3. An injunction restraining the defendants and each of them (whether by their servants or agents or otherwise howsoever) from any dealing in or with any property of theirs or which is in their possession power or control and which has been acquired or held (directly or indirectly) with the said moneys (including by way of mortgage or other finance provided by one or more of them to any of the others).

4. A declaration that the defendants and each of them hold the said moneys (or the balance thereof remaining in their hands or under their control) on trust for the plaintiffs.

5. A declaration that the defendants and each of them hold any property of theirs or which is in their possession power or control and which has been acquired or held (directly or indirectly) with the said moneys (including by way of mortgage or other finance provided by one or more of them to any of the others) on trust for the plaintiffs.

6. An order that an inquiry be held as to any dealings by the defendants or any of them in or with the said moneys and any property acquired directly or indirectly as aforesaid with the said moneys.

7. An order that an account be taken of the profits made by the defendants or any of them from the said moneys or any such dealings as aforesaid.

An order that an account be taken of the profits made by the defendants and each of them pay to the plaintiffs the amount of such profits ascertained to be owing on the taking of the account referred to in paragraph 7 hereof together with interest during such period and at such rate as the Court shall fix.

9. An order that the defendants pay to the plaintiffs the said moneys (or the balance thereof) in their hands or under their control.

10. An order that the defendants transfer to the plaintiffs any property which it is found has been acquired directly or indirectly out of the said moneys, or such thereof or interest therein as the court shall deem just and equitable having regard to the inquiry and account referred to in paragraphs 6 and 7 hereof.

At the time of the issue of the originating proceedings an application, supported by an affidavit of the liquidator Mr Macks, was made for various injunctions.

An interim injunction was granted by a Master of the Court, Judge Anderson, on 1 September 1995 upon terms which are not important. On 12 September 1995 the order was extended until 6 October 1995 and on that occasion it was extended until 25 October 1995. Meanwhile on 11 October 1995, with some variations including the discharge of the order as against the fourth defendant, the injunction was continued until further order.

The plaintiffs filed their statement of claim on 19 December 1995 and on 16 February 1996 the plaintiffs were given leave to join two further defendants Sardona Pty Ltd and Melbourne Projects Pty Ltd. An amended statement of claim was filed on 27 February 1996 reflecting the joinder of the additional defendants.

An application by the defendants to discharge or vary the injunction was heard by Bollen J and refused on 28 February 1996.

At that time his Honour certified that the matter was fit for an early trial and ordered accordingly.

On 22 March 1996 a Master of the Court, Judge Burley ordered that the defendants, with the exception of the fourth defendant, file their defence on or before 4 April 1996; that discovery be made before 19 April 1996; that the evidence to be adduced on the trial of the action be taken on affidavit; that further affidavits from the plaintiffs be filed before 3 May 1996; that further affidavits from the defendants in response be filed by 17 May 1996 and any further affidavits from the plaintiffs in response be filed before 24 May 1996.

Thereafter the defendants made an application for the injunction to be dissolved unless an undertaking was given by the liquidator in relation to damages. An application was also made by the defendants for security for costs on the part of the plaintiff. Both of those applications were dismissed by Judge Burley on 26 April 1996.

On 11 June 1996 Judge Burley dismissed an application by the defendants for further particulars of the statement of claim, extended time for filing and service of a defence to the 25 June 1996, and made consequential orders in relation to the pre-trial conference which ought to have occurred on that occasion.

He made an order that the costs of the pre-trial conference be paid by the defendants' solicitors.

On 21 June 1996 the defendants filed their defence, which does not conform with the pleading rules in a number of respects, but in particular does not conform with Rule 46.12.

An appeal from Judge Burley's decision, refusing the defendant's application to require the liquidator to give an undertaking as to damages and dismissing the application for security for costs, was dismissed by Duggan J on 5 July 1996.

On 15 July 1996 the parties agreed that the injunction be varied to allow for certain payments to be made by the defendants, provided certain notice was given to the plaintiffs.

The pre-trial conference in this matter was resumed on 23 July 1996 when counsel for the defendants foreshadowed an application for leave to join the liquidator as a party to the proceedings in order to pursue a claim for damages relating to alleged wrongful obtaining and maintenance of the interlocutory injunction. The matter was adjourned to allow the defendants to make that application, Judge Burley ordering that the application be made and filed by 5 August 1996. Leave was later given allowing the application to be served on or before 21 August 1996. As a consequence, the pre-trial conference was adjourned yet again.

When the matter resumed before Judge Burley on 23 August 1996 the plaintiffs advised his Honour that they wished to apply for summary judgment. In those circumstances Judge Burley refused to certify the matter as being ready for trial and referred the matter to the listing registrar. On 2 September 1996 the plaintiffs made application for summary judgment.

The defendants then made application to me for the release of funds so that they might make an application to join the liquidator. Thereafter the defendants also made an application for a stay of the plaintiffs proceedings. The second application was dismissed on 10 October 1996.

There have been a multitude of applications made by the defendants since July of 1996 relating to variation of the injunction and other interlocutory matters. Some of those applications have been consented to, some others opposed. Most of the applications have related to the release of funds to pay the defendants' legal advisers.

On 10 October 1996 I gave directions in relation to the application for summary judgment. At that time I ordered that it be heard on 13 and 14 January 1997 and I directed; that the plaintiffs file any further affidavits by 14 October 1996; that the defendants' affidavits in answer be filed by 11 November 1996; that the plaintiffs' affidavits in reply be filed by 25 November 1996; that the parties exchange any objections as to the admissibility of evidence by 2 December 1996, and I adjourned the application for summary judgment to 6 November 1996. I adjourned the application at that stage because the then counsel for the defendants advised that the defendants might seek to apply to vacate the hearing date of 13 January 1997. The matter came on on 6 November 1996 and was adjourned to 8 November 1996 but no application of the kind was made. On that occasion it was suggested by the counsel for the defendants that an application would be made to set aside the plaintiffs' application for summary judgment. I gave the defendants until 18 November 1996 to bring such an application. Again no application of the kind was made.

On 21 November 1996 after hearing the parties in relation to an application for discovery I made certain orders in relation to further and better discovery by the plaintiffs.

On 26 November 1996 I directed that the defendants notify the Court within seven days of any application for an extension of time within which to make an application in relation to the plaintiffs' application for summary judgment. No such notification or application was made.

The application for summary judgment came on for hearing on 13 January 1997.

At that time the defendants were represented by Mr O'Doherty and Mr Birrell of counsel and Mr Tropeano. Mr O'Doherty and Mr Birrell usually practice at the Victorian Bar. When the matter was called on Mr Birrell foreshadowed that at the end of the plaintiffs' argument the defendants would seek an adjournment, perhaps to bring in further evidence in opposition to the application made.

On 10 January 1997 the defendants had filed three affidavits in opposition to the plaintiffs' claim. Those affidavits, of course, were not filed in accordance with the directions earlier given but that was not the point of Mr Birrell's application. He recognised that the affidavits, which were filed out of time, did not address the issues in the case and in those circumstances, in many respects, the plaintiffs' allegations were left unanswered. After hearing Mr Birrell for a short time I asked him to advise me where the fault lay for the failure to comply with the directions, and for the failure generally to prepare the defendants' case.

He sought a short adjournment and upon resumption Mr O'Doherty advised me that Mr Birrell's retainer had been withdrawn and that Mr Birrell sought leave to withdraw. Mr O'Doherty then applied for an adjournment upon the grounds that the defendants were not ready. In support of his application he called Mr Birrell who confirmed, on his oath, that he had not applied his mind to the issues in the matter as he should have and that the defendants were free of all blame for their state of unreadiness.

After some argument I allowed the defendants their adjournment but upon terms which included a term that all of the defendants' legal advisers undertake not to seek any costs in relation to the application for summary judgment up to and including that day and the further term that one or all of them would pay the indemnity costs of the plaintiffs fixed at $9,780. I did not then decide who of the defendant's legal advisers ought to be responsible for the plaintiff's indemnity costs but adjourned that discreet question for hearing after the application for summary judgment. I will deal with that matter separately.

I was only prepared of course to adjourn the application for summary judgment upon first being satisfied that no prejudice was caused to the plaintiffs. Of course in a sense the plaintiffs did suffer prejudice. They lost their opportunity of having their application heard on 13 January 1997.

Evidence discloses that the defendants, up until the 13 January 1997, had incurred legal fees in the order of $400,000 on their defence. All they had to show for that was a defence which did not comply with the Supreme Court Rules.

I adjourned the matter until 4 February 1997 and gave directions that the defendants file their answering material by 28 January 1997. The solicitor then on record remained on file but the counsel who appeared on 13 January 1997 ceased to be retained and present counsel were briefed sometime shortly after 13 January 1997.

On 23 January 1997 I varied the injunction to allow payment of the further sum of $50,000 for legal fees solely in relation to the application for summary judgment.

I also varied the previous directions so as to allow the defendants until 31 January 1997 to file their affidavits in answer to the plaintiffs' affidavits and vacated the hearing date for 4 February 1997 in favour of 5 February 1997. The extension of time and the variation in hearing date was to accommodate the defendants' request that they needed as much time as possible to file their evidence. Subsequently, I further varied the injunction to allow for payment of about $20,000 to meet further legal costs in relation to the opposition to this application.

Three affidavits had been filed on 10 January 1997. The deponents to those affidavits were Mr Giuseppe Emanuele (Mr Joe Emanuele), Mr Linton Emanuele and Mr Robert Simionato. Inherent in Mr Birrell's application at that time was an acknowledgment that those affidavits did not sufficiently address the subject matter of the plaintiffs' claim. A number of affidavits were filed by the defendants subsequent to 13 January 1997. Some of those were directed to the question of the liability for the plaintiffs' indemnity costs in relation to the adjournment of that hearing and need not be considered on the application for summary judgment. However they are not irrelevant in relation to other aspects of the hearing.

An affidavit was filed by Mr Robert Simionato and sworn the 17 January 1997. In it he deposed: "5. In March I was asked by Mr Farrugia, a solicitor with Thompsons to become a director of a company which it was proposed would act as a trustee for the Emanuele Family Trust. My understanding at that stage was that the trustee company would administer a family trust for the Emanuele family. My recollection is that the company which was called Simionato Holdings Pty Ltd would receive settlement moneys arising from the dispute between EFG and my (sic) uncle Giuseppe Emanuele.

6. On the 17th of March 1995 Simionato Holdings Pty Ltd executed a Deed of Agreement which is exhibit 4.35 to the affidavit of the liquidator. The terms of the Deed of Agreement had been negotiated by solicitors for Mr Giuseppe Emanuele and those solicitors were also acting for Simionato Holdings Pty Ltd. After receiving advice from Mr Farrugia the terms of agreement were accepted by Simionato Holdings Pty Ltd.

7. I have had limited access to financial records that evidenced the flow of funds received pursuant to the terms of the Deed of Agreement. In so far (sic) as I am able to ascertain the liquidator's affidavit outlines the flow of funds and payments made by Simionato Holdings Pty Ltd and the other defendants. However I am not able to confirm or deny all of the payments referred to in the liquidator's reconstruction of the accounts."

That affidavit addressed the plaintiffs' allegations in relation to the tracing of funds which are the subject of these proceedings and indeed, by the admission in paragraph seven of Mr Simionato's affidavit, narrowed those issues significantly. I will return to that matter. The affidavit, like previous affidavits, failed to address the main question in this case, that being whether or not the directors of the plaintiff companies had been guilty of breaches of fiduciary and statutory duties.

At the time that I gave my ex tempore reasons for the adjournment on 13 January 1997 I said this: "The three major issues identified in the affidavit and in the statement of claim are:

1. Whether the then officers of the plaintiffs were guilty of breaches of statutory and fiduciary duties.

2. Whether the defendants had notice of those breaches of duty.

3. Whether the moneys, which the defendants undoubtedly received, are held on constructive trust for the plaintiffs."

None of the affidavits of 10 January 1997 or Mr Simionato's affidavit of 17 January 1997 address those three main issues.

On 31 January 1997 in conformity with my directions an affidavit, sworn by Antonio Tropeano the solicitor for the defendants, was filed. That affidavit sets out the efforts that he and counsel (retained since 13 January 1997) made in relation to this application.

It shows that efforts were made to speak to an employee of the Elders Finance Group (EFG), namely Mr O'Grady, and to solicitors Mr Farrugia of Thomsons and Mr Nigel Winter of Johnson Winter and Slattery. The affidavit shows that upon the advice of counsel, Mr O'Grady would give no information. Mr Farrugia was interviewed and provided the information set out in the affidavit itself but was not himself prepared to give an affidavit. The information given by Mr Farrugia was very basic and was indeed information alleged in the Statement of Claim and clearly expressed in the affidavit supporting this application. Whilst Mr Winter was prepared to be interviewed it was only in circumstances where the solicitors for the plaintiffs were present. Mr Winter had been the solicitor for the plaintiffs. The plaintiffs were thus entitled to claim legal professional privilege in respect of any communication with him. They indicated they would not claim privilege provided they were either present at any interview or had an awareness of the matters of discussion with the legal advisers for the defendants.

Paragraph 22 of the affidavit reads: "For the defence to be properly presented it will be necessary for the evidence of Mr Winter, Mr Farrugia and representatives of Elders Finance Group to be placed before the Court. Those persons can give evidence of the negotiations that led to the settlement which is the subject of this action. On my instructions the evidence of those people will establish that the payment made by Elders Finance Group was for the benefit of Mr Giuseppe Emanuele and it was only intended to be for the benefit of the plaintiff companies to the extent that was specifically provided for. Additionally their evidence will show that the plaintiff companies were separately represented at the relevant stages of the negotiations and there was no breach of any duty by the directors officers or employees of any company. Because those persons are not prepared to provide affidavits it will be necessary to serve them with subpoenas to give oral evidence."

When the matter came on for hearing on 4 February Mr Clayton QC (who appeared with Mr Andrew Martin for the defendant) sought a further adjournment of the matter to enable the evidence of Mr O'Grady and Mr Farrugia to be put before the Court. The affidavit of Mr Tropeano exhibited the evidence given by Mr Winter in his public examination. There was nothing further that Mr Clayton wished to lead from him. The thrust of the application was that the defendants wished to subpoena both Mr O'Grady and Mr Farrugia and lead viva voce evidence from them. The witnesses had not been subpoenaed to appear because the defendants were not sure that the application to call that evidence would be successful. Having regard to the fact that Mr O'Grady is resident in Queensland that attitude was not unreasonable. It was put that this evidence (Messrs O'Grady and Farrugia) had not been reduced to writing because the potential witnesses refused to co-operate.

In the alternative Mr Clayton submitted that the inability of the defendants to bring forward that evidence indicated that this application was not an appropriate procedure to determine the rights between these parties.

He conceded that Mr Joe Emanuele, Mr Linton Emanuele and Mr Robert Simionato were witnesses who were available to him and that he could have presented whatever evidence he wished from those persons. Mr Rocco Emanuele was also in a sense available to the defendants although he is presently overseas.

It seems to me that the applications by the defendants are misconceived. The defendants have not addressed the question of whether or not the directors of the plaintiff companies were guilty of any breach of fiduciary and statutory duties in 1994/1995. No evidence whatsoever has been brought forward in respect of that matter. The primary evidence whether the plaintiffs' directors were in breach of their fiduciary and statutory duties would be led principally from Mr Joe Emanuele, but as well from Mr Rocco Emanuele, Mr Linton Emanuele and Mr Robert Simionato. Not a scintilla of evidence has been led in denial of these matters. Some evidence has been adduced as to Mr Joe Emanuele's resignation as a director from some of the plaintiff companies and that thereafter he did not act as a director. Whilst that is relevant it still overlooks what this case is about. The defendants have simply not addressed the thrust of the plaintiffs' case.

The evidence which the defendants wished to bring forward from Mr O'Grady was to the effect that Elders intended that the money be paid to Mr Joe Emanuele. Whilst Elders intention may not be irrelevant for the purpose of determination of these proceedings, the question is still whether or not the plaintiffs' directors have been guilty of any breach of fiduciary and statutory duties.

In relation to the evidence of Mr Farrugia, of course Mr Farrugia was the solicitor for the defendants and in those circumstances he would have an obligation to co-operate with the defendants. That he has not co-operated with the defendants is a matter between the defendants and Mr Farrugia.

For those reasons I declined to allow the defendants an adjournment so as to call Mr O'Grady and Mr Farrugia on this application.

When I indicated to Mr Clayton that in my view the defendants had continued to avoid the main question in the case, i.e. breaches of fiduciary and statutory duties, he sought a short adjournment and thereafter advised me that Mr Joe Emanuele and Mr Linton Emanuele were prepared to give evidence in relation to this matter. He put to me that "the family" was prepared to give evidence. In those circumstances he applied to call Mr Joe Emanuele and Mr Linton Emanuele on the application for summary judgment. He said he wanted a short adjournment because he did not have a proof from either of those men. It seems to me extraordinary that eighteen months after these proceedings have been brought the defendants have still not obtained a proof from the principal witness in these proceedings, Mr Joe Emanuele.

I declined to allow him to call oral evidence from Mr Emanuele on this application on the basis that the defendants have had every opportunity both before and after 13 January 1997, to obtain whatever evidence they wished from Mr Joe Emanuele and Mr Linton Emanuele in answer to this application. I declined any application for adjournment and required Mr Clayton to present his case upon the evidence which the defendants had brought into Court in conformity with my directions.

After the parties were heard on this application, on 28 February 1997, Mansfield J sitting in the Federal Court in Adelaide made an order winding up the defendant Simionato Holdings Pty Ltd, and appointing Anthony Sims as liquidator of that company. That order necessitated the plaintiffs making application, pursuant to s471B of the Corporations Law, for leave to proceed against the defendant Simionato Holdings Pty Ltd. Although the winding up order had been made by the Federal Court, the application for leave was made to me. I was satisfied that I had jurisdiction to make the order: Acton Engineering Pty Ltd v Campbell and Others [1991] FCA 469; (1991) 103 ALR 437, and I did so on 12 March 1997, giving the plaintiffs leave to proceed against that company upon terms mentioned in that order.

The plaintiffs, all of which are in liquidation, were members of the Emanuel Group. They have a common liquidator, Mr Peter Ivan Macks, a chartered accountant practising in Adelaide. On 9 January 1995 he was appointed liquidator of Emanuel Investments Pty Ltd and between 24 May 1995 and 2 August 1995 he was appointed a provisional liquidator of eight more of the plaintiff companies and liquidator of Establishment Holdings Pty Ltd. On 30 August 1995 he was appointed liquidator of a further sixteen of the plaintiff companies and provisional liquidator of a further thirty-eight of the plaintiff companies.

At the time of Mr Macks's appointment as either liquidator or provisional liquidator of the nine companies in the period between 24 May 1995 and 2 August 1995, Mr Bruce James Carter, also a chartered accountant practising in Adelaide, was acting as administrator of those companies. At the time of Mr Macks's appointment as either liquidator or provisional liquidator to the fifty-four companies on 30 August 1995, Mr Bruce Carter was acting as administrator of all but twenty-one of those companies.

Mr Carter had been appointed, the administrator of fifty-two of the plaintiff companies, on 23 March 1995. I shall return to the significance of that in due course.

