In the matter of Cyprus Community of NSW Ltd

By Originating Process filed on 19 November 2024, the Plaintiffs, Dr Costa and Cyprus Capital Ltd (“Cyprus Capital”) seek relief in respect of the voluntary administration of Cyprus Community of NSW Ltd (“Club”).

First, the Plaintiffs seek an order setting aside the appointment of Messrs Kelly and Kennedy (“Administrators”) as voluntary administrators of the Club and, alternatively, a declaration that the Administrators were not validly appointed pursuant to s 436A of the Corporations Act 2001 (“Act”). Second, the Plaintiffs seek a consequential order, under s 249G of the Act (or, they added in submissions, s 1324 of the Act) that, within 7 days, there be a meeting of the Club to elect a new committee of the Club under cl 16 of its articles of association, with the chair of that meeting to be a person nominated by the solicitors for the Plaintiffs and the meeting to be otherwise conducted under the Club’s articles of association. By an Interlocutory Process filed on 22 November 2024, the Administrators seek a declaration under s 447C of the Act that their appointment was valid, or alternatively orders validating their appointment under s 447A of the Act or for their reasonable remuneration. I will address that application below.

It is common ground that Dr Costa is a creditor and member of the Club and a director of Cyprus Capital and that Cyprus Capital is a secured creditor of the Club (POC [1]-[2], POD [1]-[2]). The Club is a public company limited by guarantee, is a registered club under the Registered Clubs Act 1976 (NSW) (“Registered Clubs Act”), holds a “liquor - club licence” under the Liquor Act 2007 (NSW) and is a registered charity. It has approximately 1200 ordinary members and its constitution records a purpose of promoting and advancing the educational and cultural interests and the health and welfare of persons born in Cyprus or their descendants thereby assisting their assimilation into the Australian community. The Club was placed into voluntary administration on 24 September 2024 and the Administrators were appointed as its voluntary administrators. Subsequently, on 14 October 2024, Cyprus Capital appointed receivers and managers to the Club (POC [3], POD [3]).

The Plaintiffs read an affidavit dated 19 November 2024 of Dr Costa, who is a member of the Club and a director of Cyprus Capital and presumably a shareholder in Cyprus Capital, although he does not disclose the extent of his financial interest in Cyprus Capital in his affidavit. Dr Costa’s evidence (Costa 19.11.24 [9]) is that:

Dr Costa’s evidence (Costa 19.11.24 [11]) is that shareholders of Cyprus Capital must be members of the Club; it does not, of course, follow that the interests of Cyprus Capital or its members are coincident with the interests of the Club or its members, where it is not suggested that all members of the Club are shareholders of Cyprus Capital with equal shareholdings. Dr Costa also refers to an extraordinary general meeting of the Club on 24 November 2019, authorising the entry into a loan agreement with Cyprus Capital (Costa 19.11.24 [12]) but it is not apparent that that meeting complied with the process required under Ch 2E of the Act for the approval of a related party transaction. It is not necessary to determine, and the parties did not address, any question as to whether the arrangements between Cyprus Capital and the Club complied with Ch 2E of the Act, which would presumably depend upon whether, as Dr Costa appears to contend, those arrangements were on arms-length terms, or more favourable to the Club than arms-length terms.

Dr Costa also refers to a subsequent advance of funds by Cyprus Capital to the Club (Costa 19.11.24 [14]ff) and to an injunction obtained by his sister, Ms Bassil, who also appears to be a shareholder in Cyprus Capital, which restrained the Club proceeding with an extraordinary meeting of its members to consider proposals for the sale of its land and premises (“Property”) (Costa 19.11.24 [14]ff). He also refers (Costa 19.11.24 [30]) to the filing of a Statement of Claim in other proceedings which made allegations of oppression in respect of the Club by Ms Bassil on 23 September 2024, which occurred after the Club’s directors had passed a resolution to appoint the Administrators but before that appointment took effect on 24 September 2024. Dr Costa also refers (Costa 19.11.24 [36]) to Cyprus Capital’s subsequent appointment of receivers and managers to the Club and to subsequent correspondence (Costa 19.11.24 [37]) between the Administrators and receivers and managers as to a potential payout of Cyprus Capital’s loan.

Dr Costa also refers (Costa 19.11.24 [45]) to the Club’s ownership of the Property and to its value, on which he relies to contend that the Club is solvent. Although I recognise Dr Costa’s contrary view, it is plain that the Club’s ownership of the Property, which presently cannot be sold without member approval which has not been obtained, does not presently assist the Club in meeting substantial debts that fall due by it in February 2025 and then from June 2025. I address this reality, and the Plaintiffs’ speculation that it could change in the future, below. Dr Costa also refers (Costa 19.11.24 [51]-[52]) to his understanding that the Club has two secured creditors and approximately $12m was borrowed from those secured creditors and that, prior to the appointment of the Administrators, the Club’s trade creditors were being paid in the regular course of business. I interpolate that it appears that, as Dr Costa acknowledges, those creditors were being paid from funds remaining from the Club’s most recent borrowing, which Dr Costa quantifies as then $1.7 million.

Dr Costa in turn indicates (Costa 19.11.24 [58]), by way of submission, that:

The first of those propositions is consistent with the improper purpose case put by the Plaintiffs, although I will find below that case has not been established. The second proposition does not reflect the statutory test for the appointment of a voluntary administrator, which includes whether the Club was likely to become insolvent at a future time. I will explain below why the evidence establishes that, as matters stand, the Club is plainly likely to become insolvent by February 2025, where it does not have member approval for sale of its Property and cannot realise that Property and the Plaintiffs’ suggestion that may change was no more than speculation. There is no process presently in train to obtain such approval and no basis for the Court to speculate as to whether that approval might be successfully sought and obtained in the near future, contrary to what has occurred in the recent past.

By a second affidavit dated 6 December 2024, Dr Costa responds to one of the Administrators’, Mr Kelly’s, affidavit dated 19 November 2024, which I address below, and refers to information that the receivers and managers appointed by Cyprus Capital had provided to him. Dr Costa’s evidence (Costa 6.12.24 [16]) is that, in order to support trading in the receivership:

Dr Costa also addresses an affidavit of the Club’s chair, Mr Kyriacou, which was ultimately read by the Administrators, and indicates that he does not intend to respond to several paragraphs of that affidavit which he considers are irrelevant to the issues in the proceedings. I do not accept that those paragraphs were irrelevant where the Plaintiffs put allegations of improper purpose including against Mr Kyriacou. Dr Costa denies making certain statements to third parties that are addressed in Mr Kyriacou’s evidence. Dr Costa also addresses a possible relationship between a third party which has previously expressed an interest in acquiring the Club’s Property (if the Club were presently able to sell it, which it is not) and a potential lender in a refinancing that is being explored by the Administrators. It is not necessary to address that question in order to determine these proceedings, where the Administrators have not committed themselves to any particular refinancing, and Mr Kelly’s evidence is that such a refinancing would be the subject of an application to the Court for approval. Where that possible refinancing is both contingent and would be exposed to the Court before it occurred, it can provide no basis for making the orders sought by the Plaintiffs or declining to make the orders sought by the Administrators to validate their appointment. Dr Costa was not cross-examined.

By her affidavit dated 6 December 2024, Ms Bassil addresses a question as to the costs that would be incurred by the Club in complying with a fire safety order. It is not necessary to determine that question to determine this application. Ms Bassil also refers to her substantial involvement with the Club and its facilities and the extent to which the Club’s facilities are now operating, apparently under the control of the receivers and managers appointed by Cyprus Capital. Ms Bassil was also not cross-examined.

The Plaintiffs also tender an affidavit dated 2 October 2024 of Mr Kelly (Ex P3) filed in Cyprus Capital’s application to permit late registration of its security interest on the Personal Property Securities Register, where Mr Kelly referred to his view, by reference to the Club’s operating loss for the year ended 31 December 2023 and its debts due in the medium term, that the Club was likely to become insolvent at a future time, and identified the Club’s then unsecured creditors.

The Administrators read the affidavit dated 18 October 2024 of Mr Kelly, originally read in respect of their successful application for extension of the convening period, which referred to the circumstances of his and Mr Kennedy’s appointment as voluntary administrators of the Club and outlined the operations and financial position of the Club. Mr Kelly there referred (Kelly 18.10.24 [11]ff) to the Club’s assets which, excluding the Property which it presently cannot sell, are significantly short of its secured and unsecured debts and of the amount that is due to be repaid to Cyprus Capital in February 2025. Mr Kelly also referred to the Club’s ownership of the Property and addressed a letter dated 30 August 2024 from an accounting firm, Santoro & Co (“Santoro”) (Ex J1, 1129) which expressed the view that the Club “would be insolvent had it not been for the value of the real estate the [Club] owns which enabled the [Club] to secure loans to continue operating”; that the Club had recorded trading losses for at least seven years; and that the payment of the loans from, inter alia, Cyprus Capital in early 2025 would require sale or redevelopment of the Club’s real estate and that refinancing was unlikely on its current operating results. I will address the Plaintiffs’ criticisms of that letter below. Mr Kelly also addressed the existence of other proceedings involving the Club; referred to the appointment of the receivers by Cyprus Capital; and outlined the steps which have been taken by the Administrators since their appointment and the reasons why an extension of the convening period for the second meeting of creditors was sought. As I noted above, the Court previously made the orders that the Administrators sought extending that convening period.

