Allied Rural Pty Ltd v Stimpson [2023] QCA 77

SUPREME COURT OF QUEENSLAND

CITATION: Allied Rural Pty Ltd v Stimpson [2023] QCA 77

PARTIES: ALLIED RURAL PTY LTD / (SUBJECT TO DEED OF COMPANY ARRANGEMENT) / ACN 141 306 229 / (appellant) / v / DAVID MICHAEL STIMPSON IN HIS CAPACITY AS VOLUNTARY ADMINISTRATOR OF ALLIED RURAL PTY LTD / (SUBJECT TO DEED OF COMPANY ARRANGEMENT) / ACN 141 306 229 / (respondent)

FILE NO/S: Appeal No 6524 of 2022

DIVISION: Court of Appeal

PROCEEDING: General Civil Appeal

ORIGINATING COURT: Supreme Court at Brisbane – [2022] QSC 74 (Jackson J)

DELIVERED ON: 24 April 2023

DELIVERED AT: Brisbane

HEARING DATE: 28 September 2022

JUDGES: Mullins P and Morrison JA and Kelly J

ORDERS: Appeal dismissed.The appellant pay the respondent’s costs of and incidental to the appeal.

CATCHWORDS: CORPORATIONS – VOLUNTARY ADMINISTRATION – ADMINISTRATOR – REMUNERATION – where the respondent was appointed as the administrator of the appellant company under Part 5.3A of the Corporations Act 2001 (Cth) – where a deed of company arrangement was proposed and accepted by the creditors of the appellant company – where the creditors of the appellant company resolved to determine the respondent administrator’s remuneration on the basis that it was set at 20 per cent of the value of the admitted proofs of creditors entitled to share in the fund provided for under the deed of company arrangement – where, at first instance, the respondent administrator applied to have the creditors’ remuneration determination reviewed and set aside and to substitute another remuneration determination in the amount of $228,891 plus GST or, in the alternative, to vary the remuneration determination to the amount of $228,891 plus GST – where the application was opposed by the appellant company and two creditors – where the trial judge rejected all of the grounds of objection and varied the remuneration to $228,891 plus GST – where the trial judge found that the appellant company was precluded from raising the question of invalidity of the respondent administrator’s appointment by the doctrine of approbate and reprobate – whether the trial judge erred in finding that the appellant was precluded from opposing the application at first instance by reason of the doctrine of approbate and reprobate – whether the trial judge erred in varying the remuneration as determined by the creditors’ resolution / CORPORATIONS – VOLUNTARY ADMINISTRATION – ADMINISTRATOR – APPOINTMENT – BY COMPANY – where, for a period between 2 March 2021 and 10 May 2021, the appellant company was in voluntary administration – where the respondent was appointed as the administrator of the appellant company under Part 5.3A of the Corporations Act 2001 (Cth) by the sole director at that time – where the appointing director was the trustee of the majority shareholder in the appellant company – where the respondent administrator had knowledge of a dispute between the appointing director and a beneficiary of the majority shareholder of the appellant company – whether the respondent administrator had been appointed for an improper purpose and not because of a genuine belief that there was a risk the appellant company would become insolvent – whether the respondent administrator ought to have been aware that the appointment was for an improper purpose – where, on appeal, the appellant company relied on the contemporaneous views of the respondent administrator as to the solvency of the appellant company – whether the trial judge erred in not finding that the appellant company was, at all material times, solvent – whether the respondent administrator could have been satisfied that the appointing director had a bona fide belief that the appellant company was, or was likely to become, insolvent – whether, on that basis, the respondent administrator ought to have accepted the appointment, or ought to have quickly applied to terminate the appointment upon become aware that the company was solvent / Corporations Act 2001 (Cth), s 442A, s 447A / Insolvency Practice Schedule (Corporations) (Cth), s 60-12 / ACN 004 323 184 Pty Ltd v Spark [2002] VSC 353, cited / Commonwealth v Verwayen (1990) 170 CLR 394; [1990] HCA 39, applied / Creak v James Moore & Sons Pty Ltd (1912) 15 CLR 426; [1912] HCA 67, cited / Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641; [1937] HCA 58, cited / Mandurah Enterprises Pty Ltd v Western Australian Planning Commission (2008) 38 WAR 276; [2008] WASCA 211, applied / Re AAA Financial Intelligence Ltd (in liq) (No 2) [2014] NSWSC 1270, cited / Re Condor Blanco Mines Ltd [2016] NSWSC 1196, considered / Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 93 NSWLR 459; [2017] NSWCA 38, applied

COUNSEL: M D Martin KC, with N J Derrington, for the appellant / R J Anderson KC for the respondent

SOLICITORS: Shand Taylor Lawyers for the appellant / McInnes Wilson Lawyers for the respondent

1. MULLINS P: I agree with Morrison JA.

2. MORRISON JA: For a period between 2 March 2021 and 10 May 2021, the appellant company (Allied) was in voluntary administration, with the respondent (the Administrator) appointed as the voluntary administrator under Part 5.3A of the Corporations Act 2001 (Cth).

3. The Administrator was appointed by Allied’s director at the time, Mr Blennerhassett.

4. Ultimately, a deed of company arrangement was proposed and accepted by the creditors of Allied. They resolved to determine the Administrator’s remuneration on the basis that it was set at 20 per cent of the value of the admitted proofs of creditors entitled to share in the fund provided for under the deed of company arrangement.

5. The Administrator applied¹ to review, and set aside, the creditors’ remuneration determination, and to substitute another remuneration determination in the amount of $228,891 plus GST or, in the alternative, to vary the remuneration determination to the remuneration amount of $228,891 plus GST.

6. The application was opposed by Allied and two creditors: Mr Doolan and Ms Perey.²

7. The primary judge rejected all of the grounds of opposition to the application, and varied the remuneration to $228,891 plus GST.³

8. In doing so, his Honour noted the scope of the case advanced against the Administrator’s application:⁴

“[3] The dispute is not that the claimed work of the administrator was not done. It is not that the time-based charging rates were unreasonable. It is that all or most of the work of the administration was not necessary, first, because the applicant was invalidly appointed as the administrator; second, because the applicant should have terminated the administration almost immediately and avoided the costs of the administration; and, third, that the remuneration should be limited to an amount described by the second respondent as an “ad valorem” amount, being twenty per cent of the value of the admitted proofs of creditors entitled to share in the fund provided for under the deed of company arrangement.”

9. In the course of the primary judge’s reasoning, his Honour identified the central basis for the opposition to the review of the Administrator’s remuneration:⁵

“[88] The opponents contend that the applicant is not entitled to additional remuneration on review of the remuneration determination because the applicant’s appointment as administrator by the company was invalid. Two grounds of invalidity are raised: first, that the directors did not genuinely form the opinion in good faith before voting for the resolution that the company is insolvent or is likely to become insolvent at a future time; and second, that the directors resolved to that effect and appointed the applicant as administrator for an improper purpose.”

10. The primary judge then turned to examine whether the validity of the Administrator’s appointment was something that could or should be examined in the application to review the remuneration. His Honour held it should not, as explained below.

11. In reaching that conclusion, his Honour noted that the main authority advanced to support the proposition that the appointment was invalid, Re Condor Blanco Mines Ltd,⁶ involved findings that: (i) one of two directors who voted for a resolution that the company was insolvent or likely to become insolvent at a future time did not hold a genuine opinion formed in good faith to that effect; and (ii) the other director was motivated by an improper purpose of negativing the power and influence of incoming directors and defeating the will of the members of the company who were about to put those directors into office. The consequence was that the statutory pre-condition to appointment of an administrator by the company was not satisfied, and the appointment of the administrator was invalid, void, and of no effect.

