381 The minutes recorded that "The Deed Administrator sought a motion that the creditors approve the Deed Administrator's out of pocket expenses and remuneration to be paid from the proceeds held by the Deed Administrators", which was carried unanimously.
382 Mr Armistead initially testified that at the meeting, invoices were produced to support a resolution approving the remuneration. He agreed that the expenses had already been paid and the total sum related to remuneration only. He was ultimately unsure what invoices were produced, at either the 20 September 2004 or the March 2006 meeting. The invoices produced for The Pines bore no relationship to the amounts shown in the accounts as having been paid to Mr Armistead and Mr Edge. Mr Armistead conceded that the invoices were never actually paid or sent to anyone, but were just left on the computer. They bore consecutive numbers, although Mr Edge conducted at least one other administration (that of Eco Panels) concurrently with that of The Pines.
383 Mr Woodward argued that the resolution for approval was restricted to the deed administration fees and did not cover the administrator's fees. It was clear, however, that the sum of $194,088.29 was not limited to fees in respect of the deed administration only, but included fees related to the period of the administration.
384 Mr Edge conceded that the wording of the resolution was inaccurate, because there were no expenses.
385 I am satisfied that the resolution approving the fees of Mr Edge passed at the meeting of creditors of The Pines on 31 March 2006 was ineffective. Gyles J in Re Aliance considered that a voluntary administrator's fee should be fixed at a s.439A meeting. The meeting was called pursuant to s.445F of the Act. I have found that the company was in liquidation from October 2004, due to the failure to execute the DOCA. Consequently, there was no deed administration. In any event, the s.445F meeting could not validly approve the fees of an administrator, but the amount purportedly approved clearly incorporated an amount related to the administration which had preceded the purported DOCA. It is not possible to discern from the terms of the resolution itself, or from any other available documentation, the period to which any part of the total amount of remuneration can be attributed. The supporting material provided to creditors, to which Mr Armistead testified, was, on any view, wholly inadequate. Further, the evidence indicates that the remuneration was based on an excessive and exaggerated claim of hours worked. No explanation was advanced for the disparity between the initial estimate of fees of $25,000 in the S.439A report for a liquidation and the fees in relation to the administration and purported DOCA, which were almost $200,000.
386 The defective approval of fees claimed by an administrator at a meeting pursuant to s.445F, and the failure to execute the DOCA, could be regularised under s.447A. In the present case, however, in addition to the 'technical' deficiencies, there are serious questions about the substantive validity of the claims to remuneration. While the defendant stressed that all creditors of The Pines were paid in full, there was a considerable delay. Further, any surplus would be an asset of the company.
387 The entire sum of $194,088.29 has been drawn without valid approval, in circumstances where it is unclear whether Mr Edge can make out his entitlement to any particular sum on proper grounds. .
Outstanding issues regarding The Pines
388 Mr Woodward submitted that a number of outstanding issues in relation to The Pines arose from the inquiry.
389 Mr Armistead initially confirmed that he kept accounts for the administration of The Pines, showing fees which had actually been paid. The accounts generated as at 30 January 2006 showed fees of $194,088.29. Mr Armistead testified that he believed that the administration was effectively concluded, with only the payment of the secured creditor (the NAB), outstanding.
390 Late in the course of his evidence, Mr Armistead produced a cheque book for the Robert Edge & Associates account for the period from 11 January 2006 to 2 August 2006.
391 The cheque book indicated that a cheque for $3,061 was written to Southern Independent Liquor on 18 January 2006. Mr Armistead conceded that Southern Independent Liquor was one of his creditors. A cheque to Robert Edge & Associates for $725.80 and a cheque to Mr Armistead for $1,000 (undated) were also paid. Mr Armistead testified that the moneys of The Pines and Eco Panels were intermingled in the account of Robert Edge & Associates. He believed that the above payments were for remuneration in relation to Eco Panels or The Pines, but he was unable to identify which administration.