The Emanuel Group was structured as follows. Mr Giuseppe Emanuele (hereinafter called Mr Joe Emanuele) and his daughter Ms Linda Emanuele were the shareholders in Giuseppe Nominees Pty Ltd. That company in turn was the holding company of Emanuel Holdings Pty Ltd and Establishment Holdings Pty Ltd and Emanuel Projects Pty Ltd. Establishment Holdings Pty Ltd was in turn the holding company of Hondell Pty Ltd.

Emanuel Holdings Pty Ltd was, with Elders Lendsworth Finance Ltd, the holding company of Emanuel Management Pty Ltd. It in turn was the holding company (inter alia) of Paterson & Co Pty Ltd which was the holding company of the remainder of the plaintiff companies.

It can be seen that the Emanuel Group had as its corporate head Giuseppe Nominees Pty Ltd and below that company, in a series of subsidiaries and sub-subsidiaries, each of the other members of the group.

The group carried on the business of property development and did so predominantly through three of the companies. Of the members of the Group, only Giuseppe Nominees Pty Ltd, Emanuel Management Pty Ltd and Emanuel Constructions Pty Ltd operated bank accounts. Emanuel Management Pty Ltd operated as banker to the group and it built up debit and credit balances by way of inter company loans between itself and other members of the group. The other members of the group were specially incorporated for the purpose of acquisition of property, development of that property and with the aim of sale of that property at a profit.

The acquisition and development was financed by Emanuel Management Pty Ltd which borrowed the money to be used for the purchase of properties by the subsidiaries from financiers. Emanuel Management Pty Ltd would lend sufficient moneys to the subsidiaries for that purpose. On sale of the property the proceeds would be returned to Emanuel Management Pty Ltd and if the project had resulted in a loss the subsidiary would become a net debtor of Emanuel Management Pty Ltd or if the project had resulted in a profit Emanuel Management Pty Ltd would become a net debtor of the subsidiary.

At various times between 27 June 1986 and 23 September 1992 the majority, but not all, of the plaintiffs executed deeds of cross guarantee.

Mr Joe Emanuele acted as the Chairman of Directors and Chief Executive Officer of the Emanuel Group after its formation and up until the relevant time the subject of these proceedings. Clearly enough on the documentation tendered, including letters written to and from Mr Joe Emanuele, he has been the dominant force behind the Group over the time that it operated. His son Rocco Emanuele acted as Director of a number of the plaintiffs and as Secretary of a number of the other plaintiffs after about 1991. Linton Emanuele, also a son of Mr Joe Emanuele, acted as Director of twenty-three of the plaintiffs and secretary of thirty-seven of the other plaintiffs after 1993. The ASC records show that Linda Emanuele has been a director of all sixty-three plaintiffs and secretary of eight of them. She has held the position of Town Planner of the plaintiffs since about January 1990.

Mr Robert Simionato, a nephew of Mr Joe Emanuele, was Secretary of twenty-four of the plaintiffs and accountant to the plaintiffs from about January 1990, until he apparently resigned as secretary of a number of the plaintiff companies on 31 October 1994.

Mr Joe Emanuele became a land agent in 1957 and in 1971 obtained a builder's licence. From the early 1950's onwards he formed the Emanuel Group which was involved in building and property developments, which were financed by large commercial financiers. By 1985 the Emanuel Group was a major property investor in Adelaide with a portfolio of about fifty properties and hundreds of tenancies. In 1986 the Emanuel Group re-positioned itself by acquiring a property portfolio in Queensland from APM Forests Pty Ltd (The APM property portfolio). This property portfolio consisted of 64,000 acres and was located between Brisbane and the Sunshine Coast. The purchase price of the property was $48,000,000. Finance was arranged through a subsidiary of Elders Finance Pty Ltd (EFG) which provided a loan of $43,000,000 to Emanuel Management Pty Ltd. The repayment of the loan was guaranteed by twenty-six of the plaintiffs and Mr Joe Emanuele himself.

In the next three years the Emanuel Group, with the financial support of EFG, purchased numerous other properties in Queensland.

In 1989 the Australian economy went into decline and EFG began to exert pressure on the Emanuel Group to sell down the APM property portfolio. However, between 1989 and 1991 EFG continued to support the Emanuel Group with further advances for the acquisition of property and for the purpose of repayment of capital and interest.

In about 1991 EFG's policy towards the Emanuel Group changed and thereafter it more closely monitored the group in relation to its cash flow and budgets. It refused thereafter to make any further funding available for interest payments.

In 1992, at the request of EFG, twenty-seven of the plaintiffs and Mr Joe Emanuele executed a deed of collateralisation by which the parties agreed that each of the collateral agreements, previously executed by each of the parties with EFG, was declared to be collateral to each other. Under that deed, in any case in which any of the companies, by a collateral agreement, had created a security in favour of EFG such security was declared to be a security to each other member of EFG and security to all of the obligations of any of the plaintiff companies and of each other plaintiff. The twenty-seven plaintiff companies which entered into that deed were: Emanuel Management Pty Ltd Segacious Pty Ltd Meka Securities Pty Ltd Cofordo 251 Pty Ltd (in its own capacity and in its capacity as trustee for the "Earl Hill Unit Trust") Grangeville Pty Ltd Emanuel (No. 14) Pty Ltd P.B.R.S. Pty Ltd Paterson & Co Pty Ltd Giuseppe Nominees Pty Ltd Lonsdale Stage 2 Pty Ltd Emanuel Properties Pty Ltd Emanuel (No. 4) Pty Ltd Emanuel (Rundale (sic) Mall) Pty Ltd Villa Cairns Pty Ltd Addstone Pty Ltd Antlia Pty Ltd Centaurus Pty Ltd Cloudland Investments Pty Ltd Cofordo 260 Pty Ltd Derwentwater Pty Ltd Emanuel (No. 7) Pty Ltd Lascivious Pty Ltd Leominor Pty Ltd Livilla Pty Ltd Saroon Pty Ltd Woodville Industrial Park Pty Ltd Airlie Beach Pty Ltd

Clause 2.1 of the agreement provided: "Each of the Collateral Agreements is declared to be collateral to each other of the Collateral Agreements and in any case in which a Customer by a Collateral Agreement has created or creates a security in favour of any Elders Company each such Security is declared to be a Security to each other Elders Company all of the obligations of that Customer and of each other Customer."

From about early 1991 EFG was prepared only to provide the Group and the individual plaintiffs with working capital according to a budget approved by EFG. From that point onward EFG required details of cash flows and budgets on a regular basis before further finance or capital would be provided. EFG thereafter refused to make funding available for interest payments.

Between 1991 and 1993 a number of conversations took place between Mr Joe Emanuele and Mr Rocco Emanuele on the one hand, and EFG personnel including Mr John Crosby and Mr John O'Grady on the other hand. Mr Joe Emanuele has deposed in an affidavit filed in these proceedings: "The aim of these discussions was to negotiate a more definite arrangement whereby EFG would permit the Emanuel Group to conduct an orderly realisation of all properties which were subject to EFG's securities. The idea was to obtain sufficient time to permit re-zoning and or the development of property holdings. We were looking for a five to ten year work out time from EFG however this was not acceptable and EFG agreed ultimately to a four year work out time."

The APM Property Portfolio had standing timber on it. After 1989, the timber had been harvested by Softwoods Queensland Pty Ltd (Softwoods). The agreement between the Emanuel Group and Softwoods provided that Softwoods was permitted to harvest a portion of the timber on the property in exchange for timber royalties which amounted to somewhere between $200,000 and $400,000 per month. The agreement which commenced in late 1989 bound the parties until the year 2004. The agreement provided income to the Emanuel Group in the order of $3.3 million per year.

On 11 March 1993 EFG on the one hand and twenty-seven of the plaintiff companies on the other hand and Mr Joe Emanuele executed a Deed of Orderly Realisation of Securities (DOOR).

The plaintiff companies which executed the DOOR were: Emanuel Management Pty Ltd Segacious Pty Ltd Meka Securities Pty Ltd Cofordo 251 Pty Ltd (in its own capacity as trustee for the "Earl Hill Unit Trust") Grangeville Pty Ltd Emanuel (No. 14) Pty Ltd P.B.R.S. Pty Ltd Paterson & Co Pty Ltd Giuseppe Nominees Pty Ltd Lonsdale Stage 2 Pty Ltd Emanuel Properties Pty Ltd Emanuel (No. 4) Pty Ltd Emanuel (Rundale Mall) Pty Ltd Villa Cairns Pty Ltd Addstone Pty Ltd Antlia Pty Ltd Centaurus Pty Ltd Cloudland Investments Pty Ltd Cofordo 260 Pty Ltd Derwentwater Pty Ltd Emanuel (No. 7) Pty Ltd Lascivious Pty Ltd Leominor Pty Ltd Livilla Pty Ltd Saroon Pty Ltd Woodville Industrial Park Pty Ltd Airlie Beach Pty Ltd

It can be seen that the parties to the DOOR were the same companies which had been parties to the deed of collateralisation.

The recitals to that deed show an acknowledgment on the part of the Emanuel Group that it was in default in relation to the repayment of moneys advanced to the group by EFG and in default of notices of demand issued by EFG in relation to those defaults. The recitals also show that the Emanuel Group had requested EFG to grant the Group a period of grace during which period the Emanuel Group would proceed with the marketing and realisation of the properties the subject of the securities to EFG. It was acknowledged that EFG had agreed subject to the execution of the DOOR.

Specifically the Emanuel Group acknowledged the debt amount then owing to EFG to be in the sum of $155,144,910.58 and specifically admitted its default under the securities and that the default was continuing.

The deed, after providing for the orderly realisation of securities, further provided: "6.2 The EFG Group shall permit at its absolute discretion the flow of funds from the Softwoods Agreement to the Emanuel Group to assist in the funding of the orderly marketing of the land the subject of the Securities in the terms here of subject always to the Emanuel Group providing satisfactory financial information in accordance with the provisions of Clause 5 hereof. The EFG Group reserves its right to fix the Mortgage Debenture Charge over Emanuel (14) Pty Ltd so far as the Softwoods Agreement is concerned at any time."

EFG undertook, provided the Emanuel Group strictly complied with the terms of the deed, not to enforce the securities as against the Emanuel Group during the moratorium period, which period was fixed at forty months commencing on 1 March 1993 and ending on 30 June 1996 "or such other period as may be determined by the EFG Group from time to time".

In November 1993, a Mr Max Croft brought proceedings against the Emanuel Group and Mr Joe Emanuele and he obtained a judgment against the Group and Mr Emanuele in the sum of $1,000,000.

Prior to obtaining that judgment he either threatened, or did at that stage bring proceedings for bankruptcy against Mr Joe Emanuele, because a letter of 20 October 1993 written by Mr Rocco Emanuele to EFG refers to the following: "Reference is made to the meeting my father and I had with Mr Max Croft held on Monday, 18 October, at 11:00 am. The proposal Max Croft will take in lieu of proceeding with his Bankruptcy Writ is:-

• A ten acre block of land at Airlie Beach, valued at $300,000 (however recent past sales and the present state this would be overvalued).

Mr Croft proposed to build in and take to the boundary of the existing title (that is EFG's security) some $500,000 plus worth of infrastructure which will greatly enhance the value of your security and its development potential in a later stage.

Mr Croft has agreed verbally to extend twenty-one (21) days from Monday 18th October (2 weeks plus additional 1 week) to not proceed with any legal proceedings.

If favourable consideration is given to his proposal, he is agreeable to withdraw and relinquish any claims against my father or the Company, Airlie Beach Pty Ltd. I look await (sic) your reply in this matter." (Doc 3.7)

On 21 March 1994 EFG claimed that the Emanuel Group was in breach of a number of terms of the DOOR and as a result was in default. In particular it claimed that the Emanuel Group had failed to carry out the marketing and sales program and failed to diligently market the sale and realisation of the security property.

On 7 April 1994 EFG, pursuant to the terms of clause 6.2 of the DOOR, advised by letter that it had exercised its absolute discretion in respect of the release of funds from the Softwoods Agreement and that from 8 April 1994 it would cease to permit the flow of funds from the Softwoods Agreement to the Emanuel Group.

In response to that action, on 1 July 1994, the twenty-seven plaintiff companies and Mr Joe Emanuele commenced action in the Federal Court against EFG claiming that the termination of the flow of funds was wrongful. The matter came for trial in that Court before Branson J on 11 August 1994 and on 15 November 1994 her Honour delivered her reasons for judgment dismissing the claim by the twenty-seven plaintiff companies and Mr Joe Emanuele against EFG. On 6 December 1994 twenty-six of the twenty-seven companies (Emanuel (No. 4) Pty Ltd was apparently overlooked) lodged an appeal against Branson J's decision.

On 20 December 1994 EFG commenced an action in the Supreme Court of Queensland against those twenty-seven plaintiff companies and Mr Joe Emanuele seeking judgment for an amount of $181,645,881.21 including capitalised interest owing at 1 December 1994 together with compound interest at the rate of 20.5% per annum. On 27 February 1995 Thomas J entered judgment for EFG against the twenty-seven plaintiff companies and Mr Joe Emanuele in the sum of $186,880,302.71 together with costs.

It is clear both from the history of the litigation to which I have referred, and also from the correspondence, that EFG's letter of 7 April advising that it ceased to permit the flow of funds under the Softwoods Agreement precipitated that litigation. However concurrently with the litigation the parties sought to resolve their dispute.

The parties briefed their respective solicitors. EFG instructed two partners at Messrs Clayton Utz, solicitors of Brisbane viz Mr John Elliott and Mr Ross Perrett and the Emanuel Group retained Mr Danny Farrugia and Mr David Purcell, of Thomsons solicitors of Adelaide.

A meeting took place between Danny Farrugia and John O'Grady, the Managing Director of EFG, on 20 May 1994. That meeting was called at the request of Mr Farrugia, who told Mr O'Grady that the Emanuel Group was looking for "a commercial solution with the situation with EFG". Mr O'Grady's notes of the meeting record: (Doc 3.23) "A liquidator getting into the Emanuel Group would be a problem for Joe Emanuele and in Danny's opinion a problem for EFG."

The parties spoke by telephone on 24 May 1994, held a meeting on 3 June 1994, and spoke further by telephone on 7 June 1994 for the sole purpose of attempting to achieve a commercial settlement of the dispute between EFG and the Emanuel Group.

On 8 June 1994 Mr O'Grady, made the following offer. "(a) The Emanuel Group is to transfer ownership of all the Security Properties, except the private residences to EFG at Fair Market Value, which will be used to pay down the EFG loan.

(b) In consideration for the above: A$m (i) EFG will pay out Emanuel's pressing creditors of up to $3 million 3.0

(ii) EFG will pay costs of the Emanuel office for 12 months while it is restructured 0.5

(iii) EFG will discharge the mortgages over the private residences for no consideration: - House - South Australia - Apartment - Cathness, SA - House - Queensland - House - Mt Barker, SA 1.6

(iv) EFG will pay out the leases for the private cars used by the Emanuele family. 0.1

(v) EFG will make a one-off payment in cash or property to the Emanuel Group to a total of $2 million. Any property selected will be at EFG's absolute discretion and at fair market value. 2.0

(vi) EFG will release its mortgage charge over the Emanuel office in Brisbane -

(vii) Emanuele to retain the companies and tax losses - Cash and Property 7.2

(viii) EFG will transfer the Residual Balance of the EFG loans, (say $71 million based on the assumption in the example at Schedule A), to a company to be nominated by Emanuel advisers. 71.0

(ix) EFG will release the personal guarantee of Joe Emanuele and the Emanuel Group of Companies. - Total Offer 78.2 (c) The above settlement Offer is to contain mutual releases by Emanuel Group and EFG Group and is to be subject to documentation to EFG's satisfaction. No concluded agreement shall be in place until the terms of settlement are reduced to writing and executed by all parties.

(d) The above Offer is open until the close of business on 15 June 1994."

There was no immediate response to the letter of 8 June 1994. Mr Farrugia wrote, on 15 June 1994, to Mr O'Grady reiterating that the Emanuel Group desired to achieve a commercial resolution and acknowledging that the offer made went some way toward that objective but claiming the matter needed further discussion. However, the next step taken was on 1 July 1994 when the twenty-seven plaintiffs and Mr Emanuele commenced action in the Federal Court.

On 14 July 1994 (thirteen days after proceedings were brought in the Federal Court) Clayton Utz wrote, in a letter addressed to Mr Farrugia referring to the Emanuel Group: "1. That our client put forward a settlement offer in its letter of 8 June 1994 which has now lapsed.

5. As you will be aware from our client's letter of 8 June 1994, our client was prepared, at that time, to effect a settlement which resulted in your client obtaining assets to a value of $7.2 million. Our client regarded this as a generous proposal. Under no circumstances is our client prepared to entertain a settlement which results in provision of assets to your client in excess of this amount.

Further, our client has now been put to considerable expense in relation to the legal proceedings, which costs will not be recoverable from your client. Those costs are continuing and in the event your client is minded to make a settlement offer, it should be aware that our client will take into account the costs which have been incurred in conducting the litigation and assessing that offer."

The letter concluded; "This letter has clearly set out the parameters within which our client will give serious consideration to a settlement proposal. Further, if there are to be any negotiations, our client would urge that a proposal be put to it as soon as possible. The more cost that is incurred in preparing for trial and the more advanced that preparation becomes, the less inclined our client will be to entertain a settlement which involves the release of any of its security or the advancing of any money to your client."

On 29 July 1994 Mr Joe Emanuele wrote as "Chairman of the Emanuel Group" to Mr John O'Grady putting forward proposals for "an equitable resolution to this dispute". The letter contained alternative proposals. Proposal "A" involved the Emanuel Group retaining property and trading its way out of its difficulties by 30 June 1996.

Proposal "B" was in the following form: "As was earlier proposed by EFG, the Emanuel Group to receive:

To clear creditors 2,000,000 12 months' assistance 1,000,000 D.C.P. on Parcel 64 1,000,000 10% commission on non-core assets 1,000,000 5,000,000

Adelaide Office 1,000,000 Lonsdale Land 300,000 Cairns, University Blocks 500,000 Cairns, Kurrajong Street 150,000 Mission Beach 1,500,000 3,450,000

Brisbane 300,000 Adelaide 300,000 Cape Jervis 700,000 Mt Barker 200,000 1,500,000 $9,950,000

* The Emanuel Group to purchase by June 30, 1996, the Caloundra property for $6m., including land under option to Harrison. * The Emanuel Group agrees to pay quarterly adjustable interest at a rate of 10% on $6m. with the right to settle at any time. * The Emanuel Group to have a 60 day first right of refusal on part or whole of the balance of the portfolio."

Clearly enough the terms of the offer show that the offer was put forward by the Group and for the benefit of the Group. There is no evidence, at least before me, that there was any response to the offer.

The trial in the Federal Court took place on 11 August 1994. Between 11 August and 15 November 1994 the parties corresponded but mainly in relation to aspects of the DOOR. The parties did not appear, except on one occasion in that period, to address questions of settlement. On 2 November 1994 Clayton Utz advised Thomsons that they had raised the concept of settlement with their client and their instructions were that until such time as judgment was delivered in the Federal Court their client was not prepared to set perimeters for settlement discussion.

On 15 November 1994 Branson J delivered her reasons for dismissing the claim by the twenty-seven plaintiff companies and Mr Joe Emanuele and for giving judgment for EFG. The dismissal of the action left the Emanuel Group and Mr Joe Emanuele himself, as parties to the deed of collateralisation and as parties to the DOOR, directly exposed to action by EFG.