12. The primary judge noted that the issue of invalidity of the appointment in the present case was not raised in the way it was in Condor, that is as negating the appointment itself.⁷ His Honour then held:⁸

“[98] The question is raised in the present case as a ground for refusing to review the remuneration determination of the creditors as to the administrator’s remuneration and for not varying the amount of the remuneration determination. It is significant in the present case that it is not raised in circumstances where the administration was terminated. It is raised after a number of significant steps in the administration have occurred and it passed into a deed of company administration that was carried into effect.

[99] First, although Mr Doolan challenged the validity of the appointment of the applicant at the outset and gave notice to him of an application to terminate the appointment or have it declared invalid, Mr Doolan chose not to bring the application for reasons not adequately explained. Second, although the applicant brought an application to terminate the administration before calling the second meeting of creditors, the opponents requested the applicant, and the applicant agreed, not to press that application so that the second meeting of creditors could be convened to consider a resolution for a deed of company arrangement proposed by Mr Doolan. Third, at the adjourned second meeting of creditors, the creditors, including the opponents, resolved that the company should enter into a deed of company arrangement with the applicant, as proposed by Mr Doolan. Fourth, the deed of company arrangement was made between the company and the applicant as administrator and was carried into effect so as to confer benefits on the opponents, including by the applicant as administrator exercising the power to remove Mr Blennerhassett as director of the company. Fifth, the opponents were among the creditors who purported to exercise the power of the second meeting of creditors to make a remuneration determination of the applicant’s entitlement to remuneration and in this proceeding rely upon that determination as the only amount that may be properly payable to the applicant.

[100] Accordingly, it can be seen that the opponents deliberately chose to approbate the validity of the applicant’s appointment as administrator so as to carry the administration through to the second meeting of creditors and into a deed of company arrangement and a remuneration determination, but now wish to reprobate that validity to deny the applicant any entitlement to additional remuneration from the amount of the remuneration determination under the provisions of the CA.”

13. The primary judge posed two alternate courses of action that might have led to a different outcome, and referred to “the doctrine of approbate and reprobate”:⁹

“[101] Had the administrator’s appointment been successfully challenged shortly after it was made most of the work for the claimed remuneration would not have been necessary or done. Alternatively, had the appointment been challenged, [the] applicant might have brought an application under s 447A for an order that Part 5.3A is to operate as though the purported (but invalid) appointment was valid.

[102] In those circumstances, should the Court consider whether the appointment was invalid on the hearing of this application? In Scottish law, there is a doctrine against permitting a person to “approbate and reprobate” that is recognised in English law as a species of equitable election or estoppel, and was championed in the High Court by Isaacs J. The principle was stated thus, in Creak v James Moore & Sons Pty Ltd:

“The principle of what is called “approbate and reprobate” was stated by Honyman, J, in Smith v Baker, LR 8 CP 350, in these terms that a man: “cannot say at one time that the transaction is valid and thereby obtain some advantage, to which he would only be entitled on the footing that it is valid, and at another time say it is void for the purpose of securing some other advantage.” The word “thereby” is all-important. This was accepted as the true principle by the Court of Appeal in Roe v Mutual Loan Fund, 19 QBD 347, at 350.”

14. Ultimately, his Honour held the question of the validity of the appointment could not be raised:¹⁰

“[104] The opponents should be precluded from raising the question of invalidity of the applicant’s appointment as administrator by the company by the doctrine of approbate and reprobate.”

15. That finding is at the heart of this appeal.

Parties to the appeal

16. In the proceedings below, the respondents to the application were Allied, Mr Doolan, and Ms Perey. Mr Doolan was a creditor of Allied in respect of debts said to amount to just over $404,788 in respect of himself,¹¹ and $142,480 due to his company Bosag Pty Ltd (Bosag).¹² Ms Perey was Mr Doolan’s partner, and a creditor in respect of a debt said to be about $19,203.26.¹³

17. However, the only appellant is Allied. That means that Mr Doolan and Ms Perey are bound by the findings below, as they do not challenge them.

Grounds of the appeal

18. Allied advanced a number of grounds of appeal, each asserting that there were errors of law and fact, which can be summarised as follows:(a)Ground 1 – finding that the appellant was precluded from opposing the application at first instance by reason of the doctrine of approbate and reprobate;(b)Ground 2 – not finding that Allied was at all material times solvent;(c)Ground 3 – not finding that the Administrator was appointed voluntary administrator of Allied because of a shareholder dispute, and/or a dispute between the beneficiary of a trust which owned 86 per cent of Allied and the trustee/director, and not because Allied was or was likely to become insolvent;(d)Ground 4 – not finding that the Administrator should not have been appointed the voluntary administrator of Allied;(e)Ground 5 – not finding that:no information had been provided to the Administrator which suggested in any way that Allied was insolvent; andthe Administrator could not be satisfied that the sole director of Allied held a bona fide belief that Allied was insolvent or likely to become insolvent;(f)Ground 6 – not finding that the Administrator should not have accepted the appointment, or should have, soon after his appointment as voluntary administrator, sought orders from the Supreme Court that such voluntary administration be terminated; and(g)Ground 7 – finding that the remuneration as determined at the second meeting of creditors was not appropriate in all of the circumstances.

Essential factual findings

19. The primary judge made a number of findings which were not the subject of challenge on appeal. Some were as to the credit and reliability of Mr Doolan as a witness. The following is taken largely from the reasons below.

20. In 2009, Allied was incorporated by Mr Mifsud of Mifsud & Associates, accountants for Mr Doolan. Mr Doolan’s sister, Josephine Doolan, was appointed sole director. All of the shares in Allied came to be held by her as trustee for the Doolan Trust.

21. On 31 December 2009, the Doolan Trust was settled. That was also arranged by Mr Mifsud. Josephine Doolan was the trustee and principal of the trust. The primary beneficiaries were Josephine Doolan and Mr Doolan’s daughter. From the outset, Mr Doolan was the manager of Allied’s business.

22. In 2012, Mr Blennerhassett became a director through a company he controlled, Harfin Pty Ltd (Harfin). Sometime later, Josephine Doolan resigned as a director. Accordingly, Mr Blennerhassett became the sole director of Allied.

23. On 31 July 2013, Josephine Doolan was also replaced by Mr Blennerhassett as trustee and principal of the Doolan Trust. About the same time, Mr Doolan replaced Josephine Doolan as one of the two primary beneficiaries of the Doolan Trust.

24. From that time, of the 210 issued shares in Allied, Harfin, as trustee for the H&L Blennerhassett Family Trust, held 30 shares, and Mr Blennerhassett, as trustee for the Doolan Trust, held 180 shares. As a matter of law, Mr Blennerhassett wholly controlled Allied.

25. From February 2019 to April 2020, Mr Blennerhassett made unsuccessful attempts to extract himself from Allied. In April 2020, Mr Blennerhassett ceased any day-by-day involvement in Allied’s management. From that time Mr Doolan carried out the role of general manager.

26. On 24 August 2020, Mr Doolan met Mr Blennerhassett and requested that he resign as director of Allied, and as trustee of the Doolan Trust. Mr Blennerhassett refused. Mr Doolan returned later that day, and Mr Blennerhassett said he wanted to talk about his exiting Allied. Mr Doolan said he did not want to talk about that until Mr Blennerhassett resigned as director and trustee.

27. On 16 November 2020, Mr Doolan filed an originating application for an order restraining Allied, Mr Blennerhassett, and two others from selling certain land. On 15 December 2020, the application was amended to seek, inter alia, an order removing Mr Blennerhassett as trustee of the Doolan Trust.

28. By 11 December 2020, Mr Blennerhassett became aware that his access to Allied’s accounts, maintained online on the Xero accounting platform, had been terminated. He knew that Allied’s internal accountant, and its external accountant, Mr Mifsud, had administrator rights that could remove his access. He sent an email to the internal accountant demanding that his access to the Xero accounts be reinstated immediately.

They made demands for those amounts.

