Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) v Adelaide Brighton Cement Limited

Motion for Company to be wound up: $ % No. % For $13,002,740.55 93.65 10 25.0 Against $869,106.64 6.26 29 72.5 Abstain $12,760.00 0.09 1 2.5

The Judge noted that the figure of $12,760 may be affected by a transposition error so that it should in fact be $12,670. Nothing turns on this presently. 13 Mr Cantone, as Chair of the meeting, exercised his casting vote in favour of Concrete Supply entering in the DOCA. That Deed was executed on 21 December 2017. The parties to it were Concrete Supply, the Administrators and the three directors of Concrete Supply. 14 The DOCA contains clauses of a conventional kind and provides that the property which would be available for distribution to creditors would be the "Deed Fund" (cl 8.3). The full terms of cl 8 are as follows: Deed Fund 8.1 A Deed Fund shall be established which shall comprise the following: (a) the Company's cash at bank as at the Commencement Date; (b) the Debtor's (sic) owing to the Company at the Commencement Date; and (c) the amount of $2,500,000 to be paid by the Directors to the Company within 6 months of the execution of this Deed by all parties. 8.2 The Deed Administrators must hold all amounts in the Deed Fund on trust for the benefit of the Deed Administrators and for Creditors in accordance with the terms of this Deed. 8.3 The property that will be available for distribution to Creditors pursuant to this Deed will be the Deed Fund. 8.4 If this Deed terminates then the amount in the Deed Fund will become property of the Company in the administration or winding up of the Company. 15 The directors did not make the payment of $2.5 million into the Deed Fund by 21 June 2018, as required by cl 8.1(c) of the DOCA. However, during the currency of the proceedings at first instance, the Judge made a series of orders which progressively extended the time for the making of the payment. By the last of those orders made on 13 November 2019, the Judge extended the time within which the directors were to make the contribution to 17 December 2019. 16 As already noted, in the trial ABCL sought, in addition to the declaration concerning Concrete Supply's indebtedness, the setting aside of the DOCA pursuant to s 445D of the Corporations Act 2001 (Cth) and the appointment of liquidators to Concrete Supply. It also sought a declaration that Concrete Supply had failed between April 2009 and November 2017 to keep written financial records which complied with s 286 of the Corporations Act. 17 ABCL was substantially successful in the proceedings at first instance, although it failed on claims of misleading or deceptive conduct which it brought against Rino and Jason. After the delivery of the judgment on 12 November 2019, the Judge heard submissions as to the form of the orders appropriate to give effect to his reasons and, on 19 November 2019, made the following orders: THE COURT DECLARES THAT: 1. The first defendant is indebted to the plaintiff in the amount of $12,457,472.22. 2. The first defendant failed to keep written financial records which complied with s 286 of the Corporations Act 2001 (Cth) between April 2009 and November 2017. THE COURT ORDERS THAT: 3. The Deed of Company Arrangement executed on 21 December 2017 be terminated pursuant to s 445D of the Corporations Act 2001 (Cth). 4. Messrs Martin Lewis and David Kidman be appointed as joint and several liquidators of the first defendant. 5. Orders 3 and 4 be stayed until 17 December 2019. 18 In the reasons which accompanied the making of these orders (Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 5) [2019] FCA 1914) the Judge said that he had made Order 5 granting the stay until 17 December 2019 so as to "afford the Concrete Supply defendants sufficient time to decide whether they wished to appeal and to bring a formal application for a stay (assuming that they do appeal)".

The Notice of Appeal 19 Only Concrete Supply has filed a notice of appeal against the declarations and orders. It commenced its appeal on 10 December 2019. The Notice of Appeal contains three substantive grounds. Ground 1 impugns the declaration that it had failed between April 2009 and November 2017 to keep financial records which complied with s 286 of the Corporations Act. Ground 2 impugns the exercise of the Judge's discretion under s 445D of the Corporations Act to terminate the DOCA. By Ground 3, Concrete Supply contends that the Judge erred "in setting aside the Administrators' exercise of the casting vote" at the meeting on 19 December 2017. 20 There is no appeal against the declaration concerning Concrete Supply's indebtedness to ABCL, and accordingly, no appeal against the findings based on the Judge's assessment of the honesty of the conduct of Rino and Jason. 21 The Administrators are the second and third respondents to the appeal. At their request, they were excused from participating in the hearing on 16 December 2019.

