Action Scaffolding & Rigging Pty Ltd (In Liq) v Citadel Financial Corp Pty Ltd

Action Scaffolding & Rigging Pty Ltd (In Liq) v Citadel Financial Corp Pty Ltd - [2021] NSWSC 1214 - NSWSC 2021 case summary — Zoe

[3]

PRINCIPLES

Section 418A of the Corporations Act provides: (emphasis added) 418A Court may declare whether controller is validly acting (1) Where there is doubt, on a specific ground, about: (a) whether a purported appointment of a person … as receiver of property of a corporation is valid; or … the person, the corporation or any of the corporation's creditors may apply to the Court for an order under subsection (2). (2) On an application, the Court may make an order declaring whether or not: (a) the purported appointment was valid; or … … on the ground specified in the application or on some other ground.
The approach to be adopted where a party disputes the validity of the appointment of a receiver under section 418A is to consider whether the plaintiff has demonstrated "doubt" and, if so, to consider whether the parties supporting the appointment of a controller or receiver have demonstrated its validity: Goldus Pty Ltd v Cummins (No 4) [2021] FCA 1095 at [26] per Colvin J, citing Action Scaffolding & Rigging Pty Ltd (In Liq) v Citadel Financial Corp Pty Ltd [2019] FCA 327; (2019) 135 ACSR 372 at [4]-[7] per Gleeson J.
As to the meaning of "doubt", Gleeson J adopted the dictionary definition in Action Scaffolding, being a feeling of uncertainty: at [6]. Once "doubt" is established, the burden of proof shifts to the respondent to demonstrate the validity of its conduct: Native Bond Pty Ltd v Cant [2015] VSC 203 at [9]; Northway Panels v Warry [2018] VSC 581 [fn 24], Action Scaffolding at [7].
In considering whether the appointment of the receivers is valid, the Court is not limited to considering the grounds of appointment known to the secured creditor at the time of the appointment. The validity of the appointment may be sustained if, unbeknownst to the creditor at the time but subsequently discovered, there was in fact another breach which may be called in aid to repel an attack upon the appointment of the receiver: Canberra Advance Bank Ltd v Benny (1992) 38 FCR 427 at 431-432 per Neaves, Miles and O'Loughlin JJ.
As an initial matter, Botanical submitted that the application by Dr Kambouris should be dismissed as he does not have standing under section 418A. Whilst it was accepted that Mr Driver was a creditor of Aqua, there was said to be no evidence that Dr Kambouris was also a creditor. The trial balance of Aqua for the 2019 financial year noted that Dr Kambouris had a loan account with a balance of some $132,000: see [34]. Although the trial balance is two years old, there is no evidence that Dr Kambouris' loan has been repaid. I find that he has standing as a creditor to bring the application.

[4]

WITNESSES AND DOCUMENTS

The plaintiffs relied on documentary evidence, comprising some 3,000 pages of material. The plaintiffs had served affidavits by Mr Driver, but he did not give evidence. Nor, for that matter, did Dr Kambouris.
Botanical relied on the rule in Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 in respect of Mr Driver's failure to give evidence, as explained in Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11 at [63]: (emphasis added) The rule in Jones v Dunkel is that the unexplained failure by a party to call a witness may in appropriate circumstances support an inference that the uncalled evidence would not have assisted the party's case. That is particularly so where it is the party which is the uncalled witness. The failure to call a witness may also permit the court to draw, with greater confidence, any inference unfavourable to the party that failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn. See likewise RHG Mortgage Limited v Rosario Ianni [2015] NSWCA 56 per McColl JA (Emmett JA and Sackville AJA agreeing) at [78], citing Payne v Parker [1976] 1 NSWLR 191 at 201-202 per Glass JA.
I consider it appropriate to draw a Jones v Dunkel inference in respect of the plaintiffs' failure to call Mr Driver. I infer that Mr Driver's evidence would not have assisted the plaintiffs' case, in particular, in respect of the keeping of Aqua's accounting records, for which - of the two directors of Aqua - Mr Driver appears to have had responsibility rather than Dr Kambouris.
Botanical relied on the evidence of Vicky Pappas, chief executive officer of MyCo Pty Ltd and Michael Landy, director of Eagle Financial Solutions Pty Ltd. Ms Pappas was cross-examined.
Botanical had also served affidavits by Terry Paule, director of Botanical. After the plaintiffs advised that Mr Driver would not be called, Botanical advised that it would not be calling Mr Paule. The plaintiffs submitted that a Jones v Dunkel inference should be drawn in respect of Mr Paule. I am less inclined to draw such an inference in respect of Mr Paule. It is not necessary, in order to avoid a Jones v Dunkel inference, for a party to call an unnecessary witness: Apand Pty Ltd v The Kettle Chip Co Pty Ltd (1994) 52 FCR 474 at 490 per Lockhart, Gummow and Lee JJ. The central issue on this application was whether Botanical had taken over the management and accounting for Aqua, such that Aqua's failure to hand over accounting information was not an Event of Default. Ms Pappas and, to a lesser extent, Mr Landy, were the relevant witnesses on this subject. I do not consider that it was necessary to also call Mr Paule and decline to draw the inference in respect of the failure to do so.
Botanical tendered portions of Mr Driver's first affidavit as admissions against interest. Such admissions are not admissible as against Dr Kambouris: section 83, Evidence Act 1995 (NSW). Most of the matters described in Mr Driver's affidavit were separately established by the documentary evidence in any event. The matters referred to at [17], [80] and [88] were not and I have not had regard to such evidence in respect of Dr Kambouris' application. In any event, I have determined the application on grounds other than those to which these admissions were important evidence, in particular, whether Aqua had ceased to trade.
The fact that neither Mr Driver nor Mr Paule gave evidence did result in gaps in the factual narrative, such that, for example, the catalyst for recent events which now bring the matter before the Court is not entirely clear: see [63].