On 24 November 1994 a meeting was held in Melbourne in an endeavour to reach a commercial resolution of the dispute. Mr Joe Emanuele and Mr Linton Emanuele together with their solicitor, Mr Danny Farrugia, attended on behalf of the Emanuel Group. Mr John O'Grady, the Managing Director of EFG and Messrs John Elliott and Ross Perrett, solicitors of Clayton Utz, attended on behalf of EFG. At that meeting Mr Joe Emanuele made an offer of a total value of $10,085,000 to the benefit of the Emanuel Group, which was rejected by EFG. EFG made a counter offer which caused Mr Joe Emanuele to become quite emotional. He described the offer as an insult and he left the meeting.

On 25 November 1994, Mr John O'Grady wrote to Mr G Emanuele, Chairman, Emanuel Group, Emanuel House, in the following terms: "Dear Joe

1. I refer to our "Without Prejudice" meeting in Melbourne on 24 November 1994 at which we sought to reach a commercial compromise of the matters in issue between EFG Group and Emanuel Group.

I am writing to you to affirm the proposal which I put to you at the conclusion of that meeting as the basis for negotiating a settlement which would be acceptable to EFG Group. That proposal was as follows:

(a) EFG Group will provide to Emanuel Group the sum of $4,800,000 to enable Emanuel Group to deal with claims by its other creditors and for such other purposes as Emanuel Group sees fit.

This provision can be made by cash or a combination of cash and the following Adelaide properties. For the purposes of this proposal, EFG Group has valued the Adelaide properties as follows:

• Adelaide Home (Burnside) 350,000 - Cape Jervis - Beach House 760,000 - Mount Barker 190,000 $1,300,000 In the event Emanuel Group wish to retain any or all of the above properties, the value of the properties retained should be deducted from the sum of $4,800,000.

(b) In addition, EFG Group will provide Emanuel Group with the opportunity to match any acceptable offer EFG Group receives for the sale of the Caloundra property (Parcel 52) up to 30 June 1995. Emanuel Group will have this opportunity for a period of 14 days from notification by EFG Group to Emanuel Group of any acceptable offer for that property. This opportunity will lapse as from 30 June 1995, although Emanuel Group can, of course, at any time make a commercial offer for the acquisition of that property.

(c) In consideration of acceptance by Emanuel Group of this proposal, Emanuel Group will release any and all claims which it has in relation to the properties the subject of the Deed of Orderly Realisation and other securities and agrees to transfer these properties to EFG Group at market value in reduction of the debt due by Emanuel Group to EFG Group. Emanuel Group will further permit EFG Group to exercise any and all rights which it has in relation to those properties without interference from the Emanuel Group and, where appropriate, Emanuel Group will provide all reasonable assistance necessary for the purpose of enabling EFG Group to deal with those properties.

(d) In the event this proposal is acceptable to Emanuel Group, it will be necessary for our Solicitors to liaise and agree the precise terms of a formal settlement agreement, as there will be a number of matters of detail to be dealt with to give effect to this proposal. Any final settlement will be subject to formal documentation by our Solicitors of a comprehensive agreement satisfactory to EFG Group and Emanuel Group.

Although you rejected this proposal at the meeting yesterday, I am writing to confirm the proposal and to advise that EFG Group is prepared to leave the opportunity open to Emanuel Group to resume negotiations in accordance with this proposal at any time up to 5.00pm on Friday 16 December 1994, at which time the proposal will lapse.

3. This proposal is made absolutely without prejudice to all of EFG Group's rights, all of which are reserved. In particular, I wish to make it quite clear that (unless and until a Deed of Settlement is duly executed by EFG Group and Emanuel Group) nothing in this letter involves EFG Group in giving up or deferring any right to take any action whatsoever (whether pursuant to the Deed of Orderly Realisation, the securities, or otherwise) at any time; and your Group ought not to construe this letter as involving a representation that EFG Group will not take such action as it may at any time consider appropriate, including at any time before the proposal lapses."

107. Clearly enough the letter is addressed as an offer to the Emanuel Group. EFG offered to pay to the Emanuel Group the sum of $4.8 million "to enable Emanuel Group to deal with claims by its other creditors and for such other purposes as the Emanuel Group sees fit." The offer was made in exchange for the matters referred to in paragraph 2(c). In particular the Emanuel Group was to give up all of the properties the subject of the Deed of Orderly Realisation (DOOR).

108. The motivation for the offer is not expressed in the letter. Some insight for that motivation may be obtained from the file note made by Mr O'Grady in relation to the conference of the preceding day. He recorded this: "I was left with the impression that Joe Emanuele intends to use all avenues available to him to fight legally to frustrate us in the realisation programme

• Irrational though this may be."

109. It seems to me that the offer was an attempt to settle a commercial dispute between two antagonistic parties. No doubt EFG saw it as being commercially worthwhile to pay the Emanuel Group a sum of money in order to have released to it the properties, the subject of securities, so that it could deal with those properties immediately and thereby minimise its own losses.

110. The offer was made ten days after Branson J had given her judgment in favour of EFG and before a Notice of Appeal had been lodged by the Emanuel Group. Before any response was

received to that offer EFG served 29 notices of demand upon the Emanuel Group. The first response to the offer came from Mr Rocco Emanuele. He telephoned Thomas Booker, an employee of EFG. Mr Booker records the conversation as follows: 'He said:

"You have fired the first shot, and you are in for warfare."

"In all ways my friend, in all ways. You are in for the biggest fight of your life!"'

111. Mr Booker described the tone of Mr Rocco Emanuele's voice as aggressive, and he considered what was said to be a personal threat.

112. On 5 December 1994, Mr Joe Emanuele wrote in response to the letter of 25 November 1994 advising that he was prepared to negotiate a commercial settlement of the dispute between the parties. Mr Joe Emanuele then described in some detail the circumstances which gave rise to his entry into the DOOR, which of course was the subject of the proceedings before Branson J.

113. His letter continued: "By way of compensation I seek an amount of $10,000,000 to enable my family and I to discharge or compromise our creditors and to go forward. Unless I have an amount of this order I will be faced with insolvency or will spend the next 5 years fighting a rear guard action endeavouring to avert insolvency. There is no 'luxury' in this settlement for me. All it does is allow me some peace of mind and a proper basis for starting again from a zero base. I believe this to be fair and equitable in the circumstances."

114. On the same day on which Mr Joe Emanuele wrote to EFG, his solicitors wrote to him. Mr Farrugia wrote in the following terms: "I refer to our meeting here on Saturday.

The position that we arrived at on Saturday was that you instructed me to prepare a letter to O'Grady setting out your position and reiterating your request for $10 million in compensation.

In relation to these instructions I wish to make the following remarks:

• I do not agree with your approach in the sense that I do not believe that there is any prospect of your obtaining compensation of $10 million. I believe there is a reasonable prospect of your obtaining compensation of the order of $6 million but not substantially more. Your request for compensation at the level of $10 million may be perceived as an outrageous "ambit" claim and have the effect of terminating negotiations and result in the appointment of a receiver which would be financially critical and fatal for both you and your Group. - Despite your expressed views to the contrary, you would be able with $5-6 million to deal with virtually all of your creditors and start again, admittedly with no stake but with some basis for going forward. - The approach you are taking is a "Russian roulette" approach which neither I nor any other prudent adviser could condone or support in your circumstances. - Many would say that your approach is foolhardy in the extreme. - Some might even say that especially in so far as your family is concerned your approach is selfish.

You should bear these matters in mind when considering the enclosed draft letter to O'Grady. In preparing this letter I have attempted (in a commercial and non-threatening manner) to reflect your position and why you believe that the amount of compensation sought is reasonable.

I hope that I have been able to accurately reflect your attitude and sentiments.

I have sent a copy of the enclosed letter to Rocco but not this letter for obvious reasons."

115. The letter shows that Mr Danny Farrugia was concerned about the attitude adopted by Mr Joe Emanuele. He believed the attitude to be unrealistic and to have the potentiality for disaster. Also importantly he brought to Mr Joe Emanuele's attention the fact that the sum of $5-6 million would enable him to deal with all of his creditors and allow him to start again admittedly as he said with no stake. Also importantly Mr Farrugia did not think it appropriate to send the letter to a fellow director of the company Mr Rocco Emanuele.

116. On 6 December 1994 Thomsons responded to the Notices of Demand which had been given on 1 December 1994 in relation to breaches of the DOOR. Thomsons asserted that the Notices were invalid.

117. The next day, twenty-six of the plaintiff companies and Mr Joe Emanuele appealed from the decision of Branson J.

118. On 7 December 1994 Mr O'Grady wrote directly to Mr Joe Emanuele as Chairman of the Emanuel Group advising him that the EFG Group saw the issues very differently to the way Mr Joe Emanuele saw them. He wrote : "Unfortunately we are unable to justify acceptance of your counter offer and the best proposal we can put to you is that set out in my letter dated 25 November 1994 which is open for acceptance until 16 December 1994."

119. On 8 December 1994 Clayton Utz responded to Thomsons' letter of 6 December 1994 in relation to the matters they raised by way of objection to the Notices of Demand which had been issued on 1 December 1994. They wrote: "We note your request for reconciliation of the amount payable under the Notice of Demand. It is difficult to see the point of this request given Mr Emanuele's admission during the course of his evidence on 17 August 1994 that the Emanuele Group is insolvent, and has been in that condition for some years.

The Emanuel Group Management Accounts prepared by Mr Wales and tendered as an exhibit in the Federal Court Proceedings showed the Emanuel Group indebtedness to EFG Group as at December 1993 was in the sum of $163 million. In his affidavit sworn 8 July 1994 Mr O'Grady deposed that the indebtedness as at 1 July 1994 was approximately $175 million. Neither of these amounts were ever put in issue by your client.

Given that your client has no prospect of paying the amount demanded, or any other amount of money, it is difficult to see what interest your client has in the reconciliation. Nevertheless, if your client (who is able to calculate the indebtedness) contends and explains the basis for the contention that the debt is less than the figure in the notice, we will seek further instructions."

120. The importance of that letter is the assertion of the insolvency of the Emanuel Group and the assertion that Mr Emanuele had admitted as much during the course of his evidence of 17 August 1994. Those assertions were not subsequently denied by the solicitors acting for the Emanuel Group or Mr Joe Emanuele. It must be assumed that at all material times Mr Joe Emanuele was aware that the Emanuel Group was insolvent. In those circumstances the directors of the companies within the Group were under a duty to the companies of which they were directors to have especial regard to the interests of the creditors of those companies. Because of the intercompany debts, all of the directors had a duty to both the internal creditors and also the external creditors of the Group.

121. On 8 December 1994 Notices were given to members of the Emanuel Group by EFG claiming that EFG had entered into possession of the land as mortgagee in possession.

122. On 12 December 1994, Mr Emanuele wrote to Mr O'Grady inter alia: "I was promised $10,000,000 plus, and I fairly and strongly believe that I am entitled to it. If you think that you are in a strong financial position and you have won the first judgment, I can assure that this is just the first battle. You have not won the war. I have not even started fighting. As I said in your office it will be a long time before EFG will be able to do anything with my portfolio."

123. He wrote later in the letter: "I have gone through hell with the Canberra case for nine years only because I always believed I was right (that appeal was heard on November 21 and all advice is that I will win it) so I suppose I can go through further hell with EFG for as long as it take for a right to prevail.

I am a most determined man when I know I am right. I will never give up."

124. On 13 December 1994 Mr Joe Emanuele wrote a letter of partial apology in relation to some of the allegations he had made in his letter of 12 December 1994. That drew this response from Mr O'Grady of EFG and I set it out in full: "I refer to your letter of 12 December 1994 and comment as follows:

1. EFG Group is a subsidiary of a public company, and its duty is to its shareholders; this is a duty of which the Ramco Board is very mindful. EFG Group is under no obligation to make any settlement offer to you as the amount of your debt to EFG far exceeds any realistic assessment of the value of the securities held by EFG Group.

In addition, EFG Group has no obligation to justify its "without prejudice" settlement proposals to you. However as you are well aware that the position has changed significantly since our negotiations in June 1994, principally as a result of the court action which you initiated and which you required be dealt with urgently.

2. Your letter contains factual inaccuracies. For example, you have never been promised "$10 million plus". Aside from recording that EFG Group does not agree with the accuracy of many of your contentions, I do not propose addressing those matters item by item, as it is unproductive to do so.

3. It does not and will not advance matters for you to threaten me or EFG Group. Whilst not condoning your remarks at EFG Group's office at the conclusion of our meeting on 24 November 1994, I understood your reaction was impulsive and accepted it as such. However, the persistence since that time of continued threats is unacceptable.

4. EFG Group's position in relation to resolution of this matter was made clear in EFG's letters to you of 25 November 1994 and 7 December 1994. The settlement proposal was carefully considered and is available for acceptance until close of business this Friday, 16 December 1994, at which time it will be withdrawn.

5. In view of the tone of your letter of 12 December 1994, I request that all further communications and any future dealings be between our respective solicitors, Messrs Thomsons and Mr J D Elliott of Clayton Utz."

It is clear that as time passed in December the correspondence was becoming more acrimonious as Mr Joe Emanuele became more upset and more desperate.

On 13 December 1994 Mr Purcell wrote to Mr G Emanuele, Emanuel Group of companies regarding the Emanuel Group/EFG Group in the following terms: "As you know the deadline for acceptance of EFG's offer of $4.8m expires on Friday, 16 December 1994.

Notwithstanding that you are upset at the direction taken by EFG to terminate the flow of funds under the timber royalty agreement and to serve notices of default under the Deed of Orderly Realization, I consider that you have no legal options to achieve a better result than the offer that has been put to you by EFG.

I strongly urge you to accept EFG's offer. This is one of those situations where it is far better to survive and live to fight another day than to continue to wage a campaign to defend a worstening (sic) position which unfortunately I fear will result in the collapse of the Emanuel Group and possibly your personal bankruptcy.

It is my assessment that EFG's offer will lapse on Friday and that any offer (if any) put to you after that day will be for a lesser amount. In the meantime your other creditors are threatening and cannot be held at bay for much longer."

That letter, emanating as it does from the solicitors for the plaintiffs and for Mr Joe Emanuele, recognises that the Emanuel Group and Mr Joe Emanuele are both close to insolvency. It further recognises that the creditors of the Group and Mr Joe Emanuele are not prepared to wait to have their claims met.

On 20 December 1994 EFG commenced an action in the Supreme Court of Queensland against the twenty-seven plaintiff companies and Mr Joe Emanuele seeking a judgment in the sum of $181,645,881.21 being the amount owing as at 1 December 1994. The amount claimed as at the date of issue was $182,272,193.97. The writ was specially endorsed setting out the particulars upon which the claim was based. It specifically claimed to be entitled to those moneys upon the basis that the twenty-seven plaintiff companies and Mr Joe Emanuele had defaulted in strict compliance with the terms of the DOOR and gave particulars of those defaults.

On 23 December 1994, Mr Farrugia wrote to Mr John Elliott of Clayton Utz, presumably in response to the issue of that writ.

He wrote: "We have met with our client today in an endeavour to formulate an offer of settlement and to resolve the dispute between our clients.

Our client genuinely wishes to reach a commercial settlement with EFG but not at any cost given our client's other financial obligations and the obstacles our clients must overcome in order to survive.

Enclosed is a document entitled 'Terms Of Settlement' which reflects the terms of an offer which we are instructed to make on our client's behalf to EFG. This offer reflects our client's minimum requirements to settle the dispute in the sense that anything less does not provide our client with any real incentive or comfort in the sense of its survival."

The letter is expressed in the singular but by the use of the word "its" the writer is referring to a corporate entity rather than to a person. So much is made clear by the next paragraph which is in the following terms: "In relation to those Terms we comment as follows:

• The amount of cash required is a function of the financial obligations which are required to be met or compromised in order for the Group to survive and to continue to operate. Our position in this regard has been consistent and remains the same. - The properties retained are essentially the residential properties in South Australia. As you know there are serious questions as to the title to the Brisbane office. - As you know the Haul Road liability must be covered quickly as this is a pressing commitment. - Already negotiated settlement arrangements with Croft and previously advised to Elders necessitate the Croft contract being honoured by EFG and proceeding. - The proposed rent free occupation of the Adelaide Office is intended to allow a reasonable period to relocate. - The property and timber contract transfers are intended on a "net" basis to our client so that our client does not have to meet any outstanding financial obligations whether by way of Government charges or otherwise in relation to the land as no provision has been made for any such financial charges to be met. - The mechanics of the proposed release and assignment will require discussion. - Whilst clearly neither party wishes to prejudice its position until the documentation is finalised the cessation of litigation and withdrawal of all outstanding notices by EFG is an essential prerequisite for moving forward. - We believe that it may take until later in January to finalise the documentation and on that basis signing and completion is likely to be simultaneous.
• The proposed completion date is the earliest possible which we expect that completion will be practicably achievable. - The arrangements must be kept strictly confidential."

That the issue of the writ had introduced a new sense of urgency in the negotiations is made clear by the last two paragraphs of the letter which are in the following terms: "Could you please obtain instructions and advise the writer today whether the offer is acceptable to your client.

As our office is closed for Christmas celebrations this afternoon you should contact me on 018 080 783."

The terms of settlement referred to in that letter need not be set out in full, but the proposal emanating from Mr Farrugia was for a payment of $5,000,000 in cash and that the Burnside, Cape Jervis and Mount Barker houses and Brisbane Office be retained.

In exchange for payment of that sum and retention of those properties, all properties except those properties mentioned would be transferred to EFG and EFG would be released from all claims in relation to all properties. EFG was to assign the balance of the debts, securities and all rights against "E" and guarantors. The expression guarantors must have been meant to refer to the personal guarantor namely Mr Joe Emanuele and E must refer to the Group.

The terms of settlement included this term: "The fact of and terms of settlement shall be strictly confidential."

Negotiations proceeded over December/January of 1994/995. It is clear from the correspondence that there were a number of telephone conversations between solicitors on 22 and 23 December 1994. It is also clear that Mr Joe Emanuele was very keen to settle the matter but EFG was less keen. No doubt the respective attitudes were, in a way, a reflection of the litigation position of the two antagonists. The Emanuel Group had lost its action in the Federal Court and EFG had issued proceedings against the Emanuel Group and Mr Joe Emanuele for in excess of $180 million.

During this same period Mr Croft was pressing for payment of the judgment debt which he obtained in 1993. That is made clear by a letter of Mr Farrugia to Mr John Elliott of 18 January 1995 referring to EFG's discussions with Mr Croft in relation to the outstanding debt.

In that same letter Mr Farrugia makes these two further points both of which are not without significance: "I believe that it is important that all EFG personnel who are involved in this matter be made aware of the highly confidential nature of the settlement terms between Emanuel and EFG. The terms of settlement between Emanuel and EFG must be kept strictly confidential and every step must be taken to avoid any unintentional breach of confidence.

As discussed with you it is becoming increasingly difficult to deal with Emanuel's creditors without a clear direction. Shortly it will not be just difficult, but impossible. In consequence an early resolution to the present impasse is required in order to avoid an undesirable outcome being determined by intervening events."

On the same day, Mr Rocco Emanuele wrote to Messrs Farrugia and Purcell in the following terms: "As discussed today, I have been informed in confidence by Mr Max Croft of Tom Booker and others of EFG Brisbane informing him of the settlement pending between ourselves and EFG.

I appreciate that this is very much hearsay, but the fact that Booker telling a secured creditor (Croft still has a $1.1 million judgment against Dad and a subsidiary company) is simply not tolerable.

Under no circumstances do the Brisbane EFG representatives require to be kept informed of the settlement, or have any input into this matter.

Thank you Danny for relaying this to John Elliott in your letter to him of even date. I propose we reserve all rights in the event that EFG or its officers are found to have breached any confidentiality of the settlement now or in the future."

This letter clearly indicates that it was the then intention of Mr Rocco Emanuele to keep secret from the creditors of the Emanuele Group the fact of the negotiations with the major financier. I think it may be inferred, and I do so infer, that it was then his intention to keep secret the outcome of those negotiations except to the extent that he was obliged to inform the creditors. I think it was at least in his mind as early as January of 1995 that the family's own survival was more important than proper accounting to the creditors of the Emanuel Group.

On 25 January 1995, Mr Farrugia again wrote to Mr Elliott of Clayton Utz requesting a response to the formal offer of settlement made on 23 December 1994 concluding the letter in these terms: "As advised last week our client's circumstances do not permit anything other than immediate and decisive action. You will recall that we foreshadowed our request for a clear statement of EFG's position this week.

It seems to me that that letter evidences the deteriorating fortunes of the Emanuel Group. The correspondence shows that in the latter part of 1994 and in early 1995 the Group was coming under increasing pressure from its creditors and in particular from Mr Croft. The letter indicates that the Group cannot continue and that any delay will be the ruin of the Group.

The liquidator of all of the plaintiffs has expressed the opinion in his affidavit sworn on the 2 September 1996, that each of the plaintiffs was insolvent as at 17 March 1995.

He relies on the fact that judgment had been entered against the twenty-seven plaintiffs in the Supreme Court of Queensland for $186,880,302.71 as primary evidence of the insolvency of the Group. Indeed that debt had been acknowledged in the Deed of Orderly Realisation (DOOR) in May of 1993. In my opinion it would logically follow, having regard to the extent of the indebtedness, that the Group had been insolvent at least since that time.

I have already referred to the letter of Clayton Utz asserting the insolvency of the Emanuel Group and Mr Joe Emanuele's admission in relation to that matter in his evidence of 17 August. The fact that the Emanuel Group was insolvent during all of 1994 and had been for a number of years and the fact that Mr Joe Emanuele recognised that in his evidence in August 1994 is not unimportant. In those circumstances, the directors of the Group had to take especial care to ensure that no action taken by or on behalf of the companies in insolvency would in any way prejudice the creditors of the Group. For the reasons that follow, it is clear that the directors did not have regard to the creditors and indeed acted in positive disregard of the interests of creditors.

On 1 February 1995, Mr Rocco Emanuele wrote to Mr Farrugia. The letter is written on the letterhead of the Emanuel Group and is signed by Mr Rocco Emanuele "Director". That letter records that discussions had taken place on 31 January 1995. Mr Emanuele wrote: "I note EFG's failure to provide the draft Deed of Settlement on 30 January, 1995 and that John Elliott has indicated that the matter lies with John O'Grady."

He identified the pressing need for the matters to go forward describing the financial position of the Group as delicate and vulnerable.

He also referred to the judgment obtained by Max Croft for $1.2 million and then pointed to the fact that his mother was pressing his father in relation to a divorce settlement, and that the Commissioner for Taxation was also threatening to take legal action. He told Mr Farrugia in that letter that a myriad of creditors were building up. In addition he wrote: "...we have been forced to borrow in excess of $500,000 in the past six (6) months to simply keep the doors open! Our favours with such friends and relatives have all but depleted."

With a letter dated 6 February 1995 to Thomsons, Clayton Utz sent a "redraft" of the Deed of Forbearance and Release. The earlier draft to which Clayton Utz refers has not been exhibited in these proceedings but the Deed of Forbearance and Release (DOFR) accompanying that letter of Clayton Utz has.

The proposed parties to the DOFR were EFG and the twenty-seven plaintiffs together with Mr Joe Emanuele and a further plaintiff company Navicio Pty Ltd.

The Deed proposed a release by the Emanuel Group of any claims against EFG of any kind; a covenant to discontinue the appeal from the judgment of Branson J in the Federal Court proceedings; a covenant to arrange for Emanuel (No. 14) to transfer to EFG all of the lands listed in the schedule to the draft Deed; a covenant that Emanuel Group undertake to transfer to EFG any other property subject to any security to EFG; a covenant by the Emanuel Group to deliver up to EFG vacant possession of the East Terrace premises on 30 June 1995; and a covenant that the Emanuel Group agree to EFG entering judgment against the Group in the Supreme Court proceedings for the amount of the debt. In return for that release and those covenants the draft Deed provided that EFG would forbear enforcing the judgment in the Supreme Court action; would forbear taking action against Navicio Pty Ltd and Airlie Bay Developments Pty Ltd and EFG covenanted to pay the Emanuel Group the sum of $4,690,000 at the time of execution of the Deed. The Deed contained further covenants that EFG would: release its securities over the land and improvements known as the Burnside premises, the Cape Jervis premises, the Mount Barker premises and the Brisbane office; allow the Emanuel Group to remain in occupation of the East Terrace premises rent free until 30 June 1995; and EFG pay, at the direction of the Emanuel Group, to Blacklaw and Shadforth Pty Ltd the sum of $322,313.54 for work performed for the Emanuel Group in relation to the construction of the Haul Road.

The draft deed proposed that EFG would specifically agree in the following terms (Clause 6.4): "... provided that the Emanuel Group strictly performs all the terms relating to each of them in relation to this Deed, the EFG Group will appoint a partner of the firm, Messrs Thomsons, as its proxy for the purposes of voting in any meeting of creditors called for the purposes of Part X of the Bankruptcy Act 1966 As Amended in relation to Giuseppe Emanuele, or Part 5.3A of the Corporations Law in relation to any of the companies defined as the Emanuel Group, and that the EFG Group will vote in accordance with the direction of the partner of the firm, Messrs Thomsons, at any such meeting of creditors, provided however that the partner of the firm, Messrs Thomsons, will not direct the EFG Group, which will not be required, to vote in favour of any resolution which has the purpose or effect that all or any part of the Debt Amount, the Airlie Bay Developments Pty Ltd Debt Amount or the Chatel Lease Debt Amount is discharged or otherwise might become a claim which is not provable in the event of bankruptcy of Giuseppe Emanuele or the liquidation of any of the companies defined in the Emanuel Group by the EFG Group."

There is no reason to doubt that that document was received by Thomsons on 6 February 1995 and indeed correspondence from Clayton Utz to Thomsons and other correspondence later in time makes it clear that Thomsons received the draft Deed.

On 8 February 1995 Clayton Utz wrote to Thomsons in the following terms: "Our client instructs us that there is no point in holding a meeting until we receive your written advices as to the specific matters which your client wants to discuss at the meeting. The Deed which we have submitted to you on our client's instructions contains the terms upon which our client is prepared to agree. There is no flexibility in relation to amending any substantive terms of the Deed, though it may be possible to address some fine tuning of the terms of the Deed. If the purpose of your proposed meeting is to re-open discussions on substantive matters of the Deed then there is no point in holding the meeting."

As at early February 1995 the Emanuel Group was insolvent and by reason of the deed of cross collateralisation and the deeds of cross guarantee, each member of the Group was insolvent and moreover the holding company of the group, Giuseppe Nominees Pty Ltd, was insolvent.

The Emanuel Group, at that time, was under the direction of Mr Joe Emanuele and to a lesser extent his sons Mr Rocco Emanuele and Mr Linton Emanuele. I think it is probably fair to

say that although Miss Linda Emanuele, was a director of all of the companies, she played little or no part in the direction and management of the companies.

The directors, of course, were under an obligation to act in the best interests of the Group, and each of the members of the Group, and in doing so they had an obligation not to prefer their interests over the Group or the members of the Group. In the circumstances, where each of the companies and the Group were insolvent, they had an especial responsibility to ensure that in acting in the best interests of the company they had due regard to the internal and external creditors of the Group and the creditors of each of the individual companies. They had to be careful not to put themselves in a position of conflict, or if put in a position of conflict, not to resolve that conflict by preferring the interests of themselves or any one of them to the interests of any of the Group or any of the members.

The directors, in early February 1995, had been presented with a proposal whereby the Group would be paid $4.69 million. Mr Farrugia had represented to Mr Elliott on 23 December 1994, in the terms of the settlement then proposed, that $5 million cash was needed in order for the Group to survive and continue to operate. So also Mr Farrugia had written to Mr Joe Emanuele on 5 December 1994 advising him that he needed $5-6 million to "deal with virtually all his creditors and start again, admittedly with no stake."

It was important in those circumstances, that any money made available to the companies, flow to the companies and thereby to the creditors of the companies.

On 13 February 1995 a meeting took place which included, inter alia, the following persons; Mr T J Cumming, Chartered Accountant and Liquidator, Mr P J Patterson, Chartered Accountant, Mr David Purcell, Mr Joe Emanuele, Mr Rocco Emanuele and perhaps Mr Farrugia. At the time of the meeting both Mr Cumming and Mr Patterson were partners in the Chartered Accounting firm of Coopers and Lybrand in Adelaide. Mr Cumming had been appointed liquidator of eleven companies which were formerly part of the Emanuel Group in early 1991 and was still liquidator at the time of this meeting. Since August 1992 Mr Patterson had been the partner in charge of the preparation of tax returns for the Emanuel Group of companies.

Mr Cumming in his public examination said he was asked to attend the meeting by Mr Patterson. The meeting concerned the negotiations then pending between Mr Joe Emanuele and the Emanuel Group of companies and EFG. Mr Cumming said this on his examination: A ...What was put to us was that they had been discussing with Elders a settlement.

A By David Purcell and Danny Farrugia, that they were discussing settlement with Elders and that there was likely to be a settlement reached which would entail Elders taking possession of the majority of the assets of the Emanuel Group and that there would be some money made available to the creditors or that there would be some money made available for the Emanuel Group of companies.

Q How much. I would like to actually know the full amount because sooner or later I am going to find out. How much was said -

A My recollection was that there would be 3 or $400,000.

A For the Emanuel Group I understand that there was $500,000 - four or five hundred thousand, there was discussion as to another payment that was being made which was going into a company which I don't know whether it was part of the Emanuel Group or not because -

A I think they were saying something around $4 million."

The purpose of the meeting was to discuss whether any of the sums would be taxable and in particular the operation of capital gains tax. Mr Cumming said that at the meeting he told the parties that they should disclose what they were doing. His evidence was: "The meeting was convened to discuss to my understanding some of the tax issues, I made comments in relation to Mr Emanuele's - or Mr Emanuele asked about proposing settlements with his personal guarantee to creditors and I made comments such as that he would have to fully disclose any terms of settlements that he'd reached with all his creditors and what funds he had available."

Mr Patterson said: "I recall Tim questioned some of the circumstances surrounding the payment. I recall that Purcell was happy at the time that they were taking appropriate legal advice concerning their actions."

Mr Patterson had a memory that Mr Cumming questioned them on what type of disclosure they were planning to make in respect of the payment.

It seems to me that there was sufficient said by both Mr Patterson and Mr Cumming at that meeting to make it clear to Mr Joe Emanuele and Mr Rocco Emanuele and to those advising them, if they needed to be reminded, that there was an obligation on the part of the directors to make full disclosure to the creditors of the Group and the members of any moneys received in relation to those negotiations with Elders.

A meeting took place on 22 February 1995 at Mr Purcell's office, at Thomsons. Present at that meeting were Mr Purcell and Mr Shaun Bonnet (a solicitor employed at Thomsons), Danny Farrugia, Rocco Emanuele and Mr Nigel Winter, a solicitor of Johnson, Winter and Slattery. Mr Winter attended that meeting at the behest of David Purcell.

Mr Winter, in his evidence given in the public examinations conducted pursuant to the Corporations Law, said that at the meeting he was told the following: (TX 3423) "The fact that they had got to a point where they believed that the issues could be resolved, but they had a dilemma in so far as a consolidated group of parties that were dealing with Elders Finance included Joe and twenty-eight of his companies and that there was a conflict because they did not feel they could properly represent the interests of Joe, the individual and the twenty-eight companies. That the nature of that conflict was such that there was a willingness, on the part of Elders to make a payment to Joe in recognition of their longstanding relationship, which was said to have lasted in the order of thirty years and that consequently, it was a question of the different competing interests, namely the companies on the one hand and the individual on the other hand, negotiating independently as to how the financial package on offer by Elders would be split."

At the conclusion of the meeting Mr Winter was told that he would be provided with documents to enable him to understand what had transpired so that he might take instructions and give advice to some of the plaintiff companies.

He cannot now remember whether he was told the amount of money which had been offered by EFG or whether he learnt that later when he read the draft DOFR dated 6 February. He received that document from Messrs Thomsons the next day which identified to him the companies for which he was to act namely the twenty-eight plaintiffs to which I have referred.

Mr Winter said in his evidence in relation to that meeting: Q Did anything further happen that day.

A I think at the meeting there was a view expressed by David Purcell that in his view the whole of the $5M with the amount of money on offer should go to Joe on the basis that the true purpose of the money was to give him an amount in recognition of the relationship between himself and Elders over thirty year period as if to give him a new start.

Q Was anything said about what was happening, what was going the other way from the companies to Elders.

A I said having been involved in the matter for a very short time that I thought that the whole of the moneys should go to the companies.

A I think it was just, there was no response to that.

Q Was anything said as to whether more money could be procured from Elders than that then on offer whatever that amount was.

A I think that it was said by Danny Farrugia that in his view the negotiations had been exhausted and that it was unlikely the amount of the fund could be improved upon.

Q So the task then was for the division between Joe Emanuele and the companies.

Apparently Mr Joe Emanuele met with Mr Farrugia and probably Mr Purcell and Mr Saint, another partner of Thomsons, on Friday 24 February 1995.

That may be inferred from a letter of 27 February 1995 from Mr Danny Farrugia addressed to Mr G Emanuele, Chairman, The Emanuel Group of companies. In that letter Mr Farrugia wrote as follows: "Dear Sir

We refer to our meeting with you on Friday afternoon last.

We confirm our advice to you that you should resign as a director of the companies involved in the dispute with Elders.

In negotiating any settlement with Elders the companies' interests in achieving the best financial settlement possible conflict with your desire to achieve the best result for yourself.

We are therefore recommending your resignation because if you remain a director your duties as a director of those companies may conflict with your own personal interests. As a director of these companies you are obliged to avoid conflicts of interest and where the company's interests conflict with your interests you must defer to the companies' interests.

Accordingly we enclose forms of resignation by you as a director of the following companies:

• Emanuel Management Pty Ltd - Segacious Pty Ltd - Meka Securities Pty Ltd
• Cofordo 251 Pty Ltd - Grangeville Pty Ltd - Emanuel (No. 14) Pty Ltd - P.B.R.S. Pty Ltd - Paterson & Co Pty Ltd - Giuseppe Nominees Pty Ltd - Lonsdale Stage 2 Pty Ltd - Emanuel Properties Pty Ltd - Emanuel (No. 4) Pty Ltd - Emanuel (Rundle Mall) Pty Ltd
• Villa-Cairns Pty Ltd - Addstone Pty Ltd
• Antlia Pty Ltd - Centaurus Pty Ltd - Cloundland Investments Pty Ltd - Cofordo 260 Pty Ltd - Derwent Water Pty Ltd - Emanuel (No. 7) Pty Ltd - Lascivious Pty Ltd - Leominor Pty Ltd - Livilla Pty Ltd - Saroon Pty Ltd

Woodville Industrial Park Pty Ltd - Navicio Pty Ltd - Airlie Bay Developments Pty Ltd

Please arrange for the executed resignation to be returned to us immediately.

You should be aware that if your resignation as a director of these companies is accepted you may still be deemed to be a director under the Corporations Law if you exercise influence over the affairs and operation of these companies either in relation to the Elders matter or otherwise. You must leave these matters entirely to the continuing directors of these companies and cannot interfere in any way in their conduct of the affairs of these companies. If you do not do so then you may be deemed to be a director of these companies and to have acted in breach of your duties notwithstanding your formal resignation.

You should therefore avoid contact and discussions with the continuing directors of these companies regarding their affairs.

Furthermore you should not contact or discuss with Elders or any other person dealing with these companies, the affairs of these companies.

Finally, you personally should, in our view, immediately cease any intermingling of your own affairs and those of these companies. You must draw a clear distinction between the assets of the companies and your personal assets and not rely in any way on the assets of the companies or any action by those companies. You should not compete with the companies either in securing a settlement with Elders or otherwise. If you act in breach of these directions you will be liable to account to the companies for any benefit derived by you."

The companies referred to in the letter are the twenty-seven plaintiff companies which had been parties to the two Deeds and Navicio Pty Ltd which had been proposed as a party in the draft DOFR of 6 February 1995.

On 27 February 1995 in the Queensland Supreme Court, EFG obtained judgment against the twenty-seven plaintiffs and Mr Joe Emanuele in the sum of $186.6 million.

Therefore in summary it was the case that, as at 27 February 1995, the Emanuel Group was insolvent. In addition to other debts of Mr Joe Emanuele (e.g. the debt to Mr Max Croft of in excess of $1 million), he had become liable to satisfy a judgment of $186 million and, of course, was also insolvent. By that point in time an offer had been made by EFG to pay the Emanuel Group, which included Mr Joe Emanuele, the sum of $4.69 million.

A meeting had taken place for the purpose of briefing a solicitor to act on behalf of the Emanuel Group of companies, because, at least Mr Rocco Emanuele who was at the meeting of 22 February, and the then solicitors for the companies, Thomsons, and particularly Mr Purcell recognised a conflict of interest.

The solicitor who had been retained believed that all of the money the subject of the Elders offer ought to go to the twenty-seven plaintiffs, whilst Mr Purcell who was acting for the companies, and Mr Joe Emanuele at that stage believed all of the moneys ought to go to Mr Joe Emanuele.

On 28 February 1995 Mr Farrugia sent to Mr Winter Mr Joe Emanuele's letters of resignation as a director of the twenty-eight plaintiff companies. Thomsons ceased to act for those

plaintiff companies in late February 1995. Mr Winter of Johnson Winter Slattery was retained to act for the Emanuel Group and was thereafter responsible for the giving of advice to those companies. I think it is probable, although it is not entirely clear, that Mr Winter acted for the whole of the Emanuel Group after the 22 February or thereabouts and that Thomsons confined their retainer to Mr Emanuele at least until 9 or 10 March when they accepted a further retainer.

Whether it was appropriate for Thomsons to continue to act for Mr Joe Emanuele in the circumstances where they had the knowledge which they had acquired whilst acting for him and the Emanuel Group is not a matter which I have to resolve. However it cannot be overlooked that at the time that Thomsons ceased to act for the Emanuel Group, Thomsons were seized of all of the information, as was Mr Joe Emanuele, of the negotiations to that point in time with EFG, and in particular had knowledge of the offer made by EFG in the draft DOFR of 6 February 1995.

On the same day Mr Farrugia wrote to Mr Winter in relation to the Emanuel Group of companies. He wrote: "Re: The Emanuel Group of companies

We refer to your telephone discussion with the writer on Monday 27 February 1995.

We confirm that we are meeting with you at 2.00 pm tomorrow, 1 March 1995, at our offices for the purpose of discussing an approach to EFG through its solicitors, Clayton Utz, on Thursday next, 2 March 1995, in Brisbane.

For your information we enclose a copy of our letter of even date to Mr John Elliott at Clayton Utz confirming our arrangements to meet him in Brisbane on Thursday.

We have given considerable thought to the matters discussed between us and have arrived at the following conclusions provisionally:

• In our opinion it will be necessary for there to be contemporaneous dealings between EFG and the Emanuel Companies on the one hand and Mr G Emanuele on the other because all are parties to the Queensland Supreme Court proceedings (No. 2070 of 1995) in respect of which summary judgment was given on Monday. - In our view it is highly unlikely that EFG will compromise its position in that litigation with only some of the parties to the proceedings. Accordingly, contemporaneous dealings on behalf of the Companies on the one hand and Mr Emanuele on the other are necessary. - Contemporaneous dealings need to be clearly distinguished from dealings in competition. For the reasons set out below, the fact such dealings occur contemporaneously does not mean that those dealings are competitive. - The interests of the Companies (having regard to their financial position) are to maximise the return to the Companies' creditors. The separate interests of Mr Emanuele are to avoid bankruptcy by securing financial and other support from EFG to achieve compromises with his creditors. - We therefore believe that it is necessary for the Companies and Mr Emanuele to have separate and independent but contemporaneous dealings with EFG to pursue their respective interests on the basis that each of the parties will have separate representation and their respective interests vigorously represented to and pursued with EFG. - We do not believe that it is appropriate for the Companies and Mr Emanuele to recognise, negotiate or agree an allocation of any supposed available settlement funds because that would necessarily place the parties in a position of competition whether any accommodation reached is amicable or otherwise. We do not believe that it is appropriate for our client to take such a position. His personal interests must at all times be kept separate from the interests of the Companies.

By separate letter of the same date Mr Winter was provided with a volume of material including correspondence between the various parties and their solicitors.

On the same day Mr Winter received an instruction from the directors of the Emanuel Group. They wrote to him in the following terms: "Re: Emanuel Group and EFG

The directors have considered all matters discussed at our meetings.

The directors believe that the Group should seek the sum of $700,000 from the proposed settlement with EFG and we instruct you to negotiate with EFG to achieve this outcome.

It is our understanding that the three (3) properties in the name of Giuseppe Nominees Pty Ltd are intended by EFG to benefit Joe Emanuele for his own use.

Finally, please ensure that your fees (along with Thomsons' fees) are paid directly by EFG at settlement.

No evidence has been put before me of any meeting of directors nor of any advice in relation to the matters raised in that letter. The letter contains two quite curious propositions. The first is that the sum of $700,000 would be an appropriate sum to seek from EFG and secondly that the three properties in the name of Giuseppe Nominees Pty Ltd are intended by EFG to benefit Joe Emanuele for his own use.

I am not aware of how the figure of $700,000 was arrived at, nor what matters the directors considered in determining that to be an appropriate figure. Nor am I aware how the directors reached the understanding in relation to the three properties or how it was that the directors determined that it was in the best interests of the companies to agree to either of the two propositions advanced. There is simply no explanation as to how or why the directors arrived at the conclusion that those instructions were appropriate. The omission of such an explanation is particularly significant having regard to the previous offer made in the draft DOFR.

There is no evidence that the directors consulted with any of the creditors, apart from EFG, before arriving at the conclusion that a figure of $700,000 ought to be sought and the properties owned by Giuseppe Nominees Pty Ltd transferred from it. More particularly there is no evidence that the directors consulted with the directors of the other companies in the Emanuel Group which were both creditors and debtors of the twenty-eight plaintiff companies and which therefore were all peculiarly interested in the outcome of those negotiations, particularly so because it was proposed that twenty-seven plaintiff companies transfer all of their real estate, representing tens of millions of dollars, away from them in consideration for the cash payment of $700,000.

It cannot be overlooked that whilst Mr Joe Emanuele resigned from the twenty-eight plaintiff companies he remained a director of the remaining companies and therefore had a duty to those companies to ensure that their interests were not subordinated to his own interests. He therefore had a duty to ensure that the remaining companies would be able to recover any advances made to or investments in the twenty-eight plaintiffs. In these circumstances the companies of which he remained a director had a direct interest in the amount of money the twenty-eight plaintiffs might receive from EFG.

There is no evidence that the directors consulted with any creditors outside the Group, and indeed, having regard to the confidentiality proposals, I must infer that in fact they did not consult with any outside creditors. I find that they intended that the transaction take place in secret so that those outside creditors would not be aware of what was to transpire and would not know that the benefits of the settlement would be lost to the Emanuel Group.

In short there is no evidence that the directors took any steps to satisfy themselves that the transaction was in the best interests of any of the companies within the Group. Accordingly I find that up to this point none of the directors had taken any steps to satisfy themselves that this transaction was in the best interests of the companies of which they were directors.

The meetings proposed to take place in Brisbane on 2 March 1995 took place. Mr Winter said in his evidence that he met with Mr Elliott but that Mr Farrugia was not present because Mr Farrugia represented separate interests. He said there was no discussion about the transfer of the properties from Giuseppe Nominees Pty Ltd at that meeting and that the discussion only related to money.

He gave this account in his evidence of what was said: (TX 3476) "I have a recollection of the meeting. I do not have a precisely accurate recollection of exactly what was said but I believe the substance of what was said was that having regard to all of the circumstances that my clients found themselves, what we sought was a payment of a million dollars. He confirmed to me that there was a desire on their part to give Joe Emanuele a sum of money and that the total amount was finite and in so far as I wanted a proportion of the total fund to go to my clients, it was a matter for me to justify and negotiate; that there was a confirmation that there was a degree of frustration at the O'Grady level and that there was no certainty that there would be any deal for anyone and that what Elders really wanted was for there to be a swift conclusion to all dealings and if there was sort of too much stuffing around there would be no money. Now in the face of that, I asked for a million in those circumstance and he said "You can have 700" and that's where we finished."

If that is an accurate recollection of how the meeting transpired there is an extraordinary co-incidence in Mr Winter's instructions and Mr Elliott's last proposition. It is to be remembered that Mr Winter was instructed to settle for $700,000 and as luck would have it that was exactly the figure which Mr Elliott said would be available to the companies and no more.

I think that account of the meeting is a clear indication that someone connected with Mr Joe Emanuele's interests had advised Mr Elliott of the position that the companies would take. In those circumstances I infer that Mr Elliott had been previously advised by Mr Joe Emanuele, or Mr Rocco Emanuele, or Mr Linton Emanuele, or by Mr Farrugia, or someone at Thomsons that the plaintiff companies would accept $700,000 of the sum to be offered by EFG.

The meeting is remarkable, as well, for what was not discussed. Mr Winter was apparently acting for Giuseppe Nominees Pty Ltd. It is at least surprising that the subject of the sale or transfer of the Burnside, Cape Jervis and Mount Barker properties was not mentioned. In particular Giuseppe Nominees Pty Ltd would have needed to know what was to be done with those properties, who was to acquire them, the consideration, the question of discharge of securities and indeed whether the proposed consideration, whatever that might be was adequate and therefore whether it was in the best interests of the company to agree to the sale or transfer of those properties.

On 8 March 1995 Mr Perrett of Clayton Utz sent to Mr Winter a further draft deed of forbearance and release between EFG and the Emanuel Group of companies.

The letter of Clayton Utz enclosing that draft deed referred to the previous deed sent to Messrs Thomsons on 7 (sic) February 1995. Mr Winter was thereby reminded, if he needed reminding, of the previous draft deed between EFG and the Emanuel Group of companies. The letter concluded with this request: "When you provide us with your comments, could you also please advise the identity of the purchaser of the 'Adelaide properties' (clause 4.3) and let us have a copy of the Contract as soon as possible."

That is the very matter which had not been discussed at the meeting with Mr Elliott.

The document is in similar form to the previous document but the draft does not include Mr Joe Emanuele as a party to the deed, except that the definition of the Emanuel Group would appear to accidentally include him.

Clause 4.3 to which the letter refers is in this form: "the Emanuel Group agree to undertake to arrange for Giuseppe Nominees Pty Ltd to effect the sale of the properties listed in Item 4 of the Schedule hereto for a consideration of $1,300,000 which sum will be paid by the Emanuel Group to EFG Group on the Settlement Date and is to be applied by EFG Group in reduction of the Judgment Debt."

Like the previous draft, the deed provided for a release by the Emanuel Group of EFG and certain covenants on the part of the Emanuel Group in consideration for a forbearance by EFG in enforcing the Judgment Debt and a payment by EFG to the Emanuel Group. The payment of course was not the figure predicated in the draft of 6 February, but a payment of only $700,000. Moreover the sum to be paid by EFG to the Emanuel Group was proposed to be paid in two sums, a sum of $650,000 by cheque drawn in favour of Johnson Winter and Slattery for the Emanuel Group, and a sum of $50,000 on account of that firm's legal costs of and incidental to acting for the Emanuel Group. The deed provided, as did the previous draft, for a payment to Blacklaw and Shadforth Pty Ltd of the sum of $322,313.54 in relation to the construction of Haul Road. The deed did not make mention of any collateral agreements to be entered into by EFG with any other party and in particular any collateral agreement with Mr Joe Emanuele or Simionato Holdings Pty Ltd.

On 9 March 1995 Mr Robert Simionato and Alesandro Caruso purchased the shares in Simionato Holdings Pty Ltd from Thomsons. The undisputed evidence is that Thomsons acted as solicitors for Mr Joe Emanuele and for Simionato Holdings Pty Ltd at all material times after that date. Again it is not for me to determine whether it was appropriate, in circumstances where Thomsons had previously acted for the twenty-eight plaintiff companies, for them to take instructions and accept a retainer from Simionato Holdings Pty Ltd. The fact of the matter is that after 10 March 1995, they accepted instructions to act for Mr Joe Emanuele and all of the defendant companies, with the exception of Melbourne Projects Pty Ltd for which they commenced to act on 24 April 1995 (being the date of its incorporation).

On 15 March 1995 Mr Danny Farrugia settled the sum of $10 for the purpose of establishing the Emanuele Family Trust. The deed of settlement of the 15 March provided that Simionato Holdings Pty Ltd would act as trustee of that trust. I am told that Mr Joe Emanuele is not one of the beneficiaries of that trust. I think on a reading of the trust it is possible that he might be within a class of beneficiaries but I take that matter no further.

On the same day Mr Farrugia settled the sum of $10 to establish the Liddan Family Trust. Again I am told that Mr Joe Emanuele is not a beneficiary of that trust but again upon a reading of the trust deed it is possible that he could be within a class of beneficiaries. Again I take the matter no further in respect of that trust. It is asserted by the plaintiffs that Rocco, Linton and Linda Emanuele are beneficiaries of both trusts.

Apparently, although I have not seen the document, a draft of a deed between EFG and Simionato Holdings Pty Ltd was provided to Messrs Thomsons on 10 March 1995. Thomsons wrote to Clayton Utz commenting upon the draft deed. Thomsons' letter suggests that they were also at that time provided with a draft of a deed to which Mr Joe Emanuele was to be a party because comments are made in relation to that other document.

It is not clear from the terms of the letter whether they had the draft of the deed between EFG and the Emanuel Group but they certainly were aware that such a deed existed because among some further terms and conditions which they sought was a covenant on the part of EFG that EFG would observe its obligations "under its agreement with the Emanuel Group of companies".

Thomsons made it clear that the question of confidentiality was very important and they suggested a clause in relation to confidentiality: "This clause should prohibit disclosure by either party except;

• as required by law and then only to the extent necessary; - to its solicitors and advisers and then subject to confidentiality undertakings; - with the prior written consent to the other party."

In respect of Thomsons' own costs Mr Purcell wrote to Mr Joe Emanuele on 14 March 1995 in the following terms: "Re: Emanuele/EFG Group

We confirm our agreement that the sum of $400,000.00 will be paid to us directly from EFG Group in partial satisfaction of our costs and disbursements of the Federal Court litigation and our ongoing work to achieve a settlement with EFG and concerning your other creditors.

Further, we note your agreement to pay the balance of $167,446.71 (comprising $117,446.71 in various unpaid accounts and $50,000.00 referred to in our letter dated 1 February 1995) on or before 15 March 1996. If you are in a position to do so you will make an earlier payment or part payment. Please signify your acceptance of these arrangements by signing the duplicate of this letter.

In relation to further work carried out for you by Thomsons we propose to render accounts from time to time. Payment of those accounts will be made by you in accordance with our standard terms."

On 14 March 1995 Thomsons advised Mr Simionato: "It is understood that it has been agreed that some $400,000 will be paid to Thomsons directly by EFG on account of costs incurred in this matter and that the settlement amount payable by EFG to your company will be reduced accordingly."

That brought no protest from Mr Simionato or from anyone else associated with the defendants. Indeed Mr Simionato wrote on 15 March instructing Mr Farrugia to proceed with settlement as outlined in that letter of 14 March 1995.

If, of course, Simionato Holdings Pty Ltd was, in truth, at arms length with the plaintiffs or Mr Joe Emanuele it would be surprising that Simionato Holdings Pty Ltd would have agreed, which implicitly it did, by the reduction of the sum being paid to Simionato Holdings Pty Ltd, to pay $400,000 in costs for work previously done on behalf of the plaintiffs and Mr Joe Emanuele.

That letter and the failure to protest, in my opinion, confirms the true relationship between Simionato Holdings Pty Ltd and Mr Joe Emanuele and the plaintiff companies. For reasons I will make clear, the true relationship was that Simionato Holdings Pty Ltd allowed itself to be used as the vehicle for the purpose of receiving moneys diverted from the Emanuel Group of companies and thereby its creditors in order to benefit Mr Joe Emanuele and his family.

That letter also raises another matter which I will outline but need not resolve. Clearly Thomsons were owed a very significant sum of money. They were, in relation to the Emanuel Group and Mr Joe Emanuele, in no better position than any other unsecured creditor either of the Group or Mr Joe Emanuele. If EFG was to pay the whole sum to the Emanuel Group, Thomsons would simply rank with the other unsecured creditors and could have expected no better return than the rest. The fact that EFG agreed to pay $400,000 directly to Thomsons was very much to the advantage of Thomsons. It was, of course correspondingly, to the disadvantage of the other creditors of the Emanuel Group and Mr Joe Emanuele. It cannot be overlooked in that aspect of the transaction that there was no mention of that payment in any of the three Deeds. It was the most secret aspect of what was a most secret transaction. Minutes of Simionato Holdings Pty Ltd show the fact of the payment but that company was, of course, not part of the Emanuel Group. The further point to be noted is that Thomsons agreed to receive these moneys about fourteen days after they had ceased their solicitor/client relationship, and concluded thereby their fiduciary relationship, with the Emanuel Group. I do not comment upon whether in the circumstances the payment to Thomsons amounted to a breach of the fiduciary relationship they had owed to the plaintiff companies prior to the ceasing to act, because it is not necessary to resolve that matter.

On 15 March 1995 Thomsons sent to Johnson Winter and Slattery the contracts relating to the transfer of the three South Australian properties and the memoranda of transfer in relation to those three properties executed by Liddan Pty Ltd under its common seal.

The letter confirmed what had apparently previously been agreed and that was that Giuseppe Nominees Pty Ltd would execute the transfers and they would be returned to Mr Farrugia and held in escrow until settlement with EFG on 17 March 1995. Minutes of Simionato Holdings Pty Ltd of the same day show that that company authorised Mr Farrugia to act as the company's attorney to execute the deed with EFG. The company minutes also show that on the same day the company agreed to act as trustee of the Emanuele Family Trust. The minutes record: "It was noted that the amount to be paid to the Company in that capacity (i.e. as trustee of the Emanuele Family Trust) is $4.6 million and that EFG will pay $400,000 to Thomsons on account of their fees."

On the day before settlement Clayton Utz wrote to Mr Farrugia relating to the payment of the $400,000 on account of legal costs. Clayton Utz sought a written acknowledgment from Thomsons that the payment was made by EFG to Thomsons without any legal liability or other obligation whatsoever, but in recognition of the long relationship between the EFG Group, the Emanuel Group and Mr Emanuele, and because of Thomsons' role in representing the Emanuele Group and Mr Emanuele throughout that relationship. On the day of settlement Thomsons responded to that letter acknowledging that the payment was without legal liability or other legal obligation and was accepted on the basis set out in the letter of Clayton Utz. Thomsons further confirmed that the responsibility for payment by EFG would be fully discharged by payment of the sum of $400,000.

Lastly, and again consistent with all other injunctions regarding secrecy, Thomsons wrote: "The subject matter of this letter and your letter of 16 March 1995 on this subject is and shall remain strictly confidential and shall not be disclosed to any person except as may be required by law and such obligation is mutual."

Again it is clear that Thomsons, perhaps for their own part on this occasion, were very anxious that the fact of that payment ought to be kept quite secret. It is not necessary to decide whether this letter was written not only in protection of their clients, Mr Joe Emanuele and Simionato Holdings Pty Ltd, but for the purpose of protecting the solicitors in case they were later called upon to disgorge the sum received. Presumably the letter was not written on the plaintiffs' instructions because Thomsons were not then acting for the plaintiffs. It could only then have been written on the instructions of Mr Joe Emanuele or the defendants. The defendants would have no apparent interest in secrecy. It could not have been a matter of concern to them, if the transaction was a straightforward one, whether or not the transaction was kept secret.

There was one further important event before settlement took place in Brisbane. Clause 6.5 of the draft deed with the Emanuel Group provided that EFG would vote in favour of any resolution proposed by any member of the Emanuel Group in relation to any meeting of creditors which any of the Emanuel Group called for the purpose of Part 5.3A of the

Corporations Law with the exceptions mentioned in the clause which are not material. The clause also provided that EFG not to participate in any dividend which might be payable to any creditors of the Emanuel Group under section 444A of the Corporations Law.

Part 5.3A of the Corporations Law relates to the administration of a company's affairs with a view to executing a deed of company arrangement. EFG was concerned about the inclusion of clause 6.5 of the draft deed and expressed those concerns through their solicitors to Mr Winter. On 16 March Mr Winter wrote to Clayton Utz in respect of those concerns and I set out the whole of the letter due to its importance. "EFG Group and Emanuel Group

We refer to your letter of 14 March 1995 expressing the concerns of Mr John O'Grady in relation to clause 6.5 of the draft deed and in particular the possibility that your client could be embarrassed in the event that the arrangements proposed between certain members of the Emanuel Group and their creditors proved to be unreasonable and uncommercial.

It is likely to prove vital to the passage of the proposed deeds of company arrangement that there is a vote supporting those transactions by the EFG Group. Accordingly we would be most reluctant to see the EFG Group's final position to be that it would not attend and would note (sic) vote at any creditors' meetings.

It occurs to us that it may be preferable that we outline to you the nature of the transactions that will underpin the proposed deeds of company arrangement so that Mr O'Grady can be satisfied that they are reasonable and they are commercial and accordingly they are worthy of the support of the EFG Group.