The interlocutory application seeking the stay and extension of time 22 By its interlocutory application filed on 11 December 2019, Concrete Supply seeks the following substantive orders: 1. Orders 3 and 4 of the final orders dated 19 November 2019 be stayed pending determination of the appeal by the Appellant dated 10 December 2019 pursuant to Rule 36.08 of the Federal Court Rules 2011 (Cth); 2. The date by which payment pursuant to Clause 8.1(c) of the deed of company arrangement in respect of the Appellant executed on 21 December 2017 is required to be extended to a date determined by this Honourable Court; … 23 Concrete Supply makes the application for the stay of the orders pursuant to r 36.08 of the Federal Court Rules 2011 (Cth). Its application appeared to suggest that the application for the extension of time within which the payment may be made into the Deed Fund under the DOCA was also made pursuant to the same Rule. However, at the hearing, counsel for Concrete Supply acknowledged that that part of the application was sought pursuant to s 447A of the Corporations Act. 24 The application for the stay and extension of time was supported by two affidavits from each of Rino Obbiettivo and Albert D'Alessandro. In his first affidavit, Rino incorporated by reference two affidavits he made during the course of the proceedings before the Judge. 25 The matters to which Rino deposed in his first affidavit included: (a) it is likely that if a stay is not granted, Concrete Supply will be placed into liquidation immediately and will most likely cease trading. That is likely to result in prejudice to Concrete Supply which will not be able to be remedied in the event that its appeal succeeds because: it will in the meantime lose its customers to other concrete suppliers; it will lose its reputation as a longstanding concrete business; it will be difficult for it to re-establish its business; and suppliers to Concrete Supply will stop supplying the business; (b) its 35 employees will lose their jobs; (c) since entering into administration on 14 November 2019, Concrete Supply has continued to trade successfully, has been paying its debts including its taxation obligations, and has not received any formal or statutory demands for payment; and (d) the supplies required by Concrete Supply are obtained by a related company, Mantina Earthmovers & Constructions Pty Ltd (Mantina Earthmovers), so that it is Mantina Earthmovers and not Concrete Supply which is liable to pay suppliers. 26 Rino also deposed that "[i]t has always been my and my other directors' intention to obtain bank finance to fund the Deed Fund Contribution". He deposed that, at some time during the currency of the proceedings before the primary Judge, Concrete Supply, Mantina Earthmovers and a related company, Mantina Investments Pty Ltd, had negotiated a Commercial Non-Binding Indicative Terms Sheet arrangement with the ANZ Bank for it to advance finance. That arrangement has now lapsed. Rino deposed that, in the event that Concrete Supply's appeal is successful and debt funding is still required, it will be necessary for it to have a period of time within which the directors can comply with the cl 8.1(c) obligation. 27 Finally, Rino deposed to a present unwillingness of the directors to make the payment into the Deed Fund because, in the event that the DOCA is terminated, the Deed Fund would then become an asset in the liquidation of Concrete Supply. He deposed: This risk is a further reason why voluntary payment into the Deed Fund cannot be made until the status of the DOCA is resolved. 28 In his affidavit made on 15 June 2018 in support of the first application for an extension of time in which to make the payment into the Deed Fund, Rino deposed: [7] The directors sought six months at the time of the DOCA so they could determine who would borrow and to obtain funding to make their $2.5 million contribution to the deed fund because at that stage they intended to raise this contribution by borrowing themselves, and/or causing Mantina Earthmovers to borrow, from a financial institution. The six months was intended to allow us sufficient time to obtain finance. [8] It has been determined that the funds will be borrowed by Mantina Earthmovers and guaranteed by the directors. [9] It was not contemplated when that time period was set in the DOCA, that there would be litigation by the Plaintiff, which includes a remedy to terminate the DOCA. [10] I am confident that we will get the finance when there is certainty in the DOCA … [11] I am not prepared to pay $2,500,000.00 into the deed fund established by the DOCA in circumstances where the DOCA is under challenge and it is possible it will be terminated … 29 Rino also expressed confidence in the ability of the directors to raise the finance. 30 In an affidavit made on 12 November 2018 in support of a further extension of the time within which the directors may make the payment, Rino deposed that Concrete Supply had obtained "an in-principle commitment from BankSA to provide funds for the purpose of meeting Clause 8.1(c)". He annexed a copy of a letter from BankSA dated 30 October 2018. 31 Mr D'Alessandro is a financial consultant to Concrete Supply. In his first affidavit, he deposed to it "trading strongly" since December 2017 despite being in administration and subject to the DOCA. He also deposed that, since Concrete Supply entered administration, many of the entities who previously supplied it were unwilling to supply it directly, but do make the same supplies to Mantina Earthmovers, with the consequence that Mantina Earthmovers has effectively become the direct supplier to Concrete Supply. Mr D'Alessandro deposed to Concrete Supply having $420,577.09 cash at bank as at 11 December 2019. He said that this comprises predominantly the cash which has been generated through Concrete Supply's trading over the past two years. 32 In his affidavit sworn on the morning of 16 December 2019, Mr D'Alessandro annexed a copy of the "Performance Statement" of Concrete Supply for the month ended October 2019. He described this as part of the management accounts which he prepares in the ordinary course of his duties for Concrete Supply. It provides some evidence of Concrete Supply's financial performance, but it is not a balance sheet.

Principles relevant to the grant of a stay 33 The principles to be applied on an application for a stay of the present kind are settled and there was little disagreement between the parties about them. The submissions proceeded on the basis that the principles concerning the grant of a stay were also pertinent to Concrete Supply's application for an extension of time in which to make the cl 8.1(c) payment. 34 I proceed on the basis of the following principles: (a) prima facie, a successful party is entitled to the benefit of the judgment which it has obtained and the Court should commence with a presumption that the judgment is correct: Power Flex Services Pty Ltd v Data Access Corporation (1996) 137 ALR 498 at 499 citing Mahoney JA in Re Middle Harbour Investments Ltd (in liq) (CA (NSW), 15 December 1976, unreported); Citrus Queensland Pty Ltd v Sun State Orchards Pty Ltd [2008] FCA 1867 at [39]; and Esco Corporation v PAC Mining Pty Ltd [2008] FCA 1018 at [19]. Ordinarily, a successful party is entitled to the benefit of the judgment it has obtained. A final judgment is not to be regarded as provisional, contingent or operating only subject to confirmation on appeal; (b) nevertheless, the Court has broad discretion under r 36.08 to grant a stay pending an appeal in an appropriate case: Power Flex at 499-500; Citrus Queensland at [39]; (c) an applicant for a stay should demonstrate that there is "a reason or an appropriate case" warranting an exercise of the discretion departing from the prima facie position. The mere filing of a notice of appeal is not sufficient: Power Flex at 499; Alexander v Cambridge Credit Corp Ltd (Receivers Appointed) (1985) 2 NSWLR 685 at 694; Cook's Construction Pty Ltd v Stork Food Systems Australasia Pty Ltd [2008] QCA 322, [2008] 2 Qd R 453 at [12]; (d) an applicant for a stay must usually demonstrate that its appeal has at least arguable prospects of success: Citrus Queensland at [40]. The threshold is low and, in order to see whether an appellant has discharged it, the Court makes a "preliminary non-speculative assessment": Citrus Queensland at [40]. As will be seen, I consider it also appropriate to have some regard to the prospects of Concrete Supply's grounds of appeal succeeding; (e) an applicant should also satisfy the Court that the proposed stay is "fair to all parties … having regard to the balance of convenience (i.e. the balance of risks and irremedial harm) and the competing rights of the parties": Alexander v Cambridge Credit at 694; Citrus Queensland at [39] and [47]; Esco Corp at [20]; and (f) the existence of a real risk that the appeal will be rendered nugatory if the stay is not granted is a substantial factor in favour of the granting of the stay, but is not conclusive. It is to be weighed against the risk of prejudice to the successful party at first instance if execution of the judgment is stayed: Citrus Queensland at [41]; Alexander v Cambridge Credit at 695. 35 The prospect of the liquidation of an appellant if the stay is not granted does not, of itself, warrant a conclusion that the appeal will be rendered nugatory. Account may also have to be taken in an appropriate case of the prospect in that circumstance that the appointed liquidators may still pursue the appeal if they consider that to be worthwhile: Challenge Charter Pty Ltd v Curtain Bros (Qld) Pty Ltd [2004] VSCA 66, (2004) 9 VR 382 at [17]; Cook's Construction at [16]. In the latter case, Keane JA said: I do not consider that the refusal of a stay will render Cook's appeal to this Court nugatory. Even if the refusal of the stay were to lead to the receivership or liquidation of Cook, Cook's substantive rights, if any, against Stork could be pursued on the appeal by the receiver or liquidator of Cook. This would occur if the appeal were assessed by the receiver or liquidator as having worthwhile prospects of success; and no-one here suggests that a receiver or liquidator would not make such an assessment in this case. In these circumstances, the benefit of the successful outcome of any such appeal would enure for the benefit of creditors and contributories of Cook. 36 Counsel for Concrete Supply referred to instances in which the "nugatory principle" has been applied to appeals in respect of decisions to terminate deeds of company arrangement: for example, Linen House Pty Ltd v Rugs Galore Australia Pty Ltd [1999] VSC 210 at [15]-[16], approved on appeal in McVeigh v Linen House Pty Ltd (No 2) (2000) 1 VR 31 at [23]. 37 It is convenient to address first the merits of Concrete Supply's proposed appeal. As will become apparent, while I am willing to conclude that some of the grounds of appeal may be reasonably arguable, I do not consider their prospects of success to be strong.

Ground 1 - The finding of non-compliance with s 286 of the Corporations Act 38 By this ground, Concrete Supply alleges that the primary Judge erred in finding that it had failed to keep written financial records which complied with s 286 of the Corporations Act. The substance of Concrete Supply's complaint appears to be that the Judge had erred in failing to find that its source documents constituted sufficient records for the purposes of s 286 of the Corporations Act. 39 Concrete Supply did not advance any submissions at all in support of the arguability of this ground. The proposition that a company's source records may constitute written financial records satisfying the obligation imposed by s 286(1) of the Corporations Act is inconsistent with a number of authorities, including Van Reesema v Flavel (1992) 7 ACSR 225 at 229-30 and Stone v Melrose Cranes and Rigging Pty Ltd, in the matter of Cardinal Project Services Pty Ltd (in liq) (No 2) [2018] FCA 530; (2018) 125 ACSR 406 at [190]-[191]. 40 In these circumstances, there is no basis upon which the Court could hold that this ground is reasonably arguable, let alone that it has reasonable prospects of success. 41 The significance of the Judge's finding of non-compliance with s 286 is that it provides, independently of Concrete Supply's indebtedness to ABCL of approximately $12.5 million, the presumption of insolvency for which s 588E(3) and (4) provides in recovery proceedings by Concrete Supply.

Ground 2 - The exercise of the discretion to terminate the DOCA 42 Counsel for Concrete Supply described this ground as being the "crux" of Concrete Supply's submissions that it has reasonable grounds on the appeal. 43 In terminating the DOCA, the Judge acted pursuant to s 445D which provides: 445D When Court may terminate deed (1) The Court may make an order terminating a deed of company arrangement if satisfied that: (a) information about the company's business, property, affairs or financial circumstances that: (i) was false or misleading; and (ii) can reasonably be expected to have been material to creditors of the company in deciding whether to vote in favour of the resolution that the company execute the deed; was given to the administrator of the company or to such creditors; or (b) such information was contained in a document that accompanied a notice of the meeting at which the resolution was passed; or (c) there was an omission from such a document and the omission can reasonably be expected to have been material to such creditors in so deciding; or (d) there has been a material contravention of the deed by a person bound by the deed; or (e) effect cannot be given to the deed without injustice or undue delay; or (f) the deed or a provision of it is, an act or omission done or made under the deed was, or an act or omission proposed to be so done or made would be: (i) oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more such creditors; or (ii) contrary to the interests of the creditors of the company as a whole; or (g) the deed should be terminated for some other reason. (2) An order may be made on the application of: (a) a creditor of the company; or (b) the company; or (ba) ASIC; or (c) any other interested person. 44 It was common ground that a number of the qualifying conditions for the exercise of the Court's power to terminate the DOCA under s 445D were satisfied in this case. The Judge did not identify the particular matters about which he was satisfied but, at the least, it is apparent that his Honour was entitled to proceed on the basis that subparas (a), (b), (c) and (d), or at least some of them, were satisfied. Counsel for Concrete Supply accepted that this was so but submitted that the Judge's exercise of the discretion to terminate the DOCA had miscarried. 45 Counsel accepted that the principles in House v The King (1936) 55 CLR 499 at 504-505 will apply on the appeal. He said that Concrete Supply relied in particular on the fifth of the House v The King principles, namely, that if the facts of the case indicate that the decision at first instance is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion even if no distinct error can be identified. 46 Counsel accepted that it may be a "tall order" to show that an exercise of discretion by a judge of a superior court could be characterised in this way. He sought to rely on other limbs in the House v The King principles, including that the Judge had allowed irrelevant matters to influence his decision and had failed to take into account material considerations.

No detailed comparison of the position under the DOCA with liquidation 47 Concrete Supply contends that the Judge failed to conduct a detailed comparison of the position of creditors under the DOCA with their position if Concrete Supply is wound up. It appears that this will be a difficult contention to sustain on the appeal, given the content of [1384]-[1390] of the Judge's reasons. 48 The Judge commenced at [1384] by saying: A relevant matter is whether creditors are likely to receive a better return under the DOCA than they are likely to receive in a liquidation. That consideration involves a comparison between a known situation which produces a relatively certain calculation and a prediction or forecast as to what might happen in a liquidation. This can be, depending on the facts, a difficult and uncertain exercise. On an application to terminate a DOCA under s 445D(1) where it is clear that one or more of the paragraphs in s 445D(1) has been established, the Court would not, ordinarily at least, have a trial to finally determine and quantify claims that might arise in a winding up. 49 The Judge then addressed various matters bearing on the comparison, including the onus of proof, the reworking by ABCL of the comparison prepared by the Administrators which showed a higher dividend in a liquidation than under a DOCA, the critique of Mr Andrew Heard (the chartered accountant with expertise in insolvency from whom the respondents at trial had adduced evidence), the inclusion of an additional $1.3 million in the comparison (that being the minimum amount of a debt owed by Mantina Earthmovers to Concrete Supply which the Administrators had overlooked in their second report to creditors), issues concerning the present capacity of Mantina Earthmovers to repay the full amount of its indebtedness, the suggested uncertainties associated with claims being brought against the directors in the event of a liquidation, and the concession of Mr Morris (the forensic accountant from whom ABCL had adduced evidence) that he could offer no assurance that the creditors would receive a better return in a liquidation. 50 The Judge then concluded: [1390] I have considered all of the evidence and the material, including calculations, advanced by the parties. I do not consider that it is possible to reach a firm conclusion either way as to which course of action produces a better return to creditors. If the defendants bear the onus on the matter, then they have failed to show that the DOCA should not be terminated. However, I propose to consider the matter on the basis that a number of factors are relevant to the exercise of the discretion and that it is a matter of balancing them to determine the appropriate exercise of the discretion. 51 The Judge then turned to other matters which he considered relevant to the exercise of the discretion. 52 True it is that the Judge did not set out in tabular form a comparison using specific figures, but it was not necessary for him to do so. There is more than one way in which a comparison can be made. This ground does not seem to be reasonably arguable.

The inclusion of a further $2.8 million in the comparison 53 Counsel submitted that the Judge had erred by failing to consider that an additional $2.8 million should have been included in the comparison in favour of the DOCA. 54 The evidence at the trial indicated that, in their second report to creditors before the creditors' meeting on 19 December 2017, the Administrators had overlooked the debt owed by Mantina Earthmovers to Concrete Supply. The requirement for this debt to be included had been identified by Mr Heard. It seemed to be common ground at the trial that this debt was at least $1.3 million and, if Mantina Earthmovers was not given credit for some seemingly dubious transactions which had been recorded shortly before the administration, would be an amount of $2.8 million. 55 In his final submissions, at the trial, senior counsel for the Concrete Supply Parties proffered an undertaking to the Court on behalf of the three directors and Mantina Earthmovers that: [I]n the event that the Court upholds the Deed of Company Arrangement in these proceedings or on appeal proceedings, the quantum of the loan owing by Mantina Earthmovers and Constructions Pty Ltd is $2.8 million. 56 It is true that in his reasons at [1384]-[1390], the Judge did not refer to this undertaking or to the potential for Concrete Supply to recover $2.8 million from Mantina Earthmovers rather than $1.3 million. However, it is likely that Concrete Supply would have difficulties in establishing on appeal that the additional indebtedness of Mantina Earthmovers was overlooked by the Judge. First, the Judge had referred earlier in his reasons to the Mantina Earthmover's debt being approximately $2.8 million, at [445], [986] and [1336]. In particular, the Judge had only shortly before the passage on which Concrete Supply relied, referred explicitly to the indebtedness of Mantina Earthmovers to Concrete Supply in the sum of approximately $2.8 million. The Judge said: [1336] Mr Heard agreed that, with respect to the loan Mantina Earthmovers owed to Concrete Supply and the supply of materials by the former to the latter, the facts seem to be that the amount owing in August/September 2017 was $2.8 million approximately, and the amount owing on 14 November 2017 was $1.2 million approximately. This reduction in the loan came about because of invoices totalling $1.5 million approximately in the weeks before 14 November 2017. Mr Cantone agreed that the loan had been reduced from approximately $2.5 million to approximately $1.2 million by reason of various invoices. … [1338] In this case, there was such a dramatic fall in the debt in the period shortly before the administration, that careful investigation of the circumstances was required. That was not done by the administrators. I should add that whilst the so-called anomalous transactions may ultimately be shown to be legitimate, I am not satisfied of that on the evidence put before this Court. 57 Secondly, it is apparent that in [1387], the Judge was addressing a submission of the Administrators and not that of Concrete Supply and the three directors. That makes explicable his reference to the figure of $1.3 million as that was the figure mentioned in the Administrator's submissions. 58 Thirdly, the reservations which the Judge expressed in [1387] concerning the inclusion of the additional $1.3 million apply with perhaps even greater force to the inclusion of the higher figure of $2.8 million. That was because the present capacity of Mantina Earthmovers to repay the full amount of its debt had not been investigated and, at the time of their second report to creditors, the Administrators had considered that only 25-50% of the debt owed by Mantina Earthmovers would be recoverable by Concrete Supply if in liquidation. 59 In these circumstances, while it may not be appropriate to characterise this ground of appeal as having no prospects of success, it does not appear to be a promising basis on which the exercise of the discretion by the Judge may be impugned.

Inconsistency in findings 60 Next, counsel submitted that there was an inconsistency between the Judge's findings concerning the prospect of liquidators obtaining substantial recoveries from the directors on the basis of insolvent trading, on the one hand, and the Judge's findings about the ability of Mantina Earthmovers to make the payment of $1.3 million or $2.8 million in discharge of its indebtedness, on the other hand. In relation to the former, the Judge recorded that the Concrete Supply defendants and the Administrators had submitted "that ABCL had not shown that the directors had assets worth more than $1.5 million to $1.7 million ($2 million at best) and, as the administrators put it, that was after a trial occupying 20 days", at [1321]. The Judge did not accept that submission, saying that the evidence before him established that "the directors may well have substantial assets and, in particular, the quarry at the Kapunda property and the quarry business which a liquidator could access", at [1321]. 61 Again, the prospects of Concrete Supply establishing the inconsistency for which it contends do not seem promising. It was one thing for the Judge to accept that the liquidators may be able to access assets within the corporate group of which Concrete Supply forms part by pursuit of claims against the directors for breaches of duty and/or insolvent trading. The question of whether access to those same assets could be obtained by the Administrators by an action to enforce the unsecured debt of Mantina Earthmovers is another matter altogether. 62 Accordingly, this ground does not seem to afford a reasonably arguable ground of appeal.

The burden of proof 63 Counsel submitted that there is "a question of the burden of proof". Although such a question is not raised by the Notice of Appeal, counsel's submission seemed to be that the Judge may have erred on the topic of the onus of proof, in particular, in the location of the onus. 64 For the reasons which follow, I do not consider that this provides Concrete Supply with a reasonably arguable ground of appeal. 65 The Judge commenced by noting that "[t]here was not a great deal said by the parties on the authorities dealing with the onus with respect to the discretion under s 445D(1)", at [1384]. His Honour then referred to three authorities. These were TiVo, Inc v Vivo International Corporation Pty Ltd (subject to deed of company arrangement) [2014] FCA 789 (TiVo Inc) at [55] (Gordon J); JA Pty Ltd v Jonco Holdings Pty Ltd [2000] NSWSC 147, (2000) 33 ACSR 691 at [90] (Santow J); and Eco Heat (Vic) Pty Ltd v Syndicate Forty Four Pty Ltd (Subject to Deed of Company Arrangement) [2018] VSC 156 (Sifris J). 66 In both Tivo Inc at [55] and Jonco Holdings at [90], it was accepted that s 435A of the Corporations Act effectively places the onus on those who support a deed of company arrangement to show positively that it "results in a better return for the company's creditors and members than would result from an immediate winding up of a company". On the other hand, in Eco Heat, Sifris J held that it is the party seeking the termination of the deed of company arrangement which has the onus, at [34]. 67 The Judge seemed to doubt the correctness of the position stated in Eco Heat, see [1384] of his reasons. However, as is apparent from [1390] set out above, his Honour did not express a concluded view on the question, saying that if the Concrete Supply defendants did bear the onus, then they had failed to show that the DOCA should not be terminated. However, his Honour then said that the exercise of the discretion should be determined by balancing a number of relevant factors. The Judge identified those factors as including: (a) the nature and extent of the support for the DOCA at the second meeting of creditors, at [1391]; (b) the extent of the departures engaging the provisions of s 445D(1), at [1392]; and (c) the public interest and considerations of commercial morality, at [1393]-[1395]. 68 The Judge then considered those matters in some detail and concluded that the matters relevant to the discretion "firmly favour" an order terminating the DOCA, at [1396], and that a "clear case" for its termination had been established, at [1397]. 69 Thus, it is apparent that, irrespective of the proper location of the onus, the Judge was satisfied that ABCL had established a clear case for termination of the DOCA. In that circumstance, it is improbable that success by Concrete Supply on the issue concerning the location of the onus of proof can avail it on the appeal.

Public interest and commercial morality 70 Counsel for Concrete Supply submitted that the Judge had erred in holding, at [1395], that "[i]t is in the public interest and in the interests of commercial morality that these matters, claims against the directors and contraventions of the Corporations Act and income tax legislation, be investigated by an appropriate person and that person is a liquidator". Counsel submitted that the Judge had failed to place sufficient weight on the circumstance that, because Concrete Supply had been found not to be entitled to the rebate or discount it had claimed, its income tax returns had (by reason of the timing of payments) understated its expenses in some years and overstated them in other years. He submitted that the net effect must be that Concrete Supply would be entitled to a refund of the taxation it paid. This meant, counsel submitted, that the Judge had been wrong to conclude that contraventions of the income taxation legislation should be investigated, with that occurring appropriately by a liquidator. The submission seemed to be that, provided that Concrete Supply was ultimately entitled to a refund of taxation, no issues requiring investigation of its compliance with taxation legislation arose. 71 This submission seemed to reduce the issues concerning Concrete Supply's compliance with the taxation legislation to the question of whether Concrete Supply had, as a minimum, paid the true extent of its taxation liabilities. It also assumed that Concrete Supply will be entitled to taxation refunds. 72 At least as things presently stand, it is by no means obvious that the prospect of Concrete Supply being entitled to refunds of overpaid taxation will make inappropriate the investigation of its contraventions of the taxation legislation with a view to establishing its true taxation position. However, it is not necessary or appropriate to explore these issues presently. I am willing to proceed on the basis that this ground may be reasonably arguable. 73 Next, Concrete Supply submitted that the Judge should have given the public policy considerations far less weight in the exercise of the discretion. Counsel submitted: [This] was principally a private dispute between two commercial parties where, ultimately, each was deemed to know the true quantum of indebtedness … There are no taxation offences to be investigated by a liquidator and the most obvious claim against the directors personally, insolvent trading, was the subject of significant investigation during the trial and findings in the Judgment. To the extent any further steps might be worthy of investigation, ASIC is empowered to take that action in the public interest in its role as the regulator. 74 In my view, it is very difficult to characterise this particular contention as having any reasonable prospect of success. The matters disclosed in the Judge's reasons indicate a real potential for Concrete Supply to have claims against the directors personally, including with respect to breaches of duty and with respect to insolvent trading. Such claims are most appropriately pursued by a liquidator rather than being left to ASIC. Furthermore, for the reasons just given, there may well be breaches of the taxation legislation which it is appropriate for a liquidator to investigate.

The rejection of Mr Heard's evidence 75 Concrete Supply wishes to impugn the Judge's rejection of much of the evidence of Mr Heard concerning the question of whether the Administrators should have sought, pursuant to s 439A(6), an extension of the 20 business day period fixed by s 439A in which they were required to convene a meeting of Concrete Supply's creditors. 76 The Judge accepted that Mr Heard had considerable expertise in the liquidation and administration of insolvent companies. 77 A significant issue in the trial had concerned the adequacy of the investigations made by the Administrators before they prepared their second report to creditors dated 11 December 2017 which was considered at the meeting of creditors on 19 December 2017. The Judge considered that the investigation of the Administrators had been inadequate and that proper investigations were likely to have raised a "raft of issues" which would have to have been addressed in the second report to creditors, at [1283]. 78 In expressing his opinion that the Administrators' investigations had not been adequate, Mr Heard placed some emphasis on the fact that the Administrators had been required to complete their investigations within the 20 business day period fixed by s 439A(1). Mr Heard said that it had not been unreasonable for the Administrators not to have sought from the Court an order extending the 20 day period. He gave four principal reasons for that opinion: (i) courts are reluctant to grant extensions of time; (ii) an extension of time is costly in the administration; (iii) an extension of time involves risk in that it is not clear how things will turn out; and (iv) an extension of time is a source of worry and concern for creditors. 79 In addition, Mr Heard referred to his experience that companies of the size of Concrete Supply can be investigated adequately within the timeframes provided in Pt 5.3A of the Corporations Act and that, typically, extensions of time for investigations are reserved for much larger companies. 80 The Judge accepted that the matters to which Mr Heard referred were relevant and appropriate in many cases involving small to medium sized companies. Nevertheless, his Honour considered that an application for an extension of time should have been made in the administration of Concrete Supply, which his Honour described as "exceptional", at [1296]. The Judge concluded that: (a) a reasonably competent administrator would have sought an extension of time to enable proper investigations to be carried out; (b) a properly presented application for an extension of the time was likely to have been granted; and (c) to the extent that many of Mr Heard's opinions were based on the limited timeframe under s 439A, they should not be accepted. 81 The Judge also referred to other matters he had taken into account in his consideration of the evidence of Mr Heard, at [1299]-[1310]. 82 Concrete Supply's Notice of Appeal does not contain any express complaint of error by the Judge in his rejection of this evidence of Mr Heard. Its complaint is only that the Judge "failed to take into account, or alternatively failed to give adequate weight to" the evidence of Mr Heard. Plainly, the Judge did take account of Mr Heard's evidence, as he dealt with it expressly, at [1292]-[1310]. Moreover, the submissions of counsel did not identify any particular error by the Judge in his assessment of Mr Heard's evidence. The submission was more generally expressed, namely, that "Mr Heard's evidence should have been taken into account, and if it was taken into account this judgment would have had a very different complexion". 83 In my view, Concrete Supply has not identified any arguable basis upon which the appellate court might conclude that there is error in the manner in which the Judge dealt with Mr Heard's evidence. Even if that conclusion be wrong, this contention cannot be said to have reasonable prospects of success on the appeal.

Other aspects of Ground 2 84 Concrete Supply's Notice of Appeal contains other grounds, but they were not the subject of submissions. I have taken them not to be relied upon on the present application.

Ground 3 - The Administrators' exercise of the casting vote 85 By Ground 3, Concrete Supply alleges that the Judge "erred in setting aside the Administrators' exercise of the casting vote at the second meeting of creditors for the reasons set out in [Ground] 2 above". 86 In my opinion, this ground does not avail Concrete Supply on the present applications. The reasons why that is so can be stated shortly. 87 First, although the Judge considered that Mr Cantone's exercise of the casting vote was flawed, at [1412], and that subject to questions of necessity, an order should be made setting aside the resolution of 19 December 2017 that Concrete Supply enter into the DOCA, ultimately, his Honour did not make any declaration or order with respect to that resolution. It can be inferred that the Judge considered that the termination of the DOCA made such an order unnecessary. Accordingly, there is no order of the Court to which Ground 3 can relate. 88 Secondly, Ground 3 depends in any event on the same matters on which Concrete Supply relies for Ground 2. These have been addressed above and, as indicated, do not provide reasonable grounds for appeal or, at the least, grounds which can be said to have reasonable prospects of success.

Conclusion on the merits of the appeal 89 In summary, I consider that several of the grounds of appeal of Concrete Supply cannot be regarded as reasonably arguable. There is one exception, namely, the ground concerning Concrete Supply's taxation liabilities. However, it is far from clear that success on that ground would avail Concrete Supply, as the Full Court may well decide that the discretion should not in any event be exercised any differently.

The prospect of the payments under the DOCA being made 90 ABCL submitted that there is no point to the grant of a stay or an extension of time because, even if the DOCA was eventually upheld, the directors and the associated companies of Concrete Supply will not be able to make the payments it requires. 91 It was common ground that the amount which would have to be paid by the directors and by Mantina Earthmovers in the event the DOCA is upheld would be $5.3 million ($2.5 million under cl 8.1(c) and $2.8 million of debt by Mantina Earthmovers). 92 On 27 November 2019, ABCL's solicitors wrote to the solicitors acting for the Concrete Supply Parties in which they alluded, amongst other things, to the requirement for payment of the aggregate amount of $5.3 million: 10. If … your clients contend that the Director Defendants are capable of raising the $5.3 million necessary to meet their commitments under the DOCA, please provide us with details of how they propose to do so, together with supporting valuations and approvals. 11. In the absence of such evidence, our client intends to rely on this letter and your clients' inability to perform the DOCA (i) in opposition to any application your clients might make to extend the stay; and (ii) in support of a claim against the Director Defendants for breach of their duties to Concrete Supply. 93 Concrete Supply made no response to this request from ABCL's solicitors. As previously noted, in his affidavit of 11 December 2019, Rino deposed only to the intention of the directors to seek bank finance to fund the required contribution to the Deed Fund and that, before the delivery of judgment on 12 November 2019, Concrete Supply, Mantina Earthmovers and Mantina Investments had negotiated at "Commercial Non-Binding Indicative Term Sheet" (the ITS) with ANZ Bank to refinance existing facilities and to provide funding for the payments required to be made into the Deed Fund. Rino noted that the ITS had lapsed. 94 In the outline of submissions sent to the Court on 14 December 2019, ABCL's solicitors drew the Court's attention to the absence of any response by the Concrete Supply Defendants to the request in its letter of 27 November 2019. In an affidavit made on Sunday, 15 December 2019 (the day before the hearing of the interlocutory application), Rino made the further affidavit to which he annexed a copy of the ITS. The content of the ITS, the belatedness with which it was produced and other circumstances do not inspire confidence that there is any present willingness by ANZ to advance the facilities to which the ITS refers, even if the DOCA is ultimately set aside. There are a number of relevant matters: (a) the ITS lapsed in accordance with its own terms on 6 December 2019; (b) the ITS was also subject to the DOCA not being set aside and it being permitted, in its current form to proceed. The condition has not been satisfied; (c) the ITS was also subject to the ANZ reviewing the judgment of this Court and satisfying itself that the judgment did not adversely impact the position as presented to it by the Concrete Supply Parties. There is no evidence that the ANZ has yet undertaken any such review, let alone the fate of the review. In fact, there is no evidence that any further application has even been made to ANZ since the delivery of the judgement on 12 November 2019. It is reasonable to suppose that matters which the ANZ may take into account on a review or in considering a new application are the unchallenged findings that Rino and Jason had dishonestly taken advantage of the mistake they perceived to have been made by ABCL, the adverse findings concerning their credibility and the fact that they may well have allowed Concrete Supply to trade while insolvent for a number of years; (d) the ITS was also subject to the provision to ANZ of the financial statements for the financial year ending on 30 June 2019, as well as interim financial data for the 2020 financial year. However, there is no evidence that Concrete Supply has even prepared its financial statements for the financial year ending 30 June 2019. If it has, they were not placed before the Court on the present application, with Concrete Supply choosing to rely instead on cash flow reports and a "performance statement"; (e) ANZ required security by way of first registered mortgage over nine properties, one of which is owned by Tina and eight by Mantina Investments. However, Tina resigned as a director of Concrete Supply on 13 December 2019 and there is no evidence that she remains willing to provide the security required by ANZ or as to its attitude in the event that she is not; and (f) further, ANZ also required individual guarantees limited to $9,636,884 from all appointed directors and owners of properties. Again, there is no indication as to whether Tina would now be prepared to provide such a guarantee. 95 Both counsel also sought to have the Court draw inferences from the cash flow statements provided by Mr D'Alessandro. Concrete Supply submitted that these indicated that, after account is taken of the legal expenses which it has incurred in relation to the present litigation, it is performing "strongly" and profitably. ABCL, on the other hand, submitted that Concrete Supply had a positive cash flow only because of its receipt of inter-company loans. The statements provided by Mr D'Alessandro seemed to support the position for which ABCL contended. 96 This added to my lack of confidence that Concrete Supply has the means presently, or will have the means, to make the payments required by the DOCA in the event that it is not set aside. It seems on any view that Concrete Supply and/or the directors, would have to borrow substantial sums in order to make the payments. Whether they will be able to do so is uncertain and, as Rino deposed, they would need time after the final judgment before being able to do so.

Prejudice to Concrete Supply 97 I am willing to accept that Concrete Supply will suffer at least some of the prejudice to which Rino deposed and to which its counsel referred. On the other hand, it is appropriate to keep in mind that it may be in the interests of Concrete Supply for it to pursue claims against its directors in respect of breaches of their duties and/or for causing it to trade while insolvent. Account should also be taken of those interests.

Balance of convenience 98 In my view, a number of matters indicate that the balance of convenience points strongly against the grant of the relief sought by Concrete Supply. These matters include: (a) on any view, Concrete Supply is insolvent: it is unable to pay its debt to ABCL and has a net deficiency of assets of more than $10 million; (b) in these circumstances, the interests of the company align with the interest of its creditors: Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191 at [162]; Grove v Flavel (1986) 43 SASR 410 at 421; Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722; Linton v Telnet Pty Ltd (1999) 30 ACSR 465 at 471, 478; Re New World Alliance Pty Ltd (Receivers & Managers Appointed); Sycotex Pty Ltd v Baseler (No 2) (1994) 51 FCR 425; and Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239, (2008) 39 WAR 1 at [4440], [4445]. It is in the interests of both Concrete Supply and its creditors that it pursue any available remedies against its directors. That cannot occur while Concrete Supply remains under the control of its directors; (c) it is pertinent that, on the unchallenged findings of the Judge, Rino and Jason have been found to engage in dishonest conduct of a serious kind in the affairs of Concrete Supply. It is not in the interests of Concrete Supply or in the public interest for them to be permitted to continue in control of Concrete Supply: Cook's Construction at [16]; (d) this is a case in which the interests of the directors and the interests of Concrete Supply appear to diverge. Based on the findings of the primary Judge that Concrete Supply failed to keep written financial records which comply with s 286 of the Corporations Act between April 2009 and November 2017, it is presumed to have been insolvent since 2009 - see s 588E(4)(a) of the Corporations Act. Moreover, on one view of the evidence from Mr Morris, Concrete Supply has been insolvent since 2012. In either case, the directors caused Concrete Supply to continue trading and to incur the debt which is the subject of the first declaration made by the Judge. There is no reason to suppose that Concrete Supply will be able to repay a debt of that order. In those circumstances, it appears to be in the interest of the company and its creditors for it to recover the funds from the directors through a liquidator's claim pursuant to s 588M (if such a claim is available). As ABCL submitted, in this circumstance, the directors of Concrete Supply are causing it to act in the present action in a way which precludes (or at least defers) action being taken against them for recovery of a potential liability which they have to Concrete Supply; (e) the impression that it is inappropriate for Rino and Jason to be permitted to remain in control of Concrete Supply is increased because of the evidence in the trial of their conduct, shortly before the administration, in causing questionable invoices issued by Mantina Earthmovers to be processed so as to reduce its debt to Concrete Supply, and by their conduct since the administration in increasing the rent paid to Tina for its use of a property owned by her at Pooraka; (f) having regard to the limitation periods fixed by s 170 of the Income Tax Assessment Act 1936 (Cth) and Div 93-5 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) for the recovery of overpaid taxation, it is in the interests of Concrete Supply for action to recover any overpaid tax to be taken promptly. To date, the Administrators have not taken that action; (g) the evidence of Rino and Mr D'Alessandro that Concrete Supply has paid its third party creditors and has not been issued with any statutory or other demands is hardly significant given that it is now Mantina Earthmovers, a related company, which is the principal supplier to it; (h) Concrete Supply has not adduced evidence giving the Court any assurance that there is point to the stay or the extension of time; and (i) neither Concrete Supply nor its directors are willing to provide ABCL or its other creditors with any security, for example, by payment of funds into Court or into an escrow account. During the hearing on 16 December 2019, Rino and Jason did proffer for the first time some undertakings directed to the maintenance of the status quo in Concrete Supply's financial position. Despite those undertakings, the effect is that, subject to one qualification, it is ABCL and the creditors, and not the Concrete Supply Parties, who carry the risk of loss in the event that the stay and the extension of time are granted and the appeal fails. The qualification is the undertaking of Rino and Jason to continue paying interest on the sum of $2.5 million at the rate of 2.5% per annum and by monthly instalments into the Court's Litigants Fund until the date of final judgment or settlement in accordance with the orders dated 4 July 2018 of Besansko J. 99 I do not attach any significance to the fact that it would be open to the liquidators to pursue the present appeal if they think it in the interests of Concrete Supply. In the circumstances of this case, the prospect of the liquidators forming that view appears remote.

Conclusion 100 In summary, I consider that some of Concrete Supply's grounds of appeal are not reasonably arguable and that those which can be so characterised do not enjoy reasonable prospects of success. It is by no means clear that the grant of the stay and extension sought will, in practical terms, serve any useful purpose. The balance of convenience is strongly against the relief sought by Concrete Supply. 101 These are my reasons for the order made on 17 December 2019. I certify that the preceding one hundred and one (101) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice White.