34. On 6 January 2021, Ms Perey, who had worked for Allied since 2015, and lived with Mr Doolan as his partner, wrote to Allied’s internal accountant, demanding repayment of a personal loan she had made to Allied in the amount of $19,203.26. She alleged that Mr Blennerhassett had taken monies from Allied’s account “in disregard of [Allied’s] risk of insolvency” placing her “unsecured loan to [Allied] at an unacceptable risk”.

35. On 13 January 2021, in response to a request for information from Mr Blennerhassett’s lawyers, Mr Mifsud sent an email explaining how he had come to alter Allied’s records to show Mr Doolan as a director when there had been no appointment of Mr Doolan as a director. As to another request for information from Mr Blennerhassett’s lawyers about the alleged loans mentioned above, Mr Mifsud said:

“… given that you have indicated that certain creditor demands have been made to [Allied], we have some concerns that the solvency of [Allied] may be compromised and at risk, and accordingly as an unsecured creditor we have concerns that a creditor application to wind up [Allied] may be a possibility and accordingly, we will be issuing [Allied] with an invoice for our services… which will require payment prior to us providing any further services…”

36. I pause to note that the primary judge found that, after the Administrator was appointed in March 2021, and Mr Doolan was asserting to him in heated exchanges in the presence of both Ms Perey and Mr Mifsud that Allied had always been solvent, Mr Doolan and Ms Perey pretended that neither Ms Perey, nor Mr Mifsud, had made those allegations of insolvency.¹⁴

37. On 15 February 2021, an email was sent by Allied staff to Allied’s customers, directing them to make payments due to Allied to an account of Bosag, a company owned and controlled by Mr Doolan. When the Administrator was appointed on 2 March 2021, the balance in Bosag’s account was $142,480. On at least three occasions, the Administrator demanded of Mr Doolan that Bosag repay the redirected amount to Allied’s account. It was not repaid at that time. A response was made on Bosag’s behalf on 15 March 2021 by letter from Mr Doolan’s lawyers to the Administrator: see paragraph [61] below.

38. On 24 February 2021, Mr Blennerhassett sent an email to Mr Mifsud, stating that to provide financial information required by the bank, he needed access to the Xero accounts; that the lawyers for Mr Doolan had confirmed that his account access would be reinstated; and that Xero had confirmed that a person in Mifsud & Associates had “manager user” status and could provide access.

39. On 1 March 2021, Mr Mifsud responded that he understood there was an allegation that certain of Allied’s data and records had been deleted. He asserted that he had a professional duty to ensure that Allied’s records were preserved and matters before the courts were not prejudiced. He refused to reinstate Mr Blennerhassett’s access to the Xero accounts unless served with a court order.

40. In the result, at the time Mr Blennerhassett, then Allied’s sole director, appointed the Administrator:(a)for two months and 17 days, both the internal accountant and the external accountant of Allied had denied him access to Allied’s online accounting records; and(b)one month and 19 days before the appointment, the external accountant had alleged the possible insolvency of Allied to him.

Appointment of the Administrator

41. On 2 March 2021, Mr Blennerhassett, as sole director of Allied, resolved:

“1. That in the opinion of the Director, the Company is insolvent or is likely to become insolvent at some future time, and an administrator of the Company should be appointed.

That David Michael Stimpson… be appointed Administrator of the Company by the Board of the Company under Part 5.3A of the Corporations Act 2001 (Cth).”

42. Two hours later, the Administrator and his staff attended at Allied’s offices, and gave notice of the appointment (signed by Mr Blennerhassett) to Allied’s staff.

43. In discussions between the Administrator and Mr Blennerhassett prior to the appointment, Mr Blennerhassett told him that: (i) Mr Blennerhassett had no access to records; (ii) Mr Doolan had arranged for Allied’s receivables to be paid into another account so that the funds of the company were being diverted to Bosag; and (iii) Allied’s tax was not up to date.

44. On 2 March 2021, when the Administrator and his firm’s employees attended Allied’s premises, they met Mr Juett, Allied’s operations manager. He contacted Mr Doolan.

45. Later that morning, the Administrator spoke to Mr Doolan via telephone. Mr Doolan said that Allied was not insolvent, and that he had applied to remove Mr Blennerhassett as trustee of the Doolan Trust, and consequently as director of Allied. That statement was only half-true. Mr Doolan’s application, as previously noted in paragraph [27] above, was for the removal of Mr Blennerhassett as trustee of the Doolan Trust, and other relief. It was not to remove him as director of Allied.

46. Mr Doolan told the Administrator that he was looking to make an application to the court to have the administration terminated. By then, Mr Doolan had already received legal advice as to his options. The Administrator said that, upon provision of the records indicating solvency, he would support an application to terminate the administration.

47. On 2 March, at 1.10 pm, the Administrator sent an email to Mr Doolan referring to the telephone discussions that morning, and confirming that Mr Doolan had said he was considering applying to the court to end the administration on the basis that Allied was solvent. The Administrator said that, apart from notifying the employees and giving them formal notice of his appointment, and contacting the bank as secured creditor, he would hold off taking any further action to take control of the business operations, and notifying creditors and other stakeholders, until close of business on 3 March 2021, pending Mr Doolan’s confirmation that he intended to proceed with the application. The Administrator sought further information and action from Mr Doolan in the meantime. That was not provided.

48. On 2 March 2021, Mr Doolan’s solicitor sent an email to the Administrator querying the time of the Administrator’s appointment, and alleging the resolution appointing him was invalid because the minutes containing that resolution stated a time after the Administrator had attended the company’s premises. In fact, the time inserted in the minutes was erroneous, and the appointment had been made earlier in the morning.

49. On 3 March 2021, Mr Doolan’s solicitor sent a letter to the Administrator stating that Mr Doolan intended to apply urgently to the Supreme Court to end the administration.

First meeting of creditors

52. On 12 March 2021, the first meeting of creditors was held. The Administrator, as chair, decided on the creditors’ debt values for the purposes of the meeting. He then outlined a number of matters of financial information he had sought from stakeholders that had not been provided. Mr Doolan interrupted with questions and challenges. The Administrator tried to respond to the interruptions and challenges. The discussion ranged over a number of issues.

53. At the meeting, Mr Doolan again raised the assertion that the Administrator was invalidly appointed by Allied. The Administrator said that he understood the question to be whether Allied was insolvent, and that was not something that could be determined then. Mr Doolan interjected and said that the question of improper purpose in the appointment was also raised.

54. The Administrator responded that he was not aware Allied was solvent before he took the appointment. Mr Doolan challenged whether the Administrator knew that the resolution was made for an improper purpose. The Administrator did not accept that he did.

55. Discussion proceeded about the Administrator’s awareness of solvency. The Administrator said that, before his appointment, comments were made on all sides about insolvency.

56. At that point, Ms Perey, Mr Mifsud, and Mr Doolan well knew that an assertion of possible insolvency of Allied had been deployed by Mr Mifsud to Mr Blennerhassett, and by Ms Perey to Allied’s internal accountant, before the Administrator’s appointment.

57. The primary judge found that statements by Mr Doolan, Mr Mifsud, and Ms Perey at the first meeting were examples of “the disruptive humbug in which Mr Doolan and those aligned with him, including Mr Mifsud and Ms Perey, were prepared to engage in to obstruct the [Administrator] in carrying out his statutory duties”.¹⁵

58. Mr Doolan proposed a resolution of the meeting of creditors directing the Administrator to remove Mr Blennerhassett as director by exercising the administrator’s power under s 442A of the Corporations Act. The motion was carried on the voices. It was ineffective in law to oblige the Administrator to remove the director, although he was required to have regard to it.

59. The first meeting of creditors was then adjourned for the Administrator to send notice to creditors advising of his intention to make an application to the court to terminate the administration.

60. On 12 March 2021, the Administrator sent a notice to creditors of the reconvened first meeting of creditors for 22 March 2021 to consider a resolution that the administration end, and any other business properly be brought forward.

