Repayment Date (namely, 30 June 2022), it would repay the amounts advanced, plus interest on those amounts from the date of the advances, plus a “Repayment Premium” of $7m.

197. [211]

     Clause 6 of the Convertible Loan Agreement provided as follows:

198. [212]

     The Conversion Formula and Exercise Price were set out in an Annexure to the Convertible Loan Agreement. Clauses 4(b) and 5(b) provided that interest and the Repayment Premium were not payable in the event that the Principal Amount was converted to CP Shares in accordance with cl 6.

199. [213]

     On the same day as the Convertible Loan Agreement was executed, Mr Fuchs signed a side letter dated 30 June 2020 which was sent to him by Mr Hooker (Side Letter). The Side Letter “set out arrangements between [Mr Fuchs and Mr Hooker] which are not reflected in the [Convertible Loan Agreement] or documented elsewhere”. In particular, it provided, among other things, that:

     1. (1)

        regardless of the Conversion Formula set out in the Convertible Loan Agreement, if MF Australia Capital exercised its conversion rights under the Convertible Loan Agreement, it would be issued the number of Series A CP Shares which would result in MF Australia Capital owning 49.9% of the voting shares in MF LJH Holdings;

     2. (2)

        Mr Hooker would own the other 50.1% of the voting shares in MF LJH Holdings; and

     3. (3)

        in respect of any potential additional funding required:

200. [214]

     On 3 July 2020, the Administrators issued their report in respect of LJH RES and LJHRES Holdings. The Report stated as follows:

201. [215]

     On 6 July 2020, Mr Agarwal sent an email to several ICG personnel, informing them that Koi had “the approvals and the funds to fully buy out ICG debt at LJH”, and could “complete the transaction this week”. Mr Agarwal sought an opportunity to “discuss this further”.

202. [216]

     On 7 July 2020, Koi’s solicitors, Baker McKenzie, sent a follow-up email to ICG’s solicitors, repeating the statements made in Mr Agarwal’s email and requesting ICG’s response to “Koi’s proposal to purchase the senior loan”. Allens responded on the following day, stating as follows:

203. [217]

     This correspondence was forwarded to Mr Agarwal, who stated in email correspondence sent on 8 July 2020 that Koi should “disengage with ICG”, expressing frustration that “ICG and the family [that is, Mr Hooker] have been acting in concert on a scheme that will take away the value from the mezz[anine] lenders” and that the voluntary administration process was “a farce with a pre-determined outcome”. On 9 July 2020, Baker McKenzie informed Allens that Koi was not interested in discussing the purchase of ICG’s debt on terms which would require it to support the MF LJH Investment DOCA Proposal.

204. [218]

     On 9 July 2020, the Administrators issued their report in respect of Empireal and LJX Holdings. The report described these two companies as “holding entities which did not trade any business”.

205. [219]

     On 12 July 2020, the Receivers of Empireal submitted a formal proof of debt in the administrations of each of LJH RES and LJHRES Holdings. Each of the proofs claimed that an amount of $39.83m was payable to Empireal, comprising an amount of $27.855m that was loaned to LJH RES, together with interest (and allowing for certain adjustments). The proof lodged in respect of LJHRES Holdings appeared to claim that this amount was payable by way of equitable compensation, by reason of LJHRES Holdings’ involvement in the transfer of 27.855m RP Shares in LJH RES from Empireal to LJHRES Holdings on 5 June 2020, which was said to have occurred in breach of the duties owed to Empireal by its directors. (It should be noted that, in the present proceeding, there is no contention that there was any wrongdoing involved in the transfer of these shares to LJHRES Holdings on 5 June 2020.)

206. [220]

     On 13 July 2020, Gadens sent a letter to Baker McKenzie which:

     1. (1)

        rejected Empireal’s proof of debt in the administration of LJH RES, insofar as it was based on the asserted existence of an intercompany loan, for the reasons given in the letter of 22 June 2020 (see paragraph [197] above); and

     2. (2)

        provided a response to the claim that the transfer of the RP Shares to LJHRES Holdings involved a breach of director’s duties, and indicated that the Administrators intended to mark Empireal’s proof of debt in the administration of LJHRES Holdings as objected to, and to permit Empireal to vote for $1 for voting purposes.

207. [221]

     On 13 July 2020, the second meetings of creditors in relation to LJH RES and LJHRES Holdings were adjourned. On 14 July 2020, Gadens sent an email to Gilbert + Tobin, which stated that the Administrators intended to issue a supplementary report to creditors on 17 July 2020 outlining the DOCA proposals that had been received, and that the parties’ final and best proposals would be due for submission by 5pm on 16 July 2020.

208. [222]

     On 16 July 2020, Koi submitted a revised DOCA Proposal in respect of Empireal, LJHRES Holdings and LJH RES (Revised Koi DOCA Proposal). This proposal involved, among other things, around $40m being contributed to repay the debt owing under the ICG Facility of some $37.975m, with the balance being used to pay the Administrators’ costs and to discharge debts owed to the ATO. On the same day, Koi provided a letter to the Administrators which stated that it currently had some US$26.675m cash available to be used for investments and that it had the ability to call for additional capital to increase the available cash amount to US$28m (being approximately A$40m).

209. [223]

     On 16 July 2020, the second meetings of creditors in relation to Empireal, LJX and LJX Holdings were again adjourned.

210. [224]

     On 20 July 2020, MF LJH MidCo Pty Ltd was incorporated with Mr Fuchs and Mr Graeme Hyde as its directors, and with Mr Weir holding the sole issued share. (MF LJH Holdings subsequently became the holder of 99.99% of the issued shares in that entity, with Mr Weir continuing to hold one share.)

211. [225]

     On 22 July 2020, Koi sent a further letter to the Administrators in respect of the funding of the Revised Koi DOCA Proposal , which again stated that there was available cash at bank of US$26.67m, but now stated that Koi had the ability to call capital to increase this amount to US$32.15m (or approximately A$45.275m).

212. [226]

     On 24 July 2020, MF LJH Investment submitted its “final offer” to the Administrators of LJHRES Holdings and LJH RES, together with a DOCA Term Sheet. This version proposed, as had previous versions, that MF LJH Investment would acquire the shares in LJH RES held by LJHRES Holdings for $1.00, and would subscribe for 5m shares in LJH RES at $1.00, with the subscription moneys being paid in respect of the ICG Facility. In addition, this version of the offer involved MF LJH Investment making available a $30m equity commitment for the purposes of funding expenses and liabilities of the LJ Hooker Group. This offer attached a Letter of Support from Mr Fuchs confirming that he would provide the financial and commercial support necessary to enable MF LJH Investment to meet its obligations under the offer. The materials provided with the revised offer indicated that MF LJH MidCo was to be interposed between MF LJH Holdings and MF LJH Investment, such that MF LJH Holdings held 100% of the voting shares in MF LJH MidCo, other than a single share held by Mr Weir, with MF LJH MidCo holding 100% of the voting shares in MF LJH Investment.

213. [227]

     On 27 July 2020, the Administrators issued a supplementary report in the administration of Empireal, LJHRES Holdings and LJH RES. In this supplementary report, the Administrators recommended that the creditors of each entity resolve that those three companies should execute the Revised Koi DOCA Proposal “as it yields the most favourable return to creditors as a whole”, having regard to:

     1. (1)

        the “certainty, quantum and timing of payment of claims owing to ICG and the ATO” (with each being paid in full under the Revised Koi DOCA Proposal);

     2. (2)

        the “proposal addressing the creditors of all three Companies” (that is, dealing with the creditors of Empireal, as well as those of LJHRES Holdings and LJH RES); and

     3. (3)

        the proposal “providing a better outcome for creditors than if the Companies were liquidated”.

214. [228]

     On 27 July 2020, the Administrators issued a notice advising that the second meetings of creditors of Empireal, LJHRES Holdings and LJH RES would resume on 4 August 2020. On the same day, Koi submitted the final version of its DOCA proposal (Final Koi DOCA Proposal).

215. [229]

     On 4 August 2020, MF LJH Investment submitted the final version of its DOCA proposal to the Administrators of LJHRES Holdings and LJH RES (Final MF LJH DOCA Proposal). This version:

     1. (1)

        increased the amount of shares in LJH RES for which MF LJH Investment would subscribe from 5m to 10m, with the $10m subscription proceeds to be applied in respect of the ICG Facility; and

     2. (2)

        included a promise to procure, post Completion, that Koi, Empireal and certain other entities would be granted an option to acquire a 10% equity interest in MF LJH MidCo, which would confer a right to participate in dividends and capital distributions paid by MF LJH MidCo to its shareholders up to an amount not exceeding $36m.

216. [230]

     Also on 4 August 2020, Koi withdrew the Final Koi DOCA Proposal, and submitted a holding DOCA proposal in relation to Empireal. No reason was stated in the correspondence for this change of course.

217. [231]

     The second meetings of creditors of LJHRES Holdings, LJH RES and Empireal resumed at 11:00am on 4 August 2020. At these meetings, the creditors of each of LJHRES Holdings and LJH RES voted in favour of resolutions that those entities execute DOCAs in the terms proposed by the Final MF LJH DOCA Proposal.

218. [232]

     It was a term of the Final MF LJH DOCA Proposal that the steps to be taken in order to implement the proposed restructure of the LJ Hooker Group included that:

219. [233]

     On 8 August 2020, each of the LJH RES DOCA and the LJHRES Holdings DOCA was executed.

220. [234]

     Clause 5.1(a)-(b) of the LJHRES Holdings DOCA provided as follows:

221. [235]

     The “Transaction Documents” which the directors of LJHRES Holdings (including Mr Hooker) were authorised, by cl 5.1(b), to execute were defined as including “the RPS Redemption Documents”. The terms “RPS” and “RPS Redemption Documents” were defined as follows:

222. [236]

     Clause 2.3(a)(i) of the LJHRES Holdings DOCA provided that it was a condition precedent of Completion that the Deed Administrators receive written confirmation that each Transaction Document (and, therefore, each of the RPS Redemption Documents) had been duly executed.

223. [237]

     There were similar provisions in the LJH RES DOCA: see cll 1.1 (definitions of “RPS”, “RPS Redemption Documents” and “Transaction Documents”), 2.3(a) and 5.1(a)-(b).

224. [238]

     On the same day as these DOCAs were executed:

     1. (1)

        Mr Hooker, as director of LJH RES, executed a “Redemption Notice – Redeemable Preference Shares” addressed to LJHRES Holdings, whereby LJH RES:

     2. (2)

        Mr Hooker and Mr Weir executed a deed poll entitled “Consent to amendment and waiver of RPS Terms” which provided that LJHRES Holdings gave “consent to the redemption of the Redeemable Preference Shares on the Proposed Redemption Terms”, being the redemption of the RP Shares by LJH RES, on less than 5 Business Days’ notice, for an aggregate amount of $1.00 (RP Shares Consent Deed);

     3. (3)

        Mr Hooker and Mr Weir attended, by telephone, a meeting of the directors of LJHRES Holdings, at which they resolved to ratify the amendment of the terms of the RP Shares so as to permit the redemption of the RP Shares in LJH RES for $1.00 (RP Shares Resolution); and

     4. (4)

        Mr Hooker and Mr Weir attended, by telephone, a meeting of the directors of LJH RES, at which they resolved to ratify the amendment of the terms of the RP Shares, to redeem the RP Shares for $1.00, and to issue one ordinary share to LJHRES Holdings for $1.00 in consideration of the redemption.

225. [239]

     The share register of LJH RES records that the redemption of the RP Shares occurred on 8 August 2020.

226. [240]

     As a consequence of the restructure which was implemented after the LJH RES DOCA and the LJHRES Holdings DOCA were executed, the LJ Hooker Group structure was as follows:

227. [241]

     On 22 September 2021, MF Australia Capital (as Lender) and MF LJH Holdings (as Borrower) entered into a Loan & Equity Purchase Option Agreement (2021 Option Agreement).

228. [242]

     Clause 6 of the 2021 Option Agreement provided that, subject to cl 7 (which is addressed below), MF LJH Holdings granted to MF Australia Capital an option to purchase 99 ordinary shares in MF LJH Holdings for $1.00, on certain terms and conditions.

229. [243]

     Clause 7 imposed what was described as the “FIRB Condition” which was, in short, that any necessary regulatory approvals under the Foreign Acquisitions and Takeovers Act 1975 (Cth) be obtained in relation to the acquisition of shares in MF LJH Holdings by MF Australia Capital. Clause 7(d) provided that:

230. [244]

     The option given under the 2021 Option Agreement has not been exercised to date. (As noted below, there was a dispute between the parties as to whether it is capable of being exercised.)

231. [245]

     On 24 July 2023, Empireal commenced this proceeding against Mr Hooker.

Overview of Empireal’s claims

1. [246]

   In broad terms, Empireal’s claims against Mr Hooker relate to three main steps in the restructuring of the LJ Hooker Group:

   1. (1)

      first, the passing of the VA Resolutions in respect of Empireal, LJHRES Holdings and LJH RES on 10 June 2020 (in which Mr Hooker joined as a director of each of those entities);

   2. (2)

      secondly, the execution of the Restructuring Support Deed on 11 June 2020 (which Mr Hooker signed as the director of L.J. Hooker Investments); and

   3. (3)

      thirdly, the steps taken to cause the redemption of the RP Shares on 8 August 2020, including the RP Shares Consent Deed (which Mr Hooker signed as a director of LJHRES Holdings) and the RP Shares Resolution (in which Mr Hooker joined as a director of LJHRES Holdings).

2. [247]

   In respect of the VA Resolutions, Empireal submitted that Mr Hooker voted in favour of those resolutions “despite the fact that none of [Empireal, LJHRES Holdings or LJH RES] were insolvent or nearing insolvency as at 10 June 2020”, and that the “purported reasons given in support of his decision to vote in favour of placing the companies into administration were false”. Empireal submitted that the true reason why Mr Hooker voted in favour of the VA Resolutions was “to permit the restructure of the LJ Hooker Group, so as to give Mr Hooker beneficial ownership of the Group unencumbered by the Koi debt”.

3. [248]

   In respect of the Restructuring Support Deed, Empireal submitted that the effect of this Deed was to prohibit ICG from supporting a DOCA propounded by any person other than L.J. Hooker Investments (of which Mr Hooker was sole shareholder) and to require ICG to support the L.J. Hooker Investments DOCA Proposal, such that no other DOCA would be successful.

4. [249]

   In respect of the RP Shares, Empireal submitted that Mr Hooker “caused LJHRES Holdings to consent to the redemption of some 27 million [RP Shares] it held in LJH RES for $1, and to ratify an amendment to the terms of the RP Shares to permit such redemption, thus paving the way for the restructure to proceed”.

5. [250]

   Empireal submitted that Mr Hooker had a personal interest in each of these steps, and that each of these steps was contrary to Empireal’s interests. In particular, Empireal submitted that these steps involved Empireal “being placed into voluntary administration when it was not insolvent or nearing insolvency, which inevitably triggered a demand being sent to Empireal by Koi” in respect of the Koi Facility. This demand was said to have resulted in Empireal becoming insolvent, and to have caused it to suffer loss. Further, Empireal submitted that:

6. [251]

   Empireal alleged that, by reason of those matters, Mr Hooker had breached his fiduciary duties to Empireal. The remedies sought by Empireal included an account of profits, or alternatively equitable compensation, or alternatively a constructive trust over the sole share in MF LJH Nominees (which is beneficially owned by Mr Hooker).

7. [252]

   In addition, Empireal alleged that Mr Hooker’s conduct breached the duties which he owed Empireal pursuant to ss 181 and 182 of the Act (and his equivalent general law duties) “because he acted for an improper purpose, and contrary to the best interests of Empireal and otherwise than in good faith”. In respect of the statutory contraventions, Empireal sought relief under s 1317H of the Act.

8. [253]

   Mr Hooker denied any such breaches of duty. In particular, he denied that he voted in favour of the VA Resolutions for any dishonest or improper purpose, and submitted that, at the time of those resolutions, Empireal and the other Appointment Entities were insolvent or likely to become insolvent in the future. Further, he denied that he owed any duties to Empireal when taking steps as a director of other entities, such as executing the Restructuring Support Deed on behalf of L.J. Hooker Investments, or taking steps on behalf of LJHRES Holdings to effect the redemption of the RP Shares.

Relevant Principles

1. [254]

   In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 103; [1984] HCA 64, Mason J observed as follows (emphasis added):

2. [255]

   To similar effect, Gaudron and McHugh JJ observed in Breen v Williams (1996) 186 CLR 71 at 113; [1996] HCA 57 that:

3. [256]

   In Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165; [2001] HCA 31, McHugh, Gummow, Hayne and Callinan JJ quoted (at [74]) the above passage in Breen with approval, and continued (at [78]) as follows:

4. [257]

   In Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557-558; [1995] HCA 18, the High Court observed as follows (citations omitted, emphasis added):

5. [258]

   In Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43 at [68]-[69], Gageler J (as his Honour then was) summarised these principles regarding the “conflict rule” and the “profit rule” as follows (citations omitted):

6. [259]

   As set out above, the conflict rule and the profit rule direct attention to the fiduciary’s duties and position. The obligation to account for a benefit received by the fiduciary depends either on the benefit having been obtained in circumstances where there was a conflict between fiduciary duty and interest (or a significant possibility of such conflict); or on the benefit having been obtained by use of the fiduciary position (or by the use of some opportunity or knowledge arising from that position).

7. [260]

   It is necessary, when determining the scope of fiduciary obligations in a particular case, to have regard to the specific circumstances of that case. In Hospital Products at 102, Mason J observed that the “scope of the fiduciary duty must be moulded according to the nature of the relationship and the facts of the case”. In Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 at [34], French CJ and Keane J referred to the principle that:

8. [261]

   As the Court of Appeal explained in Anderson v Canaccord Genuity Financial Ltd (2023) 113 NSWLR 151; [2023] NSWCA 294 at [152], the “scope” of fiduciary obligations refers to the scope, or subject matter, of the area within which the fiduciary is not free to act self-interestedly (citing Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384 at 407 per Dixon J; [1929] HCA 24).

9. [262]

   In Anderson v Canaccord at [158], the Court of Appeal referred with approval to the following passage in Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [179] (Finn, Stone and Perram JJ):

10. [263]

    In Breen at 82, Brennan CJ referred to Dixon J’s judgment in Birtchnell in observing that:

11. [264]

    Similarly, in Blythe v Northwood (2005) 63 NSWLR 531; [2005] NSWCA 221 at [194], Mason P (with Giles JA agreeing) observed that: “[t]he fiduciary is not accountable for profits derived outside the scope of the relationship or required, outside that scope, to prefer the principal's interests over those of the fiduciary”. In addition, Bryson JA said (at [211]) that:

12. [265]

    Empireal relied on the observation by Edelman J in Agricultural Land Management Ltd v Jackson (No 2) (2014) 48 WAR 1; [2014] WASC 102 at [266] that the conflict rule, when concerned with conflicts between duty and personal interest, is not limited to situations in which a fiduciary actually prefers his or her personal interest, but extends to situations involving a potential for personal interest to be preferred (or a potential for breach of duty to one principal where conflicting duties are owed to different principals).

13. [266]

    In response, Mr Hooker relied on Black J’s statement in Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789 at [360] that “the rule against conflict of interest prohibits a fiduciary acting in a manner inconsistent with that rule, rather than simply occupying a position of conflict or potential conflict”.

14. [267]

    As Empireal noted, the Full Court of the Federal Court (Markovic, Banks-Smith and Anderson JJ) in Hylepin Pty Ltd v Doshay Pty Ltd (2021) 288 FCR 104; [2021] FCAFC 201 considered Agricultural Land Management and Colorado Products, and concluded (at [47]-[51]) that Edelman J’s approach in Agricultural Land Management reflected the orthodox view. However, their Honours emphasised (at [51]) that:

15. [268]

    In stating that it was “necessary to consider the situation in which the conflict is said to arise”, their Honours referred to various authorities, including Hospital Products at 102, Grimaldi at [179] and Howard at [34] (each of which has been referred to above).

16. [269]

    In Australian Securities and Investments Commission v Jones [2023] WASCA 130 (ASIC v Jones), the Western Australian Court of Appeal (Buss P, Mitchell and Beech JJA) referred (at [187]) to the decision in Hylepin, and the comments there made regarding the decisions in Agricultural Land Management and Colorado Products. Their Honours observed (at [188]) that the differences between the formulations in those two decisions “may be less than sometimes suggested”, stating that:

17. [270]

    Their Honours continued as follows (at [188]-[192], emphasis added):

18. [271]

    Similarly, in Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd [2016] NSWCA 347 at [132], Sackville AJA (with Bathurst CJ and Meagher JA agreeing) stated that there must be at least a real, or a substantial possibility of a conflict, before a director can be said to be in breach of his or her fiduciary duties. His Honour added that the test for whether there is a real and substantial possibility of a conflict between a director’s personal interests and his or her duties as a director is objective; it is to be determined from the standpoint of an objective observer, with knowledge of all the material facts and circumstances (and see also the additional comments of Bathurst CJ at [3]-[4]).

19. [272]

    In Australian Careers Institute at [137], Sackville AJA also observed that in assessing the circumstances of a case, it is important to bear in mind the protective rationale for the imposition of fiduciary duties. His Honour noted that in Chan v Zacharia (1984) 154 CLR 178 at 198–199; [1984] HCA 36, Deane J discerned two distinct themes in the “fundamental rule” that a fiduciary is not permitted to put himself or herself in a position where duty and interest conflict (emphasis added):

20. [273]

    Pursuant to s 181(1)(b) of the Act, Mr Hooker was obliged to exercise his powers, and discharge his duties, as a director of Empireal for a proper purpose. He owed Empireal substantively the same duty at general law.

21. [274]

    Each of the parties referred to and relied upon the following summary of the relevant principles by Ipp J (with whom Malcolm CJ and Seaman J agreed) in Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 at 218:

22. [275]

    In order to establish a breach, the starting point is to identify the relevant power in question. It is then necessary to determine the purpose for which the power was exercised and then assess whether that identified purpose was proper: VicBeef Holdings Pty Ltd v Chen [2021] VSC 546 at [118] (M Osborne J).

23. [276]

    In Australian Securities and Investments Commission v iSignthis Ltd [2024] FCA 669 at [591], McEvoy J observed that the purpose of conduct is the end sought to be achieved, and not the reason for seeking that end, referring to Australian Securities and Investments Commission v Mitchell (No 2) [2020] FCA 1098 at [1524], and News Ltd v South Sydney District Rugby League Football Club Ltd (2003) 215 CLR 563; [2003] HCA 45 at [18] (Gleeson CJ).

24. [277]

    Section 181(1)(b) has a subjective element, namely, the existence of a purpose being pursued by the director: Sunnya Pty Ltd v He [2025] NSWCA 79 at [24] per Basten AJA (with whom Bell CJ and Leeming JA agreed). Often that element will be derived from surrounding circumstances, which may contradict a director’s statement as to his or her subjective intentions: ibid.

25. [278]

    As Ipp J observed in the passage from Wheeler that is quoted above, a director will act for an improper purpose if the substantial purpose for the director’s conduct was improper. It was common ground that the question whether the relevant purpose was “improper” is to be determined objectively (and see, in this regard, Colorado Products at [421] (Black J)). Accordingly, a director can act improperly even if the director has the subjective belief that the conduct is in the interests of the company: iSignthis at [591].

26. [279]

    In Sunnya at [25], Basten AJA emphasised that s 181 “is directed to the exercise of powers or discharge of a duty as a director of the company”. His Honour observed that: “Acting, whilst a director of one company, as agent for another company, albeit not in the best interests of the first company, may not contravene s 181(1)”. So, on the facts of that case, although a director of Sunnya had negotiated, as agent for a different company, contracts “which were inimical to the interests of Sunnya”, she “did not breach s 181(1) because she was not acting as a director of Sunnya” in negotiating those contracts.

27. [280]

    Section 181(1)(a) of the Act provides that a director must exercise their powers and discharge their duties in good faith in the best interests of the corporation. There is a corresponding duty at general law.

28. [281]

    In Chew v R (1991) 4 WAR 21 at 49, Malcolm CJ identified that this duty has a number of aspects:

29. [282]

    This passage was cited with approval in Sunnya at [30].

30. [283]

    The words “in the best interests of the corporation” emphasise “the significance of the relevant constituencies – in particular, the shareholders as a whole, and the creditors in the case of impending insolvency”: Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052 at [106] (Brereton J).

31. [284]

    To act in good faith in the company’s best interests must be understood as to act in honest pursuit of the company’s best interests: Sunnya at [24]. Accordingly, s 181(1)(a) has a subjective element (namely, acting honestly), but this issue will often be determined by surrounding circumstances, which may contradict a director’s subjective statements as to his or her state of mind: ibid.

32. [285]

    In Colorado Products at [420], Black J referred to the following divergence in the authorities, which his Honour did not consider to be material in the circumstances of that case:

33. [286]

    In Sunnya at [29], Basten AJA referred to this passage from Colorado Products and observed that:

34. [287]

    His Honour also observed that: “an honest belief as to purpose under s 181 will only be satisfied where that belief is rational” (at [27]).

35. [288]

    In Special Gold Pty Ltd (in liq) v Dyldam Developments Pty Ltd (subject to a deed of company arrangement) (No 2) [2025] FCA 825 at [77]-[78], Jackman J referred to Basten AJA’s observations in Sunnya and agreed that “the labels ‘subjective’ and ‘objective’ should be avoided”. His Honour continued as follows (emphasis added):

36. [289]

    Jackman J added (at [87]) that “rationally” in this context means “that the decision must be one which a reasonable director in the position of the directors of the particular corporation could have made”.