392 On 18 January 2006, a payment of $25,000 was made to the Bet to Win Syndicate, a partnership which owned one of the horses sold in the administration of The Pines. The payment did not appear in the accounts of The Pines as at 30 January 2006. Mr Armistead explained that the omission was "an oversight".
393 Although Mr Armistead initially testified that the accounts for The Pines made up to 30 January 2006 were the final accounts, and that there was no further activity in the administration after that date, late in the course of his evidence he conceded that there was a subsequent set of accounts produced at the final meeting and an additional cheque book for the period ending on 11 January 2006. He believed that Mr Edge possessed the latest account and the relevant cheque book. Mr Edge did not, however, produce them.
394 It emerged that a number of payments were made after 30 January 2006 which may relate to The Pines.
395 A cheque to Southern Independent Liquor (Mr Armistead's creditor) for $3,569 was paid on 7 February 2006. A cheque to Twenty Third Hembard Pty Ltd for $16,500 was paid on 17 March 2006 and a cheque to Equine Sports Medicine for $66 was paid on 17 March 2006.
396 Mr Armistead testified that he had the records relating to the above payments "somewhere".
397 A cheque for $137,928.57 to the NAB, the secured creditor of The Pines, was paid on 27 March 2006. Mr Armistead testified that this was all that was left in the account as at that date, but was not sufficient to pay the NAB in full. The director was obliged to make up a shortfall, as the total debt to the NAB was $305,000.
398 The bank balance for The Pines was $210,928 as at 30 January 2006. Only two substantial cheques for $16,500 and $25,000, totalling about $41,500 were shown to be paid (or taken into account) in relation to The Pines between 30 January 2006 and 27 March 2006, yet the balance had reduced by about $73,000. There was thus over $30,000 in funds of The Pines which were apparently unaccounted for, and the payment of which was not recorded in the cheque book or elsewhere.
399 I conclude that the sum of approximately $30,000, apparently the property of The Pines, has been paid out in circumstances where it is not possible to identify the destination of the funds or the purpose of the payments.
Invaway
400 Mr Edge was appointed the administrator of Invaway on 22 June 2004.
401 He testified that, despite his full-time employment and consequent intention to wind down his insolvency practice, he undertook the Invaway administration after the directors approached him to act, because it was very minor.
402 The first meeting of the creditors of Invaway was held on 28 June 2004 at Mr Edge's home. Mr Armistead, although not chairman, signed the minutes. There was no attendance register attached to the minutes.
403 Mr Edge testified that creditors were given notice of the first meeting, but there was only one external creditor, who was located in Sydney. Only Messrs Armistead and Edge were present at the first meeting. Norman Waterhouse, the creditor's solicitor, by a letter to Mr Edge dated 25 June 2004, complained that Mr Edge had a conflict of interest. Mr Edge did not respond.
404 The s.439A report to creditors of Invaway was signed by Mr Armistead. Mr Edge explained that that was due to "a convenience factor", because the company had only one creditor and no assets. It appeared, however, that Invaway had several creditors related to the director and one independent creditor which was owed approximately $30,000.
405 The s.439A report for Invaway contained little information and no independent material or details of any independent investigation by Mr Edge. Rather, it recited a summary of the RATA. While in his first affidavit Mr Edge deposed that the RATA was true and correct, the report made no comment on its accuracy. The report contained no history of the company, and no material on its background or circumstances. There was no independent assessment of the company's financial position or affairs. Mr Edge testified that he had made such an assessment, but did not set it out in the report.
406 The report stated that the administrator had reviewed the company's books and records. Mr Edge explained that the review constituted his investigation. The report did not refer to insolvent trading. It concluded that unsecured creditors would receive nil cents in the dollar.
407 In his affidavit, Mr Edge deposed that he prepared the report in a brief form in order to keep costs down, due to the small scale of the administration, and because there was only one external creditor. He stated that he explained the situation to that creditor orally. Mr Edge's evidence on whether the discussion with the creditor occurred before or after the date of the report was shifting and inconsistent. Initially, he testified that he had a lengthy discussion with the creditor after preparing the report.