[5]

FACTS

In October 2011, Aqua was incorporated; Dr Kambouris was sole director. Aqua developed and patented a process which harvested the naturally occurring water from fruit and vegetables or sugar cane and created a new sustainable source of 'botanical water'.
In May 2014, Mr Driver became the chief executive officer of Aqua. Aqua then used the "QuickBooks" software for its accounting and bookkeeping and had a bank account with ANZ Bank. (Aside from Mr Driver's admission as to this, I note that these matters are apparent in any event from the documentary evidence: Mr Driver's email signature described himself as chief executive officer of Aqua from 13 February 2017; ANZ bank statements are in evidence from 29 June 2018 to 30 June 2021; Aqua QuickBooks printouts are also in evidence).
As part of his role as chief executive officer, Mr Driver was responsible for Aqua's day to day operations, including: 1. accessing and controlling the QuickBooks accounting and bookkeeping software; 2. accessing and controlling the bank account; 3. liaising with Aqua's accountants, being Findex (Aust) Pty Ltd trading as Crowe Horwath; 4. liaising with Minka Creative Studios, which was responsible for attending to Aqua's online presence including its website, Instagram and Facebook accounts; 5. verifying invoices and expenses; and 6. attending Aqua's weekly management meetings.
On becoming chief executive officer, Mr Driver also began providing funding to Aqua. In September 2014, Aqua entered into a Loan Agreement with Mr Driver, which noted that Mr Driver had agreed to provide a loan to Aqua for working capital to expand its business. In November 2015, Mr Driver became a director of Aqua.
It is apparent from the documentary evidence that Aqua's accountants was then David Walker of Findex in Mildura. In evidence are various emails between Mr Driver and Mr Walker from 29 May 2018 on, providing QuickBooks material for the preparation of Business Activity Statements (BAS) and the like.
Findex has some 110 offices across Australia and New Zealand. Terry Paule and Spiro Paule established Findex in 1987 and are now chairman and chief executive officer respectively. In addition, Terry Paule established MyCo to focus on investment in start-up opportunities. Terry Paule and Spiro Paule are directors of MyCo.

[8]

MyCo takes over funding and administration

As I understand the documentary evidence, MyCo agreed to take over funding Aqua's business from 1 July 2019, in return for an additional 12.5% shares in Aqua. Emails between Dr Kambouris and Mr Paule on 3 July 2019 set out Terry Paule's understanding of the agreement: Mr Driver would hand over the day to day operations of finance and administration while continuing as chief executive officer. Aqua would pay its creditors until 30 June 2019, and receive payments from its debtors, with MyCo continuing to fund Aqua going forward. In return, MyCo would receive an uplift in shares to 37.5%. As it turned out, Mr Driver had insufficient funds to pay Aqua's creditors up to 30 June 2019. This caused problems: see [38]-[45], [48].
As part of this agreement, MyCo would take over accounting for Aqua, to be done on MYOB. As I read the material, the MYOB accounts were set up but did not continue beyond about early 2020. Mr Driver's weekly report for 28 June 2019 recorded that payments were to be co-authorised by Ms Pappas and Mr Driver effective 1 July 2019. Ms Pappas agreed that this was the plan, but did not in fact happen.
On 6 August 2019, Terry Paule suggested to Ms Pappas and Mr Driver that the postal address and contact details for a particular supplier be changed, presumably to MyCo, and Ms Pappas replied to Mr Driver, "Let's discuss the handover, if there is an accounts email and it makes sense for us to access, then that may be easier." Ms Pappas agreed that she had access to the accounts emails for a short period of time.
On 26 August 2019, Ms Pappas pressed Mr Driver to provide Aqua's accounts up to 30 June 2019, full details of all invoices owing from 1 July 2019 on, and the documentation necessary to open a new bank account for Aqua with MyCo's bank. Ms Pappas said a new bank account was never established. On 28 August 2019, Ms Pappas requested that Aqua's LinkedIn page be assigned to MyCo.
On 6 September 2019, Mr Walker of Findex Mildura provided Mr Driver with a trial balance for Aqua for the year ending 30 June 2019. It is noted that Mr Driver was there recorded as having lent $2.3 million to Aqua whilst Dr Kambouris had lent some $132,000.
In addition, Mr Walker provided a draft annual report for the 2019 financial year, according to which Aqua had made a loss of some $640,000 and then had net current assets of -$2.2 million. The director's report, albeit unsigned, noted that notwithstanding the deficiency of net assets, the financial report had been prepared on a going concern basis "as the director has received a guarantee of financial support and the director believes that such financial support will continue to be made available." The only financial support of which there is any evidence appears to have been that proffered by MyCo. The notes to the financial statements included a statement of significant accounting policies which noted that the financial statements were a special purpose report and the director had determined that the company was not a reporting entity. Further, No Australian Accounting Standards, Australian Accounting Interpretations Views or other authoritative pronouncements of the Australian Accounting Standards Board have been intentionally applied.
Mr Driver's weekly report of 6 September 2019 noted, in respect of finance and administration, that "all [Aqua] accounting functions have been handed over to Sue Yang", being a bookkeeper employed by MyCo. Mr Driver arranged for Ms Yang to have access to Aqua's "sales" email address and for Ms Volaris to have access to Aqua's "info" and "sales" email address. Ms Pappas agreed that Ms Yang provided support for Aqua's accounting but did not take over all of Aqua's accounting functions.
In September 2019, Ms Pappas said that Mr Driver provided her with access to QuickBooks for a few months. From 17 September 2019, until 17 December 2019, Ms Pappas accessed Aqua's QuickBooks account.
One of Aqua's outstanding accounts which Mr Driver was struggling to pay was that of Minka Creative Studio. Minka provided final notice to Ms Pappas that, unless its outstanding invoices were paid, no further work would be done. Terse communication followed between Ms Pappas and Minka. On 16 September 2019, Terry Paule sent an email to Minka, noting that Minka had disabled the website. Mr Paule also noted, We also understand that you have been in discussion with our General Manager Vicky Pappas who has clearly explained that our office has now taken on full day to day responsibilities of running the [Aqua] business including payment of accounts and that your invoices are being reviewed prior to payment.
Ms Pappas said the email was not accurate as MyCo did not have full management control of Aqua but were providing administrative support at the time. "David Driver is the CEO of [Aqua], and in full management control. We were a support function." Whilst the plaintiffs relied on this email as evidence that MyCo was now running the Aqua business, when the email chain is read in full, Mr Paule's statement must be read in the context of dealing with an irate creditor of Aqua, conferring authority on Ms Pappas to negotiate the outstanding account and resolve the indebtedness. Mr Paule's description of MyCo's involvement in Aqua's business may have overstated the position to that end.
Following payment of all outstanding accounts, in October 2019, Minka transferred access to the website, domains, social media platforms, LinkedIn, logos and images to MyCo. Ms Pappas agreed that MyCo then had administrative access to Aqua's website and social media account but not full control.
The Aqua weekly minutes of 23 September 2019 noted that creditors and debtors were being managed by the MyCo office, Mr Driver and Terry Paule had joint responsibility for creditors whilst Mr Driver and a MyCo consultant, Nick Healey, had joint responsibility for debtors. Ms Pappas said that Mr Driver continued to manage the debtors and creditors of Aqua, with support from MyCo.
It does appear that during September 2019, MyCo staff were attending to payment of Aqua's bills. On 26 September 2019, Mr Driver expressed his appreciation to MyCo for its assistance in the transition period. "Financially, these last 3 months have been the most challenging of my life … I have had some very dark moments…" Mr Driver sought further time to pay some $65,000 then owed. Terry Paule replied, "cleaning up what could only be described as a 'mess' has been onerous and time consuming and disappointing to say the least." Mr Driver replied, "Vicky and the team will do a much better job than me in running the administration and finance of [Aqua]."
On 26 September 2019, Mr Richardson provided Ms Pappas and Terry Paule with Aqua's tax returns for financial years 2014 to 2018 and a list of transactions for Mr Driver's loan account in Aqua and supporting bank statements. Mr Richardson advised "We note that David retains the source documents that support the transactions."
On 19 October 2019, Mr Driver sent an email to Terry Paule advising that, "after reflection and reconsideration, I will not be making any further payments towards the expenses of [Aqua]." According to Mr Driver, it had been agreed that MyCo was to take over the payment of Aqua's expenses "effective straightaway" and, in return, receive a further 12.5% of shares from Dr Kambouris. "[I]t was not discussed or agreed that I was to pay historical trading accounts of [Aqua]. I understand that a[t] 1 July 2019 handover would have been ideal, however, it was not and is not personally possible, nor did we discuss this." Terry Paule simply replied, "I don't think so. … Payment is now overdue."
Further text messages ensued between Mr Driver and Terry Paule. On 4 November 2019, Terry Paule texted, "Vicky tells me that you are not making full payment as agreed. We are not a bank." Terry Paule pressed for payment and day and control of Aqua's bank account, "You have been withdrawing company funds without authorisation."