61. On 15 March 2021, Mr Doolan’s lawyers wrote to the Administrator, referring to the Administrator’s earlier demands that Bosag restore to Allied money received from Allied’s debtors that had been diverted from Allied’s bank account into an account in Bosag’s name:

“You are also aware that [Bosag] claims set-off in relation to substantial amounts of money that are owed to it. All of these amounts are [sic] owed prior to commencement of the administration.”

62. On 18 March 2021, the Administrator completed the solvency report of Allied for the purposes of the proposed application to terminate the administration. The conclusion reached was that, assuming that the debts of Bosag and Mr Doolan were non-current liabilities (that is, not repayable within 12 months), Allied was solvent. No formal assurance had then been given by either Bosag or Mr Doolan that their claims were not payable as current liabilities. This was not a matter of oversight.

63. On 22 March 2021, the reconvened first meeting of creditors was held. There was discussion about the debt claimed by Bosag of $1,056,000 and the debts claimed by Mr Doolan totalling $521,240. The Administrator sought clarification whether the debts were presently payable. Mr Doolan obfuscated. The Administrator referred to the debts being demanded by solicitors acting for Mr Doolan in December 2020: see paragraph [33] above. The Administrator sought an assurance in writing that the alleged creditors were not claiming the amounts as presently payable. At the meeting, Mr Doolan said that was not a problem. In fact, despite requests, a formal assurance was not given by Bosag or Mr Doolan at that time.

64. As moved by Mr Doolan, the meeting resolved on the voices “that the administration be terminated on Monday the 29th of March 2021 allowing for the applicant to remove Mr Blennerhassett to replace him as directed [sic], failing that for court orders protecting the company from Mr Blennerhassett or any person disadvantaged by any irregularity in the meeting or resolution to apply to court and for the [Administrator] to cease his administration immediately and return authority to the staff and consultants of Allied Rural Pty Ltd.”

65. The resolution was not effective in law to terminate the administration. The creditors did not have the power to terminate the administration at the first creditors’ meeting. Mr Doolan was aware of that because the Administrator’s solicitor said so at the meeting. It was another strategy intended to apply pressure to the Administrator to exercise the power, under s 442A of the Corporations Act, to remove Mr Blennerhassett as director of Allied so as to achieve one of the ultimate purposes of Mr Doolan’s ongoing litigation against Mr Blennerhassett.

Application to terminate administration

66. On 26 March 2021, the Administrator filed an application to terminate the administration under s 447A of the Corporations Act, returnable on 1 April 2021. The application was supported by an affidavit of the Administrator referring to his conditional opinion that Allied was solvent; that condition being that the alleged debts to Bosag and Mr Doolan were non-current. He also opined that the ongoing dispute between Mr Doolan and Mr Blennerhassett, and its impact, risked the trading activities of Allied, and would ultimately result in the insolvency of Allied.

67. On 29 March 2021, Harfin, the member of Allied controlled by Mr Blennerhassett, filed an application for Allied to be wound up on the just and equitable ground. The application was supported by an affidavit of Mr Blennerhassett, setting out his version of the dispute between himself and Mr Doolan, and the breakdown of relations between himself and the employees and consultants of Allied. He deposed further as to his bases for forming the belief as to the insolvency of Allied. He expressed concerns as to the future activities of Mr Doolan and key employees, if the administration ended, and sought an order that Allied be wound up on the just and equitable ground.

68. On 29 March 2021, Mr Doolan had a change of heart as to whether the administration should be terminated. On that day, Mr Doolan’s lawyer suggested to the Administrator that the Administrator and Allied should enter into a deed of company arrangement, as proposed by Mr Doolan, instead of the Administrator proceeding with his application to terminate the administration. That course would have removed the basis of Harfin’s application to wind up the company on the just and equitable ground.

69. On 30 March 2021, Mr Doolan’s lawyer wrote to the Administrator referring to his email sent late the day before, making these points:(a)he urged acceptance of the proposal for a deed of company arrangement as viable because it was not greatly dissimilar to one raised by the Administrator’s employee on 8 March 2021 (that had been rejected at that time by Mr Doolan), and the committee of inspection supported it; (b)he contended that “[a]ll previous plans regarding termination of the administration are superseded” by the presentation of the proposal; and(c)he referred to the application to wind up that had been filed by Harfin and contended that application must be adjourned unless it was in the interests of creditors to proceed.

70. That was a complete reversal of position from the previous assertions and resolutions by Mr Doolan (and his supporters) that the administration should be terminated as soon as possible, and by any means possible.

71. On 31 March 2021, the Administrator’s solicitor responded to the email, from Mr Doolan’s lawyer, of 29 March 2021. He requested further details of any deed of company arrangement proposed by Mr Doolan, and advised that the Administrator would be happy to meet with Mr Doolan after the hearing of the application to terminate the administration, if it were not terminated, to discuss any proposal.

Second meeting of creditors

74. On 6 April 2021, Mr Doolan, and the other members of the committee of inspection, wrote to the Administrator complaining that the extended date for convening the second meeting of creditors was not the earliest date possible.

75. On 29 April 2021, the Administrator completed the required administrator’s report to creditors for the second creditors’ meeting.

76. The report reconsidered the question of solvency. The Administrator referred to his opinion in the report for the adjourned first meeting of creditors that the company was solvent, conditional on the alleged debts of Bosag and Mr Doolan being non-current. The Administrator changed that conclusion on the basis that those parties now were unwilling to forbear on their debts unless a deed of company arrangement was executed. His changed conclusion was that Allied was insolvent.

77. As part of the report, the Administrator expressed the opinion, as a required statement under the relevant section, that it was in the best interests of the creditors to resolve that Allied execute the deed of company arrangement proposed by Mr Doolan.

78. The report also dealt with the Administrator’s remuneration, and proposed a resolution that the remuneration be approved in the amount of $155,148 to 16 April 2021, and at stated rates from 17 April 2021 until 9 May 2021, being the day before the second creditors meeting was to be held. There was an attached remuneration approval report dated 29 April 2021 containing summary statements of the work carried out by the Administrator, or on his behalf.

79. On 10 May 2021, the second creditors’ meeting was held. With two agreed amendments, the meeting resolved that Allied execute the proposed deed of company arrangement, and that the Administrator be appointed the deed administrator of the company.

80. As to the Administrator’s remuneration, the resolutions proposed by the Administrator’s report for his remuneration as voluntary administrator were lost on the voices. The Administrator tabled a detailed work in progress report, but Mr Doolan commented there was insufficient information to confirm how the administration expenses had been incurred. Instead, Mr Doolan proposed resolutions, and the creditors resolved, that the remuneration of the Administrator as voluntary administrator “be fixed on an ad valorem basis” and that “the remuneration of the [Administrator] be fixed in the administration to 20 per cent of the creditor value as admitted for dividend purposes in the deed of company arrangement in the event that the appointment is valid”.

81. I pause to note that the remuneration resolution proceeded on the basis that the appointment of the Administrator was valid. So much is signified by the use of the phrase at the end, “in the event that the appointment is valid”.

Deed of company arrangement

82. On 24 May 2021, Allied, the Administrator, Ms Perey as director, Ceanfergail Pty Ltd as trustee of the Doolan Family Trust, Bosag, Mr Doolan, and Mr Doolan as guardian for his daughter, entered into the deed of company arrangement with the Administrator as deed administrator.

83. Under the deed of company arrangement:(a)it was a precondition to its operation that, under s 442A of the Corporations Act, the Administrator remove Mr Blennerhassett as director of Allied, and replace him with Ms Perey;(b)Allied was to pay $220,000 into a fund over six months from which the deed administrator was to pay unsecured creditors on an admitted list, and as incurred or arising at the rate of 100 cents in the dollar; and(c)Ms Perey, Bosag, and Mr Doolan (both personally and as guardian of his daughter) were not included in those creditors entitled to participate in distribution from the fund.