By a second affidavit dated 21 October 2024, Mr Kelly addressed the position of the receivers appointed by Cyprus Capital and the position of another secured lender to the Club, Sydney Wide Mortgage Management Ltd (“SydWide”) and referred to notice of the proceedings given to interested parties. By a third affidavit dated 22 November 2024, Mr Kelly addressed the position in respect of a possible refinancing of the Club’s debt to Cyprus Capital, although I have noted above that it is not necessary to determine any question as to that possible refinancing in order to determine these proceedings.

By a fourth affidavit dated 2 December 2024, Mr Kelly addressed his dealings with Mr Kyriacou, a discussion with the Club’s board prior to the appointment of the Administrators, and the Administrators’ discussion with the Independent Liquor and Gaming Authority (“ILGA”) and with the Club’s board as to whether it would be preferable for a temporary administrator to be appointed by the ILGA under s 41A of the Registered Clubs Act or for voluntary administrators to be appointed under s 436A of the Act in the relevant circumstances. Mr Kelly also addressed information which he had provided to the ILGA. Mr Kelly also set out Cyprus Capital’s involvement in the voluntary administration of the Club, and it is apparent that Cyprus Capital and the receivers which it appointed had been supportive of the voluntary administration until it became apparent that there was a prospect that the Administrators would refinance Cyprus Capital’s loan on terms which they considered would be more favourable to the Club than the existing arrangement with Cyprus Capital. Mr Kelly also addressed the work undertaken in the administration of the Club to date and the Administrators’ intentions if they remained in office.

By a fifth affidavit dated 5 December 2024, Mr Kelly referred to an email dated 17 September 2024 from the Club’s secretary, Mr Panayi, which attached (as Mr Kyriacou accepted in cross-examination) the minutes prepared by the Club of the meeting at which the Administrators were appointed, which were less formal and less comprehensive than the draft pro forma minutes which Mr Kelly’s firm had provided to the Club. I will address the content of that document further below. By a sixth affidavit dated 9 December 2024, Mr Kelly annexed his file note of a meeting with Mr Kyriacou on 28 August 2024.

Mr Kelly was cross-examined, although Mr Castle, with whom Mr Collins appears for the Plaintiffs, fairly made clear that the Plaintiffs did not advance any criticism of the propriety of the Administrators’ conduct. Mr Kelly presented as a knowledgeable witness who answered questions fairly and constructively and I accept his evidence. Mr Castle cross-examined Mr Kelly (T58-59) as to his evidence in the application to extend the convening period that a further six months was likely to be required to conduct a sale process of the Property, including the time that would be required to obtain members’ approval of any sale under s 41E of the Registered Clubs Act (T59). There is no reason to think the Club could have sold the Property in any lesser time from September 2024, even apart from the effect of the injunction granted by Slattery J that I address below, and that would not have allowed the repayment of the Cyprus Capital debt by February 2025. Mr Kelly’s evidence, in cross-examination, was also that the Administrators would make a Court application before proceeding with any proposal for refinancing including to limit the Administrators’ liability for the amount of the refinancing (T60-61). Importantly, Mr Castle’s question and Mr Kelly’s answer rightly recognised that such a refinancing could take the form of a borrowing by the Administrators rather than a borrowing by the Club, which has significance for an issue that I note below.

The Administrators also read the affidavit dated 2 December 2024 of Mr Kyriacou which it appears he had prepared for himself, after Mr Kyriacou indicated that he would not read it, although he had been granted leave to appear as an interested person in the proceedings. It was plainly appropriate for the Administrators to read that affidavit, to provide assistance to the Court, which would otherwise not have had access to Mr Kyriacou’s evidence as to significant matters that informed the directors’ appointment of the Administrators.

Mr Kyriacou is a solicitor, who has largely been involved in academic and research activities and he has not practised in litigation and is not presently in legal practice. In his affidavit, Mr Kyriacou set out the history and operations of the Club and identified its existing loan facilities in terms that are largely uncontroversial, and referred to the Club’s earlier attempts, without success, to call a general meeting to obtain members’ approval to sell or develop the Property. He also referred (in evidence admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) (“Evidence Act”) as to his understanding) to three proposals which had been received by the Club to purchase or develop the Property, and to the circumstances in which the proposed meeting of the Club’s members to consider those proposals had been restrained by Slattery J on an interlocutory basis, on Ms Bassil’s application. He also referred to discussions with several insolvency advisors prior to the appointment of the Administrators, which generally recognised, that the Club could not pay the debts due in early and mid-2025 without realising the value in the Property, and could not sell or redevelop that Property unless it was both able to call a members’ meeting to obtain approval to do so and able to obtain such approval at such a meeting. Mr Kyriacou did not there address the circumstances in which the resolution was passed by the Club’s directors to appoint the Administrators to the Club, although he addressed that matter in cross-examination by Mr Castle.

Mr Kyriacou was, perhaps understandably, a cautious and possibly defensive witness, but he made fair concessions, including as to one important factual issue, and I accept that he was doing his best to give honest evidence. His evidence in cross-examination was that:

I should note, for completeness, that Mr Kyriacou also made further oral submissions, which largely did not address the legal issues raised by the proceedings, but pointed to the difficulties faced by the Club, the losses which it had incurred and the difficulty of the position for the directors as to whether to appoint the Administrators. Those submissions cannot be treated as advancing the factual position beyond Mr Kyriacou’s affidavit evidence and his cross-examination and the other evidence led in the case. Mr Castle points out Mr Kyriacou was the only one of the Club’s directors who gave evidence in the proceedings. I recognise that matter, but I also recognise that the directors individually were not party to the proceedings, and it was not necessarily to be expected that they would take active steps to be heard in the proceedings so as to lead affidavit evidence in the proceedings.

I now turn to the background facts, drawing partly on the parties’ Points of Claim (“POC”) and Points of Defence (“POD”), partly on their chronologies and partly on the affidavit evidence which I have addressed above. It is common ground (POC [6], POD [6]) that the Club owns the Property comprising approximately 9,000m2 in Stanmore in New South Wales comprising a bitumen car-park adjacent to the clubhouse; six freestanding houses (“Terraces”) on land adjacent to the clubhouse and car park; and a vacant allotment also adjacent to the clubhouse and carpark. It is also common ground (POC [7], POD [7]) that the Property was rezoned in May 2023 to permit greater development of the Property from, inter alia, Low Density Residential and Private Recreation to, inter alia, Mixed Use and General Residential.

It is common ground (POC [8], POD [8], Ex J1, 630, 632) that, subsequent to the rezoning of the Property, the Property has been valued at $57,000,000 on a “Market Value ‘As Is’” basis by Cushman and Wakefield, with a potential value if developed of up to $75,000,000. However, that value cannot presently be realised without member approval which the Club has not presently obtained, under the Club’s constitution or under s 41E of the Registered Clubs Act which limits the circumstances in which a registered club may dispose of its “core property”, as defined, without member approval. I recognise that Mr Castle sought to raise a suggestion in the cross-examination of Mr Kyriacou that the Club could sell part of the land, a car park and one or more of the Terraces without member approval under s 41E of the Registered Clubs Act. Quite apart from the fact that the Plaintiffs did not plead an allegation that Club was solvent or not likely to become insolvent at a future time by reason of that matter (and particularly any sale of the car park) so as to allow procedural fairness to the other parties, that suggestion had the obvious difficulties that there was no evidence as to whether there were interested purchasers for a smaller part of land or the car park, how much it was worth, or whether a sale of a smaller part of the land could be implemented in a sufficient time and at a sufficient price to meet the Club’s debts that fell due in early 2025.

It is common ground (POC [9], POD [9]) that, in about 2009, the Club entered into a loan facility with a division of Bendigo and Adelaide Bank Ltd (“Bendigo Bank”). The Plaintiffs contend (POC [10], not admitted POD [10]) that, in or about May 2024, the Club was indebted to Bendigo Bank in the sum of approximately $3.45m which was subsequently refinanced. On 30 May 2024, the Club invited Cyprus Capital to make an offer to refinance its existing loan facility with Bendigo Bank, on similar terms to an offer from another financier which it had received (Ex J1, 888) and, on 3 June 2024, the Club requested a payout figure from Cyprus Capital (Ex J1, 893). On 7 June 2024, the Club obtained a $7.5m facility from SydWide for the purpose of, among other things, partly refinancing its secured debt (POC [11], partly admitted POD [11]; Ex P1, 847). There appears to be no dispute that an amount of that loan remains available to the Club from which it is presently meeting its ongoing trading losses.