[9]

Completion of handover

On 18 November 2019, Chris Richardson of Findex Melbourne informed Ms Pappas that he had completed the transfer from QuickBooks to MYOB for Aqua, including all invoices and bills. "All bank statement[s], debtors, creditors and [Botanical] loan amounts have also been reconciled to [QuickBooks] data as of 17th November 2019." The accompanying ledger recorded transactions for Aqua from 1 July 2019 on.
On 28 November 2019, a Form 484 Change to company detail was lodged with the Australian Securities & Investments Commission (ASIC), notifying that Dr Kambouris had transferred 12.5% of Aqua shares to Spiro Paule and Terry Paule on 15 July 2019.
On 29 November 2019, Mr Richardson of Findex circulated an Aqua handover reconciliation to Mr Driver, Terry Paule and Ms Pappas for review and consideration. According to the reconciliation, Mr Driver owed some $322,000 to Aqua. Ms Pappas pressed for payment without further delay but Mr Driver said the reconciliation contained errors and had been passed to his accountants, William Buck, for review. Ms Pappas replied, "A lot of work has gone into entering and collating the reconciliation that has been put together by Findex. It is directly from QuickBooks and a true reflection of what has been charged by suppliers. We have since transitioned to MYOB." On 3 December 2019, Mr Driver forwarded "necessary adjustments" to the reconciliation to Mr Richardson, to which Terry Paule replied, "This is garbage".
Ms Pappas said that the transfer from QuickBooks to MYOB was prepared but never eventuated. "There's a difference. There is a very distinct difference and I think that it needs to be clear that intending to do something, preparing to do something, and setting it up and then transacting in it are very different things." Ms Pappas said "Whilst a transition was attempted, it never eventuated. … At the time, the intention was that Findex had prepared for a transition from QuickBooks to MYOB, but as you know, plans change when agreements are not upheld and therefore it never eventuated."
On 5 December 2019, a further Change to company details Form 484 was lodged with ASIC, recording the appointment of Terry Paule as a director of Aqua on 1 February 2017, presumably in accordance with the Heads of Agreement referred to as [22(c)]. Mr Richardson forwarded the updated ASIC extract to Terry Paule and Ms Pappas, and Ms Pappas replied that the operating address for Aqua also needed to be updated to that of MyCo.

[10]

Loan Agreement and General Security Deed

In February 2020, Ms Pappas circulated draft loan agreements and general security deeds to Mr Driver and Dr Kambouris. Ms Pappas advised, "the agreements are to formalise (put in writing) what has been verbally agreed by all parties and secure the Paule family and Myco Pty Ltd." Further drafts were exchanged and, ultimately, the documents were executed on 13 February 2021.
Under the Loan Agreement, Botanical was the lender and Aqua was the borrower. Botanical agreed to lend up to $2 million, to be drawn down at the discretion of Botanical. The purpose of the loan was business development and repayment of outstanding debts. The loan was to be secured by a first ranking charge over Aqua's assets.
A General Security Deed was also executed by Aqua as grantor and Botanical as the secured party. The details of these documents will be revisited in due course.
Relations between the parties appear to have settled for a period. Two companies were incorporated in the United Kingdom in February 2020 - Botanical Water Technologies Ltd and Botanical Water Technologies IP Ltd (referred to together as Botanical UK) - of which Terry Paule was a director. MyCo staff appear to have continued to attend to the finance and administration of Aqua, albeit without access to Aqua's bank account. It appears that MyCo, using a bookkeeper at Findex Melbourne, maintained accounts on MYOB by reconciling bank statements obtained from Mr Driver.
Two invoices were issued by Botanical in June and July 2020 for the sale of Aqua products, with payment to be made to Botanical's bank account. Ms Pappas agreed that two invoices were incorrectly issued due to a clerical error made in the office. There was confusion by a staff member between the Aqua trademark and Aqua's business. The two invoices totalled some $1,900.
By October 2020, it appears that Botanical was progressing the production and sale of products, as I understand it, because Botanical UK was entitled to use the intellectual property to do so. Invoices were now rendered by Botanical. Ms Pappas said in late 2020, water sold under the Aqua brand was recorded in Botanical's MYOB file. As I understand from a QuickBooks sales report printed for Aqua for sales from January to October 2020, the last sale was on 14 January 2020. According to Aqua's bank statements, the last time that Aqua received sales revenue into its bank account was 4 December 2020.