Ground 1 – approbate and reprobate

84. Much of the appellant’s submissions were concerned with mounting an argument that the doctrine of approbate and reprobate was a Scottish relic, confined to gifts of property (whether real or personal). It was submitted that the primary judge’s reliance on the doctrine of approbate and reprobate was founded on three early decisions of the High Court in which some passing references to the doctrine were made, at paragraphs [102]–[103] of the reasons below, but that those authorities do not support the proposition that the doctrine of approbate and reprobate exists as a freestanding principle.

85. In my respectful view, the appellant’s submissions should be rejected.

86. It is, in my view, an error to analyse what the primary judge said as to the doctrine of approbate and reprobate as though his Honour was adopting that doctrine in its Scottish expression, or suggesting it was an independent doctrine standing apart from the principles applicable to election between inconsistent rights or courses of action.

87. The primary judge referred to the principle he was applying by reference to what was said in Creak v James Moore & Sons Pty Ltd:¹⁶

“The principle of what is called “approbate and reprobate” was stated by Honyman, J, in Smith v Baker, LR 8 CP 350, in these terms that a man “cannot say at one time that the transaction is valid and thereby obtain some advantage, to which he would only be entitled on the footing that it is valid, and at another time say it is void for the purpose of securing some other advantage.”

88. His Honour then adopted what was said in Grundt v Great Boulder Pty Gold Mines Ltd:¹⁷

“Where a person obtains advantages by relying upon rights which can exist only upon the basis of an assumed state of facts, he is not permitted thereafter to rely upon other rights in relation to the same person which are inconsistent with the existence of the rights formerly asserted. The relevant principle is that stated by Scrutton L. J. in Verschures Creameries v Hull and Netherlands Steamship Co: — ‘A person cannot say at one time that a transaction is valid and thereby obtain some advantage, to which he could only be entitled on the footing that it is valid, and then turn round and say it is void for the purpose of securing some other advantage. That is to approbate and reprobate the transaction.’”

89. In my view, it is evident that his Honour was referring to the doctrine only as a form of election, applicable where a party asserts that a transaction is valid in order to obtain some advantage which would only be obtainable if the transaction was valid, and then later asserts the same transaction is invalid in order to obtain some other advantage.

90. In Mandurah Enterprises Pty Ltd v Western Australian Planning Commission,¹⁸ the Western Australian Court of Appeal considered the doctrine of approbate and reprobate and its relationship to equitable election and election at common law:¹⁹

“[105] It is convenient to commence with the doctrine of election. I am assisted by the discussion on the topic in Handley KR, Estoppel by Conduct and Election (2006) who distinguishes between four categories of election. The first is election between alternative and inconsistent rights such as where an innocent contracting party elects to terminate a voidable contract for breach or fraud. The choice is not between two sets of rights which co**‑**exist but a choice between an existing set of rights and a new set which does not yet exist. The election terminates one set of rights and creates another. Such an election is irrevocable. This type of election is not applicable in this case. The appellants by their conduct cannot terminate or create statutory sourced powers or rights.

[106] The second is election between estates, otherwise known as equitable election. This doctrine applies where a person receives a gift under a will or other instrument. The third is election between inconsistent remedies. That applies where the law provides inconsistent remedies for one cause of action or claim. In these circumstances, there is no binding election before final judgment is entered. The final category is election in procedure which involves choices made during proceedings before final judgment or award. Such elections are not binding in the absence of an estoppel. The first, third and fourth categories are common law elections.

[107] The conditions for and consequences of the individual categories of election differ. For example, the election becomes irrevocable at different points. Further, the authorities suggest that knowledge may not be relevant if judgment has been entered. However, in relation to election between inconsistent rights there must be an unequivocal act with knowledge of the material facts: Sargent v ASL Development Ltd (1974) 131 CLR 634 at 642; Wiltrading (WA) Pty Ltd v Lumley General Insurance Ltd (2005) 30 WAR 290. Subject to one qualification, the law is unclear as to whether there must also be knowledge as to the existence of a right to elect. The qualification is that knowledge of the right to elect is not required where the election is between contractually conferred rights or property rights (Sargent (at 645, 658); Khoury v Government Insurance Office (NSW) (1984) 165 CLR 622 at 634). Moreover, the balance of authority suggests that where a party acts unequivocally in a way that is only consistent with an election one way, it is not necessary to establish that the party was aware of their right to elect: Sargent (at 656 – 658); Ellison v Lutre Pty Ltd (1999) 88 FCR 116; Wiltrading (at 304 – 305).

[108] The doctrine of approbation and reprobation was initially part of Scottish law. Its English equivalent was the doctrine of equitable election between estates: Lissenden v CAV Bosch Ltd [1940] AC 412; Douglas*‑*Menzies v Umphelby [1908] AC 224; Elder's Trustee and Executor Co Ltd v Commonwealth Homes and Investment Co Ltd (1941) 65 CLR 603, at 617 – 618. The notion of approbation and reprobation is used interchangeably in the case law with election, waiver and estoppel. As a result, it is difficult to confidently identify from the cases the material elements of any independent doctrine of approbation and reprobation.”

91. In Mandurah, the court then referred²⁰ to the statement made by Brennan J in Commonwealth v Verwayen:²¹

“Election consists in a choice between rights which the person making the election knows he possesses and which are alternative and inconsistent rights: Evans v. Bartlam [(1937) 2 All ER 646, at pp 652, 653]; Tropical Traders Ltd. v. Goonan [(1964) 111 CLR 41, at p 55]; Kammins Ballrooms Co. v. Zenith Investments (Torquay) Ltd [(1971) AC 850 at p 883]. A doctrine closely related to election, and sometimes treated as a species of election, is the doctrine of approbation and reprobation. This doctrine precludes a person who has exercised a right from exercising another right which is alternative to and inconsistent with the right he exercised as, e.g., where a person “having accepted a benefit given him by a judgment, cannot allege the invalidity of the judgment which conferred the benefit”: Evans v. Bartlam [[1937] 2 All E.R., at p. 652], per Lord Russell of Killowen at p 652.”

92. As is evident, the Western Australian Court of Appeal held, in conformity with the statement of Brennan J in Verwayen, that the doctrine of approbate and reprobate was, in the Australian context at least, an example of election between inconsistent rights. I would respectfully adopt that reasoning. As was said in Mandurah, the doctrine requires that there be a choice between two inconsistent courses of conduct or claims. That is the way in which the primary judge applied it in the present case.

93. After reviewing a number of authorities, the Western Australian Court went on to hold that the doctrine of approbate and reprobate is an independent doctrine of law in Australia, outside the categories of election:

“[118] The authorities support the contention that there is an independent doctrine of approbation and reprobation which falls outside the four categories of election to which I have referred. On any view, the independent doctrine requires that there be a choice between two inconsistent courses of conduct or claims. There is no arguable inconsistency of rights in this case because an invalid taking order cannot be the basis of a right to compensation under the Land Act.”

94. In my view, there is no requirement in the present case to examine if that step is correct. It is sufficient for present purposes to note that, even on the basis that it is an independent doctrine, the independent doctrine requires that there be a choice between two inconsistent courses of conduct or claims. Here, the inconsistent courses of conduct or claims can be expressed thus:(a)on the one hand, seeking to carry the administration through to a deed of company arrangement in order to confer benefits upon Allied, Mr Doolan, and Ms Perey, a step that could only occur if the Administrator’s appointment was valid; and(b)on the other hand, contending below, and in this Court, that the administration should have been terminated because the appointment was invalid.

95. There are three relevant stages to consider.

96. First, as at 26 March 2021, the position was that a case was being strongly pressed that the Administrator’s appointment was invalid. Threats were made by Mr Doolan to bring an application to terminate the administration. That position was maintained at the first creditors’ meeting. By then, Mr Doolan had cut off Mr Blennerhassett’s access to financial records, diverted Allied’s money away to Bosag’s account, and engaged in conduct designed to disrupt the Administrator’s performance of his duties.

97. Secondly, on 29 March 2021, Mr Blennerhassett’s company (Harfin)²² filed an application for Allied to be wound up on the just and equitable ground. Matters relied upon included Mr Belnnerhassett’s belief as to the insolvency of Allied, and his concerns as to the future activities of Mr Doolan and key employees.

98. Thirdly, on 29 March 2021, Mr Doolan’s lawyer suggested to the Administrator (on instructions from Mr Doolan) that the Administrator and Allied should enter into a deed of company arrangement, as proposed by Mr Doolan, instead of the Administrator proceeding with his application to terminate the administration. That course would remove the basis of Harfin’s application to wind up the company on the just and equitable ground. Mr Doolan’s lawyer said as much the next day, when he wrote to the Administrator: (i) urging acceptance of the proposal for a deed of company arrangement; (ii) saying that all previous plans regarding termination of the administration are superseded by the presentation of the proposal; and (iii) contending that Harfin’s application to wind up on the just and equitable ground must be adjourned.

99. The Administrator had brought an application to terminate the administration before calling the second meeting of creditors. Part of the relief sought included orders that he had been validly appointed. But Mr Doolan, and Ms Perey asked the Administrator not to press that application so that the second meeting of creditors could be convened. The Administrator agreed.

Grounds 3, 4, and 6 – improper purpose and related matters

116. The appellant contended that the first finding that the primary judge ought to have made was that the Administrator’s appointment was motivated by an improper purpose, and so ought not to have been made. The submissions were put this way:³⁴(a)his Honour doubted, without deciding, the correctness of the decision in Condor; but Condor is correct in so far as it holds that, where it is plain to a prospective administrator that the power to appoint them is being used for an extraneous purpose, then the administrator ought not to accept the appointment; that test was satisfied in this case;(b)none of the usual indicia of insolvency were present at the time of the appointment, namely: no statutory demands had been made, no creditors were agitating for payment, and directors’ penalty notices had not been issued; these were, in Mr Stimpson’s experience, the type of matters ordinarily discussed when the appointment of a voluntary administrator was being considered; but Mr Stimpson was told of none of these things; (c)instead, he was told: (i) of an extensive personal dispute between Mr Blennerhassett (as the director) and Mr Doolan (as both a person with an interest in the Allied, and its general manager); and (ii) that Mr Blennerhassett did not have access to Allied’s books so, although he thought that Allied might be insolvent, he did not know, and expressly said that he thought he had been appointed as an administrator, rather than as a liquidator, so that Mr Blennerhassett could exit Allied;(d)the obvious inference from those facts which this Court ought to draw (and can more easily draw because Mr Stimpson did not call Mr Blennerhassett) is that Mr Blennerhassett appointed Mr Stimpson because of his ongoing dispute with Mr Doolan, not because of a genuine belief that there was a risk of insolvency; and(e)the purpose outlined in subparagraph (d) was said to be an improper purpose, and one which ought to have been plain to Mr Stimpson in the circumstances of the case.

117. As is evident from the way this point is framed, the evidence of Mr Stimpson as to what he understood prior to appointment was critical.

118. It is true that Mr Stimpson gave evidence that he was told of an extensive personal dispute between Mr Blennerhassett and Mr Doolan, that Mr Blennerhassett did not have access to Allied’s books, and that money had been diverted to Bosag (a company controlled by Mr Doolan).³⁵

119. However, Mr Stimpson only gave qualified acceptance to the proposition put to him, namely that the normal indicia of insolvency included statutory demands, creditors agitating for payment, and directors’ penalty notices:³⁶

“MR MARTIN: And you would agree with me that it would be usual, in your vast experience as a liquidator, an officer of this court, that, often, if you are talking to directors about appointments of voluntary administrators to a company, they more than likely or often talk about unpaid creditors, or director’s penalty notices or statutory demands, don’t they?---Yes, often, but not always.”

120. Other evidence from Mr Stimpson included the following passage in cross-examination:³⁷

“Yes. But, up till that point time, had you been told by Mr Blennerhassett or his solicitor that they thought the company was insolvent?---They told me that they were unsure whether it was insolvent. They thought it might be.

They thought it - - -?---They had no – their major concern was that they had no access to records and that funds were being diverted, and, despite what I’ve said in the second file note about the tax, they found out that the tax wasn’t up to date.

HIS HONOUR: Well, let’s deal with what was in play at the time?---Yep.

That’s what Mr Martin is asking you about?---Yeah, okay.

All right?---So they were - - -

So let’s just deal with the information up till that time, Mr Stimpson?---We – we did – I – I pointed out to them very early that to appoint an administrator, the company had to be insolvent or likely to become insolvent. Their response to that was, “Well, we think it may be insolvent, but we’re not 100 per cent certain. We’re concerned that it might become insolvent,” and that would be the basis of an appointment. We discussed the appointment of a liquidator, which – you don’t have to, obviously, prove insolvency to appoint a liquidator. Mr Blennerhassett did not want to proceed down that track, because he thought it might affect the going concern viability of the business.”

121. The primary judge recorded what his Honour considered to be the significant points arising from those matters:³⁸

“[31] However, in those discussions, the applicant was informed that Mr Blennerhassett had no access to records, that Mr Doolan had arranged for the company’s receivables to be paid into another account so that funds of the company were being diverted (to Bosag Pty Ltd) and that the company’s tax was not up to date.”

122. There was evidence of what Mr Blennerhassett had been told about Allied’s potential insolvency prior to the appointment. As set out in paragraphs [33] to [35] above, both Mr Mifsud (Allied’s accountant) and Ms Perey had made what the primary judge found were allegations of insolvency.³⁹

123. To that, one must add what Mr Stimpson was told by Mr Blennerhassett’s as to his state of belief as to Allied’s solvency. As appears in the passage set out in paragraph [120] above, the response was: “Well, we think it may be insolvent, but we’re not 100 per cent certain. We’re concerned that it might become insolvent.”

124. Allied’s director had received allegations as to Allied’s insolvency from, inter alia, its external accountant and a creditor, the director had been denied access to Allied’s financial records, Mr Doolan had arranged for Allied’s receivables to be diverted to his own company, Bosag, and that Allied’s tax was not up to date. It was therefore hardly surprising that the director would express the view that he was concerned Allied might become insolvent.

125. In my respectful view, those undisputed facts weigh heavily against a conclusion that the appointment was for an improper purpose.

126. This ground fails.

Grounds 2 and 4-6 – Allied’s insolvency and related matters

127. The appellant’s general contentions in respect of these grounds were that the primary judge should have concluded that Allied was solvent, and the appointment of the Administrator was therefore invalid.

128. The submissions were that the primary judge ought to have found that:⁴⁰(a)Allied was not insolvent as at 2 March 2021;(b)Mr Stimpson could not, at the time of his appointment, have been satisfied that Mr Blennerhassett had a bona fide belief that Allied was, or was likely to become, insolvent; and(c)in those circumstances, Mr Stimpson ought not to have accepted the appointment, or ought quickly to have applied to terminate the appointment upon becoming aware that the company was solvent.

129. The submissions continued:⁴¹(a)the most compelling evidence that Allied was solvent as at 2 March 2021 was Mr Stimpson’s own view of the solvency of Allied on 4 and 12 March 2021; he expressed a provisional view, with qualifications appropriate to the time that he had had to investigate, that Allied was solvent;(b)thereafter, Mr Stimpson swore on 26 March 2021 that Allied was solvent, provided that two debts (one claimed by Mr Doolan, and one claimed by another party related to Mr Doolan) were non-current liabilities; Mr Stimpson also formed the view that this was a correct characterisation, given correspondence received from the creditors indicating there would be forbearance, and he prepared a Solvency Report that reflected this conclusion;(c)there was no basis to think that the position in respect of those creditors was any different prior to that letter being sent; at the time of the appointment of Mr Stimpson, those debts were not being called upon by the creditors; proofs of debt were only lodged by those creditors for voting purposes; there was never any suggestion that any right to payment would not involve forbearance;(d)further, the appointment was not preceded by the usual indicators of insolvency, which prevented any suggestion of actual insolvency being made when Mr Stimpson was appointed; and(e)although “the evidence is a little sparse”, the correct conclusion was that Allied was solvent as at 2 March 2021, and that the Administrator ought to have therefore applied immediately to terminate the appointment.

130. The next submission was that Mr Blennerhassett could not have formed a bona fide view that Allied was insolvent, or likely to become so, as required to validly appoint Mr Stimpson. However, even if Allied had been insolvent, if Mr Blennerhassett did not form a genuine opinion, in good faith, to that effect, then the appointment of the Administrator was still invalid. The submission continued:⁴²(a)the most compelling evidence showing that Mr Blennerhassett did not hold a bona fide belief that Allied was, or was likely to become, insolvent, was that the Administrator expressly admitted at the first meeting of creditors that, prior to his appointment, he had not seen any evidence of solvency (and insolvency), and that he knew Mr Blennerhassett had no access to the books and records of Allied; and(b)that evidence was led by the Administrator; on its own, it was an admission that he knew that Mr Blennerhassett could not have formed the requisite opinion; it was corroborated by the Administrator’s contemporaneous correspondence with Mr Blennerhassett, which made no reference to insolvency; and(c)this was sufficient to require the primary judge to have found that the Administrator ought not to have accepted the appointment.

“Until I am supplied with sufficient information with respect to the financial affairs of the company to allow me to form an opinion concerning the solvency status of the company I am not in a position to determine whether or not the company is in fact solvent. I again encourage you, if possible, to do what you can to facilitate the provision of information with regards to the current financial position of the company. I am in the unsatisfactory position at this point in time that if an application were made to court to terminate the voluntary administration, I would not be in a position to inform the court as to whether the company was solvent or insolvent.

…

I was asked my opinion and I responded that I thought the company may be solvent (subject to receiving more documentation), it remains the case that it may be solvent. I would like to be supplied with sufficient additional information to enable me to form an opinion so that I can act appropriately and as the circumstances require.”

142. The statement on 12 March 2021⁵⁶ was a response by the Administrator made at the first creditors’ meeting:

“The presiding person advised his primary concern was the current solvency of the Company and that his preliminary view was the Company was solvent. However, this opinion was qualified as all of the necessary information to provide an unqualified opinion was yet to be provided.”

143. As can be seen, the Administrator expressed a preliminary opinion, but one which was relevantly qualified by the need for further information before a concluded view could be reached.

144. On 18 March 2021, a solvency report was prepared by Mr Stimpson.⁵⁷ Prior to this time, any view of Mr Stimpson was preliminary and/or qualified. Whilst it expressed a preliminary conclusion that there was a surplus of working capital of about $1.2m, that opinion was qualified. Relevantly, the Administrator said Allied’s solvency would be affected by a claimed set-off by Bosag. If that claim was made, then it removed $142,480 from Allied’s cashflow, and converted a claim of over $1m from a non-current liability into a current liability.⁵⁸ The final paragraphs read:⁵⁹

“Based on the information provided to me, provided related party claims remain non-current, and no further claims of setoff or demand for payment is made by those related parties, I conclude the Company is solvent.

I note that this opinion is based on the books and records described on page 1 and I reserve my right to change my opinion if further material information is received. I also note that I have assumed the records reviewed are accurate and I have not conducted an audit of the financial records.”

145. As is plain from the face of that report, the opinion was again a provisional one, qualified by events that had not finalised, particularly as regards the status of the debts attributed to Mr Doolan and Bosag. As noted above, no assurance was ever forthcoming that those debts would not be called up.

146. On 26 March 2021, the Administrator filed an affidavit in the proceedings below.⁶⁰ In that affidavit he said a number of relevant things:(a)at about the time of his appointment:⁶¹employees had expressed concerns about the viability of Allied;revenue had been diverted to Bosag causing liquidity concerns;Mr Blennerhassett had been, and was being, “denied complete and free access to the financial records”;Allied’s principal financier, the NAB, had expressed concern with respect to its viability, “calling in question its continued financial support for the business”;(b)each of Mr Blennerhassett and Mr Doolan alleged that the other had improperly applied money of Allied; the Administrator had not, to that date, been in a position to properly investigate those claims; but the relationship between Mr Blennerhassett and Mr Doolan had completely broken down, which might ultimately prove to be to Allied’s detriment;⁶² and(c)$274,961.06 had been diverted to Bosag, which claimed a set-off in respect of those funds; investigations into those matters had not been completed.⁶³

147. As to the question of solvency, the Administrator said that his opinion was that it was solvent, but that was qualified by the following:⁶⁴(a)Allied had an estimated working capital position as at 18 March 2021 of approximately $1,245,136; this was a critical criteria in assessing the ability of a company to pay its debts as and when due;(b)Allied’s aged payables were within 60 days, and, as such, the Administrator considered them to be paid within “normal trading terms”;(c)Allied appeared to be operating profitably;(d)Allied had a liquidity ratio of approximately 2.89;(e)he was not aware of any legal or other enforcement proceedings commenced by creditors with respect to unpaid invoices;(f)Bosag claimed to be owed the amount of $1,056,493, and Mr Doolan claimed to be owed the amount of $521,240;(g)he had not, in the time available, and based on the information available, been in a position to determine whether or not the full amounts claimed by Bosag or Mr Doolan to be owed to them by Allied were in fact owed; Allied’s balance sheet as at 30 June 2020 and 28 February 2021 did not disclose these claims as liabilities;(h)his opinion of Allied’s solvency was conditional upon the amounts Mr Doolan and Bosag claim to be outstanding being characterised as a non-current liability—that is, not immediately payable, and not expected to be payable within 12 months—and the Redirected Funds, less any amount applied towards payment of Allied’s creditors, being repaid to Allied;(i)in the event that the monies claimed to be owed by Allied to Bosag or Mr Doolan were required to be paid immediately, or within the next 12 months, then he considered that Allied was likely not solvent, and consequently insolvent; and(j)his opinion may change dependent on information contained in any further books and records which he was yet to receive; he had not audited or had the opportunity to properly verify the accuracy of the financial information supplied to him by Allied and third parties for the purposes of testing its accuracy; and there were some inconsistencies between the balance sheets he had been given, and claims made by Bosag and Mr Doolan.

“As discussed in section 2, I prepared a preliminary report on 18 March 2021 which concluded at that time the Company was solvent. I now conclude the Company is insolvent as a result of debts owing to Mr Doolan and Bosag Pty Ltd which are treated as being on call due to these parties’ unwillingness to forbear on their debts unless a DOCA is executed by the Company.”

151. As the Administrator’s evidence showed, the issue of solvency was dependent on whether the amounts claimed to be owed by Mr Doolan ($521,240) and Bosag ($1,056,493) were in fact due and owing. The difficulty was that:(a)these amounts were not included in Allied’s balance sheet as at 30 June 2020 or as at 28 February 2021;(b)in response to a request as to whether these debts were due and owing immediately, the solicitors for Mr Doolan stated:

“Provided the Company is to be managed properly and in the interests of the company, then our client will not be calling upon the company for payment of its debt... My client has historically not called upon his loans to the company. He advises me that he does not intend to do so in the foreseeable future, however there is no utility in a formal agreement. The administration will be terminated very shortly.”;⁶⁷ and

(c)in light of that response, Mr Doolan was invited to clarify his position as a matter of urgency, but did not do so; he maintained that he was a creditor; he was asked on a number of occasions to provide a deed of forbearance, and did not do so.⁶⁸

152. In my view, the finding sought by this ground cannot be made out. The appellant’s submissions described the evidence on this issue as “a little sparse”. In my view, that is something of an understatement. A conclusion of solvency or insolvency should be based on evidence from which that conclusion can be drawn with some confidence. Here, the suggested evidentiary basis is lacking.

153. This ground fails.

Ground 7 – appropriate remuneration

154. The primary judge dealt with this issue in two stages. The first was whether the remuneration should be reviewed:(a)his Honour referred to an early example of the use of the phrase “ad valorem” in respect of an administrator’s remuneration,⁶⁹ but highlighted that it was set against realisations and distributions, which were absent here;⁷⁰(b)his Honour then observed that no prior case had been found where an ad valorem rate had been applied by reference to the amount of admitted creditors’ debts for dividend purposes under the deed of company arrangement;⁷¹(c)the primary judge noted that there is “no per se logical connection between the value or amount of the debts and the amount of the work”;⁷²(d)there was no logic behind the “ad valorem” approach in the present case; whilst it was true that the application of that rate reduced the remuneration, there was no explanation as to why the reduced rate was a proper measure of the work done; further, the rate adopted did not apply to the Bosag debt ($1,056,000), or the debt of Mr Doolan ($521,240); consequently, applying the 20 per cent rate to the value of debts admitted to proof under the deed of company arrangement would amount to a remuneration payable figure of $315,448 less than if the rate had been applied to the debts admitted to proof in the voluntary administration;⁷³(e)applying Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr,⁷⁴ “the Court must have regard to whether the remuneration is reasonable, taking into account any or all of” a broad range of matters, including the extent of the work likely to be necessary and properly performed, its quality and complexity, the extent of extraordinary issues, the degree of risk and responsibility, and “any other relevant matters”;⁷⁵ and(f)it was appropriate to review the remuneration “[h]aving regard to the unusual basis for and the features of the remuneration determination...”.⁷⁶

155. The second was whether to vary the remuneration claimed. As to that, his Honour found that the Administrator encountered complexities that added to the cost of the administration, including:(a)the allegations by Mr Doolan of impropriety by the Administrator;(b)difficulty in obtaining Allied’s books and records; that required numerous notices to be issued to various parties;(c)dealing with Mr Doolan and his lawyers about the re-direction of funds to Bosag;(d)difficulties in the relations between the Administrator’s staff and Allied’s staff during the trade on period;(e)holding the adjourned first meeting of creditors to deal with the resolutions to terminate the administration, and to remove Mr Blennerhassett as director;(f)bringing the application to terminate the administration; and(g)complex dealings regarding the proposal for a deed of company arrangement.

Appellant’s submissions

159. The appellant’s submission in respect of this ground commenced by accepting that, at a general level, this ground raised no issue of principle. Mr Stimpson was entitled to remuneration “for necessary work properly performed by him… in relation to the external administration, in accordance with the remuneration determinations (if any)”. Upon review by a court the question is whether the remuneration is reasonable, taking into account any or all of the matters set out in s 60-12 of the Insolvency Practice Schedule, and well-established principle.⁸¹

160. The case put below was that, in circumstances where:(a)the work that was done by Mr Stimpson was unnecessary because he ought not have been appointed (or ought to have applied to terminate the administration); and(b)Mr Stimpson was aware that the company was solvent, and that Mr Blennerhassett could not have formed the requisite state of mind to pass a resolution appointing him,

Mr Stimpson’s conduct of the administration was disentitling conduct that justified the creditors reducing his remuneration.

161. This proposition does not depend upon whether, as a matter of general principle, an insolvency practitioner’s remuneration ought to be calculated as a percentage of creditor’s debts who are admitted to proof. Undoubtedly, his Honour was correct to hold that the logical justification for calculating remuneration on the basis of property recovered (so as to derive remuneration “according to value”) does not apply in the same way where property has not in fact been recovered. But this was not to the point.

162. The critical question for the Court here was whether the remuneration fixed by the creditors was reasonable and, if not, what was reasonable. The Corporations Act does not provide for any particular method of calculation, but the time spent by the practitioner, together with the proportionality of the cost to benefit conferred, are critical factors in the analysis.

163. Further, conduct of the practitioner can be disentitling of, or at least relevant to, the assessment of remuneration.

164. Once it is accepted that Mr Stimpson ought not to have been appointed, then those well-established principles cannot justify remuneration in the amount sought by Mr Stimpson. To the contrary, they justified nothing more than a nominal amount—as Mr Stimpson could have brought the administration to an end well-short of the three months for which it lasted.

165. The fixing of an amount on the basis of a percentage of creditors admitted was no more than a way of fixing this nominal amount. It is - in every sense - a distraction.

166. The critical question is whether the sum of $46,000 was an appropriate sum for an appointment that ought never have been accepted and, once it was, should have been terminated forthwith. Viewed in that light, $46,000, was more than reasonable.

Consideration

167. In my view, the difficulties confronting acceptance of the appellant’s submissions on this particular challenge are considerable.

168. As noted in paragraph [8] above, the dispute below was not that the claimed work of the Administrator was not done, nor that the time-based charging rates were unreasonable. The dispute below was that all or most of the work of the administration was not necessary, because: (i) the Administrator was invalidly appointed as the administrator; (ii) the Administrator should have terminated the administration almost immediately and avoided the costs of the administration; and (iii) that the remuneration should be limited to an amount described as an “ad valorem” amount, being twenty per cent of the value of the admitted proofs of creditors entitled to share in the fund provided for under the deed of company arrangement.

169. As is apparent from the submissions before this Court, the same points are taken.

170. At the heart of the contentions advanced is that the Administrator “ought not to have been appointed”, in which case nothing can justify remuneration in the amount sought by the Administrator, and as ordered by the primary judge. That issue was determined against the appellant below, and the challenge to it has been rejected.

171. Mr Martin frankly conceded that he had been unable to discover any case where an administrator’s remuneration was fixed on the basis adopted in the creditors’ remuneration determination.

172. Before the primary judge, the Administrator gave evidence justifying the work done and the charges. There is no challenge in this Court to the finding that the work done was necessary and properly carried out by reference to the tasks, times, and rates relied on by the Administrator.

173. The lack of any discernible logic attaching to the rate adopted by the creditors, namely 20 per cent of the value of the admitted proofs of creditors entitled to share in the fund provided for under the deed of company arrangement, is particularly telling. The statutory provisions give the court wide discretionary power to fix appropriate remuneration for work done by an administrator. As Sanderson as Liquidator of Sakr Nominees Pty Ltd v Sakr⁸² held, “the Court must have regard to whether the remuneration is reasonable taking into account any or all of” a broad range of matters, including the extent of the work likely to be necessary and properly performed, its quality and complexity, the extent of extraordinary issues, the degree of risk and responsibility, and “any other relevant matters”.

174. In deciding to vary the remuneration, the primary judge weighed the various matters referred to in paragraphs [155] to [157] above. Those references summarise a greater body of evidence from the Administrator, which his Honour clearly accepted. In my view, it cannot be demonstrated that his Honour’s discretion miscarried in any way.

Conclusion

176. As all grounds have failed, the appeal ought to be dismissed with costs.

177. I propose the following orders:

Appeal dismissed.

The appellant pay the respondent’s costs of and incidental to the appeal.

178. KELLY J: I agree with the reasons of Morrison JA and the orders proposed.

Footnotes

1. Under s 60-11 of the Insolvency Practice Schedule (Corporations), sch 2 to the Corporations Act 2001 (Cth). ↩

2. Where it is appropriate to do so, I shall refer to these three parties collectively as “the opponents”. ↩

3. Stimpson v Allied Rural Pty Ltd (subject to deed of company arrangement) & Ors [2022] QSC 74. ↩

4. Reasons below at [3]. ↩

5. Reasons below at [88]. ↩

6. Re Condor Blanco Mines Ltd [2016] NSWSC 1196 (Condor). ↩

7. Reasons below at [97]. ↩

8. Reasons below at [98]–[100]. Footnotes omitted. ↩

9. Reasons below at [101]–[102]. Footnotes omitted. ↩

10. Reasons below at [104]. ↩

11. See paragraph [33] below. ↩

12. See paragraph [37] below. ↩

13. See paragraph [34] below. ↩