It is common ground (POC [13], POD [13]) that, on 25 February 2021, the Club entered into a Secured Loan Facility Deed dated 25 February 2021 with Cyprus Capital by which Cyprus Capital agreed to advance $3,560,000 to the Club (“Loan 1”); on 17 March 2023, the Club entered into a Secured Loan Facility Deed dated 17 March 2023 with Cyprus Capital by which Cyprus Capital agreed to advance $910,000 to the Club (“Loan 2”); all interest on the loans from Cyprus Capital to the Club is currently capitalised under the terms of the respective loan deeds; the terms of the loans from Cyprus Capital to the Club are four years from the Drawdown Date (as defined) on Loan 1, which would (unless extended) be repayable in early 2025; and three years from the Drawdown Date (as defined) on Loan 2; the terms of the loans can be extended or varied by agreement between Cyprus Capital and the Club; and the loans from Cyprus Capital to the Club are secured by mortgages over the titles of several properties and general security deeds over the Club’s all present and after acquired property. It also appears to be common ground that the debt owed by the Club to Cyprus Capital is approximately $5.85m.

The Plaintiffs contend (POC [14]) that, if the Club requires or required further funding or financial assistance, Cyprus Capital was and is ready, willing and able to extend the term of the loans made by Cyprus Capital to the Club beyond the respective terms and to enter into good faith negotiations with the Club for that purpose; and provide further or additional funding to meet any shortfall from operations and to enter into good faith negotiations with the Club for that purpose. The Administrators do not admit that matter (POD [14]) and neither Cyprus Capital’s capacity to provide further funding nor any commitment to do so was proved by admissible evidence.

The Plaintiffs also contend (POC [15]) that, in the period immediately prior to the appointment of the Administrators and at all other relevant times, the Club was able to pay its debts, including employees and trade suppliers to the Club. The Administrators do not admit that proposition (POD [15]). It is not necessary to determine that question where it is plain, for the reasons noted below that, even if the Club was solvent at the time of the Administrators’ appointment, it was likely to become insolvent by early 2025. The Plaintiffs also contend (POC [16], not admitted POD [16])) that, although the Club’s unsigned and unaudited draft accounts for the year ended 31 December 2023 (Ex J1, 1049) show a net loss from its operating activities, these accounts cannot be relied upon to form any view about the trading operations or solvency of the Club by reason of identified deficiencies in those accounts. It is also not necessary to determine that matter, beyond noting that inadequacies in the Club’s financial records and the suggestion that the Club has not received all the cash generated by its trading would not increase the likelihood that it is either solvent or not likely to become insolvent at a future time.

It is also common ground (POC [18], admitted POD [18]) that the Club’s accounts for the year ended 31 December 2023 also include a reference to an unsecured loan of $3,326,127 from Cyprus Community of NSW Holdings Ltd. It appears that is a related company of the Club. It is not necessary to resolve any question as to the status of that loan to determine this application.

Turning now to more specific matters of chronology, a letter dated 7 December 2023 from the Club’s auditors (Ex J1, 732) and a report dated 11 March 2024 of the Club’s audit committee (Ex J1, 838) indicated concerns as to the handling of cash within the Club’s operations.

On 25 July 2024, the Club received an email dated 25 July 2024 from a Mr Wheat (Ex P4), which appears to contemplate the Club mortgaging a portion of the Property and granting development rights “for one stage” of an apartment offering. I give little weight to this communication. There is no evidence as to Mr Wheat’s qualifications or as to the party which he represented; no evidence of his or its capacity to finance or implement such a development; the email notes that all of the areas and values in it are “for example” and the exact land areas would need to be reviewed to determine whether “each stage is feasible”, and also notes that the proposal was quickly put together. Mr Kyriacou was cross-examined (T89-T90) as to this document, but had no recollection of it, which is unsurprising given its preliminary character. On 29 July 2024, the Club issued a notice of a general meeting (Ex J1, 996) of its members to be held on 25 August 2024 to consider alternative proposals to acquire the Property.

The unsigned auditor’s report contained in the Club’s unsigned accounts for the year ended 31 December 2023, prepared as at 20 August 2024 (Ex J1, 1049 at 1070) was qualified, and observed that:

The auditors also there observed, in qualifications carried forward in those draft accounts from the previous year, that:

On 23 August 2024 (Ex J1, 1095), Ms Bassil commenced proceedings that sought final relief that the Club be restrained from holding the meeting on 25 August 2024 or causing the resolutions referred to in the notice of general meeting dated 1 August 2024 to be put to a vote at that meeting. As I noted above, Slattery J made interlocutory orders on that date which prevented the meeting scheduled for 25 August 2024 from going ahead and also prevented any of the resolutions referred to in the notice of general meeting dated 29 July 2024 being put to a vote of members. Those orders, although interlocutory, continued indefinitely until further order. Ms Bassil did not commence a wider oppression claim until after the resolution to appoint the Administrators was later passed.

On 28 August 2024, Mr Kelly had a discussion with Mr Kyriacou (Kelly 2.12.24 [10]ff), who explained the expression of interest process concerning the Property that had been undertaken by the Club over two years and referred to the injunction that prevented the members’ meeting going ahead, which he perceived as a group of members “bully[ing] the directors to stop”, and advised Mr Kelly that the Club could not convene a meeting to deal with the Property. Mr Kyriacou also there referred to a fire safety order, which the evidence indicates would require further expenditures by the Club, to the Club’s trading losses and, importantly, to the fact that the Club “[c]annot raise funds” and that its “[d]ebt crystallises April 2025”. The evidence suggests that, in fact, the debt due to Cyprus Capital fell due in February 2025.

By letter dated 30 August 2024, an accounting firm, Santoro, summarised their views as to the Club’s solvency (Ex J1, 1129) as follows:

On 2 September 2024, Mr Kelly wrote to the ILGA (Kelly 2.12.24 [16]; Ex J1, 1141) observing that:

On 13 September 2024, Mr Kelly’s firm sent an email to Mr Kyriacou, attaching, inter alia, a letter outlining the voluntary administration process which stated that:

Mr Kelly also had a teleconference with the Club’s board on that date (Kelly 2.12.24 [20]) and then recommended the appointment of a voluntary administrator under s 436A of the Act in preference to a possible appointment of a statutory administrator by the ILGA. He refers, in his affidavit, to the information which had led him to consider that the Club was insolvent or was likely to become insolvent at a future time. I find below that he was correct in that view. Mr Kelly elaborated, without objection by Mr Castle, on the information he provided to the board in that teleconference in oral evidence in chief (T57) as follows:

At 10:26am on 16 September 2024, Mr Kyriacou sent two emails to Mr Kelly setting out his understanding of the differences between the appointment of a statutory administrator and a voluntary administrator (Ex J1, 1160ff) and an employee of Mr Kelly’s firm responded clarifying aspects of that understanding at 11:15am (Ex J1, 1182). At about 8:17pm on that date, the Club’s board passed a resolution to appoint the Administrators, although there is a dispute as to the form in which that resolution was passed which I address below.

On 17 September 2024 at 8:42am, the Club’s secretary, Mr Panayi, sent an email to Mr Kelly confirming that “[l]ast night the board passed a motion at the board meeting to proceed with the V[oluntary] A[dministrator]” (Ex J1, 1188). On the same date at 11:33am, Mr Kelly’s firm sent pro forma meeting minutes in common form to Mr Panayi and Mr Kyriacou (Ex J1, 1189-1194) and, at 12:44pm, Mr Kelly requested the minutes of the board meeting from Mr Panayi (Ex J1, 1188ff). Also on the same date at 4:26pm, Mr Panayi sent a note of that meeting (Ex J1, 1195) in the form of a landscape document including a column titled “Secretary Minutes (Notes)” to Mr Kelly, which did not refer to the Club’s insolvency or likely insolvency. Mr Castle points out, and I accept, that those notes are a similar form to documents prepared by Mr Panayi recording events at earlier meetings of the Club’s board. Mr Castle also refers to the reference in those notes, after the resolution to appoint the Administrators was noted, to a mini-renovation of the tavern area of the Club. The latter reference suggests that the Club’s board had not fully understood the implications of the Club’s financial position or its decision to place the Club in voluntary administration, so far as it contemplated further expenditures and did not recognise the suspension of the board’s powers which would follow from the appointment of the Administrators. Mr Kyriacou fairly accepted in cross-examination (T106) that the form of the “Secretary Minutes (Notes)” prepared by Mr Panayi recorded the resolution put at the meeting, although he also said that there was discussion at that meeting to the effect that the Club was insolvent or likely to be insolvent in the future. He accepted that the resolution passed by the board was that recorded in Mr Panayi’s document (T107) and that, on that day, there was no resolution to the effect that the Club was insolvent or likely to be insolvent at a future time. That evidence is significant for the Plaintiffs’ challenge to the validity of the resolution appointing the Administrators, which I address below.

At 4:52pm and then at 9:03pm on 17 September 2024 (Ex J1, 1198), Mr Panayi sent minutes to Mr Kelly’s firm in the form of the pro forma minutes previously prepared by Mr Kelly’s firm, which included a resolution referring to the Club’s insolvency or likely insolvency, and added the time of meeting and first his signature and then Mr Kyriacou’s signature. The Club also sent a letter to ILGA on that date (Ex J1, 1200) which stated that:

On 23 September 2024, several days after the resolution to place the Club in voluntary administration was passed, but just before the ILGA approved the appointment of the Administrators and it took effect, Ms Bassil filed her Statement of Claim alleging, inter alia, oppression which sought orders under s 233 of the Act (Ex J1, 1206ff). On 24 September 2024, the ILGA approved the appointment of the Administrators to the Club and Mr Kyriacou then executed an instrument of appointment of the Administrators (Ex J1, 1243).

On 3 October 2024, Nixon J made orders under s 588FM of the Act with respect to the registration of Cyprus Capital’s security interest in the Club’s assets on the Personal Property Securities Register (Ex J1, 1377).

The first meeting of the Club’s creditors took place on 4 October 2024. The Plaintiffs both lodged proofs of debt for the purposes of voting at that creditors’ meeting and attended that meeting as creditors by their proxies (Ex J1, 1403-1405; Kelly 2.12.24 [28]-[30]). Mr Kelly there referred to the three possible resolutions available to creditors under s 439C of the Act and noted that the third option was that the administration came to an end in circumstances where the Club was restored to solvency, which he considered the most likely outcome with respect to the Club. He also noted that the Administrators did not plan any implementation of any property developments during the voluntary administration, which would be done through the a “new board” and that:

On 10 October 2024, Mr Kelly’s firm approached Avari Capital Partners (“Avari”) in respect of a possible refinancing of the Club’s secured debt and, on 11 October 2024, Avari issued an “Indicative Term Sheet” for a refinance, which was not binding (Kelly 22.11.24, Annexure E). Mr Kelly’s evidence on cross-examination is that any transaction of that character would be the subject of a further application to the Court and it is not necessary to address that possible transaction further to determine this application.

On 14 October 2024, Cyprus Capital appointed receivers and managers to the Club’s property, then relying on the fact of the appointment of the Administrators, which it now seeks to set aside ab initio (Ex J1, 1406-1408, 1426). On 15 October 2024, Cyprus Capital issued an announcement relating to the appointment of receivers and managers which recorded its commitment to working with the Administrators, a position that is plainly inconsistent with that which it now takes (Ex J1, 1444-1445). On 17-18 October 2024, the Administrators transferred $1,000,000 of the Club’s cash at bank to the receivers and managers appointed by Cyprus Capital (Kelly 2.12.24 [37]).

By email dated 18 October 2024 (Ex J1, 1460), the solicitor acting for Cyprus Capital, who also acts for the Plaintiffs in these proceedings, recorded that he “look[ed] forward to encouraging an orderly, efficient and cooperative administration and receivership” of the Club and identified that the receivers had been appointed by reason of an event of default resulting from the Club’s appointment of voluntary administrators. I recognise that Mr Castle submits, and I accept, that Cyprus Capital could now rely on any other ground that was then available to it to appoint the receivers. It is not necessary to determine any further question in that regard where I will validate the appointment of the Administrators, and the event of default on which Cyprus Capital relied to appoint the receivers will continue to exist.

On 21 October 2024, the Court made orders extending the convening period for the second meeting of creditors, in an application that was supported by the receivers and managers appointed by Cyprus Capital (Kelly 21.10.24 [6(a)]).

On 13 November 2024, the Administrators notified Cyprus Capital of the possible refinance of the Club’s secured debt and invited Cyprus Capital to make an offer to refinance at the same rate and on the similar terms and conditions as the non-binding offer made by Avari (Ex J1, 1561). On 19 November 2024, the Plaintiffs commenced these proceedings.

As at 9 November 2024, Cyprus Capital had calculated the amount owing to it (then as at 24 October 2024) in respect of the first loan that was repayable in February 2025, as $4,682,500 and the amount owing under a second loan that was due to be repaid until 2026 at $1,164,102.51, totalling $5,846,602.51 (Ex J1, 1544). It appears that the amount of at least $3,560,000 plus costs and a fixed interest amount of $1,068,000 falls due by the Club to Cyprus Capital in February 2025 (Ex J1, 450). Dr Costa’s evidence of Cyprus Capital’s suggested intention to extend that time, not recorded in any binding form, was not admissible and was not admitted in these proceedings. From June 2025, the Club is also liable to pay monthly interest-only payments on its secured loan facility with SydWide (Ex J1, 955; Ex P1, 847)

As I noted above, the Plaintiffs seek an order setting aside the appointment of the Administrators as voluntary administrators of the Club and, alternatively, a declaration that the Administrators were not validly appointed pursuant to s 436A of the Act.

I should first address the applicable principles, before turning to the case put by the Plaintiffs. Section 436A of the Act provides for the appointment of an administrator where the directors voting for the resolution resolve that, in their opinion, the company is insolvent or is likely to become insolvent at some future time. A resolution to appoint an administrator is invalid if the relevant directors’ opinion is not held or not held genuinely or in good faith and an inability to determine whether a company is insolvent cannot, without more, found an opinion that it is or is likely to become insolvent: Kazar v Duus (1998) 88 FCR 218 (“Kazar”) at 231; [1998] FCA 1378; Wagner v International Health Promotions (1994) 15 ACSR 419 (“Wagner”) at 421; Re Keneally as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd (admin apptd) (2015) 107 ACSR 172; [2015] NSWSC 937 (“Keneally”) at [74].

In Re Lime Gourmet Pizza Bar (Charlestown) Pty Ltd (formerly under administration) [2015] NSWSC 244 (“Lime Gourmet”) at [21]-[22], I summarised the relevant principles as follows:

Mr Izzo, with whom Mr Ryan appears for the Administrators, rightly submits that the Plaintiffs bear the onus of establishing that the resolution appointing the Administrators was not valid and their further contention (which I address below) that the directors did not hold a genuine belief that the Club was insolvent or likely to become insolvent at a future time, or did not have reasonable grounds for that opinion: Re Condor Blanco Mines Ltd [2016] NSWSC 1196 (“Condor Blanco”) at [154]; Lime Gourmet at [20-23].

Turning to the Plaintiffs’ pleaded case, they contend (POC [19]-[21]) that there were multiple deficiencies with Santoro’s letter dated 30 August 2024 and that, to the extent the Club’s directors had regard to that letter in forming any view as to the Club’s insolvency or likely insolvency, they knew or should have known of those deficiencies. In submissions, Mr Castle criticises the assumption in that letter that the earlier order made by Slattery J in the proceedings brought by Ms Bassil would prevent the Club convening a meeting of its shareholders. In his further updated submissions in reply, Mr Castle also submits that:

In oral submissions, Mr Izzo responds (T136) to criticisms of the Santoro letter in respect of trading losses and submits that the Club’s position would not be improved by the fact of any misappropriation of its cash takings; he submits that, irrespective of Santoro’s view as to the probability of refinancing, Cyprus Capital’s position was that refinancing could not occur without member approval, a matter which I address below; and, although Santoro was incorrect in understanding that Slattery J’s order prevented the Club calling further meetings, that order did prevent the Club putting further resolutions to sell the Property, unless that order was set aside (T136-137).

I accept that Santoro had misunderstood that order made by Slattery J, which did not prevent the Club from calling further members meetings, although it did prevent, subject to further order, the Club implementing resolutions to the effect of those proposed at the earlier meeting which would have brought about the sale of the Property. Little turns on that misunderstanding where the Club required members’ approval to sell the Property which it had not obtained, and where any prospect that it could obtain such approval and sell the Property or raise funds on it before February 2025 is speculative and not established by evidence. It appears that the loan from SydWide was also not due for repayment in early 2025, although interest on that loan would become payable from mid-2025, which the Club likely would not have funds to pay. The Plaintiffs contend that Santoro was incorrect that refinancing was unlikely; but little turns on that matter, where, as I note below, Cyprus Capital itself contended the Club could not refinance without members’ approval which it had also not obtained.

It seems to me that these criticisms of Santoro’s letter do not substantially advance the Plaintiffs’ case where, as I will note below, it is apparent that the Club is likely unable to repay the debt to Cyprus Capital that falls due for repayment in early 2025 and the interest due to SydWide which fell due from June 2025 without selling or otherwise realising the value of its Property; it then could not do so, where it did not have member approval to do so; the Plaintiffs’ submission that that position might change does not rise beyond speculation and a bare possibility; the Club’s ability to make any further borrowing has not been established, and Cyprus Capital itself has repeatedly contended that the Club could not do so without member approval which had also not been obtained; and a further borrowing that was repayable in the short or middle term would exacerbate the risk of the Club becoming insolvent in that period, rather than resolve it.