By way of general outline, it is anticipated that it may only be necessary to propound a deed of company arrangement between Emanuel Management Pty Ltd and its creditors. However, this position is not clear, as it may be necessary to propound further deeds of company arrangement in respect of the members of the Emanuel Group that are indebted to the Australian Taxation Office on account of unpaid income tax or capital gains tax. These companies are as follows:

Heriot Pty Ltd Emanuel (Rundle Mall) Pty Ltd Roclin Enterprises Pty Ltd Emanuel Projects Pty Ltd CC Lot 4 Pty Ltd P.B.R.S. Pty Ltd Establishment Holdings Pty Ltd Emanuel No. 4 Pty Ltd Emanuel Properties Pty Ltd Giuseppe Nominees Pty Ltd as trustee for the Emanuele Family Trust Sayer Properties Pty Ltd Worando Trust Pty Ltd Libra Pty Ltd Carsim Pty Ltd Cofordo 260 Pty Ltd Elizabeth House Pty Ltd Emanuel Investments Pty Ltd Emanuel Holdings Pty Ltd Emanuel SA Pty Ltd Grangeville Pty Ltd Hendon Industrial Park Pty Ltd Hondel Pty Ltd Lonsdale Stage 2 Pty Ltd Paterson & Co Pty Ltd Woodville Industrial Park Pty Ltd

It will only be necessary to propound a deed of company arrangement within Emanuel Management Pry Ltd if the Commissioner for Taxation accepts a proposal that the dividend that he is to receive from Emanuel Management will constitute a payment in full and final satisfaction of his claims against all of the other companies listed above. If the Commissioner is not willing to accede to this arrangement then the scheme proposed for Emanuel Management Pty Ltd will proceed unaltered but it will also be necessary for a deed of company arrangement to be propounded for each of the above companies where the creditors will be requested to approve an arrangement whereby all claims against each company are forgiven without the payment of a dividend. The Emanuel Management deed will be conditional upon deeds for each of the other companies being approved.

In any event the transaction that will underpin the deed of the company arrangement for Emanuel Management will involve the distribution of the $650,000 in the following approximate amounts and in the following priority.

Creditor Claim($) Dividend ($) 1 Administrator's fees (say) 20,000 20,000 2 Trade creditors 128,000 128,000 3 Employee claims 40,000 40,000 4 Group tax 200,000 200,000 5 Prescribed payments 100,000 100,000 6 Income tax/capital gains tax 44,500,000 162,000 650,000

The commercial benefit to the Australian Taxation Office, being the only creditor to have its claim compromised, is that none of the following creditors will participate as scheme creditors in the distribution of the fund, namely:

Emanuel Projects $598,393 Paterson & Co Pty Ltd $52,939,071 Elizabeth House Pty Ltd $1,612,748 Emanuel Investments $63,862 Emanuel (SA)Pty Ltd $2,608,532 Emanuel No. 1 Pty Ltd $1,002 Sayer Properties Pty Ltd $390,937 Libra Pty Ltd $848,389 Worando Trust Pty Ltd $3,113,488 Vila-Cairns Pty Ltd $6,734,859 Addstead Pty Ltd $64,863 Hendon Industrial Park Pty Ltd $1,193,051 Carsim Pty Ltd/Emanuel Holdings Pty Ltd $1,294,274 Establishment Holdings Pty Ltd $3,352,313 Hondel Pty Ltd $309,205 TOTAL $75,124,987

In addition Mr Giuseppe Emanuele proposes to use his best endeavours to secure a compromise of his personal indebtedness to the following creditors, on the basis that, subject to the appropriate deeds of company arrangement being approved, those creditors will discharge any claims they have against each member of the Emanuel Group including Emanuel Management Pty Ltd.

Hooker Rex $3,550,000 KBA/Challenge Bank $44,722,791 Oakeminster $3,905,283 LendLease $682,089 Cromar $65,000 Milos $132,943 Lorelle $2,100,000 Farrow $743,557 Barbaro $3,000,000 Angeloni $439,595 Australian Taxation Office $44,473,894 EFG Group (after deducting its securities worth $70,000,000) $118,000,000 BAC $4,000,000 ANZ Mercantile Credits $3,612,752 TOTAL $229,427,904

Under the terms of the proposed deed of company arrangement, assuming Mr Emanuele is successful in compromising each of the above creditors in the manner anticipated, the only creditor who receives less than its full entitlement is the Australian Tax Office in respect of the claim for unpaid income and capital gains tax of $44,473,894. On account of this entitlement the Australian Tax Office will receive a dividend of approximately $162,000. This dividend is paid to the Australian Tax Office in addition to the outstanding group tax and the prescribed payments tax which together total a further $300,000. It should be noted that under current law these entitlements no longer have a priority in a winding up. Accordingly, under the proposal, the total amount that is paid to the Australian Tax Office is $462,000 an amount of unsecured non-priority claims totalling $44,773,894.

In the event that Emanuel Management is wound up, and all creditors prove in the liquidation, and there are no priority entitlements, then the liquidator, without making any allowance for fees and expenses in the winding up, would pay dividends totalling $650,000 to creditors whose claims would amount to a total of $304,468,000 which would equate to a dividend of approximately .213 cents in the dollar. This would mean that the Australian Taxation Office's total claim of $44,773,894 would attract a dividend of $95,368.40 in such a winding up.

In the circumstances the commercial interests of the Australian Taxation Office are far better served by the proposed deed of company arrangement where the return will be $462,000, compared with a winding up where the return is likely to be something less than $95,000 and this amount could be substantially reduced as no provision has been made in these calculations for liquidator's fees and expenses which have a priority entitlement in the winding up.

We trust this will assist Mr O'Grady in his consideration of our request that he agree that the EFG Group vote the unsecured portion of its debt in favour of a deed or deeds of company arrangement in terms the same or similar to those outlined herein.

In the circumstances we request that clause 6.5 of the Settlement Deed be amended to confirm that the EFG Group will support deeds of company arrangement the terms of which are basically in line with the matters referred to herein."

The letter makes clear that the plaintiff companies had decided, before settlement, to propound a deed of company arrangement between Emanuel Management Pty Ltd and its creditors and if necessary between a number of other members of the Group and its creditors, depending upon the view to be taken by the Australian Taxation Office. The document establishes beyond doubt the directors awareness of the financial positions of each of the companies and of course Mr Winter's own awareness of the financial position of each of the companies. The letter shows that it was the intention of the companies to propound deeds of company arrangement which would return $162,000 to the Australian Taxation Office out of an indebtedness of $44,500,000.

The carrot, if I can put it that way, being offered to the Australian Taxation Office was that the other companies within the Group would not prove in respect of each deed of company arrangement.

Concurrently with those deeds of company arrangement Mr Joe Emanuele was proposing to secure a compromise of his personal indebtedness which at that stage totalled $229,000,000. As Mr Winter observed if Mr Emanuele was successful in convincing his creditors to forbear in relation to his debts the only creditor who would receive less than its full entitlement would be the Australian Taxation Office.

Mr Winter further observed that if the Australian Taxation Office was not prepared to agree to the deeds of company arrangement then in those circumstances they would receive a lesser dividend by reason of the other creditors proving for their shares. What that letter overlooked was that it was proposed that the Australian Taxation Office and the other creditors identified in that letter would, in due course, be asked to approve deeds of company arrangement in circumstances where a full disclosure of the transaction involving Elders had not been made to them.

However the letter clearly demonstrates that the directors had knowledge that each of the companies and the Group was insolvent, and that it was the intention of the directors to seek to place the companies under administration for the purpose of approving deeds of company arrangement.

It was also the intention of the directors not to advise the creditors of the Group that separate arrangements had been made between EFG and Mr Joe Emanuele and Simionato Holdings Pty Ltd.

As I have already said, the directors were under an obligation to act honestly and in the best interests of the company. In doing so they had to have regard to the creditors of the Group and in my opinion to act in the way proposed by Mr Winter was not to act in the best interests of the company.

Three deeds were executed on 17 March 1995 and settlement took place in Brisbane as proposed. The draft deed between EFG and the Emanuel Group was executed in much the same terms as had been proposed in the draft of 10 March 1995 although some cosmetic changes were made to paragraph 6.5.

However, by the terms of paragraph 6.5 EFG did agree, provided some conditions were observed, to vote in support of any resolution proposed by any of the Emanuel Group at any meetings of creditors which any of the Emanuel Group called for the purpose of Part 5.3A of the Corporations Law. EFG also agreed not to participate in any dividend which may be payable to the creditors of any of the Emanuel Group in the event that any of the Emanuel Group executed a deed of company arrangement under section 444A of the Corporations Law.

The deed provided for confidentiality in these terms: "Except for the purpose of enforcement of the Securities or for the purpose of enforcement of this Deed, the fact and terms hereof shall be strictly confidential."

The deed specifically made no mention of any collateral instrument or any other deed of any kind.

A deed of agreement was executed on the same day between EFG and Simionato Holdings Pty Ltd. In paragraph F of the recitals to that deed the parties stated: "The commercial relationship between the EFG Group and the Emanuel Group and Giuseppe Emanuele is now at an end and the EFG Group is desirous of paying a gratuity to Simionato Holdings in recognition of the commercial relationship between the EFG Group and Giuseppe Emanuele and in consideration of the provision by Giuseppe Emanuele and by the members of the family of Giuseppe Emanuele of such co-operation and assistance as may be required by the EFG Group in enforcing its rights under the Securities in dealing with the properties the subject of the Securities."

The consideration to be provided by Simionato Holdings was expressed to be in Clause 2.1: "In consideration of Simionato Holdings causing Giuseppe Emanuele to enter into the Giuseppe Emanuele Deed and in consideration of Simionato Holdings causing each of Rocco Emanuele, Linton Emanuele and Linda Emanuele to provide to the EFG Group on or prior to the Settlement Date a letter in the terms set out in Item 2 of the schedule hereto, the EFG Group hereby agrees to pay to Simionato Holdings the sum of $4,600,000 on the Settlement Date for the use and benefit of Simionato Holdings, such payment to be subject to and conditional upon the execution by Giuseppe Emanuele of the Giuseppe Emanuele Deed and upon the provision by Rocco Emanuele, Linton Emanuele and Linda Emanuele to the EFG Group of the aforesaid letters."

Simionato Holdings therefore had to cause Mr Joe Emanuele to enter into the Giuseppe Emanuele Deed and to cause Mr Joe Emanuele's children to write a letter the terms of which I set out: "Dear Mr O'Grady

I hereby acknowledge, covenant and undertake to you that the EFG Group is entitled to and can, by its employees and agents from time to time, enforce its rights under all of its securities with the Emanuel Group of companies and with Mr Giuseppe Emanuele and deal with the property the subject of its securities, without any interference or claim by me whatsoever.

I further covenant and undertake that I will provide any assistance, co-operation or information to the EFG Group as I am able to provide and the EFG Group may reasonably require, to assist the EFG Group in enforcing such rights or dealing with such properties."

Mr Joe Emanuele was still a director of all of those companies in the Group other than the twenty-seven companies from which he had resigned. His children were directors and held other offices as outlined previously. The undertaking which Simionato Holdings was expected to extract from directors of unassociated entities is rather curious. It is very difficult to see how their offer of co-operation to the EFG Group for the purpose of providing consideration for a payment away from the companies of which they were directors, and to a company which would hold the assets, upon trust for themselves could be consistent with their obligations as officers of those companies of which they were directors and secretaries. It is curious that Simionato Holdings would undertake to procure the co-operation of the directors, given that there is no apparent reason for why they would co-operate with Simionato Holdings and give an undertaking to EFG except that as beneficiaries of the Emanuele Trust they sought to profit personally by the payment of monies to Simionato Holdings.

Specifically EFG consented to the payment of the sum of $1,300,000 by Simionato Holdings or its nominee to Giuseppe Nominees Pty Ltd for the purpose of completing the acquisition by and transfer to Simionato Holdings or its nominee on or before settlement date of the Burnside, Cape Jervis and Mount Barker properties.

As to confidentiality the Deed provided: "10. CONFIDENTIALITY

Each of the parties covenant with each other that they will not disclose any of the terms, conditions or other provisions of this Deed, or cause or permit such disclosure to any person except:-

a) as required by law and then only to the extent necessary; or

c) to the parties' advisors upon receipt of a written undertaking from the advisor that the terms, conditions or other provisions of the Deed will be kept strictly confidential by such advisor; or

d) upon receipt of the prior written consent of the other party which consent may be refused or granted on any terms or conditions as the other party may in their absolute discretion determine."

Mr Farrugia certified that Simionato Holdings Pty Ltd executed the deed upon his advice.

The third deed was said to be executed on the 15 March 1995 and provided for a release by Giuseppe Emanuele of EFG in relation to any causes of action of any kind against EFG. It also provided for two covenants. The first covenant was to immediately discontinue the appeal from the judgment of Branson J. The second covenant included an undertaking that he would provide any assistance, co-operation or information to the EFG Group which it may reasonably require to enforce its rights under the securities including executing any documents which the EFG Group may in its absolute discretion require. I set out the covenant in full: "4.2 Giuseppe Emanuele covenants and undertakes that the EFG Group is entitled to and can by its employees and agents from time to time enforce its rights under the Securities (except for its rights under any personal guarantees given by Giuseppe Emanuele to the EFG Group or in respect of any other personal liability which Giuseppe Emanuele may have to the EFG Group under the Securities) and deal with the Security Property without any interference or any claim by or from him whatsoever, whether by caveat, other process, or any other direct or indirect means of conduct or action whatsoever, and Giuseppe Emanuele covenants and undertakes that he will provide any assistance, co-operation or information to the EFG Group which it may reasonably require to enforce its rights under the Securities, including, and without limiting the generality of the foregoing, executing any documents which the EFG Group may, in its absolute discretion, require."

That second covenant corresponded with the consideration expressed to be undertaken by Simionato Holdings in its Deed with EFG.

Of course Mr Joe Emanuele could only give such assistance in relation to companies of which he was either a director, secretary or alternatively which he controlled apart from by way of his office.

In return for his covenants, EFG agreed to release him in relation to all causes of action except for the judgment debt pronounced by Thomas J. In relation to that judgment debt EFG undertook to forebear from enforcing the judgment against Mr Joe Emanuele and agreed, provided that the debt had not been enforced by reason of the default of Mr Emanuele, to release and discharge him from 30 June 1998 from any further liability to EFG.

EFG also agreed, provided there was compliance with the deed, that in relation to any meeting of creditors called for the purposes of Part X of the Bankruptcy Act to vote in support of any resolution proposed by or on behalf of Mr Joe Emanuele and not to participate in any dividend which may be payable to the creditors of Mr Joe Emanuele in the event that the creditors of Mr Joe Emanuele resolved to accept a deed of assignment or a deed of arrangement or composition.

Lastly, a confidentiality clause of the same kind as was included in the Simionato Holdings Pty Ltd deed was included.

No doubt this deed was drawn in the way that it was so as to not only advantage Mr Joe Emanuele by releasing him from his personal guarantees to EFG which had given rise to his personal indebtedness for the judgment debt, but also to advantage him in the event that he called a Part X meeting. The deed had not released him from the judgment debt and did not release him unconditionally from the judgment debt until 30 June 1998. That would allow EFG to vote at a meeting of creditors pursuant to Part X and overwhelm any other creditors in relation to any resolution relating to a Part X arrangement.

All of the deeds were drafted in such a way as to not bring to the attention of any creditor of either Mr Joe Emanuele or the Emanuel Group, the existence of the Simionato Holdings Pty Ltd deed. Any person not privy to the arrangements and negotiations between EFG and Mr Joe Emanuele and the Emanuel Group of companies could not know of the Simionato Holdings Pty Ltd deed nor indeed would they have any reason to suspect its existence.

That is so because unless one was privy to the particular commercial arrangements, which were kept secret, between Mr Joe Emanuele and EFG a creditor would not suspect that Elders would be paying a large sum of money to a company independent of the Emanuel Group. That necessarily meant that the creditors of Mr Joe Emanuele and the Emanuel Group could not have known that a sum of $4,600,000 was paid to Simionato Holdings and that a further sum of $400,000 was paid to the Emanuel Group's former solicitors, Thomsons.

There is no doubt in my mind that the transaction was constructed and the deeds drawn so as to avoid bringing to the attention of any of the creditors of Mr Joe Emanuele or the Emanuel Group of companies the fact that Elders had paid to Simionato Holdings Pty Ltd $4.6 million. The transaction was intended to defeat the claims of creditors of both Mr Joe Emanuele and of the Emanuel Group of companies.

The transaction did settle on 17 March and Simionato Holdings Pty Ltd received $3.3 million, Thomsons received $400,000 and Liddan Pty Ltd took the transfers of the Burnside, Mount Barker and Cape Jervis properties. The difference in $4,600,000 and $3,300,000 was to reflect the value of those three properties. Those three transactions were to the personal advantage of the Emanuele family and to the disadvantage of the creditors of the Emanuele family and the Emanuel Group of companies.

The Emanuel Group received $650,000 and their solicitors Messrs Johnson Winter and Slattery separately received $50,000. Blacklaw and Shadforth Pty Ltd received the sum of $322,313.54 in accordance with Clause 6.7 of the Emanuel Group deed.

The transaction, I have already found, was entered into for the purpose of defeating the claims of the creditors of Mr Joe Emanuele and the Emanuel Group and as the transaction was completed in accordance with the provisions of the various deeds it had that effect. In my opinion a sum of $3.3 million in cash and the $1.3 million worth of properties was diverted from the plaintiffs to the defendants for the express purpose of defeating the claims of the creditors of the Emanuel Group.

Each of Mr Rocco Emanuele, Linton Emanuele and Ms Linda Emanuele co-operated in the settlement of the transaction by giving the letters which were the subject of the Simionato Holdings Pty Ltd deed and by executing, where appropriate, the Emanuel Group of companies deed.

Mr Danny Farrugia accepted an appointment as attorney of Simionato Holdings Pty Ltd for the purpose of facilitating the transaction. Thomsons accepted the payment of $400,000 from EFG in partial settlement of the plaintiffs' and Mr Joe Emanuele's obligations in relation to their costs.

All of the matters to which I have referred are evidenced by documents exhibited to Mr Macks's affidavit of 2 September 1996.

I am satisfied that all of the matters to which I have referred have been established upon the balance of probabilities.

In their statement of claim the plaintiffs' claim that by reason of all of those matters the directors of the plaintiff companies were in breach of their fiduciary and statutory duty to the plaintiff companies. They have set out those breaches with some particularity in paragraph 66 of the statement of claim.

The affidavit of Mr Peter Macks of 2 September 1996 identifies clearly, and with some particularity, all of the matters to which I have referred. None of the directors or officers of the plaintiffs are parties to these proceedings but as Mr Clayton QC who appeared on behalf of the defendants in this application conceded they are all available to the defendant for the purpose of defending this application and the matter generally, although it must be said that Mr Rocco Emanuele is apparently overseas and has been for some time.

In any event the only evidence that has been put forward on behalf of the defendants in reply to the very serious allegations of breaches of fiduciary and statutory duties is contained in an affidavit of Mr Joe Emanuele of 10 January 1997, an affidavit of Linton Emanuele of 10 January 1997, and affidavits of Mr Robert Simionato of 10 January 1997 and 17 January 1997.

Mr Robert Simionato makes no comment in relation to the claim that the directors of the plaintiff companies were in breach of their fiduciary and statutory duties but he may not be in a position to give evidence about the conduct of the directors of the plaintiff companies. He would however be in a position to indicate the circumstances in which Simionato Holdings Pty Ltd and Liddan Pty Ltd were approached, and by whom, to receive $3,300,000 and the three parcels of land in South Australia respectively. He has offered no evidence in relation to those matters.

Mr Linton Emanuele simply does not comment upon the claim of breach of fiduciary and statutory duties. He has restricted his evidence to denying that after his resignation Mr Joe Emanuele gave any directions to any of the directors of the Emanuel Group in connection with the performance of their duties as officers of the corporations. He does, in his affidavit, specifically deny that certain payments amounting to $97,220 were used to pay personal debts of members of the family. However that is a minor issue in the matter.