37. [290]

    Section 181(1)(a) may be contravened if a director promotes his or her personal interest in a situation where there is a conflict or real or substantial possibility of a conflict between those interests and the company’s interests: Colorado Products at [420] (Black J), referring to Australian Securities and Investments Commission v Adler [2002] NSWSC 171 at [735] (Santow J).

38. [291]

    Section 182(1) of the Act provides as follows:

39. [292]

    There is a purposive element in the provision: “to gain” means “in order to gain”, and “to cause” means “in order to cause”: Chew v R (1992) 173 CLR 626 at 632-633 (per Mason CJ, Brennan, Gaudron and McHugh JJ); [1992] HCA 18; and Hart Security Australia Pty Ltd v Boucousis [2016] NSWCA 307 at [85] per Meagher JA, (with Bathurst CJ and Beazley P agreeing).

40. [293]

    It is not necessary, in order to establish a contravention, to show that any such advantage has in fact been gained, or any such detriment has in fact been caused.

41. [294]

    Section 182(1) will not have been contravened unless the director has “use[d] their position” in order to gain a relevant advantage or cause detriment to the company: Hakea Holdings Pty Ltd v Neon Underwriting Ltd (2023) 296 FCR 611; [2023] FCAFC 34 at [8] per Colvin and Button JJ.

42. [295]

    In Hakea Holdings at [7], Colvin and Button JJ observed that “[t]here is (perhaps surprisingly) little authority on s 182(1) and, in particular, on what is required in order to conclude that a director has ‘use[d] their position’ to gain a relevant advantage or cause detriment to the company”. Their Honours continued as follows:

43. [296]

    Colvin and Button JJ also referred (at [9]) to the decision in Lewis v Nortex Pty Ltd (in liq) [2004] NSWSC 1143 (Hamilton J) as being:

44. [297]

    Impropriety is to be determined objectively: Sunnya at [52]. Impropriety will be established where there is a breach of the standards of conduct that would be expected of a person in his or her position by reasonable persons with knowledge of the duties, powers and authority of his or her position as director, and the circumstances of the case, including the commercial context: Doyle v Australian Securities and Investments Commission (2005) 227 CLR 18; [2005] HCA 78 at [35] (per curiam).

45. [298]

    There is no allegation by Empireal that Mr Hooker breached his duty under s 588G of the Act to prevent insolvent trading of Empireal (or any other entity). However, Mr Hooker relied on the existence of this duty as a relevant matter when assessing the various allegations of breach of duty made against him. Accordingly, I have summarised the relevant principles below.

46. [299]

    Section 588G of the Act relevantly provides as follows:

47. [300]

    In Woodgate v Davis (2002) 55 NSWLR 222; [2002] NSWSC 616 at [36], Barrett J made the following observations (emphasis added):

48. [301]

    In Quin (in his capacity as liquidator of Roderick Group Pty Ltd (in liq)) v Vlahos (2021) 64 VR 319; [2021] VSCA 205, the Victorian Court of Appeal (Kyrou, Kennedy and Walker JJA) made the following observations regarding the operation of s 588G(1)(c), which concerns whether there are reasonable grounds for suspecting that the company is insolvent at the time when a debt is incurred (at [216], footnotes omitted, emphasis in original):

49. [302]

    The definition of insolvency in s 95A of the Act adopts a “cash flow test”, which turns upon the income sources available to the company and the expenditure obligations which it has to meet, rather than a balance sheet test which focuses upon the value of the company’s assets and liabilities as reflected in the company’s books. However, a balance sheet test can provide context for the application of the cash flow test: Re Custom Bus Australia Pty Ltd (in liq) [2021] NSWSC 1036 at [33] (Black J) and the cases there cited.

50. [303]

    Whether a company is able to pay its debts as and when they fall due and payable is a question of fact to be determined objectively and without hindsight in all the circumstances, including the nature of the company’s assets and business, and the Court will have regard to commercial realities in that regard: Re Custom Bus Australia at [34].

51. [304]

    In assessing a company’s capacity to pay its debts, the Court should have regard to all of the assets of the company as at the relevant time in order to determine the extent to which those assets were liquid or realisable within a timeframe that would allow each of the debts to be paid as and when they became due. Apart from an assessment of the company’s own assets, regard can also properly be had to funds which the company can borrow, on a secured or unsecured basis, or otherwise obtain from lenders or shareholders and which were, as a matter of commercial reality, available to the company to enable its debts to be paid. The case law recognises that, in determining a company’s solvency, the Court may have regard to the likelihood that it will have funds available to it from sources with which it has no formalised agreement or understanding, including loans from its directors or from third parties, at least if they are not repayable in the short term, and the company’s ability to borrow funds can also be taken into account: Re Custom Bus Australia at [35].

52. [305]

    The test in s 95A “is directed to a present inability to pay all debts as and when they become due and payable, including debts that will become payable in the immediate future”: Anchorage Capital Master Offshore Ltd v Sparkes (2023) 111 NSWLR 304; [2023] NSWCA 88 at [235] (Ward P, Brereton JA, Griffiths AJA) (emphasis in original). The “correct question is whether, at the date of alleged insolvency, it can be said that the company is already in a state of inability to pay those debts when they fall due”: ibid at [245].

53. [306]

    Section 436A(1) of the Act provides as follows:

54. [307]

    The power under s 436A(1) of the Act is enlivened not only where the directors form the opinion that the company “is insolvent”, but also where they form the opinion that the company “is likely to become insolvent at some future time”. Whereas the former is an opinion that the company “is already in a state of inability” to pay its debts when they fall due (including debts that will become payable in the future), the latter is an opinion that it is more probable than not that the company will become, at some future time, unable to pay all its debt when they become due: see Anchorage Capital at [245], [256]-[257].

55. [308]

    If the relevant directors’ opinion is not held, or not held genuinely or in good faith, then the resolution to appoint an administrator is invalid: In the matter of Cyprus Community of NSW Ltd [2024] NSWSC 1629 at [53] (Black J). An inability to determine whether a company is insolvent cannot, without more, found an opinion that it is or is likely to become insolvent: ibid; citing Kazar v Duus (1998) 88 FCR 218 at 231; [1998] FCA 1378; Wagner v International Health Promotions (1994) 15 ACSR 419 at 421; Re Keneally as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd (admin apptd) [2015] NSWSC 937 at [74].

56. [309]

    In Re Lime Gourmet Pizza Bar (Charlestown) Pty Ltd (formerly under administration) [2015] NSWSC 244 at [21]-[22], Black J summarised the relevant principles regarding the exercise of the power under s 436A as follows:

57. [310]

    The requirement that the relevant opinion be held genuinely or in good faith will only be satisfied where the opinion is held on rational grounds (see paragraphs [287]-[289] above).

58. [311]

    Empireal made, as outlined below, serious allegations of dishonesty against Mr Hooker.

59. [312]

    In deciding whether I am satisfied that Empireal has established its claims on the balance of probabilities, I must take into account the nature of the cause of action, the nature of the subject matter of the proceeding, and the gravity of the matters alleged: Evidence Act 1995 (NSW), s 140(2); Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362 per Dixon J; [1938] HCA 34; and Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 449-450 per Mason CJ, Brennan, Deane and Gaudron JJ; [1992] HCA 66.

Credit

1. [313]

   Each of Mr Agarwal and Mr Hooker gave evidence and was cross-examined. Submissions were made regarding the credit of each of them.

2. [314]

   Mr Hooker submitted that Mr Agarwal is a person who “will say or do anything to avoid accepting” his own responsibility for the loss incurred by Koi as a result of entering into the Koi Facility, and that “the Court would not accept the evidence of Mr Agarwal unless it was corroborated by contemporaneous documents or against his or Koi’s interest”. Three specific matters were advanced in support of this submission.

3. [315]

   First, it was submitted that Mr Agarwal had gone “to great lengths” in “a carefully crafted (and extensive) affidavit” to suggest that Koi was a supportive lender when the contemporaneous documents showed that Koi was actively preparing for the enforcement of its securities. It should be noted that Mr Hooker did not advance a submission that Mr Agarwal deliberately sought to mislead the Court as to Koi’s intentions, nor was any such proposition put to Mr Agarwal in cross-examination. I accept that, as with any witness giving evidence of his knowledge, intentions and state of mind more than five years earlier, Mr Agarwal’s evidence as to those matters should be treated with caution, and that such matters should primarily be determined by reference to the contemporaneous documentary record.

4. [316]

   Secondly, it was submitted that Mr Agarwal’s “secret recording” of two conversations with Mr Hooker was “underhanded”, and that Mr Agarwal’s failure to acknowledge that this was the case “should cause the Court to be circumspect about Mr Agarwal”. I do not accept this submission. There was no evidence, or submission, that the recording of a conversation, without first obtaining the consent of the other participants, offended any law in Singapore, where the recording was made. Mr Agarwal gave evidence that he recorded the calls in accordance with a standard business practice at Olympus, namely, to record calls that were regarded as important. Although there were no extant recordings of a number of other calls relating to the LJ Hooker Group which Mr Agarwal agreed were also important (such as calls with Mr Borrelli), Mr Agarwal explained that, generally, once a note was taken of the call, the recording was deleted. It is understandable, given the concern that Koi held regarding the circumstances around the appointment of the Administrators and the restructuring of the LJ Hooker Group, that Koi kept a recording of Mr Agarwal’s discussions with Mr Hooker about those matters.

5. [317]

   Thirdly, it was submitted that Mr Agarwal’s “claim that he was shocked to learn”, on 10 June 2020, that any of the LJHRES Group companies would be placed into voluntary administration was clearly contradicted by the “actual voice recording of that conversation where no element of surprise is shown”. I consider that it is unsafe to draw, from the sound or tone of someone’s voice on a telephone call (and particularly a business call), such an inference.

6. [318]

   For those reasons, I do not make any adverse credit finding against Mr Agarwal of the type sought by Mr Hooker. I have, however, assessed his oral evidence – particularly regarding his intentions and knowledge, or the content of conversations – in light of the contemporaneous documentary record, objectively established facts and the apparent logic of events.

7. [319]

   Empireal submitted that the Court should find that Mr Hooker was a dishonest witness. In support of this submission, Empireal identified, in closing written submissions, various aspects of Mr Hooker’s evidence which were said to be “demonstrably false”, or “misleading”, or “evasive”.

8. [320]

   As Basten JA observed in Sangha v Baxter [2009] NSWCA 78 at [155]-[156] (Handley AJA agreeing), there “are risks in making global findings about credibility of any particular witness”:

9. [321]

   Further, in various instances, Empireal’s submission that Mr Hooker had given dishonest evidence depended upon the proposition that Mr Hooker had acted dishonestly at the time of the events in question. For example, Empireal submitted that Mr Hooker “gave false evidence in relation to the purported reasons for placing Empireal, LJHRES Holdings and LJH RES into voluntary administration”, and that the “purported” reasons were “confected”.

10. [322]

    Having regard to those matters, I will address specific aspects of Mr Hooker’s evidence which were said to be false, when dealing below with Empireal’s submissions that Mr Hooker was acting dishonestly in taking steps to place Empireal and other entities into voluntary administration, for the purpose of gaining a benefit for himself.

11. [323]

    One general observation that may be made is that Mr Hooker repeatedly stated in cross-examination that he had little or no recollection of conversations or meetings at the relevant time, or of his state of mind upon reading certain materials, or of his knowledge or intentions at certain stages in the series of events leading up to the restructure of the LJ Hooker Group, or of advice that he was given.

12. [324]

    That is not surprising in circumstances where the relevant events occurred five to six years ago, where there were numerous meetings, emails and conversations in relation to the proposed restructure of the LJ Hooker Group across the course of several months, and where a very large number of documents were generated in relation to the restructure and the voluntary administration of the Appointment Entities.

13. [325]

    Given those matters, I have placed little weight on any statements made by Mr Hooker in his affidavit regarding events, or discussions, or his thought processes, particularly where such statements are not established by, or consistent with, the contemporaneous documentary record.

Mr Hooker’s reasons for voting in favour of the VA Resolutions

1. [326]

   Before dealing with the individual claims advanced by Empireal, it is convenient to deal first with Empireal’s contention that Mr Hooker dishonestly contrived reasons for placing Empireal, LJHRES Holdings and LJH RES into voluntary administration, in order to obtain for himself the “Personal Benefits” (being, in short, beneficial ownership of the LJ Hooker Group free of any debt to Koi: FASOC, [29], [102]).

2. [327]

   In particular, Empireal pleaded that the email correspondence between Mr Hooker, Mr Weir and Mr Heathcote which “purported” to record their reasons for placing the Appointment Entities into voluntary administration (being the “Reasons” Document referred to at paragraphs [156]-[161] above) did not record the genuine reasons of the directors for taking that step, and instead included reasons that were “false” (FASOC, [60]-[70]).

3. [328]

   Empireal submitted that it was not a necessary integer of its case to find that Mr Hooker had engaged in such conduct, but that the evidence supported such a finding and that, if such a finding were made, the Court would “more readily”, if not “inevitably”, be satisfied that Mr Hooker had breached his duties to Empireal and had, in particular, acted for an improper purpose and in breach of the conflict rule.

4. [329]

   Each of Mr Hooker, Mr Weir and Mr Heathcote had a hand in drafting the “Reasons” Document. It follows that, on Empireal’s case, each of them was responsible for the creation of a deliberately false and misleading document. In closing submissions, Empireal stated that: “Those reasons are demonstrably false, and the Court will find that the reasons were not genuinely believed by any member of the board, having regard to matters known to Mr Hooker, Mr Weir and Mr Heathcote as at 10 June 2020” (emphasis added).

5. [330]

   Empireal did not advance any explanation, let alone a plausible explanation, as to why Mr Weir and Mr Heathcote would have been complicit in the creation of a document which falsely recorded their reasons for voting in favour of the VA Resolutions, particularly in circumstances where Mr Hooker had expressly warned them to read and verify that they were happy with the contents of the “Reasons” Document because “they are board minute details people will go over later” (see paragraph [158] above). Neither Mr Weir nor Mr Heathcote is alleged to have received any personal benefit from, or have had any personal interest in, the VA Resolutions or the consequent restructure of the LJ Hooker Group.

6. [331]

   Mr Bowden of Gilbert + Tobin attended the board meetings on 10 June 2020, and a revised version of the “Reasons” Document was sent to him, attached to an email with the subject line: “Record of Board Discussions prior to Insolvency Resolutions” (see paragraph [160] above). There is no evidence that Mr Bowden raised any query or concern in response to the contents of this document. In particular, there is no evidence that Mr Bowden expressed any concern, on receiving the “Reasons” Document, that this document did not accurately reflect what he understood to be the reasons for the directors having voted in favour of the VA Resolutions at the meetings which he attended.

7. [332]

   More generally, Empireal did not make any allegations or submissions that were critical of the conduct of Mr Bowden or of any other partner of Gilbert + Tobin. In particular, there was no suggestion that Gilbert + Tobin had assisted Mr Hooker in “contriving” reasons for placing Empireal, LJHRES Holdings and LJH RES into voluntary administration. Nor was there any suggestion that the advice given by Gilbert + Tobin to the directors – including their advice in relation to Koi’s “delinking” proposal and “consensual sale” proposal – did not represent their genuinely held views on those matters.

8. [333]

   Nor did Empireal make any allegations or submissions that were critical of the conduct of KPMG, who provided advice to the directors prior to their decision to place the Appointment Entities into voluntary administration, and whose personnel subsequently acted as the Administrators.

9. [334]

   In contending that Mr Hooker had “contrived” reasons for placing Empireal, LJHRES Holdings and LJH RES into voluntary administration, Empireal placed reliance on Mr Hooker’s use, in his “For Your Eyes Only” Email, of the phrase “The Olympus Story” and, in particular, the heading “Background – this is the story we paint for Olympus” (see paragraph [80] above).

10. [335]

    However, Empireal did not, in submissions, identify any statement in the section of this email headed “Background – this is the story we paint for Olympus” which was alleged to be false or misleading. For example, this section referred to management having taken steps to “reforecast FY2021 with the assistance of PWC”, and set out “high level” figures, including that “EBITDA will drop by half over the next 12 months YoY [year-on-year] and on a run rate basis by a third”. A table showed that EBITDA for the LJHRES Group was forecast to fall from $14.7m to $7.1m, with EBITDA for the LJHRES Group together with the LJX Group forecast to fall from $1.5m to -$4.5m (while net debt was forecast to increase from $90.7m to $101.4m). Empireal did not point to any evidence that these views as to the LJ Hooker Group’s forecast performance were not genuinely held or rationally based.

11. [336]

    The reference to “painting” a “story” for Olympus/Koi is explained by the context in which it appears. Immediately prior to the use of those terms, Mr Hooker explained to Mr Fuchs that:

    1. (1)

       there was “a potential argument that the LJHRES business is worth not much more than the value of the ICG [Facility], and LJX is worthless to anyone else”;

    2. (2)

       “If this argument can be made there is an opportunity to reset the debt stack”; and

    3. (3)

       “Option A” was to make an offer to Koi “for cents in the dollar to walk [a]way and leave us to try an[d] create value”, with Koi getting “some warrants for upside”, with Option B being to “put the group into voluntary administration” in the event that “Olympus decide to play hard ball”.

12. [337]

    Having regard to that context, Mr Hooker’s reference to the “story” to be “painted” to Olympus/Koi is a reference to the matters that will be presented to Koi in an effort to persuade Koi to accept Option A. It does not convey any intention on the part of Mr Hooker to express views about the financial position of the LJ Hooker Group which were knowingly false or not genuinely held, or to “contrive” reasons for placing any entities in the Group into voluntary administration.

13. [338]

    Similarly, I am not satisfied that Mr Hooker’s reference to a “potential argument” regarding the financial position of the LJHRES Group conveys any intention on his part to advance any view which he did not genuinely hold. Instead, the reason that there is a “potential argument that the LJHRES business is worth not much more than the value of the ICG [Facility]” is that the financial position of the LJ Hooker Group was, as at around the time of this email, the subject of further investigation and analysis by the Group’s advisers. In particular, updated forecasts were being sought from PwC (with these being provided to Koi at the end of April 2020), and an analysis of the LJ Hooker Group’s financial position was being sought from KPMG (with the Project Cork Report being provided to Koi in early May, see paragraph [85] above).

14. [339]

    Nor do I consider that the use of the subject line “for your eyes only” conveys anything more than that the email was private and confidential.

15. [340]

    Likewise, I do not accept Empireal’s submission that Mr Hooker’s use of the phrase “good cop, bad cop” referred to a plan to deceive Koi, whereby Mr Hooker “played the good cop, and … pretended to have been giving genuine consideration to the various proposals that Koi has given”, while Mr Fuchs “played the bad cop”, being the one who Mr Hooker blamed for the decision to go into voluntary administration. Instead, read in the context of the rest of the “For Your Eyes Only” Email, it is evident that the phrase “good cop, bad cop” was used by Mr Hooker in its usual sense to refer to a negotiating strategy whereby a person is persuaded to accept, by reference to a harsher alternative, an offer which is presented as a way out. In particular, Mr Fuchs was to be the “white knight”, who would fund an offer to Koi that Koi’s debt “be purchased, released or substantially restructured … fo[r] $X m- i.e. X% of $37 million”, with Koi facing the harsher alternative of the LJX Group being put into voluntary administration if it played “hardball”.

16. [341]

    If Mr Hooker’s references to a “potential argument”, “painting” a “story”, and “good cop, bad cop” were read as statements of his intent to provide a false narrative to Koi, then it would follow that Mr Fuchs was complicit in Mr Hooker’s dishonesty. However, no submission was advanced to this effect.

17. [342]

    Further, Mr Weir had input into the formulation of the “story” set out in the “For Your Eyes Only” Email. In particular, Mr Hooker sent to Mr Weir, in the course of 24 April 2020, several drafts of this email, with the first having the subject line “story”. Mr Hooker requested that Mr Weir review and discuss the third iteration of the draft “story” (“for your read – lets talk”), to which Mr Weir responded with a revised draft “as discussed”. If Mr Hooker was, in this email, “confecting a narrative” for Koi (as Empireal submitted), it follows that Mr Weir was knowingly complicit in this dishonest conduct. There was no explanation offered by Empireal as to why Mr Weir would have engaged in such conduct.

18. [343]

    Empireal drew attention, in submissions and in cross-examination of Mr Hooker, to the fact that Mr Hooker asked, at the end of one of his emails to Mr Weir, “Based on this why would Michael Fuchs pay anything for it. Future value?????” Empireal contended that this conveyed a concern on Mr Hooker’s part “that the ‘story’ confected was so negative that even Mr Fuchs would not invest in the business”. I accept that Mr Hooker’s question conveys a concern that, in setting out for Mr Fuchs the narrative that would be used to persuade Koi to accept an offer in respect of its debt, Mr Hooker might dissuade Mr Fuchs from investing further funds into the LJ Hooker Group.

19. [344]

    However, it does not follow that the narrative being set out was a “confected” one, in the sense of being a narrative that was, to Mr Hooker’s knowledge, false. For example, focussing on the opening section of the “For Your Eyes Only” Email, Empireal did not, in its submissions, dispute the truth of any of the following propositions which were included in Mr Hooker’s “Summary” of “The Olympus Story”:

    1. (1)

       COVID-19 has “destroyed any hopes of market recovery or refi[nance] in 2020”;

    2. (2)

       “LJX was set to close a $20m capital raising in March 2020 [namely, the IWI investment], which was to paydown $3.5m of Olympus PIK [payment-in-kind] and $750K of interest”, that “have not been paid”;

    3. (3)

       LJX had been “contributing $3.2m to LJHRES EBITDA as a brand royalty which has been counted in the $14.7m EBITDA to date” and “if LJX is not funded, then LJHRES EBITDA drops by $3.2m on a TTM [trailing twelve months] and also going forward”;

    4. (4)

       this drop in EBITDA “will breach ICG (senior lender covenants) in LJHRES and put them as senior secured in the driving seat to reset the capital stack as they control the valuable asset”; and

    5. (5)

       Koi has “second mortgage over LJHRES up the chain, and first mortgage over LJX which is still in start up mode, needing $16m to break even in September 2021”.

20. [345]

    Empireal also relied on the text of Mr Hooker’s “X File” Email, which he sent to Mr Weir on 3 May 2020 (see paragraph [89] above). The following submission was advanced based on this email:

21. [346]

    I am not satisfied that Mr Hooker’s use of the phrases “could be insolvent” and “technically insolvent” provides a basis for inferring that he did not have (as at 10 June 2020) any genuine belief that Empireal, LJHRES Holdings or LJH RES were either insolvent or likely to become insolvent.

22. [347]

    The first of those phrases is used in the following context: “without shareholder financial support for LJX, all of LJX, Empireal and LJHRES Holdings could be insolvent, so the Directors could put these companies into VA to save the group”. Mr Hooker is here referring to the potential consequences (hence the use of “could be”) of a failure to secure shareholder support for the LJX Group which, at that stage, was uncertain. Shortly before this statement, Mr Hooker had noted that an “immediate step” was to “[a]sk shareholders if they are willing to support LJX”, adding that: “Some shareholders might support LJX however only if debt stack is reset to a sustainable level – namely Olympus debt is taken out”. Accordingly, the potential insolvency of LJX, Empireal and LJHRES Holdings depended, in Mr Hooker’s view as at 3 May 2020, on two matters which were unknown, namely, whether a deal could be reached with Olympus and whether shareholders would support LJX if such a deal could be reached.

23. [348]

    The second of these phrases is used in the following context: “Empireal and LJHRES Holdings can both be put into VA too for being technically insolvent”. In the same email, Mr Hooker states that “LJHRES is technically in default by ICG” and that “[a]t any time ICG could call it and appoint their own VA process”. That is, the term “technically insolvent” appears to be used by Mr Hooker to refer to a situation where there is an existing state of affairs which amounts to a default under the terms of either the Koi Facility or the ICG Facility, and the secured lender has the ability at any time to issue a notice of default and to demand the payment of the outstanding debt and interest (which the borrower and guarantors would be unable to pay). Mr Hooker is likely intending to refer to this state of affairs when, immediately after using the phrase “technically insolvent”, he refers to the “directors hav[ing] a gun to their head”. (I address below Empireal’s submission that, when the VA Resolutions were passed, no notice of default had been issued by either of Koi or ICG, and therefore there was no basis for Mr Hooker to hold the view that either of Empireal or LJHRES Holdings was insolvent or likely to become insolvent.)

24. [349]

    Empireal also placed reliance on Mr Hooker’s statement that putting Empireal and LJHRES Holdings into voluntary administration “cuts the head off [the] LJHRES group”. There is no doubt that the object of the restructure which was being discussed here, and which was put into place following the appointment of the Administrators, was to sever the connection between Empireal and the LJHRES Group (and therefore between Empireal and the Core Business), and thereby to sever the connection between the Core Business and the Technology Business. Mr Hooker readily conceded this in cross-examination:

25. [350]

    It was understood by Mr Hooker at the time that, unless there was shareholder support for the Technology Business, the entities within the LJX Group which operated this business would need to go into voluntary administration. This is reflected in the following statement at the start of the “X File” Email: “Agreed with Olympus that if shareholders don’t support LJX, then VA is the only path”. Further, Mr Hooker understood that, in those circumstances, steps would need to be taken to sever the connection between the Technology Business and the Core Business. This was the same imperative that lay behind Mr Agarwal’s “delinking” proposal.

