ASIC v Green Pacific Energy Limited & Ors

the factual events 16 GPEL was previously known as Envirostar Energy Limited. The company was placed in administration on 3 October 2002. On 21 February 2003, Great Pacific Financial Group Pty Limited ('GPFG') entered into a Heads of Agreement with the administrators pursuant to which GPFG on behalf of a syndicate of investors agreed to contribute $1.76 million in exchange for the issue of shares representing 77% of the issued capital upon completion of the issue. $1M was to be available to the administrators and creditors of the company under a proposed Deed of Company Arrangement ('DOCA') and $500,000 was to be applied as future working capital. The deed proposal was approved by creditors on 27 February 2003 and the parties entered into the DOCA on 18 March 2003. On 15 April 2003 the shareholders resolved to approve the issue of the relevant shares to the GPFG syndicate members, change the company name to GPEL and appoint Alfred Wong, Mr Richard Gerald Nott and Mr Danny Au‑Yeung as Directors of the company. Mr Edwin Yeung was appointed company secretary on the same date. 17 On 25 August 2003, upon performance of the terms of the DOCA, the Deed Administration came to an end. 18 Alfred Wong is a Director and Chairman of the Board of GPEL. Alfred Wong is also the Sole Director and Company Secretary of Richland which is the trustee of the Richland Property Trust. Alfred Wong is a beneficiary of that trust and has complete authority to act on behalf of the Richland Property Trust. Alfred Wong says that he has complete authority to deal with the trust and its assets. Richland does not trade other than in its trustee capacity. Alfred Wong is the Sole Director of GPEC which is a wholly owned subsidiary of GPEL and a Director and Shareholder in GPFG. GPFG has a minimal shareholding in GPEL. Alfred Wong concedes that although he does not have any direct shareholding in GPEL, he controls approximately 20% of the issued share capital in GPEL through companies related to him. 19 Alfred Wong and Andris Lielkajis are Directors of GPIS. Mr Ivan Wong is the other director of GPIS. Both Alfred Wong and Andris Lielkajis are also directors of Great Pacific Securities ('GPS'), a financial services licensee. Alfred Wong controls 51% of GPS. GPIS has a strong relationship with another company controlled by Andris Lielkajis (of which he is the Sole Director and Shareholder), namely, A.B.L Global Spectrum Pty Ltd ('ABL'). Andris Lielkajis says that GPIS 'lends its name to ABL'. 20 Other individuals who have had a role to play in GPEL include Peter Gan who was appointed Managing Director of GPEL on 14 May 2004 having commenced employment with GPEL as its chief operating officer in June 2003. Peter Gan was formerly employed as the commercial development manager of Energy Australia where he was in charge of implementing that company's green energy strategy. He resigned in mid July 2005. Robert Patterson was appointed a director of GPEL on 1 July 2004 and resigned in August 2005. William Lamont was appointed as a director on 16 September 2005. Richard Nott resigned as a director on 25 August 2005. Mr Edwin Yeung has been the company secretary of GPEL since 15 April 2003 and the company secretary of GPEC since 21 December 2005. Danny Kam Yun Au-Yeung has been a director of GPEL since 15 April 2003. Heymala Eardley was the assistant company secretary of GPEL from 1 June 2004 to 30 December 2005. 21 GPEL has had, since 15 April 2003, a number of power generation projects under consideration most of which were in the planning and development stage by Envirostar Energy Limited prior to the GPFG proposal. Those projects include: (a) The construction of a 5MW power plant at Staplyton which was completed and commissioned on 23 March 2004. That project encountered a range of difficulties and the shares in the operating subsidiary GPES No. 1 were sold to BMI Group Pty Ltd on 5 July 2006; (b) A proposal to develop a 13.5MW power plant at Staplyton in Queensland. In January 2006 GPEL purchased a second hand power plant located in Altona in Victoria through a wholly owned subsidiary; (c) A proposal to develop a 100MW clean coal power generation plant at Morwell in Victoria; (d) A proposal to develop a 20MW power plant at Kemerton in Western Australia; (e) A proposal to develop a power plant at Bell Bay in Tasmania; (f) A proposal to participate in a project in China called the 'Dalian Environmental Coal Gasification Project'. 22 From 15 April 2003 when Alfred Wong became involved with GPEL, he accepted that it would be necessary for a company or companies related to him to financially stand behind GPEL and provide financial facilities to allow the company to function as a going concern and implement steps in the development of the projects under consideration. Alfred Wong accepted that Richland would provide loan facilities to GPEL to enable it to meet cash flow demands. In June 2003, Richland began providing financial assistance to GPEL. No written loan facility agreement was brought into existence at that time to document the terms and conditions of the Richland GPEL financial facility. 23 However, on 17 December 2003, a document was brought into existence (a 'Term Sheet') between GPEL and Richland which referred to a principal sum of $2.5M 'to provide working capital for the Borrower' with a maturity date of 30 June 2004. The 'credit facility' was to be supported by a 'registered fixed and floating charge over the borrower's assets to be ranked behind the loan facility from Investec Bank (Australia)' attracting an interest rate at 7% above the 30 day bank bill rate with an establishment fee of 3% of the facility. Interest was to be capitalised. The brief Term Sheet describes the repayment term in this way: 'Principal Repayment The credit facility may be extended for a further term based on similar terms and conditions subject to mutual agreement. In the event that the facility is not extended, the borrower has the discretion of repaying the principal sum and all accrued interest in cash or in the form of fully paid ordinary shares in the Borrower. The issue price of these shares will be calculated at a 15% discount of the weighted average trading price of the company shares over the five days prior to the Maturity Date. [30 June 2004]' 24 The reference in the Security Clause of the Term Sheet to the Investec loan facility was a reference to a facility dated 30 September 2003 by which Investec provided a loan facility of $3.5M in two tranches to GPES No. 1 to enable that company to develop a new 3.3MW renewable energy power plant at Staplyton in Queensland involving design, construction, testing and completion, defects rectification and operation and maintenance activities. The facility involved a pre and post commissioning facility comprising structured senior debt of $2.9M and subordinated debt of $600,000 on particular terms and conditions. The facility had to be supported by particular fixed and floating charges, step in rights to cure potential breaches in relation to a Power Purchase Agreement and Lease Agreement and 15 conditions precedent including confirmation from the sponsor (GPEL) and its directors that the Borrower was not subject to any outstanding claims, nor in default of any facilities and that no material adverse change had occurred since the formulation of the Term Sheet between Investec, the sponsor (GPEL) and the Borrower. In addition, the Borrower was required to establish particular accounts from which the debt servicing costs were to be paid. The Borrower was required to maintain particular defined 'ratios' described as the ratio of 'Available Cash Flow to Debt Servicing Costs' (called 'DSCR') and a ratio of 'Forecast Available Cash Flow to Forecast Debt Servicing Costs' (called 'FDSCR'). 25 On 9 January 2004, Investec issued a letter to GPEL submitting an 'in principle' offer to provide and syndicate construction and term finance for five power generation projects - Staplyton Stage 2, Nowra, Morwell, Bell Bay and Kemerton. The Borrower would be GPEL. The facility amount was to be $20.4M per project subject to financial modelling demonstrating that the facility could be fully repaid on commissioning by means of a 'Senior Construction Facility' by which particular coverage and debt servicing ratios could be maintained by the Borrower. The purpose was to fund 60% of the construction cost of each project with the Borrower subscribing 40% although that proportion might partly be accommodated through draw down of a 'Junior Construction Facility' also provided by Investec. The Senior Construction Facility contemplated a construction period of 24 months, capitalisation of interest, an elevated default interest rate, the provision of detailed securities, 'step in rights' upon default in relation to particular agreements, and 20 conditions precedent. Some of those conditions precedent involved syndication of the facility by Investec to banks, Investec's satisfaction with off‑take agreements and fuel supply contracts, Investec's satisfaction with financial projections, the passing of a defined 'completion test' (and the meeting of operational targets) for the pilot project plant at Staplyton, project construction to be undertaken by an experienced Engineer, Procurement & Commission ('EPC') contractor satisfactory to Investec and approval of the EPC contract by Investec. 26 The Junior Construction Facility contemplated a borrowing by GPEL of a facility amount of $3.2M subject to particular 'loan life coverage ratios' and 'forward debt servicing ratios' to fund a further 10% of the construction costs of any particular project which would leave the sponsor borrower GPEL to raise 30% of the proposed or anticipated total construction cost for each project. Similar conditions applied to the Junior Construction Facility as those governing the Senior Construction Facility. 27 Between June 2003 and June 2004, Richland provided financial facilities to GPEL by transfer of monies to the bank account of GPEL and direct payment of creditors. At 30 June 2004, the principal sum owed to Richland by GPEL was $3,370,857.60. On 30 June 2004, Alfred Wong on behalf of Richland wrote a letter confirming the extension of the existing facility for an additional term. The extended or new principal facility was a $5M facility with a maturity date of 30 June 2005. The remaining elements of the 'Term Sheet' are identical to the terms of the previous Term Sheet. The principal repayment term provided that in the event the facility was not extended, GPEL had a discretion to repay the principal sum and all accrued interest either in cash or by issuing fully paid shares in GPEL at a discount price to market determined by the same methodology as the earlier Term Sheet. 28 In June 2004, Alfred Wong had a conversation with Mr Edgar Yan Kai Hung. Edgar Hung is a Director of Austcorp Group Limited ('Austcorp') and has held that position since 13 April 1992. In June 2004, Alfred Wong asked Edgar Hung whether Richland could borrow $2.27M from Austcorp. Edgar Hung agreed subject to the provision of security by Richland for the loan. Alfred Wong suggested that Richland could assign to Austcorp the debt owed by GPEL to Richland. Alfred Wong told Edgar Hung that the Richland loan to GPEL was secured by a fixed and floating charge over GPEL's assets. On 1 July 2004, Richland entered into a Deed of Assignment with Austcorp pursuant to which in consideration of the payment of $2.27M by Austcorp to Richland, Richland assigned to Austcorp 'all of its rights, title and interest in the loan agreement between Richland and GPEL dated 17 December 2003'. The funds were to be paid within 30 days. Edgar Hung describes the assignment document as 'security' for the Austcorp-Richland loan of $2.27M. The Deed of Assignment appears to be an out and out assignment to Austcorp of all of Richland's rights and interests in the GPEL/Richland 'Loan Agreement'. If the assignment was simply an assignment by way of security, it was subject to defeasance upon discharge of the debt. The assignment did not operate to cast an obligation upon Austcorp to provide further loan funds to GPEL. Accordingly, at 30 June 2004, the Richland GPEL $2.5M facility had been extended by Richland as to both the term (30 June 2005) and the amount ($5M). 29 On 22 July 2004, GPEL's company secretary Edwin Yeung wrote to Austcorp and confirmed that Richland 'has notified us of its intention to assign the loan to your company. Effective immediately, all of Richland's rights and obligations under the said loan agreement will be transferred to your company. As at 30 June 2004, the outstanding loan amount (including accrued interest) is approximately $3.37M'. 30 As to the possible defeasance of the security, or other reversion arrangement, Alfred Wong on 22 July 2004 wrote to Austcorp to set out the following arrangements: 'I refer to the above loan agreement between Richland and GPEL and the subsequent assignment of loan to your company dated 1 July 2004. I hereby agree to grant your company a put option to be exercised from 30 September 2004 onwards. The consideration price of this put option is the aggregate of $2.27M plus all interest accrued at 25% per annum from the date of the agreement less any interim payments paid by GPEL to your company in accordance with the loan assignment. Upon exercise of this put option I will be entitled to all loan proceeds received by your company from GPEL that are in excess of $2.27M plus the accrued interest (at 25% per annum).' [abbreviations and emphasis added] 31 Upon Austcorp's exercise of the put option, Richland would be entitled to all loan proceeds received by Austcorp from GPEL in excess of the debt due to Austcorp of $2.27M plus the accrued interest at 25% per annum. 32 On 22 July 2004, Alfred Wong wrote to Austcorp referring to the Deed of Assignment of 1 July 2004 and instructed Austcorp to transmit $2M to the bank account of Ms Apiang Woong and the balance of the $2.27M to Richland's account at National Australia Bank Limited. Those transfers took place on 22 July 2004. The balance funds paid to the Richland account constituted $27,637.77. 33 On 7 May 2004, Alfred Wong had defaulted under the terms of a loan facility between Apiang Woong and Alfred Wong having a commencement date of 8 May 2003 pursuant to which Apiang Woong advanced $3M to Alfred Wong for 12 months with interest payable at a 'Fixed Interest Lower Rate' ('FILR') of 35% per annum to be paid on 7 November 2003 and 7 May 2004. The Agreement provided that in the event of default, interest would be payable at a 'Fixed Interest Higher Rate' ('FIHR') of FILR plus 10% (45% per annum). The principal was repayable on 7 May 2004. The loan was secured by a fixed and floating charge over the assets of Pacific International Consolidated Pty Ltd ('PICPL'), a wholly owned subsidiary of Richland in support of a guarantee of the loan by PICPL; a first ranking mortgage of land owned by G P Energy in support of G P Energy's guarantee of the loan; and other mortgages over property. Alfred Wong is the Sole Director and Secretary of G P Energy. Lisa Wong is the sole shareholder. 34 On 13 October 2004, a further amount of $1,366,197.96 was paid to the account of Apiang Woong. Alfred Wong conceded in giving evidence that most of the $2.27M raised by Richland was used to repay the debt to Apiang Woong and that Alfred Wong was the Borrower. Although the debt was due for repayment in May 2004, Alfred Wong gave evidence that there was no demand for repayment of the loan from Apiang Woong at that date. 35 At paragraph 34 of Alfred Wong's affidavit filed 19 July 2006, Alfred Wong said that the purpose of assigning the debt to Austcorp, from Richland's point of view, was 'part of its treasury management' and that it was Alfred Wong's intention that 'the facility provided by Richland being a related party be replaced by an arms length facility from Austcorp. Also, I perceived there to be a potential for a long term strategic relationship between GPEL and Austcorp and I saw this as an opportunity to start to establish such a relationship'. It seems much more likely that Richland entered into the relationship with Austcorp to raise funds to enable Alfred Wong to pay Apiang Woong (as occurred) a substantial amount of the monies that had become due by him on or about 8 May 2004. 36 In October 2004, Edgar Hung asked Alfred Wong to provide him with a copy of the fixed and floating charge obtained by Richland over GPEL's assets pursuant to the Richland GPEL Term Sheet. Approximately 7 to 10 days after the request, Alfred Wong told Edgar Hung that there was no charge in place. Edgar Hung told Alfred Wong that the GPEL debt to Richland was a key security in support of the Austcorp advance to Richland and that Austcorp expected the loan to be secured by a charge over GPEL's assets. Edgar Hung suggested to Alfred Wong that either a demand ought to be made upon Richland or GPEL of sufficient monies to reduce any substantial risk to Austcorp or, alternatively, Austcorp might step into Richland's shoes and require GPEL to grant a fixed and floating charge over GPEL's assets under the Richland GPEL loan facility. 37 Some time after those discussions in October 2004, Alfred Wong told Edgar Hung that GPEL had funds available to repay the Austcorp Richland loan so as to 'clean up the default of not having the charge in place'. 38 The significance of these events is said to be this. 39 Richard Nott, a Director independent of the GPFG syndicate, contends that the continuing financial support of Richland and Alfred Wong was fundamental to the status of GPEL as a 'going concern' because Richland was a friendly foundation shareholder and therefore unlikely to act, so far as the Richland GPEL debt facility was concerned, in a way that would prejudice GPEL's 'liquidity', that is, access to needed cash flows. The assignment of the debt to Austcorp introduced a third party unconstrained by those concerns and therefore the assignment was a material matter. Moreover, Richard Nott and ASIC contend that although the assignment occurred in July 2004, the Board was not informed of the assignment until Peter Gan advised the directors at a Board meeting, in the absence of Alfred Wong, on 15 December 2004. Richard Nott contends that his concern about the impact of the changed circumstances was compounded by Peter Gan's advice at the same meeting of directors that a substantial part of the JFCP subscription of $6.3M had been applied to discharge debts due to Richland and Austcorp notwithstanding the Board's view of 17 November 2004 that the Richland GPEL loan be converted to equity at the maturity date, or, alternatively, be restructured as 'long term debt' because GPEL did not have the capacity to repay the loan. 40 Alfred Wong contends that GPEL was told of the assignment, Richard Nott knew of it well before 15 December 2004, and, in any event, Richland continued to support GPEL with financial facilities thus ensuring GPEL's access to required cash flows to meet its obligations. 41 Accordingly, it is necessary to examine GPEL's dependence upon Richland, the circumstances of payments to Richland and Austcorp, and the conditions of Richland's continuing support. 42 By the meeting of directors of GPEL on 20 May 2004 (attended by directors, Alfred Wong, Richard Nott and Danny Au Yeung; and others, Edwin Yeung, Ms Helen Ho (GPEL Management), and Peter Gan (Chief Operating Officer of GPEL at that time)) the second tranche of the Investec loan [$3.5M facility] had been drawn down, the pilot plant was exhibiting particular 'sensitivity' to diverse green waste fuel (thus requiring engineering changes) and a possible capital raising was under consideration. The Board resolved to appoint Peter Gan as Managing Director. At the Board meeting on 16 June 2004 (attended by the same individuals) the Chief Operating Officer reported that the pilot plant was experiencing problems and that the 'five MW plant at Staplyton was never meant to be a stand-alone plant, and was designed to share the infrastructure and sophisticated processes of the second stage 20MW on site. There are three key areas that need to be addressed - fuel handling system, sensitivity to fuel quality, and the plant's general handling of ash'. A capital raising of $10-15M was under consideration and because the delayed capital raising had affected GPEL's 'cash flow projections' GPEL would proceed with a private placement of shares in the form of convertible notes. Peter Gan was asked to prepare an analysis of projected capital requirements, an operating budget, an estimate of overhead expenses, etc, to 30 June 2005. The Board Minutes of that meeting recognised that 'a key perimeter of the loan facility from Investec Bank is the debt cover ratios. This will be addressed in the quarterly review which is due shortly'. The Minutes also note, 'Alfred presented the possibility of acquiring three of the power plant sites (ie. Kemerton, Bell Bay and Nowra). Taking into account the company's current financial constraints, he would like the Board's approval to purchase the properties through a related company. No decision was made'. 43 At the meeting of directors on 21 July 2004 (attended by the same individuals), Peter Gan reported that fuel quality for the pilot plant would remain a 'standing agenda item until a long-term, cost effective solution could be found'. As to the capital raising, the response had been lukewarm. GPEL elected to consider a different form of convertible note issue and third party debt funding arrangements. As to the financial issues, the Board assessed the cash flow projections and considered, assuming the convertible note issue raised $10M and TechComm took up an equity placement of $7-8M and funding was secured from LM Investment for the Staplyton No 2 project, GPEL was 'financially sound'. The financial projections were to be reviewed at the next Board Meeting. 44 At the meeting of directors on 18 August 2004 (attended by the same individuals) Alfred Wong reported that investor interest in the convertible notes had waned. Peter Gan reported that optimal revenue from the pilot plant had not been achieved and ash-handling costs had increased overheads. As to the financial matters, the minutes record: 'Financial Matters (a) The Company's cashflow projections and operating budget were tabled. (b) Richard expressed concern over the Company's liquidity. The Company's working capital is currently funded by a related company loan. It was agreed that Alfred will review the loan terms, with the aim of increasing the principal amount.' 45 On 26 August 2004, the Audit & Risk Management Committee of the Board of Directors met. Present were Richard Nott (Chairman), Alex Breen, (Consultant), Robert Patterson (Independent Director), three representatives of GPEL's auditors, 'BDO' - Chartered Accountants (Ian Fergusson - Audit Engagement Partner, Ralph Goodman - Client Service Partner, and Henry Duggan - Audit Engagement Manager), Peter Gan, Edwin Yeung (Company Secretary), and Heymala Eardley (Assistant Company Secretary). The Audit Committee considered the basis for a correction to the carrying value of the 5MW pilot plant having regard to the cash flows and the appropriate discount rate to be applied, as Ian Fergusson and Henry Duggan strongly felt that the pilot plant was over valued. Richard Nott considered that the assets should be carried at values consistent with the methodology adopted by GPEL's lenders. The minutes record: 'Edwin confirmed that the Board had approved the Cash Flow forecast at their last meeting when asked by Ian. An extension of credit facility, for $5m maturing 30th June 2005, from Richland Investment (Australia) Pty Ltd was also tabled at the meeting. Henry also requested a copy of the original loan agreement that was assigned to Austcorp Group Limited from Richland Investment (Australia) Pty Ltd.' 46 At the meeting of the Board Audit & Risk Management Committee Meeting on 20 September 2004 (attended by the same individuals attending the meeting on 26 August 2004), the annual report for the year ending 30 June 2004 was reviewed. The valuation of the 'recoverable amount' of the pilot plant was determined by discounting cash flows at the discount rate of 12.5% thus resulting in a write down of $1.34M of the capitalised costs. The auditors reported that a particular financial comment would be included in the report. The minutes record: '(a) Review of 2004 Annual Report The auditors have also included an 'Emphasis of Matter' with respect to the going concern of GPEL in the Independent Auditor's Report. The note explains that the company is dependent on the continuing support of its shareholders and lenders to raise sufficient finance to build more economically feasible power plants in the 20 MW range. (b) External Audit It does not mean the accounts are qualified, but Henry [Duggan - BDO] drew to the Committee's attention to the Emphasis of Matter paragraph with respect to going concern in the BDO Report to the Board.' 47 The BDO Report to the Board considered by the Audit and Risk Management Committee on 20 September 2004 for the financial year ended 30 June 2004 contained the following comment: 'Based on our work, we plan on issuing an unqualified audit report. However, given the current financial position of the Group, we consider it appropriate to include a paragraph regarding the inherent uncertainty regarding continuation as a going concern. The following paragraph will be included in the audit report: Inherent Uncertainty Regarding Continuation as a Going Concern Without qualification to the opinion expressed above, attention is drawn to the following matter. As disclosed in Note 1 of the financial report and having regard to the extent of the consolidated entities excess of current liabilities over current assets at the reporting date, the ability of the company to continue as a going concern is dependent upon the director's ability to attract further equity investment into the company; the ongoing financial support of its shareholders and lenders and its ability to derive sufficient future income from its existing and proposed Green Energy Power Plants. In the event that the company becomes unable to continue as a going concern, it may be required to realise assets and extinguish its liabilities other than in the normal course of business and at amounts different from those currently stated in the financial report.' 48 BDO reported that the Group's operating loss before income tax for the financial year was $5,836,067. The Group incurred a gross margin loss due to the fact that the 5MW power plant was not running at full capacity although operating and maintenance costs were still being incurred at normal rates. 49 The BDO Report also contains the following observations: 'After discussions with management it was agreed that a discount rate of 12.5% should be applied to the cash flows of the 5MW plant. This resulted in the capitalised costs relating to the 5MW plant of $9,475,906 being written down by $1,382,299 to $8,093.607. We considered it appropriate that the financial statements disclose that the recoverable amount of the projects under construction is dependent upon the group receiving the continued support of its shareholders and lenders and the successful raising of finance to fund the construction of the next phase of plants. Going Concern The Group has now built and conditioned the 5MW Staplyton Plant. This resulted in the Group drawing the second tranche of financing of $3,5m from Investec. The Group has secured a right to $100M debt to finance the construction of a number of 20M plants which is dependent upon the Group obtaining equity finance of 30% of project costs. The Group has continued to be financially supported by Great Pacific Finance through Richland Investments. The Group is dependent upon going to the market to raise finance to build a more economically feasible plant in the 20MW range. Our audit report is not qualified but it does contain an 'emphasis of matter'. With respect to going concern. We believe that adequate disclosure of the facts has been given in Note 1 of the financial statements. This note states that the Group is dependent upon the company being able to raise sufficient finance to fund construction of the 20MW plant and the ongoing financial support of the company's shareholders and lenders.'