[11]

Mr Landy's review

MyCo retained Mr Landy to review the financial position of Aqua and, in particular, the advances said to have been made by Mr Driver to Aqua and recorded in a loan account. Mr Landy was instructed that Mr Driver was the chief executive officer of Aqua and had the day to day operation of the company, exclusive control of the bank account and possession of the contemporaneous books and records of Aqua, managed on a QuickBooks account. Mr Landy said that MyCo had no access to Aqua's historical records.
On 2 September 2020, Mr Landy spoke to Mr Driver and explained the task given to him by MyCo. According to Mr Landy, Mr Driver said that Aqua's books and records were being managed by him and could be accessed on Aqua's QuickBooks account. Mr Landy confirmed his appointment by email to Mr Driver, noting "we are seeking to find a resolution to the company loan matters, and you have advised us that all the company invoices, records and data we require are located on QuickBooks." Access was sought to the QuickBooks' online portal, and promptly given. Mr Landy thereby had access to Aqua's creditor information, invoices, scanned payment receipts/documents and transactional summaries/history together with Aqua's invoices and various debtor details and information.
On 3 September 2020, Mr Landy spoke to Mr Driver again. Mr Driver said that Aqua's QuickBooks account was used as a 'storage receptacle', housing Aqua's source documents. Mr Driver said he spoke to Mr Walker on a quarterly basis for the preparation of BAS statements; Mr Walker prepared Aqua's working account statements and files.
On 4 September 2020, Mr Landy spoke to Mr Walker of Findex in Mildura, who advised that, when preparing Aqua's financials, instructions were taken from Mr Driver; Mr Walker relied on Mr Driver's explanations regarding Aqua's bank statements as to relevant transactions. Mr Walker advised that Mr Driver did not provide source documents underlying the transactions and this material was in Mr Driver's possession.
Following Mr Landy's review of Aqua's QuickBooks records, he observed that invoices and other documents linked to Aqua's QuickBooks records contained Mr Driver's handwritten notes, as verbally confirmed by Mr Driver, being typically reference numbers inserted on invoices, payment receipts and the corresponding entry in Aqua's bank statements. During the period in which Mr Landy had access to Aqua's QuickBooks records, being mostly in September and October 2020, the accounts appeared to be up to date.
Based on his access to Aqua's QuickBook records, Mr Landy was of the opinion that Mr Driver had control of the movement of money in and out of Aqua, the manner and purpose in which the funds in Aqua's bank account were used, and the manner in which transactions relating to Aqua were recorded. By November 2020, Mr Landy had completed his review and ceased accessing Aqua's QuickBooks account.

[13]

Requests for documents

On 3 June 2021, McCabe Curwood solicitors sent a letter to Findex Melbourne, advising that the firm acted for Aqua and requesting Aqua's documents including general ledger printouts, financial statements and tax returns, monthly management accounts and BAS statements. A letter in like terms was sent by McCabe Curwood to MyCo.
On 4 June 2021, Botanical retained Mathew Gollant of CJG Advisory to undertake an independent expert review and prepare a report as to the solvency of Aqua. On 7 June 2021, Mr Gollant sent an email to Dr Kambouris and Mr Driver advising of his engagement and noting the borrower's obligations under the Loan Deed to provide assistance to any Investigating Experts appointed by the lender. Mr Gollant requested documents enumerated in a list, and requested their assistance on a timely basis.
On 9 June 2021, McCabe Curwood wrote to Mr Gollant, requesting that he cease communication with Aqua and direct all communication to the solicitors. McCabe Curwood requested documents of Mr Gollant.
On 16 June 2021, at 8.56 am, McCabe Curwood received a letter from a London law firm, Fried Frank, dated 15 June 2021, advising that they acted for Botanical. The information sought by McCabe Curwood was provided. Mr Gollant's request for information and documents was repeated, to be provided by 5.00 pm on 16 June 2021. In the event that Aqua did not comply within this timeframe, this would be deemed as an Event of Default under the Loan Agreement and therefore under the General Security Agreement.
This effectively gave Aqua eight hours to produce the material requested. Eight days passed. Fried Frank wrote to Aqua directly, noting that some $867,000 had been advanced by Botanical to Aqua under the Loan Agreement. Botanical had advised Mr Gollant to carry out a solvency review and sought information and access to Aqua's records but had received no response, either to Mr Gollant's email of 7 June 2021 or Fried Frank's letter of 15 June 2021. Botanical considered Aqua's failure to provide information and documents as a breach of the Loan Agreement and an act of default, being also a default under the General Security Deed. Demand was made for Aqua to repay the amounts advanced by Botanical within 48 hours, failing which Botanical would exercise its rights.

[14]