26. [351]

    There was, of course, a critical difference between the “delinking” proposal and “cutting the head off the group”; namely, the former involved the LJHRES Group (which operated the Core Business) remaining linked to Empireal (which had guaranteed repayment of the Koi debt), while the latter involved Empireal, together with the LJX Group, being severed from the LJHRES Group.

27. [352]

    The severance of this link to Empireal (and therefore to Koi) was plainly an outcome that the directors were seeking to achieve by any voluntary administration process and consequent restructuring of the LJ Hooker Group. For example, Mr Hooker stated in the “X File” Email that:

28. [353]

    Further, as set out at paragraph [123] above, Gilbert + Tobin advised against a form of restructuring which would have left in place a link between the entity which owned the LJHRES Group and the Koi Facility.

29. [354]

    While I accept that Mr Hooker and the other directors (with the assistance of their legal advisers) wanted to ensure that, following any voluntary administration process and consequent restructure, there would not be a link between the LJHRES Group and Empireal (and therefore not a link to the LJX Group or the Koi Facility), it is plain – from the terms of the “For Your Eyes Only” Email and the “X File” Email – that a restructuring in a voluntary administration process was not Mr Hooker’s (or Mr Weir’s) preferred outcome. Instead, this was “Plan B” or “Option B”, because it was recognised that the voluntary administration process would potentially have negative impacts for staff, agents and franchise owners (as well as the other negative consequences identified in the Project Cork Report: see paragraph [88(4)] above). “Plan A” or “Option A” was to explore whether a deal could be negotiated for Koi to accept a reduced amount (funded by Mr Fuchs) in satisfaction of its debt, which would avoid the need for any voluntary administration process. “Plan B” was to be pursued – and the link to Empireal was to be severed – only in the event that no such deal was possible.

30. [355]

    Empireal submitted that Mr Hooker’s evidence that he did not make the decision to place Empireal, LJHRES Holdings and LJH RES into voluntary administration until 10 June 2020 was “false”. In support of this submission, Empireal referred to the fact that on 3 June 2020:

    1. (1)

       Mr Hooker sent an email to the head of PR and Marketing for the LJ Hooker Group in which he stated “5 x Non LJ Hooker branded holding companies are placed into VA” and provided, in dot points, the proposed “Public Message” in respect of this development (see paragraph [144] above); and

    2. (2)

       Gilbert + Tobin circulated a draft “Offer Letter” to Mr Eagle and the other proposed administrators.

31. [356]

    The drafting of a press release had been identified, in a document circulated by Mr Hooker on 26 May 2020, as a step “to be done before any Administration” (see paragraphs [124]-[126] above). The preparation of this release and the drafting of the offer letter to the Administrators were steps taken in order to be ready for the voluntary administration of entities within the LJ Hooker Group, and these communications on 3 June 2020 are consistent with an expectation that the appointment of the Administrators might or would occur in the near future.

32. [357]

    However, it does not follow that Mr Hooker’s evidence that the “decision” to appoint the Administrators to each of Empireal, LJHRES Holdings and LJH RES was not made until 10 June 2020 is untrue.

33. [358]

    The decision to enter into voluntary administration was a decision that had to be taken by the respective boards of each of Empireal, LJHRES Holdings and LJH RES (rather than by their individual directors), and this decision was taken by each of those boards only when the VA Resolutions were passed on 10 June 2020.

34. [359]

    As noted above, each of the “For Your Eyes Only” Email and the “X File” Email outlined that the appointment of voluntary administrators was an “Option B” or a “Plan B”, which was to be implemented by the directors only in the event that an agreement was unable to be reached whereby Koi would accept a reduced amount, to be funded by Mr Fuchs, in respect of the Koi debt. In particular:

    1. (1)

       the “For Your Eyes Only” Email, which was sent by Mr Hooker to Mr Fuchs (following review by Mr Weir), stated that “Option A” was for there to be an “offer made to Olympus for cents in the dollar to walk away”, with “some warrants for upside”, and “Option B” was to “put the group into voluntary administration” in the event that “Olympus decide to play hard ball”. This email referred to a plan that Mr Fuchs as “white knight” would provide the funding to enable the Koi debt to “be purchased, released or substantially restructured (precise mechanism to be determined) fo[r] $X m- i.e. X% of $37 million” (see paragraph [80] above); and

    2. (2)

       the “X File” Email, which was sent by Mr Hooker to Mr Weir, stated that “Plan A” was that Koi “are co-operative and get paid $5.3m, ten cents (fourteen cents) in the dollar”, with the amount “to be negotiated”, while “Plan B” was that “Olympus don’t accept the shareholders offer [that is, Mr Fuchs’ offer]”, in which case the directors would appoint administrators to Empireal and other entities (see paragraph [88] above).

35. [360]

    When Mr Hooker and Mr Weir telephoned Mr Agarwal on 10 June 2020, they told Mr Agarwal that they had spoken to Mr Fuchs “this morning”, and that Mr Fuchs had informed them that, following the analysis undertaken by his staff, he was not going to be in a position to make an offer to Koi. This explains the timing of the VA Resolutions which were passed on that day.

36. [361]

    Empireal submitted that Mr Hooker’s statement that there had been any such telephone conversation with Mr Fuchs on the morning of 10 June 2020 was false. Empireal relied, in support of this submission, on the fact that Mr Hooker did not refer to any such conversation in his affidavit.

37. [362]

    When it was put to Mr Hooker in cross-examination that “[t]here was no call with Mr Fuchs on the morning of 10 June”, Mr Hooker replied: “I don’t know if there was”. As noted above, Mr Hooker had very limited recollection of any conversations or other communications which occurred more than five years ago. Given that is so, I am not satisfied that Mr Hooker’s present lack of a recollection of a telephone call with Mr Fuchs on the morning of 10 June 2020 provides a sufficient basis to conclude that such a telephone call did not occur. Further, such a conclusion would necessarily require a finding that Mr Hooker’s contemporaneous (recorded) statement to Mr Agarwal on the morning of 10 June 2020 that he had just participated in a call with Mr Fuchs’ was a deliberate falsehood. No such proposition was put to Mr Hooker in cross-examination. Significantly, Mr Weir also participated in the 10 June 2020 telephone call with Mr Agarwal, during which Mr Hooker stated that “we” (that is, he and Mr Weir) had just had a telephone conversation with Mr Fuchs. If this statement was a lie, it necessarily follows that Mr Weir was knowingly complicit in the making of false statements to Mr Agarwal. Empireal advanced no explanation as to why Mr Weir would have acted in this way.

38. [363]

    It is more likely that the statements made to Mr Agarwal on 10 June 2020 about the telephone conversation between Mr Fuchs, Mr Hooker and Mr Weir earlier that morning were accurate.

39. [364]

    This inference is supported by the contemporaneous evidence set out below, which indicates that Mr Fuchs had been requesting further time to formulate an offer to Koi, so that his staff could complete their analysis, and that Mr Hooker had given Mr Fuchs a deadline of 9 June 2020 to respond.

    1. (1)

       In early May 2020, Mr Hooker informed Mr Agarwal that Mr Fuchs was considering making an investment in the LJ Hooker Group, but had indicated that “he needed to think about it more” and required further information (see paragraphs [92]-[93] above).

    2. (2)

       On the evening of 13 May 2020 (after receiving Gilbert + Tobin’s unfavourable advice regarding the “delinking” proposal), Mr Agarwal participated in a telephone call in which Mr Weir introduced him to Mr Fuchs. Mr Hooker did not participate in this call. Mr Agarwal gave evidence that he told Mr Fuchs that “if he as a shareholder stepped up, we would step up too and be supportive by making changes to the [Koi Facility]”, and that Mr Fuchs responded that “he would need some time to come back to us”. Shortly afterwards, Mr Hooker sent Mr Agarwal a message that Mr Weir thought “the call was positive”, and that he was planning to follow up with Mr Fuchs (see paragraphs [101]-[103] above)

    3. (3)

       Shortly after 13 May 2020, Mr Fuchs made the offer that is recorded in the 18 May Advice, being an offer of “immediate cash funding to the LJX group (to meet operating costs until breakeven)”, which “included underwriting some of the group’s other liabilities going forward”, but which “was conditional upon him being able to reach agreement with Olympus in relation to their debt” (see paragraph [107] above).

    4. (4)

       On 27 May 2020, Mr Hooker informed Mr Agarwal that Mr Fuchs had said that “he would get back to me this week” (see paragraph [132] above).

    5. (5)

       On 8 June 2020, Mr Agarwal asked Mr Hooker if there was “any word from [Mr Fuchs’] side”, and Mr Hooker responded that Mr Fuchs’ “guys have been working on it through the weekend”, and that Mr Hooker had given Mr Fuchs “a deadline of Tuesday” (that is, a deadline of 9 June 2020).

40. [365]

    In that context, it is logical and likely that Mr Fuchs would have spoken to Mr Hooker and Mr Weir on the morning of 10 June 2020 (which was 9 June 2020 in New York) in order to report on the outcome of this analysis, and to inform Mr Hooker and Mr Weir whether he was making an offer to Koi and, if so, what his offer was.

41. [366]

    Consistently with this, Mr Hooker reported to Mr Agarwal on 10 June 2020 that Mr Fuchs had informed him and Mr Weir earlier that morning that:

    1. (1)

       Mr Fuchs and his “guys” had “done the analysis” and “the exposure is significantly more than he originally anticipated”, “with LJX you know, off 50% over the last two months of your reforecast”, such that “the cash hole is just gonna be way more than you guys expect”; and

    2. (2)

       as a result, “he’s not going to be able to make an offer to Olympus that’s going to be able to make that whole on the principal”.

42. [367]

    Empireal submitted that the Court should find not only that Mr Hooker’s recounting to Mr Agarwal of his 10 June 2020 telephone call with Mr Fuchs was false, but also that a number of the prior statements by Mr Hooker that Mr Fuchs needed more time in order to conduct further analysis before making an offer to Koi were false. The suggestion appeared to be that Mr Hooker was merely stringing Mr Agarwal along and playing for time while the restructuring was planned, and that Mr Hooker knew all along that Mr Fuchs was not in fact undertaking any such analysis and had already determined not to make any offer to Koi before administrators were appointed. However, it would appear to be a corollary of this submission that Mr Fuchs also deceived Mr Agarwal, in their telephone call on 13 May 2020 (in which Mr Hooker did not participate), by stating that he needed further time to consider matters before putting any proposal to Mr Agarwal (see paragraph [102] above). There was no explanation advanced by Empireal as to why Mr Fuchs would have deceived Mr Agarwal in this way, and it is improbable that he would have done so.

43. [368]

    Empireal also submitted that Mr Hooker’s evidence that he had formed the view by the end of the first week of June 2020 that “Koi and Mr Fuchs appeared to have reached a stalemate regarding a potential resolution” was “simply false”. The basis for this submission was that there was said to be “no evidence of any discussions between Mr Fuchs and Mr Agarwal in relation to right sizing the [Koi Facility], let alone evidence of a ‘stalemate’ being reached”, with there being a single conversation between Mr Fuchs and Mr Agarwal on 13 May 2020 in which Mr Fuchs did not make any offer.

44. [369]

    I do not accept this submission, which depends on a narrow concept of a “stalemate”. The discussion between Mr Agarwal and Mr Fuchs on 13 May 2020 was, in substance, a discussion about right-sizing the Koi Facility (with Mr Agarwal indicating that Koi was willing to make changes to the Koi Facility if Mr Fuchs was willing to “step up”). There followed back and forth communications (via Mr Hooker) to the effect that Mr Fuchs needed more time to conduct further analysis, but this further time and analysis led to Mr Fuchs concluding that, as at 10 June 2020, he was not in a position to make an offer. There may be a semantic debate about whether it would be more accurate to say that the prospect of a negotiated outcome between Koi and Mr Fuchs proved to be a “dead-end” rather than to have resulted in “stalemate”, but the substantive outcome was the same: as at 10 June 2020, it was clear to Mr Hooker and Mr Weir that no such deal was able to be reached.

45. [370]

    Having regard to the terms of the “For Your Eyes Only” Email and the “X File” Email, it is likely that the confirmation from Mr Fuchs, on 10 June 2020, that an offer would not be made to Koi meant that Mr Hooker and the other directors moved immediately from “Plan A” to “Plan B”, being the appointment of voluntary administrators.

46. [371]

    Following on from this issue regarding statements made by Mr Hooker to Mr Agarwal regarding his dealings with Mr Fuchs, it is convenient to address here Empireal’s submissions that Mr Hooker was, in various ways, dishonest in his dealings with Koi in the period leading up to the appointment of Administrators. That is because a conclusion that Mr Hooker had acted in such a manner would be relevant in determining whether, at that time, Mr Hooker was dishonestly pursuing a gain for himself and concealing his genuine reasons for putting Empireal, LJHRES Holdings and LJH RES into administration.

47. [372]

    I have not attempted to address every such attack upon Mr Hooker’s credit that was made in the course of his cross-examination, but have instead focussed on the particular issues which received prominence in Empireal’s closing submissions.

48. [373]

    Empireal submitted that Mr Hooker “deliberately omitted critical pages” from the version of the Project Cork Report that was provided to Koi, which set out “suggested steps”, and did so in order “to prevent Koi from discovering the true nature of KPMG’s advice” (which was said to be that “the LJ Hooker Group should work with its creditors, which of course included Koi, and only contemplate placing any part of the Group into voluntary administration if agreement could not be reached with its creditors and if there were no other options available to the Group”).

49. [374]

    The reference to the “suggested steps” slides is a reference to the two slides with this heading which are set out in paragraph [88](2)-(3) above, including the “decision tree” there shown.

50. [375]

    I am not satisfied that these slides were removed for any dishonest purpose. Mr Hooker and the other directors were acting transparently in providing the financial analysis in the Project Cork Report to Koi. It was not misleading for this information be provided in a form that omitted KPMG’s confidential advice to the LJ Hooker Group regarding the steps which KPMG recommended be taken by the Group in the light of this analysis. It is likely that these slides were removed because of a concern that it would be adverse to the LJ Hooker Group’s interests for KPMG’s advice regarding the LJ Hooker Group’s strategy and options to be provided to a secured lender, rather than because of any attempt to deceive Koi about what that advice was.

51. [376]

    Empireal submitted that Mr Hooker dishonestly caused the 13 May 2020 advice from Gilbert + Tobin to be amended, prior to that advice being forward to Koi, in an attempt to discourage Koi from pursuing its “de-linking” proposal.

52. [377]

    On 13 May 2020 at, respectively, 1:45pm and 2:04pm, Mr Bowden of Gilbert + Tobin sent to Mr Hooker two versions of an email setting out his advice. Mr Hooker forwarded the later of those emails to Mr Agarwal. As set out at paragraph [97] above, the only substantive difference between the text of these two emails was as follows:

    1. (1)

       the 1:45pm version (emphasis added):

    2. (2)

       the 2:04pm version (emphasis added):

53. [378]

    Initially, it was put to Mr Hooker in cross-examination that he had created the second version of the email, by amending the text of Mr Bowden’s email and by changing the time stamp for this email (so that it appeared as if the email was received by Mr Hooker in the course of a 2:00pm telephone call with Mr Agarwal). This line of cross-examination was pursued in circumstances where Mr Hooker had not discovered any copy of an email sent at 2:04pm from Mr Bowden.

54. [379]

    Before Mr Hooker’s cross-examination resumed the next day, Mr Hooker’s solicitors sought leave, which I granted, to file in Court and read an affidavit attaching a copy of Mr Bowden’s 2:04pm email to Mr Hooker, which had been obtained overnight from Mr Bowden.

55. [380]

    As a result, Empireal did not maintain any allegation that Mr Hooker had himself created the 2:04pm version of the email. However, Empireal pursued, in cross-examination and submissions, a variant of this contention. In particular, Empireal put to Mr Hooker that, upon reading the 1:45pm version of Mr Bowden’s email, and seeing that it set out the correct position (namely, that Empireal’s liabilities as guarantor under the Koi Facility would only become due and payable upon Koi issuing a notice to accelerate the Loan), Mr Hooker asked Mr Bowden to change his advice and omit the critical step of Koi needing to issue a notice and accelerate the loan before Empireal’s liabilities were enlivened (and Mr Bowden complied with this request, resulting in the 2:04pm email).

56. [381]

    Empireal submitted that Mr Hooker was acting dishonestly by making this request to Mr Bowden, and was seeking “deliberately to keep Mr Agarwal in the dark as to the true circumstances in which Empireal would become liable for the Koi Loan”.

57. [382]

    Empireal made it clear that it was not advancing any allegation of dishonesty against Mr Bowden (but left unexplained why, on its case, Mr Bowden would have agreed to Mr Hooker’s request to change Gilbert + Tobin’s advice to express a view that was legally incorrect).

58. [383]

    I do not accept Empireal’s submissions regarding the two versions of the 13 May advice. It is implausible that Mr Hooker would have sought to mislead Mr Agarwal in this way. Mr Agarwal was well aware of the terms of the Koi Facility, and Mr Hooker would have known that this was the case. It does not make sense that Mr Hooker would have sought to mislead Mr Agarwal as to the circumstances in which Empireal became obliged to pay moneys to Koi, or as to the need to issue a notice before payments were accelerated under the Koi Facility.

59. [384]

    It is more likely that:

    1. (1)

       Mr Hooker, on reading the 1:45pm version, saw that it contained a statement that, in circumstances where an insolvency event occurred in relation to LJX, Koi would be entitled to issue a notice accelerating all outstanding amounts under the Koi Facility and demanding payment from Empireal;

    2. (2)

       Mr Hooker was concerned about forwarding advice to Koi in which the LJ Hooker Group’s own solicitors positively asserted that Koi would have a legal entitlement to issue this notice and demand and, for this reason, requested that this particular statement be removed; and

    3. (3)

       Mr Bowden agreed to this request and implemented it minutes later, by amending the email to remove the reference to Koi’s entitlement to issue a notice and demand, without paying close attention to the fact that, as a result of his amendments, the remaining text would read as if Empireal’s liabilities under the Koi Facility would become “immediately due and payable” upon an insolvency event in respect of the LJX entities (without any step first being taken by Koi).

60. [385]

    Empireal submitted that Mr Hooker made a number of knowingly false statements in his telephone conversation with Mr Agarwal on 10 June 2020, following the passing of VA Resolutions.

61. [386]

    First, Empireal submitted that Mr Hooker falsely told Mr Agarwal that “he had spoken to Mr Fuchs in the morning of 10 June 2020, which did not occur”. I have addressed, and rejected, this submission at paragraphs [359]-[363] above.

62. [387]

    Secondly, Empireal submitted that Mr Hooker “pretended not to have spoken to ICG saying ‘we wanted to call you first’ when in fact Mr Hooker had been in negotiations with ICG since 25 May 2020”. It is important to have regard to the full statement made by Mr Hooker, which was in two parts, and which was interrupted by a comment from Mr Agarwal:

63. [388]

    In this part of their telephone call, Mr Hooker was informing Mr Agarwal that ICG had been asking whether Mr Fuchs would be proceeding with an investment in LJX (which, as noted in the 18 May Advice, depended on his reaching an agreement with Koi regarding the Koi Facility). Mr Hooker was indicating to Mr Agarwal that, before he gave an update to ICG about these matters (to the effect that Mr Fuchs would not be making any offer to Koi and therefore LJX would need to go into voluntary administration), he wanted first to call Mr Agarwal to let him know that this was Mr Fuchs’ position. Further, it is apparent that Mr Agarwal understood that this is what Mr Hooker intended to convey, since Mr Agarwal responded that Mr Hooker should tell ICG that, as a result of Mr Fuchs’ indication, “the technology platform … is going to VA”.

64. [389]

    Thirdly, Empireal submitted that Mr Hooker was “untruthful” because he “presented the idea for placing Empireal, LJHRES Holdings and LJH RES into voluntary administration as Mr Fuchs’ idea when the documents show that it was Mr Hooker’s idea”. In support of this submission, Empireal referred to the “For Your Eyes Only” Email.

65. [390]

    In the “For Your Eyes Only” Email, Mr Hooker informed Mr Fuchs that the appointment of voluntary administrators was a “Plan B”, which would only be pursued by the directors in the event that a deal was not reached between Mr Fuchs and Koi in relation to the Koi Facility (which was “Plan A”).

66. [391]

    The “For Your Eyes Only” Email therefore does not undermine Mr Hooker’s account to Mr Agarwal of his discussion with Mr Fuchs, but instead provides a likely reason why Mr Fuchs, having told Mr Hooker and Mr Weir that Plan A was unable to be achieved (because he was not going to make an offer to Koi), went on to say that the directors would therefore need to proceed with Plan B (and appoint voluntary administrators).

67. [392]

    Fourthly, Empireal submitted that Mr Hooker’ statement to Mr Agarwal that voluntary administration was “not the outcome I wanted” was “untruthful” because “it was precisely what [Mr Hooker] wanted because it enabled him to effect the restructure which gave him ownership of the LJ Hooker Group for nominal consideration free of the Koi debt”. I also reject this submission. The contemporaneous documents make clear that placing Empireal and other entities within the LJ Hooker Group into voluntary administration was a Plan B / Option B. The Project Cork Report explained why this was not the preferred outcome, including because of the risk of brand damage, the potential to destabilise trading operations, and the potential to destroy goodwill value (see paragraph [88(4)] above).

68. [393]

    In his affidavit, Mr Hooker gave the following evidence regarding the circumstances in which the “Reasons” Document came to be prepared:

69. [394]

    Empireal submitted that this evidence was “demonstrably false”. In particular, Empireal noted that, according to the minutes of the relevant board meetings, those meetings occurred at intervals of two minutes, such that all of the matters in the “Reasons” Document “could not have been discussed during the meetings”.

70. [395]

    I accept that the “Reasons” Document does not record the terms of a discussion that occurred at the meetings on 10 June 2020 (and, in closing submissions, Mr Hooker did not contend otherwise).

71. [396]

    However, I am not satisfied that Mr Hooker’s affidavit evidence as to these matters was deliberately false. Given Mr Hooker’s frank acknowledgement in cross-examination that he did not have any recollection of what was said at these meetings, it is more likely that his affidavit evidence regarding the “Reasons” Document was a reconstruction, based on the contemporaneous documents and, in particular, based on:

    1. (1)

       the minutes for each of the board meetings of 10 June 2020, which stated that the directors had formed the opinion as to insolvency “due to the reasons discussed at the meeting”; and

    2. (2)

       the email which Mr Hooker sent to his fellow directors on 10 June 2020, following those board meetings, which was headed “Reasons [for] putting the various entities into VA for minutes” (and which set out the first draft of the “Reasons” Document).

72. [397]

    The substance of Mr Hooker’s evidence, as set out above, was that the directors (being Mr Hooker, Mr Weir and Mr Heathcote) had discussed, prior to the passing of the VA Resolutions, “the reasons why we considered that the companies were insolvent or likely to become insolvent”, and that Mr Hooker undertook to prepare a document after the meetings which set out those reasons. This evidence is consistent with a scenario in which the directors:

    1. (1)

       discussed, prior to the relevant board meetings being held, the reasons for placing the Appointment Entities into voluntary administration (in the event that no deal was able to be reached between Mr Fuchs and Koi);

    2. (2)

       confirmed at the board meetings that they were of the opinion that each of the Appointment Entities was insolvent or was likely to become insolvent at some future time, by reference to the reasons which they had previously discussed; and

    3. (3)

       passed the VA Resolutions at the board meetings and agreed that their reasons for forming this opinion would be reduced to writing.

73. [398]

    Consistently with this scenario, the first draft of the “Reasons” Document referred to matters which had been the subject of multiple communications involving Mr Hooker and his fellow directors. By way of example only, the first few matters referred to in the “Reasons” Document are as follows:

    1. (1)

       the failure by LJX Holdings to make the 2019 Repayment on 10 February 2020 and to pay interest due under the Koi Facility;

    2. (2)

       the decision by IWI not to proceed with their planned investment in the LJX Group;

    3. (3)

       the failure to comply with leverage ratios in the Koi Facility, as a result of the IWI investment not proceeding; and

    4. (4)

       the impact on the LJHRES Group’s EBITDA due to the deterioration in LJX’s financial position and the impacts of the COVID-19 pandemic.

74. [399]

    Those matters had been the subject of previous communications between the directors. For example, those matters are referred to in the “For Your Eyes Only” Email which Mr Hooker drafted with Mr Weir’s input (see paragraph [344] above). Further, the Project Cork Report identifies a number of these matters (likely on the basis of the directors’ instructions) as being “key issues” currently facing the Group which are of “High” importance (see paragraph [86(1)] above).

75. [400]

    It is highly unlikely that the directors would have resolved to place the Appointment Entities into voluntary administration without first discussing their reasons for doing so. Empireal’s case is not that the directors did not have any reasons for placing these entities into voluntary administration, but rather that the stated “reasons” were not their “genuine” reasons for doing so. This was confirmed by Senior Counsel for Empireal in closing address:

76. [401]

    The critical issue, therefore, is not whether statements to the effect of those recorded in the “Reasons” Document were made at the board meetings, but whether the matters recorded in the “Reasons” Document are “contrived” and do not represent the “genuine” reasons for the passing of the VA Resolutions.

77. [402]

    I will address this issue by reference to the version of the “Reasons” Document that is the focus of Empireal’s pleading (see FASOC, [60]), namely, the version headed “Board Discussion prior to Appointment of VA”, which is attached to Mr Hooker’s email to Mr Heathcote and Mr Weir on 12 June 2020 (see paragraphs [158]-[159] above).