408 The external creditor's solicitors, Norman Waterhouse, by a letter to Mr Edge dated 20 July 2004, complained that the report did not disclose any or any sufficient details of the company's business assets, property, financial circumstances or reasons for failure. The letter also complained that the proxy for the first creditors' meeting had not been received. Mr Edge, on being taken to the letter, testified at that point that his discussions with the creditor took place after the date of the letter. Mr Edge then conceded that the discussion must have taken place before he provided the report. Ultimately, he was unable to recall.
409 The report for Invaway did not contain sufficient material to assist the creditors meaningfully to determine the company's fate. Mr Edge's assertion that he made an independent assessment, but failed to include it in the report, is unpersuasive. An oral explanation is, in any event, no substitute for a written report providing the prescribed relevant information to all creditors. Such a report guarantees the accountability of the insolvency practitioner and the equal access of all creditors to appropriate information.
410 I conclude that the report for Invaway was seriously deficient. While the scale of the administration will necessarily affect the level of detail required, in the present case, the small scale of the administration and the asset-less state of the company did not justify neglect of the fundamental requirements.
411 The second meeting of creditors for Invaway was held on 19 July 2004. Mr Orlizki, of the creditor's solicitors, attended. Mr Edge was unsure whether minutes of the meeting of the creditors of Invaway on 19 July 2004 were prepared or lodged. At the hearing, contrary to his earlier assertion, he ultimately agreed that Mr Armistead prepared draft minutes in advance, which were to be completed as the meeting proceeded. No minutes of the meeting were, however, lodged with ASIC or produced by Mr Edge or any other party.
412 In his first affidavit, Mr Edge deposed that he had signed the minutes and that they had been lodged. Only unsigned minutes of the second meeting of Invaway, to which no attendance register was attached, were produced. At the hearing, Mr Edge conceded that his assertion was based solely on "his invariable practice". He acknowledged that he had no specific memory of signing an attendance register.
413 Mr Edge testified that a DOCA for Invaway was approved at a meeting on 2 August 2004. Only a draft unexecuted DOCA for Invaway was, however, produced. No executed DOCA for Invaway was produced by Mr Edge or any other person. Mr Armistead deposed in his affidavit that he had lodged an executed DOCA for Invaway with ASIC by mail in September 2004. At the hearing, he disclaimed any knowledge that he had so deposed. Ultimately, he acknowledged that he had no recollection of sending an executed DOCA for Invaway to ASIC. Mr Armistead's evidence on that issue was evasive and unconvincing. Mr Edge could provide no explanation for the absence of an executed DOCA, given that his avowed practice was to keep significant documents, including executed DOCAs. Mr Edge did not recall that he or the director, Mr Ratcliffe, signed a DOCA for Invaway. He conceded that it was possible that the DOCA for Invaway had not been executed.
414 I conclude that, as in the case of The Pines, no DOCA for Invaway was executed as required by s.444B of the Act. Consequently, pursuant to s.446A of the Act, Invaway is taken to be in voluntary liquidation from late August 2004, with Mr Edge nominated as the liquidator.
415 I conclude that the s.439A report to creditors prepared by Mr Edge was seriously deficient, that he failed to sign and lodge minutes of meeting and failed to ensure that the DOCA was executed in accordance with s.444B.
416 In the circumstances, I am satisfied that Mr Edge's management of the company's business, property or affairs and his acts or omissions, were or would be prejudicial to the interests of some or all of the company's creditors or members, within the terms of s.447E(i) of the Act.
Eighth Taljan
417 In his first affidavit, Mr Edge conceded that he was appointed administrator of Eighth Taljan on 29 March 2001, although he had previously mistakenly believed that he had not been appointed.
418 Minutes of the first meeting of creditors of Eighth Taljan were lodged with ASIC on 5 April 2001. They indicated that the meeting took place at the offices of Global. No attendance register was attached to the minutes. No other documents in relation to Eighth Taljan were located. Mr Edge could not recall the first meeting of creditors. He testified that he believed that, despite the minutes, the meeting was not held.
419 The minutes indicated that the creditors were informed that the second meeting of creditors would occur within 21 days. It is undisputed, however, that no second meeting was held and that the company returned to the control of the directors. The administration of Eighth Taljan therefore came to an end in or about late April 2001.
420 Mr Edge could not explain or recall anything about the Eighth Taljan administration. He asserted that he had been unable to rectify the failure to comply with lodging requirements, as he had no documents and could not remember any details.
421 He testified that at a meeting on 1 May 2006 with Messrs Honey and Stack of ASIC, he had offered to lodge the outstanding documents in relation to Eighth Taljan. Due to the lack of source documents, he could not insert the dates, but offered to state a belief that documents had been lodged. Mr Edge attributed his failure to fulfil the intention stated in his first affidavit to lodge the documents confirming that the administration had come to an end to ASIC's failure to respond to his offer. His affidavit, however, was sworn after the meeting with ASIC.
422 I am satisfied that Mr Edge did not keep any record of his appointment as administrator or his conduct of the company's affairs in that capacity. He persistently failed to lodge documents with ASIC advising that the voluntary administration of Eighth Taljan had come to an end in April 2001. The failure to discharge his obligations was, or was potentially, conduct prejudicial to the interests of some or all of the company's creditors or members within terms of s.447E(i) of the Act. It was not an isolated default, but was characteristic of his approach to ASIC's inquires about the administrations the subject of the present proceeding. Mr Edge was unapologetic and sought to blame the regulator for deficiencies in his administration.
Eco Panels
423 Mr Edge deposed that he was appointed administrator of Eco Panels on 26 October 2005 and became the liquidator pursuant to the resolution of creditors at an adjourned second meeting of creditors of 21 December 2005.
424 The company, which had a licence to make panels to construct kit homes, was trading, but had defaulted on payments under the licence.
425 At the time, Mr Edge was the full-time CEO of International All Sports. He testified that he had believed that the administration of Eco Panels would be short, due to negotiations between the director of Eco Panels, Dr John Tickell, and the Catholic Church Insurance Group (the secured creditor). Mr Fabio Parutti, an adviser to Eco Panels, had proposed a "work out" for the company, with Mr Edge as manager.
426 ASIC contends that Mr Edge's report pursuant to s.439A of the Act in relation to Eco Panels suffered from many of the same deficiencies as those for The Pines and Invaway. It contained no history of the company. It simply summarised the RATA. It stated that the unsecured creditors totalled $272,850. The report referred to the Catholic Church Insurance Group's registered debenture, but did not disclose that the significant amount of $3 million was owed to the secured creditor. It did not deal with insolvent trading. It stated that the administrator could not identify any voidable transactions.
427 Mr Edge said that he spoke orally about a number of matters which were not included in the report. The report did not refer to remuneration. Mr Edge stated that it was discussed at the meeting on 21 December 2005, but no specific sum or capping was mentioned and no estimates or documents were provided. He contended that he requested the creditors to approve his fees, but acknowledged that those measures were inadequate to secure valid approval.
428 He testified that he believed that, as yet, he had taken no remuneration for Eco Panels. He acknowledged that he had no invoices or timesheets containing details of the work done. Mr Edge believed that he estimated the fees at approximately $18,000 at the meeting on 21 December 2005. He testified that he also discussed his intention to charge IPAA rates, but did not mention specific sums or a cap. He did not present any documentation to the meeting.
429 Minutes of the meeting of the creditors of Eco Panels on 21 December 2005 were prepared, but were unsigned and there was no record that they were lodged with ASIC. Mr Armistead could not explain why minutes of the meeting were not lodged.
430 The letter of Robert Blank, solicitors, dated 29 November 2005, warned that the prescribed convening period for the second meeting of Eco Panels would expire on 15 November 2005. The convening period ended on 16 November 2005 and the meeting was required to be held on or before 22 November 2005, pursuant to s.439A(2), but was scheduled for 29 November 2005 and subsequently adjourned to 21 December 2005. As there was no application to extend the convening period, the administration came to an end when the convening period expired. The company returned to the control of the directors.
431 Mr Edge testified that, on receipt of the letter of Robert Blank, he had asked Mr Armistead if the notices and dates of the meeting were within the appropriate rules. When Mr Armistead assured him that they were, he took no further action because he relied on Mr Armistead to make the calculations. He made no attempt to calculate the convening and meeting dates himself.
432 Mr Armistead recalled that he was concerned about the questions raised by Robert Blank and referred the matter to Mr Edge to deal with. Mr Armistead recalled that Mr Edge asked whether the notices of meeting had been sent in accordance with the correct time frame. Mr Armistead conceded that he advised him that they had, but acknowledged that he did not first check the dates.
433 The resolution to wind the company up at the second meeting of Eco Panels on 21 December 2005 was a nullity, due to the failure to hold the meeting within the prescribed time. The position of Eco Panels and the appointment of Mr Edge as liquidator was subsequently regularised by Mr Edge's application to the Federal Court pursuant to s.447A of the Act.
434 Mr Stack, by his affidavit sworn 21 July 2006, complained that the documents of Eco Panels provided under subpoena were so disorganised that he could not tell what steps had been taken in the administration and the maintenance of files was very disorderly. Mr Edge testified that the files were maintained and forwarded by Mr Armistead, and could not explain why they would not be kept well. Mr Armistead conceded that the files were not in very good order when he was requested to supply them to ASIC.
435 A cheque for $1,960 payable to Eco Panels dated 24 October 2005 was still unbanked. Mr Edge could not explain that and acknowledged that it should have been banked. Mr Armistead was also unable to account for the unbanked cheque.
436 Despite Mr Edge's assertion that he believed that no remuneration had been taken for Eco Panels, Mr Armistead's evidence indicated that a number of cheques may have been drawn on Eco Panels to pay remuneration. Further, Mr Armistead, at a late stage in his evidence, produced the cheque book of the Robert Edge & Associates cheque account for the period from 11 January 2006 to 2 August 2006. The cheque book for the preceding period was not produced. The cheque butts indicated that cheques written on the Robert Edge & Associates cheque account in January 2006 may have related to Eco Panels. Mr Armistead confirmed that the Robert Edge & Associates account held money received by Mr Edge as the liquidator of Eco Panels, intermingled with other Robert Edge & Associates money and the proceeds of realisations in the administration of The Pines. Money was drawn from the account in order to pay remuneration incurred in the Eco Panels voluntary administration and liquidation. Mr Armistead considered that the payments were made from Robert Edge & Associates' money. He was unable to explain, and had no record to indicate, how the remuneration was allocated between various administrations.
437 A cheque for $1,000 written to Mr Armistead on 11 January 2006 was marked "Eco Panels". Mr Armistead denied that it was a payment from Eco Panels to himself. He contended that it was a payment from Robert Edge & Associates. He conceded, however, that Eco Panels was "who it's to be billed against" and that funds of Eco Panels, which had been raised in the course of the administration and liquidation, were in the account at the time. Mr Armistead stated that the money "will be fees against Eco Panels".
438 On 16 January 2006, a cheque for $589.70 marked "Eco Panels" was paid to Arcay Pty Ltd, a company controlled by Mr Armistead.
439 A cheque for $3,061 was written on 18 January 2006 to Southern Independent Liquor, a creditor of Mr Armistead, on the Robert Edge & Associates cheque account, at a date when funds of Eco Panels, The Pines and Hollycorp were intermingled in the account. Mr Armistead explained that the payment represented money owed to him by Robert Edge & Associates for various administrations. He could not state which administration was involved. The following exchange then occurred: