Decon Australia Pty Ltd v TFM Epping Land Pty Ltd

INTRODUCTION 1 The plaintiff, Decon Australia Pty Ltd, is a substantial judgment creditor of the first defendant, TFM Epping Land Pty Ltd, and the second defendant, Katoomba Residence Investment Pty Ltd (KRI). TFM and KRI dispute their indebtedness and raise cross-claims against Decon. The issues in this case raise the question of the extent to which the third and fourth defendants, appointed to TFM and KRI as Administrators, should have explored, or the Court should require a liquidator to explore transactions of those companies, which Decon suggests are dubious. As will be seen, while the complexity of the transactions is mysterious, the Administrators are confident that the prospects of a better return for creditors will be attained through the administration rather than proceeding to liquidation. That is based partly upon their assessment of the comparative prospects of recovery. They do not purport to have exhaustively analysed all elements of each transaction, nor do they have the statutory power to do so. Complaining about the Administrators' assessment and other matters, Decon seeks relief including the appointment of a liquidator. For reasons that follow, I do not consider it is appropriate to grant such relief. 2 On 22 June 2020, Decon applied for orders winding up TFM and KRI. Eight days later, on 30 June 2020, the common sole director of the defendant companies resolved to place each of them in voluntary administration. The third and fourth defendants were appointed as Administrators of both companies. 3 Decon sought urgent interim relief restraining TFM and KRI from holding a second meetings of creditors, or from executing deeds of company arrangement (DOCAs) recommended by the Administrators in reports to creditors. That application was heard urgently before Stewart J and dismissed on the morning of 28 July 2020 with the second meetings proceeding later that day: Decon Australia Pty Ltd v TFM Epping Land Pty Ltd [2020] FCA 1085 (Decon v TFM (No 1)). At that time, his Honour did not consider the balance of convenience to favour intervention by the Court in the administrations. His Honour did however grant leave for Decon's principal claim to be continued pursuant to s 440D of the Corporations Act 2001 (Cth) and brought the matter back on urgently to program the hearing of the final relief on an expedited timetable. Accordingly, the matter proceeded to a two day trial before me on 7 and 8 September 2020. 4 Decon alleged then, as it does now, that information provided to creditors by the Administrators in the Administrators' reports on which the creditors relied in voting on the proposed DOCAs includes information that is materially misleading. It says that its claims against each of the companies have been incorrectly analysed so as to give it only nominal voting rights by value at the first creditors' meeting when in fact it should have had majority voting rights by value. 5 Although the interim relief was dismissed, the permanent relief Decon seeks in these urgently listed proceedings comprises orders: (a) terminating the administrations of each of TFM and KRI; (b) setting aside the entry into the DOCAs executed by each of TFM and KRI on 17 August 2020; and (c) for the winding up each of TFM and KRI, and the appointment of a Mr Mansfield of Deloitte (accountants) as liquidator of each. This is the relief sought by Decon in proceeding NSD 817 of 2020 and is referred to in these reasons as the DOCA Application. 6 Many of the facts underlying the relief sought in the DOCA Application and the points of claim (POC) are admitted in the points of defence (POD). Decon also filed points of reply (POR). 7 Decon relied upon an affidavit of Mr Daniel Saab, affirmed 13 August 2020 and an affidavit of the fourth defendant, Mr John Melluish, sworn 27 August 2020 (the First Melluish Affidavit). 8 There is also an application filed by Decon on 22 June 2020 in separate proceedings NSD 684 of 2020, in which it seeks orders that each of TFM and KRI be wound up under ss 459A, 459P, and 459T of the Corporations Act (the Winding Up Application). However, if the relief sought by Decon on the DOCA Application is granted, the Winding Up Application would fall away. If the DOCAs are terminated by the Court, then each of the companies would be deemed to have passed a resolution that they be wound up voluntarily: s 446AA of the Corporations Act. 9 TFM and KRI were each incorporated on 1 May 2015, and their principal activity was the development of a complex in Epping, New South Wales comprising 99 residential apartments (the Epping Development). Decon was engaged by TFM and KRI to design and build the Epping Development, which was completed in September 2018. 10 Decon says that from about early 2018 and, to a greater extent, from about October 2018 onwards, TFM and KRI engaged in a course of conduct that included their entry into multiple financial agreements and security arrangements, some of which involved related parties and for many of which the purpose (and benefit to TFM and KRI) was opaque. The companies also repeatedly sought to resist (through the course of no less than four hearings in the Supreme Court of New South Wales) the payment of a $6.3 million judgment debt due to Decon following completion of the Epping Development (Decon's Judgment Debt). 11 According to the Administrators, both companies were insolvent by July 2019, if not earlier. 12 Decon says the Administrators did not attempt to discuss, consider, investigate or otherwise analyse the purpose and propriety of the multiple financial agreements and security arrangements entered into by the companies in 2018 and 2019, including their effect on potential recoveries to creditors. They recommended that the companies execute the DOCAs, which would have the effect of extinguishing Decon's Judgment Debt while providing funding for litigation by the companies of alleged claims against Decon. In that respect, Decon says it has been treated differently from other creditors. 13 Decon contends that the companies' actions leading up to their ultimate failure (and culminating in their entry into the DOCAs) are suspicious and indicative of a considered attempt to render themselves judgment-proof from Decon and to otherwise avoid a frank investigation into the circumstances of their failure. The DOCAs should not be allowed to stand in these circumstances, and the administration of the companies should come to an end, Decon says. The parties have not sought to provide the ultimate detail in relation to many of these transactions. Decon suggests that they are so obviously suspicious that greater exploration and explanation of them is necessary. The Administrators take a relatively neutral role but defend the approach they have taken thus far.

THE VARIOUS ENTITIES 14 Since August 2016: (a) Tasman Development Holdings Ply Ltd (TDH) has held 62 out of 100 of the ordinary shares in TFM; (b) Sino-AU Property Investments Ply Ltd has held the remaining ordinary shares in TFM; and (c) TDH has held all of the ordinary shares in Sino-AU. 15 Since December 2015, TDH has held all of the ordinary shares in KRI. 16 Mr Yihao Zhang (also known as Mr Eric Zhang): (a) was a director of TFM and KRI until 19 June 2020 (the now-sole director of those companies since 2 April 2016 is a 'Guoqiang Zhang' whose precise relationship to Mr Eric Zhang is not known); (b) is the sole director of TDH (and has been since March 2014) and has been its sole shareholder since 18 September 2018; and (c) is the sole director of Sino-AU (and has been since August 2016). 17 There are also several other companies in the 'Tasman Group'.

BACKGROUND 18 The following undisputed background is mainly provided by Decon and the documents in evidence. The facts are not particularly contentious but as will be seen, the Administrators point to other facts and suggest that other inferences and conclusions equally flow on examination of the totality of the events. 19 Certain objections were raised to evidence adduced on affidavit for the Administrators. Those objections were resolved by rulings made by consent which were ordered by the Court at the conclusion of the hearing on 8 September 2020. 20 In May 2016, TFM and KRI acquired the land located at 2, 4, 6, and 8 Hazelwood Place, Epping for the purpose of developing that land into the Epping Development. The total purchase price was $16,650,000. According to the Administrators, TFM and KRI's internal ledger accounts and a letter from their former solicitor indicate that a further $6,961,669.46 was spent in connection with the purchase of the land between May 2015 and January 2018, which costs included stamp duty, consulting fees, a 'novation procurement fee', and various other fees discussed in further detail below. The consulting fees included $81,818.18 paid to Tasman Funds Management Pty Ltd (another company in the Tasman Group and of which Mr Eric Zhang is the sole director and shareholder) and $136,363.64 to a company then known as 'A Land Realty', now known as 'Northwalker Realty Pty Ltd', and which previously shared a registered office with TFM, KRI, and their parent companies (indeed, at one point, Northwalker Realty's registered address was 'Tasman Funds'). 21 Precisely how the land purchases for the Epping Development were financed is not entirely clear. According to the Administrators, those purchases were financed by debt finance of $18,500,000 and equity finance of $6,000,000. The companies' former director, Mr Eric Zhang, however, previously deposed, in an affidavit affirmed on 24 July 2019 (Mr Eric Zhang's 24 July 2019 affidavit), a more complicated financing structure, with an additional $3.3 million or so in funding. 22 In December 2016, TFM and KRI (as principals) entered into a construction contract with Decon (as contractor) for the design and construction of the Epping Development. 23 In January 2017, TFM entered into a construction contract with a company related to Decon, Vanella Pty Ltd, for Vanella to provide project management services in relation to the Epping Development. Vanella is related to Decon and also established a judgment debt against TFM and KRI on the same basis as Decon. Unless the context otherwise dictates in these reasons, I refer to the two related companies jointly as Decon. Their relevant interests are the same, however Vanella is not a party to these proceedings. 24 Work then progressed on the Epping Development during 2017 and 2018. The work was financed primarily by a loan facility that TFM and KRI obtained from the National Australian Bank Limited (NAB) in March 2017. Decon was paid $19.5 million from this facility. Decon has also received some payments from Tasman Funds for construction work. Each payment to Decon was in partial discharge of the obligations owed by TFM and KRI to Decon under its contract with the companies. To date, Vanella has not been paid any amount under its contract with TFM. 25 In February 2018, KRI (as borrower) entered into a loan agreement with Ms Weili Jia (as lender) for an amount of $4,980,000 (the Weili Jia Loan). The Administrators have concluded that the purpose of this loan was, amongst other things, to repay liabilities incurred by TFM and that a year later, in February 2019, TFM entered into an 'Extension Agreement' whereby it assumed the obligations owed by KRI under the Weili Jia Loan. The circumstances of that loan were not explained in the report to creditors of TFM. 26 In April 2018, TFM entered into a share subscription agreement with its then director, Mr Eric Zhang and a company known as CLG Corporate Pty Ltd, according to which CLG agreed to pay $8.3 million to TFM to subscribe for shares in TFM (the CLG Share Agreement). 27 In August 2018, an interim occupation certificate was issued for the Epping Development, and in September 2018 the strata plan was registered. The Epping Development was, at that time, completed. As of August 2020, TFM and KRI had sold a total of at least 49 of the apartments in the Epping Development to buyers, and were otherwise leasing all or some of the remaining apartments to tenants. According to the Administrators, the gross revenue from sales of the apartments was slightly under $41 million, all of which was received before their appointment. 28 In October 2018, TFM purported to repay CLG the $8.3 million paid to it under the CLG Share Agreement. According to the Administrators, most of that $8.3 million ($7.95 million) came out of a $10,510,000 loan made by La Trobe Financial Management Ltd to both KRI and TFM (the La Trobe Loan), guaranteed by KRI and secured by mortgages over ten apartments in the Epping Development. According to Mr Eric Zhang's 24 July 2019 affidavit, La Trobe Financial Management was the manager for Perpetual Corporate Trust Ltd, and the purpose of the La Trobe Loan was to repay CLG (it is unclear for what purpose the remaining $2,560,000 of the La Trobe Loan was applied). Later in October 2018, Perpetual Corporate Trust Ltd obtained a mortgage over 19 apartments in the Epping Development. 29 Also in October 2018, KRI (as borrower) entered into a loan facility agreement with a limit of up to $15 million secured by mortgages over the Epping Development, while TFM (as grantor) entered into a 'General Security Agreement'. The counterparty to both agreements was Australian Executor Trustees Limited, the (then) custodian for the CQAX Australian Property Income Fund. Later in October 2018, Australian Executor Trustees Limited registered two mortgages over 22 apartments in the Epping Development. 30 In November 2018, TFM and KRI (as guarantors) entered a loan agreement between Shanghai Yilian Investment Management Co Ltd (as lender) and Tasman Funds (as borrower) valued at $4,751,455 secured by mortgages over the Epping Development (the Shanghai Yilian Loan). Shanghai Yilian subsequently, in December 2018, registered seven mortgages over apartments in the Epping Development. 31 In March 2019, TFM (as borrower) entered into a loan agreement with Binah Group Pty Limited for $364,525 secured by a mortgage over the Epping Development. The Administrators maintain that, despite these matters, TFM never actually drew down on the loan. TFM's (then) solicitors on the other hand said that the loan was drawn down, that monies remain outstanding, and that interest had accrued on the outstanding amount. 32 In June 2019, Decon served a payment claim on TFM and KRI pursuant to the Building and Construction Industry Security of Payments Act 1999 (NSW) (the SOP Act) in the amount of $6,355,352.46 (the SOP Claim). 33 TFM and KRI did not subsequently provide a payment schedule within the time limit specified by the SOP Act, nor did they pay the amount claimed. 34 The effect of this failure, pursuant to the SOP Act, was that TFM and KRI were liable to pay Decon the amount of the SOP Claim. 35 In July 2019, TFM and KRI (as guarantors) entered into a loan agreement between Secured Lending Pty Ltd, Longevity Property Pty Ltd, ALS256 Ply Ltd and ALS257 Ply Ltd (as lenders), and TFM Rushcutters Bay Pty Ltd (as borrower) for over $23 million and secured by mortgages over the Epping Development. TFM Rushcutters Bay was, at that time, a company controlled by Mr Eric Zhang which was in the course of completing a 40 apartment residential development in Darlinghurst (the Rushcutters Bay Development). A series of caveats registered by the lenders to this loan agreement in July 2019 record the existence of mortgages over 49 apartments in the Epping Development. According to those caveats, the date of the mortgage was 5 July 2019 (earlier than the date of the loan agreement, 11 July 2019). Further, and according to the Administrators, it appears, Decon says, that the only benefit that either of TFM or KRI obtained in return for these substantial mortgages securing that very substantial loan was the sum of $650,000 paid to TFM which was then repaid partly out of the proceeds of the sale of an apartment in the Epping Development and partly out of the proceeds of a further loan. 36 In September 2019, TFM Rushcutters Bay (as borrower) entered into another loan agreement with ALS256 Ply Ltd and ALS257 Pty Ltd (as lenders) valued at over $23 million and secured by mortgages over two apartments in the Epping Development. According to the Administrators, however, neither TFM nor KRI were party to this loan agreement, despite their property being used as the security in respect of it. 37 On 11 October 2019, Decon obtained a judgment in the Supreme Court (Henry J) against TFM and KRI under the SOP Act in the amount of $6,355,352.46 with costs (Decon's Judgment Debt): Vanella Pty Ltd v TFM Epping Land Pty Ltd [2019] NSWSC 1379. 38 Shortly after judgment for Decon's Judgment Debt was entered, on 18 October 2019, KRI entered into a secured loan agreement with its parent company TDH (as lender), valued at over $2.7 million, which the Administrators claim was in respect of previous unsecured advances made to KRI and to 'formalise' those advances. Decon asserts that this is a remarkable proposition for the Administrators, who are registered liquidators, to advance. 39 In November 2019, TFM (as borrower) entered into a loan agreement with its parent company, TDH (as lender), for over $3.2 million and secured by mortgages over the Epping Development, which the Administrators claim was in respect of previous unsecured advances made to TFM and to 'formalise' those advances. Again, Decon says this is a remarkable proposition for a registered liquidator to advance. 40 On 14 May 2020, the New South Wales Court of Appeal (Basten and Meagher JJA, and Emmett AJA) dismissed with costs an appeal by TFM and KRI against Decon's Judgment Debt: TFM Epping Land Pty Ltd v Decon Australia Pty Ltd [2020] NSWCA 93. 41 On 29 May 2020, in the Supreme Court, Stevenson J dismissed with costs an application by TFM and KRI to stay Decon's Judgment Debt pending the determination of a cross-claim against Decon in separate proceedings: Vanella Pty Ltd v TFM Epping Land Pty Ltd [2020] NSWSC 659. In his reasons for judgment, Stevenson J observed that, despite TFM and KRI having acknowledged their debt to Decon 'as long ago as 11 October 2018' they had 'since then taken every step available to them to resist paying anything to [Decon] on account of that acknowledged debt' (at [43]-[44]). His Honour was also critical of aspects of an alleged cross-claim by TFM and KRI against Decon. Those findings (and others made in the course of the previous litigation between Decon and the companies) are relied upon by Decon to prove matters that 'must have been known' to the Administrators when they prepared their reports to creditors. 42 On 16 June 2020, the Court of Appeal (Bell P, Macfarlan, and Leeming JJA) dismissed with costs an appeal by TFM and KRI against Stevenson J's judgment: TFM Epping Land Pty Ltd v Decon Australia Pty Ltd [2020] NSWCA 118. 43 On 19 June 2020, Mr Eric Zhang ceased to be a director of each of TFM and KRI. 44 On 22 June 2020, Decon filed the Winding Up Application. 45 On 30 June 2020, the remaining (and sole) director of each of TFM and KRI, Mr Guoqiang Zhang, resolved to place the companies into voluntary administration and appointed the Administrators.

First meeting of creditors and the reports 46 On 2 July 2020, the Administrators issued notices for the first meetings of creditors for each of TFM and KRI. Decon subsequently, on 6 July 2020, submitted proofs of debt in the amount of its Judgment Debt ($6,355,352.46) in respect of each company. 47 The first meetings of creditors were held on 10 July 2020. At each of those meetings, Decon was admitted to vote for only $1, while all other creditors were admitted for the full amount of their claims, with the exception of Vanella, who had lodged a proof of debt in respect of TFM for over $1.5 million but which, like Decon, was admitted to vote for only $1. 48 On 20 July 2020, the Administrators issued notices of the second meeting of creditors and reports to creditors in respect of each of TFM and KRI. The purpose of those reports was to permit creditors to make an informed choice as to what should happen to the companies: see DSG Holdings Australia Pty Ltd v Helenic Pty Ltd (2014) 86 NSWLR 293 per Leeming JA (Meagher JA and Bergin CJ in Eq agreeing) (at [90]). 49 Decon complains that the reports to creditors were defective, deficient, and erroneous. Significantly it says, those reports made no attempt to discuss, consider, investigate, or otherwise analyse the purpose and propriety of the multiple financial agreements and security arrangements entered into by the companies from 2018 onwards and in the lead up to their administration. Further, and symptomatic of this more general failure, according to Decon, the reports failed to disclose the nature of many of those transactions as equity dealings with entities related to the companies. No consideration appears to have been given, for example, to the propriety of what the Administrators now allege was an $8.4 million share redemption paid by TFM to CLG in October 2018, including, Decon says, with respect to Pt 2J of the Corporations Act dealing with share capital reductions. 50 Decon complains that the reports also represented to creditors that, despite Decon's Judgment Debt (and the multiple failed attempts by each of TFM and KRI to avoid paying that Judgment Debt), Decon had no claim against either of the companies because they had a cross-claim against Decon worth 'approximately $17 million [which] includes defects for rectification works identified by independent experts that total $7,759,642'. Decon says the reports do not mention Stevenson J's earlier critique of that cross-claim. Elsewhere, the Administrators acknowledged, however, that they were 'not aware of the prospects of recovery against Decon' and had 'sighted no legal advice about the merits of both claims'. 51 Decon says that the only evidence the Administrators appear to have in their possession in respect of the alleged cross-claim against Decon goes to the quantum of the claim (comprising evidence from a quantity surveyor in respect of the quantum of alleged defects, and from an officer of the companies in lost sales), which they say supports (alongside otherwise unidentified 'information received from representatives of the Companies') the conclusion that the size of the cross-claim against Decon 'exceeds $17 million'. Further, Decon says that in reaching this conclusion, the Administrators appear to have had no regard to the earlier concessions made by TFM and KRI's (then) senior counsel to the Court of Appeal that it was 'totally mistaken' to suggest the cross-claim was millions of dollars above Decon's Judgment Debt ($6,355,352.46) and that it was instead only 'slightly above' that amount. 52 Decon argues that, more fundamentally, the Administrators also appear to have no evidence of (and have given no consideration to) the significant underlying question of whether any liability or claim arises against Decon in the first place, including: (a) whether the quantum evidence relied upon is in respect of any actual and proven defects in the Epping Development; and (b) why, even if there are found to be defects, TFM and KRI have any standing or basis of claim against Decon in circumstances where such a claim instead lies with the owners corporation for the registered strata plan consistently with Pt 2C of the Home Building Act 1989 (NSW), which provides for statutory building warranty claims by owners of property against both builders and developers of that property. 53 The report to creditors for KRI also contains two factual errors, which are now admitted by the Administrators. First, it incorrectly recorded that Shanghai Yilian was a secured creditor of KRI in an amount of $1,404,000. Secondly, it stated: On 3 April 2018, the company entered into a share subscription agreement loan with [CLG] and [Mr Eric] Zhang for the amount of $8,300,000 maturing on 3 October 2018, to finance the residual amount of the Yilian Loan (in the amount of $6,720,000 plus interest and fees) and to assist with project costs (CLG Facility). ... In addition to the above, on or about October 2018 ... the company and TFM, obtained a loan in the amount of $10,510,000 from Latrobe Financial Management Ltd. (La Trobe Loan 2). The proceeds of this loan were applied to discharge the balance of the NAB Loan and CLG Facility. 54 Neither of those statements is correct. Shanghai Yilian was not a secured creditor of KRI, and there was no CLG Facility. 55 Finally, Decon notes that the reports to creditors for both TFM and KRI recommended that the companies execute the DOCAs proposed by its parent company, TDH (of whom, the companies' former director, Mr Eric Zhang is the sole director). Among the reasons given for that recommendation was that the DOCAs proposed a litigation funding arrangement to pursue the alleged cross-claim against Decon which, though 'highly speculative' was nevertheless set out in some detail in Appendix C to the reports. What the reports did not say, however, and as the Administrators now allege in the POD, was that the terms of the proposed litigation funding were yet to be negotiated.

The second meetings of creditors and the DOCAs 56 As noted, on 27 July 2020 Decon's urgent application for the interim relief was refused. Stewart J declined to make orders restraining the holding of the second meetings of creditors or restraining the execution of the DOCAs. Later on 28 July 2020, the second meetings of creditors were held. At those meetings, Decon (and Vanella, in the case of TFM) were admitted to vote for the value of the claims they had lodged, apparently because the Administrators 'considered it appropriate to act upon' comments made by Stewart J in his reasons for judgment to the effect that it was surprising that Decon and Vanella had previously only been admitted to vote for $1: Decon v TFM (No 1) (at [12]-[14]). 57 At these meetings, it was resolved that each of TFM and KRI would enter the DOCAs referred to hereafter as the TFM DOCA and the KRI DOCA (together, the DOCAs). Decon (and Vanella, in the case of TFM) were the only creditors voting against that course. It is agreed by the parties that, but for the votes of related creditors at each meeting: (a) a majority of creditors by number, being all creditors with the exception of Decon (and Vanella, in the case of TFM), would still have voted in favour of entry into the DOCAs; and (b) a majority of the creditors by value, being Decon (and Vanella, in the case of TFM), would have voted against entry into the DOCAs. 58 The DOCAs were then executed on 17 August 2020. They contained the usual restraints, bars, and releases of claims by creditors (including Decon and Vanella) against the companies, as well as by the company against its directors from time to time. They also provided, however, for the funding and continued conduct of litigation by the companies against Decon, with the proceeds of that litigation to be paid to creditors (after TDH and the companies). The discriminatory effect of the DOCAs, Decon complains, is thus to extinguish Decon's Judgment Debt (and any other proceedings Decon has on foot against the companies), while simultaneously promoting and facilitating claims against Decon on the other hand. The Administrators reject this assertion.

RELIEF SOUGHT BY DECON 59 Section 445D of the Corporations Act relevantly provides that: 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. … 60 Section 445D is contained in Pt 5.3A of the Corporations Act which was introduced to improve the speed and efficiency of external administrations. The following summary by Burley J in Britax Childcare Pty Ltd v Infa Products Pty Ltd [2016] FCA 848 (at [87] and [88]) is, with respect, most helpful: 87 When the Corporate Law Reform Bill 1992 (Cth) was introduced, the Explanatory Memorandum (Explanatory Memorandum, Corporate Law Reform Bill (Cth) 1992) stated (at [449]) that the new Part was intended to provide for speed and ease of commencement of administration, minimisation of expensive and time-consuming court involvement and formal meeting procedures, flexibility of action and ease of transition to other insolvency solutions where an administration does not by itself offer all of the answers. 88 It is with these objectives in mind that section 435A was introduced. The administration process operates in circumstances where those controlling the relevant company have accepted that it is insolvent. It has been accepted that the investigation conducted in the administration process is intended by Parliament to be a 'swift and practical' one; In the matter of Mustang Marine Australia Services Pty Ltd (admin apptd) - Perpetual Trustee Company Ltd v Mustang Marine Australia Services Pty Ltd [2010] NSWSC 1429 (Mustang Marine) at [109]. Consistent with this, the administrator's investigation is necessarily a preliminary investigation which involves the administrator carrying out his or her investigations in a manner which is modified in light of the tight timeframe and associated constraints provided for by Part 5.3A. An administrator, so constrained, cannot carry out a detailed investigation of at [sic] company in the same way as can a liquidator, and accordingly the administrator's actions must be looked at in the light of that more restricted range of activities which are available to him or her; Mediterranean Olives Financial Pty Ltd v Loaders Traders Pty Ltd (Subject to Deed of Company Arrangement) (No 2) [2011] FCA 178; (2011) 82 ACSR 300 (Mediterranean Olives) at [61] - [62]. (Emphasis added.) 61 One of the important features of s 445D is the use of the qualifications such as 'material' and 'unfairly'. 'Material' means something which was relevant and did affect, or might have affected, the outcome, and the test of materiality under s 445D is an objective one: Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (2005) 226 ALR 510 per Campbell J (at [165]-[166] and the authorities cited therein).

Setting aside the DOCAs: s 445D of the Corporations Act 62 Decon contends that in the present proceedings, there are a number of grounds upon which the Court should exercise its discretion to terminate the DOCAs in respect of each of TFM and KRI. There is a substantial amount of overlap, it says, between these grounds particularly insofar as matters of the creditor interests, the public interest, and commercial morality are concerned when it comes to investigating the affairs of companies that have failed in the circumstances of those such as TFM and KRI.

Materially misleading information provided to creditors: s 445D(1)(a) of the Corporations Act 63 It is not in dispute that the reports to creditors for TFM and KRI each contain errors. Chief among them, Decon argues, were the twin errors of the substantial understatement of Decon's Judgment Debt ($6,355,352.46 represented to be $ nil) and the very substantial overstatement of TFM and KRI's alleged cross-claims quantified at $17 million, but unsupported by any evidence or consideration of whether there is actually any basis for the claim in the first place. Such an assessment of the cross-claim is also contrary to the companies' (then) senior counsel's earlier statement to the Court of Appeal that the value of the claim was only 'slightly above' Decon's Judgment Debt and not millions of dollars above it. The report to creditors for KRI also wrongly reported debts to Shanghai Yilian and under a CLG Facility in the order of $1,404,000 and $8,300,000, (which are now claimed to be mere 'typographical errors') while the TFM Report to creditors stated that Ms Weili Jia was a creditor of the company in an amount of $4,980,000 without mentioning the fact (now alleged by the Administrators) that this debt had been assumed from KRI. 64 Decon stresses that the sums comprised by the errors in the reports to creditors for each of TFM and KRI are significant, in excess of several millions of dollars. Moreover, the misleading presentation to creditors of the size and strength of the companies' alleged claim against Decon is particularly significant in circumstances where the litigation against Decon and the payment of proceeds from that litigation, forms a central plank of the DOCAs. Those matters might, therefore, have affected the outcome of the vote on the DOCAs and therefore justify the exercise of the power in s 445D(1)(a). 65 On that note, one further difficulty with the DOCAs and the litigation arrangements within them is that they proceed on the assumption that the claim against Decon, if realised, will constitute some kind of windfall gain to the companies and creditors. That cannot be so, says Decon, at least and insofar as the claims are in respect of defects. Even putting the claim against Decon at its highest, any proceeds obtained from Decon for alleged defects will either be used to repair those alleged defects (consistently with the evidence obtained by the Administrators) or to discharge any liability of the companies to the owners corporation for the Epping Development arising under Pt 2C of the Home Building Act assuming, of course, that such liability survives entry into the DOCAs, which it would not appear to. The advantages to the companies and their creditors of the litigation funding arrangements therefore appear theoretical and imaginary (or, at least, potentially so). This is a further reason Decon says, why the Court should exercise its discretion under s 445D(1)(a).

Material omissions from reports to creditors: s 445D(1)(c) of the Corporations Act 66 Decon says that the reports to creditors were also misleading because they failed to identify (as discussed further below) a number of transactions which might be set aside or give rise to claims for breaches of directors' duties. 67 Each of the reports to creditors contains little or no discussion of a number of the financial agreements and security arrangements entered into by TFM and KRI after completion of the Epping Development, some of which involved related parties, and many of which did not have an apparent purpose that benefitted the companies. These include the loan agreement with Binah Group, the loan arrangements with Ms Weili Jia, the alleged $8.4 million TFM share redemption to CLG, and the multiple mortgages provided by the companies for the benefit of the related company's Rushcutters Bay Development. 68 Decon argues that had creditors been aware of the companies' actions in the lead up to their insolvency in July 2019 (if not earlier) then there is a very real likelihood that some or all of them would have voted to wind up the companies so that a liquidator could be appointed to investigate and interrogate whether any of those transactions were defeasible and voidable within the meaning of Pt 5.7B, Div 2 of the Corporations Act. This not only provides justification for the Court to exercise its discretion under s 445D(1)(c), but in the circumstances also constitutes an injustice to creditors (who have otherwise lost the opportunity to make an informed choice as to whether such investigations and interrogations should occur) within the meaning s 445D(1)(e). Furthermore, the combination of these matters renders the DOCAs contrary to the interests of TFM and KRI's creditors as a whole.

Unfairly prejudicial or discriminatory against Decon and Vanella: s 445D(1)(f)(ii) of the Corporations Act 69 As noted, Decon complains that the DOCAs extinguish Decon's Judgment Debt against TFM and KRI, and Vanella's claim against TFM, while simultaneously providing for the pursuit (by way of funded litigation) against Decon and Vanella of the cross-claims said to be valued somewhere between 'slightly over' Decon's Judgment Debt and $17 million. This is in circumstances where the cross-claims are alleged to suffer from several problems identified earlier. In this respect, Decon says the DOCAs may be considered simply the latest iteration of TFM and KRI's previous course (identified earlier by the Supreme Court) of seeking to take 'every step available to them to resist paying anything' to Decon, a course which later included refusing to admit Decon (and Vanella in the case of TFM) in the sum of its Judgment Debt prior to the second creditors meeting. No other creditor of the companies has been treated, or will be treated (if the DOCAs are allowed to proceed), in the way that Decon and Vanella have been and will be.

Detriment to commercial morality: s 445D(1)(g) of the Corporations Act 70 Section 445D(1)(g) provides that the Court may make an order terminating a DOCA if satisfied that 'the deed should be terminated for some other reason'. In Vero Insurance Ltd v Kassem [2011] NSWCA 381 Campbell JA (Meagher JA agreeing) explained (at [82]): Of particular relevance to the present case are the provisions that permit a liquidator to investigate the affairs of a failed corporation, and provisions that permit a liquidator in a carefully defined set of circumstances to take legal action to undo certain transactions that the corporation has entered in a period of time before its failure. Those provisions are an important part of the controls that are placed, in the public interest, on the freedom of action of corporations and those who manage them. It has repeatedly been held that in deciding whether to terminate a DOCA the court can take into account the public interest, which includes considerations of commercial morality and the interests of the public at large. … (Emphasis added.) 71 According to the Administrators, a possible claim against the companies' former director, Mr Eric Zhang, was not considered appropriate for reasons including the inherent risks of litigation and the low prospects of recovery against him, on the basis that he purportedly owned only one property in Australia. Mr Eric Zhang is also the current director and sole shareholder of the proponent and litigation funder under the DOCAs, TDH (TFM and KRI's parent company). Decon says that no investigation appears to have been made into his financial position in this regard. 72 Decon refers to the following aspects of the reports to creditors and the Administrators' assessments that: (a) a limited number of related entity transactions entered between the companies and TDH (with a combined value of slightly over $300,000) might be voidable, but would likely be 'strenuously defended' in an action by a liquidator on the basis that the transactions were part of a continuing business relationship; (b) the granting of the securities to TDH in late 2019 to (allegedly) formalise prior unsecured loans with the companies might be classified as uncommercial transactions to a degree, but would not be pursued because that would likely not result in a benefit; and (c) investigations did not identify any other uncommercial transactions that were also insolvent transactions, save for one transaction between the companies and Shanghai Yilian, entered into in October 2018, which, unless it was proven that the companies were insolvent from at least October 2018, would not be recoverable in a liquidation. 73 Decon says that in respect of the timing of TFM's and KRI's insolvency, it should be kept in mind that the companies' (then) Senior Counsel previously indicated to both Stevenson J and the Court of Appeal that Decon's Judgment Debt was the cause of their insolvency, while Stevenson J's judgment further recorded that the companies had acknowledged their debt to Decon 'as long ago as 11 October 2018'. In those circumstances, Decon says circumstances, it appears reasonably arguable that the companies were indeed insolvent from at least October 2018 (if not earlier). 74 Decon argued initially that the Administrators' approach to the investigation of the affairs of each of TFM and KRI fell short of what is required having regard to the conduct of those companies (including vis a vis related parties) upon completion of the Epping Development and leading up to the administration. By the close of the case, including cross-examination of the principal administrator, Mr Melluish, Decon's focus slightly shifted to emphasise that criticism of the handling of the administration was not a necessary finding but nonetheless the deficiencies in the outcome and basis of the DOCA were reasons for granting relief. It points to the strong likelihood, based upon (among other things): (a) the companies' previous conduct in response to Decon's Judgment Debt; (b) the timing of Mr Eric Zhang ceasing to be a director of the companies; (c) the timing of the companies' appointment of the Administrators; and (d) the substantive terms of the DOCAs, proposed by the parent company controlled by Mr Eric Zhang; that a key (if not the main) purpose of the companies' administration and entry into the DOCAs has been to further their attempts to avoid paying Decon's Judgment Debt. 75 Further, Decon argues the propriety of the following aspects of the companies' conduct leading up to their failure ought also be investigated, keeping in mind that the Epping Development was completed by September 2018, and the real possibility that the companies were insolvent by October 2018: (a) Weili Jia Loan (February 2018 and February 2019): This was, Decon contends, arguably, an uncommercial transaction within the meaning of s 588FB of the Corporations Act insofar as each company assumed and repaid loan obligations (to the value of $4,980,000) both unnecessarily and without any benefits accruing to them. Further, and due to the timing of the repayment and extension of the Weili Jia Loan, it would then be an insolvent transaction within the meaning of s 588FC and voidable under s 588FE(3). The transaction would also, in those circumstances, appear to constitute a breach of directors' duties; (b) CLG Share Agreement (April 2018 and October 2018): The alleged $8.4 million TFM share redemption paid to CLG in October 2018 appears to be, Decon says, a reduction in share capital or share buy-back contrary to Pt 2J of the Corporations Act. No consideration appears to have been given to the limits and requirements of s 256B(1) or s 257A, including, specifically, whether the share redemption materially prejudiced TFM's creditors (see, generally, Re Molopo Energy Ltd (2014) 294 FLR 13 per White J at [89]-[98]). The share redemption appears, in this way Decon argues, to have been a breach of directors' duties; (c) Shanghai Yilian Loan (November 2018): Decon argues the companies' provision of mortgages over the Epping Development in their capacity as guarantors of a loan of $4,751,455 made to the related entity, Tasman Funds, appears to have been for no benefit to them and, in that sense voidable by operation of ss 588FB, 588FC and 588FE(3) or 588FE(4). Further, and given the benefit accruing to Tasman Funds (a company of which Mr Eric Zhang is the sole shareholder and director), the transaction may also be considered a related-party transaction or an unreasonable director-related transaction within the meaning of s 588FDA insofar as Tasman Funds was a 'close associate' of Mr Eric Zhang (see Vasudevan v Becon Constructions (Australia) Pty Ltd [2014] VSCA 14 per Nettle JA (at [15]-[31]), and thus also voidable pursuant to s 588FE(4) or s 588FE(6A); (d) Loan from Binah Group (March 2019): Decon argues it is not apparent how TFM's entry into the secured loan agreement for $364,525 with Binah Group, more than six months after completion of the Epping Development, was of any benefit to it. Indeed, the circumstances surrounding the entry into that loan are made all the more opaque by the Administrators' position that the loan was not drawn down (despite some evidence to the contrary). The possibility that the loan and the security provided in respect of it may be uncommercial transactions voidable by operation ss 588FB, 588FC, and 588FE(3) of the Corporations Act ought be investigated, Decon says; (e) Rushcutters Bay Development (July and September 2019): The companies' provision of multiple mortgages over apartments in the Epping Development in connection with over $46 million worth of loans provided to TFM Rushcutters Bay appears to be both a related-party transaction and an uncommercial transaction within the meaning of s 544FB of the Corporations Act (potentially also an unreasonable director-related transaction under s 588FDA), and so voidable by operation of ss 588FC and 588FE(3) or 588FE(4); (f) 'Formalised' loan arrangements with TDH (October and November 2019): Each of TFM and KRI's entry into secured loan arrangements with their parent, TDH, shortly following the award of Decon's Judgment Debt in order to 'formalise' earlier advances was both of no benefit to them and plainly for the benefit of their parent company, Decon argues. The possibility that those arrangements may be unwound pursuant to ss 588FE(3), 588FE(4), or 588FE(6A) of the Corporations Act on the basis that they are related-party transactions, uncommercial transactions within the meaning of s 588FB, or unreasonable director-related transactions under s 588FDA, is apparent, Decon argues.

Setting aside the DOCAs: s 75-41 of the Insolvency Practice Schedule 76 The DOCAs may also be set aside by operation of the Court's discretion under s 75-41 of the Insolvency Practice Schedule, which replaced s 600A of the Corporations Act (and, in respect of the principles of which see generally DSG Holdings and Re Pan Pharmaceuticals [2003] FCA 855). 77 This section provides, relevantly: 75‑41 Outcome of voting at creditors' meeting determined by related entity - Court powers Application of this section (1) This section applies if, on the application of a creditor of a company under external administration, the external administrator of the company or ASIC, the Court is satisfied of the following matters: (a) a proposal has been voted on by creditors (either at a meeting of the creditors or under section 75-40 without a meeting); (b) if the vote or votes that a particular related creditor, or particular related creditors, of the company cast on the proposal had been disregarded for the purposes of determining whether or not the proposal was passed, the proposal: (i) if it was in fact passed - would not have been passed; or (ii) if in fact it was not passed - would have been passed; or the question would have had to be decided on a casting vote; (c) the passing of the proposal, or the failure to pass it, as the case requires: (i) is contrary to the interests of the creditors as a group or of that class of creditors as a group, as the case may be; or (ii) has prejudiced, or is reasonably likely to prejudice, the interests of the creditors who voted against the proposal, or for it, as the case may be, to an extent that is unreasonable having regard to the matters in subsection (2). Unreasonable prejudice to interests of creditors - matters to be taken into account (2) For the purposes of subparagraph (1)(c)(ii), the matters are: (a) the benefits resulting to the related creditor, or to some or all of the related creditors, from the proposal if passed, or from the failure to pass the proposal, as the case may be; and (b) the nature of the relationship between the related creditor and the company, or of the respective relationships between the related creditors and the company; and (c) any other relevant matter. Court may make orders (3) The Court may make one or more of the following: (a) an order that the proposal be considered and voted on at a meeting of the creditors convened and held as specified in the order; (b) an order directing that the related creditor is not, or such of the related creditors as the order specifies are not, entitled to vote on: (i) the proposal; or (ii) a resolution to amend or vary the proposal; (c) if the proposal was passed - an order setting aside the resolution passing the proposal; (d) such other orders as the Court thinks fit. … 78 The conditions for the application of s 75-41 in respect of the DOCAs, as prescribed by s 75-41(1)(a) and s 75-41(1)(b), are satisfied in this case Decon contends because, owing to the split in outcomes voted for by a majority of creditors by number on the one hand, and majority of creditors by value on the other hand, but for the votes of related creditors the resolutions to enter the DOCAs would have had to be decided by a casting vote (by operation of s 75-115 of the Insolvency Practice Rules (Corporations) 2016 (Cth)). That being so, the relevant inquiry is whether either of the conditions prescribed by s 75-41(1)(c) are satisfied in this case. For the reasons already explained above, Decon contends they are, for either one or both of the following reasons: (a) the resolutions passing the DOCAs were contrary to the interests of TFM and KRI's creditors because the effect of the DOCAs was to deprive them of the opportunity to be properly informed about the myriad problems surrounding the failure of the companies, and to consider whether they should be investigated; or (b) the resolutions passing the DOCAs prejudiced (or were reasonably likely to prejudice) the interests of the creditors who voted against them, namely Decon (and Vanella) to an extent that is unreasonable. 79 The appropriate course then, it is submitted for Decon, is for the Court to exercise its discretion to make orders under s 75-41(3)(c) and s 75-41(3)(d) setting aside the DOCAs.

POSITION TAKEN BY TFM AND KRI 80 TFM and KRI did not appear at the hearing of this application but filed written submissions. As will be apparent, the submissions do not engage with many of the issues raised by Decon but focus primarily on their cross-claims against Decon. 81 They stress that Decon's entitlement to its Judgment Debt arises by reason of the SOP Act in the way already discussed. They make the point that the right given by s 14(4) of the SOP Act is an interim right. They submit that the SOP Act is, in many ways, 'draconian' and 'rough and ready' (see, for example, Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd (2017) 95 NSWLR 82 per McColl JA at [106], Beazley ACJ agreeing at [1], and Macfarlan JA agreeing at [146]), but s 32 of the SOP Act expressly provides for, and contemplates, the reversal of the interim rights that the Act otherwise provides for. Section 32 seeks to effectively reverse any interim entitlement to monies claimed through the SOP Act. They say it recognises the fundamental right of the respondent to an SOP Act claim in recovering any monies owed under a construction contract. 82 TFM and KRI make the point that they have in fact brought final and substantive proceedings against Decon claiming that Decon was, on a final basis, entitled to none of the claimed amount and that, in fact, Decon owes TFM and KRI amounts in the millions of dollars by reason of breach of the contract and otherwise, for monies not owing under their contract. Those final proceedings are by way of the cross-claim. 83 TFM and KRI say that their final claims against Decon, include: (a) claims for millions of dollars for defective work (including for flammable cladding and structural defects); (b) claims that Decon was not entitled to the amounts it claimed in respect of retention and variation work; (c) claims that Decon's work was incomplete; and (d) claims that Decon was delayed in achieving practical completion and, as a result, TFM and KRI incurred substantial holding costs and were unable to sell the units at the 'height' of the market. 84 In their cross-claim, TFM and KRI contend that Decon's work was riddled with defects, which will require significant rectification work. TFM and KRI say that in the proceedings before Stevenson J (and in the Court of Appeal) and in proceeding NSD 1834 of 2019 before Markovic J of this Court to set aside a creditor's statutory demand issued by Decon for the debt, they adduced expert evidence from: (a) a civil engineer, Mr Deters (addressing general defects and cladding defects); (b) a structural engineer, Mr Topolinsky (addressing and costing structural defects at $2,400,000 to $3,700,000); (c) a scientist, Mr Nightingale (who had tested the cladding); and (d) a quantity surveyor, Mr Madden (costing the rectification of the general and cladding defects at $2,861,381). 85 There are also disputes about retention and variations. In the SOP Claim, Decon claimed $1,512,526.40 for variations. TFM and KRI deny any liability for such payments and say they have good evidence to support their case. 86 An amount of $1,551,826 of the SOP Claim amount was a claim for release of retention. TFM and KRI explain why they say that amount is not due. 87 TFM and KRI also seek substantial damages arising from Decon's delay in completing the works. The basis of this claim is a contention that TFM and KRI have been hampered in their ability to sell units in the development while the work was (and is) incomplete. 88 That, in turn, it is asserted, has led to holding costs including ongoing substantial interest payments to financers. TFM and KRI did not quantify those damages. However, they indicate that the specific figures that TFM and KRI do put forward are conservative and do not reflect the entirety of their claim. 89 Against that background, TFM and KRI note that the DOCAs contemplate that the proponent, TDH (who is also a creditor), will fund the prosecution of the cross-claim. If TFM and KRI are successful in the cross-claim, Decon's Judgement Debt could be reversed and any monies awarded by the Court in the cross-claim could flow back to the companies and the creditors. 90 TFM and KRI argue that the creditors under the DOCA have an opportunity to recover their losses through any award by the Supreme Court in favour of TFM and KRI. If the DOCA is set aside, the companies may arguably enter liquidation, and the companies' claims to final relief reversing Decon's Judgement Debt will be stultified. Essentially, the interim right may become a final one. 91 TFM and KRI contend that the issue is not whether the liquidators could in law pursue the cross-claim. Rather, the question is a practical one, namely, whether there is a sufficient prospect that they would not do so: Kalifair Pty Ltd v Digi-Tech (Aust) Ltd (2002) 55 NSWLR 737 per Handley, Sheller and Ipp JJA (at [21]-[25]), see also Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) (2019) 9 NSWLR 317 per Sackville AJA (at [254]). 92 TFM and KRI say that they intend to ensure that the cross-claim proceedings, and the Supreme Court's jurisdiction to determine the cross-claim is not frustrated before it can be exercised. They say that Decon's Judgment Debt is an interim right, designed to be so by the provisions of the SOP Act. In the final proceedings on the cross-claim, the Supreme Court is expressly directed to treat the interim right as having no relevant effect on either rights or the proceedings: see s 32(1) and s 32(2) of the SOP Act. 93 TFM and KRI assert they are entitled to challenge Henry J's judgment by which Decon is entitled to its Judgment Debt. In the cross-claim, TFM and KRI seek a declaration pursuant to s 32(3)(b) of the SOP Act or s 23 of the Supreme Court Act 1970 (NSW), that certain amounts (for example, retention) 'are not owing to Decon by reason of the orders of the Supreme Court dated 11 October 2019'. This is permissible they argue, in the final cross-claim proceedings: Falgat Constructions Pty Ltd v Equity Australia Corp Pty Ltd (2005) 62 NSWLR 385 per Handley JA (at [22]), with whom Santow and Pearlman JJA agreed, and where it was said that '[t]he power under s 32(3)(b) to make such orders as it considers appropriate would probably allow the court to set aside or vary any judgment entered under s 25'. 94 Under the TFM DOCA and KRI DOCA, TDH is committed to contributing the following amounts to the respective Deed Funds: TFM DOCA KRI DOCA

a. On execution of the DOCA $70,000 $30,000 b. 6 months after execution of DOCA $70,000 $30,000 c. 18 months after execution of DOCA $70,000 $30,000 d. Supplementary Contribution Amount $315,000 $135,000 (maximum) (maximum) Total Deed Fund contributions $525,000 $225,000

95 If the DOCAs are terminated, the creditors of TFM and KRI will not be able to access these contributions. 96 TFM and KRI further submit that in addition to the detriment to creditors, the setting aside of the DOCAs would also prejudice the rights and interests of the proponent, 'TDH'. For present purposes, cl 4.1(a) of the TFM DOCA requires TDH to pay $70,000 into the TFM Deed Fund at the time of the execution of the DOCA (which execution has already taken place). The equivalent clause in the KRI DOCA requires a payment of $30,000 into the KRI Deed Fund. Therefore, the Administrators would presumably already hold at least an amount of $100,000 which comprises the Deed Fund, contributed by TDH as proponent. Clause 6.3(a) of each of the TFM DOCA and the KRI DOCA provides that monies in the respective Deed Funds are non-refundable once paid, will vest with the companies should the DOCAs be terminated, and are subject to the Administrators' rights and indemnities under cl 18. Clause 18 of each of the TFM DOCA and the KRI DOCA provides that the Administrators are entitled to an indemnity against the Deed Fund for, amongst other things, their remuneration and costs associated with the voluntary administration process and the deed administration process. 97 On that basis, should the DOCAs be set aside and terminated, TFM and KRI say that TDH would undoubtedly suffer prejudices which includes all of the $100,000 non-refundable contribution made to the TFM and KRI Deed Funds by TDH.

Overview 98 Before dealing with the detail of the various facts and transactions raised by Decon, I propose setting out some general considerations which are relevant to the approach I have taken to the complaints raised. 99 Having regard to authorities such as Britax and Mediterranean Olives Financial Pty Ltd v Loaders Traders Pty Ltd (No 2) [2011] FCA 178, the key question is whether the Administrators have adequately performed their statutory duty to investigate such that they have a sufficient basis to recommend a DOCA instead of liquidation. The broad canvass of authorities by Dodds-Streeton J in Mediterranean Olives is, with respect, very helpful. In that case, her Honour referred (at [62]) to Hagenvale Pty Ltd v Depela Pty Ltd (1995) 17 ACSR 139 where Cohen J (at 145-146) said: As a preliminary matter, it should be noted that Pt 5.3A has its objects as set out in s 435A, namely the provision for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence, or, if that is not possible, results in a better return for the company's creditors and members than would result from an immediate winding up of the company. The intention was, as has been indicated in several cases, to provide a more expeditious and less expensive way of assisting those creditors and members than under the greater formality of a winding up or of the entry into a scheme of arrangement. One result, however, is that an administrator, constrained as he or she is by the time limits imposed under the Part, cannot carry out a detailed investigation of a company in the same way as can a liquidator, and accordingly the administrator's actions must be looked at in the light of that more restricted range of activities which are available to him. A further result, when dealing with a deed of company arrangement under Pt 5.3A, is that the amount of detailed information which would be given to creditors in a scheme of arrangement under s 411 of the Corporations Law is not available, again because of time restrictions and the need to have material sent to the creditors quickly. (Emphasis added.) 100 Dodds-Streeton J then said (at [63]-[67]): 63. In Hagenvale the plaintiffs alleged, inter alia, that the administrator's report failed adequately to examine the relationship between the defendant companies or to quantify the amount of the preferences, and that the company failed to give sufficient information in relation to an action against the directors under s 588G of the Act. Cohen J did not consider that the alleged deficiencies, or alternatively their materiality, were established. His Honour reiterated that the administrator did not have the time or resources for investigation as in liquidation. 64. In Deputy Commissioner of Taxation (Cth) v Pddam Pty Ltd (1996) 19 ACSR 498 ("Pddam"), Heerey J declined to set aside a DOCA under, inter alia, s 445D(1) of the Act. Despite finding some substantial departures from statutory requirements, his Honour did not consider that the administrators' investigation or report was inadequate. His Honour stated (at 510): I am not satisfied that the administrator failed to carry out the investigation required by s 438A(a). Perhaps more enquiries could have been made. Perhaps what the administrator was told by the directors and the receiver might not have been taken at face value. It is often possible to say of an investigation that, in retrospect, more could have been done. However the case that the applicant seeks to make out is not one of an inadequate or negligent investigation, but of a failure to comply with a statutory requirement, so that there was in truth no investigation at all. The passages already cited from the Harmer Report and the explanatory memorandum indicate that the investigation is intended by Parliament to be a swift and practical one. Part 5.3A assumes that the company in question is either trading while insolvent or likely to be in that position within a predictable period of time: see s 436A(1)(a). It is self-evidently essential that such a state of affairs be brought to an end promptly, either by the execution of a deed or by winding up. The tight time frames set for the convening of the first and second meetings of creditors are consistent with that need. 64. Heerey J also took into account, in the exercise of his discretion, that there was "no basis for concluding that...liquidation would confer any practical benefit on any creditor, including the applicant" (at 512) and that the loss of benefits under the DOCA would impose real hardship on former employees. 66. In Spiteri v Georges [2002] VSC 473, Hansen J reiterated that the administrator must act quickly in relation to both the first and second meeting of creditors, and in investigating and forming an opinion. His Honour dismissed an application by the director of the company to remove the administrator and set aside his decisions allowing a party to vote as a creditor in a particular amount, on grounds including alleged partiality and lack of independence. 67. Hansen J observed that where the director, contrary to the obligations imposed by the statute, had deliberately starved the administrator of information by failing to deliver the books and records, attend the meeting as required or otherwise assist, the administrator necessarily relied on information from creditors, on which the decision to admit the disputed claim was open (at [88]). 101 Dodds-Streeton J then turned to Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467; (2003) 45 ACSR 612, where Austin J described the administrator's duty to investigate as follows (at [339]): An administrator has a statutory duty under s 438A to investigate the company's business, property, affairs and financial circumstances. It is possible that he or she may fall under an obligation to obtain legal advice in order to discharge that duty properly in the facts of the case. But in assessing whether any such duty has arisen, the court is bound to take into account the limited time available to an administrator to carry out his or her investigations, the extent and complexity of the tasks to be carried out during that time, and the availability of funds for these purposes: see the Pddam and Portinex [Deputy Commissioner of Taxation v Portinex Pty Ltd [2000] NSWSC 99; (2000) 34 ACSR 391] cases, cited above. In some cases it will be open to the court, bearing in mind such considerations, to conclude that something less than an independent legal assessment will be sufficient. 102 Her Honour also noted that in Deputy Commissioner of Taxation v Wellnora Pty Ltd (2007) 163 FCR 232, Lindgren J concluded (at [198]) that, on the basis of a number of provisions of Pt 5.3A, an administrator was required to act with expedition within a tight timeframe, which should be extended or adjourned only exceptionally. Her Honour continued (at [70]): His Honour referred to the consistent distinction in relevant authority between the extent and quality of information available and investigations performed in, on the one hand, a voluntary administration and, on the other hand, a liquidation. In the former, the investigation was to be "swift and practical", as stated in Pddam at [226]. 103 Next, Dodds-Streeton J referred to Independent Cement & Lime Pty Ltd v Brick & Block Co Ltd (in liq) [2010] FCA 352, where Finkelstein J ordered the removal of liquidators pursuant to the former s 503 of the Corporations Act because, inter alia, they failed while administrators to adequately investigate and report on potential claims which, if successful, might have led to recoveries which would see the creditors better off than under the DOCA they had recommended, but which was subsequently set aside. In that case Finkelstein J stated (at [14]): Before dealing with this complaint, it is necessary to say something about the standard of investigation which an administrator is required to undertake. By reason of s 438A of the Corporations Act, an administrator is under a duty to investigate the company's affairs so as to be able to form an opinion about what future course of action is in the creditors' best interests and inform the creditors of that opinion. If the administrator has insufficient time before the second meeting of creditors at which the creditors will consider the administrator's advice to form this opinion, he or she may seek an extension of the convening period for the second meeting. In Bovis Lend Lease Pty Ltd v Wily ... Austin J said that there may be circumstances when the administrator needs to go beyond his statutory duties of investigation. The existence of a duty to make further inquiries would depend on "an assessment of the nature of the question to be investigated, the information in the administrator's hands, the cost and difficulty of making further investigation, and (most importantly) the significance of the issue under investigation to the creditors' decision": at [325]. Equally, however, an administrator is not required to undertake investigations to the same extent as a liquidator, given the time constraints imposed by Pt 5.3A: Deputy Commissioner of Taxation v Portinex Pty Ltd [2000] NSWSC 99; (2000) 34 ACSR 391 ... at [125]. 104 In Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395, as Dodds-Streeton J noted, the majority of the Court of Appeal held that the trial judge erred in finding, inter alia, that an administrator's investigation was inadequate. An important factor, as Giles JA (with whom Meagher JA on that issue agreed) stated at [213], was that: at no time in his cross-examination was it put to [the administrator] that he should have done more by way of preliminary investigation, that he had failed to consider breach of fiduciary or statutory duties as distinct from preference or that his investigation was inadequate to permit him to vote in favour of the [DOCA]. 105 Dodds-Streeton J also examined a number of authorities which had considered the relevance of an inadequate investigation by an administrator to the termination of a DOCA pursuant to various potentially overlapping provisions of the Corporations Act. For example as her Honour stated, in Re Bartlett Researched Securities Pty Ltd (1994) 12 ACSR 707, an inadequate investigation by administrators was an important factor in Derrington J's decision to set aside a DOCA pursuant to s 447A of the Corporations Act. The resolution to execute the DOCA was opposed by the major creditor with a claim for over $27 million but carried by the administrator's casting vote. Under the DOCA, the major creditor would receive $80,000 (as opposed to nothing on winding up) but the other unsecured creditors would receive a higher proportion of their respective debts. Derrington J accepted that the DOCA unfairly discriminated against and prejudiced the plaintiff. Despite the plaintiff's real but small advantage under the DOCA, his Honour found that in a number of areas, the administrator's enquiries were insufficient to justify his recommendation and his casting vote in favour of the DOCA. In particular, the administrator did not adequately investigate the sale of certain substantial company assets, the adequacy of the consideration for shares, the value of an asset subject to security or the reasons for, and adequacy of, the director's contribution. Derrington J stated that the administrator, who acknowledged that his investigation was somewhat superficial, gave very unsatisfactory evidence which did not establish that an adequate enquiry had been undertaken. The administrator produced minimal supporting documentary material and did not assist the Court (at 710). 106 Dodds-Streeton J referred to JA Pty Ltd v Jonco Holdings Pty Ltd [2000] NSWSC 147; (2000) 33 ACSR 691 where Santow J terminated, pursuant to, inter alia, ss 445D(1)(a), (b), (c), (e) and (f) of the Corporations Act, a DOCA entered by the corporate trustee of a family trading trust, which was narrowly approved by a vote of creditors, contrary to the administrator's recommendation. Santow J found that the company misled the administrator about its entitlement to an indemnity from trust assets, deliberately deprived him of access to essential books and records and dishonestly advanced a scheme to defeat creditors' claims. Dodds-Streeton J continued (at [84]-[87]): 84. While those matters alone may have justified setting aside the DOCA, Santow J's decision was fortified by his finding that the return under the DOCA would be likely to be less than on liquidation. That circumstance was relevant both to whether the DOCA operated oppressively or unfairly prejudiced a creditor or creditors, and to the Court's overall discretion to terminate a DOCA. 85. His Honour considered various calculations of returns on both the liquidation and DOCA scenarios. He concluded that liquidation (favoured by the administrator) was likely to afford the better return as, inter alia, the DOCA was based on the false assumption that the trustee had no right of indemnity against trust assets (at [90] [96]). 86. Santow J found that a number of serious improprieties and instances of misconduct were established. The director or his associates furnished a wholly inadequate and false RATA, denied the existence of the indemnity, fraudulently altered the trust deed, arbitrarily distinguished between creditors, acquired sufficient claims to control the statutory meetings, frustrated the administrator's attempts to carry out his statutory duties to investigate the company's affairs and report to creditors, propounded a DOCA which was blatantly oppressive to creditors, prevented the administrator from obtaining access to the Court and used votes to require adoption of the DOCA. The state of production of the books and records was also unsatisfactory. 87. In such circumstances, his Honour concluded that it was important for a liquidator with adequate powers to investigate the transactions identified as potential avenues of recovery. The misfeasance and state of the books impeded a concluded view on those transactions, but there were "sufficient indications in support of it to treat this as an independent basis for setting aside the deed" (at [101]). 107 As her Honour noted, in Bidald, Campbell J terminated a DOCA pursuant to s 445D(1)(b), (c) and (g) of the Corporations Act, in circumstances where the report to creditors contained materially false and misleading information and omissions, there were material contraventions of, and departures from, the DOCA, and the company would be insolvent when the DOCA came to an end. 108 Referring to Re Octaviar Ltd (No 8) [2009] QSC 202, Dodds-Streeton J noted that McMurdo J ordered the termination of certain DOCAs entered into by companies which had suffered a major group collapse, on grounds including (in relation to one DOCA) the provision of misleading information to creditors and the omission of information about the company's financial circumstances which could reasonably be expected to have been material to the creditors who, by a majority, voted for the DOCA (at [112]). Dodds-Streeton J continued (at [96]-[99]): 96 Her Honour observed that in the context of the major corporate collapse (at [175]), there were a number of avenues for potential recovery and, although full investigation and prosecution of the claims would be time consuming and expensive, there was evidence that litigation funding would be readily available. Further, most of the votes for the DOCA were by parties with an interest in avoiding a liquidator's enquiry, which, while it did not justify disregarding their views, detracted from arguments that the DOCAs merely represented a commercial decision (at [176]-[177]). 97 Her Honour also considered that in circumstances where, inter alia, the companies made extensive losses shortly after an appearance of good financial health (at [178]), it was in the public interest to set the deeds aside pursuant to s 445D(1)(g) in order to permit a liquidator's examination (at [179]). 98 Her Honour adopted the observations of Campbell J in Bidald (at [180]). She observed that in the case before her, the dividend to creditors under the DOCAs was small and there were prospects of preference, uncommercial transaction or insolvent trading recoveries. Although the evidence was mostly slight and any actual recoveries would depend on obtaining funding (at [180]), given the size of the corporate collapse, its impact on many institutions and individual investors, and the size of the possible recoveries, investigation of the transactions was likely to be financed by investors in outcomes of the litigation which might follow (at [181]). 99. McMurdo J concluded at [182]: Overall, the termination of the DOCAs would be beneficial also for the fact that it would permit some investigation of transactions and conduct which could lead to at least some of the persons responsible for some of the group's demise being brought to account. The public interest is therefore a consideration in favour of terminating the deeds. 109 Dodds-Streeton J referred to Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd (1997) 24 ACSR 47, where Branson J rejected an application to terminate a DOCA under s 445D(1) of the Corporations Act, based on the alleged inadequacy of the administrator's investigation of the likelihood of recovery from the holding company or the directors in liquidation. The applicant creditor alleged that the DOCA would provide a lower return than a liquidation and constituted an attempt to 'ride roughshod' over the creditor's rights. Her Honour continued (at [110]-[115]): 110. Branson J found that although the administrator's report was deficient in failing to specify whether voidable transactions were apparent, the omission was not material, as the administrator advised the creditors' meeting of legal advice that actions against the holding or associated companies and the directors in a liquidation were not sustainable. Her Honour also found that the statement in the administrator's report that property had been valued as a going concern was false but not material in the relevant sense. 111. The applicant also alleged that the administrator failed properly to consider potential claims against the directors and the holding company under various statutory provisions in a liquidation. Branson J noted "obvious difficulties with, and limitations on, inquiries as to the reasonableness of conclusions reached by administrators on the question of the likelihood of recoveries by a liquidator should one be appointed" (at 51). Her Honour recognised that she could not reach a final conclusion as to the results of claims which might be made under Part 5.7B of the Corporations Law should a liquidator be appointed. 112. Her Honour (at 51) referred to Hamilton v National Australia Bank Ltd (1996) 66 FCR 12 at 34, where Lehane J stated: In my view the task of the Court in a case such as this is to form a view, on all the material before it, as to whether there is a real prospect that in a liquidation claims in which (or in the fruits of which) the second secured creditor has an interest could and would be pursued so as to afford to the second secured creditor recovery of more of the debt owed to it than it would obtain under the proposed deed of company arrangement. 113. Branson J stated (at 53): I am not satisfied on the evidence before me that there is a real prospect that a liquidation claim in which the applicant has an interest could and would be pursued were the company to go into liquidation so as to afford the applicant recovery of more of the debt owed to it than it would obtain under the DOCA. 114. Branson J rejected the allegation that an asset was inaccurately valued. Her Honour accepted the administrator's evidence about the information he provided to the independent valuer. Her Honour found that the applicant had not queried the valuation and, had it done so, the administrator would not have opposed obtaining a further valuation. 115. Branson J declined to terminate the DOCA under s 445D of the Act. 110 Dodds-Streeton J also discussed Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 156 FLR 453 per Austin J, where the Commissioner, sought to terminate or set aside DOCAs entered into by several companies, alleging inter alia, that the administrator was invalidly appointed, had wrongly admitted a party to vote as a creditor, and failed to investigate the companies' affairs diligently. Her Honour continued (at [122]-[130]): 122. In particular, the plaintiff alleged that the administrator's investigations of possible preferences and insolvent trading by the directors were inadequate. The DOCAs were thus approved on the basis of a misleading report, which failed to give a true and fair view of the relevant affairs of the companies and "the effect of each deed [was] to forestall a proper investigation of the affairs of each of the companies and the conduct of their directors, former directors and advisers" (at [6]), so that the public interest required their termination. The plaintiffs sought declarations that the DOCAs were void under s 445G(2) of the Act based on the same allegation. 123. In the case of one company, the related creditor abstained from voting on the resolution to enter a DOCA and all creditors save the plaintiff voted in its favour, including a creditor the value of whose debt exceeded that of the plaintiff's debt. The resolutions for the other two companies to enter a DOCA were supported by all creditors save the plaintiff. 124. Under the DOCAs, a deed fund was established for distribution to creditors save for the related parties. 125. Austin J refused to terminate the DOCAs due to a combination of factors, including the risk of prejudice occasioned by unexplained delay in bringing the application (at [78]). 126. Austin J considered relevant authority, including Khoury. His Honour observed at [86] that s 600A(1)(c)(i) of the Act appeared to direct attention to the interests of the company's creditors as a whole, rather than the interests of a class of creditors such as the dissenting creditors. 127. His Honour stated that some judicial approaches to s 600A(1)(c)(ii) appeared to require a comparison between the position of the dissenting creditors under the DOCA with their position if that DOCA had not been executed and the company had been liquidated (at [87]). In contrast, other approaches apparently contemplated a comparison between the existing DOCA and a different or amended DOCA. Austin J observed that where no "third" option was available, the dissenting creditor's position under the DOCA should be compared with its position under winding up (at [90]). If it were not feasible to negotiate a different kind of DOCA, the question of prejudice boiled down to whether the creditors were better off with the proposed DOCA or liquidation, as there would be no alternative on the facts (at [89]). Nevertheless, a difference between the treatment of one group of creditors and other creditors did not, in itself, constitute unreasonable prejudice within the meaning of s 600A(1)(c)(ii), as creditors could agree openly and in good faith on other than equality of treatment. 128. In Portinex, Austin J concluded that the plaintiff was better off under the DOCA, as it received a small distribution and payments of tax from two companies, which, in winding up, might constitute preferences. Further, the DOCAs kept the two principal operating companies afloat, offering creditors distributions better than they would receive on winding up, supported by a guarantee. His Honour also took into account that entry in the DOCAs was part of a package of benefits (including some payments for arrears of tax) for which the plaintiff had negotiated and received (at [94]). 129. Austin J recognised that the plaintiff lost the potential benefit of any recoveries a liquidator might obtain from directors for insolvent trading or from other related creditors for voidable transactions, but in refusing to grant relief under s 600A of the Act, concluded (at [92]): However, given the cost of proceedings for recovery and the evidence suggesting that the Deputy Commissioner would be reluctant to fund proceedings, it is not only uncertain that proceedings would be successful, but doubtful that they could be taken at all. 130. His Honour also refused to terminate the DOCA under s 445D of the Act. 111 As the authorities surveyed by Dodds-Streeton J demonstrate, the Court's discretion is wide but should be exercised having regard to the interests of creditors and also the public interest. Additional support for the proposition is found in Bidald (at [287]) and TNT Building Trades Pty Ltd v Benelong Developments Pty Ltd (Administrators Appointed) [2012] NSWSC 766 per Black J (at [27]), citing Emanuele v Australian Securities Commission (1995) 63 FCR 54 and Fleet Broadband Holdings Pty Ltd v Paradox Digital Pty Ltd [2005] WASC 261, where Master Newnes (as his Honour then was) said (at [57]-[65]): 57 When considering whether to terminate a deed under s 445D, the Court must approach the discretion provided under s 445D(1) by looking at the whole of the effect of the deed and assessing its unfairness, if any, to the plaintiff, but in doing so, must bear in mind the scheme of Pt 5.3A of the Act and the interests of other creditors, the company and the public generally: Sydney Land Corporation Pty Ltd v Kalon Pty Ltd (1997) 16 ACLC 95; Kalon Pty Ltd v Sydney Land Corporation Pty Ltd (No 2) (1998) 16 ACLC 540 at 544; Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd (1996) 70 FCR 34 at 48. The mere fact that a creditor is prejudiced by the operation of the deed is not a sufficient reason to terminate a deed; the mere existence of the deed procedure usually means that some creditors will gain something and some creditors will lose something out of the arrangement: Lam Soon Australia (supra); Khoury v Zambena (1997) 15 ACLC 620 at 627. 58 In deciding whether effect cannot be given to a DOCA without injustice within the meaning of s 445D(1)(e), the Court must examine the effect of the DOCA and not its purpose; alleged improper purpose is irrelevant: Cresvale Far East v Cresvale Securities (2001) 37 ACSR 394 at [189]. In that case it was held that the fact that the purpose of a provision in a DOCA, and even its effect, was to dilute existing shareholdings was not, of itself, a reason to terminate the DOCA. 59 In considering whether a deed is oppressive or unfairly prejudicial or discriminatory under s 445D(1)(f), it is necessary to consider the effect of the deed against the background of the general principles underlying Pt 5.3A, which establish the basic right of a creditor to be paid or to wind a company up, or to have the company administered by the administrator in a way that keeps the company's business going and will see the creditor paid something out of the property of the company. If a deed departs from that, a creditor is more easily able to say that it is operating oppressively: Sydney Land Corporation Pty Ltd v Kalon Pty Ltd (supra) at 99. 60 Where s 445D(1)(f)(i) is relied upon, the Court looks at the whole of the effect of the DOCA and assesses its unfairness, if any, to the plaintiff creditor bearing in mind the scheme of Pt 5.3A, the interests of the other creditors, the company and the public generally: Sydney Land Corporation Pty Ltd v Kalon Pty Ltd (supra) at 98. In order to consider questions of fairness it is necessary to look at the whole of the circumstances and see if there is overall unfairness: Hagenvale Pty Ltd v Depela Pty Ltd & Serrada Holdings Pty Ltd (1995) 17 ACSR 139 at 151; Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 156 FLR 453. The criteria that guide the Court are fairness and practicality of the scheme as a whole: Re Bartlett Researched Securities Pty Ltd (1994) 12 ACSR 707 at 710. 61 It is for the Court to decide whether, in balancing the interests of the creditors as a whole against minority creditor interests, the DOCA acts so as to unfairly prejudice the interests of the minority. The Court decides this "according to ordinary standards of reasonableness and fair dealing". Whether the conduct is unfairly discriminatory will be judged on standards which reasonable commercial persons acting bona fide would think to be fair: Jenkins v Enterprise Goldmines NL (1992) 6 ACSR 539 at 550. That case was concerned with an application of oppression of members but the expression "oppressive or unfairly prejudicial to, or unfairly discriminatory against" in s 445D(1)(f) is in the same terms as s 232 and, so long as it is borne in mind that in the former the oppression may be of creditors by other creditors rather than of members by directors or other members, the case law dealing with oppression under s 232 is of assistance: Deputy Commissioner of Taxation v Portinex Pty Ltd (supra) at [100]. 62 The fact that the deed discriminates between creditors will not of itself establish that it is unfairly discriminatory or prejudicial: Khoury v Zambena Pty Ltd (supra) at 627; Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd (supra). The test under s 445D(1)(f)(i) is not merely discrimination or prejudice, but unfair discrimination or unfair prejudice: Deputy Commissioner of Taxation v Portinex Pty Ltd (supra) at [102]. Some degree of discrimination is not necessarily unfair. Thus it is clear that a DOCA may provide the differential dividends among creditors: Hamilton v National Australia Bank Limited (1996) 66 FCR 12 at 38. Part 5.3A does not require a pari passu distribution. What is required is a better return to creditors than an immediate winding up: Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd (supra). That object is met if some creditors are better off than in a winding up and none are worse off under the DOCA than they would be under a winding up. … 65 Even if the Court is satisfied that one of the grounds under s 445D(1) has been made out, it retains a discretion as to whether or not to terminate the DOCA. The discretion is a wide one. It is to be exercised having regard to the interests of the creditors as a whole and to the public interest: Emanuele v Australian Securities Commission (1995) 63 FCR 54; Khoury v Zambena Pty Ltd (supra); Deputy Commissioner of Taxation v Portinex Pty Ltd (supra) at [105]. (Emphasis removed from case names.) 112 As the authorities make a clear, there is a wide range of evaluative, discretionary decisions that administrators are required to make with the benefit of appropriate expertise about what information should be verified and what can be followed up in the constraints of the limited time and resources available. 113 The authorities note that what has to be done is to be carried out within a three week period as determined by statute. Although it may be open to administrators to apply to the Court for an extension of time in an exceptional case, this also is very much a matter of their judgement as to the likely utility in doing so. I do not regard that as being a pertinent factor in this case as it was not put to Mr Melluish in cross-examination that he should have sought an extension of time from the Court. The statute does not contemplate that an administrator will be able to conduct a speedier, but just as effective, version of a liquidator's investigation. 114 The statute of course is not prescriptive about what particular inquiries or investigations an administrator must make. It is clear that this also is to be a question of judgement for the qualified professional. 115 Decon has not gone so far as to suggest that the Administrators have breached the statutory duty. Decon's case is that the Court should be satisfied that there are aspects of the underlying facts which render the DOCAs unsatisfactory such that the Court should intervene to set aside them and order consequential relief. 116 But to illustrate these points, Mr Melluish was asked a series of questions about what matters he had examined and why he hadn't examined others. These inquiries were entirely appropriate but it was not squarely put to him, nor is it Decon's case, that he acted negligently or in breach of the statutory duty. It is certainly not a finding I would make on the evidence. At a general level, I consider that Mr Melluish, an independent and experienced insolvency professional, gave evidence frankly as to decisions taken, errors or omissions made, and matters not pursued, explaining in each instance why that was so and as to his evaluative approach. 117 I accept the Administrators' submission that the failure to recognise the judgment debts at the first meeting of creditors is something of a distraction now because it has no bearing on the outcome of the ultimate decision to adopt the DOCAs. The debts were recognised at the second creditors meeting. The explanation given by Mr Melluish for not recognising the judgment debts at the first meeting by reason of the existing cross-claim was in my view plausible and falls within the discretionary range of decision-making which is appropriate for an administrator. I do not consider that the decision reflected any bias against Decon, and it is difficult to see how any material prejudice arises given that Decon was admitted for the full amount of its Judgment Debt at the second meeting. 118 Speaking generally again, in relation to the various errors or omissions in reports to creditors, taken individually or indeed cumulatively, I am not satisfied that they are, objectively viewed, sufficiently 'material' in the sense used in the legislation to the vote of the creditors. I was not persuaded that objectively viewed there were errors or omissions which might realistically have affected the outcome on the DOCA vote: Bidald (at [292]-[294]). 119 At all times for these single purpose companies, the fundamental issue for the Administrators was the likely comparative return to creditors by entry into the DOCA on the one hand or liquidation on the other. There was no prospect of a return to trade. In my assessment, the Administrators have conducted that exercise sensibly and have applied their skill and expertise to the evaluation of the comparative prospects of recovery by creditors in the two situations. 120 Another way to approach the analysis is to ask the question whether, if hypothetically voting came down to a casting vote of the Administrators, it would have been appropriate for the Administrators to support the DOCAs. That is to be answered in this case at least, by reference to the question of whether there is a realistic prospect of a better return under a liquidation such that entry into the DOCA would be unfairly prejudicial to Decon. I consider that in that hypothetical scenario it would be appropriate for the Administrators to support the DOCA with a casting vote. Indeed, the Administrators have deposed to the fact that, even in light of errors identified by Decon which they have accepted, they are still of the view that the DOCAs will provide a better prospect of return than under a liquidation and would have exercised any casting vote accordingly. 121 This is intended to be a practical insolvency regime. It is often of course disappointing to creditors as is the case in the present circumstances. That is more to do with an absence of available funds for creditors, rather than who should get them. But the statutory object is to achieve the formation of a relatively prompt independent expert view as to what course to recommend to the creditors in all the circumstances. Sometimes this is more of a rough and ready process as the authorities acknowledge and not an exact science, but of course qualified administrators are suitably trained to perform that task. The availability of an administration as an insolvency tool is to provide a trade-off for what would otherwise be a far more time-consuming and usually expensive process in liquidation. 122 Decon has also raised a question about the actual date of insolvency as assessed by the Administrators. Decon's argument relies on statements made by the companies' then senior counsel to the Supreme Court and the Court of Appeal to the effect that, absent a stay of Decon's Judgment Debt obtained in 2019, the companies were insolvent. When read together with statements recorded by Stevenson J that the companies had acknowledged their debt to Decon 'as long ago as 11 October 2018', Decon says it is reasonably arguable that the companies were indeed insolvent from at least October 2018. In their reports, the Administrators' view, on the basis of the investigations carried out, was that the companies were insolvent from at least June 2019. Decon has led no further evidence to support its asserted date of insolvency and while it may be an arguable position, I do not see this as being a fertile field of complaint. 123 Another argument advanced for Decon is that the Administrators failed to recognise the importance of different creditors for different companies within the group such that treating TDH, KRI and TFM as though they are all part of one group entity fails to distinguish between the financial consequences attaching to the separate entities in their own right. The approach taken by the Administrators was essentially that although securities were given over the real property of both KRI and TFM, those companies derived the benefit of the Epping Development. In relation to the Administrators' effectively proceeding on a group basis, the rationale of that decision was that the benefit of the purchase of the land accrued to KRI and TFM. The Administrators considered it was therefore appropriate for those companies to bear some burden in exchange for the benefit. I will come to the detail of these transactions in due course. 124 I am not persuaded that the Administrators relevantly erred in this regard. Other than some relatively minor errors in the amounts involved, the two companies shared the same creditors as might be expected because they were engaged in what would typically be understood as a joint enterprise. It has not been shown that this gloss, if it be fairly so described, resulted in any adverse or incorrect outcome for creditors as a whole, or even Decon specifically. 125 There is an important question of onus. It seems clear from Britax (at [91]), Mediterranean Olives (at [179]) and Bidald (at [138]) that the onus rests upon the plaintiff to establish that s 445D(1) has been engaged. There is some suggestion by Besanko J in Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 4) [2019] FCA 1846 (at [1384]) that while the plaintiff has the onus to show the section applies, it may be within the discretion of the Court to treat that onus as shifting. Either way, in this case the consideration for the Court is whether or not there are realistic prospects of a greater recovery under liquidation (and that the Administrators were in error in concluding otherwise) and whether Decon has discharged its onus of establishing that fact. I am not satisfied that it has. Generally speaking but importantly, there is some prospect of establishing some possible breaches, but there is little to no evidence as to the likely benefits of doing so in a recovery sense. That matter must be approached in a practical way guided by suitable expertise based on experience and qualifications. I am satisfied that the Administrators have approached the question in this manner. Relevant to the Administrators' recovery assessment was the understanding that the former director, Mr Eric Zhang, owns only one real property with an estimated value of between $1.6 million and $2.2 million however during cross-examination Mr Melluish conceded that the Administrators were not aware of the exact financial positions of Mr Eric Zhang or TDH. The current director, Mr Guoqiang Zhang was only appointed in April 2020 and would not be of interest in relation to transactions occurring prior to that time. In any event, he does not own real property in Australia. The former director does own shares in TDH. The value of those shares is quite unclear. Although Mr Melluish did ask for that information, he was not provided with it. He had no power of compulsion to obtain the information. 126 Similarly, on the topic of practical recovery, I note that Decon has expressed a willingness and ability to fund litigation which may be brought by a liquidator in respect of arguably voidable transactions, but in terms of substantial information relevant to capacity to fund such litigation, there are a few concrete details. 127 It is somewhat unusual that the DOCA proponent has not participated in the proceedings before the Court. Nonetheless, I do not consider there is an appropriate basis to draw an inference one way or another by reference to that fact. There is more than enough material before the Court on which to form a view on the key questions. Amongst the numerous possible explanations for non-participation is the obvious one of saving further cost especially when the Administrators have been able to provide detailed information and explanation to the Court. 128 Dealing again, at a general level at this stage, the security granted to Shanghai Yilian arose in 27 November 2018 when KRI and TFM guaranteed TFM's debt to Shanghai Yilian. It does not appear to be challenged that TFM provided part of the purchase price for the Epping land through a loan from United Investment Australia Holdings Ltd and in turn from Shanghai Yilian. The Administrators proceeded on the basis that it was appropriate in the circumstances for TFM and KRI to assume obligations to Shanghai Yilian because TFM's obligations arose from that purchase in which TFM and KRI derived a direct and material financial interest. In a liquidation perhaps there might be some scope for challenging an approach on this basis but there may also be weaknesses in the challenge and certainly there would be a danger of spending good money in a somewhat speculative pursuit. 129 In any event, as disclosed in the creditors' report for TFM, the assessment of the Administrators was that there would be difficulty in pursuing or further investigating the dealings with Shanghai Yilian because they appear to have arisen in November 2018 when the Administrators regarded the insolvency date as being between June and September 2019. Similar considerations apply to the other impugned transactions which I examine in more detail below. 130 There seems little doubt that the plaintiff has correctly established that there were inadequacies in the book keeping and recording of those advances. The Administrators have been alive to this and have conducted investigations on this topic and concluded that despite these deficiencies, they are satisfied that monies have been advanced for the benefit of the companies rather than any other persons. They have justified those conclusions in a way which I also explain more fully below. I am not satisfied that there has been any error in the approach taken to the evaluation. 131 As to oppression or prejudice, Decon would need to establish that any oppression or prejudice was unreasonable. It points to the terms of the DOCAs which provide for pursuit of the cross-claim against Decon. This does not constitute material prejudice in the sense explained by the authorities. There is no suggestion that this course could not be pursued under a liquidation. Decon has not been treated as a separate class of creditor against which adverse considerations would be applied.

Application of principles in more detail 132 As noted, the Administrators were appointed on 30 June 2020. On the same date, receivers and managers were appointed to the assets and undertakings of TFM and KRI by its ultimate shareholder TDH and an unrelated secured creditor Atlas Advisors Australia Pty Ltd. The creditors of each of TFM and KRI passed resolutions to enter into the DOCAs on 27 July 2020. The proponent of the DOCAs was technically Mr Eric Zhang who as noted, owns shares in and is the director of TDH (being the entity obliged to pay the amounts constituting the Deed Fund under each of the DOCAs). For that reason, TDH, which has the liability has been described on occasions as the proponent. 133 The Administrators' Reports to Creditors (together the Creditors' Reports and each the TFM Report and the KRI Report) of 20 July 2020, recommended that the creditors resolve to enter into the DOCAs, primarily because their view was that entry into the DOCAs would provide a greater return to creditors than a winding up. 134 This is the critical consideration in administrations that do not contemplate the ongoing operation of a company's business post-administration (sometimes called a 'de-facto winding up'). 135 This notion is central to the legislative objects of Pt 5.3A of the Corporations Act. Section 435A of the Corporations Act provides: 435A Object of Part The object of this Part, and Schedule 2 to the extent that it relates to this Part, is to provide for the business, property and affairs of an insolvent company to be administered in a way that: (a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or (b) if it is not possible for the company or its business to continue in existence results in a better return for the company's creditors and members than would result from an immediate winding up of the company. Note: Schedule 2 contains additional rules about companies under external administration. 136 As the parties agree, the substance of Decon's complaint falls into three connected categories: (a) first, that the Creditors' Reports contain materially misleading information or omissions (largely about the extent of claims of the secured creditors of TFM and KRI); (b) secondly, that entry into the DOCAs precludes investigations into various transactions, largely connected to securities, which Decon says could give rise to further recoveries; and (c) thirdly, that the DOCAs are unfairly prejudicial to or unfairly discriminatory against Decon because they do not enable further investigation into the security position and instead enable the cross-claim against Decon to continue. 137 Although the Epping Development was completed in late 2018, at the date of the Administrators' appointment 50 apartments remained unsold. 138 As noted, Decon and Vanella claim outstanding amounts from TFM and KRI under construction and joint venture contracts relating to the Epping Development, and Decon has the benefit of its Judgment Debt in the amount of $6,355,352.46 against TFM and KRI arising from an unmet payment claim under the SOP Act. 139 At the time the SOP Claim proceedings were commenced, Decon and Vanella sought at least the amount of the Judgment Debt. Decon has lodged caveats over eight units to secure the outstanding amounts said to be owed. The validity of those caveats is also disputed 140 The Administrators express no view about the strength and prospects of the cross-claim. Although the Administrators have received documentation, including evidence filed in support of the cross-claim which could potentially substantiate the basis of the cross-claim, for the purpose of the Administrators' analysis of the estimated return to creditors under the DOCAs compared to a liquidation, it is important to appreciate that the Administrators worked on the conservative premise that there would be no recovery under the cross-claim. Put simply, it was not possible for the Administrators, in the time available to them and operating under the usual constraints, to form a view about the likelihood and quantum of any return being generated from that cross-claim. The Administrators did not purport to do so. 141 At the second meeting of creditors, following remarks by Stewart J in Decon v TFM (No 1) (at [12]-[14]), Decon was admitted for the entirety of its proof of debt in the amount of $6,638,352.46 with respect to both companies (arising from the Judgment Debt). Vanella was also admitted for the sum of $1,551,825 in respect of TFM (arising from a progress claim under a joint venture agreement). The Administrators correctly point out that this presupposes without deciding, that any cross-claim will fail. 142 Under the terms of both DOCAs, TDH (as the ultimate shareholder of TFM and KRI) will fund the cross-claim which is under the control of the receivers and managers. In the event that this litigation yields recoveries, 30% of the net litigation proceeds will be paid to the Deed Fund, to be applied 70% towards TFM and 30% towards KRI. Again, for the purpose of their analysis, the Administrators assumed there would be no such recovery. It is open, of course, to Decon to plead a set-off in the cross-claim. Under a liquidation TDH could in theory also fund the liquidator to advance the cross-claim with the same set-off being available to Decon. 143 Further, TDH will not prove under the DOCAs for its admitted debt of $3,254,099.86 from TFM and of $2,376,808.43 from KRI. Pursuant to its loan agreements with the companies, TDH has the benefit of an unregistered mortgage over 23 apartments, of which 21 remain unsold at the date of administration. Of these, 13 are secured by a first ranking mortgage to another secured creditor. TDH has lodged caveats over the remaining eight apartments, however, they are the subject of the caveat dispute with Decon. The Administrators have quantified the granting of the security to TDH as extending to the sum of $915,000. They are of the view that any liability beyond this figure could be classified as an uncommercial transaction. 144 Under the DOCAs, in relation to the caveat contest between TDH and Decon, TDH will, on recovery of any of its debts from the realisation of the assets, contribute 50% of the net recovery proceeds to the Deed Fund to be applied to TFM 70% and KRI 30%. As the Administrators point out however, the caveat lodged by Decon over the eight apartments are first in time, such that TDH's ability to realise any value from its secured interest depends upon the survival of Decon's Judgment Debt given the considerations of set-off in relation to the cross-claim. During the hearing, counsel for the Administrators also made the point that there is no clear basis for Decon's caveats currently before the Court as it has simultaneously been admitted for the full sum of its Judgment Debt. 145 The Administrators rely upon two affidavits, the First Melluish Affidavit and the second affidavit of Mr Melluish sworn on 5 September 2020. Two large booklets were exhibited to these affidavits. There is no shortage of material available to the Court. 146 The Administrators' overall position is that, for the reasons analysed below, the matters raised by Decon have not caused them to alter their view, expressed in their Creditors' Reports, that the TFM DOCA and the KRI DOCA will allow a greater return to TFM's and KRI's ordinary unsecured creditors compared to a liquidation. 147 For that reason, they say that there have not been any material errors or omissions to justify the administrations coming to an end. Furthermore, had a situation arisen at the second meetings of creditors that required Mr Melluish to exercise his casting vote; he would have cast in accordance with the Administrators' recommendations to vote in favour of the DOCAs.

Creditors and estimated returns 148 The Administrators' assessment of the creditors of TFM is: (a) six secured creditors (excluding NAB who whilst having the benefit of an ALLPAAP [All present and after-acquired property] security is not owed any debt) with claims in the total sum of $32,104,194.80. One of these creditors, TDH, has the benefit of an ALLPAAP registration and the unregistered mortgage and caveats securing its claim of $3,254,099.86 subject to the caveat dispute with Decon; (b) there are 12 unsecured creditors with claims in the total sum of $16,669,481.90 (including Decon and Vanella whose total claims were admitted for $8,190,177.46); and (c) of this total of 18 creditors, three are related parties of TFM being: (i) Tasman Serviced Apartments Pty Ltd (TSA), unsecured in the amount of $111,990.75 and admitted at the second creditors meeting to vote for the full sum; (ii) KRI, unsecured in the amount of $1,040,590.10 but not admitted for voting purposes; and (iii) TDH, secured in the sum of $3,254,099.86, subject to the issues already raised. 149 In relation to KRI, in the KRI Report the Administrators assess that there are: (a) four secured creditors (excluding NAB who whilst having the benefit of an ALLPAAP security is not owed any debt) with claims in the total sum of $22,978,126.13. One of these creditors is TDH, whose position is the same as in relation to TFM, save that its claim is for $2,376,808.43 in relation to KRI; and (b) seven unsecured creditors, none of whom are related parties, with claims in the total sum of $5,056,472.35. This figure excludes Decon's Judgment Debt in the sum of $6,638,352.46, which was only admitted at the second meeting after the KRI Report had been prepared. 150 The Administrators expressed the view in the TFM Report, and remain of the view, that the unsecured creditors will receive a more expeditious and higher dividend pursuant to the DOCA (being in the range of 2.78 cents to 5 cents) than they will in the event that the company is wound up (the estimated return in that event being between 0.02 and 1.41 cents). In relation to KRI, the estimated return to creditors pursuant to the DOCA is in the range of 1.08 cents to 2.27 cents compared to no return on a winding up. Of particular significance to the Administrators' view is their assessment that: (a) the aggregate minimum cash Deed Fund available to creditors under the DOCAs will be the sum of $750,000 (albeit paid in stages with $300,000 payable within 18 months and the remainder by 21 December 2022). In the event that TDH succeeds in its priority contest with Decon in relation to the caveats, this could increase; (b) because of the ambit of the secured creditors' claims, which does not leave a surplus available for unsecured creditors, the only assets available in a liquidation to unsecured creditors would be the proceeds of recovery actions: (i) regarding TFM, the Administrators did identify a potential unfair preference claim and insolvent trading claims against the former director Mr Eric Zhang and TDH, with net recoveries estimated to be in the range of $205,000 to $547,912 ; (ii) in relation to KRI, the Administrators identified a potential insolvent trading claim against the former director Mr Eric Zhang, with estimated net recoveries estimated to be in the range of $60,000 to $114,918 on a winding up; and (c) none of the relevant transactions now raised by Decon, in the Administrators' view, gives rise to a clearly available causes of action or of recovery if any such cause of action was made out. In this regard, the Administrators formed the view that Mr Eric Zhang may have some financial capacity to satisfy any claim identified against him. The Administrators were not provided with information about the financial position of TDH but proceeded on the basis that TDH could meet Mr Eric Zhang's liability.

Voting 151 At the second meeting of creditors of TFM, all admitted creditors except for Decon and Vanella voted in favour of entry into the DOCAs. In relation to KRI, all creditors other than Decon voted in favour of the entry into the DOCAs. On both votes, Decon was admitted for the highest amount in the sum of $6,638,352.46, with Ms Weili Jia admitted for the next largest sum in the amount of $4,307,224.89. 152 I note that, as indicated in the discussion of the authorities above, Pt 5.3A does not proceed on the basis that the will of the majority creditor necessarily prevails. The authorities support the proposition that the scheme of Pt 5.3A of the Corporations Act does not permit the individual will of one creditor, even a creditor entitled to claim the most significant sum in the administration, to set aside the DOCA without first establishing that the conditions of one or other of the sub-paragraphs of s 445D(1) have been satisfied. It is convenient to refer again to the reasoning of Burley J in Britax where his Honour said (at [104]-[105]): 104 In Mediterranean Olives, Dodds-Streeton J noted (at [192]) that the plaintiffs could not establish viable causes of action or negative the administrators' estimates of the probable nil return to the unsecured creditors on winding up. The plaintiffs submitted, however, that as the administrators' investigations were inadequate and the Deed of Company Arrangement depended on the support of related creditors, the Court should, if outstanding issues reasonably called for further investigation, "readily uphold their bona fide preference, as the major independent creditors, for liquidation", at [192]. Her Honour, at [193], said: As Network and Portinex make clear, however, unless the outcome of the relevant resolution is contrary to the interests of the creditors as a whole, the defeat of a major creditor's preference by the votes of related creditors is irrelevant. 105 In DCT v Portinex/Silindale/Dalvale [2000] NSWSC 99; (2000) 34 ACSR 391 (Portinex) ACSR 391 Austin J at [137] summarised the position as follows: This is a case where by far the most substantial unrelated creditor has been outvoted by related creditors and now finds himself bound to arrangements to which he objects. He objects broadly on the grounds that the arrangement unduly benefit the director of the companies and that the administrator has made inadequate investigations. If there were nothing more to the case than this, the creditor may have at least a sound moral case for assistance. But Pt 5.3A clearly contemplates that the wishes of an individual creditor may be overridden, and permits related creditors to take part in the decision to do so, subject to s 600A.

Land acquisition 153 Decon takes issue with the Administrators' view that the acquisition costs paid by TFM to purchase the Epping Development land total approximately $23.5 million. It says there is conflicting evidence and a 'degree of muddiness' to precisely how the land purchase was financed. 154 The Administrators' position has been that the available information supports their view that the Epping Development land acquisition costs were as specified in the Creditors' Reports, namely, approximately $23.5 million. In reaching this conclusion the Administrators took account of the following: (a) there does not appear to be any dispute as to the cost of the land in the amount of $16.65 million; (b) as to how TFM was able to acquire the land, on or about 1 May 2015, TFM and Brilliant A Project Pty Ltd (Brilliant A) entered into a Deed of Procurement; (i) cl 2.2 of the Deed of Procurement restrained Brilliant A from exercising a first-option it had to purchase the land in exchange for the 'Novation Procurement Fee'; (ii) cl 7.1 of the Deed of Procurement defined the Novation Procurement fee as 'the sum of $1,335,000'; (c) but for the Deed of Procurement, it appears as though Brilliant A would have been able to purchase the land the subject of the Epping Development pursuant to a 'Put and Call Options Agreement' it entered on 8 October 2014 with three other entities; (d) a further parcel of land, known as lot 8, was also purchased by TFM at or around the same time without the need for TFM to buy out any option holder; (e) on 1 May 2015, TFM and Brilliant A also entered into a Development Approval Procurement Deed (DAPD); (f) the effect of the DAPD appears to have been to confer whatever benefit Brilliant A had been able to obtain in respect of obtaining certain development approvals to TFM in exchange for the DA Procurement Fee; (g) the DA Procurement Fee was 'the sum of $6,650,000.00 as adjusted in accordance with subclause 2.2'; (h) in accordance with cl 2.2(d)(i) of the DAPD, a pre-payment sum of $4,434,000 was paid by TFM as reflected in its ledger; (i) the following payments were also made in connection with TFM's acquisition of the land: (i) the 'Development Application' fee referred to in a 15 June 2015 letter from TFM's solicitor as being in the sum of $38,758.20; (ii) a consulting fee paid to Regal Project Consulting Pty Ltd in the sum of $49,500; and (iii) consultancy fees paid to the Australian Properties Holdings Co Pty Ltd, Tasman Funds and A Land Realty Pty Ltd and an unrelated person, Mr Xu, in the sum of $1,054,545.56. 155 These amounts total $23,561,803.76. 156 The quantum of acquisition costs played no role in the Administrators' estimation of the likely comparative return to creditors. I accept the Administrators' submission that this assessment, even if wrong, could not have been material to creditors within the meaning of s 445D(1)(a) of the Corporations Act: cf Bidald (at [165]-[177]). 157 Bearing in mind the need at all times to focus on the best return for creditors, I consider the Administrators are right to suggest that in the circumstances discussed above, it is difficult to see how any further interrogation or investigation of the land acquisition costs presents any realistic prospect of a better return to creditors in a winding up than what is presented by the DOCAs.

Cross-claim 158 Turning then to the issue of the cross-claims against Decon and Vanella, it is clear that by the time of voting, the Administrators had made plain that each of those companies had been admitted as creditors for their Judgment Debt. Furthermore, the value of these debts was incorporated into the Administrators' quantification. With respect to the alleged misstatement of the value of the cross-claim, statements made in the Creditors' Reports referred to the value as assessed by TFM and KRI. The Administrators made plain that they could not form a concluded view about the value of that claim and ascribed no value to it for the purpose of quantifying the comparative likely return to creditors. 159 The TFM Report does record the debt owed to Decon as $nil. However, at [9.2], further consideration of the potential claim from Decon (which is disclosed to the full extent of its dollar value) is set out including the potential effect of a successful cross-claim brought by, amongst others, TFM against Decon. Similar treatment and consideration appears in the KRI Report. It cannot be said that the Administrators have in any way prejudged the prospects of the cross-claim, noting that they are unaware of the prospects of the cross-claim, had not sighted any legal advice as to the merits, and expressed the view that the very nature and outcome of litigation is uncertain. I can see no difficulty in the approach taken by the Administrators.

The CLG Share Agreement 160 Next, and as noted above (at [26]-[28] and [75(b)]), there is an issue concerning the CLG Share Agreement. Decon asserts, amongst other things, that the Administrators have inappropriately treated an equity contribution as a loan, which it says warrants further investigation. Again, it is not at all apparent how this investigation could improve the likely return to unsecured creditors. In my view, there is nothing to suggest that the payment to CLG appears to have been for an improper purpose and it follows that it is relatively immaterial to the interests of creditors whether this payment is characterised as repayment of a loan or an equity contribution. What is important is that the TFM Report correctly characterises the dealings between TFM and CLG as, effectively, giving rise to an obligation owed by TFM in circumstances where the shares taken up by CLG were subject to redemption at the option of CLG (and as to which such redemption did occur). Equally, the KRI Report correctly characterises the dealings between KRI and CLG as, effectively, a transaction which required KRI to adhere to repayment obligations in circumstances where the shares taken up by CLG were subject to redemption at the option of CLG (and as to which such redemption did occur). Decon says that no thought appears to have been given by the Administrators to the limits and requirements of s 256B(1) or s 257A, including, specifically, whether the share redemption materially prejudiced TFM's creditors. The share redemption appears, in this way, Decon argues, to have been a breach of directors' duties. In my view, while there may be some unanswered questions as to the process adopted which gave rise to this liability and perhaps the application of these statutory provisions ought to have been mentioned to creditors, in the end, it is quite unclear how further exploration of this issue is likely to be of greater benefit to creditors. 161 KRI was the guarantor for obligations owed by TFM to CLG concerning the Epping Development in which both entities had a direct interest. Nevertheless, CLG was not recorded as a creditor in the KRI Report. 162 At [18] to [21] of the POC, Decon asserts Transactions warranting investigation 18. On or about 3 April 2018, TFM entered into a share subscription agreement with CLG Corporate Pty Ltd and Eric Zhang valued at $8.3 million by which CLG Corporate Pty Ltd agreed to pay $8.3 million to TFM to subscribe for shares in TFM. 19. By about October 2018, TFM had purported to repay to CLG Corporate the money paid under the share subscription agreement pleaded above in paragraph 18 (probably using money borrowed from another lender). 20. On or about 22 October 2018, KRI (as borrower) entered into a loan agreement with [Atlas] valued at $15,000,000 secured by mortgages over the Epping Development which was used to repay a loan of $10,000,000 from [Atlas] to TFM which had been secured by a share mortgage over the shares in TFM (but not over any property owned by TFM or KRI). 21. On or about 27 November 2018, TFM and KRI (as guarantors) entered into a loan agreement between Shanghai Yilian Investment Management Co Ltd (as lender) and Tasman Funds Management Pty Ltd (as borrower) valued at $4,751,455 secured by mortgages over the Epping Development. 163 The circumstances referred to at [18] and [19] of the POC are addressed in the Creditors' Reports as follows: (a) on or about 3 April 2018, TFM obtained $8.3 million under the CLG Share Agreement; (b) of the $8.3 million obtained, $6,937,576.18 was received by TFM and the balance accounted for brokerage and other fees, professional costs, and an advanced calculation of a preferred dividend; (c) $119,601 of the $6,937,576.18 was used to pay interest, costs, and expenses to Ms Weili Jia; (d) the remaining $6,720,000 was used to pay down the obligation owed by Tasman Funds to Shanghai Yilian; (e) in the CLG Share Agreement, cl 4.1(e) obliged TFM to redeem the shares; (f) clause 5.1 provided that redemption was to occur on the earlier of 10 business days after CLG notified TFM of an event of default or on the 'Redemption Date'; (g) clause 12.1 of the Agreement defines the term 'Redemption Date' as 'the date that is six (6) months after the date of this document', which was 3 October 2018; (h) in or around October 2018, TFM and KRI obtained a loan from La Trobe Financial Management Ltd in the amount of $10,510,000 - part of which was used to satisfy the abovementioned redemption condition; and (i) the reference in the TFM Report to funds being used to discharge the 'CLG Facility' ought to be a reference to satisfaction of the redemption obligation - but this distinction is immaterial. 164 In these circumstances, it is difficult to see how any further investigation or interrogation of the transaction concerning CLG presents any realistic prospect of a better return to creditors in a winding up scenario than that presented by the DOCAs.

The Atlas Loan Facility 165 As noted above (at [132]), Atlas is an unrelated secured creditor of the companies, who, on the same date as the Administrators' appointment, appointed receivers and managers to the companies. At [20] of its POC, Decon pleads KRI's entry into a loan agreement with Atlas secured by mortgages over the Epping Development and valued at $15 million as one of a number of 'relevant transactions' that ought be investigated further. It says the loan to KRI appears to have been applied to repay a $10 million loan that Atlas advanced to TFM, which was secured by a mortgage of shares to TFM. 166 Decon did not press this issue further at the hearing and in any event, the Administrators' treatment of Atlas as a secured creditor is clearly accurate. Their reasons for this position are recorded in the Creditors' Report and are as follows: (a) on or about 22 October 2018, KRI entered into a second loan with Atlas called a 'Facility Agreement' (Atlas Loan 2); (b) cl 1.1 of the Atlas Loan 2 defines the term 'Facility Limit' as 'AU$15,000,000' which was to be made available to KRI pursuant to clause 2; (c) whilst part of the funds made available pursuant to Atlas Loan 2 were used to pay off an existing liability to Atlas in the amount of $10 million, a further $4,867,590 was required to pay off accrued interest to Atlas, accrued interest to United Investment Holding Pty Ltd (one of the initial lenders who partially funded the land acquisition), a partial loan repayment to Ms Weili Jia (including accrued interest), a GST remittal to the Australian Taxation Office and other interest charges; (d) Atlas was a third-party lender at arm's length and has no relationship to TFM or KRI; (e) any successful challenge to Atlas' security would cause whatever would have otherwise flowed to Atlas to flow to the next ranking secured party (likely TDH depending on the resolution of the dispute between TDH and Decon). Regardless of which of the secured creditors takes next priority, there would be no conceivable return to unsecured creditors; and (f) no one has challenged the appointment of receivers by Atlas. 167 Once again, the Administrators contend, and I accept for the same reason, that in these circumstances it is difficult to see how any further investigation or interrogation of the transaction concerning Atlas presents any realistic prospect of a better return to creditors in a winding up scenario than what is presented by the DOCAs.

The Shanghai Yilian Loan 168 In relation to the description and treatment of the Loan from Shanghai Yilian, at [48], [49], [61] and [62] of the POC, Decon asserts: 48. The TFM Report stated that Shanghai Lilian Investment Management Co Ltd was a secured creditor of TFM in the amount of $1,404,000. 49. At the time of the TFM Report, Shanghai Lilian Investment Management Co Ltd was not a creditor of TFM. … 61. The KRI Report stated that Shanghai Yilian Investment Management Co Ltd was a secured creditor of KRI in the amount of $1,404,000. 62. At the time of the KRI Report, Shanghai Yilian Investment Management Co Ltd was not a creditor of KRI. 169 It will be recalled that on 27 November 2018, TFM and KRI (as guarantors) entered a loan agreement between Shanghai Yilian (as lender) and Tasman Funds (as borrower) valued at $4,751,455. In December 2018, Shanghai Yilian registered mortgages over seven apartments in the Epping Development by way of security (see above at [30]). In reality, the Shanghai Yilian Loan appears to have formalised Shanghai Yilian's intent to continue its line of credit to Tasman Funds following a default on repayment of a loan of $11.7 million that was entered into via a 'Cooperation Deed' in October 2015 to finance the purchase of the Epping Development land. The practical effect therefore, of the Shanghai Yilian Loan was to adjust the amount owing by Tasman Funds and grant Shanghai Yilian security over the apartments owned by TFM. 170 As deposed to in the First Melluish Affidavit, in the Report on Company Activities and Property (ROCAP) for TFM, the director, Mr Guoqiang Zhang recorded Shanghai Yilian (referred to in the document as United Investment) as a secured creditor for $1,511,740.11. In the Creditors' Reports, the Administrators listed Shanghai Yilian as a secured creditor of both companies in the full amount of its proof of debt, by which Shanghai Yilian claimed $1,404,000 in the administration. 171 The Administrators accept that Shanghai Yilian was inadvertently and incorrectly recorded as a secured creditor of KRI in the KRI Report when it ought to have been recorded as an unsecured creditor on the basis that KRI only guaranteed the TFM debt to Shanghai Yilian. However again, this error was not reflected in the quantification of the likely return to unsecured creditors. In the Creditors' Reports, the Administrators calculated that after realising the value of its security against TFM, Shanghai Yilian would be entitled to prove as an unsecured creditor of both companies in the shortfall amount of $223,091. 172 Again, the Administrators contend that the actual and relevant circumstances concerning Shanghai Yilian (as referred to at [21] of the POC), are addressed in the Creditors' Reports , the relevant circumstances (as foreshadowed above) being that: (a) a loan was initially procured from United Investments for Tasman Funds in the sum of $11.7 million which became an obligation owed by Tasman Funds to Shanghai Yilian (whether by formal novation or otherwise); (b) whether by 'supplemental deed' (being a reference to a document not in evidence) or by 'Loan Agreement', TFM and KRI became corporate guarantors of the debt owed by Tasman Funds to Shanghai Yilian; (c) in addition to becoming corporate guarantors, Shanghai Yilian was granted security as a consequence of a previous failure by Tasman Funds and TFM (as guarantor) to adhere to their repayment obligations under the 'supplemental deed'; (d) the security was conferred from TFM to Shanghai Yilian over eight apartments of which two remained unsold as at the time TFM entered voluntary administration; (e) the estimated realisation of the properties the subject of the security will likely result in Shanghai Yilian being able to prove as an unsecured creditor in both the TFM and the KRI administrations for $223,091; (f) the TFM Report disclosed the circumstances surrounding the Shanghai Yilian position as a creditor of TFM at clause 12.7.2 concerning 'Uncommercial Transactions' - namely, that on and from 27 November 2018, Shanghai Yilian became a secured creditor of TFM; (g) the TFM Report disclosed that the difficulty with pursuing or further investigating the dealings with Shanghai Yilian is that they appear to have arisen in October 2018 where, in the view of the Administrators, TFM and KRI were not insolvent until somewhere between June and September 2019; (h) it is not clear why the relationship between TFM, KRI and Tasman Funds is relevant when Tasman Funds is not seeking to prove in the administration of either TFM or KRI and, on no view is Shanghai Yilian a 'close associate' of TFM or KRI (or Tasman Funds) for s 588FDA of the Corporations Act purposes; and (i) insofar as the grant of security (and indeed the assumption of obligations by way of agreeing to guarantee debt owed by Tasman Funds to Shanghai Yilian) is concerned, the Administrators proceeded on the basis that it was appropriate for TFM and KRI to assume such obligations in circumstances where both TFM and KRI had a direct and material financial interest in, and derived a benefit from, their respective interests in the Epping Development. 173 It is the latter point to which Decon takes exception in particular, and much of its complaint on this and other topics turns on a submitted failure to recognize the different obligations and entitlements of different corporate entities even if they were all in the same group. 174 The Administrators' view remains that whatever the mechanism of borrowing, TFM's secured obligation arises from the purchase of the land used for the Epping Development in which TFM and KRI had a 'direct and material financial interest'. 175 The difficulty, in my view, with the complaints raised by Decon is that, in circumstances where the $11.7 million borrowed by Tasman Funds was for the benefit of TFM and KRI acquiring the land the subject of the Epping Development, it is difficult to see how a failure of Tasman Funds to pay off that debt is something that TFM or KRI could ignore where Tasman Funds could and would, presumably, turn to TFM and KRI for recoupment as the parties who benefitted from the advance of those funds in the first instance. It is difficult to see, particularly having regard to the dates of the transactions, how any further investigation or interrogation of the transactions concerning Shanghai Yilian presents any realistic prospect of a better return to creditors in a winding up scenario than what is presented by the DOCAs. 176 Further, the consideration of challenging the arrangements which had been put in place with Shanghai Yilian was set out in the TFM Report. TFM's creditors voted the way they did in any event.

The Weili Jia Loan 177 Amongst the complex transactional history for assessment by the Administrators was the circumstance of a loan from Ms Weili Jia. Decon complains that the unsecured loan from Ms Weili Jia could be an uncommercial transaction. 178 At [22], [46] and [47] of the POC Decon contends: 22. The Administrators contend that on about 22 February 2019 TFM entered into a deed by which TFM assumed obligations owed by KRI to [Ms] Weili Jia (or "Weili Jila") in circumstances in which the existing debt was owed by only KRI to Weili Jila. … 46. The TFM Report stated that [Ms] Weili Jia (or "Weili Jila") was an unsecured creditor of TFM in the amount of $4,307,224.89. 47. At the time of the TFM Report, [Ms] Weili Jia was not a creditor of TFM or, if [Ms] Weili Jia was a creditor, [Ms] Weili Jia's claim arose in circumstances pleaded in paragraph 22 without disclosure of those circumstances. 179 As to [46] and [47] of the POC, it was appropriate for the Administrators to admit Ms Weili Jia as a creditor of TFM as there was evidence to support the debt. The circumstances concerning Ms Weili Jia are addressed in the Creditors' Reports and, the Administrators contend, do not give rise to any clearly identifiable voidable transaction claim, the relevant circumstances being that: (a) on or about 13 February 2018, KRI borrowed the amount of HK$30 million (being the equivalent of approximately AU$4,980,000) from Ms Weili Jia and Yanping Zhu (the Weili Jia Loan) to partly satisfy loan obligations owed to Shanghai Yilian; (b) the Administrators were provided with evidence to substantiate the making of the abovementioned loan; (c) an extension agreement in respect of the above loan arrangements was entered on or about 22 February 2019, where TFM agreed to also become a borrower in respect of the Weili Jia Loan (Weili Jia Extension); (d) pursuant to the Weili Jia Extension, the term of the underlying loan (at that stage HK$23 million) was extended to 31 March 2020; (e) the inclusion of TFM as a borrower under the Weili Jia Extension is not unusual in circumstances where the borrowers were seeking an extension of credit and the lender had sought to have recourse against TFM, as a borrower, and additional comfort was provided from TDH, who is also a party to arrangements with Ms Weili Jia, as guarantor; (f) prima facie, the Administrators contend, there is no wrongdoing where one company provides security for, or guarantees, another's debts when operating in a corporate group and particularly where they are engaged in a common endeavour; (g) these circumstances, amongst others, were explained in correspondence from the Administrators' solicitors to Decon's solicitors prior to the second meeting of creditors; (h) the fact that the copy of the Weili Jia Extension cited by the Administrators was not executed by Ms Jia does not, at least, prima facie, detract from the fact that she has acted in accordance with the terms of the agreement by forbearing any enforcement action against KRI and where she had lodged a proof of debt in the administrations of both TFM and KRI; and (i) in respect of whether or not TFM or KRI ought to have borrowed money from Ms Jia in the first instance, having regard to the fact that the monies borrowed were used to satisfy the debt owed to Shanghai Yilian by Tasman Funds, the position is the same as the Shanghai Yilian Loan, namely, that: (i) it was appropriate for TFM and KRI to assume such obligations in circumstances where both TFM and KRI had a direct and material financial interest in, and derived a benefit from, their respective interests in the Epping Development; and (ii) in circumstances where the $11.7 million borrowed by Tasman Funds was for the benefit of TFM and KRI acquiring the land the subject of the Epping Development, it is difficult to see how a failure of Tasman Funds to pay off that debt is something that TFM or KRI had the option of ignoring when Tasman Funds could and would, presumably, turn to TFM and KRI for recoupment as the parties who benefitted from the advance of those funds in the first instance. 180 It is difficult to either identify any material error or to see how any further investigation or interrogation of the transaction concerning Ms Weili Jia presents any realistic prospect of a better return to creditors in a winding up scenario than what is presented by the DOCAs.

The Binah Group Loan 181 As to the Binah Group, Decon also contends that a purported loan between Binah Group and TFM could constitute an uncommercial transaction within the meaning of s 588FB of the Corporations Act which provides: 588FB Uncommercial transactions (1) A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to: (a) the benefits (if any) to the company of entering into the transaction; and (b) the detriment to the company of entering into the transaction; and (c) the respective benefits to other parties to the transaction of entering into it; and (d) any other relevant matter. (2) A transaction may be an uncommercial transaction of a company because of subsection (1): (a) whether or not a creditor of the company is a party to the transaction; and (b) even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency. 182 At [23] of the POC Decon argues that On or about 1 March 2019, TFM (as borrower) entered into a loan agreement with Binah Group Pty Limited valued at $364,525 secured by a mortgage over the Epping Development and which was of no apparent benefit to TFM. 183 The Administrators argue that even if the transaction itself would otherwise fit the requirements of s 588FB of the Corporations Act the transaction was entered into prior to the time when, on the Administrators' assessment, TFM and KRI became insolvent (namely, at some time between June and September 2019). 184 Further, based on the investigations conducted by the Administrators during the course of the administrations, the circumstances referred to at [23] of the POC were of little moment in that TFM never made any draw down on the loan and no monies were ever actually lent. 185 Specifically the Administrators say, on the basis of TFM's books and records which accorded with what was advised by the companies' financial controller, Ms Yvonne Liu, whilst TFM did enter into a loan agreement with Binah for $364,525, TFM did not ever draw down on the loan and there was no amount outstanding and owing to Binah at the time of the TFM Report. It appears that TFM asked Binah for evidence of the debt in January 2020 with no response being received. 186 On 4 September 2020, Decon provided the Administrators with an email from Binah Group's solicitors to Decon's solicitors, dated 19 February 2020 which indicates that, in fact, a principal amount of the loan in the sum of $364,525 remains outstanding. The Administrators sought an explanation from TFM in that regard and TFM's position remains that neither entity is indebted to Binah. The Administrators' view is that the inclusion of such a debt would be unlikely to materially affect the estimated dividend distribution between a DOCA and liquidation scenario. 187 Again, the Administrators contend, and I agree, that in these circumstances, it is difficult to see how any further investigation or interrogation of the transaction concerning Binah presents any realistic prospect of a better return to creditors in a winding up scenario than what is presented by the DOCAs.

Guarantees for TFM Rushcutters Bay 188 Decon argues that TFM and KRI guaranteed and provided security for debts owed by TFM Rushcutters Bay which, it is said, appear to be related party transactions and an uncommercial transaction. 189 At [24] and [25] of the POC Decon contends: 24. On or about 11 July 2019, TFM and KRI (as guarantors) entered into a loan agreement between Secured Lending 1 Pty Ltd, Longevity Property Pty Ltd, ALS256 Pty Ltd, ALS257 Pty Ltd (as Lenders), and TFM Rushcutters Bay Pty Ltd (as Borrower) valued at $23,325,000 secured by mortgages over the Epping Development and which was of no apparent benefit to TFM. 25. On or about 10 September 2019, TFM and KRI (as guarantors) entered into a loan agreement between ALS256 Pty Ltd and ALS257 Pty Ltd (as lenders) and TFM Rushcutters Bay Pty Ltd (as borrower) valued at $23,325,000 secured by mortgages over the Epping Development and which was of no apparent benefit to TFM or KRI. 190 The Administrators' position, in respect of [24] and [25] of the POC is that: (a) [24] and [25] of the POC correctly identify TFM and KRI as guarantors (and not primary borrowers) of loan agreements entered with the parties set out in those paragraphs (respectively, Loan 1 and Loan 2); (b) the Administrators have identified the receipt by TFM of $650,000 from the solicitors for the lenders identified in [24] and [25] of the POC; (c) the TFM Report discloses that the lenders in respect of Loan 1 have not responded to requests for further information concerning their secured position; and (d) on 23 August 2019, the Loan 1 lenders were paid $630,957 from the sale of unit 42 in the Epping Development. The balance of $41,242 owing was paid on or about 3 October 2019 from a loan from 'ALS283 Pty Ltd' and 'ALS256 Pty Ltd' referred to in the TFM Report as 'Assetline'; in any event, and regardless of whether TFM and KRI guaranteed Loan 1 and Loan 2 - or both, the Administrators were made aware that: (e) there is no debt owing to the Loan 1 lenders or the Loan 2 lenders - a matter disclosed in the Creditors' Reports; and (f) there is no underlying debt owed by the primary borrower, TFM Rushcutters Bay Land Pty Ltd, which might otherwise trigger the guarantee. 191 In these circumstances, the Administrators suggest and I accept, giving due weight to their relevant expertise, that it is difficult to see how any further investigation or interrogation of the transactions concerning TFM Rushcutters Bay presents any realistic prospect of a better return to creditors in a winding up scenario than what is presented by the DOCAs.

The TDH Loans 192 At [26] and [27] of the POC Decon asserts that 26. On or about 22 November 2019, TFM (as borrower) entered into a loan agreement with TDH (as lender) valued at $3,254,099.86 secured by mortgages over the Epping Development and which was of no apparent benefit to TFM. 27. Further, at some point presently unknown to the Plaintiff, each of TFM and KRI entered into loan agreements and/or borrowed money from TDH such that, as at about 30 June 2020: a. TFM owed $3,254,099.86 to TDH; and b. KRI owed $2,376,808.43 to TDH, and with no apparent benefit to TFM or KRI. 193 Decon, effectively, contends that the loans from TDH are related-party transactions, uncommercial transactions, or unreasonable director-related transactions. The Administrators' position is that circumstances referred to at [26] of the POC were addressed in the TFM Report and the circumstances referred to at [27] of the POC were addressed in the KRI Report. The Administrators' view is that: (a) TDH and TFM are indeed related parties; (b) the advances made from TDH to TFM appear to have begun in June 2015 and were initially on an informal basis without the benefit of any documentation or formal agreement between TDH and TFM (but being recorded in accounting entries); (c) the advances made from TDH to KRI appear to have begun in December 2017 and were initially on an informal basis without the benefit of any documentation or formal agreement between TDH and TFM (but being recorded in accounting entries); (d) in respect of TFM: (i) on or about 18 October 2019, TDH and TFM entered into a loan and related security agreement which addressed past and future borrowings (the TFM-TDH Loan); (ii) the facility offered by TDH to TFM pursuant to the TFM-TDH Loan was on an 'as requested' basis capped at the 'principal sum'; (iii) the 'principal sum' at the time of entering the agreement was in the amount of $11,891,313.44; (iv) a ledger containing the dates of the various advances made by TDH to TFM up to the date of the Loan is set out at Sch 2 to the Loan; (v) the Administrators have seen payment receipts which corroborate the account which appears at Sch 2 of the TFM-TDH Loan; (e) in respect of KRI: (i) on or about 18 October 2019, TDH and KRI entered into a loan and related security agreement which addressed past and future borrowings (the KRI-TDH Loan); (ii) the facility offered by TDH to KRI pursuant to the Loan was on an 'as requested' basis capped at the 'principal sum'; (iii) the 'principal sum' at the time of entering the agreement in the amount of $2,756,103.16; (iv) a ledger containing the dates of the various advances made by TDH to KRI up to the date of the Loan is set out at Sch 2 to the Loan; (v) the Administrators have seen payment receipts which corroborate the account which appears at Sch 2 of the KRI-TDH Loan; (f) from the Administrators' investigations, the purpose of the related party borrowing by TFM and KRI was to provide working capital for use in the Epping Development, namely, to meet the ongoing holding costs, ongoing interest charges under various other loan arrangements and the costs of ongoing litigation and solicitor fees; (g) the TFM Report discloses that the dealings between TDH and TFM may give rise to: (i) an unfair preference claim to the value of $277,231; and (ii) an uncommercial transaction claim in the circumstances described in this way in the TFM Report: The granting of the security to TDH may be classified as an uncommercial transaction only in so far as it secures any amount greater than $830,282.99 plus interest at 15%. Notwithstanding this, should TDH's claim be limited to $830,282 plus GST, I have calculated in section 8.8 of this report that there is estimated to be a deficiency to ALLPAAP creditors. (h) a similar disclosure appears in the KRI Report: (i) a related-party voidable transaction claim pursuant to s 588FE(4) of the Corporations Act with a potential value of $69,856.62; (ii) an uncommercial transaction claim qualified in the KRI Report in the following way: The granting of the security to TDH may be classified as an uncommercial transaction only in so far as it secures any amount greater than $10,000 plus interest at 15%. However, my review has revealed that although the 22 apartments remain unsold, all of these properties are subject to a mortgage held by a financier, which has priority over the TDH security. Accordingly, I do not consider that TDH will derive any benefit from being granted the security. 194 In respect of what, if any, effect a setting aside of the grant of a security interest to TDH over the eight relevant apartments would have, it is unlikely, in the Administrators' submission which I accept, that this would improve the return to unsecured creditors in either a DOCA or liquidation scenario and could potentially worsen the position because: (a) TDH would be entitled to prove for its debt (whether secured or unsecured) in a liquidation scenario - a circumstance which does not arise under the DOCAs; (b) under the DOCAs, should TDH prevail in establishing a security interest over the eight properties the subject of Decon's caveat claim then unsecured creditors stand to benefit from 50% of the net realised proceeds of those properties - a circumstance which does not arise under a liquidation scenario; and (c) in any event, if either TDH or Decon prevail in respect of the caveat contest between them, there will be no funds flowing to unsecured creditors as other ALLPAAP security interest holders who have suffered a deficit on their security will be the next in the priority waterfall to recover ahead of ordinary unsecured creditors. 195 It is difficult to see how any further investigation or interrogation of the transaction concerning TDH presents any realistic prospect of a better return to creditors in a winding up scenario than what is presented by the DOCAs. Potential recoveries against TDH were brought to the attention of the voting creditors prior to the second meeting of creditors and the creditors voted in the way that they did in any event.

Findings on the relief sought by Decon 196 I have discussed the question of onus above (at [125]). It is not incumbent on an administrator to prove the sufficiency of their report. In cases such as the present, an estimated comparison between the outcome of the DOCA and the likely outcome of a liquidation is relevant to the exercise of the Court's discretion. This comparison requires analysis of the position of the company as at the time of the making of the application. 197 In circumstances where no contrary analysis has been presented as to the return to creditors on a liquidation as opposed to the return under the DOCAs, and given the explanations provided by the Administrators, it is difficult to be satisfied that Decon is entitled to relief. However valid its suspicions as to transactions may be, it is most important to also consider the likely benefits of liquidation to creditors. 198 Decon also complains of the omission of information with reference to s 445D(1)(c) of the Corporations Act. Decon maintains in substance that certain matters were either not sufficiently investigated or omitted from the Creditors' Reports. 199 Bearing in mind throughout the need for Administrators to provide a timely and practical service, I consider that the Creditors' Reports provide a sufficient degree of detail of the funding arrangements made available by the TFM DOCA and the KRI DOCA for the Company to pursue the cross-claim. In any event, this potential recovery was immaterial to the Administrators' recommendation.

Injustice - s 445D(1)(e) 200 For the reasons set out above, contrary to [92(c)] of the POC, there is no injustice caused by creditors voting in favour of the TFM DOCA and the KRI DOCA instead of electing to further investigate and potentially pursue speculative causes of action which face uncertainties and difficulties in terms of their funding, prospects of success, and prospects of enforcement and recovery. 201 None of these matters was hidden or concealed from the creditors of either TFM or KRI and, indeed, formed the basis of the Administrators' recommendations expressed in the Creditors' Reports in the first instance.

Oppressive or unfairly prejudicial, or unfairly discriminatory against - s 445D(1)(f)(i) 202 In respect of s 445D(1)(f)(i) of the Corporations Act, and whether the DOCA is oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more creditors, the following propositions of law are applicable to the current circumstances: (a) Part 5.3A of the Corporations Act assumes that the creditors are best placed to judge their interests so a setting-aside will not be ordered lightly: University of Sydney v Australian Photonics Pty Ltd (2005) 53 ACSR 579 (at [34]); (b) the mere fact that a creditor is prejudiced by the operation of the deed is not a sufficient reason to terminate a deed. The mere existence of the deed procedure usually means that some creditors will gain something and some creditors will lose something out of the arrangement: Fleet Broadband (at [57] and the authorities cited therein); (c) the test under s 445D(1)(f)(i) is not merely discrimination or prejudice, but unfair discrimination or unfair prejudice. Some degree of discrimination is not necessarily unfair. Thus, it is clear that a DOCA may provide for differential dividends among creditors: Hamilton v National Australia Bank Ltd (1996) 66 FCR 12 (at 38E). Part 5.3A does not require a pari passu distribution. What is required is a better return to creditors than an immediate winding up. That object is met if some creditors are better off than in a winding up and none are worse off under the DOCA than they would be under a winding up: Fleet Broadband (at [62]); and (d) when deciding whether a deed unfairly prejudices or discriminates against a creditor or group of creditors, consideration must be given to what those purportedly prejudiced creditors would receive, or would be likely to receive, on a winding up, and the reasonableness of any conclusions reached by the administrator on that question: Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd (1996) 70 FCR 34 (at 50); TNT Building (at [43]). 203 In respect of determining what is unfairly discriminatory: (a) there must be reasonable grounds for differentiation between creditors of an equal class (for example, ordinary unsecured creditors) that accord with the object and spirit of Pt 5.3A: Lam Soon (at 46-48). Circumstances may exist where certain creditors must be paid in full to ensure their continued support for the company to allow it to continue to trade: Employers' Mutual Indemnity (Workers' Compensation) Ltd v JST Transport Services Pty Ltd (1997) 72 FCR 450 per Branson J (at 464-465 applying Lam Soon); (b) there will be circumstances when ordinary commercial common sense will demand, in the case of priority creditors, a loss of priority and, in the case of unsecured creditors, some degree of discrimination: Commonwealth v Rocklea Spinning Mills Pty Ltd (2005) 145 FCR 220 per Finkelstein J (at [25]); (c) where a deed proposes to preserve the company to achieve the objects of Pt 5.3A of the Corporations Act, there should be no expectation of equal treatment of unsecured creditors where such treatment would defeat that purpose: Rocklea per Finkelstein J (at [30]). (d) ultimately, if there is no prima facie evidence of misfeasance, concealment or a materially inadequate preliminary examination, and the DOCA offers both real financial benefits credibly estimated on preliminary investigation to exceed those available on liquidation, and indirect or collateral benefits from the survival of the company's business; and no worthwhile avenues for further recovery in liquidation are identified, a major creditor's curiosity or preference for further exploration of speculative claims is unlikely to render termination of the DOCA in the interests of the creditors as a whole: Mediterranean Olives (at [195]). 204 In terms of unfair discrimination, none of the concerns surrounding different treatment of the dissenting creditors which arise where a DOCA attempts to deviate from the usual pari passu distribution to creditors of the same class, arises in the present case.

Contrary to the interests of the creditors of the company as a whole - s 445D(1)(f)(ii) 205 It follows that for these reasons, and particularly in respect of s 445D(1)(f)(i), contrary to [92(e)] of the POC, the TFM DOCA and the KRI DOCA are not contrary to the interests of the creditors of the company as a whole. The Administrators' well-founded position is that the unsecured creditors are likely to receive a higher return under the DOCA than if the company proceeds to a liquidation.

Commercial morality - s 445D(1)(g) 206 In relation to [92(f)(i)] of the POC, the circumstances concerning the investigation of the 'relevant transactions' are dealt with above (at [160]-[195]). The Administrators' position is that there is no obvious basis for the provisions of s 445D(1)(g) to be invoked. I accept this contention for the reasons stated in relation to each of the transactions that Decon seeks to impugn.

Relief pursuant to s 75-41 207 At [91] of its POC, Decon alternatively seeks relief pursuant to s 75-41 of the Insolvency Practice Schedule setting aside each of the TFM DOCA Resolution and the KRI DOCA Resolution. 208 As noted above (at [77]), s 75-41 of the Insolvency Practice Schedule provides as follows: 75‑41 Outcome of voting at creditors' meeting determined by related entity - Court powers Application of this section (1) This section applies if, on the application of a creditor of a company under external administration, the external administrator of the company or ASIC, the Court is satisfied of the following matters: (a) a proposal has been voted on by creditors (either at a meeting of the creditors or under section 75-40 without a meeting); (b) if the vote or votes that a particular related creditor, or particular related creditors, of the company cast on the proposal had been disregarded for the purposes of determining whether or not the proposal was passed, the proposal: (i) if it was in fact passed - would not have been passed; or (ii) if in fact it was not passed - would have been passed; or the question would have had to be decided on a casting vote; (c) the passing of the proposal, or the failure to pass it, as the case requires: (i) is contrary to the interests of the creditors as a group or of that class of creditors as a group, as the case may be; or (ii) has prejudiced, or is reasonably likely to prejudice, the interests of the creditors who voted against the proposal, or for it, as the case may be, to an extent that is unreasonable having regard to the matters in subsection (2). Unreasonable prejudice to interests of creditors - matters to be taken into account (2) For the purposes of subparagraph (1)(c)(ii), the matters are: (a) the benefits resulting to the related creditor, or to some or all of the related creditors, from the proposal if passed, or from the failure to pass the proposal, as the case may be; and (b) the nature of the relationship between the related creditor and the company, or of the respective relationships between the related creditors and the company; and (c) any other relevant matter. Court may make orders (3) The Court may make one or more of the following: (a) an order that the proposal be considered and voted on at a meeting of the creditors convened and held as specified in the order; (b) an order directing that the related creditor is not, or such of the related creditors as the order specifies are not, entitled to vote on: (i) the proposal; or (ii) a resolution to amend or vary the proposal; (c) if the proposal was passed - an order setting aside the resolution passing the proposal; (d) such other orders as the Court thinks fit. Definition-related creditor (4) In this section: 'related creditor', for the purposes of a vote, in relation to a company, means a person who, when the vote was cast, was a related entity, and a creditor, of the company. 209 In respect of s 75-41(1)(c), in Re Iris Diversified Property Pty Ltd (in liq) [2018] NSWSC 834, Black J stated (at [29]): … having regard to the matters specified in s 75-41(2). The case law in respect of former s 600A of the Corporations Act 2001 (Cth) suggests that unreasonable prejudice and not merely prejudice is likely required to satisfy this paragraph: Deputy Commissioner of Taxation v Portinex Pty Ltd [2000] NSWSC 99; (2000) 156 FLR 453; 34 ACSR 391 at [89]-[92]. … 210 In respect of s 75-41(1)(b), contrary to [79] and [87] of the POC, had the vote of related party creditors been omitted such that the Administrators would have had to exercise a casting vote, the Administrators say they would have exercised that vote in favour of the passing of the TFM DOCA Resolution and the KRI DOCA Resolution consistent with their recommendations in the Creditors Reports and having also considered the matters raised in the POC. 211 As to the application of (now repealed) s 600A of the Corporations Act (the predecessor provision to s 75-41), in DSG Holdings, Leeming JA (Meagher JA and Bergin CJ in Eq concurring at [1] and [144], respectively) emphasised that the Court needs to take into account the interest of creditors in their capacity as creditors (at [79]-[81]): 79 There is an important consequence flowing from the fact that the principles governing class definitions in schemes do not apply. It was well put by David Richards J, of the comparable English legislation, in Re T&N Ltd [2004] EWHC 2361 (Ch); [2005] 2 BCLC 488 at [81]: "The crucial difference with a [creditors' voluntary arrangement as opposed to a scheme] is that there is just one meeting of creditors, so that necessarily means that there may be sub-groups who would constitute separate classes for a scheme." 80 That is to say, the premise of the new procedure is that creditors will be able to meet and vote on their common interest in the company executing a deed of company arrangement or being wound up, subject to the protections given by s 600A (and s 445D). This informs the construction to be given to "interests of creditors" in this context, as considered further below. 81 In short, s 600A is part of the protection given to creditors who are disadvantaged by a deed of company arrangement (cf Young v Sherman [2001] NSWSC 1020; 40 ACSR 12 at [73]). The legislation contemplates that a related entity may vote decisively on certain specified matters (resolutions to wind up a company, or to execute a deed of company arrangement, or other votes under Pt 5.3A) together with other creditors. The effect is that a discretion is conferred upon the Court to set aside the outcome, or require a further vote, perhaps under different conditions. That reflects a legislative recognition that the reasons for the voting of related entities may diverge from those of other creditors, in a way that should be subjected to curial oversight. However, the fate of the company and its creditors insofar as it is determined by the deed of company arrangement is determined by those creditors voting in a single group, even though those same creditors would, if they were asked to approve a scheme of arrangement, meet and vote in separate meetings. 212 In the present case, it has been demonstrated that the DOCAs are not oppressive or unfairly prejudicial or discriminatory for the purpose of s 445D(1)(f)(i). As noted by Brereton J in respect of the former s 600A in Re Connections Total Fitness for the Family Pty Ltd [2014] NSWSC 75 (at [42]-[43]) there is significant overlap and parity of consideration between the provisions: 42 … However, the similarity between s 445D(1)(f) and s 600A(1)(c) means that what is prejudicial to an unreasonable extent under the latter is likely also to be unfairly prejudicial or unfairly discriminatory under the former. Moreover, if one were to conclude that the deed, if executed, would be liable to be terminated under s 445D, that could be very relevant to what consequential orders should be made under s 600(2). 43 Whether a deed of company arrangement is oppressive or unfairly prejudicial or discriminatory is determined primarily by reference to the general principles underlying Part 5.3A, including, first, the creditor's right to be paid or to have the company wound up or to have the company administered by an administrator in a way that will see creditors paid from the company's property [Re Bartlett Researched Securities Pty Limited (1994) 12 ACSR 707, 710; Hagenvale Pty Limited v Depela Pty Limited (1995) 17 ACSR 139; 151; Molit (Number 55) Pty Limited v Lam Soon Australia Pty Limited (Administrator Appointed) (1996) 19 ACSR 160; Winterton Constructions Pty Limited v MA Coleman Joinery Co Pty Limited (1996) 20 ACSR 671; Sydney Land Corporation Pty Limited v Kalon (1997) 26 ACSR 427; affirmed (1998) 26 ACSR 593; Fleet Broadband Holdings v Paradox Digital Pty Limited (2005) 228 ALR 598]. In Sydney Land Corporation v Kalon, Young J put it in these terms (at 430): Accordingly when one is looking at what is oppressive or unfairly prejudicial under section 445D, one looks at it in the background of the general right of a creditor to be paid or to wind the company up or to have the company administered by the administrator under the deed in a way which keeps the company's business going and will see the creditor paid something out of the property of the company. If a scheme and a deed deviates from that, then a creditor is more easily able to say that it's operating oppressively than otherwise. 213 For these reasons, the passing of each of the TFM DOCA Resolution and the KRI DOCA Resolution was not unreasonably prejudicial within the meaning of, and for the purpose of s 75-41(1)(c).

Removal of the Administrators - s 446AA 214 In the event that Decon had been successful in its arguments for termination of the DOCAs under s 445D (which it has not), Decon also sought the removal of the Administrators and the appointment of new liquidators in the winding up that would be deemed by operation of s 446AA of the Corporations Act. In any event, I consider that the removal of the Administrators and their replacement in the circumstances of two factually detailed and complex voluntary administrations would be of detriment to the creditors of TFM and KRI on the whole, particularly in circumstances where no misfeasance or impartiality on the part of the Administrators has been made out and where their replacement would inevitably occasion duplication of costs as against limited funds. 215 In Apple Computer Australia Pty Ltd v Wily [2003] NSWSC 719 (2003) 46 ACSR 729, Barrett J stated (at [37]) (in the analogous context of s 503 of the Corporations Act concerning the replacement of a liquidator) that: It is thus clear that "cause shown" is a broad concept concerned not so much with a search for particular instances of wrong or inappropriate conduct (although a particular event of that kind may be sufficient) but with a more general enquiry into what is for the benefit of the administration and the body of persons interested in it, as well as the maintenance of confidence in the integrity, objectivity and impartiality of that administration. Removal is warranted, in a situation such as the present, if, taken as a whole, the conduct of the liquidator can be seen to be such as to ground in the mind of a reasonable observer a perception of lack of impartiality as among the interests he is committed to serve and lack of objectivity in serving those interests. 216 Similarly, in analogous circumstances in Sands Contracting Pty Ltd v Foodcorp (VIC) Pty Ltd [2020] FCA 1274 (at [79]), I recently held that (amongst the more comprehensive analysis which appears between [78] and [88]): (a) a court may remove a liquidator when it is satisfied that it is for the better conduct of the liquidation or for the general advantage of those interested in the assets of the company: (at [78]); see also Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 13 ACSR 544 (at 550); (b) the burden is on the plaintiff to establish that it is in the interests of the liquidation that the liquidators are removed: (at [80]); see also Re Keypak Homecare Ltd [1987] 3 BCC 558 (at 563); (c) it is not sufficient for a plaintiff to prefer another liquidator or to be unhappy with a liquidator's decisions: at [82]; see also Multi-Core Aerators Ltd v Dye [1999] VSC 205; (d) a Court should be cautious about making a decision to remove a liquidator: at [81]; see also AMP Music Box Enterprises Ltd v Hoffman [2002] BSC 996; and (e) it is not sufficient that a court remove a liquidator merely because of levels of feeling and rancour between parties especially where the hostility has, at all times, emanated from the party seeking the removal: at [82]; see also Multi-Core Aerators (at [48]); Re St Gregory's Armenian School Inc (in liq) [2012] NSWSC 1215 (at [29]). 217 In the present case, no basis for removal has been demonstrated, nor would the Court remove the Administrators in circumstances where, as the course of the hearing has demonstrated, there is considerable complexity to the affairs of TFM and KRI which any new appointee would need to get across.

Costs 218 The application must be dismissed. The parties will have a brief opportunity to address the question of costs. I certify that the preceding two hundred and eighteen (218) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McKerracher.