78. [403]

    As noted above, in sending this version of the “Reasons” Document to Mr Weir and Mr Heathcote, Mr Hooker asked them to review it and verify that they were “happy” with its contents, “as they are board minute details people will go over later”. Mr Heathcote subsequently provided some minor additions in mark-up, which were incorporated in the version that was sent to Gilbert + Tobin (see paragraphs [160]-[161] above).

79. [404]

    The directors of LJX Holdings and LJX were Mr Hooker and Mr Weir.

80. [405]

    The “Reasons” Document contained the following statements regarding the reasons for placing these entities into voluntary administration:

81. [406]

    Empireal does not allege that the reasons stated in the “Reasons” Document for placing LJX and LJX Holdings into voluntary administration were “contrived” or did not represent the “genuine” reasons of Mr Hooker and Mr Weir for doing so. Instead, Empireal’s allegations regarding the “Reasons” Document are confined to the reasons given for placing Empireal, LJHRES Holdings and LJH RES into voluntary administration. Empireal did not, in closing submissions, advance any submission that there was no sufficient or genuine basis for the appointment of administrators to LJX and LJX Holdings.

82. [407]

    Accordingly, the position of LJX Holdings and LJX may be dealt with briefly.

83. [408]

    The following matters were not in dispute:

    1. (1)

       LJX Holdings had failed to make the 2019 Repayment, either when it was originally due or by the extended payment date of 10 February 2020;

    2. (2)

       the IWI investment (which was to be used, in part, to pay outstanding amounts due under the Koi Facility) had failed to materialise;

    3. (3)

       LJX Holdings did not have any realistic prospect of repaying or refinancing the principal amount of the Koi Facility (which was due on 31 March 2021); and

    4. (4)

       LJX had guaranteed LJX Holdings’ liabilities under the Koi Facility.

84. [409]

    These were all matters that had been the subject of communications between the directors prior to 10 June 2020.

85. [410]

    Further, Gilbert + Tobin had advised, in the 18 May Advice (which was forwarded to Mr Agarwal), that the directors of LJX and its subsidiaries were “currently in a precarious position”, by reason that the IWI investment had fallen through and “the LJX group’s financial position has only deteriorated since then”. Gilbert + Tobin expressed the following view: “Given [LJX’s] cash flows, assets and liabilities, it is difficult to see how, in the absence of a substantial investment offer, the directors can resist appointing an administrator in the near term” (see paragraph [107] above).

86. [411]

    In the light of those matters, I am satisfied that the “Reasons” Document records the genuine reasons of the directors of LJX and LJX Holdings for placing those entities into voluntary administration.

87. [412]

    As outlined below, the (unchallenged) determination by Mr Hooker and Mr Weir that LJX and LJX Holdings were insolvent had significant ramifications for the solvency of each of Empireal, LJH RES and LJHRES Holdings.

88. [413]

    The directors of each of Empireal, LJH RES and LJHRES Holdings were Mr Hooker, Mr Weir and Mr Heathcote.

89. [414]

    The “Reasons” Document contained the following statements regarding the reasons for placing Empireal into voluntary administration:

90. [415]

    It is uncontentious that:

    1. (1)

       Empireal guaranteed the obligations of LJX Holdings as Borrower under the Koi Facility;

    2. (2)

       LJX Holdings failed to make payments to Koi of around $5m, which remained outstanding, and this constituted an Event of Default;

    3. (3)

       there was also an Event of Default by reason of LJX Holdings being placed into voluntary administration; and

    4. (4)

       by reason of those matters, Koi was entitled to issue a notice accelerating all outstanding amounts under the Koi Facility and to demand payment from Empireal; and

    5. (5)

       Empireal did not have any prospect of meeting such a demand.

91. [416]

    Notwithstanding those matters, Empireal submitted that the reasons set out above did not represent the genuine reasons of Mr Hooker (or of the other directors) for resolving to place Empireal into administration, including because Mr Hooker (and the other directors) were aware that:

    1. (1)

       pursuant to the terms of the Koi Facility, Empireal would not have any liability to Koi in respect of any outstanding amounts under the Koi Facility unless and until Koi issued a notice of default and demanded payment from Empireal; and

    2. (2)

       Koi had not taken any such step and instead was “supportive” of Empireal and of the LJ Hooker Group.

92. [417]

    Empireal submitted that, given those matters (of which Mr Hooker and his fellow directors were aware), the directors did not have any rational basis to form, and did not form, the opinion that Empireal was insolvent as at 10 June 2020.

93. [418]

    It is pleaded, and admitted, that:

    1. (1)

       Empireal only became liable to pay amounts guaranteed by it under the Koi Facility upon a demand being made (FASOC, [9]; Defence, [9]); and

    2. (2)

       as at, and up until, the appointment of the Administrators on 11 June 2020, Koi had not made any demand of Empireal to pay any outstanding amounts under the Koi Facility (FASOC [52(a)]; Defence [52(a)]).

94. [419]

    Importantly, the resolution passed by the directors of Empireal records that they were of the opinion that “the Company is insolvent or likely to become insolvent”.

95. [420]

    In Anchorage Capital at [255]-[256], the Court of Appeal (Ward P, Brereton JA, Griffiths AJA) noted that the administrators in that case were appointed (as here) under s 436A(1) of the Act, which provides that a company may appoint an administrator if the directors resolve that, in their opinion, “the company is insolvent, or is likely to become insolvent at some future time”. The Court observed as follows (emphasis in original):

96. [421]

    This is consistent with the “important social purpose” served by s 588G of the Act and related provisions, namely, “to engender in directors of companies experiencing financial stress a proper sense of attentiveness and responsible conduct directed towards the avoidance of any increase in the company’s debt burden”: Woodgate at [36].

97. [422]

    Mr Hooker and his fellow directors were aware, from the advice provided by Gilbert + Tobin in the first of their emails sent on 13 May 2020 (see paragraph [97] above), that their decision on 10 June 2020 to place LJX and LJX Holdings into voluntary administration gave rise to an event of default under the Koi Facility, wand therefore gave Koi an immediate entitlement to issue a notice accelerating the outstanding liabilities under the Koi Facility and demanding payment from Empireal.

98. [423]

    There was no dispute that, in the event that Empireal became liable to pay the amount due under the Koi Facility, it was unable to do so. (This conclusion was supported by Gilbert + Tobin’s 13 May 2020 advice, and also by the unchallenged expert evidence of Mr Alan Walker, who was an insolvency expert called by Mr Hooker.)

99. [424]

    Empireal contended that the matters outlined above did not give Mr Hooker and his fellow directors a sufficient or rational basis to conclude that Empireal was likely to become insolvent at some future time (namely, upon the issue of a notice and demand by Koi), because Mr Hooker and his fellow directors were aware that Koi was “supportive” of the LJ Hooker Group (including by making the “delinking” proposal and the “consensual sale” proposal) and therefore was unlikely to issue a notice accelerating the debt and a demand for repayment by Empireal. I address this issue below.

100. [425]

     Empireal relied upon the fact that Koi did not, at any time before Empireal was placed into voluntary administration on 10 June 2020, issue a notice of demand or reservation of rights letter, despite LJX Holdings having failed, on 10 February 2020, to make the 2019 Repayment and to pay the outstanding interest that was due under the Koi Facility.

101. [426]

     However, as Mr Hooker submitted, it is also true that Empireal had not extended the date for repayment of those amounts beyond 10 February 2020, and had not said anything to the effect that it had no intention of issuing a notice of default. This was deliberate. The Olympus IC memorandum of 21 February 2020 recorded that the “deal team” had recommended “not to take any enforcement action at this point but also not to provide a formal waiver of the payment default and covenant breach”, and to be “prepared to take enforcement action at short notice if we believe that equity investment [namely, the IWI investment] is unlikely” (see paragraph [61] above).

102. [427]

     Empireal submitted that Mr Hooker’s evidence that he was of the view that Koi had a “loaded gun” was “contrived” and a “recent invention” by Mr Hooker. I do not accept this submission, for the reasons given below.

103. [428]

     First, it was an express term of the Amendment Letter, by which Koi agreed to extend the date for payment of the 2019 Repayment, that a “failure by the Borrower to effect the 2019 Repayment, the Upcoming Interest Payment and/or the Upcoming Cash Interest by 10 February 2020 shall constitute an Event of Default for the purposes of clause 21.1 (Non-payment) of the Amended Subscription Agreement”. None of those payments was made by 10 February 2020. Accordingly, by reason of the non-payment, an “Event of Default” had occurred and was subsisting.

104. [429]

     Secondly, on 5 March 2020, Mr Agarwal informed Mr Hooker and Mr Weir that the Olympus IC had engaged in “a robust discussion … regarding the outstanding events of default under the [Koi Facility] relating to the missed payment in February and the breach of the December net leverage financial covenant”. Mr Agarwal added that while the Olympus IC was of the view that there had been progress with the IWI discussions, there were “strong concerns” about the delay in this process, and the issue of charging “default interest” had been raised. Mr Agarwal told Mr Hooker that the Olympus IC would be meeting again when they received an update on the IWI discussions (see paragraph [64] above). This email would not have given Mr Hooker or Mr Weir any comfort that Koi was supportive and was unlikely to take any steps to enforce its security. Instead, the email suggested that the Olympus IC was actively considering whether to act upon the subsisting Event of Default.

105. [430]

     Thirdly, Mr Agarwal did not subsequently say anything to Mr Hooker to indicate that the Olympus IC was unlikely to take any enforcement action. Instead, in May 2020, Koi had refused to provide funds to the LJX Group to allow them to meet payroll obligations. (Mr Agarwal acknowledged in cross-examination that, around this time, Koi was actively preparing for enforcement of its security and that there was a sense of urgency about being ready to take such action: see paragraphs [110]-[111] above).

106. [431]

     Fourthly, these were evidently matters of concern to the directors of Empireal by around May 2020. As noted above, the failure to pay amounts due under the Koi Facility, which remained outstanding, were referred to in the “For Your Eyes Only” Email and the Project Cork Report.

107. [432]

     Fifthly, in the first draft of the “Reasons Document”, Mr Hooker, immediately after referring to the subsisting default under the Koi Facility as a result of LJX Holdings’ failure to make the 2019 Repayment and to pay interest, noted that: “As a result, in April 2020, Olympus management notifie[d] us that their LPs [the Limited Partnerships which had provided the capital that was loaned by Koi] have stepped in and are now making all the decisions regarding their debt”.

108. [433]

     Finally, the “Reasons” Document recorded that LJX Holdings was in default under the Koi Facility, with no means of remedying this default; and that “Empireal is liable to remedy the LJX Holdings defaults and to repay the Olympus debt”. The latter statement is a reference to Koi’s ability to act upon the Event of Default (the “loaded gun”) by issuing a notice to Empireal demanding payment of all outstanding amounts under the Koi Facility.

109. [434]

     Having regard to those matters, I reject Empireal’s submission that Mr Hooker and his fellow directors believed, as at 10 June 2020, that it was unlikely that Koi would, as a result of administrators being appointed to LJX and LJX Holdings, issue a demand to Empireal for repayment of the Koi Facility. Instead, I am satisfied that they considered this to be a likely outcome of their decision to appoint administrators to LJX and LJX Holdings.

110. [435]

     Further, it is evident that Mr Hooker and his fellow directors were of the view, as at June 2020, that there was no prospect of repaying or refinancing of the Koi Facility on maturity in March 2021. In the first draft of the “Reasons” Document, Mr Hooker stated that: “Forecast leverage ratio for the Olympus debt would [be] more than 20 x at time of end of debt term, March 2021. No chance to refinance.” No submission was advanced by Empireal (and it was not put to Mr Hooker in cross-examination) that Mr Hooker did not genuinely hold this view regarding the lack of any prospect of refinancing, or that there was no rational basis for it.

111. [436]

     These matters, recorded in the “Reasons” Document provided a rational basis for Mr Hooker and the directors to form the opinion, and I am satisfied that they did form the opinion, that Empireal was likely to become insolvent in the future (either upon the issue of a demand by Koi or on the maturity of the Koi Facility).

112. [437]

     In submitting that “at all relevant times, Koi was supportive of the LJ Hooker Group, was not planning to enforce the Koi Facility, and was trying to find solutions to prevent Empireal from going into voluntary administration”. In particular, Empireal placed significant weight on the fact that Koi had advanced two “proposals” to avoid Empireal going into voluntary administration.

113. [438]

     The first was the “de-linking” proposal. Koi did not outline this proposal in any document. Instead, Mr Agarwal advanced this proposal in a telephone conversation with Mr Hooker and Mr Weir on 11 May 2020 (see paragraph [94] above). This proposal was pitched at a conceptual level. Mr Agarwal acknowledged in his affidavit evidence that “Mr Hooker and I did not discuss the mechanics of delinking in any detail”. In cross-examination Mr Agarwal’s described the “delinking” proposal as involving “changes to … the guarantee structure for [the Koi Facility], so that we can delink the core business from the technology business”. Mr Agarwal suggested that the result would be that “if, for any reason, … the technology business goes into VA, then I think … we can preserve the core business”.

114. [439]

     Shortly after this proposal was raised by Mr Agarwal on 11 May 2020, Mr Bowden advised, in his email of 13 May 2020 (being the email sent in two versions, at 1:45pm and 2:04pm), that this “delinking” proposal would not work. In particular, Mr Bowden advised that in the scenario (referred to by Mr Agarwal) where the LJX Group went into voluntary administration, the directors of Empireal would likely form the view that Empireal was insolvent or was likely to become insolvent, and that the only way in which there would be “the potential for this entity to avoid insolvency” would be “if Olympus wrote its entire debt off and/or released its guarantee and security”.

115. [440]

     Empireal submitted that any reliance by Mr Hooker on this advice was “not reasonable”, because he had dishonestly taken steps to cause the text of the advice to be changed, in an attempt to discourage Koi from pursuing its “delinking” proposal. I reject this submission, for reasons I have given above when addressing the changes to the 13 May 2020 email (see paragraphs [383] – [384] above).

116. [441]

     Mr Agarwal did not, on receipt of the 2:04pm version of the 13 May 2020 email, challenge or query any aspect of the advice provided by Gilbert + Tobin. Further, there is no evidence of Mr Agarwal raising the “de-linking” proposal for further discussion in the period between 13 May 2020 and the time when the VA Resolutions were passed. It is likely that, at the time of those resolutions, Mr Hooker was of the view that this proposal, which had been briefly floated by Mr Agarwal, was not a realistic or viable option, for the reasons identified by Gilbert + Tobin. (That conclusion is not affected by the fact that, after the resolutions were passed, Mr Agarwal requested that Gilbert + Tobin revisit their advice on this proposal: see paragraphs [172] – [175] above).

117. [442]

     The “consensual sale” proposal was made by Mr Agarwal on 17 May 2020. It was likely prompted by the unfavourable advice which Gilbert + Tobin had given several days earlier in relation to the “delinking” proposal. Once again, this proposal was not outlined by Mr Agarwal in any document. Instead, it was put forward in the course of a telephone conversation, was pitched at a high level and was short on detail (see paragraph [106] above). Mr Agarwal described it as a proposal “that Olympus and Mr Hooker undertake a joint sale process to find a buyer for 100% of the equity of the whole of the LJ Hooker business, being the technology and core business together”, with the process taking “approximately three months” and with Koi funding “the operating costs of the technology business (including salaries) until it was completed”.

118. [443]

     Gilbert + Tobin provided advice to Mr Weir and Mr Hooker on this proposal on the following day and, once again, the advice was unfavourable (see paragraph [107] above).

119. [444]

     In the 18 May Advice, Gilbert + Tobin referred to certain information which had been provided to them by the directors regarding the state of negotiations with Mr Fuchs, and expressed the view, based on this information, that “acceding to the Olympus proposal will involve significant risks for the directors and both LJX and LJ Hooker corporate groups with limited prospects of a positive outcome”. In particular, Gilbert + Tobin advised that “the directors should be mindful of their duties to the companies”, including the duty to avoid insolvent trading, and warned them that: “[c]ontinuing to trade the business without unlimited financial support, which we understand is not presently available, as above, is likely to give rise to material risks for the directors”.

120. [445]

     Empireal submitted that Mr Hooker was not entitled to rely on the 18 May Advice. In particular, Empireal noted that the advice was premised on information provided by Mr Hooker and Mr Weir that “the directors of LJX had received an offer of financial support from Michael Fuchs”, which “was attractive in that it offered immediate cash funding to the LJX group (to meet operating costs until breakeven) and included underwriting some of the group’s other liabilities going forward”. Empireal submitted that “there is no evidence of the directors of LJX having received any offer from Mr Fuchs as at 18 May 2020”, and that “Mr Hooker’s reliance on the 18 May Advice was unreasonable in circumstances where he gave incorrect instructions to Gilbert + Tobin”.

121. [446]

     There are a number of difficulties with this submission.

     1. (1)

        First, if Mr Hooker had given incorrect instructions to Gilbert + Tobin, then he must have deliberately done so (since, on Empireal’s argument, he would have been aware at the time that no such offer had been received). However, it was not put to Mr Hooker that he had given false instructions to Gilbert + Tobin.

     2. (2)

        Secondly, according to Gilbert + Tobin’s email, it appears that the instructions about Mr Fuchs’ offer had been given to them in a conversation with Mr Hooker and Mr Weir. It would follow that Mr Weir was complicit in deliberately giving false instructions to Gilbert + Tobin. There is no plausible reason as to why he would have done so (and none was advanced by Empireal).

     3. (3)

        Thirdly, the unstated premise of Empireal’s submission (which was not put to Mr Hooker) appears to be that he – and Mr Weir – gave deliberately false instructions to Gilbert + Tobin in order to procure unfavourable advice from them regarding the “consensual sale” proposal, for the purpose of dissuading Mr Agarwal from pursuing this proposal. However, there is an obvious flaw in any such contention. According to Gilbert + Tobin’s email, Mr Hooker and Mr Weir advised them of the offer from Mr Fuchs “last week” and therefore before Mr Agarwal made his “consensual sale” proposal (on the day before Gilbert + Tobin’s email was sent).

122. [447]

     For those reasons, I reject the contention that Mr Hooker was not entitled to rely on Gilbert + Tobin’s 18 May Advice.

123. [448]

     The 18 May Advice was forwarded to Mr Agarwal. He did not, prior to 10 June 2020, dispute, or raise any query about, any aspect of Gilbert + Tobin’s advice. Instead, immediately after receipt of the 18 May Advice, Koi took steps to engage Borrelli Walsh “in anticipation of potential enforcement actions” against the LJ Hooker Group, and in particular, sought that Borrelli Walsh commence their review and prepare a “work plan as soon as possible” (see paragraphs [110]-[111] above).

124. [449]

     Mr Agarwal did not raise or refer to the “consensual sale” proposal in further any communication with Mr Hooker, between 18 May 2020 and time when the VA Resolutions were passed. It is likely that, at the time of those resolutions, Mr Hooker was of the view that the “consensual sale” proposal was not a realistic or viable option, for the reasons identified by Gilbert + Tobin in the 18 May Advice.

125. [450]

     For those reasons, I reject Empireal’s submission that, having regard to Koi’s “supportiveness” for the LJ Hooker Group and the “proposals” which it had advanced, Mr Hooker and the other directors could not and did not, as at 10 June 2020, genuinely form the opinion, on rational grounds, that Empireal was insolvent or likely to become insolvent in the future.

126. [451]

     Empireal submitted that the fact that Empireal Holdings was not placed into voluntary administration (despite the fact that it was, like Empireal, a guarantor under the Koi Facility) “confirms that the board did not consider it appropriate to place companies into voluntary administration by reason of their status as a guarantor of LJX Holdings’ obligations under the Koi [Facility]”.

127. [452]

     However, as Senior Counsel for Mr Hooker pointed out in closing submissions, there was an important distinction between the position of Empireal and Empireal Holdings, which likely explains why it was not considered necessary to place Empireal Holdings into voluntary administration. In particular, the guarantee that was given by Empireal Holdings to Koi was a limited recourse guarantee, being limited to its shareholding in Empireal (see paragraph [27] above). Accordingly, the only practical consequence for Empireal Holdings of the guarantee being enforced would be the loss of that shareholding in Empireal.

128. [453]

     Mr Hooker relied on an expert report of Mr Alan Walker, who expressed the opinion that Empireal was insolvent as at 10 June 2020. Mr Walker was not required for cross-examination.

129. [454]

     Empireal submitted that Mr Walker’s opinion should not be given any weight, as it depended on “false assumptions”, namely that when the 2019 Repayment was not made by the extended date of 10 February 2020, Empireal “became liable as a guarantor of the debt”, with such amounts being “due and payable at this time due to a default”. (As noted at paragraph [418] above, it is pleaded, and admitted, that Empireal only became liable to pay amounts guaranteed by it under the Koi Facility upon a demand being made, and that, prior to the appointment of the Administrators, no such demand was made.)

130. [455]

     Mr Hooker submitted that the Court would not reject Mr Walker’s opinion on this basis, as Mr Walker had “treated the question of solvency in the same way that the directors did, ignoring the legal technicalities and looking at the commercial reality of what that guarantee meant”.

131. [456]

     It is not necessary to resolve this dispute. The question before the Court is not whether Empireal was in fact solvent as at 10 June 2020. Instead, the question is whether Mr Hooker (and his fellow directors) genuinely formed the opinion on 10 June 2020, on rational grounds, that Empireal was insolvent or likely to become insolvent in the future.

132. [457]

     These are two separate enquiries (see Anchorage Capital at [256]-[257]; and Downey v Crawford [2004] FCA 1264 at [189] (Weinberg J)). Directors may act consistently with their duties in forming the relevant opinion and resolving to place a company into administration pursuant to s 436A of the Act, even though it is subsequently established (on, for example, an application pursuant to s 447A to end the administration) that the company is, in fact, solvent.

133. [458]

     For the reasons given above, I am satisfied that, as at 10 June 2020, Mr Hooker and his fellow directors genuinely held the opinion, on rational grounds, that Empireal was insolvent or was likely to become insolvent in the future, and that their reasons for voting in favour of a resolution to place Empireal into voluntary administration were as recorded in the “Reasons” Document.

134. [459]

     The “Reasons” Document includes the following statements regarding LJH RES:

135. [460]

     As set out above, there are four main matters to which reference was made in respect of LJH RES.

136. [461]

     The first matter was that the operating subsidiaries of LJH RES had experienced a significant reduction in operating cash flow and were forecasting further reductions.

137. [462]

     Empireal did not, in its closing written submissions, dispute the accuracy of this statement. It is supported by the forecasts which had been prepared by PwC in late April 2024 (and had been forwarded by Mr Heathcote to Koi), and which showed significant and ongoing negative cash flow.

138. [463]

     The second matter was that the impairment of accrued payments due from LJX would result in a significant write down in LJH RES’s EBITDA, which would place LJH RES in default of the borrowing ratio covenant in the ICG Facility, with no reasonable prospect of remedying its default.

139. [464]

     Empireal did not dispute that there would be such a default, or that LJH RES had no prospect of remedying it. However, Empireal submitted that the significance of any such default would depend on the attitude of ICG, and that ICG was supportive of the LJHRES Group.

140. [465]

     Mr Hooker was cross-examined on this issue at some length. An extract is set out below.

141. [466]

     Empireal submitted that Mr Hooker “would not accept the obvious proposition that a breach of an EBITDA covenant depended on the attitude of ICG” and gave “a different unresponsive answer” each time this was put to him. Empireal submitted that the Court should find that “Mr Hooker’s answers were untruthful and designed to mislead the Court”.

142. [467]

     I reject this submission. There was nothing dishonest or evasive about Mr Hooker’s responses to these questions.

143. [468]

     Insofar as Mr Hooker pointed out – in response to suggestions that ICG was “supportive” of the LJ Hooker Group – that ICG was supportive so long as it was in its stakeholders’ interests to be supportive, Empireal acknowledged in its submissions that this qualification “may be accepted”.

144. [469]

     I accept that ICG had made some statements, in March 2020, that it was “supportive” of the LJ Hooker Group (see paragraphs [71] and [73] above). Those statements were made at an early stage in the COVID-19 pandemic. From then until June 2020, there were extended lockdowns in much of Australia. Mr Hooker noted in the first draft of the “Reasons” Document that, since the commencement of the lockdowns in March 2020, “sales volume in the LJ Hooker franchise network have decreased by c. 50% and at the end of May more than 200 franchise offices were 60+ days in arrears (40% of the network total)”. In this highly uncertain and evolving economic environment, statements of “support” at an earlier point in time were of limited significance. For example, whereas IWI had been looking at investing $20m into the LJX Group in March 2020, and had completed satisfactory due diligence, it had, by 5 May 2020, indicated that, due to the pandemic, it no longer had any interest in this investment.

145. [470]

     In submitting that Mr Hooker was aware that ICG was “supportive”, Empireal pointed out that ICG was willing, in the Restructuring Support Deed, to amend the ICG Facility so as to remove the debt ratio covenant altogether. However, ICG was willing to make that amendment in circumstances where there was a further investment by Mr Fuchs in the LJHRES Group, with such moneys being paid in reduction of the ICG Facility. This does not provide a basis to conclude that ICG would have been, absent such investment and payment (which would only occur in the event of a restructure of the Group), willing to remove the debt ratio covenant or waive any default in respect of that covenant.

146. [471]

     Further, Mr Hooker explained, in the passage of cross-examination quoted at paragraph [465] above, why he would not accept the proposition that the significance of the breach of the borrowing ratio covenant was wholly dependent on ICG’s attitude. In particular, he explained that the ICG Facility was due to mature in December 2020 and that the failure to maintain the required borrowing ratio would preclude refinancing of the ICG Facility, which LJH RES could not repay.