Commercial List proceedings

The same day, on 24 June 2021, Aqua, Mr Driver and Dr Kambouris commenced proceedings in the Commercial List against Botanical, Botanical UK, MyCo and Terry Paule. As I read it, the plaintiffs inter alia challenged the assignment of intellectual property to Botanical UK, the fact that Botanical was now issuing invoices for product sales, recent changes to directorships and a contention that MyCo and Terry Paule had breached an agreement to fund the ordinary business activities of Aqua.
In the Commercial List Statement, the Heads of Agreement referred to at [22] was pleaded, by reason of which it was contended that MyCo and Aqua were parties to a joint venture and partners from 19 April 2017, being an allegation which the defendants later denied.
On 1 July 2021, McCabe Curwood replied to Fried Frank's letter, disputing that Aqua's conduct amounted to a breach or default, stating that Aqua remained ready, willing and able to comply with its legal obligations, including providing any documents and information to which Botanical and Mr Gollant was lawfully entitled. However, it was said that, since at least 1 July 2019, the business affairs of Aqua had been conducted on Aqua's behalf by MyCo. As a result, MyCo was said to be the repository of documents and information created in conjunction with the business affairs of Aqua. As such, the documents were not in the possession, custody or control of Aqua, which was said to not be in a position to provide the documents and information sought. Rather it was said that Botanical could readily obtain the documents and information from its director, Terry Paule, who was also a director of MyCo. With respect, this suggestion was somewhat disingenuous as, whilst MyCo had some records for Aqua, so did Aqua.
Also on 1 July 2021, Madgwicks Lawyers wrote to McCabe Curwood, advising that they had been instructed to act for the defendants in the Commercial List proceedings. Madgwicks noted their instructions that, to date, Aqua and its directors had refused access to the books and records of Aqua for the purpose of Botanical considering Aqua's financial position. "We observe that such a refusal is a breach of clause 11.15 of the Loan Agreement. Please confirm that access will now be granted to all books and records of [Aqua]. If you do not agree to this, we expect to be instructed to bring an application to compel access to the books and records of [Aqua]".
On 5 July 2021, Madgwick's lawyers wrote again requesting, within seven days, access to the books and records of Aqua be provided to Investigating Experts, presumably Mr Gollant, pursuant to clauses 11.11, 11.15 and 11.18 of the Loan Agreement. Alternatively, electronic production was suggested for the convenience of the parties. The information included, but was not limited to: all bookkeeping or accounting records maintained by Aqua, such as MYOB and QuickBooks; any lists of the debtors and creditors of the company; balance sheets; profit and loss statements; trial balances; bank statements; all source documents. Madgwicks noted that Botanical was entitled to the provision of this material under clauses 9.10, 9.11(b), 9.16(b) and 9.17 of the General Security Deed. "We await receipt of the material … within 7 days … In the alternative, we seek notification of three (3) proposed dates and times (within the same period of 7 days) when representatives of [Botanical] can inspect and take copies of these documents."
On 7 July 2021, McCabe Curwood replied. "We take the request in your letter … to supersede the request contained in the 7 June 2021 email from Mr Mathew Gollant … if we are incorrect in our assumption, please immediately let us know." McCabe Curwood advised that, on or around 1 July 2019, MyCo changed the accounting and bookkeeping software used by Aqua such that, from at least that date, Mr Driver and Dr Kambouris did not have access to accounting and bookkeeping records. Aqua was said not to be in possession of the documents sought save for the draft annual report and trial balance for the 2019 financial year (to which I have earlier referred at [34]-[35]) and bank statements, copies of which were provided. The balance of the documents sought were said to be readily obtainable from Terry Paule. Again, the response was disingenuous in circumstances where, in fact, Mr Driver continued to hold a substantial amount of accounting information in respect of Aqua's activities.
Two weeks passed. On 20 July 2021, Madgwicks Lawyers wrote again, describing the position taken by Aqua as "absurd", noting "it cannot seriously be suggested that they do not have in their possession financial records of the kind requested … save for the limited documents provided." Botanical repeated its request for access to Aqua's financial records, to be provided by no later than 22 July 2021. In addition, Botanical also required Aqua to confirm that its Financial Reports (as defined in the General Security Deed) had been prepared in accordance with applicable accounting standards, and to certify that it was able to pay its debts as they fall due. Failure to make its financial records and documents available for inspection would be considered to be a default under the Loan Agreement and General Security Deed.
On the evening of 22 July 2021, McCabe Curwood replied, suggesting that the timeframe permitted by Madgwicks Lawyers was not a reasonable timeframe, suggesting that Botanical was seeking to "manufacture a default" under the Loan Agreement. Aqua was said to have been seeking to secure the return of its records from MyCo, which requests had gone ignored. Mr Paule was requested to deliver up Aqua's books and records by 4.00 pm on 30 July 2021.
On 30 July 2021, Mr Driver said that MyCo discovered financial statements for Aqua, prepared by Findex, for the 2020 financial year in the Commercial List proceedings. He had not seen these financial statements until then and was not contacted by Findex or MyCo in relation to preparation of the financial statements, which appear to have been prepared from information obtained from the MYOB account, as the data used to prepare the financial statements did not exist in Aqua's QuickBooks account.

[17]

FIRST EVENT OF DEFAULT - DISPOSAL OF ASSET

Clause 5.2(a) of the General Security Deed provides that Aqua "may only in the ordinary course of its ordinary trading business dispose of any Circulating Asset."
A Circulating Asset was defined as: (a) inventory; (b) currency of any country; (c) any time of machinery, plant or equipment which is not inventory and has a value of less tha[n] A$1,000.00 or its equivalent; or (d) all proceeds in the form of money or other consideration of any Trade Debts received by or on behalf of the Grantor before the occurrence of an Event of Default.
According to a spreadsheet maintained by Mr Driver, from time to time he attended to payment of Aqua's creditors himself. A comparison between Mr Driver's spreadsheet and Aqua's bank statement records five deposits to Aqua's bank account for June 2021, which roughly correspond to Mr Driver's spreadsheet. Each deposit came from an account ending 0506. The last such payment was made on 17 June 2021.
On 29 June 2021, Aqua's bank account had a balance of some $400. That day, $58,000 was deposited to Aqua's bank account from an account ending 6151. Whilst the plaintiffs' senior counsel submitted that the monies were deposited by Mr Driver, this is not evidently the case as the bank account from which the funds were transferred does not correspond with the five June deposits referred to at [91]. In any event, Aqua's bank account was thereby replenished and, on 30 June 2021, $44,260.55 was transferred to McCabe Curwood.
Botanical contended that Aqua's payment of $44,260.55 to McCabe Curwood on 30 June 2021 was not in the ordinary course of business and constituted an Event of Default.
As to whether there is "doubt" as to whether Aqua was in default, the plaintiffs submitted that the funds had been paid into Aqua's bank account by Mr Driver and thus were not Aqua's assets. (However, as already considered at [91]-[92], there is no evidence that the funds came from Mr Driver.) Second, the plaintiffs submitted that "currency of any country" meant physical currency rather than monies standing in a bank account, a construction said to be supported by the distinction between "currency" and "ADI accounts" in sections 33(1)(c) and section 340(5) of the Personal Property Securities Act 2009 (Cth), with regard to which the General Security Deed was likely prepared. Third, the plaintiffs submitted that paying lawyers to act on the company's behalf was in the ordinary course of business, particularly where the lawyers were instructed to deal with claims relating to the diversion of repayments of trading debts.
Botanical submitted that "currency of any country" included funds standing in a bank account but, in any event, the funds were an asset of Aqua and disposing of that asset was a breach of clause 5.1 of the General Security Deed unless the funds were the proceeds of a Trade Debt. Further, there was no evidence as to why Aqua transferred the funds to McCabe Curwood and thus no basis to infer that the payment was made in the ordinary course of Aqua's ordinary trading business.
Reading the definition of Circulating Asset as a whole, I consider that "currency of any country" means notes and coins rather than funds standing in a bank account. By and large, the items listed in the definition are generally of a physical nature but, more relevantly, the description in (d) refers to "proceeds in the form of money" being, presumably, something distinct from "currency of any country". The Court should not give one word in an interrelated, overlapping list of expressions a meaning that is so broad as to render adjoining words irrelevant: Lend Lease Real Estate Investments Ltd v GPT RE Ltd [2006] NSWCA 207 at [32] per Spigelman CJ (McColl and Basten JJA agreeing).
As Dawson J observed in Leask v The Commonwealth (1996) 187 CLR 579 at 595; [1996] HCA 29, currency consists of notes or coins of denominations expressed as units of account of a country and is issued under the laws of that country for use as a medium of exchange of wealth, as compared to "money"; it is characteristic of currency that effect is given to the intention of the transferor and transferee to transfer property in the notes or coins by physical delivery: Ilich v The Queen (1987) 162 CLR 110 at 138-9; [1987] HCA 1 per Brennan J.
The notice of default, of course, did not confine itself to "currency of any country", but no one suggests the funds standing in Aqua's bank account were the proceeds of a Trade Debt. Thus, payment of these monies to McCabe Curwood did not involve disposal of a Circulating Asset. The event of default is not established.
As to Botanical's alternative ground of default, Clause 5.1 of the General Security Deed provides, subject to inter alia clause 5.2, Aqua "must not dispose of or cause or permit any person to acquire any estate or interest in any of the Secured Property." Secured Property meant collateral and Other Property. Collateral meant all the personal assets of Aqua, both present and after acquired: clause 1.1. Other Property meant any land or any other property including any Goods: clause 3.2.
If the funds were not a Circulating Asset, then transfer of those funds from Aqua's bank account to McCabe Curwood may be disposal of collateral, in breach of clause 5.1 and an Event of Default under clause 12.1(b), being an alternate ground not known when the receivers were appointed but nonetheless justifying their appointment.
However, whilst there is no evidence that the funds were deposited by Mr Driver, it appears to be an unusual transaction which, of itself, raises a doubt as to whether the funds were Aqua's personal property. The source of the funds deposited to Aqua's bank account is unknown. Botanical has not established that the funds were Aqua's as opposed to whomever deposited the funds for the apparent purpose of funding Aqua's solicitors in the Commercial List proceedings. This Event of Default is not established.