He says rather disingenuously in his affidavit that "all payments made from the proceeds of the settlement between the Emanuel Group of companies and EFG has been applied to the discharge of obligations to the Group's creditors". The statement ignores the whole thrust of the plaintiffs claim. No doubt Mr Linton Emanuele might say that the $650,000 received by Johnson Winter and Slattery was used for the benefit of the Emanuel Group's creditors. But that is not the plaintiffs' case. The plaintiffs' case is that Mr Linton Emanuele and his family, whilst in a fiduciary relationship to the plaintiffs, wrongly allowed a sum of $5,000,000 to be paid to a company which was the trustee of a trust of which Mr Linton Emanuele was a beneficiary. He makes no comment whatsoever about that.

Mr Joe Emanuele in his affidavit says nothing whatsoever in relation to a claim that he has been in breach of his fiduciary and statutory duties. He addresses the plaintiffs' claim largely in this statement in his affidavit. "From the 24th of February 1995 onwards in accordance with the advice received from my solicitors I have not exercised any influence over the affairs and/or the operations of any of the companies within the Emanuele (sic) Group either in relation to the EFG matter or otherwise. I have not counselled, procured or influenced the directors of any of the Emanuele (sic) Group companies to pursue any particular cause of action or conduct in respect of the affairs of the companies or matters arising out of the affairs of the companies. Further I have not sought to discuss with EFG or any other persons' affairs of the Emanuele (sic) Group of companies. I have not intermingled any of my own affairs with those of the assets of the companies or any action by the companies. I have not competed with the companies in the Emanuele (sic) Group either in securing a settlement with EFG or otherwise."

Even if that is true, and for the purpose of this application I accept it to be so, that is no answer to the plaintiffs' claim. That statement only addresses Mr Joe Emanuele's conduct after 24 February 1995.

It does not address the negotiations conducted up to 24 February 1995, the advice which he received from his solicitors and accountants particularly in the meetings in February 1995, the reasons for his resignation and the resignation.

It is extraordinary, in my opinion, that none of the directors of the plaintiff companies have brought forward anything in response to the very serious allegations made by the plaintiffs in these proceedings.

As I have said, the plaintiffs' clearly expressed case is that their directors and other officers acted in disregard of the plaintiff companies best interests and in particular in disregard of the creditors of the plaintiffs for the purpose of benefiting themselves. Such a claim, for the purpose of an application such as this, needs to be addressed if not only to simply deny the claim. However the defendants have not brought forward any evidence from the directors either denying the allegations or in any way commenting upon these allegations.

In those circumstances I am entitled to conclude, and I do so, that no evidence was brought forward because the directors were not able to answer the very serious allegations made against them.

I conclude therefore that it has been established upon the balance of probabilities that Mr Joe Emanuele, Mr Rocco Emanuele, Mr Linton Emanuele and Ms Linda Emanuele failed to act in the best interests of each of the plaintiff companies of which they were officers and in the case of the three children of Mr Joe Emanuele throughout the whole of the period between June 1994 and until settlement of this transaction in March 1995, and in the case of Mr Joe Emanuele over the same period notwithstanding his purported resignation from the twenty-seven plaintiffs on 27 February 1995.

In particular, in my opinion each of the directors have failed to act honestly in the discharge of their duties of office. Moreover, they have failed to exercise the degree of care and diligence that a reasonable person in their position would have exercised in the carrying out of their duties as officers of the plaintiffs. Each of them has made improper use of information acquired by virtue of their position as officers of the corporation to gain indirectly an advantage to themselves and to the defendants. Lastly, they have made improper use of their position as officers of the corporation to secure an indirect advantage for themselves and a direct advantage for Simionato Holdings Pty Ltd and Liddan Pty Ltd.

In all of those circumstances they are guilty of breaches of their fiduciary duty to the company and equally, of course, guilty of breaches of Section 232 of the Corporations Law. In that last respect in so far as their breaches involve breaches of s232(2), (4), (5) and (6) of the Corporations Law they therefore become liable to civil penalties as provided for under Section 1317 DA of the Corporations Law.

Of course none of the officers of the company are defendants in this action and no relief is sought against any of the officers, at least in these proceedings. The plaintiffs, if they are to succeed in these proceedings, must establish more than the breaches to which I have already referred. As well they must establish that the defendants received the moneys and or the land in circumstances where either in equity a constructive trust is impressed upon the money and the land or alternatively, under the Corporations Law, the defendants become accountable for the money and or the land.

There is in fact no dispute about the receipt of the moneys and the land and the flow of funds from Simionato Holdings Pty Ltd to the other defendants.

In an affidavit sworn on 17 January 1997 Mr Robert Simionato, who is a director of all of the defendant companies said: "6. On 17 March 1995 Simionato Holdings Pty Ltd executed a Deed of Agreement which is exhibit 4.35 to the affidavit of the liquidator. The terms of the Deed of Agreement had been negotiated by solicitors for Mr Giuseppe Emanuele and those solicitors were also acting for Simionato Holdings Pty Ltd. After receiving advice from Mr Farrugia the terms of agreement were accepted by Simionato Holdings Pty Ltd.

7. I have had limited access to financial records that evidenced of the flow of funds received pursuant to the Deed of Agreement. In so far as I am able to ascertain the liquidators affidavit outlines the flow of funds and payments made by Simionato Holdings Pty Ltd and the other defendant. However I am not able to confirm or deny all of the payments referred to in the liquidator's reconstruction of the accounts.

8. All payments of monies by the defendants on behalf of other persons for other entities have been carefully considered by the directors of the defendant. After proper and careful consideration payments have either been approved and made or rejected and not made.

9. Apart from the expenditure of day to day running costs and other business expenses all other expenditure made by the defendants is fully accounted for and is recoverable.

10. From the date of my appointment as director until the present time the control of the defendants has been in the hands of the directors. My co-director and I do not take directions from any other person whatsoever in connection with the management or control of the operation of the defendant companies save of course we accept the directions of the Court. In the interests of management of the defendant companies, where necessary, we seek and obtain appropriate advice from persons whom we consider to be competent to give such advice. Giuseppe Emanuele is not in control of the management or activities of any of the defendant companies nor does he influence the director of the defendant."

Consistently with Mr Simionato's concession the defendants put no evidentiary material forward in opposition to the evidence brought forward by the plaintiffs as to the receipt of the funds and land and in the dealing with those funds and land subsequent to the 17 March. Moreover, Mr Clayton QC, who appeared with Mr Andrew Martin for the defendants addressed no argument contrary to the assertions made by the liquidator in relation to the receipt and use of the moneys and land. Therefore it may be accepted that the money and the properties received have been dealt with as asserted by the liquidator. In the circumstances, as there is no dispute as to the dealing with the moneys I shall deal with those matters as briefly as possible but before I do so I ought to address one further matter which was vigorously argued.

On 23 March 1995 Mr Bruce Carter, a chartered accountant practising in Adelaide was appointed administrator of forty-one of the plaintiffs companies. Subsequent to his appointment there followed implementation of various deeds of company arrangement by twenty-four of the plaintiff companies.

In an affidavit sworn in proceedings in the Federal Court, he deposed that at no time prior to the issue of a report to creditors of 22 May 1995, which he was obliged to send under the Corporations Law, was he made aware of the fact that there was a Deed of Forbearance and Release made between EFG and Simionato Holdings Ltd or a Deed of Forbearance and Release made between Elders and Mr Giuseppe Emanuele. Nor was he told that Simionato Holdings Pty Ltd was acting as trustee of Emanuel Family Trusts and acquired assets on 17 March 1995 which have been made available to members of the Emanuele family. Moreover, he swore that he was unaware of payments being made by Simionato Holdings Pty Ltd to the former wife of Mr Giuseppe Emanuele and of other payments to other people.

He said that the deed made between EFG and Simionato Holdings Pty Ltd was information which was material to his administration because Mr Giuseppe Emanuele was himself a debtor of Giuseppe Nominees Pty Ltd in the sum of $1,572,723 and an Emanuel family trust was a debtor of Emanuel Management Pty Ltd in the sum of $5,456,232.

His evidence was that if he had known the matters to which I have referred he would have made different recommendations to that which he made to the creditors, and indeed would have recommended that Giuseppe Nominees Pty Ltd and Emanuel Management Pty Ltd be wound up. Further he would have recommended that steps be taken by a liquidator to recover the debt due by Mr Emanuele.

Whilst unaware of the matters to which I have referred, Mr Carter was aware of the payment to Johnson Winter and Slattery in relation to their fees and also the payment to Blacklaw and Shadforth Pty Ltd.

He said in his affidavit: "I made specific inquiries as to whether any other arrangement had been effected between the Emanuel Group and its creditors. I was advised by the directors and particularly, Mr Rocco Emanuele, that there were no such arrangements. Further this was raised by me during the meeting of creditors of Emanuel Management Pty Ltd held on 13 May 1995. Mr Winter and Mr R Emanuele stated that no such arrangements in the nature of "creditor incentives" existed. Further, I was advised by Mr Winter that no further moneys could be made available from the Elders Finance Group to the creditors for the purpose of the proposed deeds."

He further deposed that shortly after 17 March 1995 and before his appointments a number of payments were made to persons who were said to be creditors of Emanuel Management Pty Ltd. These payments were made from the trust account of Mr Winter. He said that he advised Mr Winter and the director of the company, Mr Rocco Emanuele, that it was his view such payments should not have been made.

There can be no doubt that on a proper understanding of the affidavit of Mr Carter filed in the Federal Court proceedings and exhibited to Mr Macks's affidavit in these proceedings that Mr Carter was misled in material respects in relation to these transactions.

It would appear on his affidavit that the directors of the plaintiffs allowed Mr Carter to put forward to the creditors of the plaintiff companies deeds of company arrangement which

contained no reference to the transaction made between EFG and Simionato Holdings Pty Ltd and Mr Giuseppe Emanuele.

Mr Rocco Emanuele has not filed an affidavit in response to Mr Carter's allegations that he misled Mr Carter in relation to these matters. However Mr Winter denied, in his public examination, that he had failed to advise Mr Carter that a payment would have been made to Mr Joe Emanuele.

His evidence was (TX 3610): "Q Tell me when you gave it to Carter did you tell him - did you discuss it with him.

A I would think I did, I don't have a specific recollection of that.

Q Did you tell him that Giuseppe would have funds available to pay these creditors.

A I told him that Mr Emanuele was going to be in receipt of moneys from Elders.

A I think I did, in the order of, I mean I didn't know specifically.

A I think the figure that I mentioned might have been 5 million.

A I think it might have been at the first or second - I actually can remember the conversation. I can't remember exactly when it was, I believe though that it was either the first or second meeting I had with him in his office.

Q After the settlement on 17 March you were talking about it.

Q Yes, I understand that, I'm just trying to fix the time.

Q So you met with him in his office and you told him this letter indicates what we've got in mind, is that right, and Giuseppe has got money he's got at least five million from the Elders Group to be able to carry it out.

A He said is it his own money and I said, no I understand that it's in a trust somewhere and then he said, well I don't need to concern myself with that."

He was later asked these questions and gave these answers (TX 3652):

"Q When you told him about the amount of about $5 million that Joe got did you say anything about whether that was confidential.

Q You told me that you mentioned it to Carter in the early days of the administration, are you talking there about the 21st, 22nd about the time, of March.

Q It wasn't a matter that you discussed with Mr Farrugia.

A I've really not discussed that transaction with Mr Farrugia at any time since 17 March."

He was further pressed (TX 3668) "Q I just want to go back to one last issue. You say you told Mr Carter about the $5 million.

A No. Could I tell you about the reason I'm so sure about that is because a week ago yesterday I had a meeting with Mr Carter in my office which was an open meeting and he told me that.

A He told me that, and it confirmed to me what I'd been saying from about 21 March, that on the first or second meeting that he and I had, I told him.

A That Joe had received some money independently of the companies.

Q Did he acknowledge that it was an amount of $5 million.

Q This is when you saw him - when did you say it was, a week or so ago, was it.

Q So a week ago yesterday in your office he acknowledged to you that he had been told by you on the first or second meeting that a sum in the order of $5 million had been paid to Joe or to his trusts or whatever.

A Yes, I'm not absolutely certain of the amount of money that was mentioned. Michael Barratt was present at the meeting and took copious notes."

Q Do you know that Mr Carter has sworn an affidavit denying that he knew of it.

A Well, I haven't got the affidavit in front of me.

A Well, I'm just telling you what Carter told me a week ago today.

Q It's not just that, is it, its what you also say you said to Carter back on the first or second meeting.

Q When you told him back in March, on the 20th or 21st, whatever it was, about this amount of money did you put it to him in such a way that he would have regarded it as a matter of no consequence.

A I said to him "Joe got a bundle of money apart from what's being paid to the companies" and I believe they are the words I used.

Q I thought you'd told me a moment ago that he said to you at this meeting a week ago at which Barratt was present that he was told in the order of $5 million I misunderstood that.

A Yes, and I qualify that, what I can't recall is what he said to me - whether what he said to me a week ago, referring back to 21 March, was that I told him it was five million. My recollection of 21 March is that I didn't but that may not be what he suggested at our meeting the other day."

Mr Winter's evidence is somewhat unsatisfactory. He commences by claiming that he told Mr Carter that Mr Emanuele received $5 million and concludes the examination by being unsure whether that figure was mentioned. Mr Winter's evidence has not been put to Mr Carter. I therefore do not know what his response is to the allegation made by Mr Winter that there was a meeting at which Mr Carter acknowledged that he had previously been told of the payment of moneys to Mr Joe Emanuele. I have not heard from Mr Barrett who was apparently present and took 'copious notes'. I cannot therefore resolve that dispute as to precisely what if anything Mr Carter told Mr Winter about Mr Joe Emanuele receiving monies.

But I can conclude, because no one suggests otherwise, that Mr Carter was not made aware of the Deeds of Forbearance and Release made between Simionato Holdings Pty Ltd and Mr Joe Emanuele. He was also not made aware of the negotiations leading up to the execution of those deeds. Specifically he was not told that an offer had been previously made in the terms of the Draft Deed of Forbearance and Release of 6 February 1995. It is not for me to pass an opinion on Mr Winter's obligations. It is enough to notice that Mr Winter was of course acting on behalf of the plaintiff companies. At the time that the administrator was appointed, it was in the best interests of those companies that they recover at least the amount proposed in the draft DOFR of 6 February 1995. That could only occur if the administrator was in possession of sufficient information which would have made him aware of those other deeds. Whether Mr Winter had an obligation to fully inform Mr Carter, the administrator of the plaintiff companies, of exactly what had transpired so that Mr Carter might himself properly advise the creditors who were being called upon to vote on a deed of company arrangement is a matter I do not have to answer. It is enough to note that Mr Carter was not so informed.

It is quite clear that when the deed of company arrangement was put to the creditors the creditors were misled. They were misled because they were not advised of the sum of money paid to Simionato Holdings and the sum of money paid to Thomsons, a fellow unsecured creditor.

In my opinion the circumstances subsequent to the 17 March indicate, as I have previously found, that Mr Emanuele and his family intended, by not revealing the payment of the moneys to Simionato Holdings Pty Ltd and the transfer of the properties to Liddan Pty Ltd, to mislead the creditors of the Emanuel Group and of Mr Joe Emanuele for the purpose of maximising a return to the family.

In those circumstances the moneys were paid to and received by Simionato Holdings Pty Ltd and the properties transferred from Giuseppe Nominees Pty Ltd to Liddan Pty Ltd in circumstances where the officers of the plaintiffs were guilty of breaches of fiduciary duties and breaches of statutory duties.

I have concluded that each of the directors to whom I have referred was guilty of the breaches of fiduciary and statutory duties as outlined previously.

The directors were not entitled to claim, whatever had been told to Mr Winter by Mr Carter, that they were excused from these breaches because they had made full disclosure to the companies of which they were directors.

Indeed in my opinion it is clear that they not only did not make full and frank disclosure, they deliberately conducted themselves so as to avoid making any proper disclosure to the companies of which they were directors and any disclosure to the creditors of those companies.

In making these findings I have had regard to the fact that the defendants have not sought to put any information before me consistent with any defence to the matters alleged against them. The directors of the defendants have not sought to adduce any evidence, even by way of simple denial, that they were innocent of complicity in the dishonest design. In these circumstances there can be no other findings than those to which I have referred.

The financial position of the group of plaintiff companies was such that the directors had to have regard to the interests of the creditors and in those circumstances full and frank disclosure would have included disclosure of that kind to those creditors: Kinsela v Russell Kinsela Pty Ltd (1986) 4 NSWLR 722.

I have no doubt that the defendants, at least those which were then incorporated, and the defendants' directors were well aware of the breaches of fiduciary and statutory duties of the directors of the plaintiff companies. Indeed the raison d'etre of the defendants Simionato Holdings Pty Ltd, Thomco No. 832 Pty Ltd and Liddan Pty Ltd was in my opinion to aid and abet in those breaches. Simionato Holdings Pty Ltd, in particular, was acquired from Thomsons for the purpose of acting as trustee of the Emanuele Family Trust and for the specific purpose of entering into the Deed of Forbearance and Release with EFG. It was acquired for the purpose of receiving $3,300,000 from EFG and for the purpose of benefiting the Emanuele family and in particular the directors to whom I have referred. So also did Liddan Pty Ltd assume the obligation of trustee of the Liddan Family Trust for the purpose of receiving the three properties in South Australia and for the particular purpose of benefiting the Emanuele Family and directors to whom I have referred.

The directors of both companies and the companies themselves were aware of the breaches by the plaintiff companies' directors and were aware that their role was, in the case of those two companies, to receive the assets otherwise due to the plaintiff companies.

They received the assets with full knowledge of the breaches by the directors of the plaintiff companies and in aid of these breaches.

The other companies in the Simionato Group, either then incorporated or later incorporated, also acted with full knowledge of those breaches in receiving and disposing of the proceeds of the payments by EFG and the transfer of the properties by Giuseppe Nominees Pty Ltd.

The breaches by the directors made them liable to account: Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373; s1317 DA, s1317 FA and s1317HDCorporations Law.

The defendants received the monies and properties with actual knowledge of the dishonest design and therefore hold the monies and the properties on constructive trust for the twenty seven plaintiffs. Consul Development Pty Ltd v DPC Estates Pty Ltd (supra).

Each of the defendants has had knowledge of the dishonest design and where each of the defendants has received money from any other defendant it has received that money as constructive trustee for the plaintiff companies.

The provisions of the Corporations Law also make the defendants liable to the twenty-seven plaintiffs. The directors, for the reasons already given, have contravened the particular provisions of s232 that I have mentioned. Each of s232(2), s232(4), s232(5) and s232(6) is a civil penalty provision. [s1317DA]

Any person who is involved in a contravention of a provision of the Corporations Law is taken to have contravened that section. [s1317DB]

The directors of the twenty-seven plaintiffs and the defendants have been involved in a contravention of the provisions of s232 to which I have referred.

Section 1317HD provides:- "(1) Where a person contravenes a civil penalty provision in relation to a corporation, the corporation may recover from the person, as a debt due to the corporation:

(a) if that or another person has made a profit because of the act or omission constituting the contravention - an amount equal to the amount of that profit; and (b) if the corporation has suffered loss or damage as a result of that act or omission - an amount equal to the amount of that loss or damage; whether or not: (c) the first-mentioned person has been convicted of an offence in relation to the contravention; or (d) a civil penalty order has been made against the first-mentioned person in relation to the contravention."