147. [472]

     Empireal did not, in its submissions, advance any reasons why Mr Hooker’s stated concerns about LJH RES’s inability to refinance or repay the ICG Facility upon its maturity should be rejected, or were not valid concerns as at 10 June 2020.

148. [473]

     I am satisfied that Mr Hooker and his fellow directors had in mind, as at 10 June 2020, LJH RES’s inability to refinance the ICG Facility, when considering the significance of a breach of the covenants in that facility. The first draft of the “Reasons” Document, which Mr Hooker sent to his fellow directors on 10 June 2020, included the following statements in relation to the decision to place “LJHRES into VA” (emphasis added):

149. [474]

     In addition, Mr Hooker noted in the first draft of the “Reasons” Document that since the COVID-19 pandemic “kicked in”, “the two listed agency comparables, McGrath Ltd and The Agency Ltd, have seen their share price down 40% and 42% respectively” and that The Agency had been unable to refinance its debt with Macquarie Bank that was due in March 2020. Similarly, in the “For Your Eyes Only” Email, Mr Hooker stated that the impact of the COVID-19 pandemic had “destroyed any hopes of market recovery or refi[nance] in 2020”.

150. [475]

     The third matter referred to in the “Reasons” Document is that LJH RES was required to make a payment of interest and principal to ICG, in the amount of $2.1m on 30 June 2020 and a further payment of interest in the amount of $550,000 in September 2020, and did not have funds to make either payment. Empireal did not dispute that these amounts were due to be paid, but said that:

     1. (1)

        the practice in the past (as Mr Hooker accepted in cross-examination) had been that LJ Hooker Corporation, which was generating revenue and was cash flow positive, made principal and interest payments to ICG on behalf of LJH RES; and

     2. (2)

        LJ Hooker Corporation did in fact subsequently make the June 2020 payment on behalf of LJH RES.

151. [476]

     In this regard, Empireal relied on an email from Mr Heathcote to ICG on 3 July 2020, which included the following statement in respect of LJH RES’s intercompany balances:

152. [477]

     It is not clear from this statement, which refers to an (unquantified) amount of “interest paid to ICG” during June 2020, whether LJ Hooker Corporation paid the whole, or part, of the amount of $2.1m that was required to be paid to ICG for “principal and interest” by 30 June 2020. Empireal did not point to any evidence of the quantum of any payment made by LJ Hooker Corporation to ICG in June 2020. (The journal extracts attached to Mr Heathcote’s email include a balance sheet for LJH RES’s intercompany loan to LJ Hooker Corporation, which does not refer to any payments being made after 30 April 2020.)

153. [478]

     Even assuming that LJ Hooker Corporation did pay the whole of the amount of principal and interest that was due by 30 June 2020, this would not establish that the concern expressed in the “Reasons” Document that funds would not be available for this payment was not a genuine concern as at 10 June 2020. In particular, as noted above, Empireal did not dispute, in closing submissions, the proposition in the “Reasons” Document that, as at 10 June 2020, LJH RES’s operating subsidiaries (which included LJ Hooker Corporation) “had experienced a significant reduction in operating cash flow and were forecasting further reductions”.

154. [479]

     The fourth matter referred to in the “Reasons” Document was that LJH RES “owes the ATO approximately $3.8 million under a payment plan which expires on 30 June 2020” and “does not have the funds” to make this payment.

155. [480]

     I accept Empireal’s submission that this statement is incorrect, in that:

     1. (1)

        according to the Project Cork Report, the amount of $3.8m represented the total tax liabilities of the LJ Hooker Group (including the New Zealand entities), rather than the tax liabilities of LJH RES itself, with the largest share of those liabilities being owed by LJ Hooker Corporation; and

     2. (2)

        it is admitted on the pleadings that, as at 11 June 2020, prior to the appointment of the Administrators, the ATO was prepared to defer the obligations of entities within the LJ Hooker Group to pay PAYG tax and GST until 30 September 2020 (FASOC, [54]; Defence, [54]).

156. [481]

     However, I do not accept Empireal’s submission that Mr Hooker gave “untruthful” evidence when he gave the following answers in cross-examination:

157. [482]

     It is understandable that Mr Hooker was unable to recall, more than five years after the event, the respective tax obligations of particular entities within the LJ Hooker Group. Further, in these answers, Mr Hooker did not dispute the proposition that the ATO was prepared to defer the tax obligations to 30 September 2020, but simply indicated that, unsurprisingly, he could not, as at December 2025, recall precisely what he understood about those matters as at 10 June 2020.

158. [483]

     It is likely that the incorrect statements made in the “Reasons” Document about LJH RES’s obligations to the ATO were the result of error, rather than deliberate misstatement. There was plainly uncertainty as amongst the directors of LJH RES about the precise extent of the tax liability, with different drafts of the “Reasons” Document referring to a liability of $2m, which was then changed to $3.8m, and then amended (in the version sent to Gilbert + Tobin) to $3m.

159. [484]

     Putting to one side the statements regarding the ATO, I am satisfied that the other matters stated in the “Reasons” Document in relation to LJH RES provided a rational basis for Mr Hooker and the other directors to form the opinion, as at 10 June 2020, that LJH RES was insolvent or likely to become insolvent, and that they did genuinely form such an opinion on that date based on those matters. I therefore reject Empireal’s contention that the matters stated in the “Reasons” Document were “demonstrably false” and do not represent the genuine reasons of Mr Hooker and the other directors for resolving to place LJH RES into voluntary administration.

160. [485]

     The “Reasons” Document includes the following statements regarding LJHRES Holdings:

161. [486]

     In short, by reason that LJHRES Holdings had guaranteed LJH RES’s obligations under the ICG Facility, the directors’ conclusion that LJHRES Holdings was insolvent or was likely to become insolvent in the future was based on, and followed from, their similar conclusion regarding LJH RES.

162. [487]

     Empireal made three main submissions as to why the Court should conclude that these did not represent the genuine reasons of the directors (including Mr Hooker) for placing LJHRES Holdings into voluntary administration.

163. [488]

     First, Empireal submitted as follows (emphasis added): “the proposition that LJHRES Holdings had current obligations under the ICG Facility as at 10 June 2020 is contrary to Mr Hooker’s admitted position in this proceeding” (namely, that LJHRES Holdings did not, prior to the appointment of the Administrators, have any such obligation under its guarantee).

164. [489]

     However, the “Reasons” Document did not state that LJHRES Holdings had any such “current obligations”. Instead, the “Reasons” Document was forward-looking, stating that LJHRES Holdings “has no prospect of meeting its obligations under its guarantee”. Empireal did not dispute the proposition that, as at 10 June 2020, LJHRES Holdings would be unable to meet any demand that was made under the ICG guarantee.

165. [490]

     Secondly, Empireal submitted that Mr Hooker was aware that ICG was “supportive” of the LJ Hooker Group. I have already addressed this submission above, when dealing with the position of LJH RES.

166. [491]

     Thirdly, Empireal noted that, although LJ Hooker Corporation and certain other operating entities in the LJHRES Group were, like LJHRES Holdings, guarantors of the ICG Loan, none of those other entities was placed into voluntary administration, and submitted that this fact:

167. [492]

     Empireal submitted that Mr Hooker refused to accept, in cross-examination, “the obvious proposition that as guarantors of the ICG [Facility], LJHRES Holdings was in no different position to LJ Hooker Corporation or LJ Hooker Pty Ltd”; that he gave “obfuscatory evidence” and “no satisfactory response” to the proposition that, if he thought that LJHRES Holdings was insolvent by reason of the ICG guarantee, then the same would follow for the other entities; and that the Court should therefore find that the stated reasons for placing LJHRES Holdings into administration were “confected”.

168. [493]

     I reject these submissions. The relevant passage of Mr Hooker’s cross-examination included the following questions and answers:

169. [494]

     The contemporaneous evidence establishes that Mr Hooker had a genuine concern, as at 10 June 2020, that placing any of the operating entities in the LJHRES Group into voluntary administration would cause brand damage, as each of those entities (unlike the entities which were placed into voluntary administration) bore the “LJ Hooker” name. For example:

     1. (1)

        on 3 May 2020, Mr Hooker stated, in the “X File” Email to Mr Weir, that there would “be less fall out in media maybe” if the entities put into voluntary administration “don’t have the LJ Hooker name in them”;

     2. (2)

        on 3 June 2020, Mr Hooker stated in his email to Ms Dickson that “Brand Risk” to the Group was mitigated by the fact that “[t]he entities going into VA are holding companies that do not have the LJ Hooker name in them” (see paragraph [144] above); and

     3. (3)

        on 10 June 2020, Mr Hooker stated, at the commencement of his telephone conversation with Mr Agarwal about the appointment of the Administrators, that no appointments were being made to any companies which included the “Hooker” name “because … we think we can minimise the PR and brand damage if they don’t have the Hooker name in it” (see paragraph [166] above).

170. [495]

     This is an important point of distinction between, on the one hand, the position of LJHRES Holdings and, on the other, the position of LJ Hooker Corporation and the other operating entities within the LJHRES Group (all of which included “LJ Hooker” in their name).

171. [496]

     There were further points of distinction between these entities. In particular:

     1. (1)

        unlike the various operating entities in the LJHRES Group, LJHRES Holdings had no assets other than its shareholding in LJH RES (which was the borrower under the ICG Facility); and

     2. (2)

        the proposed restructure (being the one contained in the document provided by Gilbert + Tobin to Mr Weir and Mr Hooker on 1 June 2020, see paragraphs [133]-[136] above) involved BidCo acquiring the shares in LJH RES that were held by LJHRES Holdings, which would have the result that the operating entities would also become subsidiaries of BidCo, with further equity being injected into the LJHRES Group and the ICG Facility being amended. There was no need for any of the operating subsidiaries in the LJHRES Group to be placed into voluntary administration for this restructure to be effected.

172. [497]

     For those reasons, I reject Empireal’s contention that the matters stated in the “Reasons” Document were “demonstrably false” and did not represent the genuine reasons of Mr Hooker and the other directors for resolving to place LJHRES Holdings into voluntary administration.

173. [498]

     I am satisfied that the matters stated in the “Reasons” Document provided a rational basis for Mr Hooker and the other directors to form the opinion, as at 10 June 2020, that LJHRES Holdings was insolvent or likely to become insolvent in the future, and that they did genuinely hold such an opinion on that date based on those matters.

174. [499]

     Empireal contends that, in voting in favour of the VA Resolutions, Mr Hooker’s purpose was to obtain a personal benefit from the restructure of the LJ Hooker Group, namely, to obtain ownership of the LJHRES Group for nominal consideration free of the Koi debt.

175. [500]

     In assessing whether Mr Hooker was acting for this improper purpose, it is relevant to have regard to the evidence regarding the nature and value of Mr Hooker’s interest in the proposed restructure, and regarding Mr Hooker’s understanding of those matters at the time. If the evidence establishes that Mr Hooker believed or understood that he stood to gain a substantial personal benefit from the restructure, then that is a matter that may support an inference that he was acting for the purpose of obtaining this benefit. If, however, the evidence establishes that there was no reason for Mr Hooker to believe, at the relevant time, that he would have more than a nominal interest in the restructure, it is less likely that he would have dishonestly exercised his powers as a director for the purpose of securing this benefit for himself.

176. [501]

     As a starting point, it is common ground that, as a result of the restructure, Mr Hooker became the beneficial owner of the sole share in the ultimate holding company of the entities in the LJHRES Group which operate the Core Business. In particular:

     1. (1)

        following the restructure, MF LJH Investment held 100% of the shares in each of LJH RES and LJ Hooker Ltd (with LJ Hooker Ltd owning 100% of the shares in LJ Hooker Corporation, which in turn owned six subsidiaries which operated the Core Business); and

     2. (2)

        the ultimate holding company of MF LJH Investment was MF LJH Nominees (the sole share in which has been held, at all times, on trust for Mr Hooker).

177. [502]

     Further, it is common ground that MF LJH Investment obtained its 100% shareholding in LJH RES for $1.00.

178. [503]

     As has been explained above, the restructure that was in fact implemented is consistent with the restructure that was proposed in the Restructuring Support Deed that was entered on 11 June 2020 (see paragraph [182]ff). Although the identity of BidCo changed (namely, from L.J. Hooker Investments to MF LJH Investment), and the precise corporate structure changed, it remained the case that BidCo, of which Mr Hooker was the ultimate beneficial owner, was purchasing the shares in LJH RES for $1.00 and was obtaining ownership of the operating entities in the LJHRES Group.

179. [504]

     Empireal submitted that Mr Hooker conceded that this restructure conferred a benefit on him personally and, in that regard, referred to the following passage of cross-examination:

180. [505]

     As the opening question of this passage of transcript indicates, this series of questions was about a form of restructure which was not in fact implemented, namely, a restructure through a consensual sale (which was described in the relevant Gilbert + Tobin document as “Option 1”), rather than a restructure in a voluntary administration (which was described as “Option 2”): see paragraph [136] above.

181. [506]

     The passage of cross-examination in which Mr Hooker was taken to the Restructuring Support Deed and asked about its key elements is as follows (emphasis added):

182. [507]

     Mr Hooker conceded that the outcome of the restructure was that he was the sole beneficial owner of “the share that owned the LJ Hooker Group”, but did not concede that he understood that this conferred a benefit of any substance on him personally, by reason that it was “completely out of the money”.

183. [508]

     Each of the parties led expert evidence regarding the value, as at 10 June 2020, of the shares in LJH RES and LJ Hooker Ltd (both of which became wholly owned by MF LJH Investment). I address below this valuation evidence, when dealing with the issue of quantum.

184. [509]

     In particular, the experts have expressed opinions on the valuation of the shares in a number of entities in the LJ Hooker Group, based on the information provided to the experts. This expert evidence goes to the question of the value of the benefit that Mr Hooker in fact received from the restructure.

185. [510]

     However, the issue I am presently considering is whether Mr Hooker perceived, at the relevant time (namely as at 10 June 2020, when the VA Resolutions were passed), that his beneficial interest in BidCo would be, following the restructure, of substantial, or only nominal, value. His perceptions at the time are relevant to an assessment of whether he was acting for the purpose of obtaining this benefit, and an assessment of the likelihood that he engaged in serious dishonest behaviour (including “confecting” reasons for placing Empireal, LJHRES Holdings and LJH RES into voluntary administration) in order to achieve that purpose.

186. [511]

     The Project Cork Report provided KPMG’s estimate of the value of the assets of the LJHRES Group that were available to the secured creditor (namely, ICG). According to KPMG’s analysis, the estimated realisable value of those assets on a “low” case scenario was $10.45m, and on a “high” case scenario was $40.80m.

187. [512]

     As the Project Cork Report noted, the amount of ICG’s debt was $38m, such that there would be, on the “high” case, some $2.80m available in LJH RES after assets were realised and the ICG debt was repaid in full. However, any such amount would not be available to be distributed or paid by way of dividend to LJH RES’s shareholder (LJHRES Holdings), as the LJHRES Group also had (according to KPMG’s analysis) around $7.11m of unsecured creditors, including trade creditors of $1.71m and statutory liabilities in respect of PAYG and GST in the amount of some $2.38m. Those matters supported a conclusion that the value of the equity in LJH RES was nil.

188. [513]

     Empireal referred to KPMG’s statement that, in determining the value of the intangible assets of the LJHRES Group, “a normalised EBITDA of $9.2m” had been adopted, and submitted that this undervalued those assets because the experts in this proceeding had agreed that the normalised EBITDA was $12.5m. However, for the purposes of assessing what information regarding value was available to Mr Hooker as at 10 June 2020, the opinions of experts in 2025 can be of little assistance. The Project Cork Report identified the basis on which the figure for normalised EBITDA had been derived. Empireal did not submit that it would have been apparent to Mr Hooker that KPMG’s figure for normalised EBITDA was not soundly based, and no such proposition was put to him in cross-examination.

189. [514]

     Empireal also pointed out that the KPMG “high case” assumed that the assets of the LJHRES Group are realised through a voluntary administration, rather than a market sale. I accept that submission. At the same time, the Project Cork Report stated that an assumption was made that each of the assets would be realised on a going concern basis, and that the value of each asset was estimated “on a best case scenario assuming the group can continue to trade and value is preserved”.

190. [515]

     In the “For Your Eyes Only” Email, Mr Hooker informed Mr Fuchs that:

191. [516]

     This comment was written in April 2020, in the midst of the first major COVID lockdowns in Australia. Mr Hooker was expressing the view that, on the assumption that the market would recover, in July to December 2020, to the levels achieved in 2019, the LJH RES business (being the Core Business) would have a value of around $35m and that (consistently with this) ICG had reached the view that the value of their loan should be written down from $38m to $30m.

192. [517]

     That Mr Hooker held this view in April 2020 is further supported by the fact that, when he provided Mr Weir with an (identically worded) draft of the paragraph which is quoted above, prior to sending the final version of the “For Your Eyes Only” Email to Mr Fuchs, Mr Hooker wrote, immediately below, the following query:

193. [518]

     That is, from Mr Hooker’s perspective, in circumstances where the value of the Core Business was around, or less than, the value of the secured debt owing under the ICG Facility, the only economic rationale to support Mr Fuchs’ proposed investment into the Core Business was its potential future value, rather than its present value.

194. [519]

     Although Mr Hooker was cross-examined at some length about the “For Your Eyes Only” Email, it was not put to him that he did not genuinely hold, as at 24 April 2020, the views regarding the value of the LJH RES business which are set out at paragraph [515] above. Instead, Empireal’s submissions in respect of this email proceeded on the basis that Mr Hooker did in fact hold the views which he recorded regarding “global comparables” and the appropriate “EBITDA multiple”:

195. [520]

     It is suggested, in the submission quoted above, that the multiple nominated by Mr Hooker should be applied to a higher EBITDA, but it was not put to Mr Hooker that he appreciated, at the time, that the normalised EBITDA was in excess of the figure which he stated to Mr Fuchs (let alone that the true figure was almost twice that number).

196. [521]

     Further, insofar as Mr Hooker considered that the potential for “future value” of the LJHRES Group provided a rationale for Mr Fuchs to invest in the Group, Mr Hooker was aware, as at 10 June 2020, that Mr Fuchs was proposing to invest further money into the LJHRES Group, following the transfer of the shares in LJH RES to BidCo, on the basis of a convertible loan agreement. Mr Hooker was also aware that, before any amounts were available to be paid to himself (as ultimate beneficial owner of BidCo) by way of a distribution or dividend, it would be necessary for Mr Fuchs to receive his full entitlements in respect of this agreement, including any interest. In particular, Mr Hooker had received drafts of the Convertible Loan Agreement, and was aware that, as he told Mr Weir on 2 June 2020, Mr Fuchs was willing to invest $10m on the basis that he would receive “10% return on the new $10 m, plus capital back on what he has invested into the company prior - $6 m” (see paragraphs [140]-[141] above). That is, Mr Fuchs would, by reason of his investment, be entitled to receive a total amount of $17m from HoldCo. (It should be noted that the experts agreed that this amount of $17m should be deducted before determining the value of Mr Hooker’s interest in the restructured group.)

197. [522]

     Having regard to those matters, I am satisfied that it was Mr Hooker’s view, as at 10 June 2020, that his beneficial ownership of the sole share in the entity that was to be, after the proposed restructure, the ultimate holding company of the LJHRES Group was of only nominal value.

198. [523]

     Further, I am satisfied that Mr Hooker proposed a restructure in which he would hold the sole share in the ultimate holding entity of the LJHRES Group because he considered that this structure was in the interests of the entities in the LJHRES Group (rather than to advance his own self-interest). In particular, I note the following matters.

     1. (1)

        First, Mr Hooker was of the view that the ultimate holding entity of the Core Business needed to be owned by himself, rather than Mr Fuchs, because Mr Fuchs was not an Australian resident and therefore any transfer of ownership to him would be subject to Foreign Investment Review Board approval. In a document which Mr Hooker prepared and sent to Gilbert + Tobin on 26 May 2020, which set out the steps necessary in order to achieve a restructure, including “Incorporate Bidco”, Mr Hooker stated that this entity would be “100% owned by Janusz [Mr Hooker] (Australian resident therefore no FIRB [Foreign Investment Review Board])” and that Mr Fuchs, who was not an Australian resident, “can be a director”.

     2. (2)

        Secondly, Mr Hooker was also of the view that if he no longer owned shares in the entity that owned the LJHRES Group, this would trigger the “Change of Control” provisions in the ICG Facility (which are summarised in paragraph [44] above). A “Change of Control” was not an event which gave ICG the right to issue a notice of default. Instead, cl 7.5 of the ICG Facility provided that upon the occurrence of a “Change of Control”, the ICG Facility would be cancelled and all amounts owing, including all accrued interest and all break costs, would become immediately due and payable, with such amounts being required to be paid within five business days. Mr Hooker stated in his email to Ms Dickson of 3 June 2020 that a benefit of the proposed restructure was that it avoided a change of control: “When emerge from VA there is no change of control of all companies — namely founding Hooker family, L. Janusz Hooker still in control” (see paragraph [144] above).

     3. (3)

        Thirdly, Mr Hooker was of the view, as also recorded in his email to Ms Dickson, that the continued association of his name – and also the founder’s name – with control of the Core Business would reduce the negative PR consequences of the voluntary administration process, stating that “Brand Risk” was mitigated by the fact that “L. Janusz Hooker still in control”.

199. [524]

     Empireal submitted that “Mr Hooker accepted in cross-examination that he voted in favour of placing Empireal, LJHRES Holdings and LJH RES into voluntary administration with the intention of bringing about a restructure which resulted in him becoming the owner of the restructured LJ Hooker Group free of the Koi debt”. The relevant passage of cross-examination on which Empireal relied in support of this submission is as follows:

200. [525]

     The terms in which Empireal’s submission is framed suggests that, in this passage of cross-examination, Mr Hooker conceded that, in voting in favour of the VA Resolutions, he was acting with the intention of becoming the owner of the LJ Hooker Group free of the Koi debt. He did not make any such concession. Instead, the position is more accurately put as follows. Mr Hooker conceded that he voted in favour of placing Empireal, LJHRES Holdings and LJH RES into voluntary administration with the intention of bringing about the restructure that was set out in the Restructuring Support Deed, and conceded that this restructure:

     1. (1)

        had, as one of the elements, that Mr Hooker would hold the sole share in the ultimate holding company of the LJHRES Group; and

     2. (2)

        resulted in “Koi being out of the structure”.

201. [526]

     For the reasons given above, Empireal has not established:

     1. (1)

        that the “Reasons” Document does not record the genuine reasons of Mr Hooker and the other directors for placing Empireal, LJHRES Holdings and LJH RES into voluntary administration; or

     2. (2)

        that Mr Hooker voted in favour of the VA Resolutions for the purpose of obtaining the “Personal Benefits” pleaded in the FASOC; or

     3. (3)

        that Mr Hooker (or for that matter, Mr Weir or Mr Heathcote) engaged in any dishonest conduct by voting in favour of the VA Resolutions, or in creating the “Reasons” Document.

202. [527]

     I am satisfied that Mr Hooker, Mr Weir and Mr Heathcote voted in favour of the VA Resolutions because they genuinely formed the opinion, on the information available to them and on rational grounds, that each of the Appointment Entities was insolvent, or was likely to become insolvent in the future; and that the “Reasons” Document records the matters on the basis of which Mr Hooker and his fellow directors reached those views.

203. [528]

     Further, I am satisfied that:

     1. (1)

        Mr Hooker was of the view that, although he would, following the restructure, hold the sole share in the ultimate holding company of the LJHRES Group, this share would have only nominal value as at the date of that restructure; and

     2. (2)

        in proposing and pursuing the restructure of the LJHRES Group that was the subject of the Restructuring Support Deed, Mr Hooker was not seeking to obtain any personal benefit for himself, but was instead acting in what he reasonably perceived to be the interests of the LJHRES Group.

Claims regarding VA Resolutions

1. [529]

   In closing written submissions, Empireal advanced three main claims against Mr Hooker in relation to the VA Resolutions:

   1. (1)

      first, Mr Hooker breached his fiduciary duties and, in particular, breached the conflict rule;

   2. (2)

      secondly, Mr Hooker contravened ss 181(1)(b) and 182 of the Act; and

   3. (3)

      thirdly, Mr Hooker contravened s 181(1)(a) of the Act.

2. [530]

   The first claim was advanced in respect of the VA Resolutions concerning each of Empireal, LJHRES Holdings and LJH RES, while the second and third were advanced only in respect of the VA Resolutions concerning Empireal.

3. [531]

   In closing written submissions, Empireal submitted that:

   1. (1)

      Mr Hooker had a personal interest in placing Empireal, LJHRES Holdings and LJH RES into voluntary administration “because it was a step in the restructure to obtain ownership of the LJ Hooker Group free of the Koi debt”;

   2. (2)

      it was contrary to Empireal’s interests for each of those entities to be placed into voluntary administration “where there was no proper basis for doing so”, given that “Empireal was not insolvent or nearing insolvency before 10 June 2020” and “there is no evidence that LJHRES Holdings or LJH RES were insolvent or nearing insolvency as at that date”. It was submitted that placing the companies into voluntary administration in those circumstances triggered a demand from Koi to Empireal “which rendered Empireal insolvent”, and “paved the way for the restructure of the LJ Hooker Group, which rendered Empireal’s only valuable asset, its shareholding in LJHRES Holdings, worthless”; and

   3. (3)

      “it was in Empireal’s interests to pursue the proposals put forward by Koi to avoid being placed into voluntary administration”.

4. [532]

   Empireal submitted that, by reason of the matters set out above, the Court should find that Mr Hooker breached the conflict rule by voting in favour of the VA Resolutions “because he acted in a position where his personal interests clearly conflicted with the interests of Empireal in relation to which he owed fiduciary duties”.

5. [533]

   Having regard to the findings I have made, this claim must fail.

6. [534]

   In particular, I have found that Mr Hooker (and his fellow directors) genuinely held the opinion, as at 10 June 2020, on rational grounds, that each of Empireal, LJHRES Holdings and LJH RES was insolvent or was likely to become insolvent in the future. This provided a proper basis, pursuant to s 436A of the Act, for the directors to resolve to place each of those entities into voluntary administration.

7. [535]

   Further, it was consistent with the duties of the directors, and in the interests of the shareholders and of the creditors of each of those companies, for the directors to take steps at that time which were “directed towards the avoidance of any increase in the company’s debt burden”: Woodgate at [36]. This was a matter to which Mr Hooker referred in cross-examination:

8. [536]

   I have also found that, as at 10 June 2020, Mr Hooker was justified in proceeding on the basis that both the “delinking” proposal and the “consensual sale” proposal, which had been briefly floated by Mr Agarwal without any details (and had been the subject of adverse advice from Gilbert + Tobin), were not realistic or viable options for the LJ Hooker Group.

9. [537]

   It follows that the matters upon which Empireal relied as giving rise to the alleged conflict on the part of Mr Hooker have not been established.

10. [538]

    Senior Counsel for Mr Hooker submitted, in closing oral address, that it was doubtful that any director could breach the conflict rule when voting in favour of a resolution that the company be placed into voluntary administration. The thrust of the submission was that the passing of such a resolution by a board of directors does not involve any dealing in respect of the company’s property, business or affairs, but instead results in the control of the company’s property, business or affairs being transferred from the existing officers of the company (the directors) to another person who will, on appointment, become an officer of the company (the administrator).

11. [539]

    In particular, Senior Counsel for Mr Hooker submitted that directors who vote in favour of placing a company into voluntary administration generally do so in “the hope that a DOCA is going to be put forward and an invariable consequence of a DOCA is that directors can’t be sued for insolvent trading”; and hence, if it were correct that a director who might obtain some personal benefit as a result of an administration process was in a position of conflict when voting on a resolution to place a company into administration, then directors would regularly be breaching their fiduciary duties by doing so.

12. [540]

    As outlined above, the authorities emphasise that any question as to whether a fiduciary has breached the conflict rule must be determined by reference to the scope of his or her fiduciary obligations, which must in turn be determined by reference to the precise circumstances of the particular case. Given that is so, it is undesirable and unhelpful to express any view, in general terms, as to whether or not the conflict rule applies, or is capable of applying, to a decision by a director to vote in favour of a resolution to place a company into voluntary administration. It is sufficient, in the present case, to resolve Empireal’s claim that Mr Hooker breached the conflict rule by voting in favour of the VA Resolutions to find (as I have found, for the reasons given above) that the particular matters on which Empireal relied as giving rise to a conflict or possible conflict have not been established.

13. [541]

    It follows that Empireal’s claim that Mr Hooker breached the conflict rule by voting in favour of the VA Resolutions must be dismissed.

14. [542]

    Empireal claimed that “Mr Hooker’s substantial purpose in voting in favour of a resolution to place Empireal into voluntary administration was an improper one; namely for the purpose of permitting a restructure of the LJ Hooker Group so as to allow Mr Hooker to obtain ultimate ownership of the Group free of the Koi debt”. On that basis, Mr Hooker was alleged to have contravened ss 181(1)(b) and 182 of the Act, and to have breached the equivalent duties which he owed at general law, by acting for an improper purpose when he placed Empireal into voluntary administration so as to gain an advantage for himself and to cause detriment to Empireal.

15. [543]

    By reason of the findings I have made, this claim has not been established. I have found that Mr Hooker voted in favour of the resolution to place Empireal into voluntary administration because he genuinely believed, on rational grounds, that Empireal was insolvent or likely to become insolvent in the future. I have rejected Empireal’s contention that Mr Hooker voted in favour of that resolution for the purpose of obtaining any benefit for himself by reason of the proposed restructure (see paragraphs [499]-[526] above).

16. [544]

    Empireal claimed that Mr Hooker contravened s 181(1)(a) of the Act, and breached the equivalent duty that he owed at general law, by failing to act in good faith in the best interests of Empireal.

17. [545]

    In Empireal’s closing written submissions, this claim was said to be established on the following four bases.

18. [546]

    First, Empireal submitted that “in voting to resolve to place Empireal into voluntary administration, Mr Hooker failed to act in good faith and in the best interests of Empireal because he promoted his personal interests (namely his personal interest in permitting the planned restructure of the LJ Hooker Group to proceed) in a situation where there was a conflict or a real or substantial possibility of a conflict between his personal interests and Empireal’s interests (noting that Empireal’s interests were served by the company not being placed into voluntary administration …)”. I reject this submission, for reasons outlined above when dealing with the other claims advanced by Empireal in relation to the VA Resolutions.

19. [547]

    Secondly, Empireal submitted that “a director acting reasonably and rationally would not have voted to resolve to place Empireal into voluntary administration in circumstances where Empireal was not insolvent or nearing insolvency”. I also reject this submission, for reasons give above. I am satisfied that Mr Hooker genuinely believed, on rational grounds, that Empireal was insolvent or was likely to become insolvent in the future, and therefore had a proper basis for voting in favour of the VA Resolution regarding Empireal.

20. [548]

    Thirdly, Empireal submitted that, in the event that the Court finds Empireal was insolvent or nearing insolvency as at 10 June 2020, then Mr Hooker’s duty to act in the best interests of Empireal required him to consider the interests of Empireal’s creditors, which was not done by Mr Hooker, “as he sought to strip Empireal of value so as to prevent Koi from recovering its Loan”. I also reject this submission. I have found that, as at 10 June 2020, Mr Hooker was not of the view that the shares in LJH RES that were held by LJHRES Holdings (and were to be transferred to BidCo pursuant to the Restructuring Support Deed) had any substantial value. It follows that he was not of the view that Empireal’s shares in LJHRES Holdings had any substantial value, and was not acting “to strip Empireal of value so as to prevent Koi from recovering its Loan”.

21. [549]

    Fourthly, Empireal submitted that, “to the extent Mr Hooker contends that he placed Empireal into voluntary administration in order to save the LJ Hooker Group, that does not absolve Mr Hooker of liability where he has failed to consider the best interests of Empireal”. In support of this submission, reference was made to Sydlow Pty Ltd (in liq) v Melwren Pty Ltd (in liq) (1994) 13 ACSR 144 at 147. In that case, McClelland CJ in Eq found that the directors of Sydlow, in deciding that the business and assets of that entity should be taken over by another company, had breached their duty to act in good faith for the benefit of Sydlow because “the benefit of Sydlow was not a consideration in the minds of either — the dominant consideration appears to have been to preserve the continuing viability of the total business operation in the hands of [the second company]” (emphasis added). In the present case, I have found that Mr Hooker (and the other directors) did have regard, in good faith, to the interests of Empireal and in particular, genuinely formed the opinion, on rational grounds, that Empireal was insolvent or was likely to become insolvent in the future, and placed Empireal into voluntary administration for that reason. It was in the interests of Empireal, its shareholders and its creditors that, where the directors formed the opinion that Empireal was insolvent or was likely to become insolvent, they take steps to prevent Empireal from accruing further liabilities.

Claims regarding entry into Restructuring Support Deed

1. [550]

   By its entry into the Restructuring Support Deed, L.J. Hooker Investments gained a benefit, namely, the bundle of rights and entitlements under that Deed (including, in particular, the contractual obligation imposed on ICG to support the L.J. Hooker Investments DOCA Proposal, whereby L.J. Hooker Investments would acquire all of the shares in LJH RES for $1.00).

2. [551]

   Mr Hooker also obtained a benefit, by reason of being the beneficial owner of L.J. Hooker Investments (and, therefore, the person who stood to become the ultimate beneficial owner of the operating entities in the LJHRES Group in the event that the L.J. Hooker Investments DOCA Proposal was approved by creditors and was implemented). In addition, Mr Hooker obtained a benefit by reason that, pursuant to the Restructuring Support Deed, ICG agreed to support a proposed DOCA which included a term that any claims which LJHRES Holdings had against its directors (including Mr Hooker) would be released, discharged and extinguished.

3. [552]

   Empireal submitted that Mr Hooker gave “evasive evidence” in denying “the obvious proposition that cl 4 of the Restructuring Support Deed imposed a prohibition or restriction on ICG, namely that ICG could not support any restructure except that proposed by Mr Hooker”.

4. [553]

   The relevant passage of cross-examination to which Empireal referred in support of this submission was as follows:

5. [554]

   I do not accept Empireal’s submission that, in giving this answer, Mr Hooker was being “evasive” or “acted as an advocate for his case”. Mr Hooker requested time to consider the proposition that was put to him about the effect of cl 4, and he appears to have been approaching, as a layperson, the question whether this clause was a “prohibition or restriction” on ICG not by reference to the terms of the clause (acknowledging that “it says what it does”), but by reference to the question whether, in the absence of this clause, ICG would have in fact acted in a different manner, and was in that sense “restricted” from doing so by this clause (with his evidence being that “ICG was point blank saying they don’t want to back anyone else”).

6. [555]

   This distinction is apparent from the following exchange which occurred almost immediately following the answer quoted above:

7. [556]

   Mr Hooker readily conceded that cl 4(c) was, in its terms, “a restriction on ICG’s liberty to vote or commit to a different restructuring”, but maintained that it was his understanding that ICG “weren't interested in anything else, so [cl 4(c) was] not taking anything away from them”. I am satisfied that Mr Hooker genuinely held this view. It may be inferred, from the fact that ICG executed the Restructuring Support Deed, that ICG was of the view that the restructuring proposed by L.J. Hooker Investments was in ICG’s own commercial interests, and that ICG wanted this restructuring to proceed. Further, ICG did not, in any of the various communications by which the Restructuring Support Deed was negotiated, express any concern that cl 4(c) would unreasonably fetter ICG’s ability to consider any other restructuring proposals.

8. [557]

   Mr Hooker also conceded, in the course of cross-examination, the following matters:

   1. (1)

      he wanted to “lock in the senior [lender] so that [the L.J. Hooker Investments DOCA Proposal] was viable”; and

   2. (2)

      he requested that cl 4(c) be amended, so as to require ICG not to support “any alternative restructuring or refinancing” which was “proposed by an entity that is not [L.J. Hooker Investments]”, because he did not “want someone else walking in[to] the position”.

9. [558]

   Mr Hooker executed the Restructuring Support Deed as the director of L.J. Hooker Investments. Empireal was not a party to the Restructuring Support Deed.

10. [559]

    The Restructuring Support Deed concerned a DOCA proposal in respect of LJHRES Holdings and LJH RES (but not Empireal), and proposed amendments to the ICG Facility arrangements (to which Empireal was not a party).

11. [560]

    In executing the Restructuring Support Deed, Mr Hooker did not use his position as a director of Empireal, and did not exercise any powers, or discharge any duties, as a director of Empireal. Accordingly, although Empireal pleaded that Mr Hooker, in causing L.J. Hooker Investments to enter into the Restructuring Support Deed, contravened ss 181(1)(a), 181(1)(b) and 182 of the Act, such a claim was unable to be established (see Sunnya at [25]; Hakea Holdings at [7]-[9]), and Empireal did not, in closing written submissions, press any such claim.

12. [561]

    Instead, Empireal’s closing written submissions regarding the Restructuring Support Deed focused on its claim that Mr Hooker had, by causing L.J. Hooker Investments to enter into that deed, breached the conflict rule. This claim was pleaded as follows (FASOC, [111(c)]):

13. [562]

    The particulars to this claim put the conflict as follows (emphasis added):

14. [563]

    As set out at paragraphs [254]-[259] above, a fiduciary is required to account for a benefit if it was obtained either (1) when there was a conflict or possible conflict between his or her fiduciary duty and personal interest (the conflict rule), or (2) by reason of his or her fiduciary position or by reason of taking advantage of an opportunity or knowledge derived from that fiduciary position (the profit rule): Warman International at 557-558; Ancient Order of Foresters at [68]-[69] (Gageler J).

15. [564]

    Empireal’s claim in respect of the Restructuring Support Deed did not rely on the profit rule. Empireal did not allege that any benefit under the Restructuring Support Deed was obtained by reason of Mr Hooker’s fiduciary position as a director of Empireal, or was obtained by reason of his taking advantage of any opportunity or knowledge derived from that position.

16. [565]

    Instead, Empireal relied on the conflict rule.

17. [566]

    In order for this rule to apply, it must be shown that there was a conflict or possible conflict between Mr Hooker’s fiduciary duty as a director of Empireal and his personal interest.

18. [567]

    Determining the scope of the fiduciary obligations that Mr Hooker owed to Empireal requires close attention to the nature of the relationship between Mr Hooker and Empireal and to the specific circumstances of this case: Hospital Products at 102. It is necessary to identify, by reference to this relationship and those circumstances, the scope, or subject matter, of the area within which Mr Hooker was not free to act self-interestedly: Anderson v Canaccord at [152].

19. [568]

    As a general matter, a person may be a director of companies which have competing interests without breaching the conflict rule: Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17 at [69] per McLure P; and Hylepin at [38]. In Australian Careers Institute at [135], Sackville AJA quoted, and described as “sound as a matter of principle”, the observation of Jessup J in Links Golf Tasmania Pty Ltd v Sattler (2012) 213 FCR 1; [2012] FCA 634 at [564] that “the mere fact of being the director of a company will not preclude the director from engaging in a competing business on his or her own account”, although it “leaves open any issues of actual conflict, or of conflict reasonably perceived to be within the range of sensible possibilities, arising on the facts of a particular case”.

20. [569]

    It is well established that, where a person is acting as a director of two companies whose interests do not coincide, that person, as a fiduciary, must not exercise their powers as the director of one company for the benefit or gain of the other without clearly disclosing the second company’s interests to the first company and obtaining the first company’s consent: R v Byrnes (1995) 183 CLR 501 at 517 per Brennan, Deane, Toohey and Gaudron JJ; [1995] HCA 1. For example, in Colorado Products at [360], Black J observed as follows (emphasis added):

21. [570]

    This principle has no application in the present case, since any benefit obtained by Mr Hooker, in causing L.J. Hooker Investments to enter into the Restructuring Support Deed, was not a benefit obtained by exercising any powers as a director of Empireal.

22. [571]

    It is not uncommon, where a company is placed into voluntary administration, for a deed of company arrangement to be proposed, whereby all or part of the company’s business will be transferred to another entity which is owned or controlled by a person who is a director of the first company. In such a situation, the interests of the company which is the deed proponent may well diverge significantly from the interests of the company which is in voluntary administration.

23. [572]

    In Diakovasili v Order of AHEPA NSW Inc [2023] NSWSC 1282 at [211]-[213], Black J made the following observations regarding the scope of the fiduciary obligations owed by a director in such circumstances, which bear quoting in full:

24. [573]

    The situation in the present case is a step removed from the situation addressed in Diakovasili, in that the restructure proposed by L.J. Hooker Investments, which was the subject of the Restructuring Support Deed, was not a restructure that was proposed in the voluntary administration of Empireal, but was instead a restructure in the voluntary administration of LJHRES Holdings and LJH RES.

25. [574]

    I acknowledge that, in the present case, the Restructuring Support Deed was entered prior to the appointment of the Administrators (which occurred later on the same day). However, the critical question is not whether the Restructuring Support Deed, which was executed after the VA Resolutions were passed, was entered before or after the instrument appointing the Administrators was signed. Instead, the critical question is whether Mr Hooker’s conduct, in causing L.J. Hooker Investments to enter into the Restructuring Support Deed regarding the terms of a DOCA that would be proposed in the voluntary administration of LJHRES Holdings and LJH RES (in circumstances where the directors of each of Empireal, LJHRES Holdings and LJH RES had already resolved that the Administrators should be appointed) was conduct that fell within the scope, or subject matter, of the area within which Mr Hooker was, as a director of Empireal, not free to act self-interestedly. If it did not fall within that scope, then Mr Hooker was free to act in his own interests and was not accountable for profits which he so derived: Blythe v Northwood at [192], [211].

26. [575]

    In determining the scope of Mr Hooker’s fiduciary obligations, it is important to have regard to the rationale for the imposition of those obligations. Mr Hooker’s personal interest in causing L.J. Hooker Investments to enter into the Restructuring Support Deed will only engage the conflict rule if it gives rise to a conflict with his duty to Empireal or a real or substantial possibility of such a conflict: ASIC v Jones at [188]. A conflict will be established if there is a real and sensible possibility of Mr Hooker’s personal interests dividing his loyalty, with the result that he could not properly discharge his duties to Empireal: Coope v LCM Litigation Fund Pty Ltd [2016] NSWCA 37 at [105] per Payne JA (with whom Gleeson and Leeming JJA agreed), referring to Maguire v Makaronis (1997) 188 CLR 449 at 465; [1997] HCA 23. Accordingly, when a conflict of interest and duty is asserted, it is important to identify, with some precision, the duties and interests which are said to conflict or to present a real, sensible possibility of conflicting: ASIC v Jones at [191].

27. [576]

    Empireal did not, in closing submissions, clearly articulate the basis on which it was submitted that Mr Hooker’s conduct, in executing the Restructuring Support Deed on behalf of L.J. Hooker Investments, fell within the scope, or subject matter, of the area within which Mr Hooker, as a director of Empireal, was not free to act self-interestedly. In particular, Empireal did not identify, with precision, the basis on which it was asserted that there was a real and sensible possibility of Mr Hooker’s personal interest in respect of L.J. Hooker Investments’ entry into the Restructuring Support Deed dividing his loyalty, such that he could not properly discharge his duties to Empireal.

28. [577]

    In closing oral address, Senior Counsel for Empireal submitted that: “we have a restructure which has component elements, and that, in my respectful submission, one looks at the vote to put into voluntary administration in light of the restructuring support deed and the other way around”. However, I have determined that Mr Hooker did not breach his fiduciary obligations by voting in favour of the VA Resolutions, and in particular, did not breach the conflict rule in doing so. Further, it is difficult to see how the fact that Mr Hooker owed fiduciary obligations to Empireal when voting in favour of a resolution to place Empireal into voluntary administration provides a basis for concluding that, in causing L.J. Hooker Investments to enter into the Restructuring Support Deed, he was pursuing or gaining a benefit within the scope of his fiduciary obligations to Empireal.

29. [578]

    Empireal was not a party to the Restructuring Support Deed, and that deed related to proposed DOCAs in respect of LJHRES Holdings and LJH RES. Further, those DOCAs were to be proposed following the appointment of the Administrators and, therefore, at a time when Mr Hooker was prohibited, by operation of s 198G(1) of the Act, from exercising any powers or performing any functions as a director of Empireal (or, for that matter, as a director of either LJHRES Holdings or LJH RES).

30. [579]

    Any DOCA proposal in respect of LJHRES Holdings and LJH RES which was provided to the Administrators by Mr Hooker, or by an entity associated with Mr Hooker, would not be, and could not be, put forward by him in his capacity as an officer of Empireal.

31. [580]

    Following their appointment, the Administrators were in control of the affairs of each of Empireal, LJHRES Holdings and LJH RES (s 437A of the Act). It was their responsibility to consider the interests of Empireal, LJHRES Holdings and LJH RES (and their respective creditors and shareholders) in assessing, and in taking any step in respect of, any such DOCA proposal, or in taking any other step in the administration of any of those entities.

32. [581]

    For those reasons, I am not satisfied that Empireal has established that Mr Hooker caused L.J. Hooker Investments to enter into the Restructuring Support Deed, and thereby gained a benefit for himself, in circumstances where there was a conflict or possible conflict between his personal interest and his fiduciary duty to Empireal. It follows that Empireal’s claims in respect of the Restructuring Support Deed have not been established.

33. [582]

    It does not follow, from the matters set out above, that the Receivers of Empireal were powerless to act upon any perceived concern that the Restructuring Support Deed meant that the administration had been (to use Mr Agarwal’s words) “a farce with a predetermined outcome”, with ICG and Mr Hooker “acting in concert on a scheme to take away the value from the mezz[anine] lenders” (see paragraph [217] above).

34. [583]

    For example, if the Receivers of Empireal were of the view that there was an abuse of the provisions of Pt 5.3A of the Act, they could have caused Empireal, as an interested person, to bring a proceeding pursuant to s 445D(1)(g) or s 447A(2) of the Act seeking to set aside the LJHRES Holdings DOCA or the LJH RES DOCA: see, for example, Canstruct Pty Ltd v Project Sea Dragon Pty Ltd (subject to a deed of company arrangement) (No 4) [2024] FCA 112 at [97] and [102] (Derrington J).

35. [584]

    No such step was taken (and I do not intend to express any view on the merits of any such claim). Nor did the Receivers of Empireal challenge any decision of the Administrators or any step taken in the voluntary administration or deed administration of any of the Appointment Entities.

Claims regarding redemption of RP Shares

1. [585]

   On 8 August 2020, Mr Hooker:

   1. (1)

      executed, on behalf of LJHRES Holdings, the RP Shares Consent Deed, by which LJHRES Holdings gave its consent to the redemption of the RP Shares issued by LJH RES for $1.00 (see paragraph [238(2)] above); and

   2. (2)

      voted, as one of the directors of LJHRES Holdings, in favour of the RP Shares Resolution to ratify the amendment of the terms of the RP Shares so as to permit their redemption for $1.00 (see paragraph [238(4)] above).

2. [586]

   It was a condition precedent to the implementation of the restructure in the LJHRES Holdings and LJH RES DOCAs that the RP Shares Consent Deed and the RP Shares Resolution be provided to the Deed Administrators (see paragraph [236] above).

3. [587]

   Also on 8 August 2020, shortly after the above steps were taken, LJHRES Holdings and LJH RES entered into DOCAs in the form of the Final MF LJH DOCA Proposal, following a resolution of the creditors of each entity approving entry into those agreements, at the second creditors’ meetings on 4 August 2020 (see paragraphs [229]–[231] above).

4. [588]

   Mr Hooker gave the following evidence when taken to the RP Shares Consent Deed in cross-examination:

5. [589]

   Similarly, when taken to the RP Shares Resolution in cross-examination, Mr Hooker gave evidence that this resolution was “one of the steps that was required to have the Bidco DOCA completed” and that the directors “were instructed to sign it” by the Administrators.

6. [590]

   I accept Empireal’s submission that Mr Hooker had a personal interest in the execution of the RP Shares Consent Deed and the passing of the RP Shares Resolution because those steps were necessary for:

   1. (1)

      the restructure to proceed, by which MF LJH Nominees (being an entity of which Mr Hooker was the sole beneficial owner) became the ultimate holding company of LJH RES and the operating entities in the LJHRES Group; and

   2. (2)

      the implementation of the LJHRES Holdings DOCA, pursuant to which any claims which LJHRES Holdings had against its directors (including Mr Hooker) were released, discharged and extinguished.

7. [591]

   In executing the RP Shares Consent Deed on behalf of LJHRES Holdings, and in voting in favour of the RP Shares Resolution, Mr Hooker did not use his position as a director of Empireal, and did not exercise any powers, or perform any function, as a director of Empireal. Instead, he took those steps as a director of LJHRES Holdings, and exercised his powers as such in doing so. Accordingly, although Empireal pleaded that Mr Hooker, in taking these steps, contravened duties that he owed to Empireal under ss 181(1)(a), 181(1)(b) or 182 of the Act, such a claim is unable to be established (see Sunnya at [25]; Hakea Holdings at [7]-[9]), and Empireal did not, in closing written submissions, press any such claim.

8. [592]

   Instead, in its closing written submissions, Empireal framed its claim against Mr Hooker regarding the RP Shares Consent Deed and the RP Shares Resolution solely in terms of the conflict rule.

9. [593]

   This claim was pleaded as follows (FASOC, [113(c)]):

10. [594]

    The particulars to this claim repeated, verbatim, the particulars of the claim that Mr Hooker had breached the conflict rule in causing L.J. Hooker Investments to enter into the Restructuring Support Deed (see paragraph [561] above). This was plainly an error, as there was no reference in those particulars to LJHRES Holdings, the RP Shares Consent Deed, or the RP Shares Resolution, and therefore no articulation of the basis on which it was alleged that Mr Hooker was in a position of conflict (as regards Empireal) either when executing, on behalf of LJHRES Holdings, the RP Shares Consent Deed or when voting in favour of the RP Shares Resolution.

11. [595]

    The conflict was put as follows in Empireal’s closing written submissions:

12. [596]

    This submission did not identify, with precision, the basis on which it was asserted that there was a real and sensible possibility of Mr Hooker’s personal interest in respect of the redemption of the RP Shares dividing his loyalty, such that he could not properly discharge his duties to Empireal.

13. [597]

    Mr Hooker signed the RP Shares Consent Deed and voted in favour of the RP Shares Resolution in circumstances where:

    1. (1)

       each of Empireal and LJHRES Holdings had been placed into voluntary administration;

    2. (2)

       the Administrators of Empireal and LJHRES Holdings had control of each company’s business, property and affairs, and were able to exercise any power, and perform any function, that the directors of those companies could have exercised or performed if they were not under administration (s 437A(1));

    3. (3)

       Mr Hooker was unable, pursuant to s 198G of the Act, to exercise any power, or perform any function, as a director of either Empireal or LJHRES Holdings, subject to a limited number of exceptions including, relevantly, where he was acting with the written approval of the Administrators;

    4. (4)

       the creditors of LJHRES Holdings had, at the second creditors’ meeting on 4 August 2020, resolved (pursuant to s 437C of the Act) that LJHRES Holdings should execute a DOCA in the form of the Final MF LJH DOCA Proposal; and

    5. (5)

       it was a term of the LJHRES Holdings DOCA (see paragraph [234] above) that:

14. [598]

    It follows that, at the time Mr Hooker executed, on behalf of LJHRES Holdings, the RP Shares Consent Deed and voted in favour of the RP Shares Resolution:

    1. (1)

       he had the express approval of the Administrators to take those steps in his capacity as a director of LJHRES Holdings; and

    2. (2)

       he was prohibited from performing any function, or exercising any power, in his capacity as a director of Empireal.

15. [599]

    Empireal focussed, in submissions and in cross-examination of Mr Hooker regarding the redemption of the RP Shares, on the following statement in the RP Shares Resolution, under the heading “Acknowledgements” (emphasis added):

16. [600]

    The sole shareholder of LJHRES Holdings was Empireal. Accordingly, Empireal submitted that this acknowledgement provided evidence that Mr Hooker was aware that he was obliged to take into account the interests of Empireal when considering whether to vote in favour of the RP Shares Resolution and whether to take steps to effect the redemption of the RP Shares for $1.00.

17. [601]

    The submission was put as follows in opening address:

18. [602]

    The reference in the ”Acknowledgements” to consideration being given to the interests of the shareholder of LJHRES Holdings (namely, Empireal) is a reference to such consideration being given by the directors of LJHRES Holdings (namely, Mr Hooker and Mr Weir) in their capacity as such, at the time of voting in favour of the RP Shares Resolution.

19. [603]

    There is an interesting question as to the scope of the duties owed by the directors of LJHRES Holdings when voting in favour of the RP Shares Resolution, in circumstances where:

    1. (1)

       the directors had been authorised to do so by the Administrators;

    2. (2)

       their powers and functions as directors were otherwise suspended; and

    3. (3)

       this resolution was a condition precedent to the implementation of a DOCA that had been approved by the creditors of LJHRES Holdings, pursuant to which substantial additional funds were to be invested by Mr Fuchs in the LJHRES Group, from which payments were to be made to the secured creditor, ICG.

20. [604]

    In particular, there is an issue as to whether the directors would be acting, consistently with (or in breach of) any duties which they owed to LJHRES Holdings, in refusing to take this step which was necessary in order to implement a DOCA which the creditors of the company had approved, and which therefore may be taken to be in the interests of creditors, on the basis that they did not consider the implementation of the DOCA to be in the interests of the shareholders of the company.

21. [605]

    It is unnecessary to resolve these matters. This case does not involve any claim by LJHRES Holdings that either of Mr Hooker or Mr Weir breached his duties as a director of that entity by voting in favour of the RP Shares Resolution. Empireal did not seek leave to bring any such derivative action in the name of LJHRES Holdings. Further, it was a term of the LJHRES Holdings DOCA that, as at the date of that deed, any claims which LJHRES Holdings had against its directors were “released, discharged and extinguished” (cl 4.8(c)). (Empireal pleaded that, as a result of Mr Hooker’s breaches of duty to Empireal, it lost the valuable opportunity to bring a derivative claim on behalf of LJHRES Holdings against Mr Hooker for breaches of his duties (FASOC, [116], in particular (iv)), but no submissions were advanced, in Empireal’s closing submissions on causation and quantum, regarding the existence or value of any such claims. Empireal confirmed, in closing oral address, that it did not put any value on the release of such claims.)

22. [606]

    Instead, this case involves a claim that, by executing, on behalf of LJHRES Holdings, the RP Shares Consent Deed and by joining in the RP Shares Resolution, Mr Hooker obtained a benefit in circumstances where there was a conflict or possible conflict between his personal interests and his fiduciary obligations as a director of Empireal.

23. [607]

    I am not satisfied that any such conflict or possible conflict has been established, particularly in circumstances where:

    1. (1)

       the relevant acts by Mr Hooker involved no conduct as a director of, or on behalf of, Empireal;

    2. (2)

       the RP Shares were not owned or issued by Empireal, and the redemption of them did not involve any act on the part of Empireal; and

    3. (3)

       at the time Mr Hooker performed these acts and the RP Shares were redeemed, Empireal was in voluntary administration, such that Mr Hooker was prohibited from exercising any powers or performing any functions as a director of Empireal.

24. [608]

    Empireal submitted that “if a director acts with the approval of the administrator but does so in breach of his or her duties to the company, the director is not absolved of responsibility for breaching his or her duties”. However, that submission has no application to the present case, where the Administrators did not give any approval to Mr Hooker to act in his capacity as a director of Empireal, and Mr Hooker did not purport to perform any function as a director of Empireal (such that no question arises as to whether Mr Hooker breached any duties to Empireal in performing any such act). The only approval given in respect of the RP Shares Consent Deed and the RP Shares Resolution was for Mr Hooker to exercise his powers and functions as a director of LJHRES Holdings, not as a director of Empireal.

25. [609]

    For those reasons, Empireal’s claims in respect of the RP Shares Consent Deed and the RP Shares Resolution have not been established.

Causation and Remedies

1. [610]

   I have determined that none of Empireal’s claims against Mr Hooker has been established.

2. [611]

   It follows that issues of causation, relief and quantum do not arise for determination. However, in the event that I have erred in determining issues of liability, I have addressed these issues below.

3. [612]

   I have done so in a somewhat abbreviated fashion, given that the issues as to whether causation has been established and what relief is available necessarily depend upon the precise conduct found to have constituted a breach of Mr Hooker’s duties to Empireal. I do not consider it a useful exercise to address the issues of causation and relief by reference to a range of different possible combinations of findings, in circumstances where Empireal advanced claims in respect of a number of resolutions or transactions, where each was said to have involved the breach of a number of duties, and where the case was advanced both on the basis that the conduct was dishonest and on the basis that it was not necessary to establish dishonesty.

4. [613]

   I have instead approached the issues of causation and relief by reference to a single alternative scenario, in which (contrary to the findings I have made) Empireal established each of its claims against Mr Hooker, including that:

   1. (1)

      Mr Hooker failed to act in good faith, by voting in favour of the VA Resolutions in circumstances where he (and the other directors) did not genuinely hold the opinion, and did not have rational grounds to form the opinion, that any of Empireal, LJHRES Holdings or LJH RES was insolvent or was likely to become insolvent in the future;

   2. (2)

      Mr Hooker voted in favour of the VA Resolutions for an improper purpose, namely, to gain a valuable benefit for himself (in the form of beneficial ownership of the LJ Hooker Group unburdened by the Koi debt);

   3. (3)

      for the same purpose, Mr Hooker caused L.J. Hooker Investments to enter into the Restructuring Support Deed and caused LJHRES Holdings to consent to the redemption of the RP Shares for $1.00, in circumstances where there was a conflict between his personal interest in respect of those matters and his fiduciary obligations to Empireal;

   4. (4)

      the conduct set out in paragraphs (1)-(3) above amounted to a dishonest breach of Mr Hooker’s fiduciary obligations to Empireal; and

   5. (5)

      the conduct set out in paragraphs (1)-(2) above also amounted to a breach of Mr Hooker’s duties to Empireal under ss 181 and 182 of the Act.

5. [614]

   I refer to the findings set out in subparagraphs (1)-(5) above as the Assumed Set of Findings.

6. [615]

   By its Originating Process, Empireal seeks:

   1. (1)

      in respect of Mr Hooker’s breaches of his fiduciary duties:

   2. (2)

      in respect of Mr Hooker’s contraventions of ss 181 and 182 of the Act, relief under s 1317H (this claim including both profits made by Mr Hooker and loss suffered by Empireal).

7. [616]

   I outline below the relevant principles in respect of each of those remedies, and address the findings that I would have made regarding issues of causation and the available relief, in the event that I had made the Assumed Set of Findings.

8. [617]

   Where a fiduciary has obtained a benefit in breach of the conflict rule or the profit rule, the fiduciary is liable to account for that benefit, regardless of whether the person to whom the duty is owed has suffered injury or loss (Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 394 per Gibbs J; [1975] HCA 8), and regardless of whether the person to whom the duty is owed was unwilling, unlikely or unable to make the profit for which an account is taken (Warman International at 558; He v Sunnya Pty Ltd [2025] NSWCA 78 at [86] per Bell CJ (Leeming JA and Basten AJA agreeing)).

9. [618]

   Although the “assessment of the profit will often be extremely difficult in practice”, it is nonetheless necessary “to determine as accurately as possible the true measure of the profit or benefit obtained by the fiduciary in breach of his duty”: Warman International at 558. The aim of the account of profits is to “strip from the party in breach the gains made by reason of the breach”: Xiao v BCEG International (Australia) Pty Ltd (2023) 111 NSWLR 132; [2023] NSWCA 48 at [41] per Gleeson JA (Mitchelmore JA and Griffiths AJA agreeing).

10. [619]

    Whether a benefit can be said to have been obtained by reason of a breach of fiduciary duty “is a question of causation or contribution that depends on ‘a precise examination of the particular facts’ of the case”: Ancient Order of Foresters at [9], Kiefel CJ, Keane and Edelman JJ. In that case, their Honours observed (at [13]) that:

11. [620]

    Their Honours added (at [14]-[15]) that there are two ways in which a wrongdoer might discharge this onus and thereby reduce the extent of the liability to disgorge profits. The first is by proving his or her entitlement to an allowance for costs incurred, and labour and skill employed (although their Honours noted that this “can involve notorious difficulties in attribution of costs”). The second is by demonstrating that “the benefit or advantage is beyond the scope of the liability for which the wrongdoer should account for profits”. This might be established “if the profit or benefit has no reasonable connection with the wrongdoing”. Their Honours continued (at [16]):

12. [621]

    In the same case, Gageler J observed (at [83]) that the “cardinal principle of equity” is that the remedy must be fashioned to fit the nature of the case and the particular facts. Identification of the benefit for which a fiduciary is to be ordered to account is the outcome neither of judicial discretion nor of the determination of “a mere factual issue of causation”, but is instead “a matter of judgment informed by equitable principle”. However, that does not mean that equity is ignorant of questions of causation. Rather, “questions of causal nexus in a remedial context must be addressed by reference to the equitable obligation breach of which is to be vindicated by the remedy that is sought” (at [84]). Accordingly, his Honour said (at [85], footnotes omitted) that:

13. [622]

    Because the concern of equity is to vindicate the equitable obligation that has been breached, it is sufficient in order to establish causation that the benefit or gain to the fiduciary would not have been obtained “but for” the breach, even though other contributing causes might be in play: Ancient Order of Foresters at [9], [88].

14. [623]

    Further, whatever the position for wrongdoing that is not marked by dishonesty, a defendant cannot avoid liability to disgorge profits dishonestly made by showing that those profits might have been made honestly: Ancient Order of Foresters at [9].

15. [624]

    On the Assumed Set of Findings, Mr Hooker and his fellow directors did not genuinely form the opinion, and did not have rational grounds to form the opinion, that any of Empireal, LJHRES Holdings and LJH RES was insolvent or likely to become insolvent in the future, and therefore did not have a basis for putting any of those entities into voluntary administration; and Mr Hooker’s purpose, in voting in favour of those Resolutions, was to bring about a restructure of the LJ Hooker Group whereby he would obtain the valuable benefit of becoming the ultimate beneficial owner of the operating entities in the LJHRES Group, unburdened by the Koi debt.

16. [625]

    It follows, on the Assumed Set of Findings, that but for Mr Hooker’s dishonest breach of his fiduciary duties, the VA Resolutions would likely not have been passed, and therefore none of those entities would have been placed into voluntary administration.

17. [626]

    Empireal pleaded, and Mr Hooker admitted, that as “a consequence of Empireal, LJHRES Holdings and LJH RES being placed into voluntary administration”, a restructure of the LJ Hooker Group was effected, Mr Hooker became the sole beneficial owner of the LJ Hooker Group, and Mr Hooker’s beneficial ownership of the LJ Hooker Group was not burdened by debts owed to Koi (FASOC [102]; Defence [102]).

18. [627]

    If Empireal, LJHRES Holdings and LJH RES had not been placed into voluntary administration, the restructure of the LJ Hooker Group, which resulted in Mr Hooker becoming the sole beneficial owner of the ultimate holding company of the LJHRES Group, would not have occurred.

19. [628]

    In order to bring about this restructure, it was first necessary for the RP Shares to be redeemed. However, on the Assumed Set of Findings, this redemption was also effected as a result of Mr Hooker taking steps which were also in breach of his fiduciary duties.

20. [629]

    For those reasons, if I had made the Assumed Set of Findings, I would have determined that Mr Hooker became sole beneficial owner of the ultimate holding company of the LJHRES Group, as a result of, or by reason of, his dishonest breach of his fiduciary duties. In those circumstances, Empireal would have established a sufficient causal connection so as to be entitled (in the event that Empireal elected this remedy) to an order that Mr Hooker account for the value of his beneficial interest in the ultimate holding company of the LJHRES Group (namely, MF LJH Nominees). I deal below with the expert evidence regarding the value of this interest.

21. [630]

    The object of equitable compensation is to restore persons who have suffered loss to the position in which they would have been if there had been no breach of the equitable obligation: O’Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 272 per Spigelman CJ (Priestley and Meagher JJA agreeing), referring to Nocton v Lord Ashburton [1914] AC 932 at 952 per Viscount Haldane LC.

22. [631]

    In order to obtain equitable compensation for breach of a fiduciary duty, it is necessary for the plaintiff to establish “a sufficient connection (or ‘causation’) between breach of duty and … the loss sustained”: Maguire v Makaronis at 468.

23. [632]

    When assessing causation for the purposes of equitable compensation, the true inquiry is whether the loss would have happened had there been no breach, not whether the loss was caused by or flowed from the breach: O’Halloran at 276 per Spigelman CJ (with whom Priestley and Meagher JJA agreed).

24. [633]

    In Ancient Order of Foresters at [88], Gageler J observed as follows (footnotes omitted):

25. [634]

    The amount of compensation is to be assessed at the time of trial, with the full benefit of hindsight: Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 at [35].

26. [635]

    Empireal identified, in its closing written submissions, four different heads of loss which it had suffered as a result of Mr Hooker’s breaches of duty, as follows:

27. [636]

    For the reasons set out above when addressing the account of profits, if I had made the Assumed Set of Findings, I would have determined that, but for Mr Hooker’s dishonest breach of his fiduciary duties, none of Empireal, LJHRES Holdings and LJH RES would have been placed into voluntary administration, and the consequent restructure of the LJ Hooker Group, whereby MF LJH Nominees became ultimate holding company of the operating entities, would not have occurred. It follows that the appropriate focus for determining compensation is paragraph (a) above, that is, the losses which Empireal suffered as a result of the restructure of the LJ Hooker Group which was effected consequent upon those entities being placed into voluntary administration.

28. [637]

    In contrast, each of paragraphs (b) and (c) appears to assume that Empireal was placed into voluntary administration. (These paragraphs may have arisen in the event that, for example, no breach was established in respect of the VA Resolutions, but a breach was established in respect of the Restructuring Support Deed and/or the redemption of the RP Shares.)

29. [638]

    As for paragraph (d), Empireal advanced this head of loss only in the event that the Court found that Mr Hooker breached his fiduciary duties in placing Empireal into voluntary administration, but was not satisfied that a causal link between that breach of duty and the restructure of the LJ Hooker Group was made out. As I have explained above, I would have been satisfied, in the event that I had made the Assumed Set of Findings, that this causal link was made out, and therefore this head of loss would not have arisen for determination.

30. [639]

    Turning back to the losses falling within paragraph (a), if I had made the Assumed Set of Findings, I would have accepted Empireal’s submission that the measure of the loss which it suffered as a result of Empireal, LJHRES Holdings and LJH RES being placed into voluntary administration and the consequent restructure of the LJ Hooker Group would be the difference between the value of Empireal’s assets (namely, its shareholding in LJHRES Holdings) prior to the restructure of the LJ Hooker Group and their value following that restructure. I deal below with the issue of the quantification of this loss.

31. [640]

    In Hospital Products at 108, Mason J observed that:

32. [641]

    Similarly, in Chan v Zacharia at 199, Deane J stated that any benefit or gain obtained by the fiduciary in breach of the conflict rule “is held by the fiduciary as constructive trustee”, and that this constructive trust “arises from the fact that a personal benefit or gain has been so obtained or received and it is immaterial that there was no absence of good faith or damage to the person to whom the fiduciary obligation was owed”.

33. [642]

    It is, however, “necessary to keep steadily in mind the cardinal principle of equity that the remedy must be fashioned to fit the nature of the case and the particular facts”: Warman International at 559.

34. [643]

    Before a constructive trust is imposed, the Court should first decide whether, having regard to the issues in the litigation, there is an appropriate equitable remedy which falls short of the imposition of a trust: Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10 at [10] per Gleeson CJ, McHugh, Gummow and Callinan JJ.

35. [644]

    A constructive trust ought not to be imposed if there are other orders capable of doing full justice; and care must be taken to avoid granting equitable relief which goes beyond the necessities of the case: John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 at [128]-[129] per curiam (French CJ, Gummow, Hayne, Heydon and Kiefel JJ). Further, third party interests must be borne in mind in deciding whether a constructive trust should be granted: ibid.

36. [645]

    Empireal conceded that, if the Court found that Mr Hooker was liable to account for the value of his shareholding in MF LJH Nominees, then “it would not be appropriate to order a constructive trust” over those shares; and that such a remedy would only be appropriate in a scenario “where such an account is not possible” (because, for example. “the Court concludes that Mr Hooker’s shareholding in ML LJH Nominees is worthless”).

37. [646]

    In light of those submissions, I briefly address the question of this relief below, when considering the quantification of the account of profits.

38. [647]

    Section 1317H of the Act relevantly provides as follows:

39. [648]

    In V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd [2013] FCAFC 16 at [54], the Full Court of the Federal Court (Emmett, Edmonds and Rares JJ) observed that:

40. [649]

    Although the section allows for an order to be made for compensation that includes both an amount for “damage suffered” by the plaintiff and an amount for “profits made” by the defendant, the Court will be astute to ensure that the overall award is not unjustifiably inflated by any element of double-counting: see V-Flow at [82].

41. [650]

    The words “resulted from” and “resulting from” (in s 1317H(1)(b) and s 1317H(2) respectively) specify the causal link which must be established in order for the claimant to recover compensation for losses which it has suffered or to recover any profits made by the defendant. In Adler v Australian Securities and Investments Commission [2003] NSWCA 131 at [709], Giles JA (with whom Mason P and Beazley JA agreed) said that:

42. [651]

    In Re IW4U Pty Ltd (in liq) [2021] NSWSC 40 at [47], Gleeson J observed that:

43. [652]

    Compensation under s 1317H is to be assessed “having regard to the position at the time the order is made”, rather than the time of the contravention: Cassegrain v Gerard Cassegrain & Co Pty Ltd (2012) 264 FLR 392; [2012] NSWSC 834 at [11] (Bergin CJ in Eq), referring to Ho v Akai Pty Ltd (in liq) (ACN 001 500 714) [2006] FCAFC 159 at [48]-[52]; [55]-[57].

44. [653]

    For the reasons given above when considering Empireal’s claims for an account of profits and equitable compensation, if I had made the Assumed Set of Findings, I would have determined that, but for Mr Hooker’s contraventions of ss 181 and 182 of the Act, none of Empireal, LJHRES Holdings or LJH RES would have been placed into voluntary administration and the consequent restructure (whereby MF LJH Nominees became ultimate holding company of the operating entities in the LJHRES Group) would not have occurred.

45. [654]

    On those findings, I would have determined that any losses suffered by Empireal by reason of the voluntary administration and restructure were losses which “resulted from” Mr Hooker’s contraventions of ss 181 and 182 of the Act; and likewise any profits made by Mr Hooker from the LJ Hooker Group being restructured in this way (by reason of his being sole beneficial owner of MF LJH Nominees) were profits “resulting from” those contraventions.

46. [655]

    The compensation sought by Empireal pursuant to s 1317H(1)-(2) was the same as the relief sought by way of an account of profits and equitable compensation. It follows that Empireal’s claim for relief pursuant to s 1317H of the Act did not raise for determination any separate issues of quantification.

Quantum

1. [656]

   Each of the parties led expert valuation evidence. Empireal led evidence from Ms Rebecca Conoulty, who is a Managing Director of Sapere Research Group Ltd and co-lead of its forensic accounting and valuation team. Mr Hooker led evidence from Mr David Mullins, who is a partner of Ernst & Young, specialising in valuation disputes, damages claims and solvency reports.

2. [657]

   Ms Conoulty and Mr Mullins met in conclave and prepared a Joint Report dated 8 December 2025, in which, as outlined below, they reached agreement on a considerable number of issues. They gave concurrent oral evidence, which focussed, primarily, on the specific issues of disagreement in the Joint Report.

3. [658]

   There was no challenge to the expertise of either Ms Conoulty or Mr Mullins.

4. [659]

   Mr Hooker contended, in closing written submissions, that Ms Conoulty had “become an advocate for her client’s cause rather than a detached and impartial expert whose role was to assist the Court”. This was said to be demonstrated by her “intractable position on the use of international companies as suitable comparables” which “exposed an unwillingness to keep an open mind”. In closing address, Senior Counsel for Mr Hooker submitted that when Ms Conoulty was asked a “simple question”, “there would be minutes and minutes of her going on the whole host of different reasons for her particular view”.

5. [660]

   I reject this attack on Ms Conoulty’s credit. I am satisfied that Ms Conoulty was, at all times, endeavouring to assist the Court and to explain the views that she had reached and the basis for those views. Although there were a number of instances where Ms Conoulty gave lengthy answers, some of those were in response to open-ended propositions which invited her comment (for example, that “Mr Mullins’ approach is preferable to yours”, or “do you accept that that was an eminently reasonable approach by Mr Mullins”), and Ms Conoulty responded directly to those questions by explaining the reasons why she did not accept that Mr Mullins’ approach was “preferable” or “reasonable”. In other instances, Ms Conoulty was responding to an attack on her integrity (for example, responding to propositions that, if she had been “acting in a non-partisan way”, she would have accepted that her analysis was flawed; or that she had demonstrated “a partisan approach” by “pushing up the value of the LJ Hooker businesses as much as you can”). Ms Conoulty, understandably, felt the need to respond to these questions not only by rejecting the assertion, but by explaining that she had reached her views on the basis of her analysis of the financial information, and how this analysis supported her views.

6. [661]

   A challenge to Ms Conoulty’s credit, based on the length of her answers, was put to her, and rejected by her, in the following passage:

7. [662]

   I do not have any concerns about the independence of Ms Conoulty. I am satisfied that the opinions which she expressed represented her assessment, based on her specialised knowledge, of the issues raised with her, and were given following her careful consideration of Mr Mullins’ opinions and the basis for them.

8. [663]

   The experts were asked to provide their opinions on the enterprise value and equity value of various entities in the LJ Hooker Group (including LJ Hooker Ltd, LJH RES, LJHRES Holdings, Empireal, and MF LJH Nominees) as at three points in time: the “Pre-VA Date” (namely, 10 June 2020); the “Post-Restructure Date” (namely, August 2020, following the restructure of the LJ Hooker Group); and the “Current Date”.

9. [664]

   The experts agreed that the “sum of the parts” methodology was an appropriate valuation methodology for assessing the enterprise value and equity value of the various entities as at each of those dates.

10. [665]

    Further, the experts agreed on the values of the non-Business assets and liabilities to be brought to account in assessing the enterprise value and equity value of these entities as at each of those dates.

11. [666]

    The experts also agreed that, in order to take into account the impact of the COVID-19 pandemic during 2020, the Core Business should be valued as at 31 December 2019, with:

    1. (1)

       a 30% discount being applied to that value in order to determine the value of the Core Business as at the Pre-VA Date; and

    2. (2)

       a 42.5% discount being applied to that value in order to determine the value of the Core Business as at the Post-Restructure Date.

12. [667]

    The only integer to the valuation of these entities in respect of which there was disagreement between the experts was the value of the Core Business as at 31 December 2019 and as at the Current Date. That is, the experts agreed on the adjustments and calculations which needed to be made, once the value of the Core Business was known as at each of those dates, in order to determine the enterprise value and the equity value of each of the relevant corporate entities as at each of the Pre-VA Date, the Post-Restructure Date and the Current Date.

13. [668]

    The experts agreed that the Core Business should be valued under the “capitalised maintainable earnings” (CME) methodology. The fundamental point of dispute between the experts was whether, under the CME methodology:

    1. (1)

       an EBITDA multiple should be applied to maintainable EBITDA (FME(EBITDA)); or

    2. (2)

       a revenue multiple should be applied to maintainable revenue.

14. [669]

    Ms Conoulty was of the opinion that the former should be adopted, and Mr Mullins the latter.

15. [670]

    As a related matter, Mr Mullins disagreed with Ms Conoulty’s opinion that certain businesses which were located overseas (the International Companies) were appropriate comparators for determining the EBITDA multiple for the Core Business.

16. [671]

    The reason that these issues are related is as follows.

    1. (1)

       The experts agreed that EBITDA multiples are one of several common approaches that are adopted when valuing businesses.

    2. (2)

       The experts also agreed on the figure for the FME(EBITDA) as at 31 December 2019 and as at the Current Date (the agreed figures being, respectively, $12.5m and $6.1m).

    3. (3)

       An EBITDA multiple is not able to be calculated for a business with negative EBITDA, and the only comparable Australian businesses identified by the experts (McGrath and The Agency) had negative EBITDA as at 31 December 2019.

    4. (4)

       Accordingly, if the International Companies which Ms Conoulty identified (each of which had positive EBITDA) were determined to be appropriate comparators, an EBITDA multiple could be determined for the Core Business and could then be applied to the agreed FME(EBITDA) (which is what Ms Conoulty proceeded to do).

    5. (5)

       However, if the International Companies were not determined to be appropriate comparators, it would be necessary to adopt some other valuation approach, which led Mr Mullins to assess value based on maintainable revenue and a revenue multiple (which he determined based on McGrath and The Agency).

17. [672]

    This point of difference had a significant impact on the assessment of value.

18. [673]

    Ms Conoulty, by adopting the EBITDA multiple approach, using the agreed FME(EBITDA) of $12.5m, and applying the EBITA multiple which she determined by reference to the International Companies (namely, 9.0x), concluded that the Core Business had a value, as at 31 December 2019, of $112.5m. This reduced, after the agreed discounts for the effect of the COVID-19 pandemic, to $64.8m as at the Post-Restructure Date. It followed that, on Ms Conoulty’s assessment, LJ Hooker Ltd (which held the operating entities in the Core Business) had a very substantial equity value as at the Post-Restructure Date, even after allowing for the ICG debt of $38.4m.

19. [674]

    In contrast, Mr Mullins determined that the maintainable revenue was $35.0m and applied a revenue multiple (derived from McGrath and The Agency) of 0.7x, thereby valuing the Core Business, as at 31 December 2019, at $24.5m. After applying the agreed discounts for the effect of the COVID-19 pandemic, this value reduced to $14.1m as at the Post-Restructure Date. Because this figure was considerably less than the amount of the ICG debt, it followed that, on Mr Mullins’ assessment, LJ Hooker Ltd had a nil value as at the Post-Restructure Date.

20. [675]

    In addition, there was a dispute between the experts, which was relevant only to the valuation of the Core Business as at the Current Date, concerning the calculation of the EBITDA multiple implied by the acquisition of McGrath in June 2024 (the 2024 McGrath Transaction).

21. [676]

    By reason of the findings I have made, it is unnecessary to determine the controversies that arise on the expert evidence. However, in case I have erred in making my findings on liability, I have set out below the findings that I would have made on the principal matters in dispute between the experts. In doing so, I have not sought to address each of the opinions expressed by the experts in relation to those matters, but have instead stated the determinations which I would have made and the main reasons for those determinations.

22. [677]

    Mr Mullins determined a revenue multiple by reference to two Australian companies, McGrath and The Agency, which he then applied to maintainable revenue in order to determine the value of the Core Business both as at 31 December 2019 and as at the Current Date (with the value as at 31 December 2019 being used to determine the value as at the Pre-VA Date and the Post-Restructure Date).

23. [678]

    Whereas EBITDA differentiates between businesses which are profitable and those which are not, and also differentiates between the extent of profitability, the amount of revenue earned by a business provides no indication as to whether its costs exceeded its revenue, and therefore whether it was a profitable or loss-making business.

24. [679]

    There was a significant difference between the EBITDA margins of the Core Business and those of McGrath and The Agency in the two financial years prior to 31 December 2019, as shown by the following figures in the Joint Report:

25. [680]

    Notwithstanding that difference, Mr Mullins determined a revenue multiple by reference to McGrath and The Agency (namely, 0.7x), which he then applied to the Core Business’s maintainable revenue in order to assess its value.

26. [681]

    The problem with this approach can be illustrated by assuming that each business had the same maintainable revenue of $35m as at 31 December 2019 (being the figure that Mr Mullins determined for the Core Business). In this scenario, Mr Mullins would assess the value of each business as being the same: that is because the same revenue multiple of 0.7x would be applied to the same revenue figure, producing a valuation of $24.5m for each business as at 31 December 2019. The valuation would therefore take no account of the fact that the Core Business had, in each of FY18 and FY19, generated substantial profits from its revenue, while The Agency had made a substantial loss in both of those years, and McGrath had made a small profit in one and a small loss in the other.

27. [682]

    However, as Ms Conoulty pointed out (by reference to a number of valuation texts), firms with higher profit margins tend to sell for higher revenue multiples.

28. [683]

    Mr Mullins accepted that “all other things being equal, a higher margin business will attract a higher valuation multiple, and a lower margin business will attract a lower valuation multiple”.

29. [684]

    In addition, Mr Mullins accepted the following propositions:

30. [685]

    Mr Mullins agreed that the revenue multiple which he applied equated to an EBITDA multiple of approximately 2x as at 31 December 2019, and 1.13x as at the Post-Restructure Date. He also conceded, by reference to a “deal tracker” published by Grant Thornton which identifies the multiples of various Australian mergers and acquisitions, that all of the EBITDA multiples so identified were “considerably higher” than a multiple of 2x or less.

31. [686]

    Having regard to those matters, I accept Ms Conoulty’s view that a revenue multiple should not be adopted without making “some significant adjustments to it to allow for the different EBITDA margins”. However, Mr Mullins acknowledged that he had not adjusted his revenue multiple so as to account for the difference in profitability between, on the one hand, the Core Business and, on the other, McGrath and The Agency.

32. [687]

    For those reasons, I would have determined that the revenue approach adopted by Mr Mullins was not an appropriate basis for determining the value of the Core Business either as at 31 December 2019 or as at the Current Date.

33. [688]

    The International Companies which Ms Conoulty identified as comparable to the Core Business for the purpose of determining an EBITDA multiple as at 31 December 2019 were Foxtons Group plc; Countrywide plc; RE/MAX Holdings, Inc.; Realogy Holdings Corp; Bridgemarq Real Estate Services, Inc.; and APAC Realty Limited.

34. [689]

    Each of those companies operated, as at 31 December 2019, a real estate business in various overseas markets (including the United Kingdom, the United States of America, Canada and Singapore).

35. [690]

    Similarly, the comparable transactions which Ms Conoulty identified included transactions in 2016-2018 involving real estate businesses in the United Kingdom, Japan, Germany and Canada.

36. [691]

    In a number of cases, the International Companies had revenue in an order of magnitude vastly greater than that of the Core Business. For example, in the 2019 calendar year, Countrywide in the United Kingdom had revenue of $914m, and Realogy in the United States had revenue of around $8.1bn, whereas in FY19 the Core Business had revenue of $34m. That is, the Core Business had around 3.7% of Countrywide’s revenue, and around 0.4% of Realogy’s revenue.

37. [692]

    Notwithstanding those matters, Ms Conoulty explained the reasons why she considered the International Companies which she selected to be comparable to the Core Business for the purposes of determining an EBITDA multiple, including that:

    1. (1)

       the EBITDA multiples of the International Companies, with the exception of one clear outlier (Foxtons), fell within a relatively confined range, and in FY18 (being the last financial year prior to 31 December 2019 when McGrath had been profitable) the EBITDA multiple of McGrath was higher than the average and median of those International Companies;

    2. (2)

       the forecast growth for the real estate industry in Australia as at 31 December 2019 was in line with the figures for the United Kingdom, the United States and Canada;

    3. (3)

       the beta factor of McGrath and The Agency as at 31 December 2019 (being a measure of the risk of a company) was in line with or lower than the beta factors for the selected International Companies;

    4. (4)

       it is not uncommon for valuers in Australia to have regard to international companies when valuing an Australian business (in this regard, Ms Conoulty specifically referred to the Lonergan Edwards Report dated June 2024, which was prepared in respect of the 2024 McGrath Transaction and which referred to three of the same International Companies that Ms Conoulty selected); and

    5. (5)

       Mr Hooker himself identified, in a spreadsheet which was attached to the “For Your Eyes Only” Email (see paragraph [78] above), the International Companies which Ms Conoulty selected as being comparable to the Core Business.

38. [693]

    Having regard to those matters, I accept Ms Conoulty’s opinion that the International Companies are sufficiently comparable to the Core Business such that regard can be had to them for the purposes of determining an EBITDA multiple.

39. [694]

    However, the use of those International Companies increases the element of uncertainty in the EBITDA multiple. In that regard, Mr Mullins pointed out that:

    1. (1)

       factors that are relevant to the valuation of a business include factors which relate to the company, the industry in which the company operates, and “the economy(ies) / market(s)” in which the business operates;

    2. (2)

       such factors can include the size of the company, expected growth rates in the company, and matters such as tax rates, the weighting of depreciation and amortisation in the assessment of EBITDA, reinvestment requirements, and the cost of capital;

    3. (3)

       a failure to control for such differences across companies and across countries can lead to erroneous conclusions based purely on a direct comparison of multiples; and

    4. (4)

       Ms Conoulty has not adequately, or in some cases at all, addressed how such factors might impact the EBITDA multiples of the International Companies, or how they compare to the environment within which the Core Business operates.

40. [695]

    In addition, Mr Mullins stated that “on average, larger businesses attract higher valuation multiples than smaller businesses”. As noted above, a number of the International Companies have revenue many times higher than that of the Core Business. Ms Conoulty acknowledged in her report that it is “a generally accepted valuation principle that smaller companies are associated with higher risk, which all else being equal, results in lower multiples”. This was also acknowledged in the Lonergan Edwards Report, which noted that the majority of the international companies referred to in that report, including a number of those selected by Ms Conoulty, were larger and had more diverse offerings, both in terms of service and geographic scale, than McGrath’s business (which both experts in this matter agree is comparable to the Core Business).

41. [696]

    In the course of making submissions in closing oral address regarding how the Court might deal with any doubt or uncertainty regarding the extent to which the International Companies selected by Ms Conoulty were comparable to the Core Business, Senior Counsel for Empireal stated that:

42. [697]

    In the present case, I would have determined that there needed to be an adjustment to the EBITDA multiple selected by Ms Conoulty, in order to take account of the differences in size between the International Companies and the Core Business, and to take account of the significant risk of error where a multiple is selected by reference to companies operating in different economies and markets (without any detailed analysis being undertaken of any factors found in particular markets or economies, which were not present in Australia and which might impact the assessment of value). I return below to address the extent of the adjustment that I would have made.

43. [698]

    As at the Current Date, Ms Conoulty determined the EBITDA multiple primarily by reference to the 2024 McGrath Transaction, which she considered “to be a strong benchmark to the [Core] Business”.

44. [699]

    There was a dispute between the experts as to the method for determining the EBITDA multiple implied by the 2024 McGrath Transaction.

45. [700]

    Ms Conoulty was of the opinion that only the most recent 12 months of EBITDA prior to the 2024 McGrath Transaction should be used to calculate McGrath’s EBITDA multiple. As at the date of the 2024 McGrath Transaction, the most recent reported figures for McGrath were those as at 31 December 2023. Ms Conoulty calculated McGrath’s EBITDA for the 12 months up to 31 December 2023 to be $7.5m, and its enterprise value to be $69.2m. This resulted in an EBITDA multiple of 9.2x. Having regard to that figure, Ms Conoulty adopted an EBITDA multiple of 9.0x for the purposes of valuing the Core Business as at the Current Date.

46. [701]

    In contrast, Mr Mullins was of the opinion that McGrath’s EBITDA in each of the three financial years preceding the 2024 MacGrath Transaction (namely, FY21, FY22 and FY23) should be averaged for the purpose of calculating the EBITDA multiple implied by the 2024 McGrath Transaction. On that basis, Mr Mullins determined that an EBITDA multiple of 4.9x was implied by the 2024 McGrath Transaction.

47. [702]

    In the Joint Report, Ms Conoulty stated that Mr Mullins’ approach reflects a two-thirds weighting on McGrath’s performance in FY21 and FY22, in circumstances where:

    1. (1)

       there was a clear decline in the EBITDA of each of McGrath and the Core Business in FY23, compared to the performance in FY21 and FY22;

    2. (2)

       there was also a clear decline in the revenue of McGrath, the Core Business and the broader industry in FY23, with revenue not being forecast to recover to FY22 levels; and

    3. (3)

       any expected growth in earnings should be reflected in the EBITDA multiple and not in the FME(EBITDA).

48. [703]

    Ms Conoulty further opined that there was an inconsistency in the approach adopted by Mr Mullins because:

    1. (1)

       on the one hand, Mr Mullins agreed with Ms Conoulty’s calculation of the FME(EBITDA) for the Core Business as at the Current Date, which did not place any weight on FY21 and FY22 (which years were affected by the COVID-19 pandemic and the government’s response to it);

    2. (2)

       however, Mr Mullins placed two-thirds weight on the EBITDA of McGrath in FY21 and FY22 in calculating the EBITDA multiple implied by the 2024 McGrath Transaction.

49. [704]

    Ms Conoulty noted that, if the FME(EBITDA) of the Core Business, as at the Current Date, had been calculated by placing two-thirds weight on the EBITDA of the Core Business in FY21 and FY22, the FME(EBITDA) would have been assessed as $10.8m (and if Mr Mullins’ EBITDA multiple of 4.9x had been applied to this figure, it would have resulted in a valuation of around $53m at the Current Date, which is not materially different from Ms Conoulty’s midpoint valuation of $54.9m).

50. [705]

    Mr Mullins explained, in the Joint Report, that there was no such inconsistency in his approach. That was because:

    1. (1)

       the agreed FME(EBITDA) of the Core Business as at the Current Date was calculated by reference to the EBITDA of the Core Business for the three previous years (namely, FY23, FY24 and the period to 31 March 2025); and

    2. (2)

       on Mr Mullins’ approach, the EBITDA multiple implied by the 2024 McGrath Transaction was also calculated by reference to the EBITDA of McGrath for the three previous years (namely, FY21, FY22 and FY23).

51. [706]

    Further, Mr Mullins pointed out that the figure of $10.8m for the FME(EBITDA) of the Core Business to which Ms Conoulty referred (see paragraph [704] above) was not based on an average of the three-year period prior to the Current Date, but instead involves giving a weighting of only one-third to the EBITDA for the three-year period prior to the Current Date (being FY23, FY24 and the 12 months to 31 March 2025), and a two-thirds weighting to the two financial years which preceded that three-year period (namely, FY21 and FY22).

52. [707]

    Mr Mullins expressed the opinion in the Joint Report that the determination of the EBITDA multiple implied by the 2024 McGrath Transaction based solely on the result achieved by McGrath in FY23 would result in a misapplication of the CME method, because the measure of earnings applied would not reflect an assessment of maintainable earnings. Further, Mr Mullins stated that his approach is:

    1. (1)

       consistent with the following description of commonly accepted valuation practice (“which, whilst referring to a ‘PE ratio’ involves the same considerations as applicable to any valuation multiple”):

    2. (2)

       not materially different to the approach adopted in the Lonergan Edwards Report, which involved giving a weighting of 25% to FY21, 25% to FY22, and adopting the average result in FY20, FY23 and LTM23 for the balance.

53. [708]

    Senior Counsel for Empireal submitted that, in relation to the EBITDA multiple as at the Current Date, it would be open to the Court to “adjust the multiple having regard to all the evidence that's before your Honour, and pick a number that your Honour thought was appropriate between those two [that is, between the multiples of 4.9x and 9x which were proposed by, respectively, Mr Mullins and Ms Conoulty] and apply that to the agreed future maintainable earnings”.

54. [709]

    I accept Mr Mullins’ opinion that, in determining the EBITDA multiple implied by the 2024 McGrath Transaction, regard should be had to the EBITDA of McGrath not only for FY23, but also for FY21 and FY22.

55. [710]

    However, I consider that those prior years, while still being taken into account, would be given less weight than FY23 (having regard to the matters raised by Ms Conoulty, including the downturn in revenue experienced by McGrath and the broader industry from FY21 to FY23).

56. [711]

    Accordingly, I consider that it would be appropriate to give, in a manner similar to the Lonergan Edwards Report (to which both experts referred), a 25% weighting to each of FY21 and FY22, and a 50% weighting to FY23. On my calculations, this would result the EBITDA multiple implied by the 2024 McGrath Transaction around 6x.

57. [712]

    I would not simply adopt this figure, given that, in arriving at a multiple of 9x as at the Current Date, Ms Conoulty, while viewing the 2024 McGrath Transaction as a strong benchmark, also had regard to the EBITDA multiples of the International Companies.

58. [713]

    Having regard to the range of EBITDA multiples for the International Companies set out in Ms Conoulty’s report, I would have selected a multiple of 7x as at the Current Date. This is slightly higher than the multiple implied by the 2024 McGrath Transaction (calculated on the basis outlined above), and is at the bottom of the range of EBITDA multiples for the International Companies as at the Current Date (though well below the median, having regard to the differences in size to which I have referred).

59. [714]

    In determining the appropriate adjustment to be made to Ms Conoulty’s EBITDA multiple as at 31 December 2019 in order to account for the difference in size between the Core Business and the International Companies, and the risk of error in selecting a multiple based on the International Companies, I would have had regard to the fact that each of Ms Conoulty (on her EBITDA approach) and Mr Mullins (on his revenue approach) concluded that the capitalisation multiples for the Core Business were the same as at 31 December 2019 and as at the Current Date. I would also have regard to the fact that, on Ms Conoulty’s analysis, the median of the EBITDA multiples for the International Companies was almost the same as at both 31 December 2019 (10.5x) and as at the Current Date (11x).

60. [715]

    In light of those matters, I would have determined that an EBITDA multiple of 7x should also be adopted as at 31 December 2019. This represents a discount of around 20% to the EBITDA multiple selected by Ms Conoulty as at 31 December 2019. There is necessarily an element of arbitrariness to this discount. In arriving at the level of the discount, I have sought to give weight to Ms Conoulty’s assessment that the International Companies are sufficiently comparable to provide a basis for determining an EBITDA multiple for the Core Business, while also giving weight to Mr Mullins’ opinion that there is an increased risk of error in circumstances where allowance has not been made for differences in economies and markets in which the various entities operate, and, in addition acknowledging that, as is common ground between the experts, smaller listed companies generally trade on lower multiples than large listed companies.

61. [716]

    Applying an EBITDA multiple of 7x to the agreed figures for FME(EBITDA) (namely, $12.5m as at 31 December 2019 and $6.1m as at the Current Date) results in a value for the Core Business of:

    1. (1)

       $87.5m as at 31 December 2019;

    2. (2)

       $61.25m as at the Pre-VA Date (applying a 30% discount to the figure in paragraph (1) above);

    3. (3)

       $50.3m as at the Post-Restructure Date (applying a 42.5% discount to the figure in paragraph (1) above); and

    4. (4)

       $42.7m as at the Current Date.

62. [717]

    In the event that liability and causation had been established, it would have been necessary, in order to determine the quantum of any account of profits or equitable compensation, for the findings outlined above in relation to the value of the Core Business as at the Pre-VA Date, the Post-Restructure Date and the Current Date to be factored into the experts’ assessment of the enterprise value and equity value of the relevant corporate entities as at each of those dates.

63. [718]

    On the basis that, as I understand the position, there was agreement between the experts as to the adjustments and calculations necessary, once the value of the Core Business was assessed, in order to determine the enterprise value and equity value of each of those entities at each of those dates, this would have been a straightforward task.

64. [719]

    I would have directed the parties to undertake this exercise. Presuming those figures would be able to be agreed between the experts once the value of the Core Business was determined (as I understand to be the case), it would then have been a matter for Empireal to make an election as to whether it sought equitable compensation or an account of profits, or whether, in light of any such adjustments, it instead sought orders for the imposition of a constructive trust.

65. [720]

    In that regard, three further points should be noted.

66. [721]

    The first concerns the quantification of equitable compensation. For the reasons given above, if I had made the Assumed Set of Findings, I would have found that the measure of the loss suffered by Empireal as a result of Empireal, LJHRES Holdings and LJH RES being placed into voluntary administration and the consequent restructure of the LJ Hooker Group would be the difference between the value of Empireal’s assets (namely, its shareholding in LJHRES Holdings) before and after the restructure of the LJ Hooker Group.

67. [722]

    Empireal submitted that the amount of this difference was $38.9m, being the difference between Ms Conoulty’s midpoint assessment of the equity value of LJHRES Holdings as at the Pre-VA Date ($38.9m) and her assessment of the equity value of the LJHRES Holdings as at the Post-Restructure Date (nil).

68. [723]

    It is common ground that the equity value of LJHRES Holdings following the restructure was nil. However, there are two problems with the figure of $38.9m put forward by Empireal as the equity value of LJHRES Holdings prior to the restructure.

    1. (1)

       First, that value is derived by Ms Conoulty on the basis of various adjustments being made to her assessment of the value of the Core Business as at 31 December 2019 (and her valuation of the Core Business as at that date would need to be reduced, for the reasons given above).

    2. (2)

       Secondly, Empireal sought to quantify the loss that it had suffered as a result of the restructure by comparing the value of its interest in LJHRES Holdings as at 10 June 2020 (that is, the Pre-VA Date) with the value of its interest in that entity following the implementation of the LJH RES and LJHRES Holdings DOCAs in August 2020 (that is, the Post-Restructure Date). The difficulty with this approach is that it is common ground between the experts that there was a substantial decline in the value of the Core Business in the period between 10 June 2020 and August 2020, which was due to the COVID-19 pandemic. In particular, the experts agreed that, whereas the value of the Core Business as at 10 June 2020 represented a 30% discount to its value as at 31 December 2019, the value of the Core Business as at August 2020 represented a 42.5% discount to its value as at 31 December 2019.

69. [724]

    On Empireal’s case, the event which led to the loss of the value of its equity in LJHRES Holdings was the restructure of the LJ Hooker Group as a result of the steps taken on 8 August 2020. In order to determine the amount payable by way of equitable compensation, in the event that liability had been established, it would have been necessary:

    1. (1)

       first, to determine the value of the Core Business as at 8 August 2020, immediately prior to the restructure being implemented on that day; and

    2. (2)

       secondly, to determine, on the basis of the adjusted value of the Core Business as at 8 August 2020, the value of the equity in LJHRES Holdings on 8 August 2020 (immediately prior to the restructure being implemented on that day).

70. [725]

    The amount so calculated would represent the amount of the equitable compensation to which Empireal was entitled (given that, following the restructure, the value of the equity in LJHRES Holdings was agreed to be nil).

71. [726]

    Accordingly, if I had made the Assumed Set of Findings, it would have been necessary for the quantum of any equitable compensation to Empireal to be calculated in the manner outlined above.

72. [727]

    I note that it would have been unnecessary, in a scenario, where I had made the Assumed Set of Findings, to make any further adjustment to the equity value of LJHRES Holdings by way of an “insolvency discount” of 12.5% (as assessed by an insolvency expert, Mr Greg Meredith). That is because, in this scenario, I would have determined that, as at June 2020, the directors did genuinely form, and did not have rational grounds to form, the opinion that any of Empireal, LJHRES Holdings or LJH RES was insolvent or likely to become insolvent in the future.

73. [728]

    The second matter concerns the effect of the 2021 Option Agreement (see paragraph [241] above). The experts agreed that the effect of the option in this agreement being exercised would be to reduce the value of Mr Hooker’s interest in MF LJH Nominees as at the Current Date to less than 0.5% of the assessed equity value of that entity. However, there was a dispute between the parties as to whether or not there was a basis to conclude that the option was likely to be, or even capable of being, exercised. In particular, Empireal submitted that the 2021 Option Agreement was void for uncertainty, because it required that any notice exercising the option be issued “during the Exercise Period” (which was not a defined term), and that there was no basis to conclude that the FIRB Condition could be satisfied by MF Australia Capital.

74. [729]

    This issue would only have arisen for determination if, after making the adjustments outlined above to the value of the Core Business, and determining the consequential adjustments for the figures for the enterprise value and equity value of the various corporate entities in issue, the equity value of MF LJH Nominees as at the Current Date was (leaving aside any effect of the 2021 Option Agreement) greater than both the quantum of equitable compensation (as assessed in the manner outlined above) and the value of the equity in MF LJH Nominees as at the Post-Restructure Date. That is because Empireal would otherwise likely not elect to seek an account of profits based on the equity value of MF LJH Nominees as at the Current Date.

75. [730]

    In the absence of knowing how these matters would have played out, I do not consider that there is any utility in considering the question of the interpretation and operation of the 2021 Option Agreement (which may have been a moot issue, even if I had determined all other matters in Empireal’s favour).

76. [731]

    The third matter concerns the remedy of a constructive trust. As Empireal submitted, this remedy would only arise if Empireal elected not to seek equitable compensation, and if an account of profits was not possible because the shares in MF LJH Nominees did not have any value. In the absence of knowing the adjusted figures for the equity value of the various entities at issue and the election made by Empireal as a result of those calculations, there is no utility in giving further consideration, in these reasons for judgment, to the availability of this form of relief.

77. [732]

    For the reasons given above, I have determined that Empireal has not established any of its claims against Mr Hooker.

78. [733]

    It follows that the proceeding will be dismissed, with costs.

79. [734]

    In closing written submissions, Mr Hooker stated that “[w]hether it will be submitted that those costs should be ordered on an indemnity basis is a matter upon which Mr Hooker will decide in closing oral submissions”. No such submission was advanced by Senior Counsel for Mr Hooker in closing oral address. Costs will be awarded on the ordinary basis.

80. [735]

    Accordingly, I make the following orders:

    1. (1)

       The Originating Process filed 24 July 2023 is dismissed.

    2. (2)

       The Plaintiff pay the Defendant’s costs of the proceeding, as agreed or assessed.