50 Note 1 to the BDO Report contains the 'going concern' comment. Note 5 to the BDO Report notes the entities related to Alfred Wong namely, GPFG, Richland, G P Energy and Great Pacific Finance Pty Limited. Note 5(iii) is in these terms: 'GPEL obtained a loan facility from Richland for a working capital purpose. The interest started to accrue from 1 July 2003 on the outstanding principal at 12% p.a. and an establishment fee of $75,000 was charged. It is secured by a fixed and floating charge over GPEL's assets. As at 30 June 2004, GPEL owed Richland $3,370,858 (2003 $24,065) and $298,507 as loan principal and borrowing costs payable respectively. After balance date Richland assigned all its right and obligations under the facility agreement to an unrelated party. Richland has granted a put option exercisable from 30 September 2004 onwards to the unrelated party whereby Richland would acquire this loan including accrued interest for the amount the loan was stated at the date the option is exercised. GPEL has secured a further $5 million loan facility from Richland, which has not been used as at balance date. The interest charge is 7% per annum above the 30 days bank bill rate and the facility is secured by fixed and floating charge over GPEL's assets.' 51 The accounts for the financial year ending 30 June 2004 were signed by Alfred Wong on 28 September 2004. 52 At the meeting of directors on 22 September 2004 (attended by those individuals attending the meetings on 20 May 2004, 21 July 2004 and 18 August 2004), the Board considered in detail the operating cash flows available to GPEL and the requirement for additional capital. The minutes of the meeting record these matters: 'Operating Cashflows (i) Peter reported that accounts payable are ageing quickly. The most substantial amount is the accumulated fees payable owing to TechComm, some of which date back to the commissioning period. (ii) Richard expressed his concern over the Company's current gearing ratio (approximately 3:1), in particular its impact on the loan facility from Investec. Alfred explained that the loan is project specific with recourse only to the project's SPV (ie Green Pacific Energy Staplyton No 1 Pty Limited). The loan should not be affected by the parent company's balance sheet. Of greater significance are the plant's performance and revenue generation capacity. It is vital for the plant to be able to operate at its optimal capacity and substantiate the cash flow projections. (iii) Peter explained that the 5MW plant is gradually overcoming its teething problems and should achieve 90% availability by the end of 2004. By first quarter of 2005, the 5MW project is expected to achieve the required debt coverage ratio of 1:2 - 1:3.' 53 As to additional capital, the minutes record these matters: '5. Additional Capital In addition to the $3-4 million capital required to construct each plant, the Company requires a few $million as working capital. Peter reported that both Citigroup and Multiplex have now declined to participate in the project. The Board discussed ways to improve the Company's liquidity and to raise additional capital.' 54 The Board discussed the proposal of Viridis Energy Capital Pty Ltd ('Viridis') to acquire 100 % of each of the projects upon completion with the result that GPEL would, in effect, act as a project developer and receive a development profit. The Board also discussed the possibility of Viridis acquiring the 5MW plant at Staplyton. The Board discussed the in-principle proposal from Investec Bank to fund projects with GPEL providing a 30% equity contribution to the capital cost of each project, the possibility of issuing debentures to raise additional funds and the possibility of a rights issue. 55 The following further matters are recorded in the minutes of that meeting: '5. Additional Capital … (c) Richard emphasised the need to have a definitive plan to resolve the Company's capital issues before the Annual General Meeting in November. The plan should address the capitalisation of Richland's inter-company loan, and ways of raising additional working capital and funds to roll out phase 2 projects. … (e) Alfred advised that Richland Investment will continue to provide funds to ensure that the Company has sufficient working capital. He is also prepared to convert the inter-company loan into subordinated equity to improve GPEL's gearing ratio. This may be in the form of renounceable rights issue with an underwriting agreement from Richland for the amount of the loan. Other shareholders would then have the opportunity to participate. (f) Edwin reminded the Board that the gearing ratio will inevitably be reduced with the issue of shares in payment of the EEA acquisition. The final instalment is currently recorded as a liability in the Company's balance sheet, but will be converted to equity when the shares are issued upon shareholder approval at the AGM. Bob suggested that the Richland loan could be converted to subordinated equity at the same price as the share issue to James Kwok.' 56 At the meeting of directors on 18 October 2004 (attended by directors, Alfred Wong, Danny Au-Yeung, Peter Gan and Bob Patterson; and others, Edwin Yeung and Helen Ho), the Board discussed the augmentation to the pilot plant to render it 'relatively stable', the in‑principle agreement for Viridis to take over the pilot plant once a 'steady operational state' was achieved, and the range of potential EPC contractors that might participate in projects. The directors agreed that securing an acceptable EPC contractor was of 'utmost priority' particularly in negotiations with Investec. As to funding options, the minutes record that: 'Great Pacific Securities, a related entity, would be able to arrange a promissory note issue of up to $6-7 million which would provide sufficient equity funds for one plant, or half equity for two 10MW plants.' The notes would be likely to incur interest between 12 subject to the maturity date. Most of the issue proceeds would not be available to GPEL until April 2005. 57 On 17 November 2004, a meeting of Directors of GPEL occurred. The directors present were Richard Nott (Acting Chairman), Robert Patterson and Peter Gan. Ms Helen Ho, Edward Yeung and Heymala Eardley also attended. The Board considered the capital augmentation expenditure ($400,000) required to solve problems at the pilot plant. The Board also considered an in-principle proposal from Investec to lend GPEL $21M for the construction of a 10MW plant at Staplyton and the terms of the proposal. The Board discussed the requirement to secure a contract for the acquisition of the new 10MW plant immediately upon completion as a condition of Investec's participation. The minutes note that the original offer from Investec of 70% debt funding with 30% equity contribution by GPEL remained available to finance further 10MW plants. 58 The Board discussed the relationship between the Investec proposal and the potential contract with Viridis, in relation to both the pilot plant and the proposed Staplyton No 2 project. The minutes note these matters: 'Financing of the Staplyton Plants … (b) Ÿ Investec will lend GPE $21 million in principal and charge us a set up fee of $2 million and a margin of 5.2% on BBSY (Bank Bill Rate) for the construction of the 10MW plant at Staplyton. Ÿ Viridis Energy has made an offer for both the 5MW and 10MW plants at Staplyton for $29 million. The Investec loan is conditional on a take out, post construction. Ÿ The Viridis Energy offer is conditional on the 5MW plant operating at a steady satisfactory state (approximately three months at 90% availability). Ÿ Jardine Fleming will be taking up an equity investment in the GPE parent company for about $6 million.' 59 The proposed subscription by JFCP in GPEL is noted in these minutes expressly in the context of a subscription directly related to the financing of the Staplyton Plants. The discussion of the Investec proposal at the meeting on 17 November 2004 was consequent upon an email on 27 October 2004 from Peter Gan to the members of GPEL's Board of Directors advising that Investec was formalising a proposal for an in‑principle offer to finance construction of a 13.5MW plant at Staplyton of $19M which in the letter of offer of 18 November 2004 was described as a $21M facility less $3M of 'construction equity' to be contributed either by GPEL or construction vendors. 60 The minutes of 17 November 2004 further record these matters: '… (e) Robert raised the issue that after spending all this money on the 5MW plant, it still may not reach the desired level of availability and therefore was concerned that the future funding and sale of the 5MW and 10MW plants was dependent on an event that may not eventuate. This may in turn jeopardise the Company's ability to meet the Investec and Viridis' funding prerequisites. … (i) Robert was concerned that even after spending $400,000 on the 5MW plant, the time frame it is going to take to prove a steady satisfactory state would mean that the conditions to satisfy Investec and Viridis Energy would not be met until April 2005. And if the plant still does not achieve the notional availability level, it isn't worth anything to GPE and we lose both contracts. (j) Peter agreed that his preference would be for equity funding from the likes of Jardine Fleming or the Malaysian Group as referred to by Robert rather than be tied to contracts from Investec and Viridis Energy that are conditional on the 5MW plant being on a steady satisfactory performance level. … (m) Robert also raised the issue of Alfred's loan to the Company via Richland. Presently, the Company does not have the finance to repay the loan, and it was suggested that the loan should either be converted to equity or recorded as a long-term debt. Peter to discuss this arrangement with Alfred. (n) Peter confirmed that the Jardine Fleming's Acceptance/Advice Form has already been signed and received by us and therefore approximately $6 million increase in equity is confirmed, which is expected to reach our account over the next 1-2 days. Robert queried the items on the cash forecast and reiterated that an extra $3-5 million is still required to cover equity for the 10MW plant despite the extra injection of funding from Jardine Fleming.' 61 As to the financial matters, the minutes record: Financial Report (r) 'It was agreed that the results for October were very disappointing due mainly to the plant problems mentioned earlier. … Comments were made on the budgeting and forecasting process and the lack of confidence that can currently be placed on this information, seeing as the budget is already $1 million out and in all likelihood it will end up being $2 million out by the end of the financial year. Robert suggested that the projection should be recalculated in a more realistic forecast produced at least for the second half of the financial year.' 62 The terms upon which Investec would provide or alternatively procure construction finance for GPEL for a 10MW power generation plant at Staplyton are set out in Investec's letter to Peter Gan dated 18 November 2004. The proposal required Investec to be satisfied that the 5MW pilot plant had 'reached "steady state" that is, it is performing in accordance with the project model and achieving the coverage ratio specified in the original loan facility' and that 'a key condition precedent will be the execution of a sale and purchase agreement with Viridis Energy Capital Pty Ltd for the acquisition by Viridis of both the pilot and the project … on the commissioning of the project.' As to the earlier arrangements, Investec said, 'The mandate previously given by GPEL to (Investec) to provide or syndicate finance for projects totalling 83 megawatts in aggregate [remains] in place notwithstanding that the project may now be separately funded as set out in this note. We expect that the earlier mandate will still apply to the next 83MW of capacity developed by GPEL beyond the project itself.' The terms and conditions of the offer of 18 November 2004 recited a facility amount of $21M including interest capitalisation less $3M of 'construction equity' to be contributed either by GPEL or construction vendors to enable GPEL to fund the construction (and Investec's establishment fee of $2M) of a 10MW plant at Staplyton. Investec required the securities, mortgages and step‑in rights and conditions precedent reflected in Investec's terms and conditions for the earlier facilities and particular undertakings. The events of default on the part of GPEL in respect of the new Staplyton facility included any event of default by GPES No. 1 as the Borrower in respect of the pilot plant. 63 On 15 December 2004, the Directors of GPEL met. Present were directors, Richard Nott (Acting Chairman), Robert Patterson, Danny Au-Yeung and Peter Gan and others, Helen Ho, Edwin Yeung and Heymala Eardley. Alfred Wong was unable to attend. The minutes record these matters: '3. Matters arising from previous minutes Peter gave a quick update on the outstanding action items from the previous meeting: · Jardine Fleming purchased $6.3 million equity in the Company. · All outstanding debts with Richland and Austcorp have been settled. … 5. Managing Director's Report (a) Financial snapshot Peter explained that a substantial part of the Jardine Fleming investment was used to retire the debt with Richland and Austcorp. Richard strongly expressed his disapproval of the debt repayment, especially since it was clearly stated at the last meeting that the debt with Richland be either converted to equity or long-term debt. Peter explained that the debt to Austcorp was overdue and had to be repaid. This was the original loan from Richland that was later assigned to Austcorp. There is, however, a new line of credit available from Richland for $2 million. Richard stressed that as long as there is another facility that is able to replace the retired debt such that the Company's liquidity is not affected. Richard also pointed to the balance of payables and queried where the company was going to get the finance to pay its other outstanding debts. Peter responded that the balance amount owing to TechComm (approximately $1 million) would be converted to equity. Peter also has the option of issuing promissory notes for $4-5 million with 11.5% interest per annum for two years. Danny suggested that if the company is still unable to obtain the finance needed, he would be able to organise bridging finance, however, this would be at a substantial cost to the company. Peter acknowledged that the retirement of the debt to Richland and Austcorp has put more pressure on him to go to the market for additional financing, however, he was confident that the problem would be resolved as soon as the EPC contracts were crystallised. 64 Robert Patterson asked whether in the light of the 'unsustainable pattern' of diminished trading revenue and increasing costs, 'it was worth persevering with the 5MW plant or would it be better to shut it down now and cut our losses?'Peter Gan said such a step would send a 'negative message to the market'. Danny Au-Yeung recommended that once the EPC contract was signed, 'the 5MW plant should be put on "Care and Management"'. The action items arising from that meeting included further definition to be introduced into the status of the $2 million line of credit from Richland. That matter was to be dealt with by Alfred Wong and Peter Gan. In addition, updated financial forecasts for the second half of the financial year (including a cash flow budget, capital management plan and projected balance sheet) were to be prepared by Peter Gan and Edward Yeung. 65 The reference in the Minutes of 15 December 2004 to a new line of credit from Richland is reflected in a letter from Alfred Wong to the directors of GPEL dated 8 December 2004 confirming that 'a new overdraft facility has been granted to your company'. The Term Sheet recites a loan of $2M available to GPEL 'to provide working capital' with a maturity date of 31 December 2005 at an interest margin of 7% above the 30 day bank bill rate. The 'principal repayment' term is the same as the term at [23] except that the expression 'overdraft facility' is adopted in the 8 December 2004 document rather than the term 'credit facility'. 66 On 9 December 2004, Alfred Wong again wrote to the directors of GPEL referring to the letter of 8 December 2004 and 'confirmed that the principal sum of the new overdraft facility has been increased to a total of $5 million'. The Term Sheet recites the provision by Richland of a $5M overdraft facility to GPEL for working capital with a maturity date of 31 December 2005. The 'Principal Repayment' clause is slightly different to the 8 December 2004 Term Sheet and is in these terms: 'The overdraft facility may be extended for a further term based on similar terms and conditions subject to mutual agreement. In the event that the facility is not extended, the Borrower has the discretion of repaying the principal sum and all accrued interest in cash or in the form of fully paid ordinary shares in the Borrower. In the event that the Borrower chooses to repay in the form of shares, the Lender has the discretion of converting the shares in individual parcels of up to A$200,000 over every consecutive week after the Maturity Date until such time when the total amount outstanding has been fully repaid. The issue of these shares will be calculated at a 15% discount of the weighted average trading price of the company shares over the five days prior to each conversion date.' 67 Neither facility was secured.

jfcp arrangements 68 On 5 November 2004, Peter Gan attended the offices of JFCP and made a presentation to Paul Michael Willis and Pierre Rene Prentice. Paul Willis held the position of Senior Research Analyst at JFCP from 4 January 1999 to 30 September 2005. JFCP is a specialist wholesale Australian equities manager. Paul Willis was, in his capacity as Senior Research Analyst, primarily responsible for the investment analysis of companies in the energy sector among other sectors. Pierre Prentice is the 'Head of Research' at JFCP and was appointed to that position on 1 October 2003. Pierre Prentice's role involves the identification of new investment opportunities, the training and development of staff in terms of their technical skills and the selective review of valuations supporting new investments and investments that contribute materially to the risk inherent in JFCP's portfolio of investments. 69 On 5 November 2004, Peter Gan presented an overview of the activities of GPEL supported by PowerPoint slides entitled 'Presentation to Jardine Fleming dated 4 November 2004' and a booklet on GPEL letterhead entitled 'Business Overview'. Pierre Prentice deposes to these matters in an affidavit filed 5 July 2006: '7. At the presentation on 5 November 2004, Peter Gan informed my colleague Paul Willis (a Senior Analyst at JFCP) and me that any money received from JFCP by GPE would be used for the cost of construction to expand generating capacity, such as the expansion of the existing 5MW plant at Staplyton in the State of Queensland (the "5MW Staplyton Plant") to a 10MW or 20MW plant, or new projects planned for Morwell (Victoria), Bell Bay (Tasmania) and Kemerton (Western Australia). 8. Paul Willis and I were attracted to GPE as an investment prospect for three reasons, namely: (a) firstly, the increasing demand for "green power"; (b) secondly, the relatively low‑tech and pilot‑proven process used by GPE to generate electricity (high temperature, combustion green waste); and (c) thirdly, the existence of $120 million committed loan facility from Investec Bank (Australia) Limited for up to 70% of each project's costs.' 70 On 7 November 2004, Peter Gan sent an email to the members of GPEL's Board concerning the formal offer received from Viridis for purchase of the 5MW pilot plant and a future 10MW plant at Staplyton and construction finance from Investec. Peter Gan's email reported on aspects of the negotiations with Investec and concluded by saying '… We are currently in discussion with Jardine Fleming wrt a possible equity investment at the GPE level. The Board will be kept abreast of any developments in the aspect.' 71 On 15 November 2004, JFCP agreed to subscribe for 31.5 million shares in GPEL at $0.20 per share constituting a total subscription value of $6.3M. Paul Willis deposes in his affidavit filed 13 July 2006 to these matters: '10. Prior to the Acceptance [completion of the Acceptance Advice Form attached to the placement offer], Peter Gan had informed me that any money received from JFCP by GPE would be used for the cost of construction to expand generating capacity such as the existing 5MW Staplyton Plant in the State of Queensland to a 10MW or 20MW plant or new projects planned for Morwell, Bell Bay and Kemerton. 11. On 18 November 2004, GPE released a statement to the Australian Stock Exchange announcing that GPE had completed an institutional placement of 31.5 million ordinary shares for a total consideration of $6.3 million and that those funds would be applied to the roll‑out of GPE's pipeline of renewable energy projects. 12. On 26 November 2004, GPE released a statement to the ASX announcing that GPE had received terms for additional construction funding from Investec Bank under which Investec Bank would provide up to 90% of the plant construction costs. When I read this announcement, I believed that the monies that GPE received from Investec Bank and the $6.3 Million Injection would be used in conjunction to expand the 5MW Staplyton Plant. 72 The GPEL statement released to the Australian Stock Exchange on 18 November 2004 is in these terms: 'New Shares Issue Green Pacific Energy Limited (GPE) today completed an institutional placement of 31.5 million ordinary shares for a total consideration of $6.3 million. These funds will be applied to the roll‑out of GPE's pipeline of renewable energy projects. Chairman Mr Wong and the Board of GPE welcome the addition of a major institution as one of the substantial shareholders of the company. Edwin Yeung Corporate Secretary' 73 On 26 November 2004 GPEL's further statement to the Stock Exchange announced an acceptance of a proposal from Viridis in relation to the acquisition of GPEL's current and planned green waste to energy plants and announced that GPEL had received terms for additional construction funding from Investec under which Investec would provide 90% of the plant construction costs. The statement under the name of Edwin Yeung concludes with these two paragraphs: 'With this combination of additional construction finance and subsequent 'take‑out acquisition, GPE is now in a position to continue the roll‑out of its pipeline of green waste to energy plants with the benefit of preventing any significant dilution of shareholders' equity for construction costs. The company is delighted with the combination of strategic partners and institutional investors who have recently joined GPE, providing the platform to lead the renewable energy market locally and globally.' 74 On 18 November 2004, GPEL received deposits to its account from JFCP's syndicate investors namely, $351,516.60 from 'J P Morgan', $2,948,483.40 from 'National Custodian' and $3M from 'State Street'. The deposits total $6.3M. 75 Peter Gan in an affidavit sworn 31 July 2006 contends that at the meeting and presentation described by Paul Willis and Pierre Prentice, he said that: '(i) The next project in GPEL's sights was the construction of the new Staplyton Plant; (ii) GPEL needed some equity funding to roll out its projects and also to pay some trade creditors; and (iii) Funds would also be made available by Investec Bank (by debt funding) for the roll out of GPE's projects.' 76 Furthermore, Peter Gan says: "I am almost certain that I told J F Capital that Alfred Wong would be converting the debt Richland was owed by GPE to equity' and '… at the time I made these representations to J F Capital, I believed that Mr Wong would be converting the Richland loan to equity, and that the funds invested by J F Capital would be predominantly used by GPE for the construction of the new Staplyton Plant'. Peter Gan also deposes to these matters: '12(l) I accept that I drafted the announcement that was made by GPE to the ASX on 18 November 2004. However, I am almost certain that I showed the announcement (in its final form) to Alfred Wong and Edward Yeung prior to its release to the ASX. (m) Throughout 2004 and before November 2004, I had had numerous conversations and meetings with Mr Wong about raising equity funding for GPE's proposed project. In or about March to June 2004 GPE had been working with Patersons Securities Ltd ('Patersons'), a stock broking firm, to develop an information memorandum and other material to assist GPE in its raising capital from public markets for the roll‑out of its planned projects. During these discussions, GPE and Patersons created a PowerPoint presentation in relation to GPE and its business. I had discussed all of this with Mr Wong and had shown him that PowerPoint presentation (in which respect I refer to the minutes of the Board meeting of GPE for 20 May 2004 and 16 June 2004). (n) The presentation that I made to J F Capital on 4 November 2004 was generally similar to the PowerPoint slide presentations developed in conjunction with Patersons.'

Use of the JFCP Subscription 77 From 19 November 2004 to 9 December 2004 a number of payments were made by GPEL to Richland and G P Energy and, it seems, Austcorp. An examination of the primary source documents exhibited to the affidavit of Juliet Johnson filed 5 July 2006 does not reveal a precise reconciliation between debits to the account of GPEL, credits to the accounts of Richland, Austcorp and G P Energy and the general ledger of GPEL. Juliet Johnson is a Financial Investigator employed by ASIC who has conducted an examination of information produced to ASIC either voluntarily or pursuant to procedures adopted under the Australian Securities and Investments Commission Act 2001 (Cth) ('the ASIC Act') in relation to the accounts of Richland, Austcorp, GPEL and other entities. 78 The position seems to be this. The capital subscribed by JFCP was credited to the account of GPEL (Account No. 552060079 - St. George Bank) on 18 November 2004. On 19 November 2004, GPEL's account was debited with a loan repayment to Richland of $500,000. The Richland account (Account No. 53-873-0670 - National Australia Bank) does not reflect a corresponding credit of that amount. On 22 November 2004, an amount of $500,000 was debited to the account of GPEL which is reflected in a credit in the Richland account on the same day. 79 On 23 November 2004, GPEL's account was debited with a loan repayment of $800,000 which is reflected in a credit in the Richland account on the same day. On 29 November 2004, GPEL's account was debited with an amount of $225,888.30 described as 'Richland Investm' which is reflected in a credit in the Richland account on the same day. On 8 December 2004, GPEL's account was debited with an amount of $300,000 described as a 'loan repayment' which is not reflected in a credit in either the account of Richland or in the account of Austcorp (ANZ Bank Account No. 257197099). Also on 8 December 2004, GPEL's account was debited with an amount of $1,482,022.35 described as a 'loan repayment' which is reflected in a credit in the Richland account. On 9 December 2004, GPEL's account was debited with an amount of $1M which is not reflected in the account of either Richland or Austcorp. The general ledger of GPEL reflects a 'loan repayment' on 19 November 2004 of $500,000, two payments to Richland on 22 November 2004 of $286,998.41 and $213,001.59 which constitute $500,000, 'a loan repayment' on 23 November 2004 of $800,000, two payments to G P Energy on 29 November 2004 of $110,876.70 and $115,001.60 which constitute $225,888.30, a payment on 8 December 2004 described in the ledger as 'Austcorp loan repayment +' of $1,782,022.35 (which presumably represents the debits of $300,000 and $1,482,022.35 on 8 December 2004 to the GPEL account) and a payment on 9 December 2004 of $1M described as 'Austcorp loan repayment'. 80 At paragraph 53 of his affidavit filed 19 July 2006, Alfred Wong refers to the affidavit of Juliet Johnson and identifies the characterisation of the payments made between 19 November 2004 and 9 December 2004 by reference to a schedule annexed to his affidavit marked 'AW11'. Alfred Wong identifies the payments as these: Date Payment Description Amount 19 November 2004 Loan Repayment - Ri $500,000.00 22 November 2004 Loan Repayment to Ri $500,000.00 23 November 2004 Loan Repayment $800,000.00 29 November 2004 Richland Investm $225,883.30 8 December 2004 Loan Repayment $300,000.00 8 December 2004 Loan Repayment $1,482,022.35 9 December 2004 Loan Repayment $1,000,000.00 Total $4,807,910.65

81 Alfred Wong breaks those payments down in this way: Repayment of Principal Sum to Richland Date Payment Description Amount 19 November 2004 Principal Sum Repayment $500,000.00 22 November 2004 Principal Sum Repayment $76,000.00 Total $576,000.00

Other Payments to Richland Date Payment Description Amount 22 November 2004 Interest Accrued $199,000.00 22 November 2004 Loan Establishment Fee $225,000.00 Total $424,000.00

Date Payment Description Amount 23 November 2004 Principal Sum Repayment $603,393.07 8 December 2004 Principal Sum Repayment $1,767,464.53 9 December 2004 Principal Sum Repayment $1,000,000.00 Total $3,370,857.60

Date Payment Description Amount 23 November 2004 Interest Accrued $196,606.93 8 December 2004 Interest Accrued $14,557.82 Total $211,164.75

Payment to G P Energy for Rental of Staplyton Site and Morwell Site

Date Payment Description Amount 29 November 2004 Site Rental at Morwell $110,876.70 29 November 2004 Site Rental at Staplyton $115,011.60 Total $225,888.30

Payee Payment Description Amount Richland Principal Sum, Interest and Establishment Fee $1,000,000.00 Austcorp Principal Sum and Interest Repayment $3,582,022.35 G P Energy Site Rental $225,888.30 Total $4,807,910.65

82 In the period 18 November 2004 to 13 December 2004 payments were made to unrelated creditors constituting $1,480,511.41. The list of creditors is identified at Annexure 'AW14' to Alfred Wong's affidavit filed 19 July 2006. Alfred Wong says at paragraph 56 of his affidavit that to the best of his knowledge, information and belief, those payments were authorised by Peter Gan. 83 At paragraphs 58 to 61 of his affidavit filed 19 July 2006, Alfred Wong explains his rationale for authorising the payments identified at [77] to [81]. He says this: '58. It is my recollection that at or about the time of authorising the first payment in respect of the Richland Austcorp debt, I spoke to Peter Gan about using the funds from J F Capital to retire existing debt. I made Peter Gan aware of my rationale for the payments out to Richland and Austcorp. I recall in that discussion Peter Gan did raise some concern about the intended payments in so far as he was concerned as to whether there would be funds available to progress GPE's projects. I informed him of the rationale of saving interest and I further reminded him and assured him that Richland would continue to act like a "banker" to GPE in that significant loan facilities from Richland would continue to be made available as necessary. Peter Gan indicated to me that he was satisfied with my explanation. 59. Peter Gan was involved in causing some of the subsequent payments out to Richland and Austcorp to be made. 60. I did not try to keep the payment of the monies to Richland and Austcorp hidden. While I cannot recall whether the other board members were aware of the payments at the time they were being made there can be no doubt that as and from 15 December 2004 they were aware of these payments as these matters were discussed at a board meeting on that day. While I was not present at that board meeting I have read the minutes of that meeting. 61. Further, the offices of GPE are not particularly large and two of the other directors, Danny Au-Yeung and Richard Knott, had their offices very close to mine. Richard Nott had the office next to mine and Danny Au-Yeung's office was two doors up from that. It was not the case that I was trying to keep anything hidden as it was my view that to pay out these debts was sensible and good treasury management.' 84 As to the explanation given to JFCP concerning the use of the subscribed capital and the subsequent application of those funds, Alfred Wong explains his business judgment concerning the use of the funds in this way in his affidavit filed 19 July 2006: '47. I am aware that an announcement was made by GPE[L] on the ASX website on 18 November 2004 informing of J F Capital's purchase of the shares. However, I was not aware of the specific detail of the announcement at that time as, to the best of my knowledge, the announcement was drafted by Peter Gan. To the best of my recollection I had seen an initial draft of the announcement but I remained unaware of the specific detail of the announcement and I was not specifically aware of the words "these funds will be applied to roll out GPE's pipeline of renewable energy projects". However, the purpose of any injection of funds was, of course, to assist GPE in continuing to operate and to roll out the projects which were and remain the business of GPE. 48. At the time that the J F funds were received, GPE owed a considerable amount of money to numerous creditors, both unrelated parties and related parties. Annexed hereto and marked "AW10" is a table setting out the creditors at that time. [It should be noted that Annexure "AW10" identifies 82 creditors that, according to paragraph 48 of Alfred Wong's affidavit, represented both unrelated and related parties that were then "owed a considerable amount of money".] 49. With the funds having come from J F Capital it was my view that it was in GPE's best interests to use that money to continue to pay for the operation of GPE and GPES1 [GPES No. 1] and also to retire some existing debt as that would result in savings to GPE. 50. My rationale for deciding to retire the existing debt in the short term was that the funds from J F Capital would otherwise be left in a bank account earning perhaps 3% to 4% interest. However, at the same time, under the existing loan facilities, GPE was continuing to incur interest at the rate of at least 11% per annum. That did not appear to me to be a good use of the money. 51. I had always made it clear to the board of GPE that I and Richland would stand behind GPE, much like a banker, to make funds available, within reason, as and when funds were needed for the operation of GPE and its subsidiaries and to assist in progressing the development of GPE's projects. 52. Accordingly, I authorised payment out of the funds from J F Capital to repay the indebtedness of GPE to Richland and Austcorp.' 85 Alfred Wong at paragraph 57 of his affidavit filed 19 July 2006 says that it is his recollection that Peter Gan authorised the payment of outstanding rent to G P Energy in respect of the Staplyton site for the months of July, August, September and October 2004 of $19,168.60 for each month. 86 As to these matters, Peter Gan in his affidavit sworn 31 July 2006 and filed by leave says this: '13(a) The Board of Directors of GPE never authorised the use of the J F Capital $6.3M Investment to make payments to Richland or Austcorp. (b) I accept that I authorised the payment to the unrelated creditors referred to in the schedule marked as Annexure "AW14". I did not have an issue with using some of the J F Capital $6.3M Investment to make payments to those creditors because: (i) I had informed J F Capital, on or about 4 November 2004, prior to the J F Capital $6.3M Investment, that GPE needed some equity funding to pay trade creditors; (ii) most of those creditors were crucial to the construction and operation of the New Staplyton Plant; and (iii) GPE only needed $3 million for the equity portion of the funding for the construction of the New Staplyton Plant. (c) I accept that I approved the invoices.. However, I did not authorise the use of the J F Capital $6.3M Investment to make payments specifically to G P Energy Pty Ltd (G P Energy). The practice of GPE was that Winda Prasidhi, GPE's bookkeeper at the time, would provide to me invoices rendered by trade creditors for my approval. I approved the payment of those invoices without knowing the exact date when GPE would actually make those payments or from which funds GPE would do so. Indeed, I assumed that the J F Capital $6.3M Investment would not be used to pay G P Energy, because, so far as I was concerned, it was only to be used to pay important and non‑related creditors. (d) In paragraph 58 Mr Wong assets that I said I was satisfied with his explanation about the payments he made using the J F Capital $6.3M Investment. I strongly disagree with that statement. I was in fact very disgruntled and annoyed at Mr Wong's explanation. I thought Mr Wong's use of these funds had destroyed GPE's prospects of going ahead with the new Staplyton plant and I told him just that.' 87 As to paragraph 59 of Alfred Wong's affidavit filed 19 July 2006, Peter Gan says he was never involved in causing any payments to be made out of the J F Capital subscription to Richland or Austcorp. Peter Gan says at paragraph 14 of his affidavit: 'The debt which GPE owed Richland (in which respect I include as owing to Richland any debt that might have been owed whether by Richland or by GPE to Austcorp) should have been converted to equity as had been earlier discussed at Board level'. 88 As to Alfred Wong's perception of the need for Board approval in authorising payments to Austcorp and Richland, Alfred Wong said this at paragraph 19 of his affidavit filed 25 July 2006: '19. It was not my belief at the time that I made the decision to repay monies owing to Austcorp and Richland in November and December 2004 that it was necessary to seek board approval to do so. In any event, the matter was discussed at the first available board meeting following the repayment of such funds. I note that the repayments occurred over a space of approximately one week after Peter Gan was aware of my intention to do so and were paid out together with payments to other significant creditors.' 89 As to the nature of the assignment to Austcorp of the GPEL debt to Richland, Alfred Wong said this at paragraph 18 of his affidavit filed 25 July 2006: 'I reject any suggestion that the assignment of the obligations of GPE to Richland occurred on other than identical terms. Richland did not have the capacity, and did not purport to, alter the terms upon GPE was required to repay funds to it when assigning that obligation to Austcorp'. As to the approach to the payment of creditors, Alfred Wong said this at paragraph 15 of his affidavit filed 25 July 2006: 'To the extent that creditors' payments have been delayed, this has not been because of an inability of Richland to make funds available to GPE. Rather, because finance from Richland carries an interest cost, it is better for GPE to implement tight cash flow policies which include delayed payment of creditors so as to reduce its borrowings on which it bears interest at any given point in time.' 90 Alfred Wong further says at paragraph 15 of his affidavit that 'in addition' to such cash flow management, it has been necessary on numerous occasions to undertake an 'investigation and review' of invoices rendered by creditors and that whilst creditors might complain of delays in payment, '… this was necessitated by the appropriate internal review of such invoices before payments. I regarded this to be a prudent measure on behalf of GPE'. 91 On 15 July 2005, Pierre Prentice and Paul Willis of JFCP met with Alfred Wong and Peter Gan at the JFCP offices. The purpose of the meeting was to enable Prentice and Willis to gain an understanding of why the market price of GPEL shares had fallen from the placement price of $0.20 per share to between $0.10 and $0.05, an understanding of why GPEL had not progressed any construction of a power plant beyond the project plant at Staplyton (5MW) and why Peter Gan had elected to resign from GPEL. Pierre Prentice says at paragraph 12 of his affidavit sworn 5 July 2006 that Alfred Wong and Peter Gan explained that instead of expanding the project plant at Staplyton, it made more economic sense to bid for the Queensland government owned 30MW co‑generation plant at Rocky Point 10 kilometres from Staplyton; that the Morwell project in Victoria had not proceeded due to a failure to secure appropriate fuel supply; and Peter Gan had been forced to resign by discontented shareholders. Pierre Prentice says that neither Alfred Wong nor Peter Gan revealed that the JFCP subscription of $6.3M had 'in fact been applied by GPE to pay certain of its creditors'. 92 On 10 October 2005, Pierre Prentice sent an email to Alfred Wong asking when GPEL's financial statements would be lodged with the Australian Stock Exchange as JFCP was unhappy that trading in GPEL shares had been suspended. Pierre Prentice says that Alfred Wong did not respond to the email. Pierre Prentice deposes to these further matters: '15. On or about 13 September 2005, I conducted a review of GPE's quarterly, half, yearly and annual financial statements for the period since the $6.3M Investment, and found out that it had been used to pay off outstanding loans owing to entities related to GPE or its officers. I did not know that the $6.3 million Investment had been used in that manner until I read those financial statements. 16. I believe GPE's management was less than honest with JFCP for two reasons: (1) They said they would keep JFCP fully informed of the progress in implementing its expansion plans but they did not; and (2) The $6.3 Million Investment was supposed to be used by GPE to construct new plants, but instead the majority was used to repay outstanding loans owing to entities related to GPE or its officers. 17. On or around 17 October 2005, after the suspension of GPE and the failure of Alfred Wong to respond to my email concerning the failure to lodge financial statements, JFCP started to sell its shares in GPE. At the date of this my affidavit [4 July 2006], JFCP does not hold any shares in GPE'. 93 Paul Willis attended the meeting and in his affidavit filed 13 July 2006 he says that he recalls telling Alfred Wong and Peter Gan at the meeting on 15 July 2005 that JFCP would not be investing any more money in GPE. Paul Willis says that he did not know that the JFCP subscription had been used to pay off outstanding loans to GPEL's related parties until he was so informed by Pierre Prentice arising out of Pierre Prentice's review of the quarterly, half yearly and annual financial statements. Paul Willis says: 'I would not have recommended that JFCP subscribe for shares in GPE if I knew that a substantial amount of the $6.3 Million Injection would be used to pay outstanding loans owing to GPE's related parties'. 94 As to the non-disclosure to JFCP of the use of the $6.3M, Alfred Wong at paragraph 22 of his affidavit filed 25 July 2006 says that in the half yearly information for the year ended 31 December 2004 published in February 2005 and provided to the Australian Stock Exchange, the accounts of GPEL record that current interest bearing liabilities were reduced in the six months to 31 December 2004 by approximately $3M and the repayment of borrowings in that period was approximately $3,124,000. Alfred Wong says, 'This information was available to the public and in particular to J F Capital'. 95 At paragraph 12 of the affidavit of Edgar Hung filed 5 July 2006, Edgar Hung says that when the money payable by Richland to Austcorp was ready to be remitted to Austcorp, 'Alfred Wong asked me whether Austcorp Group needed the money now or whether Richland could use the funds under the Austcorp‑Richland Loan for something else in the meantime. I told him that Richland could use the funds in the meantime, as long as the Austcorp Group was repaid before the end of the financial year ending 30 June 2005'. Edgar Hung says that on or about 30 June 2005, $1.2M was transferred to Austcorp's account with the ANZ Bank by Richland and that this was in repayment of a part of the Austcorp‑Richland Loan. On 8 December 2004, GPEL had deposited $1,482,022.35 into the account of Richland. Edgar Hung says that on or about 1 July 2005, $800,000 was transferred to Austcorp's account by Richland in payment of a part of the Austcorp‑Richland Loan. The general ledger of GPEL records 'a loan repayment' on 23 November 2004 of $800,000.00 which is reflected in a credit in the Richland account of the same day. It seems likely that consistent with the request made by Alfred Wong of Edgar Hung that Richland enjoy the further use of monies Edgar Hung claimed to be otherwise owing, GPEL made the two payments on 8 December 2004 and 23 November 2004 at the direction of Alfred Wong and the monies were subsequently paid to Austcorp on 30 June 2005 and 1 July 2005 respectively by Richland. Edgar Hung says at paragraph 15 of his affidavit that as at 1 July 2005 the amount owed by Richland to Austcorp under the Austcorp‑Richland Loan was $580,006.65. 96 It should also be noted that according to Alfred Wong's summary of the payments made to Austcorp on 23 November 2004, 8 December 2004 and 9 December 2004, the amount paid was $3,370,857.60 which is precisely the amount that was owing by GPEL to Richland at 30 June 2004 immediately before the arrangement struck with Austcorp on 1 July 2004. That debt had been extended on 30 June 2004 to 30 June 2005 and the facility extended to $5M. Consistent with the provisions of the Term Sheet for the extension of the facility, the renewed facility did not mature until 30 June 2005 and further funds up to $5M would be available up to the maturity date. If the facility was renewed on 30 June 2005, the facility would retain its character as a debt facility for an additional term. If not extended, GPEL had a discretion to effect a repayment of the principal sum and all accrued interest either in cash or by issuing fully paid shares in GPEL. 97 Alfred Wong gave oral evidence in cross examination (and at paragraph 18 of his affidavit filed 25 July 2006) to the position that the assignment by Richland to Austcorp of the debt payable by GPEL to Richland preserved the identical terms of the debt. Accordingly, Austcorp was not entitled to call upon GPEL for payment of the facility monies until the maturity date. At the moment in time when GPEL made payments to Richland in respect of the assigned debt to Austcorp, or alternatively, made payments to Austcorp directly, the monies, prima facie, were not due and payable by GPEL. It seems that the very likely construction is that GPEL made payments to Richland at Alfred Wong's direction which were retained by Richland and subsequently paid to Austcorp in accordance with the arrangement made between Alfred Wong and Edgar Hung facilitating the continued use of the 'Austcorp' monies by Richland until 30 June 2005. In any event, the Board of GPEL had not approved the application of the monies. Governance of GPEL was vested in the board of directors. There is no evidence of any delegation of authority to the chairman either generally or within particular financial limitations to make payments on behalf of the company. The Board of Directors was entitled to consider any demand for payment by either Richland or Austcorp, assess the merits of such a claim, take management advice in relation to the claim and reach a deliberative conclusion as to whether GPEL's monies should be applied in making the payments. Alfred Wong foreclosed that deliberative process in favour of his own interests. 98 It is difficult to conceive of any basis upon which the members or creditors of GPEL derived any advantage in these payments or the arrangement. The advantage is said to be that GPEL was saved interest that would have been incurred upon the drawn down funds. The interest payable under the facility was a margin of 7% above the 30 day bank bill rate (12% in all - see [50]). Upon repayment of the funds, Richland established a facility on 8 December 2004 and an extension of that facility on 9 December 2004 at an interest rate margin which was also 7% above the 30 day bank bill rate. Although discharge of the earlier facility may have reduced increments of interest on the principal draw down, Richland's proposition was that it would re‑establish a facility of the same size as the earlier facility and presumably if it was contemplated that significant draw downs would be quickly made, interest would be incurred on precisely the same basis. In any event, whatever the commercial advantage of taking the particular course might have been, it was a matter for the Board to determine the question with the benefit of management advice leading to a prudential business judgment rather than a fait accompli as a result of the conduct of the chairman.

Conclusions 99 The following conclusions [100] - [113] can be drawn from all of these events. 100 It is very unlikely that Alfred Wong entered into the loan agreement with Austcorp and the assignment of the Richland GPEL debt as a function of treasury management or to introduce Austcorp as a long term participant into the affairs of GPEL. Rather, Alfred Wong borrowed the Austcorp monies at 25% interest per annum to partly repay his own debt to Apiang Woong which, upon default, was accumulating interest at the rate of 45% per annum and as a consequence of default the guarantors and grantors of security were rendered susceptible to a demand for payment of the debt and enforcement by Woong of the securities. 101 The assignment of the GPEL Richland debt to Austcorp was a material matter having regard to the discussions within the Board as early as the meeting of 18 August 2004 and expressions of concern over GPEL's liquidity and the funding of working capital by Richland. The relationship between Richland and GPEL was a further matter of materiality having regard to the 'going concern' matters raised by BDO. 102 Richard Nott as Chairman of the Board's Audit Committee and fellow director Robert Patterson as an Audit Committee member, were present at the committee meeting on 26 August 2004 when GPEL's auditors, BDO, asked for a copy of the original loan agreement between GPEL and Richland. That request was made expressly in the context, as the minutes record, of the assignment to Austcorp Group Limited of the GPEL debt to Richland. The BDO report to the Board concerning the financial accounts to 30 June 2004 was considered by the Audit Committee on 20 September 2004 and Note 5 of the draft accounts expressly describes the assignment and the Put Option. That note is reflected in the final accounts signed by Alfred Wong on 28 September 2005. 103 Although Alfred Wong did not, so far as the minutes reflect, expressly inform the Board of the assignment of the debt, it is unrealistic to think that relevant knowledge of the assignment was not before the Chairman of the Audit Committee, Richard Nott and Robert Patterson as a result of the discussion on 26 August 2004 and in consequence of a consideration of and adoption by the directors of the accounts for the financial year ending 30 June 2004 containing a note of the relevant matter. However, the minutes of the meeting of directors on 6 July 2005 make it clear that both Richard Nott and Robert Patterson seemed to proceed on the footing that the assignment ought not to have occurred without the express authority of the Board and that the assignment was, in any event, on the same terms and conditions of the Richland GPEL loan. 104 The discussions in the meetings of directors of GPEL from May 2004 revealed systemic difficulties in securing the optimal operation of the pilot plant. Concerns had reached a point at which the Board considered whether GPEL ought to shut down the pilot plant and 'cut its losses' in the light of the unsustainable pattern of diminished trading revenue and increased costs. Alternatively, the pilot plant might be put on 'care and management'. The directors agitated for the urgent resolution of arrangements with Viridis to take over the pilot plant and for Viridis to participate in arrangements to acquire the second Staplyton plant upon completion of construction consistent with the Investec proposal. 105 In addition, concerns had been expressed about GPEL's liquidity as early as the meeting of directors on 18 August 2004 and GPEL's dependence upon Richland. Richard Nott urged that arrangements with Richland be reviewed with a view to securing an extension of the facility. BDO had expressed the reservation that GPEL and the group generally was dependent upon the ongoing financial support of GPEL's shareholders and lenders. Richard Nott expressed further concern about GPEL's gearing ratio and the impact upon loan facilities with Investec at the meeting of directors on 27 September 2004. The directors recognised that in addition to capital required to construct each proposed power plant, GPEL required a few million dollars as working capital. In the context of these concerns about liquidity and working capital, Alfred Wong advised the meeting of directors on 22 September 2004 that Richland would continue to provide funds for working capital and would be prepared to convert the inter‑company loan into subordinated equity to improve GPEL's gearing ratio which would also be improved with the reduction of debt by the issuing of shares in payment of a particular acquisition. 106 At the Board meeting on 17 November 2004, the directors further considered the augmentation costs for the pilot plant and mechanisms for financing both the pilot plant and Staplyton No. 2. The Board recognised that GPEL did not have the finance to repay the Richland loan and the solution was perceived to be the conversion of the loan to equity or the restructuring of the loan at long term debt. In the context of financing Staplyton No. 2 the Board was advised that Jardine Fleming would take up an equity investment in GPEL. Peter Gan discussed the preference of securing equity funding from Jardine Fleming rather than striking contracts with Investec and Viridis conditional upon the pilot plant achieving a 'steady satisfactory performance level'. 107 The presentation to Jardine Fleming was made on the footing that the subscribed capital would be used to facilitate the attraction of funds from Investec to enable the second Staplyton plant to occur. I accept the evidence of Pierre Prentice and Paul Willis as to the representations made to them. I am satisfied that Alfred Wong understood that the presentation to JFCP was on the footing, consistent with the Patterson PowerPoint presentation that JFCP would be encouraged to subscribe capital to secure GPEL's capacity to build new power plants and, particularly, a second plant at Staplyton. 108 Although it is not clear whether Alfred Wong expressly knew of the content of the press release to the Australian Stock Exchange of 18 November 2004 stating that the funds secured from JFCP would be applied 'to the roll‑out of GPE's pipeline of renewable energy projects', I am satisfied that Alfred Wong understood that the funds were to be so applied which is consistent with the final paragraph of the GPEL Stock Exchange release of 26 November 2004 which directed attention to the 'combination of strategic partners and institutional investors who have recently joined GPE, by providing the platform to lead the renewable energy market locally and globally' [emphasis added]. Alfred Wong may not have seen the content of this release. However, the minutes of the meeting of directors on 6 July 2005 make it clear that Alfred Wong's understanding was that the JFCP monies would be applied in support of project finance for GPEL's power projects. 109 I accept that Peter Gan's recollection is that he mentioned that some of the JFCP funds would be applied in the payment of some creditors. However, it is clear that such a statement did not convey to Pierre Prentice or Paul Willis any notion that the funds subscribed would be used for anything other than the fundamental purpose of establishing sufficient equity to enable GPEL to secure the Investec loan by placing GPEL in a position to satisfy the qualifying 'construction equity' condition. 110 It is clear that immediately upon receipt of the JFCP funds, Alfred Wong applied a substantial proportion of those monies to pay Richland and/or Austcorp in circumstances where both those companies had a particular relationship with Alfred Wong; the directors of GPEL had not met, considered or approved the making of the payments (and therefore whether, in the judgment of the Board, the payments represented a prudential decision); the payments were arguably not due as the maturity date had not 'fallen in'; and by making the payments, GPEL was deprived of the opportunity of considering whether an extension of the debt to Richland and/or Austcorp on negotiated terms (at or about the maturity date) might be achievable or, in the absence of an extension of the facility arrangement, GPEL might exercise an entitlement to convert the debt to equity. 111 The use by GPEL of the JFCP subscription at the direction of Alfred Wong was expressly inconsistent with the expectations held by JFCP in reliance upon the presentation made by Peter Gan. I am satisfied that Alfred Wong, at the moment in time when he chose to apply a significant proportion of the JFCP funds in the manner previously described, knew and understood that JFCP had subscribed for capital in GPEL not for the purpose of paying creditors whose debts were then due and payable or paying monies to entities related to Alfred Wong but rather to provide capital which would enable GPEL to take advantage of a financing proposal from Investec and thus establish a green to waste power project which would help to generate enduring positive cash flows for GPEL. Moreover, I am satisfied that Alfred Wong knew and understood that the expectation of the Board was that the JFCP monies would be so applied. 112 In reaching these conclusions, I accept the evidence of Peter Gan and to the extent that that evidence is inconsistent with the evidence of Alfred Wong, I prefer the evidence of Peter Gan. 113 In these respects, I am satisfied the conduct of Alfred Wong is misconduct. It seems to me that it is no answer to that conduct to say that the election to make the payments in the circumstances described above had the effect of reducing the interest burden which attached to the facilities. The directors of GPEL were entitled to consider and if thought prudential, apply the subscription in a way which was in the best interests of the company, its members and creditors and in a way which was consistent with the tenor of Board discussions and representations made to JFCP. Nor, in terms of disclosure to JFCP is it an answer to say that the accounts of GPEL to 31 December 2004 published in February 2005 adequately disclosed, to JFCP, the use of the shareholder funds. 114 On 6 July 2005 at a meeting of directors, Alfred Wong provided directors with an explanation of the 'background behind the Richland credit facility'. Alfred Wong said that it was important for the Board to understand that background. In making that explanation Alfred Wong conceded, as the minutes reflect, that the JFCP investment of $6.3M was 'to be applied to roll‑out GPE's pipeline of renewable projects. Austcorp called for the loan to be repaid. Over the next few weeks, all of Austcorp's loan and fees, Richland's loan and fees and G P Energy's outstanding rental payments were repaid by GPE from the monies received from Jardine, leaving very little for project development'. Richard Nott and Robert Patterson expressed concern. The minutes record: 'The Board felt that had the due process been followed, ie approval sought from the Board Audit and Risk Management Committee, the loan would not have been assigned to Austcorp especially under different terms and conditions to the original loan facility with Richland' [emphasis added]. The minutes further record these observations: 'When GPE repaid the Austcorp loan assigned by Richland, it was approved by Alfred which created a conflict of interest as the loan was not due and payable to Austcorp. Richard believed that this payment should not have been authorised by Alfred due to this conflict and the consequences of changing the terms of the loan agreement. This put the company in a very difficult position as it drained a lot of liquidity from the company. Both Richard and Robert requested Alfred to make good the original loan facility of $5 million immediately. Edwin should never have been asked to approve the assignment, instead the Company Secretary should have brought this to the attention of the Board Audit & Risk Management Committee.' [emphasis added] 115 In the context of those remarks, Alfred Wong explained his perception of the facility Richland was providing to GPEL. He said this: 'Alfred explained that when he provided the Richland loan to GPE it was always intended to be an evergreen facility, ie to be continually extended. It was only in the event that the loan was not extended that the outstanding balance would be converted to equity, at GPE's discretion. This was the spirit of the agreement.' [emphasis added]

promissory notes 116 A further question arises in relation to the issue of promissory notes. 117 In or about October or November 2004, Alfred Wong in his capacity as a director of GPEL discussed with Andris Lielkajis the possibility of GPEL issuing promissory notes to raise funds for its projects and activities. An Information Memorandum dated December 2004 was prepared pursuant to which GPEL sought to raise $10M through GPEC by way of the issue of promissory notes. Andris Lielkajis was appointed in his capacity as Managing Director of ABL to promote the issue. He did so under the banner of GPIS. The issuer was GPEC. The notes would bear interest at the rate of 11.5% per annum payable monthly in arrears and the maturity date for the notes fell into three categories. First, those notes issued prior to March 2005 would mature on 31 March 2007, those notes issued between 31 March 2005 and 30 September 2005 would mature on 30 September 2007 and those notes issued after 30 September 2005 would mature two years from the issue date of the relevant notes. The notes are to be repaid in full on the maturity date supported by a floating charge over all present and future assets of the issuer. 118 Ten investors subscribed for the promissory notes in GPEC pursuant to the Information Memorandum and GPEC raised $1,390,000. 119 As to the Second Information Memorandum, Andris Lielkajis by his affidavit filed 20 July 2006 says as follows: '9. In or about June 2005 I was advised by Alfred Wong that the Board GPE wanted to put the issuing of GPEC Promissory Notes on hold pending the updating of the content of the Information Memorandum. I had advised Alfred Wong that it is potentially damaging to the share price of GPE to launch a product and then suddenly withdraw, closing all further communications and marketing. From this point of perception, we deemed it better to turn the promotional program for the Promissory Notes into a "soft one", which involved promoting GPE, the company and its activities, for future recognition and possible investment, coupled with education as to the nature of Promissory Notes as a vehicle available to the public and the risk return of mezzanine finance as a whole. 10. In or about late August or September 2005, Alfred Wong advised me that the Second Information Memorandum (the "August 2005 Information Memorandum") was completed. I was undertaking some seminars and presentations in relation to financial products and I had a need to use an example of those presentations. I agreed with Alfred Wong that the August 2005 Information Memorandum would be used by me as an example of this type of product in these presentations. It was not intended that any funds would actually be raised from the issue of the Promissory Notes from this. 11. It was made clear to me that GPE did not wish to take any new investments until various management issues were addressed. As such, the presentation in the few seminars where GPE was mentioned was as part of a PowerPoint presentation focusing on an understanding of mezzanine finance and was contained to several slides with a direction to the ASX and GPE websites for further information on GPE and its operations. Annexed hereto is a true copy of the August 2005 Information Memorandum marked "ABL2". 12. The information that was provided within the August 2005 Information Memorandum did not include any financial information of GPE. However, upon request by interested parties in the company, a hard copy of GPE's 2004 Annual Report and GPE's financial information given to the Australian Stock Exchange for the half year ended 31 December 2004 were made available by me. 13. GPS participated in five seminars and/or presentations to the public where the August 2005 Information Memorandum was mentioned. These seminars were held on the Gold Coast, and in Brisbane, Sydney, Melbourne and Perth. The content of the presentations was educationally based and not directed to selling or promoting financial products. 14. The seminar held in Perth in Western Australia in September 2005 was the last time any presentations were made to the public in relation to promissory notes as an investment class and GPE's use of such products. 15. I am aware that two investors subsequently subscribed for Promissory Notes in GPEC pursuant to the August 2005 Information Memorandum. This was unexpected.' 120 The Second Information Memorandum involved the offer of three series of promissory notes: the 'A Notes', 'B Notes' and 'C Notes'. The issuer, GPEC, proposed to issue a maximum of $30M of notes to be allocated between the three classes of notes in accordance with investor demand. The memorandum says that the issuer will not issue more than $15M of any one series of notes. The principal amount of each note is described as not less than $50,000 and in 'integral multiples of $10,000'. The notes would attract interest at the rate of 10.5% per annum for the A Notes, 11% per annum for the B Notes and 11.5% per annum for the C Notes, all payable monthly in arrears. The maturity dates for the notes are described as 1 October 2007 for the A Notes, 31 March 2008 for the B Notes and 30 September 2008 for the C Notes. 121 In cross examination Andris Lielkajis gave evidence of a meeting with Alfred Wong on or about 15 August 2005 initiated by Lielkajis arising out of questions which had been put to him by Westpoint, 'Bernard Kebble and others' at seminars about products that might be available. Lielkajis approached Alfred Wong to see what '… we could do about the seminars in light of the situation that we had, and that's where we agreed to, you know, present a - sort of, the products, etc, give an idea of - sort of, the products that we have'. It was put to Andris Lielkajis by counsel for the plaintiff that he did not just go out and promote a product without being asked to promote it and he responded, 'Well, I asked whether I could present it'. Andris Lielkajis was asked by counsel for the plaintiff, 'Yes, so using the "present", who at GPE said you could present it?' A --- 'Alfred Wong'. 122 Andris Lielkajis was pressed as to whether the presentations he conducted constituted a soft sell or a hard sell of the promissory notes. He accepted that the Information Memorandum was present at the seminars, available to the public to take away and if the public decided to act on the Information Memorandum they could. Andris Lielkajis accepted that counsel for the plaintiff's description of the use and presentation of the memorandum, was summarising the matter 'down to a generalisation'. There were, according to Andris Lielkajis, 'probably about 1,000 or so' people at the seminars, 'all told'. The Second Information Memorandum was on the table at all of the presentations. 123 Alfred Wong accepts that in the months of April and May 2005 concerns were expressed by Board members about the issuing of promissory notes having regard to the recognition that the pilot plant was proving to be more expensive to operate than anticipated and was affecting GPEL's capacity to undertake other projects. Alfred Wong accepts that he was at a special meeting of the Board at GPEL on 11 May 2005 when the directors resolved that there would be a 'freeze' on raising any more money by the issue of promissory notes. Alfred Wong says in his affidavit filed 19 July 2006 that it was 'in any event necessary to review the First Information Memorandum to ensure its currency before any further promissory note offers were put to the market'. As a result, the Second Information Memorandum was developed. On 19 August 2005, Lielkajis conducted in Brisbane the first of the seminars at which the Second Information Memorandum was available for collection by potential subscribers. The proposal to distribute the Second Information Memorandum was not put to a meeting of directors to determine whether the circumstances that led the Board to place a freeze on 11 May 2005 on raising money from the public by promissory notes had been resolved to the satisfaction of the Board. Nor was a proposal put to the Board that GPEL ought to formulate a Second Information Memorandum and distribute the Memorandum at a series of presentations in the public arena by way of an understated or 'soft' marketing of a GPEL product namely, a new class of promissory notes. 124 The circumstances that led the Board to place a freeze on the issue of promissory notes included these matters. At the Board meeting on 11 May 2005, Peter Gan presented a Capital Management Plan for the period May to August 2005. Initially, $1M would be drawn down under the Richland facility which would be used to pay TechComm $400,000 and trade creditors $500,000 (other than related parties). Peter Gan recommended that $413,000 of related party claims be converted to equity. The monthly 'cash burn rate' would be approximately $275,000 until August 2005. The plan put to the directors was to 'progressively pay off the payables using the funds received from the promissory notes, Cornell Capital and also the Richland credit facility whenever there is a shortfall'. The minutes of the meeting record the concerns expressed by Richard Nott, in these terms: 'Richard was concerned that the Information Memorandum on the promissory notes, state that the promissory notes were being issued for the purpose of financing capital projects but instead were being used to fund the operating expenses of the company. Also from a Trade Practices Act point of view, it should be clearly spelt out especially since it looks unlikely that the Company would be able to repay the debt in two years time when they all mature. This is tantamount to Misleading and Deceptive Conduct because we are just rearranging the debt.' 125 In addition, the minutes report observations by Robert Patterson in these terms: 'Robert too stressed how uncomfortable he was with taking monies from those subscribing to the promissory notes. The management's presentation is a complete sea change in direction and until the company's strategy is crystallised, GPE shouldn't be borrowing any more money from outsiders other than Richland as Richland is an informed lender.' 126 Peter Gan outlined the elements of the Capital Management Plan and suggested that the feasibility of particular projects ought to be further evaluated in 30 days. 127 The minutes record that: 'Robert again stressed that he was concerned and is very disappointed that up until now, there have been all these strategies floating around and yet no decision has been made to date and in his opinion, 30 days is too long especially if we are still planning to borrow from promissory note subscribers and Richland. This is unacceptable when we do not know which direction the company is heading'. 128 In relation to the promissory notes, the minutes of the meeting record Richard Nott's observations in these terms: 'Richard also recommended that the promissory note Information Memorandum and Term Sheet should also be carefully reviewed by a wider group of professionals such as lawyers and auditors before being endorsed by the Board. In response to the questions raised over the Richland loan, Alfred informed the Board that the loan has a fixed and floating charge over GPE's assets and is only ranked behind the loan facility from Investec Bank. However, Richard's concern was that the funds raised through the promissory notes were being used to retire the Richland loan instead of being used for capital projects. Alfred summed up the decisions made thus far: Ÿ a freeze on borrowing any more money from promissory notes until there is a firm decision on the company's strategy. The promissory note Information Memorandum and Term Sheet is to be reviewed by lawyers and auditors before being endorsed by the Board.' 129 At the meeting of directors on 8 June 2005, the question of the promissory notes was further considered. The minutes of the meeting record these remarks: 'All monies from promissory notes had been frozen until the Board had approved the company's strategies. Richard again stressed the importance of being completely open and transparent about the use of the promissory note monies in the Information Memorandum. The document must state up front that the funds will be used to retire debt as well as part of a seed program. Peter had used the Information Memorandum prepared by Baker & McKenzie for another related party company as a sample for GPE's Information Memorandum. Peter will amend the document to reflect the changes recommended by Richard and circulate it around the rest of the Board members for approval.' 130 On 15 June 2005, the Audit and Risk Management Committee of the Board met. The question of the promissory notes was further discussed and the minutes record these matters: '(e) Promissory Notes Richard explained that there was a conflict of interest with the issue of promissory notes, because the company through which the promissory notes were distributed is a related company of Alfred Wong's, the Chair of the Board. The use of the funds was also not adequately disclosed in the Information Memorandum. Peter has since received legal advice and a final version of the Information Memorandum is now available for review. Richard requested a policy be drawn up that states that any debt raisings have to be approved by the Board and must comply with the Company policy on authorisation levels and approvals before any trade debt or structured debt can be retired. The approval process should not be after the transaction has taken place and the Board having to ratify the transaction as a result. A policy for approving trade debt already exists and Alex suggested that Heymala draft another policy on Related Party Debt for review at the next Board meeting. ' 131 At the meeting of directors on 6 July 2005 the question of the promissory notes was noted again in these terms: '6. Matters arising from the previous minutes … (j) Promissory notes have been suspended.' 132 On 24 August 2005, Richard Nott became aware of the Second Information Memorandum and became very concerned about it. 133 On 24 August 2005, Richard Nott sent a memorandum to the directors of GPEL in these terms: 'PRIVATE AND CONFIDENTIAL TO :The Board Of Directors CC :Edwin Yeung, Secretary Heymala Eardly, Secretary FROM :Richard Nott SUBJECT :RAISING DEBT - PROMISSORY NOTE ISSUE ENCLOSURE:GREEN PACIFIC ENERGY CAPITAL LIMITED NOTE ISSUANCE SUMMARY At two recent Board meetings it was agreed that GPE would cease raising loan funds via Promissory Notes as the invitation schedule to investors had not been approved by the board, nor the quantum of borrowing. Also, the invitation was considered deficient as it did not disclose the current financial status of the company nor highlight that funds were being predominantly used in the short term to pay creditors and retire shareholder loan funds. The enclosure now invites potential investors, self managed superannuation fund holds, through Great Pacific Investment Security Services Pty Limited, a related entity of the principal GPE shareholder, to invest amounts of $50,000 and increments for periods of 2-3 years on an unsecured basis at rates of 10.5% - 11.5% pa payable monthly in arrears. The total projected raisings is flagged at $30M. The enclosure says that funds are being raised to finance several GPE projects at sites that are now described as "financially attractive and ready for construction". Also it says that "some funds may also be used to repay existing loan facilities". The 2-page flyer enclosure is supported by the last annual report with financials as at 30/6/04. I have a problem in supporting this proposal on a number of issues: 1. The board stated clearly that issues of promissory notes were to cease and any proposal for new raisings was to be approved by the board. This has not happened and in my view would not be supported by the board for combinations of the following issues. 2. The board has not seen or approved a Capital Management Plan which shows how the raising of $30M if achieved will be utilised and how the debt burden of $3-4M pa will be provided beyond further borrowing. It appears that a Staplyton construct or Rocky Point tender payment/reconstruction will be in that figure worth around $40M on completion or potentially higher for Rocky Point. I do not believe that an undefined parcel of notes, potentially to $30M can be repaid in 2 years or the debt serviced from income. Unless this is believed achievable it requires equity funding. 3. Note holders will be unsecured. Nowhere does the offering say that the company is likely to have a major asset write‑down and that the loan funds will not be represented by the same capital value; ie. a dollar lent may be immediately backed by only 60 cents asset value. If funds are lent to an investment vehicle GPEL, which has existing investors, it becomes then a composite investment in GPEL and the asset shortfall is spread amongst a larger pool of investors. Investors are not told about this. 4. The financials are out of date and no half yearly results have been tabled or unaudited yearly accounts or the risks set out. The 2‑independent/non‑executive directors are unlikely to be involved beyond the next AGM. 5. The offering says that some of the funds may be used to retire debt. This could be trade creditors and loan funds from the principal shareholder. If financials and cash flows are supplied the investor can see the state of existing debt and determine the probability of funds that may be used for these purposes. These are not provided. 6. The investments are being offered to uninitiated investors via a co‑related company to the major shareholder of GPEL and this presents a conflict of interest where the shareholder at a board decision should abstain from voting. It was not even put to the board, and the investment adviser may not have told the potential investor of the related party nature of the transaction. 7. I do not believe that GPEL can construct a plant over say a 2 year period funded entirely by debt as upon completion it will not generate enough revenue to service the debt cost let alone repay the principal. I believe that an optimum debt load per plant would be $20M, with $10M of equity to realistically attract lenders or debt providers with some asset coverage and the company with an ability to service borrowing. Added to this is the significant large NTA [Net Tangible Asset] reduction of corporate assets from a revaluation by the audit review. I think a raising of $30M is flawed. 8. The raising does not state what the position is if only say $5M is raised and therefore a plant cannot be constructed due to lack of equity/subordinated debt. Will investors get repaid? There must be some reasonable degree of evidence that the raising will achieve its stated purpose. To use funds to then entirely retire trade creditors and some structured shareholder debt will amount to a preference in the event that the data does not reasonably indicate that the business can succeed. 9. The directors have not been consulted on this matter and now knowing about it by default, I am compelled by virtue of good governance to express any lack of support for this proposal on financial and prudential grounds. If the Rocky Point tender is one, there is a potential basis to go forward and upon which to raise equity. However, as the majority of shares are tightly held, it may not be possible for the minority shareholders to potentially take up to say $10M of equity raisings. To raise debt without any firm program or intention to repay lenders in the event that an insufficient debt component is raised to complete a project is not commercially supportable (ie. if only say $3M is raised there should be an undertaking to repay as it will only buy time to pay off other creditors and not achieve the aim of the debt raising. Therefore it is flawed and could be construed as deceptive). The other sites indicated as attractive and ready for construction is incorrect as well. They are more likely unattractive and not ready for construction as there is uncertainty of fuel supply apart from structural issues.

Summary The amalgam of these issues does not enable me to support such a flawed program. I think it is uncommercial and deficient in essential detail to enable investors to make a reasoned decision. Any offering to the public should have directors support which this does not. I hope the company succeeds as with its shareholders, but I cannot support this process to achieve these ends. Richard Nott Director.' 134 On 25 August 2005, Richard Nott resigned from GPEL's Board. Alfred Wong at paragraph 87 of his affidavit filed 19 July 2006 says that he did not have an opportunity to explain the circumstances of the preparation of the Second Information Memorandum to Richard Nott prior to his resignation. Moreover, Alfred Wong says at paragraph 87 of his affidavit that nor had he had an opportunity to put the revised Information Memorandum to the directors of GPEL for endorsement before Richard Nott's resignation. I am not willing to accept the evidence of Alfred Wong on these matters. Alfred Wong knew and understood that Richard Nott held strong views about the importance of GPEL not engaging in any conduct involving placing a promissory note issue into the market. Similarly, Robert Patterson had expressed concern about the same matter. The Board was entitled to consider serious questions of the kind raised by Richard Nott in his memorandum (raised as soon as he became aware of the development) and plainly enough, had Alfred Wong made enquiries of Richard Nott, Richard Nott would undoubtedly have articulated the concerns reflected in his note of 24 August 2005 consistent with earlier views articulated at the Board meetings. It seems to me that the conduct of Alfred Wong deprived the Board of an opportunity to further consider whether a soft market launch of a promissory note issue ought to occur and the content of the document GPEL might, if at all, put into the market. 135 By paragraphs 88 and 89 of his affidavit filed 19 July 2006, Alfred Wong says this: '88. When the form of the Second Information Memorandum was finalised in late August 2005, I raised with William Lamont and Danny Au‑Yeung, the possibility of a "soft" launch of the product to test and orient the market with this product. They agreed that such a test was warranted. 89. As a result of this I spoke with Mr Andris Lielkajis, Managing Director of ABL Global Limited and raised with him the possibility of putting the Information Memorandum out into the public arena by way of "soft marketing". This involved circulating the Second Information Memorandum without intending that any promissory notes would be issued. The purpose of circulating the Second Information Memorandum was to keep the product in the market and to assess any interest in the market. I made it clear to Mr Lielkajis that GPE and GPEC did not yet intend to issue further promissory notes as GPE had to address management issues and had to get its projects back on track.' 136 It is clear from the minutes of the Board meeting, the minutes of the Audit Committee meeting and the memorandum from Richard Nott that the board of directors of GPEL had not approved the Second Information Memorandum and had not approved any process by which the Second Information Memorandum might be put into the public arena. The first presentation had occurred on 19 August 2005. Alfred Wong at paragraph 88 of his affidavit filed 19 July 2006 says that he 'raised the possibility' of a soft launch of the proposed promissory notes with William Lamont and director Danny Au-Yeung. Alfred Wong does not say that either of these gentlemen approved the Second Information Memorandum or agreed with Alfred Wong that a 'soft' launch of the promissory note product should be made. In any event, the discussions with William Lamont and Danny Au-Yeung did not constitute a resolution of the board of directors. The election by Alfred Wong to put the promissory note Information Memorandum into the market by Andris Lielkajis through entities related to Alfred Wong and Lielkajis was misconduct particularly having regard to the criticisms made by Board members of a promissory note issue by GPEL and GPEC. Whether the criticism of the Information Memorandum was well made or not, the directors of GPEL had not considered the matter further and had not resolved to proceed with any form of promissory note issue. 137 Section 461(1) of the Act empowers the Court to make an order for the winding up of a company on enumerated grounds including that the Court is of the opinion that it is just and equitable that the company be wound up (s 461(1)(k)) and on the ground that directors have acted in the affairs of the company in their own interests rather than in the interests of members as a whole or in any other manner whatsoever that appears to be unfair or unjust to other members. Section 462(2) of the Act confers standing on ASIC to apply for an order to wind up a company on a ground provided for by s 461, in the circumstances contemplated by s 464. Section 464 provides that where ASIC is investigating or has investigated for the purposes of Division 1 of Part 3 of the Australian Securities & Investments Commission Act 2001 (Cth) ('the ASIC Act') matters connected with the affairs of a company, ASIC may apply for a winding up order. ASIC contends that as a matter of public interest with a view to protecting the investing public whose funds have been solicited by way of the JFCP subscription and conduct in relation to the promissory notes, it is just and equitable that GPEL and GPEC be wound up as, upon a proper examination of the conduct of both companies, the Court ought to be satisfied of 'a justifiable lack of confidence in the conduct and management of the affairs' of each company (Loch v John Blackwood Ltd [1924] AC 783 at 788 per Lord Shaw). 138 Although the usual applicant for an order on such a ground is a contributory, it is clear that ASIC has standing to apply for an order on the just and equitable ground in the pursuit of public interest and the Court will examine those public interest considerations to determine where the actual public interest lies (Australian Securities Commission v A S Nominees Limited (ASC v A S Nominees) (1995 - 1996) 62 FCR 504 at 531C, per Finn J). See also Australian Securities & Investments Commission v Pegasus Leveraged Options Group Pty Ltd 41 ACSR 561 per Davies AJ at [95]-[97]; Australian Securities & Investments Commission v ABC Fund Managers & Ors 39 ACSR 443 at [116]-[129], per Warren J; and Australian Securities & Investments Commission v Chase Capital Management Pty Ltd & Ors 36 ACSR 778 at [75] per Owen J. 139 In this respect, the ground has 'a proper role to serve as an instrument of investor protection' ASC v A S Nominees at 531 and one expression of that protection is whether the affairs of the company can be carried on 'consistently with candid and straightforward dealing with the public, from whom further capital must be obtained if its existence is to be prolonged' (Re Producers' Real Estate & Finance Co Ltd (1936) VLR 235 at 246 per Mann CJ). Another is whether creditors or members can continue to have confidence in the conduct of the affairs of the company (Re Chemical Plastics Ltd [1951] VLR 136 at 142 per Hudson A-J; ASC v A S Nominees Ltd at 531). Where the order is sought by a Regulator such as ASIC in vindication of the public interest, the Court must itself evaluate the factual matrix in order to form a view as to whether 'a sufficient reason' for making the order is demonstrated (Re Walter L Jacob & Co Ltd (1988) 5 BCC 244 at 251). In other words, what is the quality of the conduct or the burden of the misconduct. Accordingly, I have examined in some considerable detail the background circumstances concerning the subscription of the JFCP funds and their use; the events surrounding the prohibition by the Board upon the issue of any further promissory notes and the circumstances which led Alfred Wong and Andris Lielkajis to arrange for presentations of the GPEL product at various seminars by Lielkajis. I have found that the conduct in relation to those matters is misconduct for all the reasons indicated previously. I will not repeat them here. However, the assessment of that conduct and the conclusions I have reached concerning it reflects a lack of confidence in Alfred Wong and the directors in the conduct and management of GPEL and GPEC. 140 I am satisfied that the quality of the misconduct in relation to the JFCP subscription is significant. The governance of GPEL is ultimately undertaken by means of a deliberative process on the part of the Board in determining where the interests of the company, its members and creditors lie. The expression of that deliberative process in relation to the question of whether Austcorp or Richland was entitled to be paid any monies in the period 19 November 2004 to 9 December 2004 and whether funds subscribed by JFCP could properly be applied in the payment of such claims (if made) consistent with the presentation to JFCP was a matter to be determined by the Board. In assessing that matter, the Board would no doubt have had regard to the relationship between GPEL and Richland, the question of whether such payments (if due to Richland) might be the subject of conversion to equity, the effect upon the liquidity and solvency of GPEL and whether, consistent with the proper discharge of the duties of directors, the JFCP funds could be applied in the manner that Alfred Wong might have proposed. 141 In fact, the Board was deprived of any deliberative process on these questions as Alfred Wong caused the monies to be paid to a company he controlled in order to accommodate demands which were then made, in effect, beneficially upon him, by reason of claims made upon Richland as trustee of a trust the beneficiary of which was Alfred Wong. The conduct of causing JFCP to subscribe for capital in the company on the assumption previously described and then immediately use that money to discharge debts contended by Alfred Wong to be payable to a company related to him was both improper and misleading of JFCP. Such conduct is the expression of the character of the misconduct as Australian Securities & Investments Commission v Aust Timber Pty Ltd (1999) 17 ACLC 893 per Merkel J, demonstrates. 142 I take the same view in relation to the conduct concerning the release into the marketplace (by reason of the conduct of Alfred Wong and Lielkajis) of the Second Information Memorandum concerning the promissory notes to be issued by GPEC. That conduct occurred in circumstances where the Board had placed a prohibition upon GPEL seeking to raise funds through promissory notes. GPEL's wholly owned subsidiary GPEC became an issuer of promissory notes pursuant to the Second Information Memorandum. The deliberative processes of the Board in making an informed judgment as to whether GPEL through its subsidiary was in a position to raise money from the public with confidence that such money could be repaid and in circumstances where the Board could be confident that the Information Memorandum reflected a full, accurate and truthful description of the circumstances of GPEL, its business undertaking and its prospective activity, were foreclosed. The minutes of meetings of the directors and the memorandum by Richard Nott reflect the strength of feeling in relation to issues central to a decision as to whether GPEL ought to raise money from the public through GPEC or otherwise by means of promissory notes. 143 Public interest in the governance of corporations and particularly corporations listed on the Australian Stock Exchange demands engagement by the Board in material questions which affect or are likely to affect the affairs of the company and the interests of the members and creditors. In this case, the Board had expressed a strong view that further issues of promissory notes, in the context of the company's liquidity, its relationship with lenders and general capital adequacy considerations (quite apart from going concern issues), must not occur. The question of whether that prohibition might continue to operate was not taken to the Board. Explanations by Alfred Wong of a 'soft launch' or a general high level introduction to the market of GPEL provides no compelling explanation for depriving the Board of the opportunity to engage in the affairs of GPEL and GPEC on such a material matter. 144 I am satisfied that a winding up order ought be made in respect of both companies pursuant to s 461(1)(k) of the Act. I am also satisfied that in respect of the use of the JFCP funds by Alfred Wong and the foreclosure of the deliberative processes of the Board in assessing the matters I have described, Alfred Wong acted in the affairs of the company in his own interests rather than in the interests of members as a whole and in a manner that was unjust or unfair to other members including JFCP because the funds were immediately deployed to reduce debt to a related entity rather than the deployment of the funds as 'construction equity' to attract the Investec facility. Accordingly, an order ought to be made that GPEL be wound up pursuant to s 461(1)(e).

Events Post 31 December 2004 145 On 23 February 2005, the Audit Committee met. The external auditors, BDO, reported that a key issue for GPEL would be the going concern and the recoverability of the 5MW plant at Staplyton. Ian Fergusson '… stressed that the issue of going concern for the company will still need to be monitored very closely by management and the Board.' Peter Gan reported that he was continuing to work on the preparation of a capital management plan to be presented at the next Board meeting. Peter Gan also reported that GPEL was budgeting for a $5M loss in the 30 June 2005 financial year. On 1 April 2005, GPEL received a report from Expansion Capital Finance Pty Ltd ('Expansion Capital') directed expressly to the question of a 'solvency concern'. 146 The report was procured as part of a capital management study for GPEL against the background of four matters then under consideration by GPEL, namely; whether the pilot plant should be put on a program of care and maintenance due to the 'quite severe operational problems with the Staplyton 5MW plant'; whether GPEL ought to sign an EPC agreement for a proposed plant without having secured debt and equity financing for the plant; whether GPEL ought to utilise a promissory note funding program; and, whether GPEL ought to raise further equity funds to construct the Morwell plant then under consideration and later abandoned. The author of the report observed that placing the 5MW plant on care and maintenance might involve an 'event of default' under the Investec facility in terms of a material change in circumstance. The author also gave detailed consideration to the financial aspects of the operation of the pilot plant. As to the EPC contract, the author recommended against signing an EPC contract in the absence of appropriate debt and equity funding. As to the intended equity raising, the author observed that:

'Further capital injections are subject to the market's confidence in GPEL. In my opinion that confidence is rapidly being eroded for a number of reasons namely: … Ÿ it was stated in an ASX release on 18 November 2004 that the $6.3m capital raising at that time was to be used for the roll‑out of the projects in GPE's pipeline and in fact these funds were used to retire debt to Richland. Ÿ recent company announcement referred to the IBAL (Investec) indicative offer of finance (dated 30 December 2003) as "existing debt facilities" when in fact this is not the case.' 147 The author of the report observed that GPEL appeared to have the 'ability to meet its obligations over the next year as and when they fell due as GPEL had the Richland loan ($2M facility drawn to $460,000 at the end of February 2005) and Promissory Note facility ($10M facility drawn to $450,000 at the end of February 2005) to draw upon. However, GPEL's ability to service those facilities relies completely on its ability to raise further equity capital. Consequently, if that ability is severely impaired, GPEL may not be able to meet its obligations as and when they fall due' [emphasis added]. 148 At the meeting of directors on 4 April 2005, the Board considered a recommendation to sell the pilot plant to Viridis as one mechanism for solving the continuing issues surrounding the pilot plant and further considered the financial position of GPEL going forward. The minutes record these matters: 'Richard enquired about Jardine Fleming's original payment and what was their understanding of the investment and also commented that there needed to be more certainty as to the loans from Richland going forward. There was general concern over the Company's solvency situation. As for the loans from Richland, the Company still has a $2 million line of credit. The company needs $13 million to put up the plant either by raising equity for the new plant and/or selling the 5MW plant at Staplyton and about $0.5 million for the monthly burn rate. Alfred also expressed his concern that as a shareholder he feels that the company should really stand on its own feet and not keep relying on him for funding. As for the money received from Jardine Fleming, it was acknowledged that it was used to retire debt owing to Richland, however, Alfred stressed that he has also been supportive of GPE and has always covered the burn rate for the last two years. Alfred also pointed out that the interest rate charge by Richland to GPE was also more favourable than the market rate. Richard pointed out that whatever interest rate is charged by Richland, we need to have certainty of the facility. Richard requested that Peter give Alfred some notice before he draws on the money and also have a plan drawn up as to when he is planning to call on the balance. Peter will review and report to the board on the loan facility documentation from Richland and ensure that both parties are even‑handedly dealt with'. [emphasis added] 149 At the meeting of directors on 20 April 2005, management gave a presentation on GPEL's new business strategy with the "main focus on stabilising the Company's capital position and ensuring that it was a going concern". The minutes record: '(a) Shortage of capital was putting GPE's business strategy at risk. There is strong indication that the EPC contractor, Easteel, will walk away from the power plant project, as they are growing more concerned about GPE's ability to fund the project. GPE's loss of credibility is also affecting the company's ability to procure reliable fuel contracts. Currently, there is pressure from the creditors to clear the outstanding debts and there is also concern that two of its major creditors, Investec and TechComm may want the debts repaid immediately. Management was concerned that an administrator may be appointed if the Company's capital situation was not immediately stabilised. Management suggested that all projects should be put on hold. Management made extensive recommendations about green waste fuel management and a possible move upstream into related fuel supply acquisition to provide certainty of supply for possible projects.' [emphasis added] 150 The minutes further record these matters: '(k) Loan facility with Richland The loan facility documentation between Richland and GPE is underway and a more formal drawdown arrangement is being organised. Alfred expressed his concern for an equitable arrangement to be put in place. Richard stressed that under the Company's present liquidity situation, repayment of a loan prior to other creditors' payments can constituted preferential treatment. Also with the issue of the promissory notes distributed through a related company of Alfred's, this could expose the Company and Alfred unnecessary especially since the Jardine's money was for a specific purpose and not for the retirement of debt. All of this could be interpreted as the CEO/chairperson have privileged information when the debt facility was repaid using investment funds received from a third party. The Richland loan has to be restructured and formulised so that both Alfred and the Company are clear on the terms. Richard advised Alfred that he believes the loan should be repaid. Robert too stressed that the state the company is in, it is imperative that the funds are replaced as soon as possible. Robert also advised that it would not be wise to allow this issue to come back and bite us in the future. Richard also concluded that the raising of promissory notes through a company related to Alfred in order to retire GPE's debts with Alfred could be construed as a conflict of interest.' [emphasis added] 151 Under the heading 'Managing Director's Report', the minutes of the meeting of 20 April 2005 record these matters: 'Returning to the issue of the Richland loan, Alfred claimed that the debt to Richland was due and payable at the same time as when the Jardine money also came in, to which Richard responded that it is still crucial that Alfred replaces the money that was repaid rather than using the promissory notes to replace the original loan facility, which still generates an additional income for Alfred. It was agreed that Peter would work with Richard on the drafting of a new loan arrangement for GPE with Richland that meets everyone's satisfaction, by the end of this month. Alfred requested that this review considered giving him security over the loans. Robert too has been very concerned about the company's solvency and any loan arrangements with Richland should be clearly documented. The loan should also be a long term loan with the prospect of being converted to equity, as was the original loan facility with GPE.' [emphasis added] 152 As to the position in relation to creditors, Peter Gan explained that 'he really needed about $1 million to pay off all the immediate creditors with a 30+ day ageing excluding TechComm, whose outstanding amount is to be converted to equity.' [emphasis added] Alfred agreed to loan GPE through Richland the $1M required to repay the immediate creditors. 153 At the meeting of directors on 11 May 2005, the pressing question of cash flows available to GPEL was further discussed, a capital management plan was tabled and further discussion occurred of access to an additional $1M from Richland to pay the debts of creditors then due and owing. Peter Gan also noted the 'fall back $5M credit facility from Richland'. 154 On 6 June 2005, Peter Gan prepared a strategic 'Update to Investec' and sent it to Investec officers Richard Byrne, Mark Schneider and Cosmas Kapsanis. The Peter Gan update attached a report from TechComm which proposed a third option for limited 'running' of the plant having regard to the first two suggested options of either closing down the pilot plant with a small number of staff on site to maintain the plant with periodic start‑ups pending sale or, alternatively, 'mothballing' the plant with 'minimum manning'. In relation to the pilot plant, Peter Gan noted that the net operating pre‑tax loss for the financial year to 30 June 2005 was $3M; GPEL was planning to decommission the plant and place it in care and maintenance; the long term solution involved either scrapping the plant, modifying it and operating it with a 13.5MW plant; or, to relocate the plant. 155 At the Audit Committee meeting on 15 June 2005 the need for a debt raising policy to be approved by the Board was discussed among other matters previously mentioned. In terms of the external audit of GPEL's undertaking, the auditors noted that the decommissioning of the pilot plant would obviously have an impact on the valuation of the asset. 156 On 15 June 2005, Investec wrote to GPEL noting that the proposal to place the pilot plant on 'care and maintenance' would reduce the value of the security. Investec expressed concern that cessation of generation might cause GPEL to be in breach of the terms of the Power Purchase Agreement. Investec suggested a restructuring of payments satisfactory to Investec. Consequent upon that letter a meeting took place on 22 June 2005 between Peter Gan and Jose De Nobrega and Cosmas Kapsanis on behalf of Investec. 157 The note by Cosmas Kapsanis arising out of that meeting records Peter Gan's observation that GPEL intended to place the pilot plant on care and maintenance; GPEL would continue paying principal and interest payments; GPEL perceived the solution to the pilot plant's difficulties was to develop a 13.5MW plant; funding for the plant would be established through existing credit facilities in association with project finance and debt facilities from Investec; that if Investec put the pilot plant loan into default that day and triggered a right to call for immediate payment, GPEL 'would not have the financial capacity to repay and it was unlikely that any additional money would be provided by shareholders, resulting in the company being put into bankruptcy.' The Kapsanis note records that 'Peter clearly understood our strong preference for immediate repayment but is unable to fund that repayment from the resources available to him. He undertook to seek funds from Alfred Wong for a partial repayment (probably 50% of the residual - he indicated to us that requiring repayment now of 100% of the residual is akin to demanding total repayment and would have the same consequence).' 158 On 30 June 2005, a meeting took place between Alfred Wong and Peter Gan and Cosmas Kapsanis and Mark Schneider on behalf of Investec. Peter Gan and Alfred Wong expressed their confidence in GPEL. The Kapsanis note of the meeting records: 'We (Investec) restated our request for repayment or a reduction in the debt outstanding. We propose that if they couldn't fully repay the bullet (balloon payment) at this time, that they repay half of the bullet, being approximately $1 million and continue advertising the loan to the same schedule, resulting in a zero balloon at the expiry of the term.' GPE asked whether, in exchange for a partial repayment of the bullet we would consider extending the term of the facility and we indicated that our credit was unlikely to accept such a proposal'. 159 At the meeting of directors on 6 July 2005, the Richland GPEL credit facility was discussed as was the assignment arrangement between Richland and Austcorp and the perceived affect upon GPEL's liquidity arising out of the assignment. Alfred Wong's perception that the Richland facility available to GPEL was to be an 'evergreen' facility was noted. 160 On 4 August 2005, GPEL's auditors, BDO (Ian Fergusson), wrote to GPEL outlining events since 31 December 2004 which 'bring into question both the carrying value of the Company's assets and the ability of the Company to continue as a going concern'. [emphasis added] Those events were the continuing operating losses incurred in respect of the 5MW pilot plant necessitating either closing the plant or placing the plant into a 'care and maintenance' arrangement; issues regarding the technical and commercial viability of the Staplyton No. 2 project and the Morwell project; the weakness identified in the direction and management of the company; and the report to GPEL by Expansion Capital dated 1 April 2005 questioning whether GPEL was trading whilst insolvent. BDO expressed the view that GPEL appeared to have no means of generating cash to repay debts other than through the successful commercialisation of the pilot plant, Staplyton No. 2 and the project at Morwell. Further, funding secured from Investec was provisional on the technical feasibility of the projects. BDO emphasised that: 'It is imperative that the directors satisfy themselves that the company is a going concern' [emphasis added]. In order for the Board and the Audit Committee to be satisfied of that matter, BDO recommended that the following reports should be prepared: '● Detailed cash flow projections covering in particular the period up to the generating plants coming on line and generating positive cash flows. ● Reports on the current status of both the Staplyton and Morwell projects, the reports to include, confirmation of technical viability, confirmation that fuel supplies can be obtained, detailed project plans showing when the project will come on line and cash flow projections for each plant during the construction phase and for estimated cash flows to be generated when the plant is operational.' 161 BDO observed that the proposal to place the pilot plant on care and maintenance may involve a material adverse change in the progress of that project. BDO also observed that during the conduct of the audit of the accounts to 30 June 2005, BDO had become aware of the Expansion Capital report. BDO noted the operational difficulties (adequate fuel supplies) with the Staplyton No. 2 and Morwell projects and the fund raising program undertaken by GPEL through the issue of the promissory notes repayable on 31 March 2007 and 30 September 2007 before the Staplyton No. 2 and Morwell plants would be operational. BDO was concerned that GPEL 'would appear not to be in a position to repay [the notes] unless further funds are raised prior to Staplyton 2 and Morwell coming on line'. BDO expressed its 'dissatisfaction with management and the Board for not advising us of the Expansion Capital Finance Report at the time it was considered by the company' [emphasis added]. Further, BDO regarded the repayment of $3.4M to Richland as a significant event. BDO noted that the loan, so far as BDO understood the matter, attracted a conversion entitlement to equity at the option of GPEL and that: '… given the fact that the company requires additional funding to complete its ongoing projects and to meet its day to day operating expenses, the repayment of the loan was not envisaged in making our previous assessments as to the company's going concern position. Repayment of the loan would not appear to be in the interests of the company given its funding requirements'. 162 BDO expressed concern that since the convertible loan was to Richland there may have been a risk that the interests of GPEL were not considered. BDO drew the attention of the directors to the release to the Australian Stock Exchange on 18 November 2004 stating that the JFCP capital was raised to roll‑out projects in GPE's pipeline. BDO also expressed reservations about the impaired carrying value of the pilot plant, the carrying value of the Staplyton No. 2 and Morwell projects and the need for directors to be satisfied that the carrying value of intellectual property rights was consistent with the 'recoverable amount' for that asset. Ian Fergusson concluded his letter by observing that: 'In light of the above comments, it is imperative that the directors have sufficient evidence that the company is solvent and is a going concern' [emphasis added]. BDO advised the directors that BDO had a responsibility to review GPEL's assumptions as to solvency and going concern and form an opinion 'as to the appropriateness of the evidence to support the going concern assumption. [emphasis added]' BDO requested the information to be supplied within two weeks. 163 On 11 August 2005, Alfred Wong met with Stephen Chipkin, Mark Schneider and Cosmas Kapsanis to consider a proposal from Investec for a reduced exposure to the 'Staplyton Green Energy project'. The amount outstanding at that date was $3.232M and the remaining term was 45 months. Alfred Wong advised Investec that the pilot plant had not been placed on care and maintenance and 'continues to operate'. Investec sought GPEL's response to its request for immediate payment of $573,000.00 being the sub‑debt tranche with continued payments of $46,000 per month to amortize the senior debt at an accelerated rate. Alfred Wong advised Investec that the: '… operating company did not have the funds to make this payment' and 'the lack of funds is the result of a) the lack of cash generation by the project and b) an inability of GPE to further draw down on a loan facility that Alfred's family trust has made available to it. This is because Alfred's facility was intended to be secured by a first ranking F&F charge over the assets of GPE. This security has not been put in place and Alfred has become aware that $2 million of the $5 million funding has been advanced on an unsecured basis. The trust will not permit further substantive drawings without security'. 164 Alfred Wong offered to pay Investec the next three months principal interest payments constituting $141,000.00 in all. 165 On 17 August 2005, Ian Fergusson wrote to Alfred Wong as requested at the Audit Committee meeting the previous day setting out a list of '… audit evidence that would help to assist us in reaching a conclusion to the audit process' [emphasis added]. As to the question of whether GPEL might be found to be a solvent going concern, BDO requested detailed cash flow projections for the next three years covering the period of repayment of the promissory notes, forecasts demonstrating cash outflows from operations, cash outflows from investments, GPEL's required funding throughout the three year period, a detailed business plan, detailed group budgets, discounted cash flow forecasts, supporting evidence for all assumptions made in the forecasts, the preparation of a sensitivity analysis in relation to the forecasts, details of future funding arrangements including amounts required, dates by which funds would be required, sources of funds, evidence that promissory notes could be repaid as each note fell due, a letter of support and confirmation of balance debt from Investec in relation to the loan covenants, a copy of a signed loan agreement for the $5M credit facility with Richland, a letter of support from major shareholders and other matters. BDO also sought information concerning the assessment of the carrying value of tangible fixed assets and intangible assets, the nature of contingent commitments and up‑to‑date management information and copies of Board minutes so as to enable BDO to assess 'post balance sheet events'. BDO also requested Financial Statements to be drafted particularly having regard to the filing deadline of 30 September 2005 and a 'Statement of Cash Flow Workings'. 166 On 25 August 2005, Scott Tobutt, a BDO representative, advised Ian Fergusson that the higher level information such as the business plan and letters of support were being dealt with by Alfred Wong but that no completion date could be provided. Further, Tobutt observed that as he went through the list of required information with Edwin Yeung, 'Edwin would say "yes we have that" or "it has been done" or "we can get that" etc which we have heard before and we seemed to be going around in circles' [emphasis added]. Tobutt confirmed that he had requested a file with cash flows for the group, management judgments as to each cash flow scenario behind each cash flow forecast, the supporting documentation for and evidence supporting all assumptions made by management together with additional evidence such as project reports and commitments for each of the projects. The same approach was to be adopted in relation to the valuation of the assets including the intangible assets. 167 On 31 August 2005, Alfred Wong requested a letter of support for GPEL's future green waste to energy projects, from Investec. 168 On 9 September 2005, BDO (Ian Fergusson) again wrote to Alfred Wong observing that BDO was 'yet to receive any response from management' consequent upon BDO's earlier correspondence. Further, Ian Fergusson observed that BDO was 'yet to receive the majority of the key items' requested by the letter of 17 August 2005. Further, BDO observed that the quality of the information that had been provided was 'unsatisfactory from an audit perspective'. BDO expressed concern about the capacity to prepare and file a particular statement by 13 September 2005. BDO emphasised the number of significant issues that had to be addressed before completion of the audit could occur and, in consequence, finalisation of the annual report by 30 September 2005. In the letter dated 9 September 2005, Ian Fergusson said this: 'Our audit to date had raised the following significant issues which we believed have not been resolved satisfactorily and will result in BDO issuing a qualified audit opinion; ● Overall Going Concern of GPE ● Carrying value of the Staplyton 5MW plant ($7.6 million) ● Carrying value of the 13.5MW Staplyton Reactor plant ($3.6 million) ● Carrying value of the Morwell costs ($300k) ● Carrying value of the Intellectual Property Rights ($4.5 million)' 169 Ian Fergusson further expressed this view in the letter of 9 September 2005: 'BDO cannot form an opinion on the going concern assertion and the carrying value of assets based solely on management representations, and unfortunately this is the only evidence which has been provided so far. In order to be able to form an opinion as to the ability of GPE to continue as a going concern and to determine the recoverable amount of its assets, we still require supporting evidence to show that any of GPE's assets will be commercialised and that GPE is able to continue as a going concern.' [emphasis added] The letter observes that BDO was yet to receive a significant body of material. The letter attaches a two page schedule of information sought such as data in relation to the carrying value of the assets, forecasts, the rationale for the determination of the recoverable amount of the intellectual property assets, details of the amortization policy, confirmation that the 13.5MW Staplyton project will go ahead and a significant body of other material. 170 As to going concern, 17 classes of information were sought by BDO. As to the tangible fixed assets, five classes of information were sought. Five classes of information were sought in relation to the intangible assets and four classes of information in relation to contingencies and other commitments. On 13 September 2005, Ian Fergusson on behalf of BDO wrote to Alfred Wong in these terms: 'I am writing to you to express our concerns in respect of the corporate governance of the company and its solvency and the impact these concerns have on our ability to remain as auditors of the company. Corporate Governance We are aware of the factoring of the Richland Investment Australia (Ltd) loan that had been made to Green Pacific Energy Limited (GPE) and its subsequent repayment. Notwithstanding comments made by you, supported by legal advice you have obtained, we have difficulty in concluding that this action was in the best interests of GPE. We are aware of the information memorandum which is seeking to raise promissory notes to be issued by GPE. This action appears to be have been instigated by yourself without the mandate of the Board. Further, we are concerned whether the information being provided to potential lenders is adequate and whether it is misleading. The above actions would appear to reflect a lack of corporate governance that is required of listed entities. Going Concern Again, the matter of going concern and adequate business plans have been discussed at recent Audit Committee meetings. We note that creditors appear to be paid in a selective way and only when further loan monies from entities you are associated with are received. Without an adequate business plan and funding for projects to provide GPE with power plants that can generate positive cash flows, it is difficult for us to determine how GPE is able to remain a going concern.

Implications for BDO We would welcome receipt of firm evidence that the matters raised above have been either rectified or adequately addressed. You should be aware that the matters are of a nature that require us to advise ASIC under section 311 of our concern. The Act imposes specific requirements for auditors to advise ASIC whenever the auditor has any reason to believe a breach of the Corporations Act has occurred. Further, it raises difficult issues for us as auditors. Our own client acceptance procedures and guidelines include matters such as assessing whether the governance culture in the entity is satisfactory. Accordingly, unless the Board is able to adequate demonstrate the GPE is a going concern (we regard the ability to adequately fund future projects as a key aspect of this) and is able to demonstrate how corporate governance issues are to be adequately address, we will regretfully be required to resign as auditors of the company at the forthcoming annual general meeting.' [emphasis added] 171 On 13 September 2005, Scott Tobutt reported to Ian Fergusson upon Tobutt's discussions with Edwin Yeung. Edwin Yeung told Tobutt that he had been discussing the BDO letters requesting audit evidence with Alfred Wong. Tobutt, in his note to Ian Fergusson, observed that Edwin Yeung had told him that Alfred Wong and Edwin Yeung were aware that BDO was not satisfied with the valuation of the assets but that it was unlikely that GPEL would be able to provide any further evidence to alter BDO's preliminary views. Tobutt reported that Alfred Wong and Edwin Yeung were concentrating on 'proving that the company is a going concern'. 172 Scott Tobutt also observed that Edwin Yeung was under the impression that all of BDO's fees had been paid. However, an amount of $37,950.00 was outstanding to BDO. Edwin Yeung said he would look into this issue and if the fees were still outstanding, Edwin Yeung would arrange for the amount to be paid. Tobutt reported to Ian Fergusson on 19 September 2005 that Edwin Yeung would be discussing the business plan with Alfred Wong that day. BDO had still not been paid the outstanding fees and in Tobutt's report to Ian Fergusson on 19 September 2005 Tobutt noted: 'he [Yeung] said he would arrange for this [payment] today (sounds familiar!)' [emphasis added]. On 21 September 2005, Tobutt reported to Ian Fergusson concerning discussions with Edwin Yeung. Edwin Yeung said that he had gone through the business plan with Alfred Wong and that the review would be finished by the end of the week. Tobutt told Yeung that GPEL and BDO were 'seriously running out of time'. Tobutt had advised Yeung that 'the Board had to confirm that they were sticking to the current valuations in which case we were unable to prove this with the evidence provided'. Tobutt added, in his email report to Ian Fergusson of 21 September 2005: 'it sounded like the letters we had sent previously had not sunk in in any way' [emphasis added]. Tobutt added this observation: 'In relation to going concern, I asked if the company had managed to get a letter of support from Alfred - but he [Yeung] said that this was covered by the $5m Richland loan facility. I also asked if the company had confirmation from Investec that the loan breaches would have no impact and that the funding going forward was still available. He said that the offer was still there from previous. I said that it had been agreed by Alfred at the Audit Committee that he would be able to get these confirmations and subsequently they have not told us otherwise. It appears that this is not going to be the case which will obviously affect the going concern.' 173 As to the question of fees payable to BDO, Tobutt observed: 'We have still not been paid and we are seriously running out of time. It would already be very difficult to finish the accounts within the deadline due to mine and Tim's other commitments'. 174 On 23 September 2005, Ian Fergusson wrote to Edwin Yeung noting that BDO had not heard from GPEL in respect of the outstanding matters detailed in the letter of 9 September 2005. Ian Fergusson requested urgent advice as to whether the financial statements were to be finalised based upon the results and state of affairs disclosed earlier to the Stock Exchange; whether Edwin Yeung had been able to prepare further evidence as previously requested supporting the carrying values adopted by the directors; and the date by which the annual report would be available for review and audit by BDO. Ian Fergusson pointed out that 'it is difficult for me to see how the financial statements will be able to be signed by 30 September 2005'. On 26 September 2005, Mark Schneider sent an email to Helen Ho at GPEL advising that Investec would very much like to be able to provide a letter of support as sought by Alfred Wong but that such a letter would be 'premature' at least until the Staplyton No. 1 project had been 'refired and can be demonstrated to be operating in accord with the original financial model'. 175 On 27 September 2005, Scott Tobutt sent an email to Edwin Yeung expressing observations based upon BDO's initial review of the annual report as provided by GPEL. That day, Edwin Yeung responded. The issues involved questions concerning the accounts payable; a comparison of the financial results as formulated with the preliminary results reported to the Stock Exchange; the foreshadowed operating result of a net loss after income tax of $13,615,601.00; the proposed 'impairment loss' in relation to the pilot plant; and other matters. On 28 September 2005, Ian Fergusson sent an email to Edwin Yeung concerning the draft annual report, in these terms: 'There are many aspects of the Report we are concerned about and this is necessarily slowing down the process. The Directors Report, in my view, does not portray a balanced position of the state of affairs of the company. Your note 1A to the accounts is not, in my opinion appropriate. It is too opinionated and should restrict itself to the issues impacting the company to remain a going concern. It would appear that the company has failed to advise the ASX … of the increased write down of the 5MW [plant] put through the books subsequent to the lodgement of the 4E [statement].' [emphasis added] 176 Edwin Yeung responded on 29 September 2005. Further exchanges took place between Tobutt and Yeung on 29 September 2005 particularly in relation to clarification of whether Investec was content to take no action in relation to the matter Peter Gan had disclosed to BDO during the course of an audit visit namely, 'that the debt service covenants of the loan [Investec] had been breached'. Edwin Yeung advised that Investec had not asserted a breach based upon a failure to comply with the debt service covenants. The breach previously noted by Peter Gan related to the ratios GPEL was required to maintain under the Investec agreement namely, the DSCR and FDSCR ratios. On 29 September 2005, Edwin Yeung further advised that no issue had been taken by Investec concerning the matter of the covenants in relation to the debt service ratios. On 30 September 2005, Edwin Yeung pressed BDO for a statement in relation to the going concern nature of GPEL. Tobutt responded advising that because of the sensitivity of the accounts both GPEL and BDO needed to be satisfied that all issues have been resolved. On 30 September 2005, Edwin Yeung responded to BDO's proposed going concern statement. Edwin Yeung sought to incorporate in the qualification BDO proposed to make on the topic of whether GPEL was a going concern a comment at point 35 to this effect: 'We have received a commitment from the major shareholder (Richland) that funds of $5m will be made available to the company. We have received no commitment that the loan will not be demanded for repayment within the next 12 months.' 177 On 7 October 2005, BDO issued an independent audit report to the members of GPEL which contained a number of qualifications. As to the Staplyton pilot 5MW plant, BDO said this: 'GPEL has determined the carrying value of its Staplyton 5MW plant to be $2,865,212. The 5MW plant is currently operating at a loss and will not be able to generate positive cash flows unless it is operated in tandem with another plant such as the proposed Staplyton 13.5MW plant project. In our opinion, the carrying amount is in excess of the assets recoverable amount and therefore GPEL has not applied the requirements of AASB1010. In our opinion, the Staplyton 5MW plant should be written down to its scrap value or $0 and therefore $2,865,212 (or such lesser amount) be written off as an expense to the Statement of Financial Performance. Had this been done, the operating loss before income tax would increase to $16,480,813 and Total equity reduced to $428,925.' 178 BDO further qualified the report in relation to the Staplyton 13.5MW plant, other projects of GPEL and the intangible assets. BDO expressed the opinion that the financial report of GPEL was not in accordance with the Corporations Act 2001 as the accounts did not give a true and fair view of the company's financial position as at 30 June 2005 nor of GPEL's performance for the financial year ended on that date. Nor did the accounts comply with Accounting Standards and the Corporations Regulations 2001. The independent audit report contained this statement: '… Inherent Uncertainty Regarding Continuation as a Going Concern Without further qualification to the opinion expressed above, attention is drawn to the following matter. Note 1A of the financial report details the directors' opinion on the company's ability to continue as a going concern. In our opinion, the ongoing viability of the company is dependent upon its securing sufficient further equity as well as loan funds to enable it to successfully develop new green energy plant facilities. In the event that the company becomes unable to continue as a going concern, it is likely to be required to realise its assets and extinguish its liabilities other than in the normal course of business and at amounts different from those current stated in the financial report.' 179 On 7 October 2005, Alfred Wong on behalf of GPEL provided BDO with a letter setting out a wide range of comments in relation to the matters which had been the subject of inquiry by BDO and, in particular, comments in relation to asset valuations of property, buildings, plant and equipment and intellectual property, comments in relation to the liabilities of GPEL, its contingent liabilities, events subsequent to balance date and remarks in relation to the opinion of GPEL that the financial statements should be prepared on the basis that GPEL is a going concern. As to that matter, Alfred Wong's letter contained these observations: '… Going Concern 32. We believe that it is appropriate for the financial statements to be prepared on a going concern basis. The ongoing viability of the consolidated entity is dependent upon the ongoing financial support of its shareholders and lenders. We have sufficient funds to enable us to pay creditors as they fall due for 12 months from the signing of this letter. 33. We have the abilities to successfully commercialise a power plant following the lessons learnt from the Staplyton 5MW. We can confirm that the Staplyton 13.5MW construction will go ahead, and that we will be able to secure the necessary debt and equity funds to finance this. We also believe that the group will be able to secure the appropriate fuel sources. 34. We have received a commitment from the major shareholder (Richland) that funds of $5M will be made available to the company. We have received no commitment that the loan will not be demanded for repayment within the next 12 months.' 180 On 7 October 2005 at a meeting of directors, Alfred Wong presented the Annual Report for the financial year ending 30 June 2005 and explained that the auditors had qualified the report. The minutes of the meeting note Alfred Wong's observation concerning his 'disappointment with BDO for delaying the completion of the audit resulting in GPE being suspended from trade since 3rd October 2005' [emphasis added]. The directors adopted the Annual Report. The minutes also note that 'Alfred also explained [to directors] that since the Board made a decision not to issue any more promissory notes until there is a firm strategy in place, $50,000 had already been receipted. The advice given was not to return the monies received because this may be viewed negatively by the market. The product should be pulled out of the market slowly. Alfred asked the Board to ratify the decision to accept the monies received to date'. The Board did so. The action items attached to the minutes note that a review was to be undertaken, assigned to Alfred Wong, to 'review Richland credit facility loan documentation for Board endorsement (A resolution is to be put forward before the shareholders to approve the credit facility with fixed and floating charge over the company's assets)'. 181 At the meeting of directors on 26 October 2005 Alfred Wong reported that GPEL required capital of approximately $16M to purchase plant. The minutes note that Alfred Wong's expectation was that GPEL would probably be able to raise about $10M from Investec by way of debt and the balance of $6M would need to be subscribed as capital. Alfred Wong suggested that strategic partners might be sought for a rights issue. 182 On 28 October 2005, BDO submitted its final report to GPEL's Board noting that: 'The Board should be aware that the comments made by management have not been substantiated or validated by us'. As to the Richland $5M facility, BDO noted that the loan agreement had not been properly executed as the provision of security by GPEL had to be approved by shareholders at the forthcoming Annual General Meeting. The final report noted that: 'The lender has allowed periodic drawdowns of the facility to fund GPE's working capital requirement. At the date of this report (which is for the period ending 30 June 2005) total funds drawn are close to $2.2 million leaving a further $2.8 million available for future usage. The company has received no commitment that the loan will not be demanded for repayment within the next 12 months'. 183 Counsel for the defendants put to Ian Fergusson that BDO had failed to have regard to or take account of the various matters put to BDO by Alfred Wong in the letter of 7 October 2005. Ian Fergusson rejected that criticism on the basis that although some of the things contained in the letter had been put to BDO previously, the proposition simply represented management statements rather than an attempt to come to grips with the request by BDO to provide independently verifiable audit evidence to support statements by management. I accept the evidence of Ian Fergusson generally. 184 On 31 October 2005, BDO forwarded a letter of resignation as auditors to Alfred Wong. The covering letter enclosed BDO's final fee account with an explanation of the basis for the fee. In cross examination, counsel for GPEL and GPEC put the proposition to Ian Fergusson that the question of discontent and non‑payment of professional fees was the real source of discontent and the reason for the resignation by BDO as auditors. Although plainly enough this was an issue, I am satisfied that the dominant cause of the resignation was BDO's discontent with responses by GPEL and GPEC to continuous requests for proper audit evidence to enable BDO to form an opinion about matters central to the completion of the financial accounts and the independent view BDO needed to form on matters of particular importance to the members and creditors of GPEL. On these matters, I accept the evidence of Ian Fergusson. 185 In the course of the hearing, I asked Ian Fergusson to explain the reasons why, on behalf of BDO, he resigned the position as GPEL's auditor. He responded: 'I think predominantly, it would have been because I came to the conclusion that not only did we have a difference of opinion on key aspects of matters pertaining to the company that probably would never be resolved but I was also concerned that information that was vital to be able to do a thorough audit was very hard to get from the board, which made carrying out an audit for us very time consuming and very difficult. And then there comes the financial side of things, where we seem to be in perpetual conflict on what a reasonable fee would be, given the circumstances, and where you don't get paid your fees, you do sometimes get into a situation where you think you have a - your independence gets impaired. So a whole number of reasons, but it all adds up to the fact that I thought that BDO should part company with GPE.' Ian Fergusson acknowledged that although not all of BDO's professional fees had been paid in respect of the audit work, GPEL disputed aspects of the matter. 186 On 11 January 2006, GPES No. 1 purchased plant and equipment for power generation located at Altona in Victoria from Samvic Services Pty Ltd ('SSPL') for $1.875M plus GST. The plant and equipment was dismantled and transported to Staplyton in Queensland. The plant has not been fully or finally installed. 187 On 16 January 2006, Mark Schneider sent an email to a number of individuals within Investec concerning the failure on the part of GPES No. 1 to make a payment under the existing Investec facility. Edwin Yeung explained that there were insufficient funds in GPEL's account and that: 'St George Bank therefore stopped the payments'. In Mark Schneider's email he explains to Investec personnel that he had explained to Edwin Yeung that: '… we considered this a very serious matter and would need to consider our position'. Edwin Yeung asked if Investec could exercise some flexibility during the course of the week: 'In view of the fact that this was the first instance of a payment being dishonoured'. 188 In cross examination, counsel for GPEL and GPEC put to Mark Schneider that in Schneider's commercial experience, although the default was not insignificant: '… it's not the sort of thing that is unknown, is it? A. --- No, I guess it's the no … it's not unknown'. In relation to the question of Investec's willingness to continue lending, counsel for the defendants put to Mark Schneider: 'You remained as a group, or Investec as a company, remain, at least in the general sense, interested to lend throughout 2005 and into 2006? A. --- Yes I think it's fair to say that subject to the conditions precedent which were, you know, which were in the original document being met, we were still, in principle, willing to advance funds. Quite. Into 2006? A. --- Possibly. I mean, the question wasn't ever one we really had to deal with practically.' 189 Counsel for the defendants objected to the relevance of the evidence concerning the financial circumstances of GPES No. 1 and its relationship with Investec in an assessment of the financial standing or solvency of GPEL. The objection is based on the notion that the Investec loan for the pilot plant was confined solely to GPS No. 1. However, it is clear that compliance by the subsidiary with the conditions of the loan was a material matter to Investec in its existing or future relationship with the parent, GPEL not only because GPEL was a sponsor of the Investec loan to GPS No. 1 but also, Investec looked to GPEL to deal with and solve any question of non‑compliance with the terms of the loan facility, by GPS No. 1. 190 On 10 April 2006, Richland and GPEL entered into a 'Loan Facility Agreement'. The facility is described as an unsecured facility with a limit of $5M for: '… working capital purposes' of GPE and its subsidiaries and to pay part of the purchase price payable by GPE Staplyton No. 2 Pty Ltd to the seller of the 16MW power plant situated at 300 Millers Road, Altona' at an interest rate of 11.95% per annum for a period of six months (ie. until 10 October 2006) unless extended by Richland or called up at an earlier date pursuant to the terms of the agreement. The agreement provides that on or before a date 15 days before 10 October 2006, GPEL may give Richland notice requesting an extension of the termination date. Clause 6 provides: 'This extension is automatic if the notice is supported by a statutory declaration by a director of GPE stating that GPE will be insolvent if the Money Owing is repaid on the forthcoming Termination Date. ['Money Owing' means the aggregate of all money of whatever nature owing or unpaid by GPEL to the financier.] GPE may give more than one notice under this clause. This clause does not apply to a Termination Date that arises as a result of the cancellation of the Facility pursuant to clause 9. [which deals with the consequences of an Event of Default].' 191 Clause 10 provides a mechanism by which the 'Money Owing' may be converted into shares. The mechanism is that on or before the Termination Date, GPEL shall obtain all necessary approvals including the approval of shareholders to convert the debt due at the conversion date into fully paid ordinary shares in GPEL in a manner as determined by a meeting of directors (in circumstances where Alfred Wong is to abstain from voting at the meeting of directors). If the directors decide to undertake a rights issue, the conversion price will be that set out in the issue document. In the event that directors otherwise decide, the conversion price shall be based on an issue price of a 15% discount of the weighted average trading price of shares in GPEL traded on the Australian Stock Exchange over the five business days before the conversion date. Once all approvals have been obtained the debt due at the conversion date: '… shall automatically be converted into fully paid ordinary shares in GPE'. 192 On 10 April 2006, Richland entered into a further loan facility agreement with GPEL for an unsecured facility of $1,055,000 at an interest rate of 11.95% to enable GPEL to pay part of the purchase price payable by the Staplyton No. 2 subsidiary to the seller of the Altona plant. The drawdown date for the facility was 31 March 2006 with a termination date on 30 September 2006 unless extended or otherwise called up in consequence of an event of default. The mechanism for the extension of the Termination Date is in the same terms as [182]. Clause 10 of the agreement provides: '10. Repayment of the Facility (a) Subject to this document the Customer [although undefined, the reference plainly means GPEL] must pay the Money Owing to the financier in full on the Termination Date. (b) If GPE or any of its subsidiaries seeks External Financing [which is defined to mean any raising of funds other than from Richland] for the acquisition of the Power Plant or otherwise, it must stipulate in the relevant Disclosure Document that the funds raised from the External Funding will be used in part to repay the Money Owing. Once those funds from the External Financing are obtained, they must be used immediately repay the Money Owing to the financier in full. It is acknowledged that if the External Financing is in the form of a rights issue by GPE, the financing may participate in the rights issue by converting the Money Owing into shares in GPE on the terms set out in any document relating to that rights issue.' Both agreements of 10 April 2006 are signed by Alfred Wong.' 193 On 10 April 2006, Richland and GPEL entered into a further unsecured loan facility agreement at a facility limit of $1.2M to enable GPEL to pay monies to TechComm: '… following a settlement of a dispute with it or judgment being obtained by TechComm against GPE and GPES No. 1 (as the case may be)' [abbreviations added], or alternatively, for the working capital purposes of GPEL and its subsidiaries. The Termination Date is six months from the date of the advance made to GPEL for the purpose so defined. The clause dealing with the extension of the Termination Date is in the same terms as the other two agreements of 10 April 2006 and the 'Repayment of the Facility' clause is in the same terms as clause 10 of the $1,055,000 Facility Agreement. 194 On 10 April 2006, GPEL entered into a further Loan Facility Agreement with the brother‑in‑law of Alfred Wong, Mr Osmond Kwok for an unsecured facility of $1.5M to enable GPE Staplyton No. 2 Pty Ltd to pay part of the purchase price of the Altona power plant. The facility is a six month facility from first drawdown date which is acknowledged to be 10 April 2006. GPEL may give a notice to Osmond Kwok requesting an extension of the Termination Date. Clause 6 provides: 'This extension is not automatic and the Financier, may at its absolute discretion, decline to grant the extension'. The facility is to be repaid in full on 10 October 2006. There is no entitlement in GPEL to convert the debt to fully paid issued shares in GPEL. Clause 10(b) of the agreement provides that if GPEL or any of its subsidiaries seeks to raise funds from anyone other than Osmond Kwok, GPEL or the relevant subsidiary must stipulate in the disclosure document that the funds so raised will be used to repay the debt due to Osmond Kwok. 195 Alfred Wong in his affidavit filed 19 July 2006 says that in the period 17 December 2004 to 10 April 2006, GPEL drew down upon the Richland facilities of 8 and 9 December 2004 in an amount of $4,904,174.78; the principal amount drawn down under those facilities at 30 June 2006 constituted $6,734,174.78; since that date, further amounts of at least $80,000 have been advanced by Richland to GPEL; there have been no repayments of any amount to Richland; the $5M facility and the $1,055,000 facility are fully drawn; and the $1.2M facility is partly drawn. Osmond Kwok in his affidavit filed 25 July 2006 says that since making his facility available, GPEL has drawn down an amount of $937,396.10. 196 On 17 May 2006, GPEL entered into an unsecured $3M Loan Facility Agreement with Ace Bond Capital Ltd ('ABCL') at an interest rate of 11.95% for the '…working capital purposes of GPE and its subsidiaries' for a period of 12 months from the first drawdown date of the facility. The extension of the Termination Date and potential conversion of the debt to fully paid ordinary shares in GPEL is in these terms: 'Extension of the Termination Date Or Share Conversion On or before a date that is 15 days before the Termination Date, GPE may give a notice to the Financier requesting either: (a) an extension of the forthcoming Termination Date, which extension is automatic if the notice is supported by a statutory declaration by a director of GPE stating that GPE will be insolvent if the Money Owing is repaid on the forthcoming Termination Date; (b) a conversion of the Money Owing into fully paid ordinary shares of GPE at an issue price per share of 15% discount of the weighted average trading price of GPE's shares on the ASX over the five business days prior to the conversation date, subject to shareholders' approval being obtained (if required); or (c) an extension of the forthcoming Termination Date for part of the Money Owing in the manner contemplated by paragraph (a) and the conversation of the remaining Money Owing in the manner contemplated by paragraph (b)'. 197 In relation to the facility provided by ABCL, Alfred Wong in his affidavit filed 25 July 2006 says that he was a director of Tourism Hotel & Leisure Ltd ('THL') for the period 13 May 2004 to 26 March 2006 and also a director of Great Pacific Hotel Investments Pty Ltd ('GPHI') for the period 1 March 2004 to 11 May 2006; GPHI is a wholly owned subsidiary of ABCL; ABCL is a company incorporated in the British Virgin Isles and controlled by Mr Nels Tong; Nels Tong has no interest in ABCL but was one of the original individuals represented by GPFG when the approach was made in 2003 to the administrators of Envirostar for the GPFG group to acquire control of the entity (ie. 77% of the issued shares); THL is indebted to GPHI in the sum of $7,301,264.46 which amount is payable by 30 September 2006. Accordingly, ABCL's wholly owned subsidiary GPHI has a significant asset in the form of a debt due by 30 September 2006 and thus ABCL is said to have the capacity to make the promised $3M loan available to GPEL. 198 Danny Au-Yeung has been a director of GPEL since 15 April 2003. On 25 July 2006, Danny Au-Yeung filed an affidavit in which he deposes to a debt payable to him by GPEL of $81,333.33 in respect of directors' fees. 199 Accordingly, the position is this. 200 Richland has provided GPEL with three facilities two of which are fully drawn ($5M and $1.055M - and fall due for payment on 10 October 2006 and 30 September 2006). The partly drawn $1.2M facility falls due for repayment six months from the date of the advance. The Osmond Kwok facility is to be repaid in full on 10 October 2006. No part of the ABCL facility has been drawn down. The clauses providing for an extension of the term in each agreement do not expressly identify the extended date although, as a matter of construction, the parties presumably intended that the facility would be extended for a new term of the same period as the old term. In any event, the effect of the extension will be simply to postpone the date when the debt pursuant to each facility must be paid. It may be that the term of the facility will again be extended and in that sense, Richland, might proceed on the footing that the facility 'evergreen'. If the only consequence of extending the term is to postpone the date on which the debt becomes due and payable with no obvious mechanism by which cashflows will be available to GPEL to pay the debt or the rescheduled debt pursuant to each facility and no assets are available that might be realised in an orderly fashion to meet obligations when they fall due, the conclusion is open that GPEL, having regard to all the relevant circumstances, is unable to pay its debts as they fall due. It should be noted that the extension of each Richland facility is expressly predicated upon the submission to Richland of a statutory declaration signed by a director that GPEL will be insolvent if repayment of the debt is effected at the repayment date. 201 In order to address the possibility that GPEL might thus be insolvent, Richland, Osmond Kwok and Danny Au-Yeung depose to these matters. As to the Richland facilities, Alfred Wong on behalf of Richland wrote a letter to the directors of GPEL on 17 May 2006 referring to the three facilities and advised that Richland would convert all monies owing under the three facilities into ordinary shares of one cent each in GPEL upon the approval of the shareholders of GPEL being obtained. At paragraphs 73 and 74 of his affidavit sworn 19 July 2006, Alfred Wong said this: '73. Furthermore, while I am confident that the shareholders will approve that conversion, even if that approval was not obtained, in my capacity as the director of Richland, I acknowledge the terms of the current facility agreements which have the effect that if 15 days before the Termination Date GPE gives a notice to Richland requesting an extension of the Termination Date such extension will be automatic if the notice is supported by a statutory declaration by a director of GPE stating that GPE will be insolvent if the money owing is repaid on the forthcoming Termination Date. In any event, as the director of Richland I confirm that Richland will not call up the debt owed by GPE if GPE was, or to do so would render GPE, insolvent.' 74. As the director of Richland I am aware that GPE is technically in default of the current facility agreements as the application to wind up GPE by ASIC has been on foot for more than seven days and has not been withdrawn or dismissed. However, as the director of Richland, I confirm that Richland waives the default for the benefit of GPE and will not call up the amounts owed under the current facility agreements in reliance on that event of default'. 202 Mr Kwok has sworn an affidavit in which he deposes to a letter of 17 May 2006 to GPEL's directors in which he says: 'I confirm that I shall convert all monies owing to me under the above facility agreement into ordinary shares of one cent each in GPE, upon the approval of shareholders of GPE being obtained'. 203 Danny Au-Yeung by his affidavit filed 25 July 2006 annexes a copy of his letter to the directors of GPEL by which he confirms that he is prepared to convert all of the fees payable to him into ordinary shares of GPEL at one cent per share. 204 On 5 July 2006, GPEL and GPES No. 1, Investec Bank and BMI Group Pty Ltd ('BMI') entered into a share Sale Agreement whereby GPEL sold all its shares in GPES No. 1 to BMI and GPEL waived all inter‑company loans to GPES No. 1. A Deed of Assignment of Security was also executed between the parties. Under this deed, all the rights under or arising from the loan facility provided by Investec to GPS No. 1 were assigned to BMI. Investec acknowledged that all rights or claims it may have had against GPEL or GPES No. 1 in connection with the loan facility provided by Investec, were waived. 205 The defendants called evidence from Mr Robert William Elliott a chartered accountant and partner of Hall Chadwick, Chartered Accountants, to give evidence in relation to the question of whether, in Robert Elliott's expert opinion, GPEL is in a position to pay its debts as and when they fall due. Robert Elliott concludes that if the agreement of Richland, Alfred Wong, Osmond Kwok and Danny Au-Yeung to convert each of the amounts due to them to ordinary shares in GPEL at one cent is not approved by the shareholders, there is a potential solvency issue. Robert Elliott contends that GPEL has, in any event, the opportunity to obtain an extension of the Termination Date beyond 30 September 2006 and 10 October 2006 and because the extension is automatic if supported by the relevant declaration as to insolvency in the event of payment, those debts will not become due and payable and thus GPEL is not insolvent. Robert Elliott contends that the non‑automatic extension in respect of the Osmond Kwok agreement would mean that replacement funds would be required in the event that the approval of shareholders for the issue of shares in GPEL is not obtained. Robert Elliott contends that on the assumption that the amounts paid to Richland, Kwok and Au-Yeung are converted to shares or, alternatively, the amount payable to Richland is extended and the debt payable to Kwok on 10 October 2006 is not 'called up' by him, GPEL will have a cash surplus of $3,363,300 after meeting operating expenses for the 12 months from 1 July 2006 to 30 June 2007 estimated to be less than $800,000. 206 This postulated result may be a little odd in terms of demonstrating the solvency of GPEL. The cashflow statement for the 12 months to 30 June 2007 does not demonstrate any revenue from operating activities. There are none and thus no revenue. 207 There is no evidence that the conditions precedent to the attraction of the Investec loan are likely to be satisfied nor that the Altona power plant has been installed. The cash surplus of $3,363,300 is predicated upon draw downs of $250,000 each month for 12 months from ABCL, draw downs of $65,830.00 for the months of July, August, September, October, November and December of 2006 and January 2007 from Richland, and draw downs for the months of February, March, April, May and June of 2007 of $112,520.00 from Osmond Kwok. These financing cash‑in flows amount to $4,023,430.00 and after meeting operating expenses and other outgoings there is a surplus of cash at 30 June 2007 of $3.36M. In that sense, GPEL's accumulating cash position by draw downs might well result in a cash surplus but that result is entirely dependant upon draw downs from ABCL, Richland and Kwok. Since there are no operational activities generating cash flows in the financial year, it is difficult to see how the obligation of GPEL to repay the further amounts drawn down under the financial facilities will be met even assuming the current draw downs are either converted to equity or, alternatively, extended or not pressed. This is not that class of case where an external or related third party financier is providing interim financial support pending the sale of a major asset. 208 The answer is said to be that all amounts drawn down under the Richland and Kwok facilities ($7,671,571 in all) and all further cash flow draw downs to 30 June 2007 projected by Robert Elliott to be $460,830.00 from Richland and $562,600.00 from Kwok, will be converted to equity if the shareholders approve. If not, Richland recognises the automatic extension entitlement in GPEL and, in any event, Richland will not call up the debt. Osmond Kwok has agreed to convert his debt to issued shares in GPEL. Osmond Kwok is silent on his attitude to recovery of the debt in the event that the shareholders fail to pass the relevant resolution. Accordingly, the non‑current loans by Richland and Kwok when they become current on 30 September 2006 and 10 October 2006 will, it is said, be converted to equity or converted to non‑current loans or, in the case of Richland, if the loan (together with further draw downs) remains current, it will not be pressed or claimed. 209 In that sense, the balance sheet position of GPEL must be adjusted, it is said, to take account of the realities, in a commercial sense, of that evidence. 210 Robert Elliott has assessed a pro forma balance sheet as at 30 June 2006 submitted to him by GPEL and has considered those adjustments that need to be made to reflect a true and accurate position particularly in relation to the current assets and current liabilities of GPEL. In assessing that balance sheet and the adjustments made to it, the carrying value of property plant and equipment has been written down to a minimum realisable value of $2.5M and the carrying value of intangible assets at $4.47M has been written down to zero. Total assets, current and non‑current, are $2.97M. Of the current assets, trade and other receivables were written down from $287,921.00 to $178,455.00 and then further adjusted to $96,116.00 once Robert Elliott examined GPEL's primary documents relating to business activity statement returns and thus the likely refund to GPEL. Cash and cash equivalents in the current assets amount to $290,299.42. 211 As to current liabilities, the pro forma balance sheet suggests that trade and other payables amount to $1,865,817 but Richard Elliott believes that the amount should be adjusted by $976,155.00 in respect of payables to related entities. These amounts are to all be converted into equity. They are these: Accrued Interest payable to Richland $477,505.00 Amounts payable to related entities for shared expenses $49,301.00 Directors' fees payable to Alfred Wong and Danny Au-Yeung $221,111.00 Rent payable to G P Energy for Staplyton site $115,587.00 Rent payable to G P Energy for Morwell site $112,642.00 Total $976,155.00

An amount of $207,636.00 included in the payables item represents interest accrued on the loan facility provided by Investec which has been assigned to BMI and, it is said, assumed by BMI. Similarly, the payables item includes $9,460.00 incurred by GPES No. 1 and that debt has been assumed by BMI. The adjustment is $1,193,251 resulting in a current liability for trade and other payables of $672,566.00. The other significant current liability is in respect of short term borrowings. That amount of $3,154,455 is represented by the loan facility repayable to Investec which has been assumed by BMI. The entire amount has been adjusted out of the balance sheet. Current liabilities are said therefore to be $720,815.00 and current assets are $391,879.00. 212 In Robert Elliott's initial report of 19 July 2006 which was then the subject of a supplementary report correcting errors in the earlier report and, in turn, the subject of oral evidence of further corrections, Robert Elliott concluded that having regard to the adjustments I have mentioned and the assumptions previously discussed concerning the conversion of the relevant loan facilities to equity or the extension or non‑enforcement of the relevant debts, the adjusted pro forma balance sheet at 30 June 2006 reflects a net asset position of $726,341.00. By reason of the further adjustments concerning the trade and other receivables from $178,455.00 to $96,116.00 and some minor additional matters, Robert Elliott concludes that the adjusted consolidated balance sheet demonstrates total net equity of $644,002.00. 213 Although Alfred Wong deposes to the conversion of monies owing under the Richland facilities to shares or alternatively the election not to press for recovery of the debt (assuming no extension), it seems to me that the evidence is not clear that those commitments extend to rent payable to G P Energy or amounts in respect of shared expenses. 214 As to the working capital requirements for a period from July 2006 to 30 June 2007, Robert Elliott said this at page 6 of Schedule E to the material annexed to his affidavit filed 20 July 2006: 'GPE has also restructured its management team since the resignation of the previous MD resulting in a much lesser salary expense of around $38k per month as compared with $91k per month previously. GPE will not take on any other operation in the near future other than the construction of the 13.5MW power plant as the stage 2 project at Staplyton. However, the construction will not start until the facility from FPCFM is available in which case all the construction cost will be covered by this facility. Under the current operation mode and taking into account other incidental operating costs and interest payable on promissory notes, the total monthly operating cost of the group should be around $80k per month (in terms of cash flow) giving a total of $960k for the next 12 months.' 215 The mechanism to be relied upon to fund those projected capital requirements includes draw downs upon the ABCL facility of $3M, recourse to Richland and Kwok and the proposed issue of further shares in GPEL to raise $418,359.00 in share capital. 216 On the question of the basis for his view as to solvency, Robert Elliott said in answer to counsel for the plaintiff: 'Look I believe the company is solvent because it has the capacity to meet its obligations as and when they fall due'. Counsel for the plaintiff put this proposition: Q: 'And you believe that, don't you, because of the unsecured loans that you think are available to the company?' … A: 'Yes'. Edwin Yeung also accepted in cross examination by counsel for the plaintiff that GPEL's ability to draw upon the loans is 'essential to GPE's solvency'. 217 Robert Elliott was also asked to explain the cash flow test for solvency and apply the quick ratio test to determine the ratio in the case of GPEL. In applying the quick ratio test, Robert Elliott identified that the ratio as 0.54. 218 On the state of the present evidence, Robert Elliott accepts that the question of whether GPEL is, at the date of the hearing, having regard to all relevant circumstances, in a position to pay its debts as and when they fall due, is to be determined on the footing that GPEL has demonstrated access to sufficient cash flow by reason of unsecured loans which are both certain and available to GPEL. All projected working capital requirements can be met through draw downs upon the Richland, Kwok or ABCL facilities. If the ABCL facility is disregarded for the moment, the projected working capital requirements can be funded by draw downs upon the balance of both the Richland and Kwok facilities. 219 However, in order to be satisfied that GPEL is able to pay its debts as and when they fall due having regard to the commercial reality of the circumstances which have confronted GPEL for some time, it seems to me that it would be necessary to conclude that the two facilities are available, calls for draw downs upon the facilities will be satisfied and that GPEL is otherwise in a position to establish a basis upon which there is a serious prospect that it will establish operational cash flows to enable it repay debt and to service proposed infrastructure investment facilities sought by GPEL so as to establish an underlying commercial activity for the company. It seems to me it is artificial to perpetually or in an 'evergreen' way extend debt facilities (or continually convert existing and future debt to issued shares) in circumstances where a company which began its operations under the existing shareholder group on 15 April 2003 has failed to establish a single operating plant (other than a pilot plant exhibiting serious technical difficulties and negative cash flows) which is generating any cash flow derived from what is said to be core operations. GPEL is entirely dependent upon external related lenders. 220 Although it is important to have regard to the evidence of a commitment by Richland and Kwok to convert all of their debt to equity, GPEL's solvency should first be assessed on the present state of its financial capacity to pay debts as and when they fall due conditioned by its relationship with related or unrelated funders. Richland has not yet in fact converted any of its substantial debt to equity although questions of capital adequacy have been under discussion in the affairs of GPEL for a long time. Plainly enough, GPEL has been under‑capitalised in terms of its equity base and has only been able to sustain its operations by access to debt. On 6 July 2005, Alfred Wong regarded that debt as evergreen (ie. not, in his view at that time, the likely subject of equity conversion) [115]. On 4 April 2005, Alfred Wong said that GPEL should stand on its own feet and not keep relying on him for funding [148]. On 20 April 2005, directors of GPEL pressed Alfred Wong to refund the money paid to Richland from 19 November 2004 to 9 December 2004; and on 7 October 2005 when responding to BDO's proposed qualification of the accounts to 30 June 2005 on the topic of 'going concern', Alfred Wong, although confirming that funds of up to $5M were available to the company from Richland, noted that Richland had made 'no commitment that the loan would not be demanded for repayment within the next 12 months' [179]. Osmond Kwok in establishing his facility with GPEL did so on terms that the extension of the facility beyond 10 October 2006 was not automatic and Osmond Kwok expressly reserved a right to decline any extension of the facility. The amount due under these facilities on 30 September 2006 and 10 October 2006 will be at least $7,671,570.88 (subject to further interest). 221 Although the Board minutes evidence expressions of view by directors that the Richland debt ought to be converted to equity (or on one occasion a view that the debt should be restructured as long term debt) and the minutes reflect a statement of willingness on the part of Alfred Wong to convert Richland's debt to equity, no part of the debt has been converted to equity nor any step taken to implement that position. The sworn commitment or promise by Alfred Wong to now convert all of Richland's debt soon to be current (together with further draw downs postulated by Robert Elliott and other debts due outside the facilities to Richland such as rent) to equity arises only in the context of the ASIC proceedings. Similarly, Alfred Wong's brother‑in‑law, Osmond Kwok, has adopted a position that he too will convert debt owed to him (together with further draw downs under the facility) to equity, in the face of the ASIC proceedings. Robert Elliott has made assumptions that these events will occur and on the footing of those present assumptions, he concludes GPEL is solvent. 222 For my part, I am not prepared to rely upon these promises since Richland, in particular, has had many opportunities to convert debt payable to it both current and non‑current to equity in the context of lengthy discussions about solvency and capital adequacy over a long period of time. In considering whether GPEL has discharged the onus of demonstrating that it is not insolvent, it is important to have regard to all of the circumstances and in that context, it should be remembered that concerns have been expressed about the solvency of GPEL and whether it might properly be considered a 'going concern' almost from the very moment that the GPFG Group secured control of Envirostar. 223 In particular, this question has been alive to Alfred Wong and Richland from June 2003 and a question of real concern to the Board and GPEL's external auditors for some time. The issues of solvency, cash flow demands, the financial constraints confronting GPEL and conversion of Richland's debt to equity (against the background of the operational and financial problems associated with the pilot plant) were discussed at a directors meeting on 20 May 2004 [42]; a directors meeting on 21 July 2004 [43]; a directors meeting on 18 August 2004 (especially budget projections of expenditures and Richard Nott's concern over the company's liquidity) [44]; a meeting of the Board's Audit Committee on 20 September 2004 [46]; in BDO's report to the Board concerning the accounts to 30 June 2004 (observing 'the inherent uncertainty regarding continuation as a going concern') [47]-[49]; BDO's notes to the 30 June 2004 accounts and particularly Note 1 [50]; a directors meeting on 22 September 2004 addressing operating cash flows, the need for a definitive plan to resolve GPEL's capital issues and conversion of Richland debt to equity [51]-[54]; a directors meeting on 17 November 2004 (addressing financing options, the need to secure construction equity to attract the Investec funding and the need, in terms of debt relief, to convert the Richland debt to equity as GPEL 'does not have the finance to repay the loan' [58]-[60]; a directors meeting on 15 December 2004 involving an extensive discussion of all of these matters [62]‑[64]; the attraction of JFCP funds and immediate use of the subscription by Alfred Wong to retire debt to Richland, G P Energy and Austcorp [68]-[115]; the election by Alfred Wong in conjunction with Lielkajis to proceed with placing a GPEL/GPEC promissory note product in the market without Board approval [117]-[136]; the BDO (Ian Fergusson) advice to the Audit Committee on 23 February 2005 that the issue of 'going concern' for GPEL would need to be monitored 'very closely by management and the Board' [145]; the Expansion Capital Report directed expressly to the 'solvency concern' [145]; the directors meeting on 20 April 2005 concerning management's presentation with 'the main focus on stabilising the company's capital position and ensuring that it was a going concern' and issues concerning the Board's view that Richland should replace the loans [149]-[151]; Peter Gan's report of 6 June 2005 concerning strategic options arising out of the problems concerning the pilot plant [154]; the extensive exchanges between BDO and GPEL between 4 August 2005 and the ultimate qualification of the accounts for the financial year ending 30 June 2005 [160]‑[182]; the particular concerns expressed by BDO as to corporate governance and solvency [170]; and the failure to establish an operational power plant by meeting the construction equity arrangements and other conditions of the Investec offer which had been the subject of a statement to the Australian Stock Exchange. 224 As to the future prospects of operational revenue, the defendants rely upon the affidavits of William Keith Lamont, Eduard Avila Alcordo and Garry Paul Ridout filed on 20 July 2006, 19 July 2006 and 31 July 2006 respectively. 225 William Lamont is an Executive Director and Chief Operating Officer of GPEL. He is also an electrical engineer with considerable experience in power engineering and fluidised bed combustion systems ('FBCS technology'), boiler design and coal gasification. William Lamont has been employed by GPEL since May 2002 (then Envirostar) as the General Manager for Engineering and Construction. He remained the General Manager until 16 September 2005 and in that role he has been responsible for much of the technical work and particularly the installation and commissioning of the Stage 1 pilot power plant at Staplyton. William Lamont was appointed Chief Operating Officer in August 2005 and appointed a director of GPEL on 16 September 2005. William Lamont says that the purpose of constructing the pilot power plant at Staplyton was to test and prove the efficacy of fuel and ash handling systems in a plant utilising FBCS technology. William Lamont observes that the pilot plant was commissioned on 23 March 2004 and was 'not without its problems'. However, the primary purpose of the pilot plant was to test and perfect designs especially for fuel handling and ash handling. He observes that the small output capacity of the pilot plant made it sub‑economic because it suffered from adverse economies of scale and problems of access to quality waste. 226 William Lamont says that the Staplyton No. 2 project for a 13.5MW electrical power plant has been designed so as not to suffer from the same technical problems exhibited in the pilot plant and because the plant has much greater output of megawatt power as a function of its cost base, it enjoys greater economies of scale and greater efficiency. Moreover, an in‑principle agreement with BMI exists for waste collection of quality fuel. William Lamont says that the current ASIC investigation and these proceedings has meant that the project to develop the 13.5MW Stage 2 plant has been placed on hold. Further, William Lamont says that the proceedings have also, in his judgment, been responsible for GPEL being deprived of funding through an Australian Federal Government Scheme called the LETDF Scheme which is designed to promote clean coal technology. In addition, William Lamont says that GPEL was moving confidently towards involvement in the design and construction of a coal gasification plant at Dalian in China and that this project has been 'put on hold' because of the present ASIC investigations and proceedings. 227 The position, of course, is that the minutes of meetings of the Audit Committee, minutes of meetings of directors and exchanges between GPEL and Investec concerning the pilot plant and the terms and conditions upon which project funds might be made available taken in conjunction with the difficult capital raising issues confronting GPEL particularly having regard to the ongoing reservations on the part of BDO, has not meant that these projects have been put on hold or lost to GPEL because of ASIC's investigation or these proceedings. Rather, the systemic difficulties confronting GPEL in its capital funding (debt and equity), governance, management, preparation and implementation of budgets and operational plans, concerns regarding GPEL's capacity to provide proper audit information to its external chartered accountants to enable an informed opinion to be reached, the use of the JFCP subscription and other matters, have all been inherent in the inability of GPEL to establish an operational plant. Moreover, the problems confronting GPEL in establishing an operational pilot plant were sufficiently significant that the solutions canvassed by directors included closing the plant entirely, placing it on care and maintenance or, as ultimately occurred, selling the plant to a third party. Similarly, the material demonstrates that the Dalian project has not been pursued for reasons unrelated to these proceedings. 228 William Lamont says that the Staplyton No. 2 project is commercially and technically viable and he has prepared a report identifying the basis for that conclusion. The conclusion rests on these matters: (a) the second hand power plant located at Altona (being the relevant plant to be deployed) is technically sound; (b) the power plant is capable of being relocated and recommissioned at Staplyton at approximately $16M; (c) 'with certain obstacles to be overcome, the power plant should be in commercial operation at Staplyton with positive income being generated for GPE within a period in the order of 12 to 14 months from relocation to Staplyton and first draw down of funding'; (d) GPEL will be able to establish an interconnection point with Energex for despatch of electricity, or alternatively, a temporary connection point might be made available; (e) 'the clear profit from the project once installed and commissioned would be in the order of $1M to $1.5M annually'. 229 William Lamont says that as to the financial modelling, the overall cost of the project ($16M) includes purchase of the second hand power plant from Altona; dismantling and transportation of the plant to Staplyton; refurbishment of the major equipment; design and construction of new fuel handling components; ash handling components, boiler, fluidised combustion system, condensing system and installation and commissioning at Staplyton. 230 William Lamont's report contains a series of schedules including a forecast profit and loss statement for the years 2006 to 2020. If the plant operates for a full 12 months in the year 2007 the projected total revenue is $7.45M with total operating costs of $4.09M. The model assumes depreciation of $700,000.00, interest costs of $554,892.00, earnings before tax of $2.1M and earnings after tax of $1.47M based upon 85% availability of the plant and 100,521MW hours generated at $37.08. Of course, on William Lamont's evidence, such a plant would not begin generating revenue assuming all of the matters described in William Lamont's report and mentioned at [229] occurred without interruption. 231 Eduard Alcordo is an investment banker who has been involved in arranging finance for infrastructure projects, particularly power plant projects, in the Asia Pacific region including six power plant projects below 20MW capacity, four power plants over 20MW capacity and two coal fired steam turbine power plants. Eduard Alcordo is an Executive Director of FPC Funds Management Pty Ltd ('FPCFM') and an Executive Director of First Pacific Capital Underwriters Pty Ltd. Eduard Alcordo says this: '6. The [FPCFM] companies are interested in this project [Staplyton No. 2] and is looking to provide financial backing for it. FPCU is involved in completing due diligence with respect to the projects. 7. FPCFM has sourced $3 million in indicative subscriptions to fund the first two "milestones" in respect of the project. For this purpose, the first milestone is the purchase of the turbine generator and the second milestone is the first part of construction of the power plant. 8. MPI Group, an Australian engineering company with extensive experience in commissioning small power plants, were appointed due diligence engineers by the FPC companies with respect to the project. Phase 1 of the due diligence has been completed and MPI Group has commenced Phase 2 of the due diligence. However, Phase 2 has been suspended awaiting the outcome of the present proceedings with ASIC.' 232 The due diligence process will resume subject to the resolution of these proceedings. The indicative Term Sheet is a three page indication of key terms. GPEL would be the EPC contractor and would be responsible for operation and maintenance of the proposed plant. The owner would be FPC Funds Management Pty Ltd or a company controlled by it subject to a facilities management agreement by which GPEL would lease the plant from the owner, secure all approvals, permits and licences, establish the relevant power purchase agreements, fuel supply agreements and other relevant contracts. The facility is for a total cost of A$22M amortised over 25 years together with a five year option with a payment in the first year estimated to be A$4,070,000 and in subsequent years a base amount of A$2,970,000 indexed every two years to inflation. The off‑take power purchase agreement is to be with Energy Australia for a term of 10 years under a take or pay arrangement. The Term Sheet is subject to the execution of proper documentation. The Term Sheet was signed by Alfred Wong on 12 March 2006. William Lamont's report dated 24 October 2005 does not take into account in the profit and loss projections, the lease costs set out in the Term Sheet of March 2006. The post tax earnings for the five years 2007 to 2011 are $1.4M, $1.7M, $1.8M, $1.8M, $1.9M. The lease costs are projected to be $4M in the first year and $2.9M for each year thereafter subject to adjustment for inflation every two years. 233 The final affidavit is that of Garry Ridout who is the sole Director and Company Secretary of Samvic Pty Ltd. That company provides mechanical, combustion and electrical engineering services specialising in combustion engineering technology. By an agreement dated 11 January 2006, GPEL Staplyton No. 2 Pty Ltd agreed to purchase a 16MW power plant located at Altona in Victoria for $1.875M plus GST. Garry Ridout says that after completion of the purchase, Samvic suggested to GPEL that it would be able to on‑sell the plant for $3.75M. The offer actually made to Samvic was $5M and Garry Ridout values the plant on a 'quick sale' basis at $2M. Garry Ridout says that equivalent new plant with the same generating output would be $20M. 234 It seems to me that all of this evidence simply means that GPEL has taken steps towards investigating in conjunction with engineers and an infrastructure financier the extent to which the present 'contingency' of establishing a 13.5MW power plant at Staplyton might be realised. It is no more than a contingency and is entirely dependent upon installation of the plant, testing, operational verification, consistency of operation (demonstrating the efficacy of the plant) and the extent to which successful deployment and commissioning of the Altona plant at the level required to sustain availability of the plant projected in the model (including despatch of electricity) thus assuring the revenue, can be achieved. Such a project could not contribute operational revenue until, at the earliest, January 2008. 235 A further proposition put by the plaintiff is that even though it is open to conclude that Richland, Kwok and ABCL are willing to continue to provide financial support to GPEL, the defendants have not established that those entities have the capacity to provide funds when called upon to do so. 236 The particular criticism is put in this way. 237 While Richland has made significant loans in the past to GPEL, that, of itself, does no more than give rise to a basis for inferring that it might do so in the future. The defendants tendered the financial accounts for the Richland Property Trust as evidence of the capacity of Richland to continue to provide financial support. Alfred Wong gave evidence that Edwin Yeung, GPEL's internal accountant, had prepared those accounts based upon information that: '… out of the system when we were requested by ASIC to get access to that information'. The accounts are not audited accounts. In cross examination by counsel for the plaintiff, Edwin Yeung said, having had the accounts for the Richland Property Trust put to him for examination, that he had not seen them before. When asked again about the accounts he further confirmed that he had not seen the accounts before. 238 The plaintiff says that the financial accounts for Richland in its trustee capacity fall well short of a persuasive demonstration of Richland's substance in that the accounts are unaudited; no explanation has been given by GPEL of the failure to produce audited accounts particularly in circumstances where Alfred Wong controls the trustee of the Richland Trust; and, finally, the balance sheet of 31 March 2006 for the trust cannot be regarded as a reliable or accurate statement of the assets and liabilities of the trust because: (i) the balance sheet includes an asset at a value of $101,100.00 when the asset will not be available for realisation within 12 months; (ii) the balance sheet includes a variety of negative assets and liabilities; (iii) an item identified as 'trade creditors' of $666,000.00 described in the balance sheet as a current liability has not been updated since December 2005; and (iv) the balance sheet includes as an asset, a loan of $3,653,359.89 payable to Richland by a company described as Richfield Development PL and that company was deregistered in January 2006. 239 Alfred Wong was asked why the balance sheet as at March 2006 incorporated an asset being a debt to Richland from a company deregistered in January 2006. Alfred Wong said that the obligation would be assumed by other entities. 240 At page 209 of the Transcript, Alfred Wong was asked a number of questions concerning the service upon him of a bankruptcy notice by Bridgecorp Finance Limited. Alfred Wong accepted that the debt to Bridgecorp was a judgment debt obtained in the Supreme Court in New South Wales in circumstances where the debt was not defended. When asked why the debt was not defended, Alfred Wong responded: 'When it's a genuine obligation, you do not defend. We - I mean, initially, we defend the apparent hearing obligation of myself, because we think that their interest, all the things, the calculations were wrong, grossly overstated. Later on they changed the claim to just on the principal, so, therefore we do not defend'. Alfred Wong agreed that the judgment debt was approximately $1.2M concerning an obligation under a guarantee. 241 Alfred Wong also agreed that he and Danny Au-Yeung are both defendants in a proceeding in the Equity Division of the New South Wales Supreme Court (No. 50023 of 2005) commenced by Greentown Bellambi Pty Ltd ('GBPL') and Greentown Real Estate Group Co. Ltd ('GREG') concerning claims made by the plaintiffs pursuant to guarantees signed by the defendants in the action. The claim is for an amount of Chinese RMB 50,059,946 against both defendants which Alfred Wong says is approximately A$8M. There is a separate claim against Alfred Wong for A$3,746,707M. Alfred Wong says that he is defending the proceedings and the question in issue is whether the guarantee is a valid guarantee or not. 242 As to the other financiers, the plaintiff says that Dr Osmond Kwok is Alfred Wong's brother‑in‑law and there is no reason to believe that Osmond Kwok's financial capacity could not have been demonstrated on the evidence with a statement of assets and liabilities. The accounts of the Richland Property Trust show an asset described as 'Loan - James Kwok $862,707.79'. 243 As to ABCL, that company is registered in the British Virgin Isles and is controlled by Nels Tong. Alfred Wong gave evidence that he has no interest in ABCL. Nels Tong was one of the original investors represented by the GPFG Group when arrangements were made with the administrators of Envirostar. The financial accounts for the Richland Property Trust show an asset described as 'Loan - Nels Tong Loan A/C - $986,822.82'. The basis upon which ABCL is said to have a demonstrated capacity to provide financial support of $3M to GPEL is that one of the company's subsidiaries, GPHI, is owed a debt of $7.3M on 30 September 2006. No financial accounts have been put in evidence concerning ABCL. 244 As to ABCL, I am not willing to rely upon the evidence of the loan facility with that company as a basis for concluding that ABCL is in a position to support an apparent commitment to provide loan funds of $3M. There is no credible evidence of that company's capacity to provide draw downs upon the facility. No accounts, either audited or unaudited, have been put in evidence. Moreover, having regard to the participation by Nels Tong in the GPFG syndicate and the apparent relationship between Richland and Nels Tong reflected in the loan facility in the accounts of the Richland Property Trust, I am not satisfied that there is a demonstrated basis for relying upon that facility in assessing the solvency of GPEL. 245 Moreover, I accept that having regard to the judgment debt obtained by Bridgecorp Finance Limited; the further claim reflected in the New South Wales Supreme Court proceedings; the circumstance that GPEL failed to comply with the statutory demand served upon it by TechComm; the acceptance by Alfred Wong that at the time that the JFCP funds were received, GPEL 'owed a considerable amount of money to numerous creditors' (82 in all - [84]); and the recognition that to the extent that creditors' payments have been delayed, the delay was not a function of an inability of Richland to provide funds but rather 'delayed payment of creditors' was a function of implementing 'tight cash flow policies' so as to reduce borrowings:- in other words, the policy of GPEL has been to delay paying debts as and when they are due as a cash flow management policy [89] - a serious question arises as to whether further funds will be available under the facilities. 246 I accept that Richland has demonstrated a willingness to advance funds to GPEL and historically has done so. However, once satisfied that there is a serious question of the capacity of Richland to provide the further advances, it seems to me that the onus has not been discharged by GPEL. However, even if it can do so, it seems to me that the fundamental question is whether the advances themselves can be repaid. Further, I examine the question of GPEL's solvency on the basis that I am not willing to infer or accept that all debt including future debt if advanced by Richland and Osmond Kwok will be converted to equity including the particular additional debts due to Richland such as rental payments [211]. In addition, the current proposal is that GPEL will enter into a new relationship with an infrastructure funder in respect of a $22M commitment in terms of a facilities management lease involving substantial future commitments to a third party. In the absence of a statement of assets and liabilities on the part of Osmond Kwok and audited accounts on behalf of the Richland Property Trust, I am not satisfied that there is a demonstrated capacity to provide the proposed advances to GPEL through access to these facilities and accordingly, I am not satisfied that at the date of the hearing looking forward but also having regard to the history of GPEL's financial condition, it can pay its debts as and when they fall due. 247 The circumstances surrounding the claim made by TechComm are also important. On 26 August 2005, TechComm served a statutory demand upon both GPEL and GPES No. 1 demanding payment from both entities of an amount of $960,857.57. On 15 September 2005, GPEL made an application to the Supreme Court of New South Wales under s 459G of the Act to set aside the statutory demand. On 29 May 2006, Associate Justice MacGready determined that application and ordered that the statutory demand be varied pursuant to s 459H(4) by reducing the amount of the demand to $881,817.34. His Honour also declared the demand to have had effect as varied, as from the date of service upon GPEL, namely, 26 August 2005. No order was made for an extension of time to comply with the varied statutory demand. On 29 May 2006, TechComm's lawyers wrote to GPEL's lawyers demanding payment of the varied amount by 10.00am on Wednesday, 7 June 2006. The date for compliance with the demand expired on 6 June 2006. By that date, TechComm had not received payment of the varied amount or any part of it (that is, the undisputed part). 248 On 13 June 2006, TechComm entered into a Deed of Assignment with Richland and GPEL by which TechComm assigned its right, title and interest in an Agreement which had given rise to the claim for the debt, and the debt itself, to Richland for the sum of $660,000.00 (including GST) in full and final settlement of all claims TechComm might have against either GPEL or GPES No. 1. On 19 June 2006, GPEL gave notice to the Australian Stock Exchange of the resolution of the matter; notice that Richland would release GPES No. 1 from any liability in respect of the assigned debt; Richland would fund the payment of the purchase price or assignment sum through an $1.2M loan facility granted to GPEL on 10 April 2006; and Richland would convert the amount equal to that purchase price into shares in GPEL at one cent per share, subject to shareholder approval. In an affidavit filed 26 June 2006, Germaine Mei Lin Kee deposes to a conversation with the Managing Director of TechComm, David Whan, on information and belief, that the compromise had been reached with TechComm and TechComm had accepted the assignment sum from a third party in satisfaction of GPEL's obligation. Alfred Wong in his further affidavit filed 31 July 2006 deposes to the circumstances surrounding discussions with David Whan to resolve the matter. Alfred Wong says that he was unaware that if the time for compliance with a statutory demand was to be extended, an application had to be filed under the Act pursuant to s 459F(2)(a)(i) as a result of which the time for compliance elapsed. In any event, Alfred Wong says that GPEL was investigating, with its lawyers, whether grounds of appeal existed in respect of his Honour's orders and whether an application for leave to appeal ought to be made. 249 Nevertheless, the position remains that a demand was made which resulted in a variation to the demand by application by GPEL and GPES No. 1 to the Supreme Court of New South Wales to reduce the demand to $881,817.34. Whatever the measure or extent of that further dispute GPEL might have had with the reduced amount, no part, even the undisputed part of the debt, was paid by GPEL or Richland consequent upon his Honour's variation until the total compromise amount was paid as part of an assignment of the debt. GPEL commercially held TechComm out of the undisputed part of the debt until TechComm comprised the entire claim. 250 One further matter should be mentioned in relation to the evidence relied upon by GPEL concerning the events generally. An affidavit by Danny Kam Yun Au‑Yeung who became a director of GPEL on 15 April 2003 was filed and relied upon. Danny Au‑Yeung deals with the topics which are addressed by Alfred Wong and adopts the position adopted by Alfred Wong. In cross examination, Danny Au‑Yeung accepted that he had had the benefit of reading Alfred Wong's affidavit material and throughout his affidavit he extensively refers to paragraphs of Alfred Wong's primary affidavit sworn 18 July 2006 and filed on 19 July 2006. Although it is understandable that Mr Au‑Yeung might have had regard to events and circumstances which would assist his independent recollection of events, I accept that Alfred Wong's affidavit and other material has very substantially influenced the formulation of Danny Au‑Yeung's views, his recollection of events and his evidence. Accordingly, I do not rely upon the affidavit as probative of any fact in issue. Mr Bain QC made it clear in his submissions that Danny Au‑Yeung's affidavit was prepared and read in the application simply so as to avoid any adverse Jones v Dunkel inference. 251 ASIC has applied pursuant to s 459P for an order that GPEL be wound up in insolvency pursuant to s 459A of the Act. GPEL seeks to rebut for the purposes of s 459C(3) the presumption arising pursuant to s 459C(2) by reason of GPEL's failure to comply with TechComm's statutory demand. Robert Elliott contends that GPEL is solvent because it can pay its debts as and when they fall due because it has access to unsecured funds from Richland, Kwok and ABCL. I propose to disregard recourse to funds promised by ABCL in determining whether GPEL is able to pay its debts as and when they fall due, for the reasons indicated at [244]. In addition, having regard to the matters mentioned at [223], I am not prepared to conclude that promises now made by Richland and Kwok that all funds payable to each of them will be converted to equity is a basis for a valid assumption made by Robert Elliott in determining whether GPEL is able to pay its debts as and when they fall due, looking forward. Substantial non-current debts will become current debts on 30 September 2006 and 10 October 2006 although it may be that those debts will be rendered non‑current by reason of an extension of the term of the facility on the assumption that the shareholders' resolution to convert the debt to equity is either not passed or not sought. It seems to me in those circumstances that GPEL is necessarily insolvent having regard to all the circumstances confronting GPEL reflected in these reasons including those matters identified at [223] and a demonstrated failure to establish a plant generating sustainable operational positive cash flows. 252 It is, of course, commercially realistic to have regard to access to funds from third parties or related parties and there is 'no compelling reason to exclude from consideration [such] funds' (Lewis v Doran 54 ACSR 410 at [109] per Giles JA with whom Hodgson and McColl JJA agreed). That observation, however, is conditioned by the qualification that 'provided of course that the borrowing is on deferred payment terms or otherwise such that the lender itself is not a creditor whose debt can not be repaid as and when it becomes due and payable' (Lewis v Doran at [109]) and further at [109]: 'It comes down to a question of fact, in which the key concept is ability to pay the company's debts as and when they become due and payable'. 253 Although in Sandell v Porter (1966) 115 CLR 666 at 670, Barwick CJ recognised that funds that could be gained from the use of the company's assets either by realisation by sale or by mortgage or pledge of those assets within a reasonably short period of time relative to the debts in question, represent resources available to the company which might be deployed in paying debts as and when they fell due (and thus a factual matter aiding in the determination of solvency), the circumstances confronting GPEL do not involve the realisation of assets within a short period of time as, apart from the uninstalled Altona plant, there are no realisable assets and no asset which might be the subject of a charge which might convert, subject to redemption, the asset into cash. 254 Putting to one side the conversion to equity contention, the debt facilities provided by (and proposed further facilities by Kwok and Richland) are substantial and relatively short term. If those debts are rendered non‑current at 30 September 2006 and 10 October 2006 by extension for another term they will, within a period of 12 months at the latest, fall due for repayment or further extension or conversion, in the ordinary course. The circumstances of GPEL do not fall into that class of case where a banker to the group might provide funds to meet a shortfall until, for example, completion of the sale of a major asset such as a 'shopping centre' (Re Adnot Pty Ltd (1982) 7 ACLR 212). The continued extension or suspension of the currency of accumulating debt which might in the immediacy of the date for payment be postponed to a later date does not suggest solvency if there are no actual operating revenues on the horizon or assets that might actually be realised to meet the automatic deferral. Such arrangements simply have the effect of postponing 'the evil day' for payment in an environment where there are no demonstrated revenues and no realisable assets. 255 On the question of the discharge of the evidential burden, the Court must be presented, unless otherwise explained, with the 'fullest and best' evidence of the financial position of the lenders: Commonwealth Bank of Australia v Begonia (1993) 11 ACSR 609. Clearly, 'unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency. Nor are bald assertions of solvency arising from a general review of the accounts, even if made by qualified accountants who have detailed knowledge of how those accounts were prepared' (Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728 per Weinberg J relied upon by Santow JA in Expile v Jabbs Excavations (with whom Meagher and Handley JJA agreed) 45 ACSR 711 at 719. 256 If the solvency of GPEL ultimately relies upon access to financial facilities from Kwok and Richland (and ABCL), as Robert Elliott contends consistent with the views of Edwin Yeung, it is essential in the context of all of the circumstances GPEL has confronted and continues to confront described at [223] and in these reasons generally that persuasive and compelling evidence be adduced of the capacity of the lenders to provide continuing support. I am satisfied there is a serious question that the lenders do not have that capacity. In addition, the capacity of GPEL to retire that debt and future debt not only drawn down from those lenders but obligations established to meet new liabilities such as those arising under a facilities management infrastructure lease of the kind described by Eduard Alcordo, is not demonstrated. 257 In all the circumstances, I am not satisfied that GPEL has discharged the onus of proving that it is not insolvent. I propose to make an order pursuant to s 459A of the Act that GPEL be wound up in insolvency. 258 Five objections have been made to sentences contained in paragraphs 18, 24, 28, 31 and 39 of the affidavit of Heymala Eardley filed on 5 July 2006. The objection in each case is put on the basis that the relevant sentence is in the nature of a comment or a submission. I propose to admit each of those sentences under challenge and treat those matters as simply contextual comment. 259 Paragraph 16 of the affidavit of Pierre Rene Prentice filed 5 July 2006 is objected to in total on the ground that it represents inference or comment in the nature of a submission. I propose to admit paragraph 16 of the affidavit as relevant to a fact in issue namely, the character of the representation made to JFCP. The last sentence of paragraph 12 of the affidavit of Paul Willis filed 13 July 2006 is the subject of an objection on the ground that it is simply a matter of inference. The sentence deals with the reaction of Paul Willis to GPEL's press release to the Australian Stock Exchange on 26 November 2004. I propose to admit the statement as it goes to the question of the understanding Paul Willis gained in relation to the use GPEL would make of the JFCP funds. I certify that the preceding two hundred and fifty nine (259) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.

Counsel for the Applicant/Plaintiff: Mr C Wilkins

Solicitor for the Applicant/Plaintiff: Special Counsel to ASIC

Counsel for the Respondent/Defendants: Mr R Bain QC and Mr P Looney

Solicitor for the Respondent/Defendants: Bennett & Philp

Date of Hearing: 31 July 2006 to 3 August 2006

Date of Judgment: 20 September 2006