The twenty-seven plaintiffs are therefore entitled under the Corporations Law to receive from the defendants as a debt due an amount equal to the loss or damage suffered by reason of the contravention.

It is the twenty-seven plaintiffs which have suffered a direct loss as a result of these transactions. It was those companies, and not the other members of the Group which stood to receive the moneys paid to Simionato Holdings Pty Ltd. Of course it was Guiseppe Nominees Pty Ltd which transferred away its property.

The other members of the Group have also suffered losses. That is because the diminished assets of the twenty-seven plaintiffs in turn would reduce any return to any member of the Group which was a creditor of any of the twenty-seven plaintiffs. However I will not examine that further matter as little evidence has been directed to that aspect and I have not been addressed on that point.

The assets have been received by the defendants at the expense of the twenty seven plaintiffs. Those companies are entitled to recover against the defendants.

The assets, however, have been dealt with by the defendants and I shall deal briefly with the use of those assets.

Fosters Brewing Group, the parent company of EFG, paid into Clayton Utz's trust account $4,722,313.54 and the moneys were disbursed as follows.

On 17 March 1995 EFG paid to Simionato Holdings Pty Ltd the sum of $3.3 million. The money was paid by way of a Westpac Banking Corporation cheque drawn on Clayton Utz's trust account payable to Simionato Holdings Pty Ltd. $322,313.54 was paid by EFG to Blacklaw and Shadforth Pty Ltd by a cheque also drawn on Clayton Utz's trust account made payable to that company. Clayton Utz paid $400,000 to Thomsons on 17 March 1995. On 17 March 1995 $50,000 was paid by Clayton Utz on behalf of EFG to Johnson Winter and Slattery in accordance with Clause 6.1(b) of the Deed of Forbearance and Release and on the same day a further sum of $650,000 was paid to the same solicitors in accordance with Clause 6.1(a) of the same agreement.

On 17 March 1995 Giuseppe Nominees Pty Ltd executed memoranda of transfers transferring the three South Australian properties to Liddan Pty Ltd and those transfers were registered at the Land Title Office. The financial aspects of that transaction were that EFG purported to pay to Simionato Holdings Pty Ltd the sum of $1.3 million. That company by resolution resolved to loan to Liddan Pty Ltd, in its capacity as trustee of The Liddan Trust, the sum of $1.3 million to give effect to the purchase by Liddan Pty Ltd of three properties in Adelaide (see minute of 17 March 1995). Liddan Pty Ltd purported to pay to Giuseppe Nominees Pty Ltd the sum of $1.3 million which in turn purported to repay to EFG the same sum in discharge of the securities over the three properties. In fact no moneys changed hands and the properties were transferred by Giuseppe Nominees Pty Ltd to Liddan Pty Ltd in exchange for the discharge of Giuseppe Nominees Pty Ltd's obligations to EFG on the securities.

I have already identified the corporate structure of Simionato Holdings Pty Ltd and Liddan Pty Ltd. Thomco No. 832 Pty Ltd has as its shareholders Mr Caruso, Mr Simionato, Mr Peter Carossi and Mr Cos Leonardis. Each of those four shareholders holds their shares on trust for Rocco, Linton and Linda Emanuele.

Sardona Pty Ltd has as its shareholders Mr Simionato and Mr Leonardis. They hold their shares on trust for Rocco and Linton Emanuele.

Melbourne Projects Pty Ltd has as its shareholders Simionato Holdings Pty Ltd and Liddan Pty Ltd. It was acquired as a shelf company from Thomsons on 24 April 1995.

Simionato Holdings Pty Ltd's assets prior to 17 March was a deposit of $20.00 with the Commonwealth Bank of Australia and Liddan Pty Ltd had as its sole asset a deposit of $10.00 with the National Australia Bank.

Thomco No. 832 Pty Ltd had a deposit of $96.39 with Metway Bank and a further sum of $704.96 with National Australia Bank. Sardona had no cash assets but did have interests in real estate. It was the registered proprietor of two parcels of land at Rostrevor. It had entered into a contract for the sale and purchase of industrial land at Campbellfield in Melbourne, Victoria and therefore had an equitable interest in that land. It was the nominee of Rocco Emanuele under a contract whereby Rocco Emanuele had agreed to purchase land at Altona, also a suburb of Melbourne.

Between the 20 March and 19 July the sum of $1,315,000 was transferred from Simionato Holdings Pty Ltd to Thomco No. 832 Pty Ltd. Some of the money received by Thomco No. 832 Pty Ltd has been applied for and on behalf of Mr Joe Emanuele. The sum of $35,726.70 has been paid to him directly. $7,004.55 has been paid to his former wife on his behalf, and $81,436.02 has been paid to other creditors of Mr Joe Emanuele. Simionato Holdings Pty Ltd has also made payments to or on behalf of Mr Joe Emanuele and the total of payments to or on behalf of Mr Joe Emanuele by Simionato Holdings Pty Ltd and Thomco No. 832 Pty Ltd is $382,797.03. A further $49,984.83 has been paid to the benefit of members of Mr Joe Emanuele's family making it a total of $432,781.86 paid by the defendants to the benefit of Mr Emanuele or his family.

On 4 April 1995 Liddan Pty Ltd resolved to purchase a property at Mission Beach in Queensland. On the same day it resolved to transfer $130,000 to Williams Graham Carmen for use as the deposit to be paid at auction. The cash journal of Simionato Holdings Pty Ltd shows $130,030 being paid to Mission Beach.

In due course $30,000 of that $130,000 was repaid to Thomco No. 832 Pty Ltd. On 8 May 1995 Liddan Pty Ltd resolved to borrow $941,952.97 from Simionato Holdings Pty Ltd to settle the purchase of Mission Beach. Two cheques totalling $941,953.27 (thirty cents greater than that which Liddan resolved to borrow) were drawn by Simionato Holdings Pty Ltd for payment of the settlement sum.

In total therefore a sum of $1,041,953.27 has been paid by Simionato Holdings Pty Ltd to or on behalf of Liddan Pty Ltd.

Subsequently Liddan Pty Ltd raised a loan facility of $800,000 on the security of the Mission Beach property and drew down $500,000 of it. An amount of $50,000 of the sum of $500,000 was paid to the lender on account of the lender's legal fees and interest payments due on the loan. The remaining $450,000 was paid by Liddan Pty Ltd to a trust account at Aroni Coleman the then solicitors for the defendants.

In due course moneys were disbursed from Aroni Coleman's trust account in the following manner. 1. On retainer for counsel and legal fees of the defendants $82,775.

2. To the solicitors of Mr Joe Emanuele and Mr Rocco Emanuele $40,000.

The last mentioned amount was used by Liddan in due course to meet interest payments on advances made by a company Monte Paschi Australia Limited and the Commonwealth Bank of Australia Limited on securities taken over the Mount Barker, Cape Jervis and Burnside properties.

In March 1996 Liddan Pty Ltd entered into a contract to sell part of the Mission Beach property. The contract provided for payment of the deposit of $10,000 and a total sale price of $750,000. The property settled on 4 July 1996. A settlement statement shows that $155,925 was deducted and paid to McIvor Coghlan Trust Account. No explanation has been given for that payment.

The Mission Beach property, therefore, was purchased with funds paid by EFG to Simionato Holdings Pty Ltd on 17 March 1995. All development carried out in relation to that property has also been provided by Simionato Holdings Pty Ltd from those funds.

On the sale of part of the Mission Beach property those remaining funds have been held by Liddan Pty Ltd and continue to be so held.

On 1 February 1995 Thomco No. 832 Pty Ltd resolved to enter into a contract to purchase land situated at Hallam, Victoria and a deposit of $30,000 was paid on 8 February 1995.

On 8 June 1995 Simionato Holdings Pty Ltd drew a cheque for $271,289.27 for the payment of the balance of the purchase price for the Hallam land.

When Simionato Holdings Pty Ltd wrote that cheque there had only been five deposits to its bank account. Three of those deposits are insignificant. On 17 March 1995 the EFG settlement money was deposited in Simionato Holdings Pty Ltd's bank account and on 6 June 1995 Liddan Pty Ltd provided $495,000 to Simionato Holdings Pty Ltd. Those moneys were raised by Liddan Pty Ltd by borrowing $485,000 from Monte Paschi Australia Limited on the security of the Cape Jervis property.

The moneys therefore paid by Simionato Holdings Pty Ltd on behalf of Thomco No. 832 Pty Ltd were paid out of the proceeds of the transaction with EFG or out of the proceeds raised on mortgaging the land transferred from Giuseppe Nominees Pty Ltd to Liddan Pty Ltd.

Further payments have been made by Thomco No. 832 Pty Ltd and Simionato Holdings Pty Ltd in respect of that land.

On 28 July 1995 Thomco No. 832 Pty Ltd resolved to obtain and did obtain an overdraft facility with the National Australia Bank with a limit of $250,000. In due course Thomco No. 832 Pty Ltd fully drew down that overdraft and used the moneys to make the following payments. 1. Payments to Mr Joe Emanuele and his family $48,976.03.

2. Interest payments on Sardona's mortgages of the Rostrevor land $62,318.70.

3. Payments made for development of the Hallam land.

On 13 April 1996 Thomco No. 832 Pty Ltd advertised the Hallam land for sale by auction, and by letter dated 19 June 1996 the defendants' solicitors advised the solicitors for the liquidator that Thomco No. 832 Pty Ltd would receive $35,000 deposit for the sale of the Hallam property. Mr Macks has deposed, in his affidavit, that he has not sighted the contract for the sale of the Hallam land and is not able, therefore, to say whether the sale of that land has been completed.

It appears from the foregoing that the Hallam land was purchased with the proceeds obtained by Simionato Holdings Pty Ltd either directly or indirectly from EFG.

In June 1995 Liddan Pty Ltd purchased a property at Epping Road, Broadford from a Mr Tony Socco. A $10,000 deposit was paid on 3 July 1996 which was paid out of funds from Simionato Holdings Pty Ltd, which in turn were funds received directly from EFG. Further payments have been made by Simionato Holdings Pty Ltd or Thomco No. 832 Pty Ltd for the development or holding costs of the Broadford land. It does not appear that the contract has yet settled.

339. In 1985 Emanuel No. 13 Pty Ltd purchased the MLC Building in Victoria Square for $5.2 million. In 1987 it sold three of those floors to Saverio, Maria Vincenzo, Francesca and Paola Barbaro and Saverio, Anna and Giuseppe Trimboli.

340. The precise terms of the transaction involving the sale to those persons is not entirely clear, but it appears that Mr Joe Emanuele retained some ongoing liability in relation to a guarantee of the rental income of those floors. It may be that a put option was given to the purchasers at the time of purchase or at some time later. In any event on 3 June 1995 the Barbaros and Trimbolis executed a contract for the sale of the three floors to Simionato Holdings Pty Ltd. On 15 May 1995 Simionato Holdings Pty Ltd paid a deposit of $230,000 out of those funds paid to it on 17 March 1995 by EFG. The total purchase price was $2,300,000 with a deposit of $460,000. The deposit was to be paid in two instalments $230,000 on 15 May 1995 (which has been paid) and $230,000 to be paid on 13 August 1997.

341. The special conditions provide that the purchaser, Simionato Holdings Pty Ltd, would take a lease of the three floors until 30 November 1998. The contract provides for a settlement on the 30 November 1998.

342. The holding costs associated with the MLC Building have been met by Simionato Holdings Pty Ltd and Thomco No. 832 Pty Ltd.

343. By contract dated 20 January 1995 which was varied on 10 February
344. Sardona Pty Ltd purchased land at Altona from Reywood Investments Pty Ltd. The contract has not been exhibited to Mr Macks's affidavit, but a notice of intention to rescind has and that shows the purchase price to have been at $7.7 million. A letter of Mr Rocco Emanuele to Mr Danny Farrugia of 21 February 1995 (to which I have already referred) claims that a sum of $400,000 by way of deposit was paid in respect of that purchase. It appears that the sum of $400,000 was paid out of the moneys received by Simionato Holdings Pty Ltd from EFG.

344. The remainder of the purchase price has not been paid and Sardona Pty Ltd does not have the capacity either to raise the necessary sum to pay the purchase price or to pay the purchase price out of its own resources. Indeed it would appear that the deposit for the Campbellfield land has been lost.

345. The sum of $3,229.85 was paid in relation to the holding costs of the property.

346. On 30 June 1994 Rocco Emanuele apparently signed a contract to purchase from Sarkem Limited land at Altona for the purchase price of $3,000,000. The contract has not been exhibited to Mr Macks's affidavit but other documents allow some facts to be established. The original purchase agreement was varied on 19 October 1995 and 31 January 1996. Interest was payable to the vendor in the sum of $60,512 on 1 March 1996 but has not been paid. A deposit of $410,000 has been paid by Sardona Pty Ltd out of funds advanced to it by Simionato Holdings Pty Ltd and in turn out of funds received by that company from EFG. A further $150,000 was paid by Simionato Holdings Pty Ltd on 30 June 1995 described as an extension payment. The sum of $550,000 has therefore been paid and has been lost in relation to the contract for the sale of the Altona land.

347. Sardona has neither the capacity out of its own resources or by way of borrowing to settle on the land. The deposit either has been or will be lost.

348. Prior to 17 March 1995 Sardona was a registered proprietor of two parcels of land at Rostrevor. One parcel was mortgaged to a Mr Mansfield, who exercised the power of sale given under the mortgage and caused the land at Rostrevor to be sold. The sale did not return sufficient funds to meet the outstanding amount of the mortgage. During the time that the property was held Simionato Holdings Pty Ltd provided $77,384.02 to meet repayments on the mortgage.

349. The second piece of land was originally purchased by Giuseppe Nominees Pty Ltd on 15 February 1991. At that time it paid $50,000 by way of deposit. Giuseppe Nominees Pty Ltd was never able to meet the purchase price and the contract was extended on 16 March 1992, 7 August 1992 and 10 March 1993 and lastly on 19 September 1993. By that time Giuseppe Nominees Pty Ltd had paid $365,020.55 to the vendors of the Rostrevor property.

350. Sardona Pty Ltd replaced Giuseppe Nominees Pty Ltd as the purchaser and Sardona Pty Ltd and Giuseppe Nominees Pty Ltd agreed that Sardona would purchase the property and the moneys paid by Giuseppe Nominees Pty Ltd for the purchase of the property to that date would be treated as loans to Sardona Pty Ltd, but Sardona Pty Ltd would not be required to repay those loans until the land was sold.

351. Sardona Pty Ltd borrowed the money necessary to complete the purchase of the Rostrevor land through Evans and Murray, Mortgage Brokers. Those mortgagees advanced slightly less than $650,000. Giuesppe Nominees had already paid deposits totalling $200,000. At settlement $131,059.52 was advanced to Sardona Pty Ltd from the proceeds of the first mortgage.

352. In September 1994 the original mortgage was discharged and two separate mortgages put in place. After September 1994 there was a first mortgage to the original first mortgagees in the sum of $466,000 and a second mortgage in the sum of $300,000 to R and M Marciano.

353. Therefore by September 1994 Sardona had obtained advances of $100,000 more than the original purchase price of the second Rostrevor property.

354. Thomco No. 832 Pty Ltd and Simionato Holdings Pty Ltd have advanced moneys to Sardona for the purposes of Sardona meeting interest payments and holding costs in the sum of $62,656.50.

355. In February 1994 Thomco No. 832 Pty Ltd entered into a contract to purchase land at Mission Hills for $440,000.

356. The funds for the purchase of the property appear to have been obtained by an advance from Mr G Simionato in the sum of $140,000. On 12 May 1994 Thomco No. 832 Pty Ltd resolved to enter into a joint venture agreement with Jefferson Properties Pty Ltd for the subdivision and development of the land. The precise arrangements in relation to that joint venture are not clear. A minute of 29 July 1994 of Thomco No. 832 Pty Ltd shows that the directors resolved to sell the company's fifty per cent share to Jefferson Properties Pty Ltd for $200,000 but that Thomco No. 832 Pty Ltd was to retain ownership of one allotment and would receive four blocks from the development within twelve months of the date of sale.

357. Two days before that transaction Robert Simionato, with the concurrence of the owners of the shares in Thomco No. 832 Pty Ltd, Rocco Emanuele, Linda Emanuele, and Linton Emanuele borrowed $90,000 from David Furniss upon the security of those shares.

358. It appears however from the cash journals of Simionato Holdings Pty Ltd and Thomco No. 832 Pty Ltd that interest payments in the sum of $6,572.75 were made up until October 1995 to Mr Furniss in respect of that loan.

359. It appears therefore that whilst none of the moneys received by Simionato Holdings Pty Ltd in the 17 March 1995 transaction were used for the purchase of this land some moneys were used for the payment of interest to Mr and Mrs Furniss in relation to a loan that they must have made to Mr Robert Simionato.

The Cape Jervis, Burnside and Mount Barker Properties

360. I have already described the transaction relating to the acquisition by Liddan Pty Ltd of the Cape Jervis property, Burnside property and Mount Barker property. So also have I described the borrowing of $485,000 by Liddan Pty Ltd from Monte Paschi Pty Ltd.

361. Simionato Holdings Pty Ltd and Thomco No. 832 Pty Ltd have made payments of interest in respect of the Monte Paschi Pty Ltd loan in the order of $16,650.08.

362. So also have both of those companies made payments in relation to the development and holding costs of that land in the sum of $102,804.45.

363. On 28 June 1995 Liddan Pty Ltd resolved to enter into a loan agreement with the Commonwealth Bank of Australia in the sum of $350,000 and on 14 July 1995 the directors

resolved to mortgage the Burnside and Mount Barker properties as security for the loan of $350,000. The directors resolved on the same day: "That the funds arising from this transaction are to be deposited directly into the bank account of Simionato Holdings Pty Ltd as repayment of part of the moneys borrowed from it for the initial purchase of the properties." (see document 5.251)

364. Simionato Holdings Pty Ltd and Thomco No. 832 Pty Ltd have paid various sums for the maintenance and expenses of occupation of the Mount Barker and Burnside properties totalling $10,060.94.

365. I am satisfied that the liquidator of the twenty seven plaintiffs has established that Simionato Holdings Pty Ltd has used the funds in the manner described above for the purpose of acquiring for itself or funding Liddan Pty Ltd and Sardona Pty Ltd to acquire for themselves, the various properties described. I am also satisfied that the liquidator of these companies has established, to the requisite degree of satisfaction, that Simionato Holdings Pty Ltd has used the funds acquired from the EFG transaction of 17 March 1995 to maintain the properties to which I have referred and has paid interest on mortgages raised on those properties in the manner in which I have described.

366. In my opinion the twenty seven plaintiffs are entitled to summary relief. However to allow them summary relief would necessarily mean that the other plaintiffs would be disadvantaged because the defendants would be stripped by a judgment for the twenty-seven plaintiffs, of all of their assets. I think that the plaintiffs will have to agree whether they wish to have judgment entered for the twenty-seven plaintiffs.

367. Subject to such agreement I would propose entering judgment for the twenty-seven plaintiffs, identified at page 15 of these reasons, against the defendants and making consequential orders to allow the twenty seven plaintiffs to recover all of the assets of the defendants The Minutes of Order presented are not appropriate for the orders that I have in mind. I would wish to hear the parties on all those matters.