[18]

SECOND EVENT OF DEFAULT - JOINT VENTURE

By clause 8.1(l) Aqua represented and warranted, "except as notified to [Botanical] in writing prior to the date of this document … it is not a partner in any general or limited partnership, a participant in any incorporated or unincorporated joint venture or otherwise liable for the obligations of any such partnership or joint venture".
By the notice of default, Botanical noted that, in the Commercial List Statement, Aqua stated that from 19 April 2017, Aqua and MyCo were parties to a joint venture and partners. This was said to be an event of default under clause 12.1(c) of the General Security Deed, being a representation or warranty that was "untrue or misleading in any material respect".
The plaintiffs submitted that Terry Paule had signed the Heads of Agreement said to give rise to a joint venture, as a director of MyCo. The Heads of Agreement anticipated the incorporation of a new company, being Botanical, of which Terry Paule was also a director. The parties could not have intended such a joint venture to constitute an event of default under the General Security Deed. In any event, Botanical had been notified in writing by the execution of the Heads of Agreement by its subsequent directors. Further, Botanical had denied the existence of a joint venture in its Commercial List Response and, having done so, could not rely upon the existence of any joint venture partnership as an event of default.
Botanical submitted that the question of whether Aqua and MyCo were, in fact, parties to a joint venture was a matter of dispute in the Commercial List proceedings but, on its face, Aqua's contention in those proceedings was at odds with its warranty in the General Security Deed, to which MyCo was not a party. There was no evidence of written notice having been given by Aqua to Botanical of the alleged joint venture prior to service of the Commercial List Statement. By opposing this event of default, Aqua was said to have made an election between inconsistent rights: Commonwealth v Verwayen (1990) 170 CLR 394 at 421; [1990] HCA 39 per Brennan J.
The General Security Deed was signed by Dr Kambouris and Terry Paule, for both Aqua and Botanical. Terry Paule had earlier signed the Heads of Agreement for MyCo. To the extent that the Heads of Agreement gave rise to a joint venture between Aqua and MyCo, Terry Paule must be taken to have been aware of it. Strictly speaking, the Heads of Agreement was executed before Botanical was incorporated and Botanical was not thereby notified in writing of the existence of such a joint venture. But nor could any representation or warranty given by Aqua, that there was no joint venture, be considered "untrue or misleading in any material respect" in circumstances where Terry Paule knew about any such joint venture. Thus, the second event of default is not established.

[19]

THIRD EVENT OF DEFAULT - ACCOUNTING STANDARDS

By clause 8.1(j) of the General Security Deed, Aqua represented and warranted that its "Financial Reports have been prepared in accordance with applicable accounting standards consistently applied except to the extent of departures from those standards disclosed in those Financial Report".
Financial Reports was defined as: profit and loss reports, balance sheets and cash flow statements and where this document requires Financial Reports to be delivered to [Botanical], includes: (i) directors' report; and (ii) any auditor's report; required under the Corporations Act … Although the definition of "Financial Reports" is a little unclear, as it applies to Aqua, I take it to mean "profit and loss reports, balance sheets and cash flow statements".
By the notice of default, Botanical noted that Aqua's Financial Reports "expressly have not been" prepared in accordance with accounting standards, presumably a reference to the draft Annual Report for the 2019 financial year: see [35].
The plaintiffs submitted that a small proprietary company such as Aqua was not obliged to prepare a financial report unless shareholders with at least 5% of the votes gave the company a direction to do so: section 293(1), Corporations Act. Such a direction may specify whether the financial report had to comply with some, all or none of the accounting standards: section 293(3)(a) Corporations Act. There was no suggestion that any direction to prepare financial reports had been given to Aqua. The plaintiffs submitted that Accounting Standard AASB 1057 Application of Australian Accounting Standards did not require the application of such standards to Aqua, whilst Botanical submitted otherwise.
In any event, the plaintiffs submitted the draft 2019 Annual Report plainly stated that no Australian Accounting Standards had been intentionally applied. Where Aqua and Botanical had common directors until recently, and Aqua's accounts were prepared by MyCo and Findex, Botanical could not rely upon such a default, being conduct done with the consent and concurrence of Botanical or its directors. Further, where the notice of default did not specify the Australian Accounting Standards said to apply, or how such standards had been departed from, the warranty given by Aqua had not been falsified.
For the reasons advance by the plaintiffs, there were no "applicable accounting standards" for the Financial Reports prepared by Aqua by reason of the Corporations Act or AASB 1057. In any event, the Financial Reports to which the notice of default appears to refer made plain that no accounting standards had been applied. Thus, the third event of default is not established.

[20]

FOURTH EVENT OF DEFAULT - PROVISION OF BOOKS AND RECORDS

Clause 9.11 of the General Security Deed provided: Records [Aqua] must cause and permit the Transaction Parties [effectively, Aqua]: (a) to prepare and keep books, Financial Reports and accounting and other records in accordance with accounting standards consistently applied; and (b) on demand to make available for inspection and copying by [Botanical] or any person authorised by [Botanical] the books, Financial Reports and accounting and other records of the Transaction Parties.
As I understand it, it is the latter obligation which is relied upon by Botanical here, being Aqua's failure, on demand, to make available its books and records for inspection and copying notwithstanding requests from Botanical's solicitors on 15 June 2021, 24 June 2021, 5 July 2021 and 20 July 2021.
The plaintiffs professed not to understand how Aqua was said to have breached clause 9.11, as the correspondence did not specifically identify which books or records Aqua was alleged to have failed to keep or make available for inspection. Further, on 7 July 2020, Aqua produced its bank statements, said to be the one source of records to which Botanical did not have direct access (I note that Botanical also did not have access to Aqua's QuickBooks account or source documents). In addition, McCabe Curwoods letter of 7 July 2021 expressed an assumption that Madgwick's request of 5 July 2021 superseded Mr Gollants request of 7 June 2021 and asked to be advised if this assumption was incorrect, such that Aqua could not be in default for failing to comply with Mr Gollant's earlier request, repeated in Fried Frank's letter of 15 June 2021. In addition, the plaintiffs submitted that clause 9.11(b) obliged Aqua to make books and records "available for inspection and copying" but did not require Aqua to produce the documents.
The plaintiffs submitted that, in the absence of an express time stipulation to the contrary, the obligation to make records available for inspection on demand was required to be complied with within a reasonable period of time after the demand: Bunbury Foods Pty Ltd v National Bank of Australasia Ltd (1984) 153 CLR 491 at 502-503; [1984] HCA 10 per Mason, Murphy, Wilson, Brennan and Dawson JJ. What is reasonable is a question of fact. Further, in Rudi's Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568, Samuels AP (Priestley and McHugh JJA agreeing) explained at 576: … the question must be decided at the point when the lapse of time is said by the party seeking to rely upon the provision to have occurred. It cannot be determined at the date of execution of the contract. What is reasonable must necessarily be affected by external events. Thus the quality of a period of time must be influenced by what occurs as it elapses. To determine it when time starts to run would be to exclude considerations of major importance. See also, to like effect, Lahoud v Lahoud [2009] NSWSC 623 at [399]-[405] per Ward J and the cases there cited.
In determining whether a reasonable time had elapsed, the plaintiffs submitted that Findex, MyCo and Terry Paule had refused to respond to requests that they return company documents to Aqua. Where MyCo had access to a range of materials evidencing the day-to-day operations of Aqua, it could not be said that access to materials from Mr Driver was urgent or necessary. The plaintiffs submitted that it was inherently unlikely that commercial parties would have intended that a delay in the borrower making its books available to the lender, due to no fault of the borrower but the recalcitrance of a third party controlled by the lender, should constitute a default enabling the lender to enforce its security. Otherwise, the lender could manufacture a default at will, which would give the clause an uncommercial and non-businesslike construction. Where Findex, MyCo and Mr Paule had failed to respond to requests to return Aqua's documents, it could not be said that a reasonable time for compliance with Botanical's request for inspection and production of documents and information had elapsed.
Botanical submitted that the Court should accept the evidence of Mr Landy and Ms Pappas and find that Aqua used QuickBooks software for accounting and bookkeeping and continued to do so.
To the extent that there is any "doubt" as to this event of default, I am satisfied on the evidence that Aqua was in default of its obligation to make its books and records available to Botanical on request. In about June 2019, MyCo staff became involved in the accounting and administrative side of Aqua's business, generating some invoices, attending to payment of creditors and maintaining accounts, at least for a time, from 1 July 2019 on. However, MyCo - and thus Botanical - did not have access to accounting information pre-dating 1 July 2019 nor, by and large, source documents. Ms Pappas has not had access to Aqua's QuickBooks account for at least 12 months.
Mr Driver continued to maintain a set of accounts for Aqua on QuickBooks which, when Mr Landy reviewed the material in October 2020, was up to date. As late as 3 September 2021, Mr Driver had access to QuickBooks as he used it to generate a report, now in evidence. Thus, Mr Driver still had access to Aqua's QuickBooks account but failed to provide it to Botanical when requested. Although the plaintiffs produced the bank statements for Aqua's bank account, the source documents and accounting treatment for the transactions in the bank account remained, by and large, in the possession of Mr Driver/Aqua and not in the possession of Botanical.
Botanical was entitled to such material under the security documentation. It is reasonable for a lender to have access to such material. Two months of correspondence has produced little. On the evidence, Aqua has a great deal more material than it has been willing to produce. Nor was Aqua prevented from producing such material by first being provided with whatever records Botanical had.
Aqua failed on demand to make the QuickBooks account available for inspection and copying, being a default under clause 9.11(b). As Aqua had electronic access to the QuickBooks account, the time given to make the documents available for inspection, being seven days, was more than sufficient. This event of default existed as at 2 August 2021. Appointment of the receivers was valid.

[21]

FIFTH AND SIXTH EVENTS - ASSISTING INVESTIGATING EXPERTS

A breach of the Loan Agreement is an Event of Default under the General Security Deed: clause 12.1(b). The remaining events of default arise from breaches of the Loan Agreement.
Clause 11.15 of the Loan Agreement obliged Aqua, if asked by Botanical to supply information or documents concerning Aqua's financial position and any property or assets the subject of Botanical's first ranking charge over Aqua's assets: see definition of "Security" in clause 1 and Item 9 in the Schedule.
In addition, clause 11.18 entitled Botanical to appoint Investigating Experts to investigate and report on the affairs and financial position of Aqua. By clause 11.18, Aqua agreed to give all assistance to the Investigating Experts to undertake the investigation. Botanical relied on its solicitors' requests to provide information to Mr Gollant, largely unanswered.
Similarly, clause 11.11 of the Loan Agreement provided: Inspection The Borrower must permit any representatives designated by the Lender to visit and inspect the business premises of the Borrower and the financial records and the property of the Borrower as often as requested by the Lender and to make extracts from and copies of the financial records, and permit any representatives of the Lender to discuss the affairs, finances, accounts and condition of the Borrower with the officers, employees and advisors of the Lender.
The plaintiffs submitted that clause 11.11 concerned permission to enter physical premises. I agree.
As to clauses 11.15 and 11.18, Aqua relied, essentially, on the same submissions made in respect of the fourth event of default with which, for the reasons already stated, I do not agree. Aqua was asked by Botanical to supply information and documents concerning Aqua's financial position and, by and large, has failed to produce such information or documents. Mr Gollant, appointed as Botanical's Investigating Expert, sought information from Aqua which was not supplied. Mr Gollant's requests were repeated in letters from Botanical's solicitors, which were largely unanswered. The fifth event of default is established.

[22]

SEVENTH EVENT - CERTIFY SOLVENCY

Clause 8(u) of the Loan Agreement provides that it is an Event of Default if: Unable to pay debts the Borrower is unable to pay its debts as they fall due or is unable to certify that it is able to pay its debts as they fall due, commences negotiations with any one or more of its creditors with a view to the general readjustment or rescheduling of its indebtedness, or enters or proposes to enter into any arrangement or composition with its creditors.
The plaintiffs submitted that this was not an Event of Default as the Loan Agreement gave no right to the lender to request that the borrower "certify" solvency upon demand. Rather, this Event of Default related to the declaration as to solvency contemplated by section 295(4) of the Corporations Act, which requires directors to make a declaration, as part of an annual financial report, that there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. Alternatively, on 20 July 2021, Madgwicks requested that Aqua certify that it was able to pay its debts as they fell due. On 22 July 2021, McCabe Curwood requested the basis on which the certification was sought. No clarification was provided, but the notice of default was issued on 2 August 2021. In the circumstances, it was said that a reasonable time to certify solvency had not elapsed, as no clarification had been provided nor had MyCo, Findex or Mr Paule returned Aqua's documents.
Botanical submitted that the obligation under clause 8(u) was on Aqua, not a director, and had no association with the declaration of the section 295(4) of the Corporations Act in respect of financial statements. If, as Mr Driver says, he does not even know if Aqua is trading, then it is apparent that he is unable to certify, on behalf of Aqua, that it is able to pay its debts as they fall due.
Read as a whole, clause 8(u) refers to temporal events indicating insolvency. The clause identifies matters which, in real time, indicate that the borrower is insolvent such that the lender may wish to exercise its rights. The clause points to various indicia: the borrower is unable to pay its debts as they fall due, the borrower is unable to even certify that it is able to pay its debts as they fall due or the borrower is seeking accommodation from creditors.
The connection between clause 8(u) and section 295(4) of the Corporations Act is tenuous. The indicia of insolvency in clause 8(u) bear little resemblance to an annual declaration required to be given by large corporations when providing their annual financial statements, being generally some months after the end of a financial year. Section 295(4) requires a declaration, whilst clause 8(u) refers to an inability to certify a particular matter.
Implicit in clause 8(u) is an obligation on the Borrower, if asked, to certify solvency. As such, the lender is by implication entitled to request such a certification. Aqua was asked to certify solvency on 20 July 2021. I do not consider that Botanical was obliged, in answer to McCabe Curwood's letter of 22 July 2021, to state the basis of Botanical's entitlement to the certification. The clause implicitly entitled Botanical to request a certification and Aqua's solicitors, presumably, were able to advise their client accordingly. Given the sequence of correspondence which had ensued, McCabe Curwood's letter of 22 July 2021 could reasonably be seen as a continuation of Aqua's 'stalling tactics'. In any event, some two weeks elapsed between the request for a certification and the issue of a notice of default. Reasonable time had been permitted for the certification to issue.
Nor did Aqua's unanswered request for the 'return' of its financial records absolve Aqua from providing the certification, if it was able to do so. On the evidence before the Court, Mr Driver would well have appreciated that any accounts kept by MyCo for Aqua had been partial and would not have assisted him to provide the certification in any event.
As the plaintiffs acknowledged, failure to provide a certification may be probative of any inability to do so. According to Mr Driver's spreadsheet, he had been attending to payment of Aqua's creditors himself and, as I understand it, the plaintiffs complain in the Commercial List proceedings that MyCo had refused to do so. According to Mr Driver's spreadsheet, he is presently owed from $2.6 million by Aqua. According to Aqua QuickBooks reports and bank statements, Aqua's sales in 2020 were modest at best and Aqua's bank account was essentially empty before the monies deposited on 29 June 2021. Mr Driver says (and this is not admissible on Dr Kambouris' application) he did not know whether Aqua continued to trade.
I conclude that Aqua was unable to certify solvency when requested to do so. Absent Mr Driver's admission concerning cessation of trade, I have come to the same conclusion. Aqua could not pay its creditors from revenue but was reliant upon Mr Driver and MyCo to do so. Where Mr Driver's ability to fund creditors was exhausted, as was MyCo's willingness to fund creditors (at least so far as Aqua's directors were aware), Aqua could not certify solvency. This Event of Default is established.
Whilst three further events of default are relied upon under the Loan Agreement, it is not necessary to consider these given my conclusions thus far and I do not propose to do so. I am satisfied that Botanical has established the existence of Events of Default under the General Security Deed entitling it to appoint receivers. This is sufficient to resolve these proceedings, which are of an urgent nature: Chief Commissioner of State Revenue v Adams Bidco Pty Ltd [2019] NSWCA 34 at [3] per Leeming JA.
For these reasons I make the following orders: 1. Pursuant to section 418A of the Corporations Act 2001 (Cth), declare that the appointment of Petr Vrsecky and Jason Glen Stone as receivers and managers of Aqua Botanical Beverages (Australia) Pty Ltd pursuant to the General Security Deed between Aqua Botanical Beverages (Australia) Pty Ltd as Guarantor and Botanical Water Technologies Pty Ltd as Secured Party was valid given Events of Default had occurred under: 1. Clause 9.11(b) of the General Security Deed; and. 2. Clauses 8(u), 11.15 and 11.18 of the Loan Agreement between Botanical Water Technologies Pty Ltd as Lender and Aqua Botanical Beverages (Australia) Pty Ltd as Borrower, being Events of Default under Clause 12.1(b) of the General Security Deed. 1. Order the plaintiffs to pay the defendants' costs of these proceedings.

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