The Plaintiffs then contend (POC [22]) that, as at the date of the passage of the resolution to appoint the Administrators on 16 September 2024 and the date that appointment became effective on 24 September 2024, the Plaintiffs knew or should have known have known specified matters, as follows:

The first of these matters relates to the pleaded position as to the Club’s secured creditors and its trading operations and unsecured creditors, which I address below. The second would provide no reason for confidence in the Club’s solvency or that it was not likely to become insolvent in the future. The third would also not assist in establishing the Club was not likely to become insolvent in the future unless the value of the Property could be realised before the debts fell due for payment, and I address that matter below. The fourth matter does not displace likely insolvency, where that amount was likely to be eroded by trading losses by April 2025, and was not sufficient to repay the Cyprus Capital debt, quite apart from interest on the SydWide debt from mid-2025. The fifth matter has not been established, and any assumption to that effect by the directors would have been highly imprudent. The sixth matter has also not been established as a matter of fact, quite apart from its lack of clarity as to which assets (other than unidentified Terraces, the value of which is not established) could be sold, where the Club’s core assets could not be sold without member approval under s 41E of the Registered Clubs Act. The seventh matter has not been established, at least as to the Club’s likely solvency, for the reasons noted below, and any assumption to that effect by the directors would have also been highly imprudent. It is not necessary to address the further question whether the appointment of voluntary administrators can be challenged, as a matter of law, by reference to what directors “should have known”, where that appointment will often have to be made in circumstances that would not permit a prior due diligence inquiry.

The Plaintiffs then contend (POC [23]) in an elaborate pleading that the Club was not insolvent or likely to become insolvent at a future time when the resolution was passed to appoint the Administrators on 16 September 2024 or when that appointment became effective on 24 September 2024 or when these proceedings commenced on 19 November 2024; or the directors did not have a genuine belief as to the Club’s insolvency or likely insolvency at a future time; or in another alternative, if they had that belief, they did not make reasonable inquiries before forming and did not have reasonable grounds for such a belief.

I should first address the Plaintiffs’ allegation that the Club was not, at the specified dates, insolvent or likely to become insolvent at a future time, since it will be important for the question whether the Administrators’ appointment should be validated. That allegation has not been established and, to the contrary, I find that the Club was likely to become insolvent at each of those dates.

First, in support of a submission that the Club was not likely to become insolvent, Mr Castle refers, in his further updated submissions in reply, to Mr Kelly’s pre-appointment email dated 2 September 2024 to ILGA, to which I referred above. He notes that Mr Kelly there noted that:

That email plainly does not support the position that the Club was not likely to become insolvent at a future time, because it was not directed to addressing the position in respect of the Cyprus Capital loan that fell due for repayment in February 2025 or the interest on the SydWide debt that fell due from mid- 2025, but only ongoing trading losses; and Mr Kelly’s apprehension that the appointment of the Administrators was likely to be challenged did not suggest that challenge would be well-founded and that challenge is not in fact well-founded.

Mr Castle also submits that:

Mr Izzo in turn points to the content of the Club’s (unsigned) financial statements for 2023, which I have addressed above. and emphasises that they:

Mr Izzo also points to the letter dated 30 August 2024 from Santoro, which I have addressed above. He also addresses the possibility of sale of the Club’s real estate and submits that:

In oral submissions, Mr Izzo also submits (T127) that a debt of some $4.47 million was repayable to Cyprus Capital in February 2025 and that interest on the amount of $7.5 million due to SydWide was payable from mid-2025, having been prepaid up to that date (T128-129). Mr Izzo also pointed out that, although the Club had sufficient funds to meet its expected trading losses until April 2025 in the order of $1.6 million, it could not fund the repayment of its debt to Cyprus Capital due in February 2025 (T129). Mr Izzo also points out that, although the Club had very valuable real estate, that would not fund a repayment of the Club’s debt to Cyprus Capital where it could not be sold without member approval, either under the Club’s articles of association or under s 41E of the Registered Clubs Act which the Club had unsuccessfully sought since October 2023 (T129-130). Mr Izzo also points to the several occasions on which Cyprus Capital had pointed to the Club’s suggested inability to refinance its loans without member approval (T133ff), to which I refer below.

I recognise that the Plaintiffs contend that, although the Club could not sell the Property in order to pay its debts when the resolution to appoint the Administrators was passed, the directors could have taken steps to bring about a sale or redevelopment of the properties before the debt due to Cyprus Capital was due in February 2025 or, possibly, by any date to which Cyprus Capital might extend that date for payment of that debt. That speculation was put repeatedly, but in general terms, without any attempt to identify the particular steps which would have been necessary to achieve that result or how they would be achieved, and was largely unsupported by evidence. The Plaintiffs speculate that the directors could have provided further information to members about any sale or redevelopment and convened a further meeting, but do not identify the information that would have sufficiently informed members of relevant matters, as distinct from criticising the information that was previously provided to members; an application would likely need to have been made to discharge the interlocutory injunction previously ordered by Slattery J, so far as it restrained further resolutions to sell the land, prior to a further meeting, and such an application may or may not have been opposed; a further members’ meeting would then need to have been called to approve a sale of the land, and members may or may not have voted in favour of such a resolution; if the Club continued to deal with the parties who had previously expressed interest in purchasing or redeveloping the Property, it would likely have needed to negotiate complex contracts with those parties, including any necessary provisions to secure any future occupancy of part of the site by the Club; any sale would need to have been completed, or a substantial payment been received, before February 2025 when the Cyprus Capital debt fell due, unless Cyprus Capital extended the date for repayment. It seems to me that the Plaintiffs’ suggestion that this might have been achieved did not rise beyond mere speculation, and did not displace the likelihood of insolvency that existed when the Administrators were appointed.

Alternatively, the Plaintiffs contend that the Club could raise funds by further borrowings, but this contention was undermined by a fundamental inconsistency in their position. On the one hand, Mr Castle contended before me that the Club could readily raise funds by further borrowings, because it was apparent that lenders had promptly given (non-binding) indications of interest in response to inquiries made by the Administrators directed to a refinancing of the Club’s secured loans. For example, Mr Castle submitted (T27) that “[c]ontrary to Mr Santoro’s understanding the Club was readily able to borrow against its assets and refinance” [emphasis added]. The Plaintiffs also tender (Ex P2), subject to orders under the Court Suppression and Non-Publication Orders Act 2010 (NSW), a bundle of subsequent correspondence between the Administrators and several potential lenders relating to a potential refinancing of the Club’s existing loans, including the loan with Cyprus Capital. Mr Castle took me through that correspondence, and I have regard to it. I do not summarise it here, both because of the non-publication orders which have been made in respect of it, and because it plainly does not establish the Club’s ability to refinance loans, outside a voluntary administration or at all, within a sufficient time period to avoid a likely insolvency, for the reasons I now address.

The proposition put by Mr Castle was plainly inconsistent with the position put by the Plaintiffs, through their solicitors, over an extended period, that the Club could not raise funds from new lenders without member approval, by reason of cl 2(q) of the Club’s articles of association. The latter position was put in a letter dated 31 May 2024 from the Club’s solicitors (Ex J1, 891-892) and repeated in a letter dated 7 June 2024 from the Club’s solicitors (Ex J1, 897) and again by a letter dated 8 November 2024 (Ex J1, 1537), where those solicitors referred to a suggested restraint under the Club’s constitution in respect of a refinancing, requesting that the Administrators:

By a further letter dated 13 November 2024 (Ex J1, 1560) Cyprus Capital’s solicitors again contended that the Club could not refinance without member approval as follows:

It is not necessary for me to resolve the inconsistency in the Plaintiffs’ position in this regard, between the proposition that the Club could readily raise such funds and that it could not do so without member approval. It is sufficient to note that, where Cyprus Capital has repeatedly contended that the Club cannot raise new finance without member approval, and has shown itself to be willing to commence litigation to enforce its perceived rights, then there is no reason to think that the Club could raise new finance prior to February 2025. I have not neglected, but need not determine, a further question as to the relevance of structural difference between a borrowing by the Administrators and a borrowing by the Club.

In summary, as I have noted above, the Club was and is likely unable to repay the debt to Cyprus Capital that falls due for repayment in early 2025 and the interest due to SydWide which falls due from June 2025 without selling or otherwise realising the value of its Property; it presently cannot do so, where it does not have member approval to do so; the Plaintiffs’ submission that that position may change does not rise beyond speculation and a bare possibility; the Club’s ability to make any further borrowing has not been established, where Cyprus Capital itself has repeatedly contended that the Club cannot do so without member approval which also has not been obtained; and a further borrowing that was repayable in the short or middle term would exacerbate the likelihood of the Club’s insolvency rather than mitigate it.

The Plaintiffs also allege (POC [23]) that, although I have found the Club was in fact likely to become insolvent at a future time, the directors did not have a genuine belief as to that matter or did not make reasonable inquires as to that matter. It is not necessary to reach a concluded view as to that allegation where I find below that the appointment of the Administrators was invalid, subject to the question whether it should now be validated. However, I should in fairness note aspects of the evidence and submissions as to these matters. Mr Castle emphasises that Mr Kyriacou’s submission pointed to a “possibility” of insolvency, and Mr Castle submits that that reflects the Club’s directors’ state of mind and is not sufficient to support the appointment of the Administrators, by reference to a belief of actual or likely insolvency. I address the lack of clarity in that submission below. In response, Mr Izzo fairly draws attention to matters relevant to the directors’ state of mind as to the Club’s solvency or likely insolvency as follows:

In Mr Kyriacou’s brief written submissions (which he titled submissions by the “Board”, but which I treat as his personal submissions where there was no appearance by other directors in the application), he submitted that:

I have noted Mr Castle’s reliance on that submission above. That submission plainly demonstrates that, although legally trained, Mr Kyriacou did not and does not have a clear understanding of insolvency law and otherwise did not much assist either the Plaintiffs or Mr Kyriacou. Although Mr Kyriacou there recognises (as is common ground) that the Club had (I interpolate, substantial) assets and impliedly recognises a “reasonable prospect” of selling assets or making money from operations, he does not address the critical question in a determination of the Club’s likely insolvency at a future time, whether those funds could be raised in sufficient time to repay Cyprus Capital’s debt when it fell due in February 2025. Where he does not address that critical question, this observation cannot constitute an admission by him or other directors that the Company was only “possibly” rather than likely insolvent at that future time, by reason of its inability to realise the Property or raise finance (where Cyprus Capital contended that that required member approval) prior to that date.

I also recognise that Mr Kyriacou’s submission itself went on to identify matters that suggested more than a mere “possibility” of future insolvency, including the views expressed by the several insolvency practitioners referred to in his affidavit; his view that there was “no prospect of improving cashflow from operations, when repairs were well overdue” and that trading “could not improve with rundown equipment and premises, with the fire order in place” and, importantly, his view that:

Mr Kyriacou in turn submitted that:

The Plaintiffs then contend (POC [24]) that the Club’s directors did not pass a resolution that recorded an opinion that the Club was insolvent or likely to become insolvent for the purposes of s 436A of the Act and the Administrators were not validly appointed for that reason. Mr Castle submits that:

The evidence establishes that the notes prepared by the Club’s secretary, Mr Panayi (Ex P1, 899), were in the ordinary form of minutes maintained by the Club, and they record only that:

Mr Castle draws attention to an important observation of Santow J in Wagner at 419-420, where his Honour there referred to the requirement in s 436A(1)(a) for the board to resolve to the effect that “in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time” and observed that:

In response, Mr Izzo accepts that Wagner is authority that the appointment of the Administrators would not be valid under s 436A of the Act if the resolution passed by the Club’s directors did not include the requisite opinion that the Club was insolvent or likely to become insolvent at some future time. Mr Izzo also draws attention to Panasystems Pty Ltd v Voodoo Tech Pty Ltd (2003) 21 ACLC 842; [2003] FCA 428 (“Panasystems”) at [11], where Merkel J observed that statements at a board meeting may be taken to be, in effect, a recital to a resolution appointing an administrator and probably sufficient for the purposes of s 436A. In oral submissions (T124), Mr Izzo submits that the Court should distinguish the resolution passed by the Club’s board on 16 September 2024 from the minute of that resolution and that it is a question of fact what the directors had resolved.

I am satisfied, having regard to Mr Kyriacou’s affidavit evidence of his several prior conversations with insolvency administrators and the views they expressed, and his evidence in cross-examination of the matters discussed at the board meeting, that the Club’s directors had discussed the Club’s financial position and its inability to repay Cyprus Capital’s debt without a sale of the Property, which could not then be achieved, at the meeting on 16 September 2024 which appointed the Administrators. However, Mr Kyriacou’s evidence in cross-examination, to which I referred above, is sufficient to establish that the directors did not go further to form the requisite opinion that, and resolve that, the Club was insolvent or likely to be insolvent at some future time when the resolution to appoint the Administrators was passed. It seems to me that a discussion of the position, which fell short of forming the requisite collective view of the directors as to the Club’s insolvency or likely insolvency at a future time, does not satisfy the requirements of s 436A of the Act. The appointment of the Administrators was invalid, on that narrow basis, subject to the question whether that appointment should now be validated under s 447A of the Act which I address below.

The Plaintiffs alternatively challenge the validity of the Administrators’ appointment on the basis that that appointment was made for a purpose foreign to the purpose of Pt 5.3A of the Act. Mr Castle properly acknowledged that this claim amounts to an allegation of impropriety and that, in determining it, I should have regard to the approach identified in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 (“Briginshaw”) and its equivalent under s 140 of the Evidence Act; see also Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 449–450; [1992] HCA 66. I therefore take account of the gravity of this allegation in deciding whether the inferences put by the Plaintiffs should be drawn and I note that, although the standard of proof remains proof on the balance of probabilities, the strength of the evidence necessary to establish a given fact to the civil standard varies according to the nature of what it is sought to be proved.

I should first address the applicable case law, before turning to the evidence on which the Plaintiffs relied, their submissions and their pleaded case of improper purpose. The exercise of the power to appoint an administrator will be invalid, and the purported appointment will be invalid, if that power is exercised for an ulterior or extraneous purpose and that purpose is substantial in the sense that the decision would not have been made but for the ulterior purpose: Kazar at 233; Blacktown City Council v Macarthur Telecommunications Pty Ltd (2003) 47 ACSR 391; [2003] NSWSC 883; St Leonards Property Pty Ltd v Ambridge Investments Pty Ltd (2004) 210 ALR 265; [2004] NSWSC 851; Keneally at [96]. An appointment of an administrator is for an improper purpose if it is for a purpose other than one “in furtherance of the object of Pt 5.3A as set out in s 435A”: McMaster v Eznut Pty Ltd (2006) 58 ACSR 199; [2006] WASC 109 at [135]. The purpose of the resolution must be ascertained, then characterised as proper or improper, after identifying the actual purpose of the directors who voted in favour of the resolution, and the relevant question is what was the substantial purpose; and whether the resolution would have been passed were it not for the improper purpose: Cadwallader v Bajco (2001) 189 ALR 370; [2001] NSWSC 1193 (“Cadwallader”) at [224]; Lime Gourmet at [23].

Mr Izzo in turn submits:

The Plaintiffs contend that the fact that the appointment of the Administrators was considered shortly after Slattery J granted the interlocutory injunction against the member meeting and the passage of resolutions in respect of a sale or redevelopment of the Property supports an inference of improper purpose. I do not accept that submission, where that interlocutory injunction made it more likely that the Club could not realise the value of the Property in sufficient time to repay the Cyprus Capital loan in February 2025. The consideration of the appointment of voluntary administrators, following that development, was a reasonable and not an improper response to that development.

The Plaintiffs also rely on several documents, either as context for or in support of the allegation of improper purpose. Mr Castle refers (T17) to Mr Kelly’s discussion with Mr Kyriacou on 28 August 2024, which I have addressed above. Mr Kyriacou’s observations there provide little support for an allegation of improper purpose, where he recognises the difficulty then faced by the Club in repaying the Cyprus Capital debt when due, although he understated that difficulty by not recognising the debt was due in February 2025.

Mr Castle also emphasises an exchange of emails between Mr Kyriacou and a member of Mr Kelly’s staff on 16 September 2024 (Ex J1, 1182; MFI 1) where Mr Kyriacou set out his understanding of the differences between a temporary administrator appointed by the ILGA and a voluntary administrator appointed under s 436A of the Act, and the staff member clarified those matters. Mr Kyriacou there addressed questions including the impact of an appointment on existing litigation, the statutory administrator’s focus on “stabilising” the Club and a voluntary administrator’s focus on “stabilising” the Club and “returning it to [the] board” and Mr Kelly’s staff member responded that:

Mr Kyriacou also addressed the role of the board under any voluntary administration and was advised that the “[b]oard may only act with permission and approval” of the Administrators and he suggested that the Administrators would execute necessary documents to sell or redevelop the Property but was told that would only take place if it was “in the best interests of stakeholders and the company”. Mr Kyriacou also noted the possibility that the Administrators would seek approval for a new constitution and was advised that:

I do not accept this document supports an inference of improper purpose, alone or together with other matters, particularly under the Briginshaw standard. It is plain enough that Mr Kyriacou was considering a range of implications of a voluntary administration and recognised the possibility that the Club could be returned to the board’s control once its position was stabilised; that the Property could be sold during a voluntary administration which, I interpolate, would have addressed the Club’s financial difficulties; and the possibility of a constitutional amendment. All of these were relevant matters, but he was advised of the limitations to what the Administrators might do before an appointment was made; and he was considering these matters in the context that he had had numerous conversations with insolvency practitioners, who had generally recognised the Club’s likely insolvency if it could not realise the value of the Property to meet its debts that would shortly fall due.

The Plaintiffs also rely, in support of this allegation, on draft media releases and a draft editorial or advertisement to be placed in the Greek Herald and other draft media statements (Ex P6), apparently prepared by the Club’s secretary, Mr Panayi, or possibly Mr Kyriacou, although he did not accept the latter proposition in cross-examination. Mr Kyriacou was cross-examined as to these documents (T92ff). He denied that the board did not want to communicate any risk of the Club’s insolvency to members in these documents and his evidence (T100) was that:

First, Mr Castle referred to a draft Facebook post which observed that the appointment of the Administrators:

That draft post also pointed to the absence of interruption to the Club’s operations. That draft does not seem to me to provide any real support for a finding of improper purpose. The order made by Slattery J and the history of difficulties with the Club were plainly significant in bringing the Club to the point that Administrators were appointed, because they made it more difficult or practically impossible to sell or redevelop the Property before the Cyprus Capital loan fell due for payment in February 2025. That draft post should arguably have been more forthcoming about the Club’s likely difficulty in repaying the Cyprus Capital loan when it was due, but the fact that no reference was there made to that or to the Club’s likely insolvency, in a draft post that was apparently seeking to reassure members that they could continue to use the Club, does not support an inference that the directors did not recognise those matters or were substantially motivated by matters other than the Club’s likely insolvency at a future date in appointing the Administrators.

That email also attached a draft editorial or advertisement to be placed in the Greek Herald, which also does not support a finding that the directors were substantially motivated by matters from the Club’s likely insolvency in appointing the Administrators. That draft editorial or advertisement recognised the relevant issues where, inter alia, it attributed a statement to Mr Panayi that:

That draft editorial or advertisement also noted that:

I recognise that a statement was also attributed to Dr Costa that the voluntary administration was “not liquidation” and that the Club is “not broke” and its “assets are safe”, and that draft also made several comments which were critical of Dr Costa, Ms Bassil and Cyprus Capital. Mr Castle also emphasises a statement that is attributed to the Club’s treasurer, Mr Bieri that:

Plainly this draft statement was neither measured nor appropriate, and it is not surprising that the Administrators responded, appropriately, by proposing a single statement to be made by the Club in more measured terms (Ex P7) which would have recognised that:

I am not persuaded that these draft documents, whatever their deficiencies, provide a proper basis for a finding of improper purpose, alone or together with other matters, and still less on the Briginshaw standard.

I should also address the Plaintiffs’ submissions as to impropriety, which possibly extend beyond the case put in their POC, before retuning to that case. Mr Castle submits, in opening submissions, that:

Mr Castle also submits, in opening, that:

I do not accept Mr Castle’s further submission, in reply, that Mr Kyriacou preferred a voluntary administration to the appointment of a temporary administrator by the ILGA because the oppression proceedings brought by Ms Bassil would then be stayed under s 440D of the Act. The most obvious difficulty with that proposition is that he could not have had that preference when passing the relevant resolution, where Ms Bassil did not bring the oppression claim until after the resolution to appoint the Administrators had been passed, although before it took effect. Mr Castle also submits, in updated further submissions in reply, that:

Mr Izzo responds that, so far as it was contended that the directors appointed the Administrators to stop Ms Bassil’s oppression claim, that contention had the fundamental difficulty that the oppression claim was not brought until after the Administrators were appointed (T139). So far as Mr Castle contended that the directors sought to entrench their management of the Club, Mr Izzo also pointed to the fact that the appointment of the Administrators would cause them to lose that control and also pointed to Mr Kelly’s evidence that several directors did not wish to remain on the board.

I now turn to the Plaintiffs’ improper purpose case as put in its POC. The Plaintiffs contend (POC [30]) that only two of the six directors present at the meeting that appointed the Administrators had been elected by members at an AGM, where the others had been appointed to fill casual vacancies. They plead (POC [31-[38]) the previous steps taken to advance a sale or development of the Property and (POC [39]-[42]) the orders by Slattery J in Ms Bassil’s application and their suggested effect; and (POC [43]-[45]) that the directors could have taken other steps that they did not take and instead took steps toward the appointment of the Administrators. The Plaintiffs then contend (POC [46]) that:

There is no evidence that supports a finding that the pleaded conduct or the appointment of Administrators, rather than being motivated by the Club’s debts falling due in early 2025 and its then inability to sell the Property, where the previous attempt to obtain member approval for that sale had been restrained, was motivated by any purpose of preventing the directors’ replacement. There is no reason to doubt Mr Kelly’s evidence that several of the directors do not wish to remain in office, and the appointment of the Administrators suspended the directors’ powers rather than preventing their replacement by a new board. I could not reach that finding. There is also no evidence to support a finding that the directors appointed the Administrators to prevent true and proper accounts being prepared. There is no evidence of that and no reason to think that the directors had any wish to avoid the preparation of proper accounts and, in any case, the appointment of an Administrator would be more likely to reveal than conceal the Club’s financial position, as a result of the Administrators’ investigations. There is also no evidence to support the third claim, which turns on a claim that may or may not be established in other proceedings that the notice of the general meeting of 29 July 2024 was inadequate, a matter that was not determined on any final basis by the grant of an interlocutory injunction, and was not established in these proceedings, and there is again no evidence that, and no reason to think that, the directors sought to avoid such disclosure.

The Plaintiffs then contend (POC [47]) that each and/or any one or more of the purposes stated in paragraph 46 of the POC was a substantial purpose for the decision of the directors to appoint the Administrators by their resolution on 16 September 2024. That contention is not established where the pleaded purposes are not established.

The Plaintiffs then contend (POC [48]) that, by placing the Club in administration under Part 5.3A:

The first of these matters is, to the extent it occurred, a necessary consequence of the structure of Pt 5.3A of the Act and does not establish, generally or in this case, an improper purpose in invoking that Part where a company is insolvent or (as here) likely to become insolvent at a future time. In that situation, there is no basis to contend that the legislative choice to place decision making in the hands of creditors cannot properly be implemented. In any case, the future of the Club and its Property was here not taken out of the hands of members, where the Administrators have made clear that they do not expect to sell the Property during the administration and any sale of the Club’s Property would likely require the approval of members under s 41E of the Registered Clubs Act. The second matter reflects a misapprehension, where a financier that refinanced a debt as is presently contemplated (rather than taking an assignment of that debt) would not be entitled to vote at a second meeting of creditors, still less to “control” a meeting at which resolutions are passed by number and value of creditors. The third proposition does not establish improper purpose, where the Administrators might well investigate those matters if (which was not established) they are material, and there is again no evidentiary basis for a finding that the directors faced any risk from such an investigation or had any thought that appointing the Administrators would reduce such a risk.

The Plaintiffs then contend (POC [49]) that:

This claim is also not established, where neither the matters that are alleged to give rise to the alleged purposes on the part of the directors or the fact that they had those purposes are established.

The Plaintiffs then contend (POC [50]) that, further or in the alternative, the Administrators were not validly appointed under s 438A and/or the Plaintiffs are entitled to an order setting aside the appointment of the Administrators and declaring their appointments to be void on this basis. This claim is also not established because its premise is not established.

By their Cross Claim, the Administrators seek a declaration under s 447C of the Act that they were validly appointed as administrator on 10 November 2024. This section relevantly provides that:

An order made by the Court under this section is declaratory rather than curative, and would only be made if the appointment of the Administrators was not invalid or vitiated by an improper purpose: Smolarek v McMaster (as administrator of Eznut Pty Ltd [2006] WASCA 216 at [25]; Re HPI Australia Pty Ltd [2008] NSWSC 1106 at [8]. I have found that the resolution passed by the directors did not comply with the requirements of s 436A of the Act and I do not make this order for this reason.

By their Cross-Claim, the Administrators alternatively seek orders under s 447A of the Act that Pt 5.3A should operate in relation to the Club as if they were validly appointed. That section is widely expressed and relevantly provides that:

In Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607; (1994) 13 ACSR 337 at 341, Young J observed that this section confers “plenary powers” on the court “to do whatever it thinks is just in all the circumstances”, having regard to the rights of the various groups of persons affected by the administration. In Shirlaw v Graham [2001] NSWSC 612 at [14], Young CJ in Eq similarly noted that:

In Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; [2000] HCA 30 (“Australasian Memory”) at [17]-[18], [23]-[24], the plurality of the High Court noted that:

Mr Izzo also refers to the observations of Merkel J in Panasystems at [19]-[20] that:

In Calabretta v Redpen Developments Pty Ltd (in liq) (recs and mgrs. apptd) (2010) 183 FCR 47; [2010] FCA 81 at [37], Yates J in turn observed that:

In Correa v Whittingham (2013) 278 FLR 310; [2013] NSWCA 263 at [5], where Barrett JA (as his Honour then was) referred to the application of the section:

I followed this approach in Keneally at [108]ff. In Re Gulf Energy Pty Ltd [2019] NSWSC 1637 (“Gulf Energy”) at [18]-[20], Ward CJ in Eq (as the President of the Court of Appeal then was) in turn observed that:

In Re Order of AHEPA NSW Inc [2020] NSWSC 1626 (“Order of AHEPA”) at [13]ff, I referred to Gulf Energy and considered the application of this section in circumstances that the appointment of a voluntary administrator to that association was likely invalid, by reason of uncertainty as to the identity of its directors. I observed that:

In Re Frisken, in the matter of NPH Group Pty Ltd (in liq) [2021] FCA 1155 (“NPH”) at [21]-[23], Cheeseman J in turn observed that:

I now turn to the parties’ submissions. In his further submissions in reply, Mr Castle does not appear to accept that the Court has power under s 447A of the Act to validate the appointment of the Administrators and submits that, at least in this case, the failure to state the Club’s insolvency or likely insolvency in the resolution:

Mr Castle draws attention to the decision of Logan J in Owen, Re RiverCity Motorway Ltd (admins apptd) (recs and mgrs apptd) (No 3) (2012) 201 FCR 360; [2012] FCA 313 at [43], where his Honour quoted paragraphs 52-53 of the Law Reform Commission’s Report No 45 in respect of the General Insolvency Inquiry, the Harmer Report, as follows:

Mr Castle also submits:

I do not accept this submission. The cases to which Mr Castle refers, which I have addressed above, plainly do not support that submission or its attempted narrowing of the circumstances in which the Court may exercise the power under s 447A of the Act to validate the appointment of a voluntary administrator. The potential application of s 447A of the Act, where there is an invalidity in a resolution appointing voluntary administrators under Pt 5.3A of the Act and a company is in fact insolvent or likely to become insolvent at a future time, is now too well established by the case law to be narrowed in this way, and the suggested narrowing would undermine, rather than promote, the objects of Pt 5.3A of the Act. This submission also does not sufficiently recognise the important benefits which voluntary administrations deliver to creditors and employees of companies that are insolvent or likely to become insolvent at a future time and to the community, which may support validation of an invalid appointment of voluntary administrators in a proper case.

Mr Castle also submits that:

Mr Izzo responds that:

I also do not accept the Plaintiffs’ submission as to this matter. The Administrators here seek to invoke the jurisdiction under s 447A of the Act in circumstances that I have found that the resolution appointing them did not comply with the requirements under s 436A of the Act, but the Plaintiffs have not established that it was passed for an improper purpose. The wider concern raised by Mr Castle does not arise.

Mr Castle also identifies several reasons why he submits that the Court should not validate the Administrators’ appointment, including the value of the Club’s property; the requirement for member approval of a disposal of Club property under s 41E of the Registered Clubs Act; the cultural role of the Club; a suggestion (not established by the evidence) that the Club has Cyprus Capital’s ongoing “support”; and a suggestion that the Club’s property is sufficient to allow a refinancing, a submission that ignores Cyprus Capital’s repeated claim that a refinancing cannot occur without member approval. Mr Castle also submits:

I have had regard to these matters in exercising my discretion whether to validate the Administrators’ appointment, and I have addressed the several contentions that underpin them above. I do not accept that, in a situation where the Club is likely to become insolvent at a future date, these matters are best put in the hands of a board that is yet to be appointed at a meeting that is yet to be convened. The Plaintiffs also make no attempt to show that persons not associated with Cyprus Capital would accept appointment as a director to the Club and the consequential risk of liability for insolvent trading if the Cyprus Capital debt cannot be repaid when due, at an election of directors held before the Club’s financial position is stabilised.

I should also address several of the other relevant factors noted in Hayes and NPH, although I can do so briefly where they support the conclusion that would follow from the matters that I have noted above. There is no suggestion that the Administrators had reason to doubt the validity of their appointment, although they had recognised the possibility that it would be challenged in correspondence with the ILGA; it would not be wrong to give the imprimatur of the Court to the conduct giving rise to the purported appointment, where the Club was in fact likely to become insolvent at a future time and the Plaintiffs have not established the appointment was made for an improper purpose; the Administrators have properly carried out substantial work and incurred costs in the not unreasonable belief at the time that their appointment as administrators was valid, and Cyprus Capital and the receivers it appointed proceeded on the same basis until the former reversed its position, when the suggested refinancing of its loan did not appeal to it. An order invalidating the Administrators’ appointment would plainly prejudice their entitlement to a statutory indemnity and remuneration, and that prejudice would be exacerbated by the delay in Cyprus Capital’s seeking that order; and Cyprus Capital plainly did not act promptly in pursuing this application and, for a significant period, acquiesced in the administration; and the business would likely remain under the control of the receivers appointed by Cyprus Capital, with less independent oversight, if the Administrators were removed. I address the constraints upon any new appointment of directors in a general meeting, as the Plaintiffs propose, below.

In summary, I am comfortably satisfied that I can and should follow the approach taken consistent with the case law as to the scope of s 447A of the Act, including decisions of very experienced judges in corporations matters made over many years. I am also comfortably satisfied that the appointment of the Administrators should be validated under s 447A of the Act in this case. I have found that the Club is likely to become insolvent in February 2025 because it has no means of repaying the debts that are repayable at that time without selling land which it cannot sell without member approval, which it presently does not have, and the Plaintiffs’ suggestion that position may change is no more than speculation. That conclusion is also not displaced by the bare possibility that the Club could borrow further funds, for the reasons I have noted above, including Cyprus Capital’s repeated claim that that cannot occur without member approval.

The validation of the Administrators’ appointment will promote the purpose and object of Pt 5.3A, by allowing independent and experienced insolvency practitioners to investigate and possibly implement refinancing options with the benefit of the statutory moratorium, protect unsecured creditors’ interests as to any sale process of the Property undertaken by the receivers (who are appointed by Cyprus Capital and do not represent the interests of unsecured creditors or those members of the Club who do not have a financial interest in Cyprus Capital) and consider any steps that may taken to resolve the ongoing conflicts among the Club’s members. For all of these reasons, I am comfortably satisfied that the purposes of Pt 5.3A of the Act, will be served by varying Pt 5.3A of the Act in respect of the Club to confirm the validity of the Administrators’ appointment. I therefore make the order sought by the Administrators, confirming their appointment under section 447A of the Act.

Mr Izzo also addressed, in submissions, the question whether any order to set aside the Administrators should not be made ab initio and should only take effect from the date of the Court’s order, referring to Austin J’s observations in Cadwallader, and he submits that several factors here would cause the Court not to make a declaration or order setting aside the appointment, rather than bringing the administration to an end under s 447A(2)(b) of the Act, if it were otherwise satisfied that the administration should not continue. There is significant force in the submission that any order setting aside that appointment should not be made ab initio, including that it is plain that Cyprus Capital supported the Administrators’ appointment for a significant period, until it emerged that its debt might be repaid, and only then brought a challenge to that appointment. I would likely have accepted that submission had I not found that the Administrators’ appointment should be validated ab initio. Given the commercial urgency of the proceedings and the desirability of delivering a prompt judgment prior to the end of Court term, where the matter was heard in the penultimate week of term, I do not further address this matter since it does not arise on the findings that I have reached.

This application is brought (POC [51]) on the premise that the Administrators were improperly appointed and their appointment is set aside, so that the powers of the directors will be restored, subject to the receivers’ powers. On that premise, the Plaintiffs contend that the Court should order a general meeting of the Club to be held to elect new directors on the terms set out in Prayer 6 of the Originating Process, although they did not press their contention that their solicitors should choose the chair of that meeting in closing submissions. The premise of this claim, that the Administrators will be removed and the control of the Club returned to its directors is not established, where I will validate the Administrators appointment for the reasons set out above. The claim was not put on any other basis and that is sufficient basis not to make this order.

Although it is not necessary to my decision, there is a further difficulty with an order that a members meeting to appoint new directors be held at this point. The Plaintiffs make no attempt to show that persons not associated with Cyprus Capital could sensibly stand or would stand for election or accept appointment as a director, exposing themselves to the risk of liability for insolvent trading if the Cyprus Capital debt cannot be repaid when due, at a further meeting held now. I recognise that the Administrators may well call, or seek to have the Court call, a members’ meeting to address the position as to the Property or current governance issues of the Club prior to the conclusion of the administration, but that is a matter for them. By then, if the financial position of the Club has been stabilised, an election of directors could be held at which persons not associated with Cyprus Capital would also have a fair opportunity to stand for election.

I will make orders as to costs, as between the Plaintiffs and the Administrators, that follow the event. It is not necessary or appropriate to make an order as to costs in respect of Mr Kyriacou, both because he was heard under r 2.13 of the Supreme Court (Corporations) Rules and would not ordinarily be ordered to pay, or recover, the costs of appearing and because he was self-represented in any event.

For these reasons, I order that: